Small Cap Value Report (Tue 19 Dec 2017) - DOTD, KOOV, NWF, KMK

18th Dec '17 by Paul Scott

31 comments 13994 reads

Good morning, it's Paul here.

Firstly, please accept my apologies for the break in coverage last week. Things are back on track now, so we'll have full coverage this week. Hopefully I'll also be able to recap on one or two interesting things from last week too.

Today I'll be reporting on results or trading updates from: DotDigital, Koovs, NWF, and Kromek.

dotDigital (LON:DOTD)

Share price: 97.0p (up 1.0% today, at 08:15)
No. shares: 295.8m
Market cap: £286.9m

AGM statement (trading update) - this company calls itself;

... the leading provider of intuitive software as a service ("SaaS") and managed services to digital marketing professionals through the 'dotmailer' platform

This share has been a long-standing favourite of mine here over the past 5 years, but (stupidly) I've always baulked at the high valuation - even when it was 17p per share! It just goes to show, that good companies grow into, and soon overtake an apparently high valuation.

The company has a 30 June year end, so today's update covers the bulk of H1 06/2018.

"The Group has seen the positive trading momentum highlighted in the 2017 preliminary results continue into the first half of the new financial year.

This progress is in line with management expectations and is driven by strong international sales and growing demand for dotmailer in the ecommerce market...

Sounds good.

Note that the company spent about half its cash pile recently, buying a group of companies called Comapi for £11m. This is a messaging software company, which seems to be in the process of being integrated into DOTD's existing software.

My opinion - this seems a quality outfit, which hasn't put a foot wrong. The market has rewarded that with a multibagger share price over the last 6 years.

The StockRank sums it up very clearly - quality & momentum, but pricey;

The interesting thing here is that bulls could argue that DOTD is only scratching the surface of its potential markets. More detail is given in today's announcement about the "Connectors" between DOTD's dotmailer platform, and ecommerce leaders such as Shopify, and Magento (which are widely used platforms for ecommerce sites).

Another impressive trait of DOTD is that its growth is…

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Wol

19th Dec '17

Pastysupper is so right. We can cope with the occasional break in transmitting because what we get from you is proven in depth analysis, independent thinking, your honest opinion and lots more.
You are worth your weight in cheese!

DWit199

Paul, if you get a chance could you cast your eye over the trading update from AIM listed soft drinks manufacturer Nichols (LON:NICL)
When I first read it I thought it was an "in-line" update but the market seems to be interpreting it as a significant profit warning. I would value your views.

Andrew L

Paul, Gocompare.com's takeover of Vouchercodes may be worth assessing? Not really sure if Vouchercodes is a fading brand? I saw the pitch for Pouch on Dragon's Den and that looks like the way things are going.

Rusty2

I think this is why the Nichols (LON:NICL) shares are down today "In our international business, we anticipate the strong growth trend in Africa to continue in 2018. However, the current conflict in the Yemen coupled with some reported slowing in the Saudi economy indicates that sales to the Middle East region in the year ahead are likely to be less than previously anticipated. As a result, management currently expects low single digit percentage profit growth in 2018 in comparison to the current year."

tony akram

Paul
Your thoughts on Nichols would be most welcome -thanks

Paul Scott

I don't know anything about Nichols (LON:NICL) and have never covered it before, so will have to decline that one I'm afraid. £575m market cap is a bit above my normal cut-off. Sorry about that.

Regards, Paul.

prem14

HI, Please could you cover the new kid on the block FAB - fusion antibodies?

johnsmith68

A very warm welcome back Paul. I concur with other commenters that absolutely no apology is necessary. I wonder if you might find time to circle back on the preliminary results from Oxford Metrics (LON:OMG) last week. The results looked positive to me but met with little response from the market until today when a 5% drop came against no new announcements. I'd really value your reading of the results announcement. Many thanks.

bobo

I used to try to compete with NWF, it was a joke, they are slow and just grow into owning more and more of a shrinking load of farmer shops/supplies. Whenever we came up with some piece of technology the attitude would be "too expensive" so we sold it to the farmers using mail order and internet. Avoid, should be private.

I used to work next to DOTD at the bottome of the last down turn and they really suffer when the market is quiet. The market opportunity is big but there are a shed load of good players with no moat available, buy for the market movements rather than underlying value

NICL has the fantastic opportunity of being the maufacturer of choice for all soft drinks during the Muslim festive month, unfortunatly this rotates each year to another month and always confuses the pundits as the business is 13 monthly operating in a 12 month world.

