Small Cap Value Report (Tue 29 May 2018) - Italy/Euro, BLV, OTMP, IDOX, REDS

Tuesday, May 29 2018 by

Good morning! It's Paul here.

Italy/ Euro

It seems to me that we're entering a new phase of the ongoing crisis with the single currency. Previous measures, centred around Greece, were little more than papering over the cracks, of a currency union which is unworkable in the long term, in my view.

The press are now picking up on the political crisis in Italy, whereby the President has blocked the appointment of a eurosceptic finance minister, thus causing the collapse of the latest Government after 4 days. So new elections are now necessary, which are likely to cause a bigger eurosceptic majority (according to opinion polls), putting Italy on a collision course with the EU establishment.

To me, this seems far more serious than the Greek Euro crisis, because Italy has 2.3 trillion Euros of national debt. We know what the EU's strategy is, in dealing with rebel Governments, since Yanis Varoufakis recorded all his meetings on his iPhone, and then published a book about it - "Adults in the Room" - highly recommended.

I feel that the only solution for the Euro, is for Germany to leave. Running an export surplus of 8% of GDP (breaking the EU rules limiting it to 6%), is sucking money out of the rest of the EU, into Germany. This is one factor is causing the Italian economy to have stagnated for the last 20 years, and its people have had enough. Whether they have the stomach to leave the Euro, and see their banking system collapse, is another matter. Ultimately that's what caused the Greeks to capitulate.

So what to do? Personally, I opened some shorts (via spread bets) on the Italian market, and bonds, last week, which unfortunately got partially stopped out over the weekend. However, the remaining positions are now nicely profitable, which is doing as planned, and protecting the rest of my portfolio.

My small cap shares are too illiquid to trade in & out of generally, so that's why some portfolio hedging is important to me. Also, as I use gearing, then hedging is very important. I'm also in the process of selling all my liquid, large cap positions, to kill my gearing. After all, they're easy enough to buy back, when this Italian crisis has abated.


Share price: 32.5p (down 17%…

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Idox plc is a supplier of specialist information management solutions and services to the public sector and to regulated asset intensive industries around the world. The Company operates through five business segments: Public Sector Software (PSS), Engineering Information Management (EIM), Grants (GRS) and Compliance (COMP). PSS segment is an application provider to the United Kingdom local government for core functions relating to land, people and property, such as its planning systems and election management software. The EIM segment delivers engineering document management and control solutions to asset intensive industry sector. The GRS segment delivers funding solutions to private and third sector customers. The COMP segment provides compliance solutions to corporate, public and commercial customers. more »

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Smartspace Software PLC, formerly RedstoneConnect PLC, is engaged in providing technology and services for smart buildings and commercial spaces through its core businesses, Redstone and Connect IB. The Company, through Redstone, provides a range of services, including design, build and installation; and software solutions. The managed services encompasses the provision of outsourcing services spanning network infrastructure management, smart buildings support services, desktop and data center support services and move, add and change services. Redstone offers OneSpace occupancy management product. The Company, through Connect IB, creates digital solutions. Connect IB develops and deploys applications, including those that address mapping and way finding of Smart Buildings and Smart Spaces, such as car parks or retail shopping centers. It serves customers of all sizes, including corporations, such as property developers, landlords and principal occupiers of commercial property. more »

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Belvoir Group PLC, formerly Belvoir Lettings PLC is a United Kingdom-based company engaged in selling, supporting and training residential lettings franchises. The Company operates a nationwide property franchise group with four brands that offer a range of services in property rental, property management, residential lettings, buy to let and property sales. Its property franchise group manages approximately 58,000 properties in Grantham, Lincolnshire. more »

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

33 Comments on this Article show/hide all

MrContrarian 29th May '18 1 of 33

Redstoneconnect (LON:REDS), Imaginatik (LON:IMTK), Akers Biosciences Inc (LON:AKR), Advanced Oncotherapy (LON:AVO), Safestyle UK (LON:SFE), ImmuPharma (LON:IMM), Idox (LON:IDOX)

RedstoneConnect (REDS) sells its Systems Integration and Managed Services divisions for £21.6m. Will focus exclusively on expanding the Company's Software business. Cap £18m.
Imaginatik (IMTK) exploring short term additional funding to progress the ongoing formal sale process. Aiming to announce the outcome of the process by the end of May.
Akers Biosciences (AKR) What a mess. Withdraws its initial 510(k) application for PIFA Chlamydia "in order to re-evaluate its options" upon a recommendation from the FDA. Gets Delinquent Form 10-Q Filing from Nasdaq due to late reporting. Raymond F. Akers Jr., Ph.D has resigned as a director. He was sacked as exec Chmn a month ago.
Advanced Oncotherapy (AVO) Somewhat misleading headline: "Successful testing supporting the superior clinical outcomes of LIGHT" Time of flight testing of beam energy control and adjustment show "remarkably good agreement with computer simulations." This is just acnecessary step to check the engineering.
Safestyle UK (SFE) get injunction against rival NIAMAC Developments (trading as Safeglaze UK) on alleged passing off, misuse of confidential information, unlawful means conspiracy and malicious falsehood. Also Chairman Peter Richardson resigns with immediate effect. "Peter assumed the role of Chair at short notice but it has become clear that the specific challenges currently facing the business and the time commitment required are beyond what he envisaged." Why isn't he staying until successor found?
Immupharma (IMM) trying to salvage Lupuzor after its shock Phase III trial failure. Data analysis and extension study continue.
Idox (IDOX) warns.

