Small Cap Value Report (Tue 30 Jan 2018) - QRT, SPRP, YOU, FTC, NWF

Monday, Jan 29 2018 by

Good morning, it's Paul here!

STOP PRESS: please see the extra bits added to the NWF (LON:NWF) section below, after talking to a company adviser, and a link to . All good stuff - I welcome helpful input from everyone - investing is a team sport!


This continues to wreak havoc. What on earth were the regulators thinking, to expend so much time & energy in creating the c.1.5 million paragraphs of regulations in MiFID II, fixing problems that were of so little consequence that they didn't really matter in the first place!

I think the whole thing should just be repealed as soon as possible, and the regulators should all be fired. Let's get some people in who actually know what they're doing, and want to help, rather than impede the investment sector. We didn't cause the financial crisis, the banks did. So I suggest that's where regulation should be focusing.

I lost my access to Peel Hunt research yesterday, which I'm absolutely gutted about - as it's superb quality, and helps me a great deal, both in understanding companies, and also in valuing them using sensible forecasts. I'd happily pay £500 p.a. for access to Peel Hunt research. Unfortunately though, I think they want £10k+ p.a., according to my broker, who politely declined their offer. That sort of figure is not realistic for private investors, as it would represent too large a percentage of our portfolios. Whereas a fund manager with say £1bn under management, can justify those sort of charges. I do hope a solution is found. The financial world tends to be full of people with creative minds, who are good at findings ways around problems. So I live in hope that my access to research won't dry up completely.

I just don't understand how it is that regulators can be seemingly so detached from reality, that they introduce all this nonsensical regulatory burden. Regulators have long impeded private investors, by restricting our access to research. The latest restrictions on dissemination of research have simply harmed the interests of private investors, by shutting down our access to important information about companies from research houses. Whilst the fund managers in the City now have privileged access to that research. How is that fair? Once again, the little people are stitched up by what appears to be a…

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The Quarto Group, Inc. is an illustrated book publishing and distribution company. The Company is engaged in creating content and publishing books from a diverse portfolio of imprints. The Company operates through segments, including Quarto International Co-Editions Group; Quarto Publishing Group USA; Quarto Publishing Group UK, and Quarto HK. The Quarto International Co-Editions Group segment creates illustrated books that are licensed and printed for third-party publishers for publication under their own imprints. The Quarto Publishing Group USA segment creates and publishes illustrated books in North America and sells co-editions of them internationally. The Quarto Publishing Group UK segment creates and publishes general non-fiction and illustrated books in the United Kingdom market. The Company’s books are sold in approximately 50 countries and in 39 languages. more »

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Fireangel Safety Technology Group plc, formerly Sprue Aegis plc, is engaged in the business of design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories. The Company also operates its own CO sensor manufacturing facility in Canada. The Company is also a provider of home safety products. The Company's principal products include smoke alarms and CO alarms and accessories. Sprue manufactures CO sensors for use in all its CO alarms. Sprue serves in the United Kingdom retail and the United Kingdom's fire and rescue services. The Company offers a range of brands, including FireAngel, AngelEye, Pace Sensors, First Alert, SONA, BRK and Dicon brands. The Company's subsidiaries include Sprue Safety Products Limited, which is engaged in distribution of smoke and CO alarms, and Pace Sensors Limited, which is a manufacturer of CO sensors. more »

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YouGov plc is a United Kingdom-based international data and analytics company. The Company’s suite of products and services is made up of syndicated data products including YouGov BrandIndex and YouGov Profiles and data services including YouGov Omnibus and YouGovCustom Research. YouGov BrandIndex is a daily brand perception tracker. YouGov Profiles is its planning and segmentation tool. YouGov Omnibus finds out people's opinions, attitudes and behaviors. YouGov Custom Research conducts quantitative and qualitative research. The company has 35 offices in 22 countries. The Company has operations in the United Kingdom, North America, Europe, the Nordics, the Middle East and North Africa and Asia. more »

