Small Cap Value Report (Tue 2 June 2020) - IGP, TED, DLAR, QTX, VNET, CARD, XAR, ZTF, GMR

2nd Jun '20 by Paul Scott

55 comments 10101 reads

Good morning, it's Paul here.

As usual, this post is initially just a placeholder, to allow readers to post any early comments re the 7:00 RNS, as I write up the main article throughout the morning.

This is what has caught my eye this morning;

Intercede (LON:IGP) - final results
Ted Baker (LON:TED) - more thoughts on its placing announced yesterday
De La Rue (LON:DLAR) - more thoughts on yesterday's stellar rise in share price
Quartix Holdings (LON:QTX) - trading update
Vianet (LON:VNET) - final results
Card Factory (LON:CARD) - preliminary results
Xaar (LON:XAR) - trading update

Estimated timings - that's probably enough to keep me busy until the official finish time of 1pm, which I'll aim to achieve.
Update at 13:02 - so close, but not quite! I've done most of today's report, but want to finish off the last 3 on the list, with shorter comments after lunch. Falling asleep on the hammock again is not an option. Therefore, I'll say 4pm for final completion.
Edit at 16:12 - today's report is now finished.

Intercede (LON:IGP)

Share price: 71p (up 3% today, at 08:30)
No. shares: 50.5m
Market cap: £35.9m

(I hold a long position in this share, at time of writing)

Final Results (pdf version here with graphics))

Intercede, the leading specialist in digital identity, credential management and secure mobility, today announces its preliminary results for the year ended 31 March 2020.

Today's results statement is very detailed, giving us useful background & information about the company.

Here are the main points;

Results for FY 03/2020 are in line with last trading update

Most revenues are contracted, recurring, or repeating - many contracts with large organisations are extremely long-term in nature, with large annual support & maintenance contracts. Hence excellent visibility.

Modest increase in revenues, up 3% to £10.4m

Big increase in profitability, due to continued tight cost control - operating profit up from £59k LY, to £1,152k this time

Note large finance cost on P&L of £600k p.a. - this is mainly interest on the convertible loans, which should be repaid, or convert into equity in the future, hence this hefty cost should disappear, nicely boosting future profits

Taxation - the company receives R&D tax credits,…

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Paul Scott

2nd Jun '20

Hi sharw, re Intercede (LON:IGP)

Paul - how do you cope with this one being illiquid?

I bought most of my long position in IGP in the summer of 2018, when the turnaround plan was starting to look potentially interesting. Since then I occasionally add to the position on red days, or when the price drops sharply because someone is selling.

But I agree with you, that trying to buy on a blue day, on positive newsflow, is nigh-on impossible. Or you have to pay top dollar, and then probably watch as it falls back again afterwards.

It's just not a trading share in my view, it's a long-term buy & hold which should pay off handsomely if mgt delivers on the hoped-for ramp up in revenues. If it all fizzles out, then I'd be left high & dry, with a large, illiquid position, nursing a loss! On balance, I think risk:reward is positive, hence am happy to continue holding for the foreseeable future, or for as long as the newsflow continues improving.

Regards, Paul.

Simon,

Absolutely! If you can make money trading IGP, then good for you! I just get irritated when the price movements cause big gyrations in my portfolio valuation. But that's my problem, and on days like today, it's a nice problem!

How interesting, thanks for flagging up this one. I might have a punt on it, for a possible short squeeze.

It's on the list of stocks above.

SundayTrader

Hi Paul

Thank you for the update on De La Rue (LON:DLAR). This is a share I held long ago as a long-term investment in a quality manufacturing company, and got out of (at much higher prices than now) as problems began to emerge. Like yourself, yesterday's update triggered me into a small purchase, and I was duly gobsmacked at the price near doubling in a day. That has never happened to me before. The trading update does not mention any financials - for that we will have to wait until 17 June - I would have thought there is surely going to have to be a capital raise, but if the new CEO really has turned the corner on trading then it could be at a reasonable price. I will be interested in your thoughts as this develops.

coniston

Thanks for your views on Dlar Paull,managed to pick up some CRS yesterday who have over 19% stake in Dlar,on my quick calculations it's added around 35/40p to it's nav.

neils

Yes at one point yesterday Crystal Amber Fund (LON:CRS) showed as up 32% before dropping back but I see it’s up 17% today. Nice to have a pick up after being brutally down for a wee while!

zipstuck

I hold IGP - I think the high receivable balance refers to the large government contract awarded in March . Nothing to worry about, Tuck it away,

TamzinPiworld

Panoply Holdings (LON:TPX) webinar today, 2pm, with Neal Gandhi, CEO & Oliver Rigby CFO. Following their very positive trading update last week.

Do join , or there should be a video of the webinar in due course.

Also, we have another piworld Thursday webinar, this week 4th June, 1pm, with David Stevenson, Private Investor. The Adventurous Investor column writer for the FT, also contributor to Citywire and Money Week. He'll give his views on markets. What he's been buying/selling. And where to find income. Again, register via this link.

bohenie

Thanks David and others - its good to know I'm not the only one worrying and wondering whats going on. You are right - the growth is revenue is lacking - they put out announcements about big new contracts worth what... half a million - Come on these should be regular new buz not worth a mention...... as you say, with Amazon and Microsoft in the marketing where is the growth - well lets see when and what the annual results show !

andywillz94

my bad, should have said I look forward to your thoughts on VNET!

lestat101

With CARD it might be worth pointing out they make most of their profit at Christmas when hopefully normality may have returned. I found it odd that there was no mention in the market update of how many of their 1000 shops qualified for the 10k/25k grant per shop ( depending on rateable value ). I would have thought it would be well over half.

