Small Cap Value Report (Tue 30 May 2017) - FXI, KNOS, BLTG, FJET

Tuesday, May 30 2017 by
75

Good morning, it's Paul here.

I was looking into the horrible case of Fusionex International (LON:FXI) over the weekend, after a friend flagged it to me.  It joins the long list of overseas companies which listed on AIM, and ended up being disastrous for UK shareholders.

I cannot stress enough how investors can protect ourselves by having a default setting whereby we decline to invest in overseas companies on AIM. The reason being simple - because many or even most of them end up being disastrous investments. Exceptions can be made sometimes, particularly where the country risk is lower (e.g. USA, or W.European countries), but I'll cover that in more detail at the end of this article.

As with Globo, and the Chinese AIM frauds, the warning signs were not difficult to spot - they were obvious. As I researched Fusionex over the weekend, the red flags were blatantly obvious. So people who get caught on this type of disaster stock really need to drastically improve their stock selection procedure, whilst they've still got some money left.

We all lose money on some shares, it's a normal part of equity investing. However, returns greatly improve if you have a process which weeds out the obvious wrong 'uns before they blow up. One of my key aims here is to help investors focus on better quality stocks, and avoid the junk. Although in a roaring bull market like this, plenty of junk stocks are doing very well (for now) - so there are opportunities for shrewd traders, nipping in & out of junk stocks for a quick gain. Getting out before the music stops is the tricky bit!

Anyway, on to today's results & trading updates.




Kainos (LON:KNOS)

Share price: 229.25p (down 4.5% today)
No. shares: 118.0m
Market cap: £270.5m

Preliminary results - for the year ended 31 Mar 2017.

This company (HQ in Belfast) describes itself as;

 ...a leading UK-based provider of digital services and platforms

Whatever that means? Checking back on my previous notes, it seems to be an IT company that specialises in UK public sector work. This is quite topical, given recent hacking & blackmail on the NHS (and other) computer systems. It's achieved superb growth in the past, as you can…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Kainos Group plc is a digital services company. The Company offers information technology products and services to clients in a range of markets, including government, healthcare and financial services. Its segments include Digital Services, Evolve and WorkSmart. The Digital Services segment delivers various system developments of customized online digital solutions for the United Kingdom government and private sector organizations. The Evolve segment is its software platform, which provides over two offerings to the healthcare markets: Evolve electronic medical records (EMR), which is used for digitization, storage and workflow of patient records, and is engaged in the digitization of patient notes in the Acute sector of the national health service (NHS), and Evolve Integrated Care, a cloud-based integrated care solution. The WorkSmart segment provides consulting, project management, integration, support and testing services. It provides software design and development services. more »

LSE Price
568p
Change
-0.4%
Mkt Cap (£m)
687.4
P/E (fwd)
33.7
Yield (fwd)
1.5

Blancco Technology Group Plc, formerly Regenersis Plc, is a provider of mobile device diagnostics and secure data erasure solutions. The Company's segments include Erasure and Diagnostics. The Erasure segment focuses on development and delivery of solutions, and includes Blancco, which provides erasure software; SafeIT, which is engaged in cloud and networked data erasure business, and Tabernus, which is engaged in providing software erasure products. The Diagnostic segment includes Xcaliber Technologies, a smartphone diagnostics software business. Its secure data erasure solutions include Blancco Management Console, Blancco Cloud, Blancco File, Blancco 5, Blancco Mobile Solutions, Enterprise Erase E800, Enterprise Erase E2400, Enterprise Erase Mobile and Ontrack Eraser Degausser. Its mobile diagnostics solutions include fault diagnostics, repair and program enablement. It serves manufacturers, financial institutions, healthcare providers and government organizations across the world. more »

LSE Price
145p
Change
 
Mkt Cap (£m)
94.5
P/E (fwd)
36.0
Yield (fwd)
n/a

Fusionex International Plc is an information technology software company specializing in Analytics, Big Data and the Internet of Things (IoT). The Company operates through two business segments: Products and Services. Its products include Analytics, Mobility, Loyalty, Cloud and Core Systems. Its products and solutions include Corporate Performance Management, Customer Relationship Management, Enterprise Resource Planning, Intelligent Capturing System, Core Banking System, Enterprise Insurance System, Loan Management System, Document Management System, Loyalty Management System, Self Service Kiosk System, Aviation Management System, Geographical Information System, e-Commerce/Internet Booking Engine and Property Management System. It offers its solutions to agriculture, banking, energy and utilities, leisure and gaming, insurance, logistics and transportation, manufacturing, media and market research, public sector, retail, telecommunications, and travel and hospitality industries. more »

LSE Price
63.5p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a



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


34 Comments on this Article show/hide all

clarea 30th May '17 15 of 34
1

Hi Paul cracking work as always any pointers you can give in using Stocko to spot red flags would be appreciated.

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Michael Mortphew 30th May '17 16 of 34
2

In reply to post #189749

I have also been wondering how the system really works. If UK companies and markets are supposed to be some of the better regulated ones it makes you wonder what some other exchanges are like. And it's not just dodgy foreign companies. TrakM8 had a placing at 333 p in late December 2015. I wonder who's sitting on those?

Does anybody know of any articles about what happens behind the scenes in the equity markets? I've seen the term 'accelerated book build' now and then and it seems that one can drum up a few million in no time at all, leaving little time for 'due diligence' and careful enquiry.

On a more general note, I find this forum extremely valuable and am impressed by the knowledge, expertise and constructive input of contributors here.

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ricky65 30th May '17 17 of 34

Paul, I'd also be interested if you could explain in detail the red flags at Fusionex International (LON:FXI). I took a £200 punt on it a few months ago because I thought it might do well as it looked like a Big Data company similar to WANdisco (LON:WAND). What prevented me from putting any more than small punt money on it was it being foreign and the suspicious negative net cash flow. In hindsight that should been enough for me to give it a wide berth, even with punt money. It appears to be a very sophisticated fraud as the FXI website lists a lot of blue chip clients.

Kind regards

Ricky

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Paul Scott 30th May '17 18 of 34
13

Hi everyone,

Sorry I didn't get round to responding to queries & comments.
I'm still unloading stuff from my car, from the last trip yesterday, so have been humping boxes around all afternoon, for about the 5th day on the trot! Moving house is such a nightmare, I seem to have accumulated so much clobber, it's ridiculous.

Anyway, the good news is that I finally have room to breathe - my new flat is much more spacious than the old one - my new sitting room is bigger than my previous entire flat lol! And I've got 2 nice roof terraces, so can step outside and bask in the sun, if it puts in an appearance. This should be conducive to better SCVRs hopefully! (once I'm settled in)

Regards, Paul.

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Cisk 31st May '17 19 of 34
1

This is probably a 'strange' comment - but many of the companies people have discussed today have one thing in common - unusual company names! I personally stay well clear of any company with a daft /silly name; normally they try to allude to something sophisticated which is just code to try and fleece punters / investors like us.

As is usually the case in investing, simple is often the best.

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gus 1065 31st May '17 20 of 34
4

On the subject of DYOR etc., with regards to Fusionex International (LON:FXI) it took me 3 mouse clicks to bring up a discussion thread - albeit from 2013 - that would have put me off investing in this company. Two sides to the debate between a clear advocate and a sceptic, but full credit to regular contributor "cig" who did some digging and raised some pretty basic questions that absent convincing answers would have put me off investing.

Plenty of fish in the investing sea to move along to if the contributor commentary, whether it's a pro like Paul or a regular amateur on Stocko, doesn't stack up. Plenty of rampers and de-rampers with their own agendas on many other bulletin boards and blogs but by and large Stocko seems remarkably free from these.

Gus.

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Ramridge 31st May '17 21 of 34
6

Guys -
I think that Paul produced a handy list of red flags to look for, following the Quindell fraud or the Globo fraud that he successfully uncovered. I was into Globo and his constant warnings saved me bucket loads. This must have been on or before 2015.

Would be handy to re publish this , especially for the newbies. I don't think there is a search facility on Stocko to do this quickly. Anyone able to help?

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Carcosa 31st May '17 22 of 34
1

In reply to post #189739

Hi harvs19,

Wish I could say it was a reaction to the news related to the resignation of the Pizza Express CEO; but I was unaware of this at the time of my sale (and had I known I doubt it would have influenced mydecision anyway).

My reason was that i wanted to release some cash for another investment and looking around my portfolio this share price was not performing in the way I wanted over the last couple of years. I don't much like 'growth' stories, having come from a value investor background, as they tend to crash and burn at some time in the future. However that 'sometime in the future' can be anything from next week to 5 years down the line!

Overall, as retail rollouts go, I think FUL is a reasonable share to own although not the best available and it was never considered a 'core' holding for me.

=====

I remember a good article by Paul (Or Ed?) relating to red flags as mentioned by Ramridge. Anyone have the link?

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Dennis Ayling 31st May '17 23 of 34
1

Paul, looking forward to reading anything you write on Fusionex & other foreign AIM duds. I didn't hold FXI but did hold Rapidcloud (RCI), a smilar company. Maybe, as you suggest being sceptical about silly company names is a good starting point.

My own experience with Rapidcloud has been an education. Although the financials should have warned me off, I exchanged emails with the CEO / founder & found him affiable, PI friendly and convincing. There was also a British chairman which was encouraging. I then woke up one day & found out most of the board had gone along with the advisors & the listing.

I hope I have learnt something during the journey.

Dennis.

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Lion Tamer 31st May '17 25 of 34
1

One of Paul's old "red flag" summary posts is here:
http://www.stockopedia.com/content/small-cap-value-report-gbo-koov-107216/
I think there are more.



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clarea 31st May '17 26 of 34

How do you find out what origin the company is from other than word of mouth ?

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Trident 31st May '17 27 of 34
1

Unfortunately, there are many drivers for floating iffy foreign entities on AIM. The desire by the Stock Exchange to demonstrate that AIM is an international player against its competitor Stock Exchange platforms such as Nasdaq etc. The brokers and advisers (lawyers, accountants, financial PR etc) get paid for their due diligence, and then get paid ongoing fees for Nomad status.

