Small Cap Value Report (Tue 26 June 2018) - CRL, CRPR, CPR, DSG, RDT, VEL, PRSM | Graham Neary

26th Jun '18 by Graham Neary

40 comments 13745 reads

Good morning, all.

Today I am interested in:

Creightons (LON:CRL)
James Cropper (LON:CRPR)
Carpetright (LON:CPR)
Dillistone (LON:DSG)
Rosslyn Data Technologies (LON:RDT)
Velocity Composites (LON:VEL)
Blue Prism (LON:PRSM)

Lots of updates today, let's see how far I can get!

Cheers

Graham

Creightons (LON:CRL)

Share price: 27.75p (+7%)
No. of shares: 60.6 million
Market cap: £17 million

Please note that I currently own shares in CRL.

Creightons Plc (the "Group" or "Creightons") is pleased to announce its preliminary results for the year ended 31 March 2018.

This is a small company in the sector often referred to as "FMCG" - fast moving consumer goods. It makes haircare, skincare and beauty products.

I bought into it after its "good" profit warning a few months ago. I've topped up my holding today

The issue was that Creightons couldn't handle all of the demands upon its manufacturing capacity. So as not to let down external customers, it outsourced the manufacture of its own branded products.

Unfortunately, manufacturing own-branded products is where it makes its highest margin.

As a consequence, gross and operating margin were reduced by £229k in these results.

Even without this problem, gross margin would have fallen due to rising raw material costs and other input prices.

By my maths, even without the capacity shortage, the gross profit margin would have fallen to 41.3%, from 42.5%.

From a more positive point of view, we can say that on an absolute basis, the gross margin contribution still rose rather impressively, due to rising sales:

The capacity shortage increased Creighton's distribution costs, too - an operating expense.

The operating profit margin reduces by 0.2% to 4.7%. In the absence of capacity issues, operating profit margin would have increased to c. 5.6%.

So the quality of the performance clearly deteriorated from an operating margin point of view, due to this problem.

But again, on an absolute level, operating profit increased, due to the higher sales throughput.

I believe the capacity issue has now been addressed, to meet recent levels…

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gus 1065

26th Jun '18

Perennial jam (albeit non-calorific, no sugar) tomorrow stock OptiBiotix Health (LON:OPTI) announced another manufacture and distribution license with an unnamed counter-party this morning for their sweetbiotix product.

https://www.investegate.co.uk/optibiotix-health--opti-/rns/agreement-with-global-corporate-for-sweetbiotix-/201806260700015010S/

Perhaps unusually the counter-party is “big” (global £100bn t/o food and agri co) and they will be paid a 6 figure retainer during the duration of the license. Share price seems to like it so far, up about 6% this morning.

Gus.

Mark Tughan

Morning Graham,

Can I request you take a look at Blue Prism (LON:PRSM). Paul has commented on this in the past (as crazily over valued) - interims out today, lots of good sales talk but it's still racking up the losses, management appear to have used to lofty share price to both raise more funds and sell their shares. I don't hold but have been short in the past and would consider it again...

Stocko saying it is still estimated to loose nearly £14m on £79m of sales in 2019 (although this could be revised).

I just can't see how this company can be valued at £500m let alone £1.2 BILLION. Maybe I just lack the vision thing!

SundayTrader

Also interested in £D4T4 - thought the update was fairly good myself. Mind you this looks to me an essentially "software house" business model, so not sure how much room there is for a re-rating.

dscollard

big increases in trade debtors and last year's back-end weighting of results looks like they have pulled forward revenue to make the numbers. That's fine if their pipeline is very strong but guidance doesn't support this.

FREng

What's the special interest in D4T4 compared with other software houses? The Stocko computers seem unenthusiastic.

BlueFrew

I went short Blue Prism (LON:PRSM) yesterday. I agree that whilst it is not a small cap it certainly should be. Anybody can sell pound coins for 90p, but it doesn't make for a viable business in the long term.

There was a good discussion on here in the past with somebody who had actually seen or used the Blue Prism "robots" which really reinforced the short case. It's just been a matter of waiting for a good entry point. I don't think the market is in the mood to blithely ignore the P&L of companies like this as much as it has been recently.

I don't see that much has changed since Paul's analysis here:

https://www.stockopedia.com/content/small-cap-value-report-wed-22-feb-2017-hotc-prsm-mcb-tmmg-lgt-ncc-172456/

Well other than the small matter of the market cap. It was about £300m then and Paul felt it was overvalued. It's about 4x that now and it isn't in much better shape than it was then.

I'm in no hurry to close my short.

Clementwether

James Cropper (LON:CRPR) please. Solid family company, Lord Lee is an investor I believe. Finals today. Looks a very high PE (23+) for a low growth pulp and paper business but the juice seems to come from its Technical Fibre Products and early stage 3D printed paper products that they see as an alternative to plastic. There is a broker note from Stockdale on Research Hub with a target price of 1750p (1433p today).

