Small Cap Value Report (Tues 28 Sept 2021) - ABDP, ERGO, SUS
Good morning, it's Paul & Jack here with the SCVR for Tuesday.
There's another Mello event tonight, this time a results round up following a busy period in the markets. Companies being covered include Tandem (LON:TND) , Belvoir (LON:BLV) , and many more. David's got more information in this post. If you want, you can join the whole thing for free with the code: 2809MELLO.
Agenda -
Paul's section:
Ab Dynamics (LON:ABDP) - an in-line update from a good company, but the valuation looks way too expensive here.
Jack's section:
Ergomed (LON:ERGO) (I hold) - ongoing positive trading momentum and a busy period for the group, which sees it expand its operations as a result of a strengthened order book. Acquisitions are fully integrated, Ergomed's services are in demand, and the group is targeting growth across multiple geographies. The shares do currently price in a fair amount of that growth, though.
S&u (LON:SUS) (I hold) - revenue down slightly but profit up a lot and the outlook is improving. The group is optimistic regarding long term growth prospects and it looks like full year earnings per share estimates could be beaten. Positive update from a well run company, in my opinion.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to cover trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty.
We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).
A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.
Paul’s Section
Ab Dynamics (LON:ABDP)
2006p (up 3.4% at 08:04) - mkt cap £454m
AB Dynamics plc (AIM: ABDP), the provider of advanced testing systems, simulation products and testing services to the global automotive and mobility sectors, provides the following trading update and details of the launch of ABD Solutions in advance of the publication of its results for the year ended 31 August 2021 ("FY21").
My summary of today’s update -
H2 performed well.
Managed supply chain & currency effectively.
Strengthening demand.
H2 revenues +20% vs LY organically
H2 total revenues +40% vs LY in total, including acquisition of Vadotech in Mar 2021 (performing in line with expectations)
FY 08/2021 revenues total c.£65m (the StockReport here shows £67.8m, so looks a bit below consensus forecast)
Adjusted operating profit anticipated to be in line with market consensus (doesn’t provide a footnote to explain what this figure is. The broker is Peel Hunt)
Strong cashflow
Net cash £22.3m
Launching a new business unit called ABD Solutions
Diary date - 24 Nov 2021 for FY 08/2021 results.
Outlook - sounds encouraging -
Notwithstanding a challenging backdrop generally, the Group has seen a continued recovery in demand through the second half across all key product and service lines, which demonstrates the resilience of ABD's markets. Despite the significant uplift in sales during the second half, orders exceeded revenues in the period and the business enters FY22 with good momentum.
Valuation - as you can see below, consensus forecast EPS has come down a lot, so meeting this lowered expectation is not impressive.
Stockopedia shows the forecast PER at 39.8 - why on earth would I want to pay that high a rating? I would expect strongly out-performing forecasts for that price.
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My opinion - this has always struck me as a good quality, impressive company. However it looks far too expensive. If the price halved, it would still look fairly pricey, so it’s not of any interest to me. The current price bakes in out-performance, but today’s update is only in line.
.
Jack’s section
Ergomed (LON:ERGO)
Share price: 1,320.55p (-2.18%)
Shares in issue: 48,890,348
Market cap: £645.6m
(I hold)
Ergomed continues to benefit from both its own successful strategy and a buoyant biopharmaceutical industry backdrop.
The group’s fast-growing services business includes an industry-leading suite of specialist pharmacovigilance solutions (PrimeVigilance, PV) and a full range of high-quality clinical research and trial management services under the Ergomed brand (CRO). These specialist services to the pharmaceutical industry span all phases of clinical development, post-approval pharmacovigilance and medical information.
Revenue growth over time has been highly encouraging.
But the shares now trade at 38.1x forecast earnings and the forecast PEG ratio is 2.2x, suggesting the group needs to positively surprise the market if it wants to break free of its current range in the short term. Although you could argue that it continues to trend upwards in the chart below and the long term prospects are favourable.
It’s an exciting company, one that is now much more fully priced than it was a year or two ago, but still worth keeping tabs on given the raft of developments.
Strong organic growth and acquisitions drive increased revenue and profit
Highlights:
- Total revenue growth of 38.8% to £56m,
- Adjusted EBITDA +33% to £12.1m,
- Basic adjusted earnings per share +48.7% to 16.8p,
- Service fee revenue +29.3% (11.1% like for like and 18.2% at constant currencies),
- CRO revenue +90.2% to £27.2m (16.1% LfL and 24.5% cc)
- Net new sales awards up 50.8% and order book up 18% on January 2021 to £193m, up 50.5% year on year,
- North America revenue +70.8% to £35.5m and recent acquisitions Ashfield Pharmacovigilance and MedSource fully integrated,
- Net cash up 74.5% to £24.6m, no debt.
Adjusted EBITDA is operating profit plus depreciation and amortisation, share-based payment charge, and other income and costs. Operating profit was £8.5m (up from £6.9m) compared to adjusted EBITDA of £12.1m, with the bulk of the difference coming from depreciation and amortisation.
Gross margin is down 4.7% to 41.1%. It looks like this is as a result of investment in operations across multiple geographies in response to the strong order book.
While Ergomed has executed a very successful strategic shift in operations, encouragingly, the market backdrop is increasingly supportive. It’s a strong first half with overall growth in revenue driven by increasing demand for its services across the business. This suggests the company could continue to flourish, propelled forwards by favourable tailwinds. Per the group:
Favourable market dynamics have continued and strengthened in the areas in which Ergomed operates, with increased research and development investment generally and particular strength in Ergomed's specialist areas of rare disease and oncology, where the Company's physician- and patient-centric model is also a key competitive advantage. In addition, regulatory scrutiny and harmonisation are also increasing, and the COVID-19 pandemic is accelerating innovation and the adoption of digital technologies. With the Company's growing order book, recognised expertise and brand recognition in our specialist fields, and complementary geographies and service offerings, Ergomed is well placed to take advantage of these favourable market dynamics.
