Small Cap Value Report (Tue 30 March 2021) - LOOP, MPAC, EKF, ANCR, SUS

30th Mar '21 by Paul Scott

92 comments 12168 reads

Good morning, it's Paul & Jack here, with the SCVR for Tuesday.

Timing - today's report is now finished.

Agenda -

Paul's Section:

Loopup (LON:LOOP) (I hold) - results for FY 12/2020 are in line with expectations. A big profit, but it was all generated in H1.

Mpac (LON:MPAC) - FY 12/2020 results. I summarise key points from today's webinar. Nice company, but huge pension scheme worries me.

Jack's Section:

Ekf Diagnostics Holdings (LON:EKF) - new supply contract announcement and upgraded FY21 expectations.

Animalcare (LON:ANCR) - Covid disruption and business restructuring for this veterinary sales and marketing company.

S&u (LON:SUS) - sequential improvement in trading, 4% dividend payment, and brighter outlook for this motor finance and specialist lender.

Paul’s Section

Loopup (LON:LOOP)

(I hold)

83.5p (up 14% at 08:10) - mkt cap £49m

There’s a strongly positive early market reaction to this cloud telephony company’s FY 12/2020 results. On quite high volume too, with 721k shares already having changed hands in the first 10 minutes of trading.

Although this does have to be seen in the context of a big disappointment late last year, when management dropped a bombshell that highly profitable trading in H1 2020 had hit a brick wall in H2. To this day, I still don’t understand what went wrong, they haven’t explained it clearly enough.

As you can see from the long-term share price chart, performance has been erratic, and overall disappointing -

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I think it’s fair to say they over-paid for a not very good acquisition along the way too, called Meeting Zone. Let's hope management don't do any more acquisitions!

Preliminary Results

For FY 12/2020.

The headline numbers are in line with the trading update on 8 Feb 2021 -

Revenues £50.2m (H1: £31.9m, H2: £18.3m)
Adj operating profit £9.0m (H1: £9.2m, H2: £(0.2)m)
Net debt £0.7m

Note the huge drop off in performance from a profit bonanza in H1, to just below breakeven in H2. Why? Customers must have switched to a competing product, Microsoft Teams maybe? Or Google Meetings, Zoom, etc? LOOP seems to have retained its “professional services” clients a lot better than more casual users. So perhaps LOOP should be seen as a high-end, niche service, that seems to be…

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Rusty2

30th Mar '21

I sold out of LoopUp (LON:LOOP) months ago, lost faith in the management.

I hold MPAC (LON:MPAC) but sold half this morning, figures were not what I expected, maybe I misunderstood the previous trading update, that's the problem when they just say market expectations, without any figures, but these are well below the ones on Stockopedia. Anyway we will see what happens later this year.

There does seem quite a few pullbacks recently in these sort of shares, so plenty of opportunities I feel.

shanklin100

I have now watched two Mpac (LON:MPAC) presentations. If I played management buzzword bingo, I would have called "house" today after about 10 minutes, a record for any presentation I have ever watched; I would much prefer plain English.

On neither occasion have I felt the massive optimism of the presentation has been in keeping with the numbers reported. I sold half after the first presentation and sold the rest today, about 10% higher.

If the company delivers as promised, and the pension scheme does not go too badly, the SP is probably cheap, especially after the SP drops of the last two days, but I am just not as confident as I would like to be.

GLAH.

Tommy H

One of the things to look for is one of the contractors to us has just won this contract, so there is going to be a lot more supply in the market from probably Q4 2022 so worthwhile considering

https://www.business-live.co.u...

Cisk

I'd encourage any holders to view the Ekf Diagnostics Holdings (LON:EKF) presentation, I attended the call earlier and the commentary was very interesting, especially the Q&A session. As a long term holder, I've seen the stock double and then retreat on the back of a couple of poor acquisitions. That was many years ago, and it's clear now the company is in a very different space.

One concern I had was how dependent future outperformance is on covid testing, it's now clear to me that it's not, and the deal announced this morning (the largest in the company's history) illustrates that. I also asked about the cash pile - it's a continuation of dividends, investing in the business, and possibly an acquisition, probably in the enzyme space (but they don't seem to be in any rush, given the difficultly in finding suitable candidates).

Another concern in the back of my mind was the shareholding of Hardwood Cap / Christopher Mills - just under 30%. In a recent interview he had very positive things to say about EKF (as you would expect!), so possibly holding out for a higher exit multiple:

https://www.voxmarkets.co.uk/...

Dojosan

Why is Personal Group (LON:PGH) so unloved :(

Harry Hindsight

"Travel - delighted not to be taking 1-2 long haul flights every month, forgotten what jetlag is like thankfully! Can’t see the long haul flights returning. Need to meet & socialise with clients initially, to establish relationship, but can then maintain the relationship remotely".

Agree - if I have to travel then want a GOOD reason other than visit odd places with an expense budget. And not so the company can sell thier new 'mission statement' or update Covid awareness.

Easily done online. Companies saving shed loads and know it. Not great for Premier Inns et al or said hospitality. Anyone seen the housing market booming? Not sure bookcases are moat protected but maybe IKEA will benefit when allowed to open,

Oy, I bought my first ever delivery take away because I wanted to buy shares in Deliveroo! 8:00am first day SELL !

Loopup (LON:LOOP) - we have a moat a special software that a few legal eagles can use to do confidential discussions on over the internet. Anyone heard of a phone, and sure the WSBetts are not interested in beer anyways. Someone pumped and us newbies will remember.

sharw

I agree - EKF Diagnostics Holdings (LON:EKF) was possibly the best presentation I have seen. The directors were down-to-earth tell it as it is people - the exact opposite of shanklin100's experience with MPAC (LON:MPAC)

I'm not sure whether a recording will be made public - the event was not IMC, PI World or similar - it was a standard zoom meeting hosted by the company's financial PR people with all 54 of us listed down one side!

The slides are available - click here

I may write up a few notes tomorrow.

JCPr

To add my tuppeny worth. It's very hard these days to see telephony services of any kind as much more than a commodity. New services become mainstream pretty quickly and it is pretty near impossible for companies to find sources of premium revenue, and if they do it's a bit like being the first hyena to a fresh carcass - they're not going to be left in peace to enjoy their meal for long.

sharw, yes you’re right they were refreshingly open - talked about the good and bad. I’ve met Julian Baines quite a few times over the years, going back to the Stanbio days - again they were very open about the issues at the time. Looking back I remember that they would almost announce deals / sales too early, and then there were issues and the deal or anticipated volume just didn’t materialize.

This helps explain why they are cautious now, under promise and over deliver. So for them to talk about the new supply deal like they did augurs well.

The testing / diagnostic space I feel will be re-examined against the terrible impact of covid - coupled with advances in AI to predict disease (hopefully Renalytix will expand from kidney AI to other areas with Mt Sinai) makes Ekf Diagnostics Holdings (LON:EKF) a core holding for me.

And I do think there is a takeover premium thrown in for free - I could see them being taken over by someone like Charles River Labs in the US.

Metatron

I am a repeat customer of Paisley Box and have been impressed by the efficiency of the company.The ready made meals are nothing special but it is practical in the era of Covid to have 3 months supply of food in the house and Paisley Box offer some variety to the usual baked beans and canned tuna.Paisley Box have improved their boxes over the last year with clever ideas like 2 free small bottles of wine with the food

abtan

S&u (LON:SUS) (no position)

I thought it worth mentioning a US-based lending company I was researching recently called Upstart, who recently moved into automotive lending.

Here's a c20 minutes introductory video of the company, but you only need to watch the 1st minute to understand why S&u (LON:SUS) 's long term business model might be at risk:

This company's recent growth has been most impressive and if it continues, it's only a matter of time before something similar appears in the UK.

https://www.upstart.com/

Ra International (LON:RAI) (no position)

I continue to be confused by this little company.

On the surface, it seems like a decent business, constantly winning new orders and providing a valuable service.

But little things keep niggling away:

Order Book

For example, the order book is now very large @$187m.
However, it was large at the end of last year too - $148m - and yet it was only able to generate 2020 revenues of $64m.

It would be really useful if the company were to provide order backlog by expected year of delivery in order to manage expectations.

---

CAPEX

$22m of additional land and buildings expenditure in the year ($6m in H1; $16m in H2). That just seems like so much for a company worth £73m.

Another $10m is forecast to be spent on Capex in 2021, which essentially is over and above current underlying cash generated from operations.