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

44 Comments on this Article show/hide all

nicobos 30th Jan '18 5 of 44

In reply to post #306453

Leo - this video from Ciavacco is an interesting watch on the ‘melt-up’ hypothesis giving the opposing view:

I tend to agree that although share prices are expensive due to a number of reasons (wall of liquidity, low interest rates and bond yields, game changing new industries I.e. FANG stocks, US tax cuts etc) there are not enough ‘signals’ that we are definitely at the top and they cannot run higher (except the argument that ‘they’ve gone up a lot so must come down.’)

I think the media love to jump on the market crash bandwagon (it makes great news!) hence this talk of a ‘melt up’ has grabbed the headlines.

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FREng 30th Jan '18 6 of 44

Filtronic (LON:FTC) half year feels like a profit warning though it's not explicit.

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clarea 30th Jan '18 7 of 44

Any chance of a nose into Sprue Aegis (LON:SPRP) Graham thanks

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Gromley 30th Jan '18 8 of 44

In reply to post #306503

Filtronic (LON:FTC) half year feels like a profit warning though it's not explicit.

Agreed they didn't actually use the term 'below expectations', but I think it was nevertheless quite explicit :

progress toward production volume orders has been slower than anticipated. As a consequence, we now anticipate a 2nd half performance broadly similar to our 1st half performance, with further growth being pushed into FY2019.

Whereas in the TU a month ago they talked about

recently announced defence contract wins which has pushed the first volume deliveries out of H1 and into H2.

In December they did talk about the likelihood that the business would remain "lumpy" until they broaden their customer base and markets.

On the upside they did announce a couple of what could be quite significant developments on 5G antennae. - Jam tomorrow though I'm afraid.

I'm not saying it is a bad business, but to me it doesn't look predictable enough to be investable at this time.


With H1 EPS of 0.38p, I would imagine we are talking about c. 0.8 (or slightly less) for the FY, compared against broker forecasts of 1.2p - OUCH.

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andrea34l 30th Jan '18 9 of 44

I'd be very interested in your view of ZPG (LON:ZPG) please. An initial skim through previous financials indicates to me good progress and an undemanding valuation compared to Purplebricks (LON:PURP) for example. AGM statement today:

The Company has had a good start to the financial year across both divisions, with its websites and mobile apps attracting 53 million average monthly visits during the Period. 

In the Property division, Management is encouraged by the ongoing demand for its best-in-class marketing, software and data products as we continue to help our partners market, manage and maximise their business opportunities. During the period, ZPG signed multiple new long-term portal listing and data services agreements with some of the UK's largest estate agents and mortgage lenders.

The Comparison division experienced solid switching volumes across each of the energy, communications and financial services verticals. We continue to make good progress on the integration of our products across the uSwitch and Money platforms, enabling even more consumers to save money off a broader range of household bills.

Since the end of the Period, ZPG has successfully refinanced its debt through the issue of new bond and bank facilities. The new debt package strengthens the Company's financial position by offering it increased financial flexibility, providing a more stable and appropriate capital structure and allowing it to secure attractive interest rates for the next 5 years.


ZPG has continued to perform well across both divisions and Management remains comfortable with financial year 2018 market expectations. We look forward to updating the market further at our half year results on 23 May 2018.

Alex Chesterman, Founder & CEO of ZPG Plc said, "We have had a good start to the 2018 financial year with continued strong consumer traffic to our platforms and strong partner demand for our products. We are delighted to have signed further multi-year agreements with a number of leading estate agencies and mortgage lenders. And the addition of Money and Calcasa to our portfolio has materially strengthened both our consumer offering and partner proposition across the business."

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LeoInvestorUK 30th Jan '18 10 of 44

In reply to post #306478

I hadn't noticed the 'melt up' grabbing the headlines until this morning. Recent interest might explain why the volatility skew has fallen in the last couple of days i.e. the chances of a sudden rise in the S&P as implied by option prices has increased in likelihood relative to a sudden fall (the latter still implied to be much more likely).