If you want to make money on this one buy a couple of months after EID and sell before results. Sooner a Saudi company buys them up the better. I did this for two years and made money, but the strategic message of looking for another "big bang" drink, forget it, they up against coke and pepsi. They are a niche player end of

Lennart

Paul and Graham you are providing a great service to private investor. Many thanks!!!

Last week Luceco (£LUCE) issued a profit warning. I suspect many of your followers would like to read your comments.

Len

wildshot

Graham commented on Luceco (LON:LUCE) here https://www.stockopedia.com/content/small-cap-value-report-fri-15-dec-2017-ucg-luce-ful-botb-cvr-254388/

murrb

Oxford Metrics (LON:OMG) Went ex-div at the end of last week, had large director sell and large director options exercised, about half of which were sold. Estimated EPS is reduced from 2017 to 2018 I think and as a result of this Stockopedia stock rank has dropped. Please correct me if I have got any of this wrong.

jonesj

Receivables at £7.6 million for Koovs.

I thought internet retailers got credit card payment before the goods are shipped, so what credible explanation could there be ?
Offering credit to customers when the retailer is likely to run out of cash seems daft.

Talygarn Tom

My guess is that it may have something to do with Souq.com. They have a lot of items listed on the website and it all appears to be available from stock. Could possibly be a sale or return deal. One of the reasons that Koovs have always recorded low gross margins is because they have to commit to large minimum quantities required by suppliers and then clear a lot of excess stock. They don't sell everything below cost! Can't think what else it could be.

Orangetree

I want to add a few things on Kromek:
1). Capitalisation development cost has ballooned to £11m, greater than annual sales. The condition for measuring Kromek is based on the number of units sold, regardless of profitability.
2). Annual cash burn is around £6m, but the company is good at raising money. £53m raised since 2011.

3). The market opportunity is less than £800m with market valuation at £66m. I agree with Paul that valuation is on the high side.

4). Risk: reward is 75: 25. It's not about having a large order book or even securing contracts. It's about cash profit from these contracts.

Vsihv

Don't know the company or looked at financials but if they selling on consignment basis (and it's been a long time since I had to look at revenue recognition on consignment sales) but from much forgotten memory, consigner (Koovs) should not book revenue until agent (souq.com) sells the goods. They (Koovs) would keep the inventory on their books (physical location might change and associated costs). There should not be a receivable as they get cash at time of sale from agent (unless they give credit as well as risk free stock). If anything I would expect commission payable to the agent. Like I say, I don't know the company beyond scvr so probably completely wrong!

VegPatch

Koovs (LON:KOOV) there was a comment about the large receivables in the text today

"Additionally, £5.90m (INR 516.8m) of marketing funds have been prepaid to secure significantly reduced media rates, and been recorded in the Statement of Financial Position under "Trade receivables, other receivables, prepayments and other assets".

Just all looks like pie in the sky to me. Especially when the CEO and Chairman tell you it's all going so well yet a) it doesn't even make a gross profit, 2) users are down 15% (as a result of reduced marketing?) and cash is dwindling fast.

I managed to short a measly amount at 24p today when it was only down a few % at the open. Paid for my Xmas lunch with friends tmrw. Maybe I'll increase the quality of the wine as welll...or just buy more...!

Thanks murrb. I imagine (hope) it's more to do with going ex-div as the options and director share sales didn't provoke much reaction last week. The CEO and CFO sold around half of their exercised options but the release did make the point that the net shares retained increased each director's shareholding and that the sales were for tax reasons. It didn't look great that they released such upbeat preliminaries and then the CEO, CFO and a NED all sold quite heavily the next day. Nonetheless, I remain long and was encouraged by the results and their clarity of progress towards their five-year strategic growth plan.

CMWilliamson

20th Dec '17

IIRC, Richard Whiting, CEO of NWF (LON:NWF) explains in his investor videos that their margin on the fuel business is 1p per litre. The high pass-through cost of fuel does depress the overall operating margin. However, I think the much better ROE and ROCE figures give a truer indication of the business quality. Boring it might be, but it has been going for over 100 years and the 3 arms to the business give it some resilience. Now retired, I’m happy to keep collecting the dividends

Small Cap Value Report (Tue 19 Dec 2017) - DOTD, KOOV, NWF, KMK

dotDigital (LON:DOTD)

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Paul Scott

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