Small Cap Value Report (Tue 25 Aug 2020) - UPGS, DFS, ALFA, NFC. PHD, CAR

25th Aug '20 by Paul Scott

78 comments 9199 reads

Good morning, it's Paul here, with the SCVR for Tuesday.

Timings - I have to be finished before 1pm, as am taking my niece to visit a stately home this afternoon!

Today's report is now finished.

Here is today's agenda;

Dfs Furniture (LON:DFS) - trading update

Alfa Financial Software Holdings (LON:ALFA) - trading update

Proactis Holdings (LON:PHD) - trading update

Carclo (LON:CAR) - results FY 03/2020

Next Fifteen Communications (LON:NFC) - Trading statement

As usual, many thanks to MrContrarian & Dan Holland-Smith, for their early snapshots in the comments below. I am finding these posts very helpful in selecting which small cap shares to focus on myself in more depth. Thanks to both!

Clarification re Up Global Sourcing Holdings (LON:UPGS)

An adviser to UPGS contacted me yesterday afternoon, to say that the company was very upset about yesterday's SCVR. I reported on UPGS's RNS stating that they have decided to return the Govt furlough monies. In the same section, I reported on another item on my agenda, an article in the Telegraph about research saying that furloughed staff had widely been working from home, part time, in the UK generally, during April & May.

On reflection, I shouldn't have put these two items together, in the same section, as that led UPGS to misunderstand, and think I was linking the issues, or implying wrongdoing on their part. That certainly wasn't my intention, at the time it just seemed to make sense to put the one subject in a single section. I thought my use of the word "Separately...." made it clear that I wasn't linking UPGS to the Telegraph article.

On reflection, this was a mistake on my part, and I can understand their point of view, so am happy to give an unreserved apology for any offence caused. If I'm wrong, am happy to admit it, and apologise, so this has not been forced out of me, it's a genuine apology from me, as I can see why UPGS took offence, even though it was unintentional on my part. As stated in yesterday's article, UPGS has traded strongly, and I have been very impressed with its resilience & financial performance throughout covid.

UPGS is adamant that it's returning the furlough monies because this is the right thing to do,…

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Camtab

25th Aug '20

Ow thanks Phuntt! That is exactly what I wanted. It will take a little to think it through. Best wishes.

Fair.

davidhowman

This comment is under review

Scoobydoit

Great work Berksbee - Page is the Exc Chairman, Denton the CEO, so some serious skin in the game

Gostevie

Hi Paul,

Re the large shareholder in Alfa Financial Software Holdings (LON:ALFA) , the 2019 CHP Software and Consulting Annual Report states:

The CHP Group was founded in 1990 with its headquarters in London, and had more than 310 employees at 31 December 2019 and 2018, working for customers across 26 (2018: 26) countries, with subsidiaries with offices in Detroit, Los Angeles, Dallas, Auckland, Sydney and Frankfurt. The CHP Group's subsidiaries are incorporated in the United States of America, Australia, New Zealand and Germany.

The CHP Group is the developer of Alfa Systems, a leading, mission-critical software platform purpose-built for asset finance enterprises globally...

Its two Directors are the Executive Chairman and Chief Executive Officer of Alfa Financial Software Holdings (LON:ALFA) .

Profit Before Tax in 2019 was £10.387 million (down from £15.321 million in 2018).

Paul et al

Regarding Alfa Financial Software Holdings (LON:ALFA) Directors Remuneration (2019 Annual Report) :

Page - Base £374k ( no change 2019 / 2020) / Total Comp £388m / waived eligibility to LTIP 2017 / 18 / 19 / 20 / Owns 181m shares

Denton - Base £321k ( no change 2019 / 2020) / Total Comp £338m waived eligibility to LTIP 2019 / 20 / Owns 16.5m shares

Re Alfa Financial Software Holdings (LON:ALFA) , I'm sure I'm just being thick here, but where do I find the Stockopedia page on major shareholdings?

kgb1953

on the stock report the little box with Institutions. This shows all shareholders with over 3%

The latest Investors Chronicle podcast covers this very well. You donthave to subscribe to the magazine.

The Small Cap report and the comments from subscribers shine a light on what is really happening to the economy and its not a pleasant picture. It would be great if the likes of Alok Sharma and Rishi Sunak could read Paul's valuable summaries and realise that this vitally important sector of our economy is in real trouble. Yes they may have been given support but this is only temporary and unless we get rid of all these silly and contradictory regulations we may wipe out large parts of it.

Perhaps Paul could join SAGE. Small businesses just don't seem to have a voice.