What I had seen is almost daily articles about an imminent crash. I took the view that one was unlikely to happen while so many people were worried about it, but given the low volatility it was worth insuring against anyway. When I hear a bear saying that the melt-up would continue and to buy the very expensive shares that are driving it I naturally wonder if the bears are capitulating -
surely the most bearish sign possible.

What is indisputable is that a mathematically unsustainable melt-up has been going on for a year now and it is merely a question of whether the S&P will soon start to rise in line with earnings growth (which could be a fair bit higher than the 4-5% forecast, but certainly not 50%pa), level out, gently fall, or crash. A crash certainly sounds the most fun!

Blog: LeoInvestorUK
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Paul Scott 30th Jan '18 11 of 44

In reply to post #306533

Hi Andrea,

ZPG (LON:ZPG) and Purplebricks (LON:PURP) are both well over £1bn market cap now. So I wouldn't normally be covering anything that size, unless there's something particularly noteworthy or exciting about it.

I try to keep the focus on small caps here, because that's what I'm meant to be doing, as the title suggests!! ;-)

Regards, Paul.

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ridavies 30th Jan '18 12 of 44

Any thoughts on the continuing fall of Luceco (LON:LUCE) please Paul?. Seems to be oversold on the basis that there have been no further reports other than the profit warning on the Trading Update in December. Perhapos there will be a further update in early February but there is a fair argument that the fall has been overdone.

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FREng 30th Jan '18 13 of 44

More bad news for EMIS (LON:EMIS) this morning. They have lost their NHS Wales contract (said to be £2m of lower margin revenue).

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holoman 30th Jan '18 14 of 44

Goldplat (LON:GDP) posted an operations update this morning. Things seem to be going well and the stock looks cheap

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murrb 30th Jan '18 15 of 44

In reply to post #306583

£:LUCE I expect Paul will be unable to comment on the reasons for the continued fall without additional news after the profit warning which Graham reviewed. There could be a number of reasons for people feeling reluctant to buy at this price - did the CEO know or not know of the problems when he sold shares a few weeks earlier? Why has no-one on the board stepped in to buy if the price is now so cheap? How will exchange rate movements between CNY and USD impact their profits , and what about the rise in cost of raw materials for the company (copper). The share price has fallen so far because it had got frothy anyway. The fact that it is a recent listing means people may worry whether other skeletons are lurking. With all these uncertainties I would not wish to risk my capital without more clarity.

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Damian Cannon 30th Jan '18 16 of 44

You might like to cast your eye over the just announced placement from PCI- PAL (LON:PCIP) ? Looks like it's set at a material discount leaving behind a swath of disgruntled shareholders? I'm not a holder and thankful for it!

Blog: Ambling Randomly
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grumpy5 30th Jan '18 17 of 44

Paul, I think you are being hopelessly unrealistic to expect PH's research for £500 p.a.! Remind me to tell you the true value of analysts over a beer or 2 at Mello....

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Benson 30th Jan '18 18 of 44

Paul having spent a lifetime in companies regulated by the FSA & the EU and I can tell you the regulation will only get worser if they try to change it

It is not a level playing field for the private investor but previously, if we do our homework, we could get by but this new regulation is trying to take our "text books" away leaving the fund managers and banks with theirs.. They are the ones with the serious "charges"

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Harry Potter 30th Jan '18 19 of 44


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Harry Potter 30th Jan '18 20 of 44

Goldplat (LON:GDP) Please

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JASPERTHEDOG 30th Jan '18 21 of 44

Whilst I concur with your outrage at MiFID 2, I think you have lost sight of the essential nature of bureaucracies, which is that, once established, their only focus is on self preservation and the expansion of their area of influence. I cannot think of a single body that has legislated itself out of existence. If the functionaries that dreamed up this mess had not been doing this, what else would they have been doing? They 'have to be seen to be doing something' not just sitting at their desks twiddling their thumbs. And as for streamlining and thinning the bureaucrat population, the war between Jim Hacker and Sir Humphrey would become real. The Civil Service has, after all, spent its entire life protecting itself from just such eventualities.

