Small Cap Value Report (Tue 29 Jan 2019) - SAL, SPE, FTC, VLG, W7L, LUCE, CVSG

Tuesday, Jan 29 2019 by

Good morning!

This list is final:

At the end of the report, I briefly cover updates from Brady (LON:BRY), PZ Cussons (LON:PZC), Crimson Tide (LON:TIDE) and Team 17 (LON:TM17).

Spaceandpeople (LON:SAL)

  • Share price: 14.5p (-15%)
  • No. of shares: 19.5 million
  • Market cap: <£3 million

Pre-Close Trading Update

This retail marketing group, a serial underperformer, is now in "why are you listed?" territory with a market cap of less than £3 mllion.

Up until today, it officially traded at a forecast P/E ratio of only around 4x - a fine example of the danger of buying into so-called "cheap" shares!

December is reported as subdued, "in part due to well documented difficult high street trading conditions".

Spaceandpeople produces "experiential" campaigns for brands, and provides temporarry venues for retailers. To put it as simply as possible, declining footfall reduces the value of what it does.

It is now set to report a small underlying loss for 2018.

2019 will hopefully show an improvement, and the Board is showing confidence by continuing to pay a dividend, albeit at a reduced level.

The problem is that the company has been around for a long time and it's hard to see why it might at last generate consistent profitability at a level which would justify being publicly listed.

And I have to say that this paragraph looks a bit off:

The Board has also taken the decision to write off the carrying value of the goodwill in relation to SpaceandPeople India Pvt Limited of £0.24 million. The Indian business continues to trade at expected levels, however, the level of profitability cannot support the carrying value of this goodwill at the moment.

Goodwill is only impaired when an acquisition fails to justify its expectations at the time of purchase.

So there would be no need to recognise an impairment to the Indian business if its expectations had never…

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All my own views. I am not regulated by the FSA. No advice.

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SpaceandPeople plc is a United Kingdom-based media specialist company. The Company is engaged in marketing and selling of promotional and retail licensing space on behalf of shopping centers and other venues throughout the United Kingdom, Germany, France and India. The Company's segments include Promotional Sales, Retail, Head Office and Other. The Company markets, sells and administers promotional space in a range of footfall venues across the United Kingdom, including shopping centers, theme parks, garden centers, retail parks and airports. The Company offers a service covering from consultancy services to the provision and management of retail merchandising units in shopping centers. It enables venues to market, administer, promote and sell their promotional space. Its subsidiaries include MacPherson & Valentine Limited, SpaceandPeople GmbH, Retail Profile Holdings Limited, POP Retail Limited, Retail Profile GmbH, SpaceandPeople India Pvt Limited and S&P+ Limited. more »

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Sopheon plc is a United Kingdom-based company, which is engaged in the provision of software and services in the product lifecycle management (PLM) market. The Company operates in two segments: North America and Europe. Its Accolade solution provides integrated support for innovation planning, roadmapping, idea and concept development, process, project, portfolio, resource and in-market management. Its offerings include alignment of long-term innovation plans with market requirements, industry regulations, and supply chain capabilities; generation and development of ideas and concepts to fill gaps relevant to achieving strategic initiatives; process and project management that tracks and enables decision making, focused on evaluating projects associated with innovation initiatives, and data management, analytics and integrity tools. Its subsidiaries include Sopheon Corporation, Alignent Software, Inc., Sopheon NV, Sopheon UK Ltd and Sopheon GmbH. more »

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Filtronic plc is engaged in the design and manufacture of a range of customized radio frequency (RF), microwave and millimeter-wave components and subsystems. The Company's segments include Filtronic Broadband, Filtronic Wireless and Central Services. The Filtronic Broadband segment is engaged in the design and manufacture of transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunications networks. The Filtronic Wireless is engaged in the design of radio frequency conditioning product for base stations used in wireless telecommunication networks. The Central Services segment provides support to the trading businesses. Its products are used in mobile wireless communication equipment and point-to-point communication systems, among others. Its product range includes transceiver modules and multi-chip, surface mountable transceiver packages at microwave, 71 gigahertz (GHz) to 86 GHz (E-band) and 57 GHz to 66 GHz (V-band) frequencies. more »

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  Is LON:SAL fundamentally strong or weak? Find out More »

34 Comments on this Article show/hide all

runthejoules 29th Jan 15 of 34

Does anyone have any thoughts on CVS (LON:CVSG) now it seems to be in SCVR terroritory?