Ergomed's international expansion is continuing at pace. The company's operational presence in the US continues to develop rapidly with strong organic growth alongside the integration of the two new US businesses acquired in 2020.
There is also ongoing expansion into further geographic areas, including the development of operational capabilities in key European countries as well as the new operation in Japan, the fourth largest pharmaceutical market in the world.
PrimeVigilance - revenue up 10.3% to £26.1m (+16.2% constant currency) and gross profit up from £13.4m to £14.6m with gross margins down slightly from 51.3% to 50.7%. The Japan office is now fully operational.
Clinical research services (CRO) - a further acceleration in growth helped by the MedSource acquisition (revenue up 90.2% to £27.2m, and up 16.1% or 24.5% constant currency excluding the acquisition to £16.6m). Gross profit is up 64.7% to £8.4m with gross margins again down slightly, from 45.9% to 44.2% due to foreign exchange headwinds and increased US staffing to support the larger order book.
Ergomed has further strengthened its CRO services with the expansion of operational capabilities in Spain, Bulgaria, Romania and Georgia, organisational improvements including the enhancement of global study start-up capabilities, and the rationalisation of standard operating procedures.
Dr Miroslav Reljanović, Executive Chairman, comments:
Global demand for our services continues to strengthen and our confidence in the long-term growth of the Company is underpinned by the buoyant markets in which we operate, our acquisition strategy, and the robust platform provided by our order book and balance sheet.
Conclusion
It’s been a busy period for the group. Trading was robust through Covid and the group has concluded its strategic transition to a services-based business model. Some sizable acquisitions have also been fully integrated.
Management’s ability to execute, the strong current trading, and the favourable market outlook both in the short and long term all paint a positive picture. The order book is up 18.0% since 1 January 2021 and up 50.5% on prior year to £227.8m, providing high visibility into H2 2021 and beyond.
The sticking point is valuation - while the available opportunity is promising, Ergomed shares are expensive. At these levels holders are pricing in both organic growth and ongoing acquisitions in my opinion.
The group is well placed to achieve this, but from an operational perspective a period of consolidation after so much activity would also be understandable. On balance, it’s probably more likely that the company will continue to grow both organically and acquisitively but for a growth stock, a reduction in the rate of growth and multiple compression is always a risk.
Even after recent upgrades, Edison has a target price of 1,400p for example, which would be just 3.7% upside. Price targets can often be taken with a pinch of salt, but it still comes across as a tacit admission that the shares are up with events (promising though those events are).
In fairness, Edison’s sensitivity analysis presents a range of 1,032p to 2,005p in a bull case, so a lot comes down to ongoing growth rates. At present the order book is encouraging but I still wouldn’t want to pay too much more than current levels as a lot of growth is priced in. I believe this view is reflected in the market performance, which has seen the shares pause for breath for a while now.
That's not necessarily cause for concern - ultimately these are positive results and the long term prospects here remain favourable.
S&u (LON:SUS)
Share price: 2,857.5p (+0.26%)
Shares in issue: 12,145,260
Market cap: £347.1m
(I hold)
S&U is a family run finance provider with two main divisions. Advantage Finance (by far the largest and most established) is a motor finance company focused on the non-prime used car market. It offers loans of up to £15,000 via brokers, direct to dealers, and through re-finance from customers. These customers typically need a car for work and family purposes. This is an area where ethical risk is high. Importantly, S&U prioritises quality business and longstanding customer relationships.
Aspen Bridging was launched in 2017 and caters to the growing short term refurbishment and residential markets. It lends up to £5m per deal with an average loan of £500,000. S&U management believes this division is well placed to significantly contribute to group profits over the next decade.
It’s a very sensibly run company with prudent, long term management and low staff turnover. Such companies have the foundations in place to plan over much longer time periods, which in itself can be a source of competitive advantage.
As the legacy of Covid gradually fades and brightening skies emerge, I am pleased to announce that S&U is robustly back on track and driving forwards towards our usual standard of profitable, sustainable growth.
Highlights:
- Profit before tax up from £6.3m to £19.9m,
- Earnings per share up from 41.9p to 133.1p,
- Net group receivables up 9% to £306.4m,
- Group gearing stable at 61% (31 July 2020: 62%) with £65m of headroom for growth.
The increase in group profits before tax is partly due to a lower than normal impairment charge at Advantage Finance, following better than expected collections.
Advantage Finance PBT more than trebled from £6.1m to £18.5m and new net loan advances are up 35% year on year to £68.3m. This result is accompanied by a 23% increase in loan transactions in the half year at 9,697, loan advances up 35% at £68.3m, and ‘a superb performance in collections and loan quality’.
The number of customers does not appear to have grown and remains around 62,000, but total collections are up by 14%.
The second quarter saw basic live collections at a record £38.3m, and at 94.4% of due, which is the best performance since October 2017. ‘Much credit for this very high quality must go to the understanding relationships our staff develop with our loyal customers’.
S&U has also implemented a number of product changes, particularly aimed at widening Advantage's near prime customer range and in attracting self-employed customers. It is also using its multi-decade customer insights to enhance its digital marketing.
Regarding the market:
Meanwhile the British used car market remains very strong. Latest SMMT figures for August, saw sales transactions increase by 108% year on year and by 6.6% on pre Covid levels. These made the second quarter of 2021/22 a record with 2,167,000 used vehicles changing hands driven by significant growth in the nearly new used car market. Finally, whilst still partially constrained by supply, the new car market is now showing signs of revival. This will increase the supply of used cars and, together with a strong market and a recovering economy, further boost the markets in which Advantage operates. Brighter skies indeed ….
