Small Cap Value Report (Tue 29 Aug 2017) - ITQ, FDL, IGE, IGR, RGD

29th Aug '17 by Paul Scott

15 comments 10660 reads

Good afternoon, it's Paul here.

I'm terribly sorry, but we've had a break down of communications. I thought Graham was writing today's report, and he thought I was. We're very sorry about that. Not to worry, I'll put something together this evening. The stocks which have caught my eye for newsflow today are: ITQ, FDL, IGE, IGR, and RGD.

Interquest (LON:ITQ)

Share price: 41.5p (down 11.7% today)
No. shares: 38.7m
Market cap: £16.1m

Trading update - this is a recruitment company, specialising in the technology and financial services sector.

You might recall that the management of ITQ tried to buy the company on the cheap, at 42p. This was a bizarre situation, in that the one independent Director opposed the deal, as did many independent shareholders. The takeover offer is now closed, with the management's bidding vehicle (Chisbridge Ltd) holding 58.3% of the company. As it failed to reach 75%, the shares remain listed on AIM (for now).

That's the background, so what does today's trading update say then? This covers the 6 months to 30 Jun 2017. Key points;

Net Fee Income (NFI) down 14% to £9.5m on a like-for-like basis (i.e. excluding an acquisition, which added another £1.7m in NFI)
Operating profit (excluding amortisation) was down 19% to £1.3m
Financial services sector is challenging, experiencing margin pressure
Larger divisions are taking longer than expected to turnaround

Revised guidance is given;

...the Company expects that Net Fee Income will be materially affected and EBITA for the year to 31 December 2017, before taking into account approximately £0.5m of costs incurred in the failed defence of the bid by Chisbridge Limited, will be approximately £3.1m.

Unfortunately I can't find any broker updates today, so am not sure how this revised profit guidance compares with existing forecasts. So I've looked back at last year's results, to find the comparable figure, which seems to be £3.4m. So the 2017 result is expected to be about 9% lower than the prior year - not good, but hardly a disaster.

My opinion - I just don't trust management here, so for me it's uninvestable. The problem is that management tried to take it private on the cheap, but failed to secure enough acceptances. So it's now in limbo, with management in control, holding 58% of the company.…

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The Phoenix

29th Aug '17

Have the day off Paul you both more than deserve it

daveinthelakes

The FT100 (and FT250) constituents are reviewed via their market caps based on today's closing prices. The adjustments take effect in a couple of weeks.
Unsurprisingly Provident Financial is out of the FT100 but Royal Mail should also be ejected (any stock below 110th automatically goes and Royal Mail is113th) leaving two places. NMC Health (LON:NMC) the middle east healthcare group will go in but the second place was a close run thing as based on Friday's caps there was little difference between DS Smith (LON:SMDS) and Berkeley Group (LON:BKG) but the former dropped 3% today so Berkeley should get promoted.

The significance of this is that the full replication tracker funds and ETF's have to buy the stock. All other things being equal Berkeley Group (LON:BKG) should go up a fair bit over the next couple of weeks.

The above has not yet been confirmed by the LSE so please DYOR.

matylda

Yeah - Agreed - Have the day off guys you do deserve it - Come back tomorrow refreshed!

Boon

On Image Scan Holdings (LON:IGE), looks like I sold out way too early at 6p. Congrats to those that kept holding and had faith.

Definitely lots of momentum on the share, both in staff morale and also investors.

A key risk for me though is lumpy orders - and whether the rapid growth in the order book can be repeated again next year. For a company that is making mature technology (xray machines) I don't think a forward PE of over 20 is justified.

1James1n1

On Interquest (LON:ITQ), a bizarre statement within the RNS today:

"Accordingly, the Company expects that Net Fee Income will be materially affected and EBITA for the year to 31 December 2017, before taking into account approximately £0.5m of costs incurred in the failed defence of the bid by Chisbridge Limited, will be approximately £3.1m."

The bid was unsuccessful, attracting less than the 75% votes required. I would therefore infer that the defence was successful. It seems an interesting take on events by those who were trying to take the company private...

VegPatch

It looks as though Chisbridge Limited bid for the company. The bid attracted c58% acceptances so Chisbridge now control the company as they own more than 50% of the voting shares. As it didn't get past the 75% threshold chisbrige can not force Interquest to delist. So the independent non exec justifiably describes the bid defence as "failed" as he and the Nomad, Panmure Gordon, advised shareholders not to accept the bid. As control has been transferred to Chisbridge and its related parties the company did fail to defend itself. Weird but true.

samanddee

Thanks Paul a privilege not a right

Cisk

30th Aug '17

Daho, you could always buy back in again? I've always tried to resist the emotional bias stopping me from buying something I sold earlier, indeed some of the best investments have been doing just that.

Each to their own of course. However it's entire lay logical to buy shares in a company you already know...

cig

I thought what they tried to do is a compulsory buy-out of minority shareholders, which required 75%. What's the threshold for a simple de-listing, where minority shareholders remain holders of non-listed shares of a private company? That may be lower. Besides, even if they can't delist that way, 50% is most certainly enough to pay out all future profits in the form of executive/board compensation. So either way, it's only investable for people who trust the controlling shareholders.

Hi Cig
Don't disagree re the directors or being a minority shareholder
All very unsatisfactory
The company has said it will remain quoted (for the time being...)

Here is part of the the statement on 27/07/17 from the non exec (don't think he will be very welcome at Board meetings...) re the compulsory buy out level:
The Independent Director notes the intention statements made by Chisbridge in its Offer Document and the announcement on 25 July 2017, the fact that it will hold over 50 per cent. of the existing issued share capital of the Company, and in particular its intentions relating to a proposed cancellation of trading of InterQuest Shares on AIM. The Independent Director notes that any such cancellation would require the acquisition by Chisbridge of 75 per cent. or more of the voting rights of InterQuest pursuant to the Offer or, subsequent to the Offer, the approval by 75 per cent. or more of the votes cast at a general meeting convened for the purpose.

It's not clear to me how general "such cancellation" is. Does it apply to:

A) Cancellation with a compulsory buy-out
B) Any cancellation of any kind

In theory (B) can be less adverse because the minority shareholder still has the full upside as a private shareholder -- it just becomes harder to cash it -- therefore maybe it requires a lower threshold. It may be company-specific. I'm not particularly interested in this particular case, but it would be useful to know what the law (or custom as entrenched in typical articles of association?) says.

From memory (and nearly certainly incorrect) so please check
Above 50% = control
Above 75% (if that is the threshold in the articles of association) then the company can be delisted at the offer price. Non selling shareholders remain as shareholders in a private unquoted business
Above 90% the controlling party can squeeze out (mandatorily purchase) the remaining shares at the offer price

Sniggolb

IG Design is one of the holdings of Small Coy Share Watch portfolio 3. It has two qualities I like: competent and conservative management, and a boring product that you don't have t have a degree in Nuclear Physics to understand. it stood at 220 a year ago and it is an "inevitable" and a core holding for us all.

Tom

kevanp

I see that IPConcept, apparently a Luxembourg-based hedge fund, have now accumulated over 9% of Interquest (LON:ITQ) shares. Interquest's registrar pointed out their buying activities to me before the Chisbridge offer lapsed—though he had no idea what their strategy was. This was one of the reasons I didn't accept the offer; this, and the fact that I was pissed off at the opportunistic land grab that was being attempted by the ITQ directors. I'm still hoping that IPConcept's continued buying will lead to something positive for ITQ's future.

Wimbledonsprinter

One further reason not to own Real Good Food (LON:RGD) was the disclosure (put in the bottom of the 1 August RNS) that the company had accounted for but mistakenly not disclosed that the excutive chairman had received around £1.8m for "consultancy services" over the prior 3 years.

Small Cap Value Report (Tue 29 Aug 2017) - ITQ, FDL, IGE, IGR, RGD

Interquest (LON:ITQ)

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Paul Scott

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