Small Cap Value Report - Tue 2 July 2019 - DIA, HAT, FCH, SOLI, IMO, MLVN

Wednesday, Jul 03 2019 by

Good morning, it's Paul here.

Graham has asked me to point out that he added a big section on Creightons (LON:CRL) to yesterday's report, later than usual. In case you missed it, here is the link to yesterday's completed SCVR.

Also, Graham is intending to write some sections for today's report too, on NAR and HAT, which i will incorporate into this report when he sends his work over to me.

So it should be a bumper report by the close of play!

Please see the header for which companies I'll be looking at today. I think this also incorporates all the reader requests in the comments section, at the time of writing.

Dialight (LON:DIA)

Share price: 346p (down c.30% today, at 10:42)
No. shares: 32.5m
Market cap: £112.5m

Trading update & Directorate changes

Dialight plc (LSE: DIA.L), the global leader in LED lighting for heavy industrial applications today publishes a trading update for the year ending 31 December 2019, ahead of its half year results to be published on 5 August 2019.

There's a nice clear summary of the key points, which saves me time in having to summarise a load of narrative!


The key question then, is how does the £10-13m range for profit guidance in 2019 compare with previous guidance & broker forecasts? Since the share price is down 30% (a standard profit warning price movement), then I'm guessing it must be well below previous forecasts.

Unfortunately, I cannot find any recent broker research, so am in the dark here. Stockopedia shows a 2019 forecast for net (i.e. after tax) profit of £10.8m, before today's profit warning, which seems fairly close to the revised guidance given today, if we were to take off say 20% for tax, then £10-13m range before tax, becomes £8-10.4m profit after tax revised guidance. Compared with the £10.8m previous post-tax forecast, it doesn't look to be too bad a profit warning (although I'm working on incomplete information).

Balance sheet - I always carefully check the balance sheet of any company which has warned on profits, to see if there might be any solvency issues. We've recently seen how problems at Staffline (LON:STAF)…

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Dialight plc is a holding company. The Company manufactures and sells lighting products in the industrial market. It operates through two segments: Lighting, and Signals and Components. Its Lighting segment develops, manufactures and supplies light emitting diode (LED) lighting solutions for hazardous and industrial applications, and includes anti-collision obstruction lighting. Its Signals and Components segment develops, manufactures and supplies status indication components for electronics original equipment manufacturers, together with industrial and automotive electronic components and LED signaling solutions for the traffic and signals markets. Its LED lighting solutions include Vigilant Industrial Solutions, DuroSite Industrial Solutions and StreetSense Infrastructure Solutions. Its LED signaling solutions include transportation signals, obstruction signals and SafeSite hazardous area signals. Its indication solutions include Circuit Board Indicators and Panel Mount Indicators. more »

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H&T Group plc is a non-trading holding company. The Company provides a range of simple and accessible financial products tailored for a customer base, which has limited access to, or is excluded from, the traditional banking and finance sector. Its segments include Pawnbroking, which is engaged in providing secured loans against collateral (the pledge); Gold Purchasing, which is involved in buying Jewelry directly from customers through its stores; Retail, which is involved in retail sales of gold and jewelry, and the retail sales are forfeited items from the pawnbroking pledge book or refurbished items from its gold purchasing operations; Pawnbroking Scrap, which comprises various other proceeds from gold scrap sales other than those reported within Gold Purchasing; Personal Loans, which comprises income from its unsecured lending activities, and Other Services, which comprises third party check encashment, buyback, prepaid debit card product and foreign exchange currency services. more »

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Funding Circle Holdings Plc, formerly Funding Circle Holdings Ltd, is a United Kingdom-based company that provides capitalized lending platform. The Company provides an online marketplace that allows entrepreneurs to access funding from investors and also allows them to borrow business loans for small and medium sized enterprises. The Company’s online market place provides both secured and unsecured loans to operate businesses, get working capital, to buy assets and to develop business properties. Its marketplace offers business loans for a tenure ranging from six months to five years. The Company provides its services through its subsidiary Funding Circle Limited. more »

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  Is LON:DIA fundamentally strong or weak? Find out More »

41 Comments on this Article show/hide all

dmjram 2nd Jul 22 of 41

In reply to post #488651

I don't think it even needs Reuters input, all doable internally by Stockopedia.

Company announces results.
Stockopedia set flag/zero counter identifying new data isn't loaded.
Stockpedia increments counter at midnight each day
Stockopedia clear flag/counter when new Reuters data is loaded.

You could easily automate this by just comparing the latest results date with the last data update.