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mammyoko 29th Jan 16 of 34

Re £W7L - inventory at £12.5m at the half-year, up £1m from the year-end. Debtors £11.8m, down £1.9m from the year-end, but still rather high? Claim to have £5.5m of cash at bank but no finance income in the P&L? The price action and consumer confidence is putting me off but the risk / reward and the price to FCF do look attractive

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SundayTrader 29th Jan 17 of 34

In reply to post #441398

I thought Crimson Tide (LON:TIDE) 's revenues were mostly subscription-based, so surely the stated 18% rise in customer base is good. I thought the forecast on PBT was little better than nothing, given the planned increase in spending. Not sure how much resource a company as small as this can put into giving hard figures in a TU, but if 2019 turns out as good as they are suggesting they could be cheap. I hold.

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shipoffrogs 29th Jan 18 of 34

If Sopheon (LON:SPE) is going to report results significantly ahead of market expectations why has the market taken the price down?

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runthejoules 29th Jan 19 of 34

How can Crimson Tide (LON:TIDE) be trusted with marketing when they've named themselves after an unfortunate Viz Profanisaurus metaphor?

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simoan 29th Jan 20 of 34

In reply to post #441503

If Sopheon (LON:SPE) is going to report results significantly ahead of market expectations why has the market taken the price down?

So I can buy some more... it all depends how you value the business. I see so many people quoting the PE ratio, but I stopped using PER several years ago. My preferred valuation metric EV/EBITDA is only around 18. That ain't so dear, and the business is clearly growing strongly, constrained only by the inability to hire enough engineers - that's a good kind of problem to have. 

If he invested in £100m companies, Terry Smith would be all over it.

All the best, Si

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Firtashia 29th Jan 21 of 34

Graham, with respect to £W7L, are you aware of any forward EPS estimate revisions for FY19 following today's trading statement?

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mmarkkj777 29th Jan 22 of 34

Sopheon (LON:SPE) has been on my watchlist for some time now. I have just taken advantage of this morning's dip to take an initial position.

I can't see anything at all wrong with the report, or the company overall. I don't even think its particularly highly priced for company doing this well, but I guess the market may think it should be cheaper. Time will tell.

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IGotPoesJacket 29th Jan 23 of 34

I'm dumbfounded at the way the market has treated £W7L.
My only conclusion is they think the company is ex-growth, but I'm not convinced. I guess we're waiting for new forecasts.

I start all these statements with I'm an idiot. I'm probably doing something wrong and appreciate the corrections.
If profit is £8.25M and there are 70M shares, that's profit per share of 11p. Not sure how that relates to EPS but Stockopedia entry says EPS of 6.6p for TTM so I guess actual EPS is somewhere between the two, so if we call it flat YOY - at just under 9p per share, that's a PER of around 8. Still cheap even if ex-growth (which I'm not convinced it is). It pays a reasonable divi too.

I hold and got me some more this morning. If I'm missing something or my maths are way off I'd appreciate the corrections and comments.

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Graham Neary 29th Jan 24 of 34

In reply to post #441518

Hi Firtashia, the broker has today made no changes to future forecasts, on the basis that no new guidance for FY2019 was given. G

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Gromley 29th Jan 25 of 34

The news from Filtronic (LON:FTC) back in December that expected orders for it’s mMIMO product would not be forthcoming, due to the fact that the end customer “is now looking to deploy different frequencies to those it had originally indicated”, was pretty crushing. 

This deal alone had the capability of being transformative to the company value and it offered the prospects of further sales into the much bigger market beyond this one end -customer.
On this basis the company decided to “impair fully the net book value of the capitalised development costs of £0.5m relating to the development of mMIMO”.

This pretty much said to me that this particular mMIMO product was dead and buried and that if Filtronic (LON:FTC) still had aspirations in this market is was back to the drawing board.

