Small Cap Value Report (Tue 20 Mar 2018) - CALL, PEN, BLTG, GETB

Tuesday, Mar 20 2018 by

Hi, it's Paul here.

Sorry this is rather late again.

Cloudcall (LON:CALL)

Share price: 165p (down 6.5% today)
No. shares: 24.08m
Market cap: £39.7m

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

Final results

CloudCall (AIM: CALL), a leading cloud-based software business that integrates communications functionality into Customer Relationship Management (CRM) platforms, is pleased to announce its audited full year results for the year ended 31 December 2017.

This company has been a long-standing favourite of mine, and I'm firmly of the view that it is (at long last) gestating into a decent company. The problems before were that it kept running out of cash. As is nearly always the case with blue sky shares, it failed to meet the original targets. Also, it has taken much longer, and burned a lot more cash, than originally planned.

However, to my mind this company is now very clearly on it way to becoming a decent SaaS business - so think in terms of an earlier stage dotDigital (LON:DOTD) , or LoopUp (LON:LOOP) - both of which soared in value when they reached a tipping point where profitability became assured. The key features for a SaaS business to soar in value are;

  • Strong organic growth
  • High gross margin (hence lots of operational gearing as revenues rise)
  • Mainly recurring revenues
  • Low customer churn rate

Those elements are clearly in place with CloudCall, hence why I think it's now looking very interesting.

Here are my notes from skimming over the 2017 results;

  • Revenues up 42% to £6.9m - organic growth of 40% or more very much interests me.
  • Gross margin up 150bps to 80.0% - very impressive.
  • Net cash of £4.9m should be fine for now (but how many times have we thought that before, only to find another placing is done?!)
  • Bullhorn relationship is key - maybe it might acquire CloudCall in future?
  • Overheads increased again, and set to rise further in 2018, due to beefing up of sales & development teams - this pushes breakeven out further, again.
  • Strong growth in 2017, despite cash constraints, before the last placing.
  • 2018 outlook - fast growth from Q2 suggested, as new sales team exit training & begin selling.
  • New product launches imminent, which should drive incremental sales from existing customers.
  • Outlook - strong start…

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Cloudcall Group plc is a United Kingdom-based holding company. The Company and its subsidiaries are engaged in software and unified communications business. The Company provides a suite of cloud-based integrated software and telephony products and services under the name cloud. The Company is a full-service communication provider. The Company designs, develops and operates integrated communication services for customer relationship management (CRM) systems. The Company's CloudCall portal enables to manage organization’s call profiles, configures all settings and manages user and service accounts and access real time activity reports and call recordings. Its automatic call distribution (ACD) feature routes the callers directly to available team members in the organization. The Company’s subsidiaries include Cloudcall Ltd, Cloudcall BY. LLC and Cloudcall, Inc. more »

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Pennant International Group plc is a United Kingdom-based company engaged in the provision of management services. The Company operates through three segments: Training Systems, which provides and supports specialist training systems based on software emulation, hardware simulation, virtual reality and computer-based training in the defense sector; Data Services, which provides media, graphics, virtual reality software and technical documentation to the defense, rail, power and government sectors, and Software, which owns the rights to the Omega suite of software used by defense contractors and by defense authorities in Canada and Australia. It offers services that cover training equipment and related support, technical documentation, media development, software development and related consultancy. It markets in rail transportation, defense, aerospace, government, oil and gas, petro-chemical, power, retail, consumer goods, information technology and telecommunications industries. more »

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Blancco Technology Group Plc, formerly Regenersis Plc, is a provider of mobile device diagnostics and secure data erasure solutions. The Company's segments include Erasure and Diagnostics. The Erasure segment focuses on development and delivery of solutions, and includes Blancco, which provides erasure software; SafeIT, which is engaged in cloud and networked data erasure business, and Tabernus, which is engaged in providing software erasure products. The Diagnostic segment includes Xcaliber Technologies, a smartphone diagnostics software business. Its secure data erasure solutions include Blancco Management Console, Blancco Cloud, Blancco File, Blancco 5, Blancco Mobile Solutions, Enterprise Erase E800, Enterprise Erase E2400, Enterprise Erase Mobile and Ontrack Eraser Degausser. Its mobile diagnostics solutions include fault diagnostics, repair and program enablement. It serves manufacturers, financial institutions, healthcare providers and government organizations across the world. more »

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

105 Comments on this Article show/hide all

FREng 20th Mar '18 26 of 105

Re Cloudcall (LON:CALL) (which I don't hold) TechMarketView's daily email ( is positive about progress and prospects. Their opinions are usually worth considering as part of DYOR.

