Small Cap Value Report (Wed 12 September 2018) - WATR, FA., TEG, TPFG, OPM, GOAL

Wednesday, Sep 12 2018 by

Good morning!

I'm back from holidays in the Canaries, tanned and sunburnt and with great memories of beaches, water slides, camels, volcanoes, etc.

Paul has been productive in my absence and covered a big collection of shares in yesterday's report. He added quite a few in the evening - here's the link.

We have a busy RNS feed today. I'm looking at these shares:

Water Intelligence (LON:WATR)

  • Share price: 345p (+4%)
  • No. of shares: 15 million
  • Market cap: £52 million

Interim Results

Water Intelligence, a leading provider of non-invasive leak detection and remediation services, is pleased to present its interim results for the period ended 30 June 2018.

This California-based business continues to show excellent growth. It uses acoustic and infrared technologies to pinpoint the location of water leaks (without needing to break through surfaces to find them).

  • revenues +39% ($11.8 million)
  • PBT up 49% ($1.26 million)

It's nice to see that the company reports its actual PBT first in the statement (before adjusted PBT).

Also, the adjustments to the accounts aren't huge. Adjusted PBT is also growing strongly and is not that much higher when compared with actual PBT.

Profits are described as "comfortably in line with expectations", which typically means at the higher end of the forecast range.

At the H1 trading update in July, the company confirmed that it was working toward the goal of $20 million of sales in 2018 and reaching $25 million of annualised sales in the near-term.

Today it says:

Given our consistency, we are confident that we should proceed full steam ahead towards our stated goal of passing $20 million in sales during 2018 and stretching towards $25 million in the near-term for a trailing twelve-month period

While the growth in the core business is excellent in its own right, we also have a maiden profit from its UK-based services business.

The level of ambition remains encouraging - the company is…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


All my own views. I am not regulated by the FSA. No advice.

Do you like this Post?
54 thumbs up
0 thumbs down
Share this post with friends

Water Intelligence plc, formerly Qonnectis plc, provides leak detection and remediation services. The Company offers a range of solutions (including products) for residential, commercial and municipal customers. The Company's segments include Royalties from franchisees, Corporate-operated Stores and Other activities, including product and equipment sales. Its geographical segments include US and International. The Company mainly operates in the United States, with operations in the United Kingdom and certain other countries. The Company's subsidiaries include Qonnectis Group Limited (holding company of ALD International Limited), ALD International Limited, American Leak Detection Holding Corp. (holding company of ALD Inc.) and American Leak Detection, Inc. (ALD). ALD International Limited and ALD provides leak detection product and services. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

The Property Franchise Group plc, formerly MartinCo PLC (MartinCo), is engaged in residential property franchise business. The Company operates as a franchise model focused on the United Kingdom residential lettings and property management services offered to private clients. It also offers estate agency services. Its brands include Martin & Co, Xperience, Ellis & Co, CJ Hole, Parkers and Whitegates. Martin & Co is a national brand with approximately 200 offices distributed across the United Kingdom. Martin & Co is a specialist lettings and property management business. Xperience brand includes is the property franchise business. Ellis & Co has over 20 offices within the M25 and one office in Tonbridge, Kent. CJ Hole is engaged in selling property within the estate agency market in the South West with over 20 offices throughout Bristol, Somerset and Gloucestershire. Its subsidiaries include Martin & Co (UK) Limited, Xperience Franchising Limited and Whitegates Estate Agency Limited. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

1pm plc is a holding company. The Company provides financial services to the United Kingdom businesses. The Company finances a range of business assets to small and medium sized enterprises (SMEs). The Company offers small business loans, lease finance and hire purchase. The Company's leasing portfolio consists of a mixture of sectors and assets, such as garages, cleaners, fish and chip shops, and beauty salons. The Company offers equipment finance and hire purchase finance for various assets, such as Beauty equipment; Cleaning equipment; Manufacturing equipment; Medical equipment; Gym equipment; Catering/kitchen equipment; Restaurant/cafe/pub equipment; Copiers, faxes, scanners, projectors and printers; Security systems; Construction equipment; Furniture; Computers/Servers and hardware, and Telecoms equipment. The 1pm SME loan product is available to various businesses. The money borrowed can be used for various purposes, such as Audit fees, cash flow and Website design. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

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

40 Comments on this Article show/hide all

PeterW 12th Sep '18 21 of 40


Hi Graham,

Though 1PM looks superficially very attractive I believe management only provision loans at 1%. This seems fine in the good times but I would have thought SMEs would need bigger provisions over their total lifecycle. Maybe 1PM management are very canny but without a long track record it strikes me as a bit of a leap of faith, unless you can time your investment in the shares carefully with the cycle! Love to hear your thoughts on this anyone.


| Link | Share
Julianh 12th Sep '18 22 of 40

In reply to post #398129

Thanks for that Mr Cool. That helps to reduce the anxiety.
I will probably do some more research as, aside from that red flag, Water Intelligence (LON:WATR) looks pretty good. I am happy to keep holding and have topped up a bit on today's continuation of good news.

| Link | Share | 1 reply
mmarkkj777 12th Sep '18 23 of 40

Another vote for GAME Digital (LON:GMD) please.