Looks interesting. I've not had time to look into the details, but worthy of a closer look, on a quick skim of the announcement.

Hi john652,

I've written loads of stuff about Intercede (LON:IGP) - here's the link to our archive: https://www.stockopedia.com/share-prices/intercede-LON:IGP/discussion

The short version is that there were previously lots of things wrong with the company, and the new CEO set out a very clear 3-year turnaround plan. We've now just started year 3, which is all about driving revenue growth through channel partners.

Before they could do that, the software needed a lot more development, staff had to be stabilised & incentivised, and new channel partners recruited. It was a fairly extensive sort out job! Plus of course costs had to be slashed, and the various non-core development projects had to be culled.

The proof of the pudding therefore, is if sales do kick in with strong growth. If they do, then we have a multibagger. If they don't, then it would probably fall back to the 20-30p level.

Trident

If I wasn't so underwater on Card Factory (LON:CARD), I think it would be an opportunity for a punt as a recovery stock.

I am not in the mood particularly to try and average down, until evidence of an improvement is in train. Could this be a bid prospect? It was a cash generative business when it was in its pomp, paying divis, so might be back in the sights of Private Equity or the like.

I can't help think someone will take a serious slug of it before too long.

Zipmanpeter

Re £CARD - Also worth thinking about competitor set over time. Nearest direct competitor, Clinton (9% mkt value share vs 20% for CARD) was in trouble before COVID I think. CARD's merchandising instore is so much better. Will Clinton's survive/cut back? Lots of "general merchandise independents who sell cards will go under in next 6months . In the land of the blind, will the one eyed man be king : some UK mkt share gains may be had to offset lower footfall/market size?

CARD can similarly take more advantage of non-card sales (already 46% of revenue last year) and replace some of the cheap jewelry/ paper/ballons sales in these shops also going under. Claire's nearly went in 2018 I think. With ave. lease only 2.5years they will also have a lot of chances to upgrade/ relocate /expand to better locations which is relatively cheap for them to do or to drop rent, a major cost element. Wages/staff turnover, the other long term issue that was squeezing margins is likely to be a bit quieter as unemployment rises. It is not all bad. I also like them experimenting with card rack displays elsewhere (eg Aldi, Matalan). It helps drive volumes for them/takes it from others. Lower margin but gives them options if standalone branded stores start to decline. Their announcement also said they were killing Getting Personal as a standalone 2nd brand so all the focus is now on the main brand. That's very good. However, they also hinted at more international focus. I'm worried by this at the moment. Focus should be to survive and flourish in UK again and get online moving forward.

So IF (the big IF !!) by 2021 physical cards return to anything like the >£1150Mn 2019 market in which CARD are clear leaders (and pre-covid they forecast only a CAGR decline of only 3% over next few yrs) , they should recover fast and their brand should eventually give them a cashcow to build a much bigger online share. If we say COVID has sped online development up 5 years, that still leaves them leader in a near £1bn mkt. Their vertical integrated UK cost base also makes them lowest cost producers - especially to deliver wide range of designs, no 1 consumer need according to their research. So with scale and (historically) great margins, even a permanent 20% volume reduction will leave a good if smaller business by cherry picking the best stores.

Re financials and debt - yes post covid it will be high once we reach a new normal and so divis will not be as good as before. But as long the cashflow is positive, I am sure they will get funding relatively easily. There is no big capital programme at risk. Bit dull but left to itself to grind away for a few years, I think this will recover a lot of lost ground. I bought after Feb profit warning and am not minded to sell yet.

smatthews1

Held Quartix Holdings (LON:QTX) previously but ditched it at the start of the year as I also thought it looked to expensive. Yet somehow the share price is almost back where it was, and this latest trading statement is looking rather mixed. I think this is a very valid point:

As noted on 27 April, the Company believes that the full impact on its subscription base will not become apparent until the autumn, as the UK government's financial support measures are withdrawn and as the Company's SME customers potentially exhaust their cash reserves

There is a lot of companies out there conserving their cash right now, and cutting back on costs. I wonder whether vehicle tracking systems is really essential to most business's? Really like this one and its quality metrics, but ill wait for the next set of results to give a clearer picture.

john652

Hello Paul,

I’ve just read your comments & the last few rns updates from Intercede (LON:IGP) and they read really well, as do yours of course :) and the share price does seem to tick up each time too. Would you share your findings from management tomorrow if you speak to them? They do look interesting as a a year 3 turnaround with good tech & recurring revenue.

Would you be able to ask management tomorrow & post back, on IgotpoesJacket (most unusual name here Mr Poes !! ).

Secure Multi Factor authentication is built in to a lot of cloud services natively. Google, Facebook, Microsoft and the like identities are commonplace, work well for enterprises and don't require much effort to plug into existing services, which is why I was, and remain, sceptical about this company ever being anything more than niche.

Thankyou

Sure, I'm happy to pass on my impression from call with Intercede (LON:IGP) mgt tomorrow, but it's late afternoon, so anything I post here would be on Thursday.

I think the results statement today is so detailed, that it updates us very comprehensively. Hence I see it as a straightforward investment proposition - it's all about delivering on the plan for strong year 3 sales growth. Only time will tell if that works or not.

Stocks123456

3rd Jun '20

And within 24 hours of your comment, Aberforth Partners LLP acquire 6.6% of Card Factory (LON:CARD).

Small Cap Value Report (Tue 2 June 2020) - IGP, TED, DLAR, QTX, VNET, CARD, XAR, ZTF, GMR

Intercede (LON:IGP)

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Paul Scott

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