Small Cap Value Report (Tue 22 Jan 2019) - CALL, ZOO, RIC

22nd Jan '19 by Paul Scott

38 comments 11125 reads

Good evening/morning, it's Paul here.

I'll start off doing a write-up of the Capital Markets Day which I attended last week, held by Cloudcall (LON:CALL) (in which I hold a long position), hosted by its PR company.

Then we can move on to the usual review of Tuesday's results/trading updates on the RNS.

~This section written on Monday evening ~

Cloudcall (LON:CALL)

Share price: 99p
No. shares: 24.2m
Market cap: £24.0m

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

Capital Markets Day & Trading update

I reported on the recent (15 Jan 2019) positive trading update here.

I'm a long-standing CALL shareholder (4-5 years, maybe? I can't remember exactly, as I invest in so many companies, and my interest can wax & wane during that sort of timescale, depending on the newsflow & financial results).

After years of decent top line growth, but rather disappointing overall performance (missed profit forecasts, and repeated fundraisings), I think there is now clear evidence that the company is coming good.

What does CloudCall do?

It's a SaaS software company, whose product is an add-on for CRM software. The add-on provides integrated cloud telephony (recorded phone calls, and SMS messages). The best example is for the recruitment sector, where every telephone call to & from candidates & clients is automatically recorded, with the audio then filed within the CRM system, for easy review & recall, and emailing audio to clients.

CALL's largest CRM partner is Bullhorn, a global recruitment sector CRM software provider. About a third of CALL's business comes from Bullhorn, and there is growing penetration of Bullhorn's customer base, internationally.

The service is relatively cheap (typically about £30-40 p.m., per user) and also provides cheap telephone call charges. There's no doubt the product is great (I have used it myself), and demand is strong. It's also fair to say that CALL has been learning how to sell its service, as it goes along. Its initial scatter gun approach to customer acquisition a few years ago, has since developed into a much more effective, structured process, through partner software companies.

Capital Markets Day

It started at 12:30 on 17 Jan 2019. I was predictably 15 mins late, so stood at the…

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CliveBorg

22nd Jan '19

I wonder if anyone has any projections on how Cloudcall (LON:CALL) is likely to grow from here. While it's great to see the progress it has made in 2018, the share price has fallen to scarcely more than a third of what it was when this company was called Synety about two and a half years ago.

Patrick L

Paul, very good write up on Cloudcall (LON:CALL). For completeness I think there are two other bear points:

- My main worry is revenue growth slowed a fair bit in 2018 (see my table below). If the product is that great, why can't they maintain revenue growth rates? If it slows much more than I think that would reduce the rating applied to these shares. Perhaps I am being harsh because I appreciate this isn't like selling clothes or retail items; there's more work involved in convincing the customer who needs to train staff etc. It also sounds like growth has picked up a bit again towards the end of the year following investment in sales & marketing.

- My other worry is that by the time the company becomes profitable the tech could become out-of-date or taken over by something else.

2016	H1 17	2017	H1 18	2018
47%	40%	42%	31%	29%

I used to hold and monitor. I might come back in at some point but still nervous primarily for the above two reasons.

Some thoughts today on dotDigital (LON:DOTD):
- Growth rates are still good. 15% organic growth and 33% overall growth with acquisitions. The 15% rate has been maintained now for 12 months which is good.
- Overseas growth continues to be good. I think the US growth could further re-rate this share at some point. Organic overseas revenue at 37% although from lower base obviously.
- £16m cash. Again I think this whole sector is ripe for more consolidation and dotDigital (LON:DOTD) is well placed.
- Downside is the latest acquisition has had problems with losing some large customers who have encountered difficulties. That sounds like a temporary problem not a fundamental problem to me.

Actually the main thing I am worried by in this update is the rebranding of 'dotmailer' to 'Engagement Cloud Platform'. Who came up with that?! Dotmailer is like a household name among marketing professionals so why would they change it?

This continues to look like a well performing company, with good products, with potential for share price growth through acquisitions and US expansion. I hold.

Snoo

I thought for Zoo Digital (LON:ZOO) the derivative liability was the liability between the price of the convertible shares (48p) and the share price at the time. With today's warning that might be mostly wiped out. Perhaps the holders were a bit greedy, as they did redeem £500k of it.

Think the valuation is too punchy with them so reliant on a few big ticket clients. Unconvinced about the moat, I think most of the resources that do the translation are freelancers, but Zoo seem to be focusing on quality.

barnetpeter

Moneyam suddenly announced it was closing last night. Last day will be 20 Feb it seems. I have used this site for years for share prices and Level 2. It has started to creak and they have made the decision not to support the old technology any longer. A new site will be launched but very basic service and without some of the key systems. Thousands of traders are now looking for a new share home.

Easy to forget that some old technology is now defunct.

MichaelFBS

Hi Paul

Just wanted to say thank you for the write-up on Cloudcall (LON:CALL). I don't hold as to early stage, too small and not profit making but a great write and really interesting and educational.

BW
Michael

Zipmanpeter

Re Non-Standard Finance (LON:NSF) - trading announcement for yr ending Dec 2018. Sounds like all in line. No sign of significant credit deterioration (yet?).