It seems Martin Gibbs has the foresight (balls) to completely change the business model, where retained earnings from a retail cash cow are being re-invested into a new vision (a kind of digital Warhammer, where people meet, play and buy).

I can buy into his ideas. Interested in the feedback as to whether the numbers stack up.


| Link | Share
SundayTrader 12th Sep '18 24 of 40

Is it worth a look at Charles Taylor (LON:CTR) six month results out today? It is a small cap, and SP gives it a reasonable Value score.

Confused picture in results - the highlights announce a 10% increase in adjusted profit, and do not mention a 10% decrease in adjusted eps. Not good PR in my opinion. I think the picture is one of absorbing a relatively expensive acquisition, and expansion bringing increases in costs to build future revenue. I hold.

| Link | Share
Gromley 12th Sep '18 25 of 40

In reply to post #398029

GAME Digital (LON:GMD) is worth discussing given their RNS (in frustration?)

I thought it was a bit odd that the company should be actively promoting this research note. Actually though I see that the non-regulatory RNS was published by Edison themselves and that they routinely "advertise" their research notes in this way.

I had genuinely not noticed that before, but I think it is really helpful. I like their research notes, they are detailed but easy to follow their assumptions and thinking. Also they are freely available. One does need to be aware however that this is because they are paid for by the companies in question; they do though seem to be  impartial (you just need to keep in the back of your mind the risk that they might be tempted to pull their punches if criticising their clients.

I don't always necessarily agree with their conclusions though!

Their headline findings are two value GAME Digital (LON:GMD) at 75p / share based on the average of three different methods.

1. Peer comparison : 93p

They recognise that there are no particularly comparable businesses, but use US operator GameStop (similar to the legacy business) to give a 59p rating and three experiential companies (Games Workshop, Goals Soccer Centres & Focusrite) implying 126p.

My view would be that the second category might be the more appropriate, but with BELONG being at such an early stage they are not their yet, so it doesn't make to much sense to me to compare Game's predominantly legacy earnings with the valuation based on the future business model.

2. DCF : 61p

I absolutely get the fundamental correctness of the DCF approach. but the sensitivity to forecast assumptions mean that the answer can be whatever you want it to be imho.

3. Sum of parts : 71p

They value the legacy Game store business at 16p, BELONG at 23p and the cash-pile at 32p.

I have said on a number of occasions that I believe it is wrong to value Game's net cash balance as 'surplus'. I don't have any inside knowledge of their cash profile, but I am pretty certain that cash balances are much lower at other times of the year and that a significant amount of the net cash is actually embedded working capital.

So personally I am not really convinced by any of those models, but I do accept that the company does look "cheap" and that BELONG has the potential to be transformative.

There is lots more detail in the report and it is well worth a read. The key take away for me though was probably that they still forecast Game to be loss making at least as far out as FY 2020. That might not be unreasonable if viewing this as a growth company (BELONG still only being c. a third of the business by this stage).

For me though I think the 'jam' is too far off to give market much cause for excitement at this stage. I still consider it an interesting proposition, but I would really want to see stronger evidence of BELONG gaining traction before I would be too interested.

| Link | Share
rpmeurope 12th Sep '18 26 of 40

In reply to post #398109

Another warning from Trakm8 Holdings (LON:TRAK) I would like to hear thoughts on this one, it looks like it is in trouble?

| Link | Share
Effortless Cool 12th Sep '18 27 of 40

In reply to post #398149


I started a discussion on Water Intelligence (LON:WATR) last year, which you may find useful as a start to your research. Apologies if you are already aware.

| Link | Share | 1 reply
abtan 12th Sep '18 28 of 40

The biggest reason I have never bought Water Intelligence (LON:WATR) is because of the (I believe) excessive remuneration of the executive chairman (Patrick de Sousa)

A quick look through the accounts gives the following

  1. net profits, and
  2. de Sousa's total remuneration

respectively over the last few years:

  • 2014: $380k / $325k
  • 2015: $580k / $404k
  • 2016: $480k / $447k
  • 2017: $910k / $450k

That's a pretty big pay rise over 4 years ($325k --> $450k) and a HUGE remuneration for 1 person when compared with the net profit being achieved ($380k --> $910k).

Undeserved remuneration? Potentially not, given the growth being achieved, but I feel there's a strong case that as a public company the Executive Chairman is wrongly prioritising himself.

Also worth bearing in mind that there was a placing only 6 months ago for $3.6m, which doesn't fill me with confidence given the excessive remuneration over the last few years.

So sadly, despite all the amazing growth metrics, I will continue to remain out of Water Intelligence (LON:WATR)


| Link | Share | 2 replies
JohnEustace 12th Sep '18 29 of 40

A mid morning announcement that the CEO at N Brown (LON:BWNG) is stepping down.
"The Board of N Brown Group Plc announces that it is to commence the search for a new Chief Executive. Angela Spindler who has led the business through a period of significant change and its transition towards an online retailer will leave her role at the end of September."

| Link | Share
Effortless Cool 12th Sep '18 30 of 40

In reply to post #398209


I think you raise a legitimate concern over Patrick DeSouza's remuneration at Water Intelligence (LON:WATR), although I'm not sure of the source of your $910k figure for total remuneration in 2017. Perhaps you could direct me to it?

