Small Cap Value Report (Tue 21 Mar 2017) - IQE, FEVR, SCS, PTD, GOAL, JDG, ACSO, UBI, BILN

Tuesday, Mar 21 2017 by

Good morning! It's Paul here. I'll be writing today's report.

Loads of results today, so I'll probably be doing shorter sections, so I can get through more companies.

Please note that I added several new sections to yesterday's report last night, on;

Finsbury Food (LON:FIF) - underwhelming results & prospects

Michelmersh Brick Holdings (LON:MBH) - very strong balance sheet & big increase in divis

Maintel Holdings (LON:MAI) - very brief comment, doesn't interest me, but market liked its results

Please click here to revisit yesterday's full report.


Share price: 47.0p (down 14.4% at 08:28)
No. shares: 675.7m
Market cap: £317.6m

Final results - for the year ended 31 Dec 2016.

The share price has been volatile so far this morning, on heavy volume, hence why I've added the time in the price snapshot above. It's a popular private investor stock, so perhaps some stop losses were triggered this morning, with a larger fall earlier?

The share price of this company has been roaring upwards, tripling in price since Jul 2016, so perhaps good news is now already priced in?

Results today look good to me;


Adjusted EPS of 3.0p puts this share on a PER of 15.7. This seems to be ahead of the broker consensus figure on Stockopedia, which is 2.91p.

It's interesting to note that the company includes deferred consideration within its leverage figure, which seems prudent. I think many investors focus too much on just bank debt, and hence give enterprise value calculations too much emphasis. At many companies, other creditors (especially trade creditors) are often greater than bank debt. Yet many investors ignore those creditors (which are easy to manipulate, to reduce reported net debt on balance sheet dates).

Outlook comments sound upbeat to me;

The Group's technology and market leadership, and its strong pipeline of high growth opportunities positions it well to continue its growth profile over the coming years.

The current financial year has started well and trading is in line with expectations.

The outlook for the full year remains very positive, with good upside potential.

The Board remains confident that the Group is on track to achieve expectations for the full year, and anticipates that…

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IQE plc is a United Kingdom-based holding company. The Company is engaged in the research, development and provision of engineering consultancy services to the compound semiconductor industry. The Company's segments include wireless, photonics, Infra Red and CMOS++. The Company is the manufacturer and supplier of Compound Semiconductor wafers or epiwafers using a process called epitaxy. Its photonics business enables a range of end applications, from data communications and advanced optical-fibers, to sensors in consumer and industrial applications. It operates through business units, including wireless, photonics, InfraRed, CPV (advanced solar), power switching, light emitting diodes (LEDs) and advanced electronics. It produces atomically engineered layers of crystalline materials containing a range of semiconductor materials, such as gallium, arsenic, aluminum, indium and phosphorous. The Company has operations in the United States, Asia and Europe. more »

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Fevertree Drinks plc is a United Kingdom-based holding and investment company. The Company is a developer and supplier of premium mixer drinks. The Company's premium mixers consist of a range of all natural carbonated mixers, including Tonics, Ginger Ale, Ginger Beer, Bitter Lemon and Lemonades. The Company sells a range of products under the Fever-Tree brand, which include Indian Tonic Water, Naturally Light Tonic Water, Elderflower Tonic Water, Mediterranean Tonic Water, Ginger Ale, Ginger Beer, Naturally Light Ginger Beer, Bitter Lemon, Sicilian Lemonade, Lemonade, Spring Soda Water and Premium Cola. The Company caters to hotels, restaurants, bars and cafes, as well as supermarkets. The Company sells its products to a range of markets, such as the United Kingdom, Europe and North America. more »

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ScS Group plc is engaged in the provision of upholstered furniture and flooring, trading under the brand name, ScS. The Company specializes in fabric and leather sofas, and sells a range of branded and ScS branded products sold under registered trademarks, including Endurance and SiSi Italia. The Company also offers a range of third-party brands, including La-Z-Boy, G Plan and Parker Knoll. The Company operates from approximately 100 stores nationwide along with an online sales and also has approximately 10 distribution centers across the United Kingdom. The Company has operations in retail park locations and in House of Fraser stores across the country-as far north as Aberdeen and as far south as Plymouth, offering a range of upholstered furniture and floorcoverings. The Company also runs a made-to-order sofas, furniture and flooring concession within House of Fraser. The concession operates from approximately 30 House of Fraser stores across the United Kingdom and online. more »

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

51 Comments on this Article show/hide all

warmerjo 21st Mar '17 32 of 51

IQE has invested over the years large amounts in research/innovation/development, which is now beginning
to bear serious fruit. I see no need to pay dividends. At this stage Innovation and Growth are much more important than dividends, IMO. PE-ratio is by no means high for what has now become an established, proven, quality growth company. I reckon IQE's share price will rise this year by a further 40-50% from current 50p territory,. Cheers.

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Ramridge 21st Mar '17 33 of 51

As Brighton Pier (LON:PIER) is not in the list of companies that Paul has planned to cover, here is a brief commentary for those who are interested.
This is a Luke Johnson company incorporating the old Eclectic Bars Group and the Brighton Pier bought in April 2016. This HY report is the first which has full comparatives for the Bars but only a half year for the Pier.

The company has been culling unprofitable bars over this period and investing in the Pier.
Comparatives are a little meaningless because of the inclusion of the Pier in April 2016. The report says that the financials are seasonally first half weighted roughly in the ratio 69:31.

Adjusted and diluted eps was 7.9p. Using the weighting above, I make full year expected eps to be approx 11.5p
EBITDA is reported to be 3.5m . Again using the above weighting, FY EBITDA is likely to be 5.1m

So that makes forecast PE = 9.6 and forecast EV/EBITDA = 8.6

The company has net debt of £6.7m . Debt/ forward EBITDA = 1.3 comfortably within acceptable range.

There was a question mark last year about potential repairs to the Pier. The RNS confirms that the dive survey and annual survey were both completed, resulting in no additional maintenance needs other than the budgeted requirements.

My take is that the downside is limited whilst the upside, in the hands of LJ, could be very interesting. I took a small holding this morning, basically backing the man.

All IMO and PDYOR. Regards, Ram

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peterg 21st Mar '17 34 of 51

Could I bring myself to invest in a company that's developing things to mix with whisky? Probably not :-)

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Chris123 21st Mar '17 35 of 51

I browsed round a few furniture stores at the weekend, and must say the SCS outlet was by far the worst. It's no exaggeration to say everything looked like it belonged in an old grandma's house. It wasn't a nice place to be and upon reflection it felt like a business that would struggle to survive.

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AnonymousUser252054 21st Mar '17 36 of 51

In my recent quest to understand the sudden 'spike' movements in share prices that last usually just a few minutes, (usually a plunge down but sometimes up, as here). I see IQE (LON:IQE) had one this afternoon. Any thoughts of what is going on? Is it purely trading led or manipulation by the MMs?


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janebolacha 21st Mar '17 37 of 51

In reply to post #176933

I think you will find these are simply trades recorded late, nothing else,
The computer systems simply take the trades in the order they are recorded,
irrespective of the times the trades were executed.

You'll see here, trades are often recorded late:

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MikeBrenner 21st Mar '17 38 of 51

On accesso Technology (LON:ACSO) I attended the Richmond Sharesoc meeting in Feb and noted the below on another thread in Stockopedia. Thought it would be useful to re-post here as its all growth areas that are not mentioned in the trading update but that the CEO discussed in some detail over dinner. I work in the travel & ecommerce industry and was impressed by his vision / understanding of how they could enable the opps below:

I attended the presentation and through questions afterwards picked up 2 key growth opps on top of their business as usual that could cause a major re-rating:

1. the same end to end services that they provide to attractions and theme parks are needed by the cruise industry and also hotels (esp leisure and resort hotels) e.g. Prism chip wristband for access, payment and on site ticketing etc .., It sounded like they were in a number of discussions already both direct and on a licensing basis. A deal with Carnival could be like Merlin Mach 2

2. Distribution - this is a key area of opportunity for them to help their theme and attraction clients to fill the parks, or fill their event venues which they are not doing today (focus is on monetising them when they are there). On top of this, its an area that they can expand into across travel and entertainment spend which is $$$$$.

Leisure - What was really interesting was that today accesso is becoming a distribution partner to the music industry competing with the AEG, Eventims and Livenations of this world e.g. an artist like Lady Gaga will work with Accesso to plan her tour in LATAM to venues that they manage with their technology. GaGa will then exclusively work with Accesso to sell her tickets typically via social media to her fans (using their passport ecommerce platform) as accesso will charge a much lower % fee to manage this distribution + technically it can provide a much more integrated experience to then monetise these customers when they go to the show. Gaga will always sell out her shows so the question is not how can you sell my tickets but how much does it cost and what extra $$$ in ancillaries can the partner bring to the table! Lots of potential here to expand through music, theatre and sport ... and many are hating Livenation with their high fees and Ticketmaster after their ticketing sites falling over so ripe for disruption!

