Small Cap Value Report (Tue 19 Nov 2019) - Online Scams, AO., TUNE, DIA, SRT, KAPE

19th Nov '19 by Graham Neary

35 comments 8723 reads

Morning!

This list is final:

AO World (LON:AO.)
Focusrite (LON:TUNE)
Dialight (LON:DIA)
SRT Marine Systems (LON:SRT)
Kape Technologies (LON:KAPE)

Online Scams - Jonathan Paul Brown & John Roncalli Sammon

I thought I'd share a story with you about something that happened yesterday afternoon.

Without warning, I received 8 premium text messages to my phone, for a fitness service ("Vfit Guru") that I had never heard of before and certainly didn't want to buy for €20.

If you google "Vfit Guru", you'll find that this is not a legitimate service. Most people who google it are simply trying to find out how they got scammed.

€20 is not a lot of money in the grand scheme of things. But many thousands of people across the UK & Ireland have been the victim of this sort of scam over the years, which relies on the victims not having the time or the ability to get their money back.

I'm disappointed that regulators have allowed it to happen. Here's the profile for the company which scammed me, on the Irish communication regulator's website.

The company is SP TWO LTD, registered in Milton Keynes, whose directors are Jonathan Paul Brown and John Roncalli Sammon.

SP Two's parent company is SB Media Group, also in Milton Keynes, with the same two directors. At December 2018, SB Media had retained earnings of £5.6 million. How many scam text messages is that?

I called SP Two to get my money back, and was amazed at the terrible quality of their phone line. They certainly don't want any callers!

I also emailed them, demanding a full refund. And for good measure, I contacted the communications regulator this morning, to let them know that they must stop permitting this brazen theft.

Does anybody remember Zamano (ZMNO)? It was able to make money for a while, until the introduction of PayForIt put an end to its business.

Hopefully the regulators can put an end to SB Media's business, too. Companies which charge consumers for things they never asked for should be prosecuted for theft. It's that simple. Just because it…

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FREng

19th Nov '19

I'm puzzled by this too. It's a surprise to me if a company can collect £20 just by sending you a text. Is it by replying to the text that the charge gets triggered? If so, doesn't the law require that they tell you so?

Laughton

I too am interested to know how they got Graham's money. Surely they can't just send out premium rate texts which you pay to receive to anyone otherwise they'd just send out millions of such texts to randomly generated numbers. Don't you have to reply to the text to be charged at a premium rate or subscribe to receive premium rate texts which you pay to receive?

jonno

Hi LeoInvestor

Thanks for the background on Crossrider and read across to KAPE, a company that is new to me. The scepticism about Kape's evolution detracts from the investment case for me and perhaps goes some way to explaining why the share price remains in the doldrums, despite this morning's surge?

Back to the research as they say.

Mark Carter

I am truly astounded that one can be charged a premium rate for receiving messages that one didn't even ask for. Something definitely needs to be done here.

Yet one more reason why I don't give out my mobile number on the computer. Not to Yahoo, not to Google, not to Microsoft, not to anyone. The only exception is my bank.

Damian Cannon

Very useful analysis thanks Leo.

On a similar topic Kape Technologies (LON:KAPE) is very illiquid with almost 73% of the shares held by Unikmind Holdings:

http://investors.kape.com/significant-shareholders

Now the sole beneficiary of Unikmind Holdings is Teddy Sagi:

https://www.investegate.co.uk/crossrider-plc/rns/holding-s--in-company/201601080700072120L/

It's fair to say that he has a colourful past:

https://en.globes.co.il/en/article-sagis-criminal-past-may-have-sunk-plus500-acquisition-1001083269

As such the company is uninvestable as far as I'm concerned.

Camtab

This is interesting. Every week I get a call from a variety of 08 numbers which I haven't asked for. I immediately block them but the next week I get a call from a different 08 number. I have wondered why this happens and perhaps this is the answer.

mortimer

well peterg iam now interested how do i send text to my mates and charge them for the privelege

pka

This web page has some advice on how to stop unwanted premium rate text messages:

https://www.which.co.uk/consumer-rights/advice/how-do-i-stop-unwanted-premium-rate-texts

Gromley

Wow, the team is firing on all cylinders today on providing background to Kape Technologies (LON:KAPE)

Before reading Leo’s and Damian’s observations I had a different lens through which to look at today’s acquisition.

It is well known (which does not mean true, although on this subject I think it is) that tech companies are more highly valued in the US than they are in UK.

So, when Kape are prepared to buy a US tech company for and Enterprise Value of c. £100m ($127.6m) what are the chances that they have got it for less than it was worth?