A couple of points to bear in mind are: 1) as well as Chairman, he is effectively working as the Chief Executive, so there is no additional CEO salary to bear; and 2) it is effectively a US company, for which excessive remuneration for leadership functions seems to be the norm.

That being said, he is very much the dominant individual in the business and does not seem shy about looking out for his own interests. If you are not comfortable with the risk that brings, then it is sensible not to invest.

| Link | Share | 1 reply
Howard Marx 12th Sep '18 31 of 40

In reply to post #398209

Yes Abtan, there appear to be some potentially serious corporate governance issues at Water Intelligence (LON:WATR)

Basically it appears to be a one man show. The Directors are listed in the Accounts as:

Patrick DeSouza Executive Chairman
John Weigold Executive Director

David Silverstone Non-Executive Director
Michael Reisman Non-Executive Director
Laura Hills Non-Executive Director

No mention is made of the split between Chairman, CEO & FD.

The other Exec Director Weigold doesn't appear to have contributed anything to the Report & Acounts, which appear to have been solely writen by DeSouza & the auditors.

Water Intelligence (LON:WATR) may prove to be a great growth company, but given the above governance issues it is not without risks.

| Link | Share | 2 replies
abtan 12th Sep '18 32 of 40

In reply to post #398224

$910k is the net profit (as per the stock report) for 2017.
His remuneration that same year was $450k

2014: $380k / $325k
2015: $580k / $404k
2016: $480k / $447k
2017: $910k / $450k

| Link | Share | 1 reply
Effortless Cool 12th Sep '18 33 of 40

In reply to post #398234

Doh! Sorry.

| Link | Share
wildshot 12th Sep '18 34 of 40

In reply to post #398229

Executive Chairs is certainly the norm in the US and accepted without question.

Whenever I'm in the US (a few times a year) I often watch Mad Money on CNBC; this is an investment show for private investors. I even tweeted a question on the acceptability of Executive Chairs to the show presenter, former hedge fund manager Jim Cramer. Unsurprising to say I received no reply. I think the US adopt the entrepreneurial spirit to the nth degree hence have little risk limitation barriers like we have as standard practice in our corporate governance.

| Link | Share
sharw 12th Sep '18 35 of 40

In reply to post #398229

I had a look at this and the governance gets even murkier. DeSouza is also Chair and CEO of the PlainSight Group (remuneration unknown). Plain Sight Systems Inc., possibly a subsidiary, gets mentioned 3 times in the last Water Intelligence (LON:WATR) report:

1) it holds 15.95% of WATR
2) Patrick DeSouza and Michael Reisman are directors and shareholders in Plain Sight Systems, Inc.
3) Their holdings in WATR (28.3% and 1.4%) exclude the Plainsight shares.

This page describes the creation of WATR:

At this point I switch off and it goes in my no further action box.

| Link | Share | 1 reply
mw8156 12th Sep '18 36 of 40

In reply to post #398119

mgp is on the main market, not AIM

| Link | Share | 1 reply
LeoInvestorUK 12th Sep '18 37 of 40

In reply to post #398269

Medica (LON:MGP)

mgp is on the main market, not AIM

Good point. So total listing costs of are 50% higher according to the article I quoted in my earlier comment. Here are the new calculations:

6 months to June 2017 adjusted EBITDA: £4.873m
6 months to June 2017 further adjusted as if quoted for 3 months: £4.686m
6 months to June 2018 adjusted EBITDA: £5.610m

Adjusted EBITDA growth (as stated) = 5610/4873 = 15.1%
Underlying adjusted EBITDA growth = 5610/4686 = 19.7%

As I failed to say earlier, add a some one-off (but not exceptional as not to be reversed) increases in spare staff capacity for growth, and >20% is comfortably achieved. To me that looks a lot better than 15%.

(I know full well because they are on AIM because I deliberately hold them in my SIPP rather than ISA because of the lack of IHT exemption. I even meant to point this out as it is unexpected for a company of that size - I think the reason is to help with credibility amongst customers)

Blog: LeoInvestorUK
| Link | Share
Julianh 12th Sep '18 38 of 40

In reply to post #398179

Thanks again Mr (or is it Mrs or Miss or Ms) Cool. I am busy packing for our flight back from Corsica with a couple of days in Paris on the way. Water Intelligence (including your article) will be waiting for me when I get home. Looking forward to reading it.

| Link | Share
Weasel 14th Sep '18 39 of 40

In reply to post #398264

Great thread guys, I was planning to give Water Intelligence (LON:WATR) a closer look, but after reading this, I'll leave it alone. Good luck to all holders though, it does appear to be a company in promising area.

| Link | Share
Graham Neary 14th Sep '18 40 of 40

I'd like to second Weasel's comment. I was incredibly busy on Wed and couldn't participate in the comment thread but there were some great contributions. Thank you.

| Link | Share

Please subscribe to submit a comment

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis