Small Cap Value Report (Tue 27 Nov 2018) - PRSM, ALT, CHH, QUIZ, IGR, VCP, GRG
(Graham is on SCVR duties, but Paul has left us the following note. - GN)
Hi, it's Paul here!
I'm not entirely sure whether it's me or Graham meant to be writing Tuesday's SCVR? So I thought it might be best to just put up a placeholder, and then see what happens tomorrow!
We're both a bit pre-occupied with Mello London, and making sure that this investor show has the highest ever recorded per capita consumption of Guinness!
There were literally no taxis around, and Uber wasn't working either. So when we were all thrown out of the hotel bar at Mello c.1 am, after a very jolly time with Gromley & Bestace in particular, I had little choice but to mount a Mobike, and cycle 11 miles back to my Islington pad.
Only to be told by my flatmates to (1) not make any noise, definitely no singing to Queen or Chaka Khan, (2) microwave some macaroni cheese, as that's all we have left, oh and some broccoli, and (3) go to bed please.
I'm due to be released from Twitter prison in a few hours - apparently hurling abuse at our democratically elected Prime Minister, is not de rigueur these days. Sorry, I didn't get that memo, I foolishly thought we still have some semblance of civil liberties, and freedom of speech. Clearly not. Now we are all snowflakes. I'm offended!!
Thank goodness we live in a relatively civilised country, where you just get banned from Twitter for 7 days, for pouring scorn on the useless ruling class. As opposed to recent examples abroad which show just how primitive & uncivilised humans can be.
Actually, the history of mankind is appalling. It's full of violence and hatred. We are so lucky to be living in a brief interlude, of peace. Let's make the most of it. We'll all be dead in 100 years anyway.
Morning, Graham here.
I only have about an hour/90 minutes to look at company updates before I have to leave for the conference venue and present this blog. So this is going to be a turbocharged (i.e. short but very fast) SCVR.
Blue Prism (LON:PRSM)
Trading update - year-end update from this robotics group.
Key points:
- strong sales momentum has continued, particularly in Q4.
- customer base more than doubled compared to a year ago
- revenue slightly ahead of expectations, loss also ahead of expectations
- similar outlook for 2019. Revenues to be ahead of expectations, EBITDA losses increasing too.
My view - not something I've ever considered investing in, due to the valuation and the fact that I don't feel like I have any understanding of robotics!
Coincidentally, this share was mentioned yesterday by Volvere (LON:VLE) CEO Jonathan Lander (I currently hold VLE shares).
As a value investor and contrarian, he was pointing out that you must always bear in mind the competition. Blue Prism (LON:PRSM) is growing very fast, and may have certain competitive characteristics which justify a premium valuation. However, its price/sales ratio is approximately double the ratio compared to private robotics companies which have been raising money.
I suppose it goes back to the point that publicly-traded assets can be pretty expensive, compared to similar private businesses.
Stockopedia gives Blue Prism a Value Rank of 1. This is the Small Cap Value Report, so I feel it's appropriate to point out the lack of obvious value!
Altitude (LON:ALT)
Trading update
Nice to see Mello mentioned:
Altitude Group plc (AIM: ALT), the operator of a leading marketplace for personalised products, is pleased to provide an operational update for the 9-week period since the Interim Results announcement on 25 September 2018, ahead of the Group's CEO, Nicole Stella, presenting at a Mello investor event at Clayton Hotel, Chiswick, London later today.
Trading is in line with management expectations.
Metrics currently look poor and it is rated as a Sucker Stock. However, it is forecast to make strong profits two years from now, so it could be worth looking into in more detail.
Churchill China (LON:CHH)
Transaction in own shares and total voting rights
That old controversy about buybacks - I feel compelled to mention it again.
Regular readers will know that I love a buyback.
Yesterday, I attended a packed talk by Lord Lee. His topic was The Importance of Dividends!
During the Q&A, he said that he actually quite fond of buybacks in certain circumstances. There was a particular share he held where the NAV had quadrupled or quintupled thanks to buybacks. So he said that it was quite worth doing!
Indeed, he said that he only really liked a buyback if it was so big that it took out a large portion of shares.
I've realised that my own portfolio is getting rather full with companies doing buybacks. My two most recent additions - Rightmove (LON:RMV) and B.P. Marsh & Partners (LON:BPM) - are happy to buy back their own shares.
Churchill China (LON:CHH) is a company and share I've had a positive impression of for a while, and I note that it has bought back some of its own shares during the past week. This should be a trigger for me to look at it again in more detail, when I get a chance. Its current valuation in P/E terms looks like it could be modest relative to its history, for this company.
QUIZ (LON:QUIZ)
Interim results
It's still shocking to me how far this has fallen from its IPO valuation.
Key points from these results:
- revenue +19%, EBITDA +11%
- underlying PBT minus 11% to £4.2 million
- actual PBT +4% to £3.8 million
- online sales 30% of total (vs. 25%)
Underlying PBT excludes a bad debt in relation to House of Fraser. It seems ok to exclude this. The previous year underlying PBT excluded IPO and reorganisation costs. Again, that seems ok to me.
Net cash is £12.5 million.
My view - the shares look unfairly bombed out to me, given that underlying PBT hasn't suffered that badly. That said, I'm not going to buy shares in this as I am happy owning Next (LON:NXT) and don't want to own any other retail. But I do believe that this is worth looking at in more detail, if you have interest in the retail sector.
Stockopedia thinks the forecast EV/EBITDA ratio is less than 4x.
IG Design (LON:IGR)
IG Design Group plc, one of the world's leading designers, innovators and manufacturers of celebrations, gifting, stationery and creative play products, is pleased to announce its results for the six months ended 30 September 2018.
You may recall this did a large US acquisition. Organic growth is pretty small (4%). With the acquisition, total revenue growth is 23%.
Underlying operating profit is up 35% organically, or 71% in total.
Outlook - ahead of expectations.
I haven't got much to add except that this seems like a nice company that is performing well. Rating is a bit expensive as you'd expect but the StockRank comes out at a very respectable 84.
Victoria (LON:VCP)
Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, is pleased to announce its interim results for the 26 weeks ended 29 September 2018.
I bring my usual scepticism to these results.
Underlying operating profit is +87% to £34 million. Actual operating profit is +5% to a much lower £13.6 million!
Cash generated by operations is £34.8 million - not bad.
Net debt - £343 million, up from £99 million a year ago.
Net debt / EBITDA 3.1x, versus 1.8x a year ago.
Outlook - Chairman comments:
"In conclusion I, the Board and management are confident in the outlook for the Group, and believe that Victoria is on track to meet its objectives for the current financial year.
"Material market share gains in the UK will secure long-term earnings growth...
"Finally, I am acutely aware that Victoria's share price is not where I believe it should be given our current trading and prospects. As one of the largest shareholders, you can be assured that I, and the other directors and management, are focused on building the confidence of investors and delivering the financial results expected of Victoria."
My view
I'm not sure I agree with the Chairman. It looks to me as if the company share price is trading much closer to where it should now. After all, this PLC is a financial creation which sells flooring products. Why should it trade at an above-average P/E ratio, or at a significant premium to book value? I suspect it is close to fair value now.
Greggs (LON:GRG) - shares up 13% after a positive trading update. It's not all doom and gloom out there!
Out of time, that's it for today! Cheers.
Graham
Disclaimer
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37 comments
IG Design (LON:IGR) has a lot more going on to it than shows and we'll have to see the results this week about progress. We know they are ahead, looks like they are doing quite well in this climate and the SP does not IMO have the potential from the acquisition of Impact reflected to it.
I think they update this week.
Hi
For those who might be interested in Altitude (LON:ALT).
This headline from RNS yesterday (11/01/19).
'Proposed placings of, in aggregate, 10,294,118 new Ordinary Shares at a price of 68 pence per share to raise £7.0 million
and
Acquisition of the membership-based trade group of independent promotional products distributors business of Advertising Industry Mastermind Group, LLC'
The RNS has a lot more detail if you wanted to dig deeper.
https://www.investegate.co.uk/altitude-group-plc--alt-/rns/proposed-placing-and-acquisition/201901110700048200M/
I noticed Altitude (LON:ALT) from Mello, London 2018 and this informative video from Tamzin and Piworld. Worth watching if your interest is pricked.
https://www.piworld.co.uk/2018/12/13/altitude-group-alt-presentation-at-mello-london-november-2018/
I don't hold yet but might go for small entry position depending on how the placing develops.
Regards
Howard
"Aided and abetted by the wonderful head honcho from Ideagen (LON:IDEA) (who makes me look sober, and that's saying something!)"
SELL IDEAGEN NOW, WHILE YOU CAN!!!!! :)
Bloomin miraculous those mobikes obviously and we're supposed to believe that driverless cars are 'clever'. ;-)
A thoroughly enjoyable two days at Mello - excellent presentations, excellent company ( a good start on my would like to meet up with list )
Huge congratulations to David and the team - have you organised next week's event yet? :-)
I can't wait.