Aspen Bridging PBT has increased from £0.1m to £1.5m and new net loan advances are up from £9.9m to £56.5m, while the receivables book has grown by 69.2% to £57.7m. New loan volumes have increased month on month throughout the half year.
Sixty-six new loan transactions were achieved in the first half, more than double the twenty-five of last year. ‘In doing so, Aspen reached the significant milestone of 300 transactions since its founding just over four years ago’. Much of this rise was due to Aspen's participation in the Government's CBILS scheme, which contributed twenty-two higher-value loan transactions in the first half (the CBILS programme closed on 31 March 2021).
At half year, Aspen's pipeline of future business stood about 15% above budget. Despite the ending of the CBILS scheme and the Government's stamp duty holiday, the latest Nationwide Housing Price Index shows annual price growth now at 11% year on year.
Aspen has boosted its sales team, introduced new products, revised its rate structure and increased the maximum loan size it offers for the highest quality customers.
Conclusion
S&U is a quality operator managed prudently for the long term, with a history of double digit operating margins and earnings per share growth. Shares trade on 13.4x forecast rolling earnings and a PEG of 0.6x.
Today’s EPS result of 133.1p per share suggests the company is well placed to beat existing full year estimates of 187p. I’m surprised the share price hasn’t moved more. Perhaps this is just not a very widely traded stock, or else people might be wondering if these strong profit results are tied to an unsustainable bubble in the second hand car market (and CBILS support in property). It’s true that revenue is down slightly year on year, but profit is up a lot.
I think this company is an attractive mixture of quality, growth, and on a modest valuation managed for the long term and for its shareholders. The outlook is improving and the company has increased its interim dividend from 22p to 33p. There are plenty of growth opportunities going forwards.
In instances like these, I prefer to look at how the company is doing rather than the share price action on the day, and this update seems positive to me.
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60 comments
FYI, I've written up sections on Card Factory (LON:CARD) , Escape Hunt (LON:ESC) , and Go-ahead (LON:GOG) - but given that it's quite late, we've decided to hold those back for tomorrow's report, so we'll hit the ground running first thing.
Regards, Paul.
FTSE250 carnage yet again, is it time to reposition a few stocks ?????
If I have calculated correctly, even after today, FTSE-250 is still less than 5% down from its 1 September all time high.
Excellent review of results from S&U (LON:SUS), Jack. (I hold, having originally bought & 600p). Top-class management team that never seem to put a foot wrong. Am mystified by the fall in the share price today and believe the shares look tremendous value now.
Interest rates really shooting up now with 10y gilt yields now above 1% having been around 0.5% in August. These are big moves.
Trying to work out which stocks could benefit from higher rates. Jarvis Securities (LON:JIM) immediately springs to minds but that has risen a lot today already. Rising rates normally good for banks, but less so when rates are rising because of stagflation fears which seems to be the case here.
Life insurers and companies with big pension deficits should do well but this is complicated by the fact that they often hedge interest rate exposure. For instance I know Aviva (LON:AV.) have significantly reduced their interest rate sensitivity with hedges.
I lost quite a few % in my portfolio value over last few days, and couldn't work out exactly why. They are mainly blue chip, large cap UK shares, with the rest small cap.
Makes sense that rising long term interest rates would knock down the value of a market where many shares are priced to perfection. The comment on AB Dynamics in todays SCVR is spot on. However great a share may be, if it is priced assuming long term rates stay at virtually 0% then all it takes is a tiny increase in interest rates and they are knocked for six.
Could it be that the time has come to take a much more value focused approach?
Any views on Pelatro (LON:PTRO) who reported today?
Re. Pelatro (LON:PTRO) , at face value it’s an upbeat report and they appear (finally) to be moving towards a recurring revenue model rather than having to secure new customers every year just to stand still. I bought in a small position at the recent fundraising although I’m still not 100% certain I understand exactly what they do! Market seems reasonably happy as the share price is up about 9% on a generally down day.
Gus.
Card Factory (LON:CARD)
per the company today
- revenues in excess of £600 million for FY26, of which the Company expects approximately 20 per cent. to come from online & multi-channel and retail partnerships.- expected shift in product and channel mix, alongside investment to result in PBT margin trending towards 17% over the longer term.
Ok lets go the whole hog here and say the company will at that time deliver 102 profit pre tax and 76 mil post tax - attach pe of say 12 (conservative) = market cap of £912 mill compared to market cap today of £205 mill. at that level of profits even the debt that exists would not be an issue.
In summary this looks like it has stunning upside potential here (i do not currently hold) - if we say there is likely to be minimal extra dilution.
With regard to downside possibilities there is the debt noose - thats still being kicked down the road (plan sort of seems top be working) - the danger hear is if directors raise funds in manner that is not best for "current shareholders who invested near todays price" - or if the share price drifts down in price the dilution may be severe enough to remove a large chunk of the upside with extra cash being needed to avoid dilution or find that dilution results in large share price reduction from where we are now. There is also the execution risk - the fact they say they will have amazing profits in 2026 does not mean it will pan out like that.
I have avoided like the plague companies i know may need to raise funds soon and/or have uncertain income ref covid(not to botheered about card in that regard unlike easyjet) - exiting easyjet was good choice in that regard - not buying into card when the price was bargain basement looks like it may have been the wrong choice (certainly is as off today with doubling from lows) . I do as of now remain on the sidelines twiddling my thumbs thinking should i ditch something else i own to buy here? - i feel like i have a little devil on my shoulder shouting "buy buy buy" every time i look at this share - is the devil ever to be trusted though?
Re Card Factory (LON:CARD) - I watched the web presentation and feel similarly.
Short term it is the uncertainty on the equity raise that prevents me buying more (I hold already). I will buy into any open offer but if I buy more now, then I will feel obliged to take up on these as well. They need to get on and bite the bullet on this. not clear if share price will be higher or lower in 3 months as it linked to COVID shutdowns etc impeding trading
Long term I think the business will do very well. Even MoonPig are still expecting physical cards sold through shops to be biggest part of a large and stable UK card market in 5 years time. Its retail operations are a super simple, vertically integrated business with a big moat and already throwing off cash again - helping net debt (excl. lease liabilities) go down to £96.5m from £107.7m in Jan 21. I also think they can raise especially bottom end prices further - 29p/card to 39p is a 34% price increase that could all go to the bottom line.
(The most interesting chart was that volume was still down (30%?) but basket value was up strongly leading to still slightly down LFL - my detailed note of figures is lost. This could suggest much better results/store once football normalises (albeit at a lower level than pre-Covid).
In the online space, CARD missed the opening up of online 5yrs ago and again the jump to online that occurred in lockdown. Unfortunately, the latest Mgt remain too timid for all their talk of multi-channel.
With the huge CARD brand and awareness, I hope they grow courage over the next few years and invest in advertising (which would also build the shops vs weak competitors like independents and Clintons). They still have time (to get to a distant 2nd of 3rd).
Worryingly on this I was not impressed by the new CEO - if they want someone to read an autocue, I can do it better for less. Not much sign of brilliance of mind or inspirational character either. Hey ho.
One other slight worry is 'retail partnerships'. I dont care what they do abroad eg Reject Shop in Australia but I think too many deals with companies like Aldi will lead to margin erosion through sales cannibalisation.
For now I expect a few more dull years of sub-optimal performance still resulting in a paying down debt and favourable re-siting of the store estate - echoing others, it called out retail parks over high streets.
Net, a grumbly hold.
Card Factory (LON:CARD)
Worryingly on this I was not impressed by the new CEO - if they want someone to read an autocue, I can do it better for less. Not much sign of brilliance of mind or inspirational character either. Hey ho.
I have seen comments from others that they don't particularly trust the management here - it is a worry that it is a big leap of faith presuming that it is easy or even possible to hit past highs (and more) - no reason why they can't but there is no doubt the company got itself in a giant pickle when the buisness model was always simple (i can't really blame them for not seeing or planning for covid coming i must say though).
Ref refinancing i cant work out if they have pulled of a masterstoke playing tough not raising funds at the low point safe in the knowledge that cashflow will be great and it will be a much easier task in 6-9 months time - or whether no fair deals were available or whether its all a hail mary in that they are praying something will turn up or shreprice will climb. If i do buy in here i would want another 50% of investment at the ready - albeit there must be chance small shareholders may be unfairly left on the outside despite what has been said .
Small-caps have been a bit wobbly lately - some of this creates a buying opportunity but also hard to work out at times whether there are fundamental issues I am missing.
Joules (LON:JOUL) (I hold) is down quite a bit - almost 25% in last month and 33% since June. A bit of trimming was probably justified at 300p but now it is slightly above 11x FY23 expected earnings which seems pretty cheap. Am I missing anything? I've only been a recent holder now it has set out more ambitious growth plans which in my opinion have the potential to re-rate this share when profits pick-up with COVID re-opening.
Of other shares I've noticed where there may be a good buying opportunity, or I am thinking about:
Studio Retail (LON:STU) also looks cheap and if Vertu Motors (LON:VTU) hits 50p I will top up - I hold both.
Of favourites (in sense of often being talked about) of the SCVR I don't hold but thinking about: Scs (LON:SCS) and Sanderson Design (LON:SDG) have had decent size falls lately.
I'm also interested in thinking about shares that might benefit from inflation and/or higher interest rates. Appreciate (LON:APP) holds large amounts of customer cash and even small increases in interest rates have a big profitability effect - in 2020 interest income reduced by £1m as a result of the interest rate change.
Braemar Shipping Services (LON:BMS) has also had a lot of share price weakness despite the recent positive update (I hold).
Yes lots of pullbacks recently, Luceco (LON:LUCE) is another one, that is down around 35%. Halfords (LON:HFD) is another. Belvoir (LON:BLV), Volex (LON:VLX) and Treatt (LON:TET) are also down a fair bit. I hold all of these although I did top slice Luceco (LON:LUCE) and Volex (LON:VLX)
LUCE eeek and on a decent update
On Appreciate (LON:APP) I'm with you that it could be an interesting play on rising interest rates. That, along with PE expansion, could make this a 50%, 100% potential gain within 12 months.
I also outlined a few other potential drivers for re-rating over the next few months. IMO you're getting all these extra "options" for free with the current APP pricing:
My detailed notes on each bullet in my BBB Portfolio August Review.
On the other hand management don't seem very inspiring or high calibre, so I'm really only hoping for improving macro trends (and a partner) to lift this boat.
(I hold)
Hi Jack, it would be great to hear your views on Serica Energy (LON:SQZ) please, interims to 30th June released this morning. Looking healthy, moved to profit, even after significant capital investment. Final results should be favourable with current gas prices and additional production from Rhum & Columbus.
I was in here at 6p, but sold out a long time ago, have been in and out since! (should have read that Coffee Can book!!)
Shares may have got ahead of themselves lately as risen about 60% in last 6 months, but may be a good hold for the next 12 months at least.