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tic_tac_toe 30th Jan '18 22 of 44

In reply to post #306583

in respect of Luceco (LON:LUCE) I think there is a similar parallel to be drawn with what has happened (is happening) at UP Global Sourcing Holdings (LON:UPGS). Both fairly newly listed, and massively disappointing. Without the lenghy proven history and track record, they are being punished and holders are selling as it is difficult to fairly value or determine the bottom. I see low 50's being reached with Luceco (LON:LUCE) btw, looking at forecasts.

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mojomogoz 30th Jan '18 23 of 44

On Quarto Inc (LON:QRT)...the statements says:

"We have moved into 2018 with clear objectives about realigning our portfolio with the broader market and consumer trends and making the financial and operational improvements required to fulfil our ambitions, including strengthening our balance sheet as a platform for growth."

Whilst H2 is an improvement it is not sounding as if it represented a sort of take-off from the repositioning of the business to pure publishing. It is just the 'regular' H2. With such a high debt load it needs to show a high cash flow generation capability but this has declined at the same time that pre-publication costs have been rising YoY. The front year investment is producing better returns on just published titles, but the fall in cash flow suggests that the all important back book is not producing enough returns. In fact it suggests a reduction in what it delivers which is a real blow for cash flows. That could also lead to some asset right downs.

That language suggests a rights issue to me so somewhat surprised that shares have risen given that earnings for year are down considerably by unknown amount. Wouldn't rely on the brokers as their 2017 estimates very wrong through not correctly parsing publicly available financial info at end of 2016. The negative surprise was really quite artificial in that it was due to misanalysis of available info rather than a surprise trading underperformance.

Company has still not sorted out the Books and Gifts Direct subsidiary in New Zealand. This was to be sold. 2016 value write off was driven by BGD. Australia section was effectively given to existing management with value written down to zero.

My guessestimate if a rights issue is attempted is a 4 (maybe more) for 1 at a heavily discounted price to seek to pay down a hefty slice of debt (which for £30m market cap company stands at £45m). Its all in the magical hands of corporate finance but I'd guess 4 for 1 at 40p to take away 2/3rds of the debt.

However, perhaps more likely is an attempted to take over by a couple of big shareholders who can be viewed as historically quite close to the company (and together own near 40% of stock).What would they seek? To buy the company for close to zero in return for shouldering the debt.

Here's a note I wrote earlier on Quarto Inc (LON:QRT). I was a shareholder but my analysis lead me to see an issue and fortunately i sold ahead of recognised problems (for a nice gain too!). There's a danger my view is stale but I think the analysis below holds for today:

The results in 2017 seem to have undershot my expected +$1m cash as they are reporting debt rising by $2m.

Note, there is always potential for a surprise in a year if certain publications become popular or even cultish (like the adult colouring book craze).  The trading update did not reference anything like that but it could come through in results.  These sort of events produce high free cash flow for the company. 

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Graham Neary 30th Jan '18 24 of 44

re: Luceco (LON:LUCE)

Standard Life Aberdeen and Blackrock are both offloading:

Link 1

Link 2

As I said on twitter yesterday, the fall is probably just loss of faith in the company after a big CEO share sale and the Financial Controller got his sums all wrong, making a mess of the company's internal analysis of how it was doing. The market tends to be unforgiving about companies not knowing what their financial performance is. Also, as a 2016 flotation, people are bound to still be nervous about how trustworthy it is.

But SLA and Blackrock had 10% of all the shares between them, perhaps as much as 20% of the free float. They could be responsible for a lot of the damage to the share price if they are still selling.

No advice, please DYOR.


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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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