Failing that, just giving the date when the data was last updated would be a great improvement.

I'll ask formally via the query button and will report back with the response.

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Julianh 2nd Jul 23 of 41

In reply to post #488581

Apologies for a long post. This topic is (unfortunately) complicated
I agree completely with Shanklin and Si
I love Stockopedia and would not consider investing without the Stock Report by my side. But the guru screens, ranks and filters are a major part of Stocko's value. And out of date results can mean that these filters give seriously misleading results.
It is possible that one of the reasons for the slow update of small cap data is that (if I understand it right) Reuters normalise the results provided by companies, adjusting for exceptional and one off events. This normalising process should (at least in theory) be better than the 'adjusted' figures provided by many companies that often try to show their results in the most favourable light. If this is a manual process then we would expect it to take time.
However, this normalising process also creates another data problem that can also seriously impact Stock Ranks, guru screens and all the Stockopedia filters and forecasts:
* actual results (in these filters) are based on the reported accounts as normalised by Reuters
* forecasts are based on the figures provided by analysts who
- make their own assessments (often guided by management) of expected future results
- adjust these assessments to create their own versions of the 'underlying' position.
- the adjustment bases used by the analysts can at times be very different from those used by Reuters
The result of all this is that forecasts (e.g most obviously forecast eps) are often calculated on a very different basis to normalised actual eps.
E.g. I did some research on a small cap that was showing (on the stock report) expected eps growth of >50%. When I got to the analysts reports (on Research Tree) I found that the analysts were forecasting eps growth of 8%. The difference was purely in the different reporting bases used. That could have been a very bad investment. Instead it was a few hours wasted time. But unless we have access to the analysts reports private investors don't have the data to check up on these problems. And conclusions based on
* out of date results
* different reporting bases for actuals and forecasts
can result in poor investment decisions.
I have asked the Stocko boffins to look in to this several times over the last few years but with, as far as I know, no resolution to the problem.
As I say, I would not be without Stockopedia but surely they could spend a bit less time creating new and exciting information summaries and a bit more time on ensuring that the data used in calculating these summaries is accurate enough to allow us to use them with confidence.

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Edward Croft 2nd Jul 24 of 41

Hi there - I may as well step in (if you don't know me - I'm the founder here).  You do raise some very good priority points and it's important that I chat this through with you. 

Firstly - Thomson Reuters (upon whom we depend for fundamentals) do slow down in their reporting of complete, validated fundamentals as the volume of stocks reporting increases - this gets worse in heavily congested reporting periods.   There are more likely to be delays in small caps as large caps are prioritised.  We currently publish as soon as we get complette fundamentals - so we're dependent on the upstream provider.

On the other hand  - Thomson Reuters do provide automated snapshot reports that are scanned from results asap - usually within 24 hours.  Unfortunately, these have a tendency to be very incomplete and inconsistent across the market.  We've tried in the past to incorporate these, and to provide snapshot fundamentals as a result, but the quality was poor and we were under-resourced to create a good solution.   

But our ambition is growing here, as is our team, and for the last 20 months, we've been working on a massive data project to facilitate a lot more timeliness, breadth and depth across all our data.   

Here's some areas I'm looking to improve re. timeliness:

  • I want snapshot reports asap on the stocks that have reported asap.   I imagine we'll continue to show the 'complete' fundamentals as a StockReport - but have a big banner with the ability to see the 'incomplete' but more timely fundamentals asap.   We'll also allow screening on this.  
  • I want as close to real time fundamentals as possible intraday.  So when prices change, fundamentals change. 
  • I want real time prices and news too.

Rome wasn't built in a day... so I hope you can be patient while we improve this.  As mentioned - it's been a 20 month project, and will need more time. 

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BIACS 2nd Jul 25 of 41

In reply to post #488671

Hi Zipmanpeter - fair enough to point out the distinction between the bank debt and their own loan book - though I had taken a view that anyone interested in H & T (LON:HAT) would already have got comfortable with that aspect of their business given that the loan book (even prior to the acquisition) is in excess of £20m and a sizeable (and growing) part of their business. Clearly anyone not happy with the loans business (and the resulting effect on the company's accounts and reported balance sheet debt) would not want to get involved here. I view this as very different from their bank debt for obvious reasons and was excluding it from my assessment of what I consider a reasonable debt position on that basis - but perhaps I should have been more specific in my terminology and you're right that the figures given excluded any potential growth in their loan book (which will almost certainly increase from last year). In terms of whether this is good or bad - So far they are managing the loan book side of the business very well and the reason they are growing it so rapidly is that it is proving rather profitable and thusfar bad debts are being well-controlled. Best of luck with NSF and I hope this turns a corner for you.