Bull Case
Rhum R3 Well now online (August 21) additional 4000boe/d,
Columbus due online Q4 2021 additional 8000boe/d,
North Eigg to be drilled in 2022 (if successful would extend field life),
Actively looking at M&A (Mergers & Acquisition) activity,
Transfer of remaining cash flow from BP (60% to 100%) for 2022,
Cash Pile £92M
Bear Case
Most revenue from one Asset – Bruce, if that falls over then………
Volatile gas prices
Thanks Ipreidster for your comments on Serica Energy (LON:SQZ). Notwitstandng the recent share price increases, do others agree that this company is one of the biggest (if not the biggest) beneficiary from the huge increases in price of gas delivered to the UK, particularly as 80% of future production is unhedged? It also seems to have a CEO who knows what he is doing. Perhaps this company's shares could even be bought as a hedge against our domestic energy bills exploding if the winter proves to be colder than normal. The other admittedly more speculative company which may benefit if volatile/high gas prices persist is Harland & Wolff (LON:INFA) which owns a much delayed and still unapproved, underground gas storage cavern in Northern Ireland. I wonder if the strategic value of this facility will ever be recognised by the government, rather than a bridge between Northern Ireland and Scotland which, until recently, the government treated with greater priority.
Probably too small and uninteresting for the SCVR, but Crimson Tide (LON:TIDE) put out a decent update today, double digit growth on the main metrics and I think they're ahead on the full year slightly, they've achieved 50% of the revenue target for the full year in the first six months and are ramping up marketing and r&d so I would expect a slightly ahead forecast for the end of year if the marketing and sales push is going well.
Good results from Animalcare Animalcare (LON:ANCR) - ahead of expectations and have declared an interim dividend.
Paul,
any thoughts on Ab Dynamics (LON:ABDP) trading update this morning
steve
Results presentations from last week.
Judges Scientific (LON:JDG) H1 21 analyst presentation with Q&A. The board is confident it will exceed market expectations for the full year. The order intake, revenue and profit and cashflow have recovered well from CV19. The organic orders to the end of August are up 23% yoy, although the environment is still challenging. They have a new £60m five-year bank facility to provide greater acquisition financing capability. A focus on delivering for shareholders. Video & podcast.
LCM FY21 investor presentation with Q&A. They achieved sustained growth and strong financials in disrupted market conditions. Going forward they are growing AUM with increased capital available to facilitate continued growth, they have a mature portfolio of high yielding assets, and feel the future market conditions will drive demand for LCM's capital. Video & podcast.
Cvs (LON:CVSG) FY21 presentation to analysts. Impressive numbers with total sales growth up 19.2% and adjusted EBITDA +37.3% with strong tailwinds in the UK pet care sector. Video & podcast.
Finally, we'd love you to take part in the Stockopedia/PIWORLD StockSlam. If you have a high conviction holding you'd like to present in 3 minutes on 27th October 6-7pm, I'd love to hear from you, email me here. Or if you just want to attend, register here. It's a fun evening when 10 private investors 'slam' their best stock idea to an audience of thousands.
Jack thanks for the Ergomed (LON:ERGO) report. I sold my holding recently, partly on valuation grounds but also the Stockranks scores have fallen considerably now only 51. It was in NAPs last year and this year. Last year it was the best performer, up over 170%, this year it is up around 30% although it has fallen back in the last few weeks.
good half year results from Immotion (LON:IMMO) this morning. Moving into profitability with Q3 delivering EBITDA of £0.6m. Expectations of a solid Q4 given the home VR HBE division being launched in US and Australia in time for Christmas alongside a new channel "Vodiac". Plus NHS have placed an initial order for 64 of their Uvisan units so this division may prove to be much better than we thought.
Cash gone up to £0.9m and should be highly cash generative in Q4 so doesn't look like any requirement to raise cash. Appears to me they could be doing in excess of £1m profit this year which given the disruption to Q1 bodes well. Doesn't look expensive to me and appears to have considerable upside.
Thanks for this update davidjhill, after doing a couple of hours research and watching a couple of videos by the CEO on "director talk" it has convinced me to take out a small starter holding this morning whilst I do some further research. In addition to what you have mentioned above they are also lanunching a "Zoo Offering" in their Location Based Entertainment (LBE) Division in Spring 2022 which they believe will be bigger than the current "acquarium" offering. Overall this company looks to have come out of Covid much stronger than when it went into it and as in most crisis has driven innovation and accelerated their time to get projects to market in order to survive. ( the CEO mentioned that it took 12 weeks to develop the "lets explore packs" for thier Home VR during lockdowns, no mean feat) the company sold 11,000 last year at approx £70 each equating to approx £750,000 revenue which was only into the UK. They are now prepared for selling into the US, Canada and Australia in time for Christmas with stock already pre-purchased. I am inclinded to agree with your comment above in that the company does not look expensive and has considerable upside but time will tell...... Regards.
Immotion (LON:IMMO) like the biz and the CEO. I don't think the share price is right
However, covid hit really bad time and scuppered their smooth escape trajectory to profitable growth at a decent price. Now post covid, intermediate financial damage and much more dilution I think they are priced richly for the growth they still need to fund going forward. Location based entertainment (LBE) for zoos is a great opp but requires capital up front from IMMO to create the experience (much of that is in atmospherics/design to make attractive inc content rather than the equipment). So they grow that slowly at pace cashflow allows or the need to finance. There is some scope for some sort of asset/venue backed financing package and maybe they will partner somewhere to do that (and some risk that complexity deters customers) -> that would be a real bonus and reduce pull on operating cashflow. BUT, this is a growth biz keen to grab the future as fast as possible and IMO it very highly rated...so there will be strong temptation (rational too) to raise say £5m to make the next leg of LBE for zoos growth simple and straightforward.
Home based entertainment (HBE) looks a simple win. But to expand this business inhouse and keep it moving forward requires development investment. I've bought lets explore oceans for niece and nephew...they liked but its a bit few hit wonder. The package really needed to come with more to engage inc other adventures. 1 or 2 adventures isn't enough and is only ever going to generate opportunistic sales. They need a good handful were enthused parents buy additional adventures for say £25. How they do HBE and LBE development together so as to ensure their growth trajectory means more capital?
