Small Cap Value Report (Tue 4 Dec 2018) - TAP, QTX

Tuesday, Dec 04 2018 by

Good morning! It's Paul here.

I'll start Tuesday's article with an interesting announcement from after-hours on Monday:

Taptica International (LON:TAP)

Taptica (AIM: TAP), a global leader in advertising technologies for performance-based mobile marketing and brand advertising...

This is an Israeli-based tech company. I avoid all of these, as it seems to me there can sometimes be something wrong with them, lurking under the surface.

Taptica's CEO seems to have been found guilty of lying;

Hagai Tal, CEO of the Company, has today been found liable for certain statements made in relation to the sale of Plimus Inc, a company of which he was both a shareholder and chief executive officer at its time of sale in August 2011. The plaintiffs in the case are entitled to restitution for breaches of certain representations and warranties.

From what I can make out, this does not seem to have any financial impact on Taptica itself. 

He has resigned as CEO of Taptica. His LinkedIn profile indicates that he was CEO of Taptica from Jan 2014 until yesterday. So the problem with Plimus pre-dates his involvement in Taptica by over 3 years.

As Monday's RNS states, the legal action against him was disclosed in Taptica's Admission Document. I wonder how many investors actually spotted it though? It just shows, those Admission Documents really are important, and need to be scrutinised closely, as that's often the only time that important negative information will be disclosed. Especially in the notes near the back of the Admission Document, as many people will have given up reading it by that late stage!

Details of the claim were disclosed in the Company's admission document on page 85 (section 7.9 of Part IV), which is available on the Company's website.

Let's have a look then! This is what section 7.9 says;

7.9 In September 2012, Great Hill Equity Partners IV LP, Great Hill Investors LLC, Fremont Holdco, Inc and Bluesnap Inc (formerly Plimus Inc), (collectively “Great Hill”), filed a complaint in the Court of Chancery of the State of Delaware against SIG Growth Equity Fund I LLP, SIG Growth Equity
Management LLC, Hagai Tal and others (collectively the “Defendants”) arising out of the acquisition by Great Hill in August 2011 of Plimus Inc (“Plimus”), a provider of mobile and internet payment solutions. Great Hill filed…

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Taptica International Ltd offers data-focused marketing solutions that drive execution and brand insight in mobile, leveraging video, native, and display to reach the users for every application, service, and brand. The Company’s technology is based on artificial intelligence and machine learning at big data scale. The Company works with more than 450 advertisers, including Amazon, Disney, Facebook, Twitter, OpenTable, Expedia, and Zynga, and more than 50,000 supply and publishing partners worldwide. more »

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Quartix Holdings plc is a United Kingdom-based supplier of vehicle tracking systems and services. The Company operates in designing, development and marketing of vehicle tracking devices and the provision of related data services segment. The Company offers subscription-based vehicle tracking systems, software and services in the United Kingdom. Its vehicle tracking systems incorporate instrumentation to identify and transmit location, speed and acceleration data to the Company on a real-time basis. Its vehicle tracking software system provides business critical reporting, and analysis of vehicle and driver data, including timesheets and other customer Key Performance Indicator (KPIs) to customers via any Internet-enabled device. The Company has an overseas branch in France and an overseas subsidiary in the United States. The Company's subsidiaries include Quartix Limited and Quartix Inc, which are engaged in the business of vehicle tracking. more »

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68 Comments on this Article show/hide all

sharmvr 4th Dec '18 49 of 68

In reply to post #424443

I am looking at MS International (LON:MSI) - seems to good to be true which is bothering me and especially why they didn't just increase the divi.
Management are well entrenched (little old maybe) and don't appear all that independent but Lord Lee has been a non executive in the past (and a shareholder) so I would suggest this is not a wild west type share (could have said same re Patisserie Holdings (LON:CAKE) )
On valuation, I would do cash adjusted although would reduce some of the cash for committed CAPEX. That said if we do full year operating profit to EV adding pension, I still make it at something between 3 and 4 x op profit. With a healthy dividend to boot. Also, call me crazy but fuel forecourt is probably a growth area since they will probably need to convert to charging stations.
A lot that I would look for but again just seems a little too good to be true.