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andyinbath 2nd Jul 26 of 41

As a lender at Funding Circle , I grew very suspicious at the very high loan default rate. I would also question the figures from the HY report out today: 'investor returns on a net basis are expected to deliver 4.4-8.4% in 2018 and 5.0-8.5% in 2019.'

My investment has actually made a loss over the last 2 years due to the high default rate - so I'm very curious to know how there are deriving those expected return figures.

The other big red flag for me is the large delays in processing withdrawal requests. It took a couple of months to withdraw the bulk of my funds, and I'm still waiting for the remaining 25%.

I am also kicking myself that I didn't short back in March when I realised all of this!

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john652 2nd Jul 27 of 41

Hi Graham,

Re H & T (LON:HAT), do you have any knowledge on the impact of the gold price on profits, this quote from the board was from 5 years ago but I don’t know current figures, but likely that cash & profit will be positively affected & give more opportunity for deleveraging:

The Board estimates that a 10% movement in the gold price will impact profit before tax by approximately £2m"

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Snoo 2nd Jul 28 of 41

In reply to post #488761

That headline figure I am sure also includes projected recoveries for Funding Circle Holdings (LON:FCH), which gives rise to such a wide range.

The loan withdrawal times are a relatively recent thing. At the start of this year, cashing out was instant. Now, we are up to around 60 days to get your money out.

I do wonder if worse is to come. 4.5% headline figure is not worth the risk considering that figure may only be accurate once recoveries kick in, so investors may wise up that this is not worth an investment. What then? The trading update mentions institutional funds but considering they are writing £1bn+ a year that isn't enough.

I think the interest rate would have to be bigger to entice more big instis. For instance, a lot of bonds are paying more than Funding Circle, ie Thames Water 5.875%. A basket of these might give a better return for less risk.

Their staff costs seem extremely high. 1,000 employees = £79k a year average, a big bulk of them must be in loans administration or sales. There must be some people there on some serious money, and undeserved at the moment, should be aligned with the business.

With the macro picture looking like it might get worse, I do think it'll be a case of the Emperors New Clothes. Banks could pick off their best clients, and send them the worst ones.

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LeoInvestorUK 2nd Jul 29 of 41

In reply to post #488726

Some crowd sourcing may help with the data. I suggest a bounty (probably free days) for error reports that meet certain quality standards (including correctness and a source for the correct info). It may also help to let people vote individual figures as correct or suspect. Really Reuters should be giving you a discount each time you point out errors in their data too...

Blog: LeoInvestorUK
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shanklin100 2nd Jul 30 of 41

In reply to post #488726

Hi Ed

Thank you for replying re the data delays in Stockopedia and your efforts to improve matters.

As well as the point I made in post 2 of this thread, I must say I strongly agree with the points raised by Julianh re the normalising of results, so that results and forecasts generated in completely different ways are presented on the same row of Stock reports in a way that (seemingly) facilitates analysis whilst in actual fact being highly misleading and leading to numbers such as PEG being incorrectly calculated.

For consensus broker forecasts to be useful we really need historic results to both be generated as is currently the case and ALSO to be generated in the same adjusted way as the forecasts. In that way, like for like comparisons are possible.

As it is, I often reject investing in companies purely because after investigating I become aware that the numbers on Stockreports are highly misleading. Of course, this does mean I tend to reject investing in companies where confusing adjustments are the order of the day which may be a good thing.

Unfortunately this stuff is not simple.

Best Regards, Martin

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Asagi 2nd Jul 31 of 41

In reply to post #488761

I am also kicking myself that I didn't short back in March when I realised all of this!

I tried around this time also but there was no borrow available with my provider i.e. I could not short Funding Circle Holdings (LON:FCH).


Asagi (no position)

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mojomogoz 2nd Jul 32 of 41

Funding Circle Holdings (LON:FCH)

Invariably the cycle tends to reveal rapid scaling in either new forms of lending or new financial institutions 'taking business' off of established players just to be vehicles that don't price risk very well. Put the two together and you have double jeopardy. High 'organic' growth from low base in loans is very unlikely to be good. Even if initial intentions are good the conflict of interest between growth and credit assessment is acute and the latter will always lose out (there's no hot hands movers and shakers in the latter...and you'll never punt an equity issuance putting your risk team and its rejection rate in front of moonbeam chasing investors)

I haven't looked at funding circle or any crowd funders sorts as its obviously a bad idea akin to originators of mortgages up to the 2008 crisis who securitised and passed on those mortgages. Those were 'efficient platform' operations too...very good at growth. After all, there's a lot of people take a loan if you're offering it particularly a 'competitive' rate.