Uvisan is interesting. TBH I thought it was a distraction. It seems more than that but it is still a bit manana ...it will make money and be important in future. Again this seems like an area that needs investment...or its non core and they sell/license it to someone else. I still think its a distraction to LBE and HBE.
Overall, I'd be happy to own this at a lower price and a clearer growth financing trajectory. It remains my belief that I'll get the chance
Hi Mojo
To be fair your position hasn't changed that much from your original intention to short the stock at 4p citing an expectation of significant volatility in the share price that hasn't transpired. SP has gone up 60% since then in a fairly regular upward trend line.
Based on a target HBE fully loaded margin of 25% we should be seeing £1.25m or more of operating profit this year (£600k on HBE in Q4 assuming sales of 28k units) with significant further growth forecast for next year (and better when you add in a normalised Q1). Thus a 20* earnings current year falling to closer to 10* on a 1 year fwd view doesn't strike me as particularly rich in the context of the current market for this type of business.
I said at the outset with Uvisan that "if" that tech took off then the company has an opportunity to carve the business out through a separate entity IPO (either as an in-specie transfer to shareholders or as a part sale). Given the trajectory of Uvisan that now looks more likely and in itself could add incremental shareholder value.
Notwithstanding that Q4 should be highly cash generative so I expect the cash position somewhere north of £2m by y/e. Based on historic installation success I really don't think debt or asset finance to ramp up the Zoo installations should be particularly difficult to come by if management so wishes particularly since they have a proven model with payback inside 12 months. The company directors have been quite categoric in approach that they don't want any further dilution either.
on HBE the new product "Vodiac" addresses the content issue. All headset owners now have access to something like 7 channels of content free of charge but with other videos/immersive experiences on a rental basis. This is great as it builds up a recurring revenue stream on top of new product sales.
In the absence of new lockdowns then I maintain my view that it is more likely we see 10p in the next year as opposed to 4p. Maybe you will get lucky and general market conditions deteriorate sufficiently for you to get you chance to enter lower but I think your hypothesis on the value in this business is not correct.
Never said I'd short it so you are incorrectly sticking it to me. I did say I wouldn't own it and I'm repeating that. You may be giddy on your price success...but the battle isn't over. As I've said in the past, the CEO's got moves so he may make it...
Good content for HBE will require investment. 28k sales may happen...but its an upper end figure rather than something to assume as baseline.
My point stands re requirement to invest. One new large zoo LBE is going to take maybe £0.75m upfront capital investment by £IMMO. Further expansion of aquarium sites needs capital if they want to repeat the Las Vegas style experience.
So the LBE product (inc taking all the capital cost away from non cash rich locations like aquariums) is good...but needs significant cash flow to grow and keep a growth multiple.
HBE and Uvisan are nascent and potential distraction. Of course they may work...but they are much more clearly competing in a crowed space there and if there's high margins available that means the product is either overpriced or will attract deeper pocket competitors. To maintain position may require more and rapid investment by IMMO.
With HBE and Uvisan capital requirements increase....unless they are magic perpetual motion money trees. I'd prefer this little company of modest resource and income (but less modest market cap now) focus on one thing to grow and throws it capital into that.
There will be a raise quite soon
November the 19th 2020 from Mojo ;)
" I tried to open a short in them at current >4p price but no borrow. "
Did you watch the investor presentation yesterday? 150 additional headsets in this coming year.
"There will be a raise quite soon" Directors were categoric in no equity dilution. I asked them the question directly. May consider debt/asset finance given the 12 month payback but all growth currently planned from existing resources.
Post capital new sites revenue pretty much all drops to bottom line. They have over depreciated the equipment (straight line over 3 years) but have found the equipment will last >5 and prob 10 years. So at the moment PBT is heavily held back. Will equate to over £100k p/m by end next year.
Ummm, I’m touched that you are so interested in what I say. It seems I didn’t short it…and I didn’t remember that I tried to. Thank you so much for keeping me straight…yet again you prove your superiority in these pages.
They’ve been considering debt finance for at least 20mths (that’s when I met them)Makes sense.
They’ve tended to surprise to the upside in terms of number of equity raises. I see a lot of growth (3 areas) for them to secure and a scarcity of capital (tiny company not much CashFlows). I’ll carry on believing a raise seems likely. Slow growth due to lack of investment capital is problematic for the rating.
They’ve done great job reducing hardware costs. For a LBE package it’s other costs around setup that are more important tho (atmospherics of the thing).
I’d also have a concern that their markets outside US seem to have ossified (backwards in U.K.). That’s a little odd and can’t just be labelled covid problem.
My perspective may be wrong but I prefer not to just regurgitate mgt perspective.
Gun to the head I’d choose short rather than long today. It should easily stay above 4p tho…although a disappointing Q4 from HBE would trouble.
TBC I like the ceo at Immotion (LON:IMMO) …I could invest but only at right risk/return. Immo don’t have killer tech or unique capabilities. There’s little barrier to entry on any of their product areas. They’d be best focusing on one area and backing it to the max to give themselves more scale before competition appears. That’s LBE. Other things are distractions (potentially costly for small biz)
Hi mojo and david, Good bull and bear points exchanged on Immotion(LON:IMMO) As a new comer to this stock your comments were very interesting and much appreciated. I personally feel that LBE was/is always their core strategy. Usivan is a need that has been driven by Covid - ie if they had no way of convincing the public that their headsets are virus free then it could limit the amount of revenue when restrictions ease. HBE is also driven by Covid as they had no cash coming in from LBE and needed another revenue stream to survive given that they did not know when LBE reveues would return. - Vodiac is necessary if they want to continue to increase revenue from HBE otherwise as mojo states it will be a one stop purchase. IMHO therefore these additional revenue streams were not necessarily distractions but necessary to see them through an uncertain period due to Covid. As mojo has highlighted it will require a good Q4 to provide the momentum for the future.