There is not much new in today's statement, but the differences and updates are mildly positive.
“However, our client [a major European OEM – whose name may begin with N] has confirmed that the programme is not cancelled and they will continue to sell and market our mMIMO products into the market.”

“ Subsequent to the December notice we have received a follow-on order for the balancing requirement of mMIMO for H2 which underpins our confidence in the sales outlook for the remainder of the year”

I don’t think one should get overly excited about this, but it is not quite as gloomy as the takeaway from the December update.

Also, in the meantime they have signed a new distribution agreement for antennae with Qunitel – it’s not immediately clear to me whether this is for the original product or for other antennae products, but it’s clearly another avenue.

So whilst I absolutely agree that the description ‘highly speculative’ is apt (and in fact was even before December), there is a little more interest now having this on my watchlist again.

It is also important I agree to look at net cash of only £2.2m down £1.6m over the 6 months. I take some comfort on this from two points; 1. The company’s statement “in the meantime, we are comfortable with our current cash position and cash flow outlook.” (well the would say that wouldn’t they?) and 2 the fact that since they had a major meltdown and had to be refinanced a few years ago (when the current CEO was CFO) they came back with a leaner model with much of their manufacturing outsourced.

So, whilst it would probably reckless to consider buying at this point, I definitely feel that it is a situation worth keeping an eye on.

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jonesj 29th Jan 26 of 34

Thanks for another fine report Graham.

You questioned the strength of the W7 brand. The first thing that crossed my mind was excellent Lidl W7 brand cleaning products, but a quick look at Google images shows me it's actually W5 at Lidl. If they changed it to W6 or W7 I probably wouldn't even notice.

I don't see how W7 could be strong branding. Then for people who want cheap cosmetics, don't all the discount shops do that already ?

Disclosure: I have no sector expertise in cosmetics as a consumer or an investor. Although it would appear that true premium brands have obscene margins, so further study is needed.

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HHR 29th Jan 27 of 34

In reply to post #441503

I hold Sopheon (LON:SPE) and I am disappointed with this update and the previous one too.

In an interview on Proactive investors dated 12/4/18 Andy Michuda commented on prospective 2018 revenue growth. He said that 2018 would 'continue the run rate of growth [compared to 2017] if not exceed it'. Spe achieved 22.8% growth in 2017 and at the 2018 interims Andy's prediction seemed on track with good growth of 27%. However as we now know the FY figure has come in at approx. 16%. 

A picture of potentially decelerating growth is also underpinned by the disappointing 7.7% growth in revenue visibility. Maybe this low short term growth comes as a result of encouraging new customers onto saas instead of licence sales but spe doesn't clearly say that in the announcement.

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JohnEustace 29th Jan 28 of 34

The point about W7 is that they do a lot of "dupes" - good copies of the current hot brands at a fraction of the price. Just search online for "W7 dupes" to see examples.
So they have a following among the younger customers who want the look but can't afford the expensive brands or as they get older have better things to do with their money.

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Benson 29th Jan 29 of 34

In reply to post #441588

PZ Cussons is a quality company but it’s share price has gone nowhere got years
Nigeria is its problem and shows no sign of normalising
Should the company not split into 2 to create some shareholder value?

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Wimbledonsprinter 29th Jan 30 of 34

Graham. Thanks for your excellent report (as usual). On Warpaint, which after some soul searching I bought today, however - I have some differences with your analysis.

Firstly, I think the revenue miss today was quite bad -and I expected the share to fall more. You say it was only 1% below the market forecast - it was also 3% below the central point of the lowered guidance, given only in late October. While the last two months of the year, includes Christmas peak sales, this presumably means that Nov and Dec sales were around 5-15% below what was budgeted for in the 29 Oct guidance. Today’s statement also carried very little information - companies are generally happy to issue re-assurance if they can - so maybe this is a negative in possible news about, end-year cash, dividends, 2019 expectaions etc

Secondly, I also hold Creightons (LON:CRL) and while it is true they are both in health and beauty (probably a low risk sector), I think the differences between the two companies are bigger than their similarities and it would not stop me holding both in my portfolio. Creightons (LON:CRL) is a UK manufacturer with some brands but most of its revenue comes from contract manufacturing and own-label. Warpaint only really owns the brand - all the manufacturing is done by 3rd parties (mostly in China) - its tangible fixed assets are negligible.

