Small Cap Value Report (Tue 21 Jan 2020) - XLM, Stonegate, IGR, JOUL, VRS, EVE, AFN

21st Jan '20 by Graham Neary

34 comments 8636 reads

Good morning! Some announcements I noticed today:

XLMedia (LON:XLM)
Stonegate/ EI (LON:EIG)
IG Design (LON:IGR)
Joules (LON:JOUL)
Versarien (LON:VRS)
eve Sleep (LON:EVE)
ADVFN (LON:AFN)

Timings: finished at 2.45pm. I didn't cover dotDigital (LON:DOTD), Learning Technologies (LON:LTG) or the big-cap IG Group (LON:IGG).

Trade alert: in the interest of transparency, I'd like to mention that I have sold all of my shares in Creightons (LON:CRL), for the purpose of helping to fund a house purchase.

Update: I have now sold B.P. Marsh & Partners (LON:BPM) too, for the purpose of funding the house purchase.

Update: Goco (LON:GOCO) has now also left my portfolio.

XLMedia (LON:XLM)

Share price: 35.75p (+5% today, but down from 47p last Friday)
No. of shares: 187 million
Market cap: £67 million

Update (issued at 4pm yesterday)

Commiserations to anyone holding this yesterday afternoon.

The company found out some bad news on Saturday, but didn't get this update out until Monday at 4pm:

On 18 January 2020, the Company became aware that a number of its casino sites have been manually demoted by Google*, which impacts the visibility of the sites and their ability to generate meaningful levels of online traffic, and hence revenues, from new visitors.

Whilst it is too early to accurately assess the financial impact of this action by Google, any further material delay to the full restoration of rankings of these online assets would result in a corresponding reduction of both revenue and adjusted EBITDA during that period.

The probable losses aren't quantified, putting shareholders in the worst of all worlds: "things are bad, but we can't tell you how bad".

I'd like to reflect for a moment on the purpose of Google's rankings. After all, they are extremely important. It has been said that the best place to hide a…

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Graham Neary

21st Jan '20

You're most welcome, Martyn!

JonBirdy

Yes, very amusing Graham. You should write for The Onion!

drvodkaquickstep

Loving your Versarien (LON:VRS) narrative today Graham :)

MrContrarian

The ADVFN (LON:AFN) warning was forced out of them by this https://www.shareprophets.com/views/46941/explosive-brian-basham-quits-advfn-but-why-is-the-company-not-telling-you-why

The NED Brian Basham who resigned last week alleged that advfn's boss Clem Chambers costs the co " in excess of £1m a year." due to lavish expenses. Basham also says Chambers told him of a "collapse of ad revenue up to Xmas".
advfn rev is only ~£9m PA.

ezlifeme

Eve Sleep (LON:EVE) - Not the largest institutional holder but... ?

GrahamF

The curse of Woodford strikes again!

shanklin100

Blimey Graham, Fantastically informative on several companies, specifically for me IGR which I held until very recently. Shame I can only give one upward vote.

Thank you, Martin

Wol

Good afternoon Graham

Have you ever tried Standup? Your section on Versarian is a masterpiece. Maybe you could do a short standup routine at the next Mello?

The Phoenix

Hi I've been looking at this stock but can't work out why Stocko has bankruptcy risk as distress given has £137 mil net cash and making profits interested to know what i'm missing.

Hi Graham no worries re Integrafin one question if you have time why does Stocko have it rated distress for bankruptcy risk when it has north of 100 mil net cash and is making profits.

Thanks Andy

rmillaree

IntegraFin Holdings (LON:IHP)

Ref bankruptcy risk you can click on the Altman score button to get further details.

IntegraFin has a miserable fail on two of the four stats, these stats are probably a complete non issue though as i am presuming its simply due to the business they are in. Presumably the two line items below are the reason - i am guessing its simply funds under management on behalf of customers (or similar) . Normally such large figures would be a real risk concern for the business (beyond abnormally large for a normal trading company) - as long as you are comfortable there is no risk that there could be some sort of loss incurred by the business with regard to these 2 line items then then is nowt to worry about. Probably worth reading the annual report to see what the comments are and then making a decision as appropriate - i guess though with financials its always a leap of faith that its all ok to a certain degree.