So there are more drivers than there are negatives at the present, because loss of investor value doesn't show up in their various balance sheets. The fact that AIM is not just a market based on risk but is in danger of offering an open shop for foreign promotors to take advantage.

The reputational damage to AIM seems to be the least of anyone's worries.

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gus 1065 31st May '17 28 of 34
1

In reply to post #189899

Hi clarea,

If you look at the Stocko company page, the names of the directors might give you a clue (many overseas executive names with a couple of nominal Anglo Saxon NEDs) followed up by a look at the company's website (also linked directly from the Stocko company page) should point you in the right direction. If you can't find out/don't know the domicile of a company's principle business activity, is it really prudent to be investing in it?

Gus.

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mikelevie 31st May '17 29 of 34
4

I've previously made a list of red flags based on various articles found on Stocko (including today's SCVR):
- AIM-listed & based abroad esp. Asia, Africa
- No earnings or divis which makes Growth & Value metrics impossible to calculate
- Lots of red in the stock's Growth & Value window
- High M-Score indicating dubious Earnings quality
- Risk of bankruptcy (Altman Score)
- Broker downgrades
- Declining 3m / 1yr price momentum
- Appears in James Montier’s Unholy Trinity Screen
- Low stock rank
- Low P-score indicating declining health trend
- Large pension deficit
- Validate any divi's against Free Cashflow per Share – if it’s negative then company funding divi’s from debt
- Director's shareholding >25%
- Large amount of cost capitalised into intangible assets, in order to create artificial profits

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RedRon 31st May '17 30 of 34
1

I am surprised more people don't take some notice of the charts. Fusionex has been trading under it's 200 day MA since December last which is negative territory for a chartist Using Stan Weinstein's methods, it has been in Stage 4 since that date and was, therefore, a definite 'sell'. Yet the fundamentals on Stockopedia give the share a 67 stock rank, a quality rank of 84, a piotroski score of 6 and an altman rating of 7.7 with no net debt which is hardly a cautionary set of figures. I always check with the charts as they are much more in tune with the current situation and usually give good, timely warnings

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Paul Scott 1st Jun '17 31 of 34

In reply to post #189669

Hi vik2001,

Franchise Brands (LON:FRAN) - I know this company of old, as a friend of mine set it up a few years ago.
The shares have done very well since listing. It looks very expensive on current broker forecast, but of course that might be because the forecasts are too conservative, I don't know.

I will review the figures when the company next reports.

Regards, Paul.

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Paul Scott 1st Jun '17 32 of 34
1

In reply to post #189674

Hi Hedgecutter,

Eagle Eye Solutions (LON:EYE) - there was an interesting article about this company in SCSW recently.
As I mentioned back here in Nov 2016, I think the company looks interesting.

The valuation looks very expensive on the historic figures, but we're in a bull market, and people are prepared to pay up for growth companies with good future potential.

Overall, as a more speculative share idea, in current market conditions, I think this share has potential.

Regards, Paul.

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Hedgecutter 1st Jun '17 33 of 34
1

Many thanks Paul for your response.
I agree that EYE looks overvalued and the stock rank would certainly agree with you. I am certainly looking at the future potential, not historic valuation and, as such, recognise the risks involved. Most of my other investments are safe, debt-free, growth companies such as Somero, Zytronic and Headlam, plus the riskier, but very profitable for me so far, Paysafe. Hence, I have only taken a smallish punt on EYE on the basis that if it proves a flash in the pan it will have limited effect on my portfolio and if a multi-bagger, there would be little need to increase my holding.
I was surprised that the discounted share issue didn't result in a drop in the share price, in fact quite the opposite.
Time will tell.

The only other holding which would perhaps come into the same category would be Surgical Innovations (SUN), which I see as a turn-around company after a much needed change in management. If you have the time, perhaps you could comment, maybe after their next announcement.

Thanks again for your reply Paul and for your enlightening reports.
Nick

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Hedgecutter 1st Jun '17 34 of 34

In reply to post #190259

Many thanks Paul for your response.
I agree that EYE looks overvalued and the stock rank would certainly agree with you. I am certainly looking at the future potential, not historic valuation and, as such, recognise the risks involved. Most of my other investments are safe, debt-free, growth companies such as Somero, Zytronic and Headlam, plus the riskier, but very profitable for me so far, Paysafe. Hence, I have only taken a smallish punt on EYE on the basis that if it proves a flash in the pan it will have limited effect on my portfolio and if a multi-bagger, there would be little need to increase my holding.
I was surprised that the discounted share issue didn't result in a drop in the share price, in fact quite the opposite.
Time will tell.

The only other holding which would perhaps come into the same category would be Surgical Innovations (SUN), which I see as a turn-around company after a much needed change in management. If you have the time, perhaps you could comment, maybe after their next announcement.

Thanks again for your reply Paul and for your enlightening reports.
Nick

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



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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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