Despite my doubts, I bought Warpaint today, because 1) I thought it was cheap before today’s statement and was waiting for this trading update to buy, 2) after the 29 October warning, Bazini and MacCleod bought 150,000 shares each at 120p - maybe they will be buyers again, 3) non-financial reason: I likeWarpaint’s stance against animal testing.

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Graham Neary 29th Jan 31 of 34

In reply to post #441618

Thanks for the feedback WS, all points noted and acknowledged! My finger was hovering on the buy button today, too. My digging has revealed what many people will already know - that W7 is a bargain bucket brand for those who can't afford other brands. It's an interesting proposition at the current share price but my preference is for brands with pricing power, so I'll probably give it a miss. Good luck to all holders. G

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Mark Stabler 29th Jan 32 of 34

In reply to post #441383

Hi Leo,
I read your report and then looked back over my trading account (see myself as a trader more than an investor) started investing in shares back in 2014 and Patisserie was one of my first trades, in fact i traded in and out of Patisserie on 15 occasions during 2014...2017! Crazy I know. I am only a beginner but I think I have learnt a lot more by trading rather than investing. But the interesting point is that i sold out on 27/11/2017 same day as your report!!! Now I can't think back to did I or did not read your report but I do review all of the reports written here every night during my research so i think your report could have played a part in me dumping a share that i had traded in and out of 15 times and i never went back!
No i do do my own research and its not all academic i do a lot of shopping in town centers and i keep my eyes open as to whats happening and on trend and the two main differences that i noticed between Patisserie and Costa Coffee is that Costa was always much fuller than Patisserie even when in the same shopping centre (everywhere!) but Patisserie had by far the better most expensive cakes but the important point is they still had them at the end of the day! I used to wonder how can they make money out of cakes that they probably have to throw away after a couple of days! coffee beans you can keep to fight another day but have to sell them a bit quicker and they did not? So i could not see how they could make money. I made a small gain during that period of just over £4k and during the same period £500 from Whitbread (Costa Coffee) crazy I know from that one it should have been more... I may have to start investing;-)

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proffittpar 29th Jan 33 of 34

Warpaint I must admit to being baffled by the dramatic fall in the share price. I acquired at much higher prices thinking they were a good buy at over £2 particularly having been in warpaint shop packed with all ages acquiring products thinking on aldi model. On fundamentals they appear to be in bargain territory now but after recent aim debacles losing confidence in investing. The Directors sold 2.5 million shares at £2.30 in June 2018 trading statement okay yet 3 months later there was a profit warning which did not go down well with me. They have only bought back 250,000 shares at £1.20 which does not inspire confidence and trading statement very short on detail. Also very annoying that Joanne Hart Midas tipped and whilst she constantly brags about shares that have gone up in price very rarely updates on one's that have gone down and offer readers another considered opinion. I would welcome Paul's and Grahams comments on fundamentals in case I am misreading what a bargain they appear to be in my opinion.

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HHR 30th Jan 34 of 34

In reply to post #441573

I've been thinking about yesterdays Sopheon (LON:SPE) update a bit more and I am a little bit happier with it. I think perhaps the disappointing top line is disguised by the progress on recurring revenue (announced as up 22.5% yesterday).

I looked at the 2018 interims this morning which are slightly ambiguous. On the one hand spe said it had added $0.6m of saas contracts "during the period". But it also said that recurring revenue was up $1.7m from the start of the year.

There are two possible explanations for this apparent anomaly, i) I think the probable explanation is that the recurring revenue quoted is a current figure, i.e. maybe spe signed some hosting or saas work between H1 end and publishing the interims in August, ii) alternatively it could just mean that the recurring revenue figure is indeed a historic end of H1 snapshot and the increase is made up of additional components to saas e.g. hosting or service.

Taking the former explanation would mean that spe signed $2.1m of recurring revenue in H2 compared to $0.6m in H1. That $2.1m will include some saas and as such I feel if some of those saas had been signed as perpetual licences then the 2018 revenue figure would have been more in line with my forecast of $35m.

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 Are LON:SAL's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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