Risk vs Reward now moving rapidly in our favour with major investment/integration programmes in all 3 divisions now successfully completing, . Profitability likely to ramp up going forward and still on offer at below book value and with 6% divi forecast (which should rise rapidly from 2020. (Disc. Non-Standard Finance (LON:NSF) is my biggest holding)

In order of importance in their 3 divisions
* Biggest division Everyday Loans loan book £182Mn, up +25% but with impairment held at 21%.
* GLD (TrustTwo/George Banco brands) that is like Amigo with a loan book of £77Mn (up +62%) with impairment also in line at 19.5%.
* Home Credit (Loans@Home) almost flat at £41Mn loanbook (+2%). Since narrative talks of better quality, bigger borrowing customers, this implies a fall in customer numbers. Together with PFG and Morses Club, this suggests that the Home Credit customer base is starting to decline due to changes in society and regulation. Positively, may accelerate consolidation in sector but more likely will be a limited cashcow and ever smaller part of group.

simoan

This continues to look like a well performing company, with good products, with potential for share price growth through acquisitions and US expansion. I hold.

I agree it's a nice company with good quality metrics and sound management, but the thing that's always put me off is the free cashflow. Free cash conversion has not been great the past couple of years and the FCF yield is and almost always has been too low - if both were better I'd likely buy some. But they ain't, so I won't! :-)

Al the best, Si

Aislabie

I hold Learning Technologies (LON:LTG) and was pleased to read the TU this morning that sales and profits were ahead of expectations and that debt was below expectations.
Sales growth £94mm against £52mm was flattered by acquisition but with increasing recurring revenue (c.68%), and good cash generation, the story looks very strong.
However the price has fallen over 7% and I am mystified. What have I missed?

davidjhill

Erk - I use that for my realtime watchlists too! When you say basic service what do you mean? Can't seem to find any information other than the green bar that says it is moving to Shares.

jdnthomas

Thanks, Paul, for the write-up on Cloudcall (LON:CALL). I used to hold, but got out 15 months ago as I felt the share price had got ahead of itself. With growth now starting to accelerate and the prospects you highlighted, you have persuaded me to get back in.

Not sure that "fixable" is the right word for the profit warning at Zoo Digital (LON:ZOO). It may not be terminal but the lesson seems to be that they don't have a lot of control over revenues - too much exposure to a couple of clients? - and it is not a high quality business. This may be superficial, but with low growth, and no profits I would say at 4 times sales it is still grossly overvalued at the current price.

No Level 2 and at the moment no streaming prices. Everything you currently have on moneyam will be lost. Nothing at all will be "moved" in fact; you will have to apply to this new
site from scratch and then set up watchlists etc from start. They are really just offering a magazine subscription at the moment with some added bits which they say will improve in time. That will cost and whether they will get sufficient interest to justify the investment we dont know.

Reacher

Patisserie Holdings (LON:CAKE) have released a company update:

https://www.investegate.co.uk/patisserie-hldgs-plc--cake-/rns/company-update/201901221651058074N/

Bank facilities have not been renewed due to the significant fraud and the company will go into administration.

xcity

Patisserie Holdings (LON:CAKE) Impossible not to feel sorry for all the inocent involved.

Not sure if the administrators can justify spending more money on the forensic accountants, but, if not, I hope that the SFO take over.

ACounsell

See Jack Brumby's excellent analysis here on Stockopedia on the debacle and eventual administration of Patisserie Holdings (LON:CAKE) as the RNS now tells us.

bobsandy12

Thanks Paul for the Cloudcall write up....I will be watching them now.

I also like the LTG note and have added at the reduced price.......Mr Brode seems to be very present and reassuring!

andrea34

I would suggest that the acronym department of dotDigital (LON:DOTD) came up with 'Engagement Cloud Platform' (ECP); what a load of nonsense!

Dave_17

23rd Jan '19

Hi Paul

Like many others on here, I like the format of more detailed analysis/commenting on selected companies (Cloudcall) while brief comments on those less interesting.

A couple of points I'd like to clarify on Cloudcall (LON:CALL), not for picking typos but to help me try to understand the opportunity better.

You mention the company needs to hit +1,000 new monthly users in 2019, to hit sales targets, But Q4 performance was only +775. That's a massive leap (x4). Hopefully it's a more realistic 1,000 per quarter? Elsewhere you mention needing 10 new customers per month which I guess ties up with 1000 per quarter and is a much more manageable growth rate.

In the intro you mention average user price of £30-40pm, but the figures later seem to indicate the average spend per user seems to be £20pm (£2000 lifetime income/average life of 8 years).

Average user lifetime of 8 years seems high for SaaS - contracts are normally 1-3 years. So I guess they are forecasting a lot of successful renewals. Any renewals would normally be on a reduced pricing, so the lifetime value may be forecasting this price erosion over time?

@Cliveborg - I was struggling with growth story before Pauls update, but now I see the main growth being international. They have a niche, but it's a fairly small niche in the UK.

WDWombat

I was browsing through a stockopedia article on how to avoid disasters and had another look at the Altman score method. (I can hold up my hands and admit I lost a bundle on Globo so what do I know (?) - well, I knew the IR man who used to work for me and didn't have a clue as to what was happening in the company).
Cloudcall (the former Synety group) was cited in an article on Stockopedia as having a dangerously low Altman score and is currently classified as a 'sucker stock'. Cloudcall and its predecessor appear to have raised £18.7mn in new equity since 2012. At last count (the interims) it had net worth of £6m of which just under £2mn was goodwill and intangibles. So not much return for investment so far and nothing to fall back on if the business doesn't take off as hoped.
Clearly the boss must have some charisma to keep getting money out of investors and Paul implies more will be needed. Just a word of caution, nothing more.

dodge1664

Cloudcall seems to be heavily dependent on Bullhorn for growth. Anyone know who their competitors are, and how the different CRM offerings compare?

Small Cap Value Report (Tue 22 Jan 2019) - CALL, ZOO, RIC

Cloudcall (LON:CALL)

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Paul Scott

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