Well the Kape market cap has appreciated today by £33m, so clearly the market thinks that Kape have bought it at a discount of c. 25% which would be a fantastic achievement.

What’s the justification?

Well we are told that :

PIA is highly cash generative, generating c. US$16.3 (£12.6m) million of adjusted operational cash flow. So and EV: Op Cashflow of 7.8x (with cash conversion of over 100%)

The enlarged group is expected to generate an adjusted [2020] EBITDA of $35-38m (45-49m GBP). Based on an enlarged EV of c. £180m – that’s quite attractive at c. 4x EV:EBITDA

However, we are also told that there will be “c. 90% earnings accretion anticipated in the year ending 31 December 2020” – We are not given any clue as to what this actually means – is it “adjusted EBITDA”, real profits, EPS??

Whichever it is, I am struggling to make sense of these claims.

Prior to the acquisition Kape were forecast to make 2020 net profits of £13.4m, translating to (guess) EBITDA of c. £20m.

Synergies of c. £3m, would imply added EBITDA from PIA alone of £22-£26m – which looks a bit stretched based on the historic numbers we see.

However the market reaction seems to imply that Kape acquired this US company which will more than double its earnings from 2018 to 2020 at a 25% discount to fair value.

I’m not clever enough to understand how they have pulled that off.

Graham Neary

Good question, Laughton.

The pretext is that the victim clicks on something to request the service, while using their phone.

Once they have that pretext, they apparently have the right to send reverse charge premium text messages to your phone.

These messages are mostly spam, but will include a link to the alleged service, and a phone number to call them, if you have the energy to fight the scam.

Graham

It might be worth demanding all the data the company holds on you, as you are entitled to free under GDPR.

peterthegreat

According to the internet, Kape Technologies was founded in Israel. It also appears to have a CEO and CFO from Israel so this appears to be a foreign company, although registered in the Isle of Man. This may not be a problem but I know some investors are wary of foreign companies listed on AIM.

sharw

Agreed - the group holding company may be IoM but the list of trading companies from the latest annual report put me off, Here they are:

Lincoln Green

Hello Graham, sorry to hear about the scam and thanks for sharing it with us.

Not enough is done about these people, even when caught, they don't get put away for long enough. Have a happy thought that they are heading for hell in the next life. I had a constant, problem caller on the home phone but since I told him that in the next life he was going to hell and to think about it, the phone calls stopped.

Kape Technologies (LON:KAPE)

Blimey - so essentially an Israeli company and if that is not enough, one controlled by an ex(??)-.fraudster.
I'm so pleased I have never spent anytime looking at this before - my cup of avoidance overfloweth.

Samsgrandad

Ao World (LON:AO.)

I looked at this over the weekend having just bought a new heat-pump tumble drier from them. The service was good, easy to navigate website and a good price. Definitely a company to be wary of going belly up though with paper-thin margins and huge cash burn. Pay by credit card or Paypal to cover your risk, never debit card.

peterg

Well, mortimer, you can get some clues how to go about it here:

https://www.which.co.uk/consumer-rights/advice/im-being-charged-for-unwanted-premium-rate-text-messages

JohnEustace

I might also ponder a bit before trusting one of their VPN products to be truly private.

Michael Green

20th Nov '19

I sued a similar scam premium SMS text service and won £500. The guy still didn't pay and so I threatened criminal proceedings, at which point he of course buckled and paid but not without making a threat to my person.

RustySpanner

6th Jan '20

DIreshite (DIA)! Yes, a good name for it. While there is strong demand for LED lighting, it's hard to see why a company specialising in this technology can be so incompetent in strategy and operational management. But looking at comments in Glassdoor (https://www.glassdoor.co.uk/Reviews/Dialight-Reviews-E7797.htm) was enough to make me sell my remaining shares, which had dropped by over 60%. They had claimed problems with production outsourcing, but that shows incompetence in understanding manufacturing and operational process management requirements, resourcing these and then ensuring the reporting and acting on correct management metrics. City AM commented in May 2019 that 'Shares in lighting company Dialight soared this morning after analysts said the company is back on track following the cancellation of a failed manufacturing outsourcing contract.' Anyone buying this technology e.g. for civil engineering installations, would need to be assured of the long term viability of Dialight, a company that has been around for over 80 years. That credibility is not there so why would anyone buy from them?

Small Cap Value Report (Tue 19 Nov 2019) - Online Scams, AO., TUNE, DIA, SRT, KAPE

Online Scams - Jonathan Paul Brown & John Roncalli Sammon

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Graham Neary

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