Completely off -topic but your intro. was interesting and thought- provoking. Think you're being a bit optimistic about the 100 year time span though. FWIW, and IMHO, we'll be fortunate to reach 2050 the way things are shaping up.
Graham (mainly, as this [financial sector] is more his forte than Paul's.
AJ Bell have just released details of their IPO, and I wondered if you (or SCVR readers) have any thoughts.
At 208 pages, the prospectus looks likely to be keeping me occupied for a couple of hours (or possibly more) !
Deadline is 5pm on 5th December, so I would imagine any serious investors could have a busy weekend !
I've an initial thought on my (possible) investment, and have approx. 70% of the cash at the ready, so may need to trim my 'folio to get the little extra before Wednesday. .. IF I decide to invest :o)
Graham if you get time could you cast your eye over Treatt the results looked pretty good to my untrained eye
Curious that Paul does not comment on D4T4 which released stonking results today. Even though a strong performance was predicted in the last trading update, these results appear to be well ahead of expectation. Also with news of further contact gains, new large customers (e.g. US, Swedish banks etc).
I don't understand why £QUIZ has been registered in Jersey since March 2017. There must be some advantage but it just looks suspicious to me. Can anybody clarify?
QUIZ (LON:QUIZ) and Jersey
i would guess the option to minimise uk corporation tax and possibly some other taxes might have something to do with it.
re QUIZ (LON:QUIZ)
It looks as if it was set up in Jersey in preparation for the July 2017 IPO when it took over Shoar, the previous group company and now an intermediate company. To find out more go to
https://beta.companieshouse.gov.uk/
and enter SHOAR (HOLDINGS) LIMITED in the search box.
I would guess the option to minimise uk corporation tax and possibly some other taxes might have something to do with it.
If that is the case they are not very good at it. £1.7m tax paid on pre tax profit of £8.5m is a tax rate of 20%.
Possibly it puts it technically outside the takeover code for the LSE?
I'm not able to make Mello, but would be very interested in some of the presentations (I have holding T Clarke and Duke for example). Are these made available anywhere or is it dependent on the companies themselves to do this?
The £ system will not work with any epic containing a numeral so you just have to create it yourself the long way thus:
D4t4 Solutions (LON:D4T4)
The worst is System1 - SYS1. If you put a £ in front it produces a different company SysGroup (LON:SYS)1
thanks, clearly a glitch in the Matrix
finnCap have published a note on D4T4 Solutions this am and updated the price target to 240p from 215p (they are the house broker btw)
splendid results they are too with bags of cash and improved margin. Believe it is still free to sign up for finnCap's research
https://researchlibrary.finnca...
Excellent H1 results
A combination of the large contracts won just prior to the period, together with the IFRS 15
adjustment bringing £1.7m sales (and £1.0m profit) from H2 2018 into H1 2019, saw the
first half revenue almost treble YoY to £14.0m.
The new segmental analysis provided breaks down what had previously been shown as
‘Project Work’ and the greater clarity shows high-margin ‘Own-IP’ products in the mix
rising from 17% in H1 LY to 46% of total group sales in this half. Thus the Interim gross
margin rose from 44% to 51% and gross profit jumped 243% from £2.1m to £7.1m.
Overheads grew 52% to £3.8m on the back of heavy US sales investment but with the
step change in profit, H1 Adj. EBIT swung from -£0.4m LY to a £3.4m profit and Adj. PBT
(Adj. FD EPS of 7.4p). This is a sustainable 25% operating margin – in line with those
seen in FY 2017 and FY 2018.
These numbers exclude an £0.8m exceptional FX gain and the usual £0.2m of SBP and
amortisation in the half. The effective tax rate of 13% was in line with expectations.
can't get the EPIC link to work for £d4t4 or £D4T4 or LON:D4T4 or LON: d4t4 : needs fixing!
Lacklustre interims from Triad (LON:TRD) this morning. Sales, profits down, net cash and dividend both up.
SP hammered, putting superficially into value territory. Luckily I was watching from the sidelines - the SR of 95 kept it on my watchlist. Still can't see value with half a million EBITDA.
Interesting comment at the end: "The Company is aware of numerous unfounded comments from a major shareholder appearing on social media, relating to its officers and professional advisers. The Company is taking this matter extremely seriously and has sought appropriate legal advice".
I think I'll continue to sit this out. Wondered if anyone more familiar is able to comment? Graham and Paul are probably too busy to comment, what with Mello, which I'm sadly missing.
More thoughts on me from QUIZ (LON:QUIZ) in addition to what Graham has pointed out (I hold and have looked at it in reasonable detail). Firstly, worth reminding ourselves this share is currently trading at c.7x 2019 (conservative looking) earnings and cash at half-year end now represents around 22% of the market cap. So the share must be doing really badly or is very risky if the market is right.