Paul - be very grateful for your thoughts on this and Water Intelligence (LON:WATR) (I hold).
Water Intelligence (LON:WATR) results good (bordering on great) commentary very bullish (when is it not) - all seems set up to carry on and given recent malaise, think it is looking like a decent GARP share (been considering a top up for a while and nothing in these results would change that view, other than the price anchor!)

Finally may I second the motion for your expertise on Ted Baker (LON:TED) (hold 4th largest after topping up yesterday) long term cinpond hold for me, but today I have doubts since the price seems to have no floor. I am looking at mid single digit earnings/ revenue growth, trading at 10x forward with strong brands and margin.
Personally I think it is back the truck time given that the reason Ray Kelvin hugs is his arthritis (surely disability tops sexism in the new liberal order) but I think founder/mgt risk is substantial, which is preventing me from adding more, pending Thursday

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HollandSmith 4th Dec '18 50 of 68

In reply to post #424473

Thank you sharw, good to know. But now i have that knowledge, i dont know if its a good or bad quirk. :)

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Edward John Canham 4th Dec '18 51 of 68

In reply to post #424478

MS International (LON:MSI)

The company is not a high flyer, so to compare with Patisserie Holdings (LON:CAKE) on a PER of 20+ seems a bit odd - it doesn't seem to have a reason to massage the figures.

I could counter "too good to be true" with "don't look a gift horse in the mouth" - however, I have looked in the mouth and not found anything apparently wrong.

It has been pointed out in the past, and mentioned briefly above, that directors pay is high. At £1.4m in 2018 everyone has to make their own decision on this - but I would be tempted to say it was worth it if things continue like this and I've seen worse.


Edit: Meant to add - I suspect that this fell out of favour with the profitability decline from 2013 - 2015.

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dangersimpson 4th Dec '18 52 of 68

In reply to post #424468

IG Group (LON:IGG) starting to look good value to me sub-£5.50. EV of £1.7b and even with -6% revenue for the HY they should be able to generate £80-90m FCF barring any major investments. This is a EV/FCF multiple of c10 and unless you think the business will decline much further due to regulation this should be fairly sustainable over the long-term. My own view is the main bulk of the regulatory impact has hit and we will start to see stabilisation, although probably a while before they see any growth again. Interested in other views though if someone has more experience with regulatory impact in the financial space.

Book: Excellent Investing: How to Build a Winning Portfolio
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kenobi 4th Dec '18 53 of 68

In reply to post #424373

A membership organisation ? like otm was at launch ? there have been various attempts do do this going back 20 years, there was a company called ask daisy, and several attempts until recently otm was owned in part by the members, but they found it didn't work, they ran out of money and decided to float to turn themselves into a rightmove type organisation, It will be interesting to see how this works out, perhaps if they're home builders and focus on new properties, it could work. Perhaps end up being bought by righmore or another ? Seems to me getting all the developers together, would be much much easier than getting all the estate agents together. BTW rightmove started with companies being induced to join, in return for shares in the company. I worked in a company who did connells website before they jumped to rightmove as founding share holders. So it can work, if it can work with such a strongly established companies, I am not sure, It must help that they're targeting a niche,

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Howard Marx 4th Dec '18 54 of 68

In reply to post #424498


IG Group (LON:IGG) presented a useful slide to calculate the impact of higher leverage limits at their Capital Markets Day back in May:


IG Group (LON:IGG) stated today that "around 70% of UK and EU revenue in the four months since all the measures were introduced has been generated by professional clients."

Such revenue is unaffected by the new ESMA leverage limits. 

So only 30% of UK/EU revenue will be affected, or £79million (30% * (132m+132m)). 

If this revenue drops by 34% as previously assumed then IG Group (LON:IGG) will suffer a revenue decline of just £27million in the current Financial Year. Assuming this all drops through to the bottom line (given that this is a largely fixed cost business) then Net Profit in the current year will be around £200million. 