On the travel side its clear that they are looking at some interesting partnerships to extend their technology so can see them powering a google, tripadvisor, expedia, airbnb style instant book capability for partners for this event and attraction content. Equally it sounded like Accesso saw distribution as a great opportunity to not capture its usual $ cents per transaction but multiple $$$$ where they look to bring in customers to these venues / attractions.

I'm bullish on them as a LTBH, believe the management have proven they can execute their plans / integrate acquisitions to build scale and love the recurring revenue model. Appreciate some of the detail noted above from other posters on the downside.

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AnonymousUser252054 21st Mar '17 39 of 51

In reply to post #176945

Thanks for your reply, Jane. What do you mean by 'recorded late'? A buy at 55p (ten per cent higher than the prevailing price before and after) wasn't actually made at or around 14.50 but a lot earlier than the other trades apparently preceding and following it? Sorry, I'm probably being a bit dim.

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rhomboid1 21st Mar '17 40 of 51

Hi Paul
Thx for the late shift, isn't IQE (LON:IQE) doing exactly what accesso Technology (LON:ACSO) are doing, spending heavily on Capex/R&D to capitalise on a market where they are dominant globally and shifting technology is creating even bigger opportunities?

I hold IQE but not Accesso

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janebolacha 21st Mar '17 41 of 51

If you look at the full day's trading on Google Finance, this shows real-time prices and you'll see that there are several times during the day when there are very sharp spikes and dips up or down.

Now I know that certainly the dips in the morning do not actually reflect the prices available to buy or sell at those particular times.

How do I know that? Well, simply because I was following this stock all morning and looking for chances to buy more at lower prices and it was never possible to buy on those few sharp dips.

The dips shown actually lasted only a few seconds so I doubt they were due to the share price being manipulated. I think it far more likely they were trades going through and so being picked up by the system some time after they had been actually executed. I have not cross-checked the actual times of the dips with the details of the actual trades but I have noticed very often on other occasions that trades are put through the system later than the times they are actually executed (actually sometimes on the following day!). I've no idea how or why this occurs since one would expect everything to be automatically joined up.


(PS:  These dips are not on your chart, no idea why)

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AnonymousUser252054 21st Mar '17 42 of 51

In reply to post #176975

Thanks for the informative reply, Jane. I've never looked at google finance before but after visiting that link you provided I imagine I will be a regular from now on. Great charts.

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Paul Scott 22nd Mar '17 43 of 51

In reply to post #176807

Hi Dave,

I've had a quick look at results from Satellite Solutions Worldwide (LON:SAT) - I'm not impressed. The breakneck speed of multiple acquisitions must be a nightmare to manage, and the trouble is, it's crippling the balance sheet - which now has a ton of intangibles at the top, and looks very weak indeed. So dilution from an equity raise looks inevitable.

Plus the acquired companies aren't really making much money, only a scrap at EBITDA level. So the £50m mkt cap looks pretty bonkers to me.

That said, I had a good telecon with the CEO some time ago, when he explained the strategy to me, and he seems a very switched-on boss. So maybe the share price here contains a premium for management?

Overall, it just looks way too aggressively-valued to me.

Regards, Paul.

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Paul Scott 22nd Mar '17 44 of 51

In reply to post #176930

Hi Chris,

Yes I agree about SCS products - I always cringe when I see the hideous designs of their sofas on the TV ads - with the tiny (to make the sofas look bigger), enthusiastic woman who says, "Say yasss to ScAsssss!"

Looking on their website tonight, the product looks cheap & nasty. Really common. Horrible, ugly designs mostly. Who buys these things? Chavs, basically.

Regards, Paul.

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Cisk 22nd Mar '17 45 of 51

In reply to post #176990

Agreed. And I don't believe that the leopards have changed their spots, i.e. SCS went bust nearly 10 years ago (same management I believe) and the product range is still woefully awful.

Throw in threat of rampant inflation and the knock on effect of interest rate rises, those shiny pink sofas will be the first cull from household expenditure when things start to get tough.

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peterg 22nd Mar '17 46 of 51

Thanks for your reply, Jane. What do you mean by 'recorded late'? A buy at 55p (ten per cent higher than the prevailing price before and after) wasn't actually made at or around 14.50 but a lot earlier than the other trades apparently preceding and following it?


Large trades are frequently reported "late" - they carry an L flag on many platforms. They can be reported a few hours or even a day late - so the price at which they traded may seem to bear little relation to the time at which the trade was reported - producing the apparent spike in your charts.