Today's half year results won't be winning any prizes for the best written RNS. If anyone is confused about why basic EPS shows higher growth than underlying, its because the comparative half year had a number of one-off costs e.g. IPO costs. Given the share price, I was hoping for more reassurance about current trading up front but you have to scroll some way down to find it:
"Since the end of H1 2019 we have continued to grow Group sales. In the eight weeks to 24 November 2018, sales (excluding international franchise sales which are wholesale in nature and therefore, can fluctuate from month to month) are up 10% year on year. This growth has been underpinned by particularly strong sales growth through the brand's own websites of 62%."
So sales have fallen in growth from 19% in H1 to currently around 10%. This still seems decent given we know many clothing retailers are struggling because of the delay in cold weather arriving and QUIZ (LON:QUIZ) have already cited flat revenue from third-party websites. The excitement for me with this share is the potential growth from its Boohoo (LON:BOO) style marketing and the 62% YoY growth for its website confirms this is still on track, albeit slowing slightly.
At the same time, H1 results indicate revenue growth in stores remains which again is impressive against the current backdrop "UK standalone stores and concessions sales increased by 9% to £35.1m". While we don't know what like-for-like sales are, it is reasonable to assume there was some or flat growth as store square footage increased by 8%.
Underlying EPS isn't great and this is partly due to increased spend on marketing which is now £1.7m (up 74%) and an investment in increased warehouse space. Trailing 12m EPS is 5.84p - so the share price trades at 7.5 times that.
Positives of this share:
- You aren't going to find many companies with net cash of 22% of the market cap, priced at around 7.5 times trailing 12m EPS and 2019 conservative-looking broker earnings predictions, growing revenues at 10% a year with strong online growth coupled with the potential for further international growth. It recently started selling in the US and today reports "We are pleased with the sales made to a US department store chain which started earlier in the year. We remain optimistic about QUIZ's long-term potential in the US and look forward to developing further growth opportunities."
Negatives/risks:
- The main risk with this share, in my opinion, is its very large number of Debenhams (LON:DEB) concessions given the current risks at Debenhams (LON:DEB). I have written about this here and in fact I only bought into this share again following the recent share price falls. I personally think this is now more than factored in but it would make a dent to sales. Hopefully strong online growth will help to negate any consequences here but there doesn't seem to be any fast move by QUIZ (LON:QUIZ) to exit its Debenhams' concessions. To be fair, QUIZ (LON:QUIZ) does say the payback on its (new) concessions are fast: "Our most recent concessions which have been opened for more than a year have, on average, achieved the Group's targeted payback period of 12 months or less."
- It has also flagged flat growth with third-party websites: "Since the period end, third party online sales have remained in-line with the prior year."
- Marketing spend increased by 74% this period. If you look at their marketing it is aimed at driving people to their website . So it does seem to be working but clearly that is affecting profitability in the short-term.
Overall though, my personal view is these negatives are more than priced in. DYOR.
On Topps Tiles (LON:TPT) full year 2018 results out today, this company continues to put in a respectable performance against a grim background (I hold). What was noticeable this year was the reduction in net debt due to the £17.9m of FCF generated (14% FCF yield). This FCF was achieved partly through a very aggressive reduction in CAPEX. The question is how sustainable this strategy is. Some of the softer metrics do not look that good. Further reduction in net promoter score and further increase in staff turnover (both metrics have been deteriorating in recent years.)
D4t4 half year results look excellent.
https://uk.advfn.com/stock-market/london/d4t4-solutions-D4T4/share-news/D4T4-Solutions-PLC-Half-year-Report-six-months-t/78761749
£D4T4
These are super results. Looks to me like 14-15 eps for the full year (maybe slightly more) and should have circa 20% of the market cap in cash by then. NTAV also growing strongly.
Margin growth is phenomenal up to 50%+ and outlook for remainder of year positive.
Strip out cash and we're trading at roughly 10* PE, which feels too low to me for a growth business with plenty of cash in this sector. I'm thinking 250p+ is more appropriate, so raised my personal target to that, around 12-13* cash adjusted earnings.
Hi can we please look at QUIZ (LON:QUIZ), reasonable results, still growing looks oversold to me. Thanks.
Done! G
Morning all - On Advfn someone is saying re SCISYS (LON:SSY): 'Is this not to do with the switch over to the new shares pending the court hearing? 27th was date that was mentioned' so may not be worth getting excited about (I was, I hold a sliver!) Seems undervalued to me
Anyone got any thoughts on accesso Technology (LON:ACSO) - down about 50% after a quite comprehensive-looking short attack by Tom Winnifrith it bounced 15% yesterday (kicking myself for not buying more). Cheers folks!