You're welcome Mr Rambo
Haha - sorry, I couldn't help but have a little dig at the short! but I'm sure you know it is all in good humour from my side.
I asked management on the investor call if they would do an equity raise and they said categorically no. They are two largest shareholders and want no more dilution. If they did a raise in the near term then for me their credibility would be completely shot.
You are right that a slow Q4 in HBE would not be ideal and that might change my thesis but current metrics suggest they will sell out and should actually have had more stock with 20/20 apparently as there is no opportunity to source more in time now.
I asked them if they would consider proving up Uvisan and then listing it independently and the FD thought that was a good idea. In the short term they want to utilise the cashflow (apparently it is cash generative) for LBE capital requirements, which also makes sense.
Immotion (LON:IMMO)
I fail to see that Uvisan is something that can be listed...so I think the FD is playing people's hopes to say that. There is no barrier to competition. To establish market position that justifies listing they would need to move incredibly quickly in terms of sales and brand development...and even then the margins would be low and hard competed against unless there was some serious innovation too (more investment).
They would be better maxing out LBE and raising equity to do it than putting time and resource into HBE and Uvisan. The new businesses were probably minor distractions when covid was in full swing...but they've slimmed down staff (particularly cutting costs out of the expensive content creation team and process) and running harder on three fronts probably isn't a good idea.
I think HBE will be separated quite quickly and the process will be managed by the ex Sony Europe guy they have in charge internally (I think he was NED previously but may just have been an advisor). Probably a cash transaction for very modest amount (some sort of carry based on existing customers and their propensity to buy more) and then some right to earn from any content they provide. Uvisan will go to industry player best able to invest and grow.
...between now and then the hope is for extra cash flow that will be ploughed into LBE to grab a little growth. This may work...the CEO is quite a mover, a real hands on duck and dive entrepreneur...but it makes me worried. I've been in that sort of situation with businesses I owned and its a rocky path. Maybe he's a superior entrepreneur to me. TBH I decided I'm entrepreneurial and risk taker/mould breaker etc...but not a true in entrepreneur in character -> they break thro impossible barriers IMO -> the CEO got this sort of character, so he might get there (he's pulled it off so far -> kudos)
I bought IMMO at 7p pre covid as thought was under appreciated that they were doing good job and on cusp of positive cash flows (and been real valuable product development underneath). Covid came and I bought more at 2p ish. I did that as thought the macro intervention/support would be massive and that covid risks to their business would be not too long lived (correct former, incorrect latter). I then sold as its priced recovered (5p ish I think, got out flat)...but the environment was not clearing for them and they were raising cash to keep going. The new products were hope over substance at that point IMO...but people are in the stock and want to believe.
So what irritated me about your prior post is not that you called out my price wrong short view -> = chest beating...but in doing that you are implicitly claiming insight/kudos that Uvisan and HBE were visibly good uses of company time and capital in the teeth of covid snafu...I don't believe that what seeable so it was a pure speculation to place any weight on them...
I like analytical probity and honesty with myself. I get a bit grumpy with the pious genius of investors at the moment - there's a lot of speculation being underwritten by macro conditions and policy now and for the last decade plus. I sometimes get lucky...and I acknowledge that. The reason I did not let myself try get too lucky with IMMO is that there was no asset and valuation underpin nor a significant strategic industry 'overpin' (my worst speculation is Bidstack (LON:BIDS) ...its got no underpin for sure and has done some awful things to shareholders....but I think its got an early mover shot at a significant virgin territory above it).
To be frank, I post a bit negative as feel there's a tendency to over believe in here ...and well, I'm a contrary sort...I'll be v positive in the next bear market ;)
PS for avoidance of doubt.... Bidstack (LON:BIDS) is a very dangerous speculation. Anyone thinking on a position should assume the risk of zero is there and fairly prominent. Its not a risk I would normally take but I think the misperception/dissonance around them is very large due to past errors and market is blind to the large opportunity ahead of it and the steps taken to access the opp. But for sure, there is no value underpin. Its a listed VC stock...and VC should be private for good reasons!
But I'd suggest that Bidstack is a more scaleable and profitable opp than something like Mirriad Advertising (LON:MIRI) which currently has a glowing valuation
Ergomed (LON:ERGO) (I hold) certainly isn’t cheap but I reversed my short term top slice (sold at £15, repurchased at £13.50) yesterday with a lot of confidence in the company’s results and prospects. As a US-focused business, Ergomed is valued on a par with US mid cap equivalents like Medpace (I hold) and well below the likes of Avid Bioservices (I hold) and Swiss behemoth Lonza (I hold). The CRO and CDMO markets have formidable tailwinds and investors are more tolerant of high valuations given the defensive growth.
This reminds me of my post defending the valuation of Judges Scientific (LON:JDG) last week by comparison to the global counterparts - but look at Judges continued strength in a difficult start to this week for most equities. Life Sciences is great sector for “picks and shovels” investing and Ergomed’s record is outstanding.
Thalassa Holdings (LON:THAL) has had figures, it appears to be at a large discount to cash or equivalent which stands at 133p. There is also an underwater survey business, and a stake in a financial services business.
Thalassa Holdings (LON:THAL) has had figures, it appears to be at a large discount to cash or equivalent which stands at 133p. There is also an underwater survey business, and a stake in a financial services business.
It's effectively controlled by Charles Soukup and has largely been his investment vehicle. If you want to invest here you need to be comfortable with that.
timarr
Good morning Paul. What are your thoughts on DBOX - interims out today.
Morning LinnetIC,
Digitalbox (LON:DBOX) is too small to cover here (about £8m market cap), and it's such a tiny company, I can't see why it is listed, so de-listing risk concerns me.