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ppdrs 29th May '18 2 of 33

Kainos (LON:KNOS) Y/E Prelims this morning. To my untrained eye, it looks like a slight earnings beat, but any thoughts on this would be welcome!

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Beginner 29th May '18 3 of 33

Hi Paul
Apologies for getting the begging bowl out, and referring to something that is very much not a small cap, but I would be intrigued to hear anything you have to say on Dixons Carphone (LON:DC.) . The news out today seems far from disastrous, but there has been a marked price collapse! I must be missing something!

I note you will look at Belvoir Lettings (LON:BLV) . They seem to be hoovering up business from smaller agents who have been put off the market by the banning of fees from tenants. Some time ago, based on similar developments in Scotland, it was suggested the fall in profits would be c10%. Belvoir Lettings (LON:BLV) will have expanded their franchisee numbers by more than this by the 2019 deadline, as well as expanding their offering to include financial services to purchasers. There is also the argument that we will see more renters in teh market as purchasing becomes impossible for many.

I make the PEG 0.72, a PER of 8.5 and a yield of 6.7% covered x1.7. This could be a decent place for income seekers.

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fredericktug 29th May '18 4 of 33

Morning Paul,

Seconding Belvoir Lettings (LON:BLV) and a request if I may to have a look at Redstoneconnect (LON:REDS), both of which I hold.

A quick initial scam of Redstoneconnect (LON:REDS) seem to show a nice and rather surprising set of figs, a significant disposal and talk of tipping points. I had this slated for disposal pending these results, now a rethink could be in order.


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Aislabie 29th May '18 5 of 33

The Redstoneconnect (LON:REDS) news appears to be extremely positive for holders. When a company with a market cap of £18milion sells one division for £21million cash it is clearly going to move the price up (which it has this morning). Mark Braund came on board with a strong reputation for turning a business around and it looks like he is heading towards doing it again. The Coms plc days are behind us.

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hayashi22 29th May '18 6 of 33

Very positive about REDS. Reminds me of Elecosoft which sold off all its non-software and a got a big re-rating in the process.

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dscollard 29th May '18 7 of 33

Redstoneconnect (LON:REDS) disposal of the SI and MS components for £23m now makes the current market cap utterly nuts given the remainder of the business is profitable and growing. Disposing of the more commoditised and lower margin traditional IT function does allow the business to focus on the more innovative and higher margin Smart Building propositions. They have IP, software (OneSpace) and acquired A+K for their video conferencing and mutlimedia skills. Excel are buying the IT bits and Redstoneconnect (LON:REDS) will retain a channel partnership so they can still sell software through Excel

The SI and MS divisions did contribute £24m and £18m respectively to the total £47.5 M turnover. Software was just £5.3m: however, the Software division has an 86% gross margin and contributed more in GP than the SI division which is 5 times in size. Further, Software grew x3.5 from 2017 to 2018 while SI fell in revenue and profit terms.

Selling the bulk of the revenue generating elements is probably not without risk but focusing on high margin, high growth and highly differentiated offerings in a market with massive growth potential is probably a good strategy. The bigger outsourcers can get the economies of scale and efficiencies needed from SI and MS offerings

Clearly there is still a hangover from the COMS reputation, I suspect this and the relative lack of analysts coverage and liquidity has made this a much neglected share.

I am clearly a holder and added a shed-load below 90p . I don't intend selling for a while as I get this space and understand the opportunity and growth potential.

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Firtashia 29th May '18 8 of 33

In reply to post #367899

apologies, fredericktug- post marked down in error, should have been a thumbs up

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Reacher 29th May '18 9 of 33

In reply to post #367884

Hi Beginner - I think the outlook section of Dixons Carphone (LON:DC.) has spooked the market. It mentions a contraction in the UK electrical market along with pressure on gross margins. In addition, there will be a squeeze on operating margins as a result of National Living wage and depreciation charges.

Carphone Warehouse also appears to be warning on future profitability as a result of declining postpay market and lower network commissions as a result of lower inflation as the income is linked to RPI. There is also disclosure of 92 Carphone Warehouse stores closing.

Added to this is the reduction in revenue of £8m due to implementation of IFRS.

Altogether, this sounds like a mild warning going forward.

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andrea34l 29th May '18 10 of 33

In reply to post #367934

I was shopping over the weekend in a number of stores and Dixons Carphone (LON:DC.) was by far the quietest, and they weren't prepared to do any deal when I was haggling on behalf of me ex-bf to buy both a freezer and washer/dryer... so we went elsewhere and got a cheaper washer/dryer online. They also sell some ludicrously expensive items that I can't imagine anyone buying... like a conical TV stand for £650, and a blender for the same price!!!

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runthejoules 29th May '18 11 of 33

Any thoughts on Idox (LON:IDOX) anyone? (Small position). Warningbtoday & down from 38-32p.Take out target as scsw bleats?

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JohnEustace 29th May '18 12 of 33

So Italy's problems are because Germany makes lots of things that people want to buy?
But so does Italy. It runs a trade surplus with the rest of the EU and with the rest of the world. So they seem to be more competitive in trade than the UK which runs a massive deficit. Or is that the Germans fault too?

I think we need to focus on fixing our own issues.

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Arturo82 29th May '18 13 of 33

Idox is yet another SCSW fail and a bargepole stock for me.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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