If Funding Circle is finding that its having notifiable credit deterioration today (and not just pushing up bad debt allowances) then this suggests that the lending standards were very weak. The schtick that they were competing against the slow and old banks more efficiently and effectively can be seen to be just that the banks had some credit standards.

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AlanJenkins2 2nd Jul 33 of 41

If its any consolation,Paul,Funding Circle is very hard to short !

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Edward Croft 2nd Jul 34 of 41

In reply to post #488806

There is good news on the accounting basis for earnings. We’ve recently moved to IBES estimates as our primary source to resolve the discrepancy between historic and forecast eps for high amortisation companies. It’s  in the pipeline as an improvement for the new app - we’re waiting for our new data pipeline to come online to fully resolve this / which may be several months. At that point it will be reflected on stock reports. There’s a small chance we’ll get it done earlier.

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andrea34l 2nd Jul 35 of 41

Funding Circle Holdings (LON:FCH) - yet ANOTHER recent dud IPO with shockingly awful performance! I think one really does have to wonder about the notice for many IPOs...

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ezlifeme 2nd Jul 36 of 41

In reply to post #488856

As usual glad that you seem to be on the ball ( yes i’m watching the Lionesses as I write) with your forward thinking / planning of the Stocko subscribers experience
Looking forward to seeing the reality of your ideas

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abtan 2nd Jul 37 of 41

Re. Solid State (LON:SOLI)

I thought the results today were excellent and I am minded to top up. Some notes:

The Negatives

  • I honestly couldn't see one. I realise there have been comments online regarding the softening of order intake since March. The company stated this is due to destocking following Brexit stockpiling and as this echos what a lot of companies have been reporting, I see this as a perfectly reasonable statement.
    On a similar note, the actual overall order book is up significantly.

The Positives

  • Revenue has continued to increase across all divisions
  • Gross Margins are stable or have increased across all divisions
  • The Manufacturing Division actually posted a 5% year-on-year increase in revenues and an 8% year-on-year increase in Gross Margins in H2 (£8.1m --> £9.2m & 30% --> 38% respectively).
    Why the company didn't focus on this and sell themselves more, I have no idea as it took quite a bit of back-reading to work that out and they could have, and should have, highlighted it.
  • Highly cash generative.
    Operating cash flow before working capital movements was £4.7m.
    Capex over the last couple of years was £0.6m per year.
    Comparing those figures to a company with a market cap of around £40m and reasonable growth + growing gross margins makes it look cheap to me.

Thoughts from any other holders appreciated.


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shanklin100 3rd Jul 38 of 41

In reply to post #488856

Hi Ed

"There is good news on the accounting basis for earnings. We’ve recently moved to IBES estimates as our primary source to resolve the discrepancy between historic and forecast eps for high amortisation companies. It’s in the pipeline as an improvement for the new app - we’re waiting for our new data pipeline to come online to fully resolve this / which may be several months. At that point it will be reflected on stock reports. There’s a small chance we’ll get it done earlier."

Excellent, thank you.

Best Regards, Martin

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dmjram 3rd Jul 39 of 41

Further to above, I've had confirmation that the only way to check on whether a stock report has been updated with the latest results is to trawl through the accounts section manually to check.

Roll on the new site/features! Until then need to be wary of Stock Ranks/metrics data for recently reporting stocks and check which data set is being used as momentum rank/RS and the like will be updated immediately with post result price movement while Q and V will be lagging.

Thinking about it, I wonder if this is impacting the observed performance of high QV low M stocks, especially when screened during busy reporting periods.

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shanklin100 3rd Jul 40 of 41

A simple solution for the delay in loading results would be for Reuters to recruit a few more staff. Seems remarkably penny pinching of them to put a few quid above providing a tolerably reasonable service to all the companies that use its data.

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RustySpanner 3rd Jul 41 of 41

Re Dialight ( ) I did some work for a major UK construction company a few years ago and they were using LED lighting buildings and motorways.  This is a growing market and Dialight should have been a good bet to capture that demand.   But my share value has dropped to 25% since buying them in 2017.

Looking at employee comments on, it's clear the supply chain issues are hampering the business - no one would order for a major construction project if they were not assured of suppliers meeting delivery dates, quantities and quality.  Looking at the current board ( none of them appear to have an engineering qualification so how well do they understand their business?  

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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