Trades that are much larger than the normal market size (the number of shares mms are supposed - in theory - to be able to trade on demand) are allowed to be reported late - the logic being to avoid a single large trade causing an excessive short term change in the share price.


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Cowlid 22nd Mar '17 47 of 51

In reply to post #176984

Thanks for that, Paul.

The trouble I have with this share is that it is such a good idea. I recently spent a week in Devon in a holiday let with no broadband (the place was lovely, but not being able to download the paper in the morning was a nightmare!), and there's bugger all mobile signal too. The local exchange is full, and the owner said he would have to pay for an additional cable to be laid at vast expense to get broadband. BUT, satellite broadband through one of Satellite Solutions Worldwide (LON:SAT) companies is only £30 a month, and although usage is capped during the day, it's unlimited between midnight and 0600 (this is beginning to sound more and more like an advert, isn't it?!?).

Perhaps time to put the heart to one side and engage brain a bit......



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AnonymousUser252054 22nd Mar '17 48 of 51

In reply to post #177002

Thanks, Peter.

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mojomogoz 22nd Mar '17 49 of 51

In reply to post #176930

I shop in Waitrose and boutique foody shops and will trade down to Sainsbury's when I need to. Tesco if there's not an option but Asda never!

That says a lot about me...but Tesco and Asda (in a scale and revenue sense) are the players - its where 'ordinary' people go.

There's a lot of different living rooms around the country and different budgets and tastes. Not everyone is monied middle class with middle class perceptions of taste (I believe that using the term 'living room' reveals a lot about me in a class and background sense...talks to a council estate upbringing...I leave that to the sociologists). Buying a sofa is a big deal for many in my extended family...but, along with the TV, Sky/Netflix/Amazon Prime subscription and now games its a key component of entertainment and relaxation. I wouldn't buy the sofas they do but there a lot of tacky and sh1tty sofas in living rooms I have visited that people feel different about than I do.

What did you think of DFS when you went in? I plan to read their accounts to work out why they have much better margin than SCS. At a glance I believe it is as they are leveraged compared to relatively under leveraged SCS (I don't think this is sensible by DFS) and as they have not had the same investment/growth program costs as SCS (which is increasing market budget and sales incentives). There seems scope for margin uplift to me but the socio-demographic they serve is lower than DFS.

Its not exactly been a sunny time for the lower income groups in society in recent years so SCS haven't been in a bull market environment for their product. However, if we do go into a harder time people will spend on the home. My mate is a blind fitter in Aberdeen and he's never been busier than since the oil business took a very viscous downturn.

I own SCS shares. Up due to the divi and about flat on share price basis (fraction down). I share many of concerns articulated however its in the price and I don't see a business that is as financially vulnerable as its portrayed by bears here. The comment above by Dave (#31 I think) is great as he does lay out the operational dynamics well)

I like management. I think they are simple, direct and disclose well. The market wont like the current results as there is not a simple LFL and eps story. They got no credit for a great result last year either. This is a stock with no 'rational' pricing. One day, as long as the wheels don't come off its going to gap up and double in a short period of time.

Or I am just a deluded fool :)

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mojomogoz 22nd Mar '17 50 of 51

In reply to post #176870

Great post that balances some of the shoot from the hip negativity on SCS.

I own it. I worry about it. There could be a meaningful dip from here with a tough easter/May period just as there is no interest in this due to size, sector and history....but if that happens then it will just need to triple to a fairer price rather than just double :)

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gus 1065 22nd Mar '17 51 of 51

In reply to post #177014

Hi Dave.

Thanks for raising Satellite Solutions Worldwide (LON:SAT) for discussion. I was drawn by a similar knee jerk reaction to you to the company's USP. Having lived in the sticks for a while (albeit within 5 miles of the M25!) and putting up with various lame excuses from the likes of BT as to why it was unreasonable to expect a connection to the 21st Century this side of 2020, I found the SAT story promising satellite broadband connectivity at a reasonable cost pretty compelling. Ever was it so with story stocks I guess.

They do seem to be making a pretty good fist of hoovering up smaller players and have also been successful in raising equity (£12m placement last July) and debt (a decent sized R/C facility from HSBC) although as Paul comments the balance sheet is pretty poor. Perhaps telling that most of the acquisitions seem to be mom and pop operations running at a loss - can Satellite Solutions Worldwide (LON:SAT) achieve the critical mass to cover central overheads and fix the balance sheet before they themselves go pop? I do hope so and have a small position that I'm happy to let run but perhaps more in hope than expectation.

Good luck.


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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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