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Crusty 20th Mar '18 27 of 105

It smacks somewhat of desperation to go back 20 years in order to attempt to disparage IQE .  My involvement is much more recent with a first investment at 20p in 2011. Today's IQE report is lengthy and I haven't digested it all, but the outlook includes ...Expected Compound Annual Growth Rates over the next 3 to 5 years, based on current products, in the ranges of: Wireless up to 10%; Photonics 40-60%; and InfraRed of 5-15%. Potential for higher growth with new product introductions." Surely this is highly relevant to the investment case and explains the present uncomfortably large p/e.

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Carcosa 20th Mar '18 28 of 105

In reply to post #341848

Housemartin2, ( Cloudcall (LON:CALL) )The implied suggestion is that based on the platform, it would be a straightforward integration of CloudCall’s plug-in. Connexys has probabaly added c.20% to Bullhorn’s customer base.

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davidjhill 20th Mar '18 29 of 105

In reply to post #342018

With the share based payments it relates to accounting treatment on the Options if I understand correctly. This was to be expected given the very large share price movement over the course of the financial year.

Assuming that does not recur and based on removal of finance costs of £2m (since now there is no debt) and taking their midpoint of growth metrics I expect an EPS of 4.5-5p in this year with upside potential.

I see photonics as a growth story for the next 5+ years and expect 20%+ YoY growth at IQE for foreseeable future. I think people fundamentally misunderstand this about IQE and assume it is just an Apple distributor.
A multiple of 25-30* earnings is not abnormal for this type of sector with strong IP moat and large market share of 90%.

So for me fair value is north of 120p and up to 200p, so probably about right at the moment. Personally I think they get taken out circa 180p

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Housemartin2 20th Mar '18 30 of 105

In reply to post #342058

Cloudcall (LON:CALL). Ah thanks Carcosa. So my competitor comment is not relevant and rather is complementary.

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LeoInvestorUK 20th Mar '18 31 of 105

In reply to post #342043

"IQE (LON:IQE) don't need to fill the foundry"

If they grow photonics 60%pa for 5 years they probably do: 5 machines x 1.6^5 = 50 machines. Then double that because price per unit will have halved in that time (if they are very lucky). And if photonics doesn't grow then they have a massively overvalued low-zero growth business with a lease liability for underutilised buildings.

Blog: LeoInvestorUK
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pka 20th Mar '18 32 of 105

In reply to post #342083

Hi leoleo73,

If IQE's photonics demand does grow at 60% pa for 5 years, it seems to me that they can use part of the ongoing profit from those tools that have already had their investment paid back within 2 years of purchase to fund invesment in new tools

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apad 20th Mar '18 33 of 105

Canada Pension Fund published a 0.5% short on BOO, six days ago.
Results due 25 April.
Paul, at some point I would value your observations about BOOs relentless share price weakness.
I can find nothing in the story that has changed and the margin argument is thin
Given your background I can think of nobody better to comment - flattery will get me everywhere :-)
Seriously, I bought when you first explained the business. Up until then I had a 'no shops' rule.

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hayashi22 20th Mar '18 34 of 105

Like many I can't figure out BOO. The story has not changed and to give away a bit of margin to grow the business is neither here nor there in the longer term scheme of things. You can't integrate/grow two new businesses (PLT/Nasty Gal) or get the new giant warehouse fully sorted for free. Certainly we are now much more in risk on mode than when the sp topped out at near 270p.Big contrast with ASOS which seemingly can do no wrong.

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Damian Cannon 20th Mar '18 35 of 105

In reply to post #342108

I've been doing some fairly detailed analysis of Boohoo.Com (LON:BOO) recently and broadly speaking I agree with your assessment. Right now their margins are being hit by a number of cost pressures such as increased advertising, spending money on additional warehouse space that isn't fully utilised and growing the two new brands (PLT and Nasty Gal). In addition growth within the core brand has moderated slightly although not hugely. So right now all of the costs are going against the company.

However analyst forecasts still point to high top-line growth and, to a lesser degree, bottom-line growth. So I believe that Boohoo.Com (LON:BOO) are doing exactly the right thing by investing for the future but the costs are making them look less attractive in the present day. That said I'd like to see falling margins and rising costs both stabilise at a sustainable level since extrapolating recent trends in both of these areas doesn't look too pretty.

Either way we'll only get some up to date numbers when the results come out. That's the time to make an informed decision.


Blog: Ambling Randomly
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apad 20th Mar '18 36 of 105

Reporting: 28-Feb-14 28-Feb-15 28-Feb-16 28-Feb-17
Revenue (£m): 109,791 139,851 195,394 294,635

Revenue rules, Damian. When revenue grows like this costs and margins are entirely under management control.

Amazon is a good comparator. It's a land grab and you don't let competitors crawl under the wire.