This represents a FCF Yield of around 12% based on todays EV of £1.65bn.

The beauty of buying IG Group (LON:IGG) CMC Markets (LON:CMCX) or Plus500 (LON:PLUS) at the current stage of the economic cycle is they uniquely benefit from higher market volatility.

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gus 1065 4th Dec '18 55 of 68

In reply to post #424433

Hi HornBlower.

Not familiar with Gypsy King situation that you mention. Google seems to offer me either Romany culture or a French flamenco/salsa pop ensemble which I presume is not what you had in mind. Could you give a bit more background please?




Edit:  Sorry, my bad.  Just realised your talking about Saturday’s boxing!  A bit too lateral for me, and in that case wasn’t the “rogue” judge Mexican?


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ACounsell 4th Dec '18 56 of 68

In reply to post #424333

Halma (LON:HLMA) is also on the list. This has been a favourite of long term investors for some time.

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ACounsell 4th Dec '18 57 of 68

In reply to post #424383

Terry Smith's definition of small cap in the IPO prospectus for Smithson Investment Trust (LON:SSON) was up to £7 billion - by small and mid cap he appears to mean 'smaller' than his investments in the Fundsmith vehicle! Consequently don't think he has had difficulty in finding stock as the original universe identified was only c. 85. Given the recent market volatility he may have picked up some bargains too though surprised he has gone for £CHKP (I use to hold) as seen by some as a 'legacy' internet security company which has done well in the past but may not be one for the future. It has never paid dividends and is an Israeli company (!) listed on NASDAQ. On the subject of Israeli companies given Paul's comments re Taptica International (LON:TAP) is it just sour grapes on my part (having sold out much too early) but the financials for Plus500 (LON:PLUS), another Israeli company, just look too good to be true particularly when compared with the poor results reported by IG Group (LON:IGG) and £CMC. I know they are generating loads of cash and paying significant dividends but is this another potential disaster just around the corner?

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dmjram 4th Dec '18 58 of 68

In reply to post #424548

"Terry Smith's definition of small cap in the IPO prospectus for Smithson Investment Trust (LON:SSON) was up to £7 billion"

That's what makes the largest holding Verisk Analytics stick out - it has a market cap of over £15bn, way over the prospectus guidelines. Which is why I wonder if he struggled to find attractive stocks per his criteria in the stated universe.

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JohnEustace 4th Dec '18 59 of 68

In reply to post #424553

The £7bn was the top of the small cap range for Smithson Investment Trust (LON:SSON). He goes up to £15bn for mid caps. Verisk may have been right at the top of that range when purchased.

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DJCP 4th Dec '18 60 of 68


I've only just started reading the SCVR from yesterday, and noted the following which stood out for me:
"Unusually high profit margins, with no obvious reason as to why that should be (with hindsight this was the "tell" at Patisserie Holdings (LON:CAKE) )."
I've subscribed for the AJ Bell IPO, and on much of the views/analysis, there's a comparison with Hargreaves Lansdown (LON:HL.) which isn't surprising. What jumped out at me was the high margin of HL in comparison. I'm NOT suggesting anything untoward, but it's surprising how a recent 'shock' (Patisserie Holdings (LON:CAKE) holder) can focus ones mind on something that would have normally been ignored, or passed over.

"For this reason, I've decided to do some reading on the matter of uncovering dodgy accounts. I'm pretty good at it, but not good enough, as I didn't spot CAKE. Mind you, did anyone?"
If you read other BBs, there are many woodworms* NOW pointing out the dodgy accounts :o)
*Those who come out of the woodwork, ONCE the nice shiny varnish has gone ;^)

You mentioned re Plastics Capital (LON:PLA)
"Name change - reflecting the fact that "plastic" is regarded in an extremely negative way these days, the company is changing its name to "Synnovia". I rather like that, it rolls off the tongue nicely."
I'm sure SCVR reader(s) recently mentioned the increase/decrease in value of companies changing their name to something non-informative. (p.s. you should see a doctor if Synnovia is rolling off your tongue ! lol)

FINALLY (you'll be glad to read), I would also like to thank both you and Graham for the SCVR. I'm quite sure I'm moving to a more conservative investor (Graham), as opposed to your ... errr ... polite word for flamboyant, ;^) attitude ! (This is not meant to be critical of either of you). Holding Duke Royalty (LON:DUKE) and Volvere (LON:VLE) but not Sosandar (LON:SOS) (yet!) has more than bought this home !