Beginner

Dillistone (LON:DSG) have a really good product, but the new data protection regulations seem to be giving it a massive hit. Their announcement this morning tries to put a good spin on this by saying that CEOs are signing up, even though lesser grades are not. Perhaps this is because they have secretaries to wade through all the correspondence. Profitability is bound to be hit in the shorter and medium terms. I sold out this morning, but will keep a good watching eye. The company has money in the bank, great connections, and a smart product. It is just stubbornly refusing to make a profit at the moment. (Sub 60 would be a bit of a bargain for the longer term, but it is closely held and very illiquid, so not for the trader or the feint hearted)

Wimbledonsprinter

Emmett. I used to hold Dillistone (LON:DSG) but sold out near the lows at the end of Q3 2017 (which turned out to be awful timing). The management are personable but I got fed up with management talking up metrics of certain products (in 2016 it was file finder new orders) which ultimately had little financial relevance. I worry if the “hype” around Gated Talent will be similar. Also, while understandable, I was also put off by the directors funding themselves the 8.15% loan notes in Sep 17. While the reported cash position looks strong - there are quite a bit of pre-payments in there.

TheShareWhisperer

Blue Prism , could you have a look, simply because of the insane valuation, and yet still no prospect of a profit. Good software makes profits from the early stages, but BPs doesn't.

Please check out the Trade receivables in the account and give your thoughts. Very strange.

abtan

Brief thoughts on £D4T4:

The Good

13.71% increase in revenue on the previous year (this is an 18.5% increase in constant currency terms)
Chairman comment: "...I look forward to updating you at a later stage with what I believe will be significant further progress."

The Bad

Recurring Revenue only has 52% gross profit - why so low? Only 6% growth YOY, not inspiring
x1 customer generated revenue of £12.4m out of total £20m - concentration of 62% too high

I took a punt on this over the last few months and sold out this morning

AlanJenkins2

Excited perhaps in the Chinese sense,as in 'may you live in exciting times' !

Graham Neary

Dave, Mercury, et al. Creightons (LON:CRL) now written up. Let me know what I've missed! G

GrahamF

Regarding Blue Prism (LON:PRSM)

They are in a land grab, spending large amounts on expansion to ensure that they have a major presence in the rapidly expanding robotic process automation market. Additionally, they don’t capitalise development costs and revenues are deferred from their licenses to spread the revenues over the full duration of the license while commission payments etc are paid upfront. So, this means that they are unlikely to show profits soon.

However, cash flow is positive, there’s no debt and a placing to fund expansion has already been done.

Some people have poo-pood their product. Some of those people are IT professionals. But note that the emphasis is on some. It is clear from their rapidly increasing sales, their increasing list of Blue Chip clients, the attendance at their conferences and surveys from HfS analysts of this market that their product is highly rated by those that use it and that the product clearly fits well with the needs of a huge array of large corporations and public sector bodies. So, who are you going to believe as to the value of the product? I don’t believe you can dismiss the body of evidence that the product has substantial market acceptance in its particular niche.

So is this niche market set to expand rapidly? Yes.

https://www.interquestgroup.com/iq-hub/infographics/2018/robotic-process-automation-industry-forecast

The difficulty is that the company is very hard to value at this stage, but note that Old Mutual doubled their stake late last year and the recent (January) placing was at only 1.1% discount so there is significant institutional support.

I believe that they’ve barely scratched the surface of this potential market; the large investment in expansion will tail off in due course; profits will be forthcoming at that time. It is a stock for the patient investor.

You may have guessed by now that I hold!

marccrosby

Blue Prism: I wouldn't buy the stock at these levels but agree with Grahams comments above and certainly woundn't short it. I work in the IT sector and Blue Prism is the most common RPA software that large blue chips i come across are starting to use.

Thanks for the James Cropper (LON:CRPR) suggestion and for your comment - it was worth a look! G

Re Blue Prism (LON:PRSM) - An egg or a tennis ball?

I sold out on Blue Prism (LON:PRSM) a bit early (if very profitably), it is a real tricky one to value but their channel and GTM is super and having huge outsourcers like Accenture selling your products into incumbent clients is no mean source of scaleable low cost sales .
Added to this both Gartner and Forrester really rate this from a vendor PoV so it has pedigree. No doubt it is stretched (he says having sold early ;P) but I would be a reluctant short unless I saw some real volume conviction selling from a blow-off top. Blue Prism (LON:PRSM) hasn't even gone near its 200MA since July 2016 when it was 110p

That said it did double top yesterday and rejected the previous high, price action today is fascinating with a real bull-bear fight going on . It will be interesting to see how this finishes the day as the bulls seem to have it for now (13:40): 10% of today's volume went through off-book at 12:20 in a couple of big trades ...we will see who and what later I suspect ( if there is a TR-1) but price is holding for now just flat on the day having been down over 10%) .

In any case a short from here should be relatively low risk - just set a stop at above 2000p and sit back albeit the 10 day average volume is just 210K so it is relatively easily pushed around

rogergreen

Hi Graham,

I see you have VEL on your list - woudl be really interested to hear your views, the sp seems to have moved up a little today (I hold).

Roger

peterthegreat

Thanks abtan for your post about D4T4. 62% of total revenues from one customer does indeed sound worrying and I was wondering if you could tell me where this figure came from as I have seen it suggested on another board that this large customer is actually a reseller who sells to a range of other customers. Do you think this might be the case? Thanks.

HornBlower

anyone following Ramsdens (LON:RFX). CEO has just sold 25% of his shares to raise £900k. salary and bonus of £175,000 so the shares are a substantial amount relative. first sale since IPO. seems not unreasonable thing to do. shares marked down 8%. great buying opportunity. just topped up

Small Cap Value Report (Tue 26 June 2018) - CRL, CRPR, CPR, DSG, RDT, VEL, PRSM

Creightons (LON:CRL)

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Graham Neary

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Re Blue Prism (LON:PRSM) - An egg or a tennis ball?

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