I personally don't see value in accesso Technology (LON:ACSO) even at this level. The fact that their interim profit before tax was DOWN on the previous year indicates to me that they are chasing growth at the expense of, uh, something else. There are far too many, significant, adjustments in the results for my liking.
My morning smallcap tweet: Smallcap report from #MelloLondon
Xeros Technology (LON:XSG), Novacyt SA (LON:NCYT), T Clarke (LON:CTO), Altitude (LON:ALT), IG Design (LON:IGR), Blue Prism (LON:PRSM)
Xeros Technology (XSG) Placing (£15m) and open offer (£5m) at 10p a nasty 69% discount.
Novacyt (NCYT) $3m minimum exclusive supply agreement order from Genesis Diagnostics over 5 years.
Clarke(T.) (CTO) guides FY ahead of current market expectations with rev up 3%, underlying operating profit before interest and taxation of circa £8.6m (2017: £7.3m). Order book up 6%.
Altitude Group (ALT) says current trading in line with management expectations and FY broadly in line with market forecasts.
IG Design Group (IGR) H1. Guides FY earnings ahead of market expectations.
Blue Prism Group PLC (PRSM) guides FY rev slightly ahead of expectations but EBITDA loss larger than expectations
T Clarke (LON:CTO) are presenting at Mello today and that will be made easier by the strong trading update for 2018. The increase in orders to a record £403m, of which £230m is for 2019 - the outlook looks good and the teaser that the medium term 3% underlying operating margin target "is attainable in he near future" (versus 2.7% in now estimated for 2018) might also be giving a guide for 2019. (I hold).
For those looking first time at this stock, and seeing it optically very cheap, remember there is a large pension deficit and also that the strong cash position is not "excess cash" but needed to show the firm financial standing of the company when bidding for orders.
T Clarke (LON:CTO)
N+1 Singer have increased their EPS forecasts by 12% for 2018 and 15% for 2019.
Would have said today's sp movement so far is pretty muted on that basis.
I'd love to hear your take on Severfield (LON:SFR) who have interim results out today. It strikes me as a steady as she goes solid update, the SP hasn't done much over the last year (and previous for that matter) but maybe their strategic progress will at least underpin it (one hopes as long)
IMHO, I feel Severfield (LON:SFR) are losing steam, and it is the Indian joint venture keeping things looking as good as they are... which isn't that great. Underlying operating profit is DOWN (slightly) at 12.5m (12.7m) with operating margin down quite a bit. The Indian JV showed a big increase in profit (albeit at low numbers) so excluding that the picture is worse. Also, the order book is down (as was the case in their last report). I see this as fairly valued.
FWIW SCISYS (LON:SSY) has been suspended pending an announcement.
All the best, Si
RE: £SSY Excerpt from previous RNS - So nothing to worry about I don't think
SCISYS PLC Results of Court Meeting & Scheme General Meeting
19/11/2018 12:07pm
UK Regulatory (RNS & others)
Subject to the Court sanctioning the Scheme and the satisfaction or waiver of certain other outstanding conditions, it is expected that the last day for dealings in Old SCISYS Shares will be 26 November 2018 and that the Scheme will become effective on 27 November 2018.
Upon the Scheme becoming effective, Scheme Shareholders will receive one New SCISYS Share for each Old SCISYS Share which they hold at the Scheme Record Time.
Nope, they're just reorganising the company to be dual-listed in London and Ireland.... no doubt a premature Brexit thing.
Still very much in the realms of “jam tomorrow, Sucker stock”, interesting announcement from OptiBiotix Health (LON:OPTI) this morning that their slimming compound, SlimBiome, has received approved medical status. Up until now this leg of their portfolio has been positioned as a food additive which might help weight loss but this accreditation seems to have the potential to raise the product into higher margin pharma type applications. May also help them be more assertive in pushing the benefits of their existing products under the “Go Figure” moniker.
https://www.investegate.co.uk/optibiotix-health--opti-/rns/slimbiome--granted-medical-device-status---ce-mark/201811270700055340I/
Plenty of false dawns with this one, with hype running ahead of reality, but would seem to be going in the right direction.
Gus.
———
Also note that SCISYS (LON:SSY) shares have just (7.33) been temporarily suspended from AIM, presumably pending an announcement, although as of yet nothing announced by the company.
Wow, you really like Blue Prism, Graham....
Good progress reported by Treatt today, may be worth a comment, too.
B2V