I've also learned NOT to 'hold-on' to wishful thinking. I lost money but did sell out early, and therefore didn't get butchered by Crawshaw (LON:CRAW) or hooked by Fishing Republic (LON:FISH) . I do still have an occasional speculative punt, but now have a timeline as to when to bail-out regardless - i.e. >10% in x months, wait for next trading update, etc.

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Edward John Canham 4th Dec '18 61 of 68

In reply to post #424513

Plus500 (LON:PLUS) IG Group (LON:IGG) CMC Markets (LON:CMCX)

We're in for another interesting day tomorrow with the US indeces all down 3% as I write. But it does seem to me, whatever your poison, as you say spreadbetters should be raking it in. The VIX index is up 27% to 21.

The real surprise I've noted recently is both IG Group (LON:IGG) and CMC Markets (LON:CMCX) have not referred to the recent increased volatility. Plus500 (LON:PLUS) did and I suspect will do again before Xmas - the baton being passed on ????

Edit :  Now 32% and 22.

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Howard Marx 4th Dec '18 62 of 68

In reply to post #424573

CMC Markets (LON:CMCX) made some understated comments on the pick up in volatility since the end of September in their Interim results two weeks ago :

" the second quarter (July-Sep) was particularly difficult. Volatility was low, and unusually the majority of asset classes traded in tight ranges.... as we enter the second half, which is typically stronger than the first, we have seen an improvement in market conditions and encouragingly an increase in activity across retail, professional and institutional client categories."

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doug2500 4th Dec '18 63 of 68

It would be interesting to know Graham's thoughts on IG Group (LON:IGG) if he's lurking.

I thought the reaction today was overdone on my understanding of the update. To me it just looked like they confirmed what they'd already intimated.

Group revenues down 10% due to regulatory changes. Wasn't that what everyone expected?

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Gromley 4th Dec '18 64 of 68

In reply to post #424328

Vianet (LON:VNET)


I started writing this earlier in the day, but the succumbed to man-flu and fell asleep on the sofa under a duvet and laptop.

It might also have made me a little grumpy.


I am deeply unimpressed with the presentation of the comparatives here.

They fail to clearly indicate that the prior year H1 numbers do not included Vendman (Acquired Oct-17) whereas obviously this years H1 do.

We know that in the year to March-17 Vendman did £1.8m revenue and £0.27m Operating Profit.

So, I would assume roughly £1m /£0.15m in the HY to Sep-17.


Taking this into account the ‘underlying’ figures look less stellar.


Smart Zones -5.3%

Smart Machines +13.2%

Overall -0.4%

Underlying profits in the two segments therefor look quite flat.


I’m also not too impressed that whilst private investors get access to a (quite informative) pre-recorded results presentation, the analysts get a live presentation with the opportunity to ask the management question (like why do you misrepresent your growth numbers? Perhaps.) It doesn’t look like that session is being recorded and distributed, so we wont know what clever questions the analysts have asked.


The interim dividend is maintained at 1.7p giving the prospect of  5.7p for the full year (>5% yield) , but as the dividend has been 5.7p for the last SIX years that’s getting a little tired.


I could get excited about the fact that “the overall prospects for the second half look increasingly assured”, if only I could understand what that means. I think it is equivalent to “comfortably in line”, but I’m not totally sure.

Medium term outlook is perhaps more encouraging.

“The Board believes that Vianet's medium to long term prospects are exciting as we are increasingly demonstrating that our strategy of leveraging the power of our cutting edge technology platform to bring valuable business insight to our customers is the right one.”