Following line items from the annual report.
Investments and cash held for the benefit of policyholders 14 16,665,048 14,489,933
Liabilities for linked investment contracts 14 16,665,048

Altman notes

Ordinarily, a firm experiencing consistent operating losses will have shrinking current assets in relation to total assets. Altman found this to the most helpful liquidity ratio (the current and quick ratio were subject to contradictory trends amongst failing firms). This is however the least significant of the five factors.

Testing: Working Capital/Total Assets > 0.2375

IntegraFin Holdings Details: Working Capital/Total Assets = 0.008

Testing: Market Value of Equity/Book Value of Total Liabilities > 1.439

IntegraFin Holdings Details: Market Value of Equity/Book Value of Total Liabilities = 0.090

Michael C

Ig Design (LON:IGR) - straw in the wind - a visitor attraction I am involved with sold its last wrapped Santa present this Christmas. Next Christmas the Santa gifts will be in paper bags. And the largest UK supplier of wrapped Santa gifts (for grottos etc.) has wrapped its last gift. The customers don't want gift wrapping. They have become aware that giftwrap "paper" is non-recyclable single-use landfill fodder, at least it is at the moment. Crackers and suchlike the same. All single-use stuff is becoming very unpopular. I sold my Character (LON:CCT) shares at a small loss today because of this. All those plastic Peppa pigs that will be discarded when the child grows up a bit..... I sense a BIG shift away from non-recyclable throw-away stuff. Greta may be a damn nuisance who spouts a lot of nonsense but the mood is shifting, at least I think so. Fashion might be the next market to feel the effect of this.

Fegger

Thanks for the excellent analysis today and yesterday Graham. And also Paul for some great analysis last week. Really hitting the sweet spot !

Cisk

Hi Graham, an excellent report today. Reading through it, and readers’ comments, it strikes me why we would ever invest in small caps! There’s so much to go wrong, and more than a little dishonesty, I do wonder how easy it is to make a profit...

I do love a little flutter on small caps, but from dodgy RNS saying nothing, to openly lying to the market, there’s much to navigate and it’s usually about avoiding losses as much as it is spotting ten-baggers. Yourself and Paul are excellent guides though in helping such navigation...

Thanks Cisk.

DWit199

Two of the IntegraFin subsidiaries write unit linked life assurance policies where the assets and liabilities are exactly matched and have no net effect. However, when calculating the Altman score these huge sums (£16 billion) create the illusion of financial distress. The Altman score is not relevant under these circumstances and should be ignored.

RustySpanner

22nd Jan '20

I've risked a couple of k in Versarien as graphene strikes me as a solution looking for a problem. Then the share price could go up significantly. But there's the risk that this company is another Dialight with lousy management who don't understand their product, their customers and how to get product to market effectively. That style of management is all too common in the UK, not enough engineers on the board!

Talygarn Tom

Xlmedia (LON:XLM) The second largest shareholder is Premier Investissement SAS.

Premier is the investment vehicle of one Moise (Moses) Mitterand (part of the French Mitterand dynasty). His wife Melody Mitterrand (formerly Racine) works as a Marketing Manager for Google in Paris.

https://gw.geneanet.org/wikifrat?lang=en&n=mitterrand&oc=0&p=moise

Google Paris is considered the centre of AI and machine learning (with strong support from the French Government) which in turn is considered the future of affiliate marketing.

https://medium.com/cityai/paris-the-site-of-an-ai-renaissance-8d752dc7a33f

The Jewish links are also clear as you can read in this article and most notably in the closing paragraph.

https://fr.timesofisrael.com/comment-anne-marie-mitterrand-a-endosse-la-memoire-juive/

One to watch.

Splode

Some particularly brilliant analysis along with some brilliant humour!
Thanks.

Thanks

Small Cap Value Report (Tue 21 Jan 2020) - XLM, Stonegate, IGR, JOUL, VRS, EVE, AFN

XLMedia (LON:XLM)

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Graham Neary

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