Ah, thanks. I couldn't find it on the Old Site, but when I switched to the New Site it was easy to find.

Trident

We don't know as there isn't sufficient information in a Trading update, but Proactis Holdings (LON:PHD) may have chose not to reduce debt in the current circumstances. However, they also don't say anything about relative cashflow strength

Sounds encouraging on the build of their pipeline of deals. Maybe this is more of a second half contributor, assuming no further Covid shocks.

Gromley

H2 2020 trading - is expected to be loss-making. Various factors are mentioned, including staff doing more billable hours in H1 and not taking holidays, which will reverse in H2.

I have spent a lot of my working life in Companies who's business is Billable hours. How does an employee (Fixed cost) Billing MORE hours than expected (and budget) create a loss!

Too many BOOKABLE Hours to a fixed price project YES

I think the point is they will be doing less billable hours in H2 hence H2 being loss making.

Very superficially it strikes me that profitability must be pretty marginal if people taking their Annual Leave in H2 rather than H1 can swing them into a loss, even accepting that utilisation is a key metric for businesses like this. Maybe there is some more significant going on?

Ben1

Is another national tightening likely? Obviously the hotspots like Oldham etc. get the headlines, but much of the country is now seeing very few, if any cases.

Surely there will be very negative reactions to national restrictions in the rural parts of the country where cases are now very low, and I suspect the government will also be mindful of the economic effect of closing all pubs in the country for example when it really only to needs to add restrictions in certain areas.

sharw

In respect of ALFA Paul says:
Many thanks to the company & its adviser (Tulchan Communications), for giving us the market expectations figures, this is so helpful, I wish all companies would do this.

Hear, hear but there are some that go even further. OK, it has a £3bn, Mcap but Spectris (LON:SXS) provides great detail updated frequently on its investors website. Have a look at this: https://www.spectris.com/sites... Now if they all did that!

Watchdog

That's a brilliant assessment. Thank you very much. I've been mulling over for some weeks now whether I'm prepared to be as brave as Paul. But having read your assessment I am convinced that this is not a share for widows, orphans or me! Good luck to braver souls. May you reap your rewards!

dfs12

I agree that a national tightening may be unlikely - but the opening up of schools is a national loosening - if Whitty wants a comparable tightening to provide balance it would probably have to be something like pubs.

I also agree that it would may make sense to keep rural pubs where there are very low cases open - but I'm not sure how many Revolution Bars (LON:RBG) pubs are in rural areas? They are more likely in high density town centres. These are more likely to be the ones that get tightened.

All complete guess work and my guesses on macro stuff have been pretty wide of the mark in the last few months - so perhaps not worth a great deal!

Paul Scott

Hi ezlifeme,

Re. ALFA - You've read it wrong! Go back and read it more slowly!! ;-)

The staff charged more billable hours in H1, thus boosting profits in H1.

This will reverse in H2, as the staff take more holidays, hence charge fewer billable hours, hence a loss in H2.

Regards, Paul.

ezlifeme

Sorry Paul, I was being a bit cheeky with my post and I used the right fly in my cast to get a rise! I had read a clear statement correctly, I was just illustrating how easy it is to get into an a difference of opinion on these matters. As any Panda who eats shoots and leaves. Or is that eats, shoots and leaves - will know

ATVB ezlifeme

Phuntt

26th Aug '20

Yeah Gostevie, I did sort of skate over this point. I meant that it's difficult for RBG to substantially raise their prices. Their model is based on cheap vodka shots/ cocktails - in good times this is awesome because it drives volume. However, when costs increase it is much harder for companies like this to raise prices because their customers are by definition price inelastic - they only went there for the cheap booze and a small drop in volume can have devastating effects on their bottom line. Contrast this to a swanky cocktail bar charging £12 for a lovingly prepared concoction - if they raise their prices to £13, do their well heeled customers even notice? In recessionary times (which I believe we are entering), it is companies operating high volume/ low price models that tend to get into trouble first for this reason.

Regarding your local, it used to be cheap - now it's expensive. That will work if the customer goes there for other reasons than cheap beer - if their business is built on price (as I think RBGs is), the customer will stop going. I was really worried on reopening as we put our prices up substantially and have been shocked at how little the customer seemed to care. But our business was never price led. I wish now we had been braver and put them up more...

Small Cap Value Report (Tue 25 Aug 2020) - UPGS, DFS, ALFA, NFC. PHD, CAR

Clarification re Up Global Sourcing Holdings (LON:UPGS)

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Paul Scott

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