That would be great were it not for the fact I’ve read the last dozen or so statements and the board is in a near constant state of rapture about the medium to long term prospects.



I’m actually still holding and probably feel more confident about this being the right decision than I have for a while (my finger has been hovering over the sell button for about a year and with the benefit of hindsight that would not have been a bad call at any time).

So why the optimism?

Well because these relatively lack-lustre H1 results were against the background some interesting headwinds.

Smart Zones – The beer monitoring business.

  • Pub closures (ongoing but slowing)
  • Only 44 new installs, down on the normal level due to a focus on transferring customers to the new technology platform.
  • 2 Major customers were pre-occupied by “corporate transactions” – hopefully this will not only be temporary, but also will create an additional pipeline of demand.
  • Recent customer re-signs and commitment to technology upgrades will deliver into the 2nd half. Enterprise Inns (sorry “Ei group”) renewed and signed up to tech upgrades after the period end.
  • The American business increased the number of sites by 32 to 279 (13%) and reduced losses to £30k. At one stage a key part of the investment case was that they could gain scale in the US pubs – I think now the Smart Machines segment looks more interesting, but still there is plenty of scope for growth in the US pubs.

Smart Machines

  • They have been progressively moving from “capital sales” to “annuity” type business. IE they charge less up front cost but a higher ongoing revenue during the contract, this has the following benefits :
  • Higher overall profit over the duration of the contract.
  • Less “lumpy” revenues.
  • Increased market penetration (customers no longer have to raise capital)
  • It does though create a short term headwind in reduced revenues, margins and costs – they helpfully identify this as being -£0.5m revenues and -$0.25m profit and cash in the half year.
  • They added 5,427 new connections in the half year, more than in the entirety of the previous full year. Because of the shift towards “annuity” the revenue impact of that in the current period is less than would have been the case, but secures profits over the coming periods.
  • The project with a major “global coffee supplier” (Costas if I am joining the dots correctly) has been delayed due to delays in the customer rolling out there own IT transformation. If a customer project is going to be delayed, its hugely preferable if it is the customers fault and that it’s not something that is likely to make them change their mind. The rate of deployment is now increasing.
  • So it seems to me that there is plenty of pent up business here and the acquired Vendman business is giving them additional cross selling opportunities.


So overall there is a degree of “jam tomorrow” and execution risk here, although they are relatively cheap even without the growth.

The earnings forecasts have been increasing since the spring & I think they have been increased again today, yet in fact the 2019 figures in particular look quite conservative to me.


This has been frankly quite a frustrating holding, but I at least am optimistic that it will start to bear fruit of the next year or so.

Oh, and for good measure Stockopedia ranks this as a "super stock" (although to be honest it hasn't really felt like it has had momentum with it!)

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doug2500 4th Dec '18 65 of 68

Tomorrow might be a fun day.The US is down over 3% today / tonight.

Hold onto your (tin) hats, it could be a bumpy ride.

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dangersimpson 5th Dec '18 66 of 68

In reply to post #424513

Thanks HM,

If your £27m estimate is ballpark accurate the 70% is above expectations from earlier in the year and we could see IG Group (LON:IGG) beat broker consensus for this year (assuming stockopedia numbers reflect consensus.)

Extra stock market volatility should help the spreadbetting side although may also provide a headwind to the nascent stockbroking business. Crypto currencies seem to be heading monotonically towards intrinsic value at the moment so may act as another headwind. But overall I can't see a bit more stock market vol harming the business.

Book: Excellent Investing: How to Build a Winning Portfolio
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Ramridge 5th Dec '18 67 of 68

In reply to post #424618

... and the FTSE 250 hit a new 12-month low at 18329. Russian roulette would be less fun than being in the equity markets these days.

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beatingmrindex 5th Dec '18 68 of 68

In reply to post #424598

Gromley - fantastic write up - bought in yesterday as think the share price is now too cheap but in this climate it may well drop more. Happy with c5.5% div while we wait though...

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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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