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Gromley 20th Mar '18 37 of 105

In reply to post #342098

If IQE's photonics demand does grow at 60% pa for 5 years, it seems to me that they can use part of the ongoing profit from those tools that have already had their investment paid back within 2 years of purchase to fund invesment in new tools

Indeed and even if you assume the lower end of their growth estimates then I think the two year pack back period on these tools presents a strong case that they have enough cash to fund further investment without coming back to the market or incurring debt.

We pretty much already knew the 2017 results for IQE (LON:IQE) , so these weren't really of much interest to me. What is far more of interest was to understand how the jam tomorrow will taste and  how much of it there might be.

Some have expressed disappointment at the outlook, but imho that either implies unrealistic  expectations and/or a failure to really appreciate the information that has been given.

In this statement we are presented with some unusually detailed forecasting assumptions at the segment level both for 2018 and for 3-5 years out.

Working these through would suggest the following :

2018 Revenues +10 % to +23% Operating profits +14% to +44%

2019 and beyond Revenues +16% to +30% Operating profits +33% to +48%

Now I have done enough business forecasting over the years to know not to put too much faith in forward projections like that but as a scaling of the opportunity I find that very useful and frankly quite exciting at the top end.

The question of course is does that justify the valuation?

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paraic84 20th Mar '18 38 of 105

In reply to post #342108

My own view is the softening in the share price partly reflects softening we're seeing in the share prices of other high growth companies (e.g. like Purplebricks (LON:PURP) or to a lesser extent £G4M), especially where there has been some news that costs or some other even minor spanner thrown into the overall growth story.

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Julianh 20th Mar '18 39 of 105

In reply to post #342128

Can I add my request for Paul’s thoughts on Boohoo.Com (LON:BOO). At the time of the last trading update (11 January) you were still very positive. And that trading update raised its guidance on revenue growth from 80% to 90% and gave some clear indications of expected EBITDA margins. Since then the share price has continued to slip and you have sold out of your holding on BMUS. Is there more information or further thinking? Are you following the Minervini advice to trust the market and always sell when the price does not go the way you expect it to go?

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Gromley 20th Mar '18 40 of 105

In reply to post #342063


With the share based payments it relates to accounting treatment on the Options if I understand correctly. This was to be expected given the very large share price movement over the course of the financial year.
I think you are right David, the options were probably granted at a much lower share-price than they vested.

But there is an aspect to this that puzzles me. The gross value of the share based payments is given as £7.5m but with an associated tax credit of £5,4m (about 72%) so a net impact of only £2.1m.

In the prior year the total figure was £2.9m with no tax adjustment.

This implies to me (although I could be leaping to the wrong conclusion) that the "capital gain" has been written off against tax - does anyone understand this?

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David Bagley 20th Mar '18 41 of 105

Not small cap but I wondered if you had a view on the Aviva preference share proposals? When is an irredeemable share actually irredeemable if a court can set it aside on request under the guise of "capital reconstruction"?

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ricky65 20th Mar '18 42 of 105

Anybody know what the market didn't like about Cloudcall (LON:CALL) results today? Looks on track to me (Revenue 6.9M +42% as expected from Jan trading update, and loss narrowed)

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judywil 20th Mar '18 43 of 105

Might be outside your remit but interested in what's going on at DLAR today? Seems like an extreme reaction to the news that the CFO is standing down?


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rwalford 20th Mar '18 44 of 105

In reply to post #342163

Aviva (LON:AV.) Aviva prefs.
There is quite a reasonable explanation here:
If you are a holder, I sympathise, and suggest that you write to every single fund manager in which you hold shares (pensions, investment trusts, units, etc.) complaining vigorously and asking them to vote against.
Of course, ordinary shareholders may regard these prefs as ridiculously expensive and welcome their cancellation (if it happens).

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paraic84 20th Mar '18 45 of 105

In reply to post #342033

Hi mw8156. I follow Mincon (LON:MCON) but don't currently hold. The revenue growth looked good today although fairly consistent with (previously revised) expectations during the year. This is not a sector I know very well so the key question for me, given this is trading on a high PE, is how much more growth can we expect? (They mention this is probably the start of a new upcycle). They say today's acquisition means they will have revenue of 120m euros even if there is 0% growth so that's encouraging and good to see they are using their huge amount of cash at long last. However, they also warn growth might not exceed single digits in the first half.

So if we conservatively guesstimate that EPS increases by c.30% in 2018 then that would put it on about 5.5p and a forward p/e ratio of 22 for 2018 which could be on the pricier side. Given how small this share is and the spread, I would want to understand more about the outlook for the mining and construction industries at the moment before buying back in.

One thing I didn't understand is why the net profit attributable to shareholders is significantly lower than the overall profit increase. Any idea why? Shouldn't it be consistent or have the number of privately held shares increased?

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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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