Good outlook statement with today's interims, and it made a small profit before tax of £0.1m. Balance sheet looks decent, with net cash.
My main problem with this company is its output - that ghastly, sneering, extreme left totally unfunny "comedy" show, The Mash Report. It gets right up my goat whenever I accidentally watch it for a few seconds.
The Daily Mash website used to be quite funny, but it's very formulaic now, churning out boring predictable content, feels like it's had its day.
Looks like DBOX is having a good year, but are those profits sustainable? I think they need to either build it up into something bigger, or take it private. There's obviously going to be a liquidity problem with something this small, so fine if you want to punt with a small amount of money, but no good if you want to buy a meaningful position size.
Regards, Paul.
Don’t know why JSE has come up as Jupiter fund it should be
Jadestone energy
Any one have any thoughts on Jupiter 2nd Enhanced Inc (LON:JSE) it’s one I have held for a couple of years now their announcement of a new well coming on stream and increasing boe a day by 3,000 is another step towards their aim of 20,000 boe by year end at a production price of $30 ish means it will be producing a lot of cash relative to market cap with no debt
Can't see any of the team looking at this - resource sector isn't something they generally cover
Hi Paul and Jack. Ergomed (LON:ERGO) - Interims are out this morning and look very good to me. I would appreciate your view
Hi Paul & Jack , Card Factory (LON:CARD) - Interims out today , possible recovery stock ? I think Paul thought they needed a cash raise last time he reviewed, they have significant growth plans . Would appreciate any updated views . I have a small holding
Thanks
Rob
Morning harrinr,
Card Factory (LON:CARD) is next on my list to do.
Regards, Paul.
For any holders of shares in De La Rue (LON:DLAR) , Allied Minds (LON:ALM) , Equals (LON:EQLS) , Hurricane Energy (LON:HUR) or GI Dynamics (ex ASX) it’s worth reading today’s RNS from activist fund manager Crystal Amber Fund (LON:CRS) and in particular the investment manager’s report for some excellent summaries of the current state of play with these companies. Given Crystal Amber’s highly concentrated and active involvement in their investments it’s good to get their insight on what’s going on under the bonnet with these businesses. I hold a couple of these companies directly and have been a beneficiary in particular from how they have shaken up Hurricane Energy (LON:HUR) whose management had been in the process of unnecessarily gifting most of the equity in the company to bond holders prior to CA’s intervention.
https://www.investegate.co.uk/...
Gus.
With regard to £alm what does a 'corporate solution' mean, that Crystal Amber refer to?
Re. Allied Minds (LON:ALM) , your guess as to what a “corporate solution” might be is as good as mine! Given the RNS says it’s an alternative to the replacement of the Chairman and one of the NEDs that Crystal Amber tried to force through earlier in the year, I would speculate it might mean CA are advocating a break up/disposal of the holdings and distribution of the proceeds or possibly an in specie distribution of the shares held by Allied Minds (LON:ALM) to their shareholders. Given the big discount Allied Minds (LON:ALM) trades to NAV this could be a decent course of action.
Gus.
This will be interesting, as the AGM in November will not secure the necessary 75% majority to continue the business. An orderly sale of all assets and return of cash to investors seems the likely order of the day. Might well prompt M&A action for some of the larger holdings.
A strangely late trading update from Ab Dynamics (LON:ABDP) [I hold] this morning, at just after 07:30, so probably missing the deadline for inclusion in Mr C's summary post:
https://www.investegate.co.uk/...
Revenue down a bit on consensus, operating profit in line, still plenty of cash (£22.3m) and a fairly upbeat output statement, with orders exceeding revenues.
Also, a new business, ABD Solutions, that will retrofit autonomous driverless technology to off-road fleets, with mining, defence, agriculture and material handling specifically targeted.
Https://www.abdsolutions.com
EC
thanks for introducing this thread.
I didn't notice it was late but that because I slept in. The tenor and the facts within the update are very heartening and bode well for the future (I hold). Ab Dynamics (LON:ABDP) is an excellent tech company in the right sector at the moment although still very small. With the recent share slide I had worried that there might be bad news escaping. Now I look forward to more news of the new division at finals time when colour can also be given on the increasing order book and progress on acquisitions
steve
Hi Paul, are you still holding Tasty (LON:TAST) ? seems to be responding well on yesterday's update.
Hi TerryTosspot (LOL!! That's his actual name, not my opinion of him!),
Re Tasty (LON:TAST) yes I've still got a tiny long position in it, bought at 5.2p, so amazingly it's in profit.
As it's such a small, illiquid share, I didn't do a write-up yesterday. However, the figures looked OK I thought. The main thing is it's accumulated a big cash pile, through loans & stretching creditors, but at least it has plenty of liquidity in the short-term.
Positive noises about landlords agreeing rent reductions, although the lease liabilities on the balance sheet are still gigantic. I was hoping it would clear the decks with a CVA, but hasn't done so as yet, and sounds like they don't want to.
Market cap is only £10m, so that could have scope to rise further, who knows?
I don't have a strong view either way, so should probably get rid of my shares here in due course. But for now, I'll probably run with it.
What's your view?
Regards, Paul.
Hi Paul, are you still holding Tasty (LON:TAST) ? seems to be responding well on yesterday's update.
Paul - being very greedy today as have 2 requests the other being Lords Trading (LON:LORD) which is a newly listed builders merchants which should see benefits from supply and price rises. I think it maybe a Lord Lee share as well thanks steve
Paul if you have time could you look at LON:OSI an interesting cloud security company which I feel has lots of room for growth - an analyst report (prob own broker) felt the shares should multi bag from here would like your take thanks steve
Some astonishing interim results from S&u (LON:SUS)
I would appreciate your thoughts.
He certainly adds a bit of colour to the companies performance - at least we can say they are very positive on future prospects