This may well be a sound investment in the long run, but it does make me wary that for the last 2 years Capex has been so high without a significant rise in revenues.

LOANS

Another thing that is baffling me.

The company announced a $6m loan in June/July.
From results today it looks like this was increased to $6.5m.
A 7.0%-7.5% interest rate = $455k extra finance costs per year, or $228k finance costs for 6 months, or $38k per month.

I don't understand why finance costs have only gone up $12k in H2 vs H1, despite this new loan.
Looking at the fine print I can see that neither capital nor the interest is payable until maturity in 2 years time.
But I would still expect an additional interest liability to be somewhere in the accounts, but I can't find it.
Is it bundled into the $6,471k?
Or is it not even in the accounts (which would be worrying.)
Given the high interest on this (GBP and USD denominated) loan I still don't understand why the company doesn't use the cash on its balance sheet, or draw down from its overdraft facility (which charges a much lower interest rate).

I stopped researching after the loan interest confusion, but I do wonder if there is hidden value here. It will be interesting to see how that order book develops. As the company states, maybe the material jump will be in 2022.

Momoko Miyamoto

Agree that the 2019 numbers for ONT are unremarkable, but the company has made astonishing commercial progress in 2020, supercharged by the pandemic they have gained market share and a global research base that may have taken years to build otherwise. Gordon Sanghera the boss articulates the future prospects far better than I : https://nanoporetech.com/ont/a...

carmensfella

31st Mar '21

Why not join the Parsley Box presentation and Q&A hosted by Mello this Thursday at noon? It is free for all investors to join and as they are listing later today it means you can get to see them very early on their market debut...

You are invited to a Zoom webinar.

When: Apr 1, 2021 12:00 PM London

Topic: Mello webinar

Register in advance for this webinar:

https://zoom.us/webinar/register/WN_EoZ2cDUWStelt_3RS79opA

After registering, you will receive a confirmation email containing information about joining the webinar.

Ra International (LON:RAI) : also the wife and husband team (CEO and FD respectively) own 75% of the shares. They could take the company private at any time and are essentially unaccountable to minority shareholders.

LongValue

Animalcare (LON:ANCR) The “Material uncertainty” pointed out by the company’s auditors for the year ending 31st December 2019 was, I believe, made after the year-end. And it was concerning the company possibly having to ask its lenders for a waiver should the COVID pandemic hit its trading position. However, the key EBITDA leverage ratio for 2020 was 1.1 (2019: 1.4). While the bank covenant ratio was 3.5. And, as it pointed out, at the end of 2020, it had available borrowing facilities of some £46.3 million with headroom of £30.3 million (It utilised £16.3 million, “Net of cash balances”). Moreover, it has comfortably exceeded all its bank covenant requirements and has now restored its dividend.

According to its recent announcement, it appears to have reached an agreement with three of its four banks to extend its banking facilities from 31st March 2022 to 31st March 2025 and it expects to conclude negotiations with the fourth bank shortly.

Frankly, I am not concerned with its liquidity or its business model. But for some unknown reason, Animalcare (LON:ANCR) seems unable or unwilling to present itself to investors. The result is that it gets little investor attention and the stock is not as widely traded as, in my view, it should be. I find this even more peculiar given its commercial re-branding exercise.

I have been an investor in several public companies that were bought on, what I regarded as, low valuations. I just hope this is not going to be another. And, yes, I am a shareholder.

Welshborderer

4th Apr '21

It does now look as though the major company they are aligned to is Amazon and while there could be concern of their making a bid to take Ekf Diagnostics Holdings (LON:EKF) out at some stage this could prove counter-productive. £AMZN are heavily developing their move into medical care with their own laboratories and direct to consumer medical advice etc, a field Ekf Diagnostics Holdings (LON:EKF) could prove instrumental in assisting through their tie-up with Mount Sinai Health Group. The introduction of Amazon might not be so welcome to them.

FREng

4th May '21

Ekf Diagnostics Holdings (LON:EKF) a NED sold about 1 third of his holding (500,000 shares sold) it was reported on Friday.

Small Cap Value Report (Tue 30 March 2021) - LOOP, MPAC, EKF, ANCR, SUS

Paul’s Section

Loopup (LON:LOOP)

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Paul Scott

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