Small Cap Value Report (Wed 14 Feb 2018) - WATR, HSS, HSP, OTMP | Paul Scott

14th Feb '18 by Paul Scott

32 comments 16727 reads

Good morning, it's Paul here.

My apologies that yesterday's article, a car dealerships special, was anything but special - actually it blew its head gasket immediately after leaving the showroom. Sorry about that, I got writer's block & there was nothing forthcoming unfortunately. So some time today has been allocated for me to go back & finish it.

Firstly I'll rattle through the handful of trading updates today from small caps.

Water Intelligence (LON:WATR)

Share price: 200p (up 11.4% at 08:10)
No. shares: 12.07m
Market cap: £24.1m

Q4 trading update & corporate development

Water Intelligence plc (AIM: WATR.L), a leading multinational provider of precision, minimally-invasive leak detection and remediation solutions for both potable and non-potable water is pleased to provide a trading statement for the year ended 31 December 2017.

We are also including an update on our corporate development as we expand our offerings to become a "one-stop" platform with a variety of cross-selling opportunities....

My first job is to look up "potable" in the dictionary! For anyone else who hasn't heard that term before, it means drinkable.

Key points;

Strong revenue growth - up 45% to $17.7m (note that this is a mainly USA business - 88% of H1 revenues came from USA)
Growth mainly came from corporate (i.e. own-operated), rather than franchisees.
Insurance channel looks an interesting growth area - revenues rising from $0.66m in 2016, to $2.5m in 2017;

Insurance channel momentum: first national account implemented; second account signed and in process of implementation; pipeline developing

Adjusted PBT rose 21% to $1.7m
Tax cuts - in USA should increase PAT in 2018 & beyond
Water loss is an increasingly important issue, globally (e.g. forest fires, Cape Town apparently close to running out of water)
Net debt $1.2m

Outlook - rather long-winded, but this is the key bit;

Global market demand for our solutions is increasing given climate issues and natural resource constraints. The wind is at our back, and we hope to make a difference. We believe that 2018 will bring significant additional revenue growth, both organically and through selected re-acquisition of our franchises.

Profits should also be further enhanced by recent tax legislation in the US, which is expected to materially reduce the Company's tax rate during 2018 and beyond.

Broker update - these days (post the…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Effortless Cool

14th Feb '18

Water Intelligence (LON:WATR) please, Paul, who have issued quite a detailed year-end trading update this morning.

MrContrarian

My morning smallcap tweet:

Origin Enterprises (LON:OGN), Keystone Law (LON:KEYS)

Origin Enterprises (OGN) CFO resigns. Sounds amicable.
Keystone Law (KEYS) Guides FY profits comfortably ahead of current market expectation.

lemonjar

I'd be interested in your views on Plus500 (LON:PLUS) who just released their preliminary results, thanks

runthejoules

Water Intelligence (LON:WATR) seconded please, seems intriguing, as does Iofina (LON:IOF), 'specialists in the exploration and production of iodine and halogen-based specialty chemical derivatives... pleased to announce the completion of construction and commencement of production at its IO#7 IOsorb® plant.' I don't hold as I'm opposed to fracking but wish I had spread bet its recovery!

Paul Scott

Hi lemonjar,

As it's a £1.3bn company, Plus500 is outside the scope of my coverage of small caps (I usually go up to about £400m mkt cap, sometimes a bit above).

At a quick glance though, the results today look spectacularly good. The valuation looks cheap.

The big issue of course, is whether these profits are sustainable, or whether the regulators will catch up with them & clamp down? Personally I'm steering clear of this one, but as you can see from the share price, people who ignored the regulatory risk have absolutely cleaned up!

Regards, Paul.

matylda

Morning Paul,

Keystone Law (LON:KEYS) seems quite interesting but can find no broker notes, nada!

Calls itself "The fast growing, UK Top 100, challenger law firm".

Any view most welcome, I think it's a case of wait til April (actual results).

Thanks in advance and good luck with the Car Retailers Special!

Gromley

Last time Water Intelligence (LON:WATR) was discussed I found myself put off by the overly effusive language around revenue growth, with little comment about profits. Shares are up c. 50% since then I think, ho hum.

Anyway today's report is more helpful I think and certainly leaves this still looking interesting imho. With adjusted pbt up 21% (from +8% in the previous year). I can't help still being irritated by the slightly by the language in several places, but that's probably just me being curmudgeonly! "Note that profits before taxes unadjusted actually grew faster at approximately 50% year-over-year." - So what - surely the point of adjusted earnings it to show the real underlying growth?

With that in mind I can't resist a little "compare and contrast" even though the other two co.s are outside of the remit of this column.

Coca Cola HBC AG (LON:CCH) - RNS titled "EXCEPTIONAL SET OF RESULTS" - really? Can't you just let us decide how good they are? Volume growth of 2.2% and revenue growth of 4.9% hardly seem to fit the bill of "exceptional". "comparable ebit" growth of 20% is more like it -AFAIK this has been delivered in emerging markets with modest revenue growth and significant margin expansion. - Could be interesting (but with an £8Bn market cap - well outside the remit of this board).

Northamber (LON:NAR) Interim report meanwhile is almost hilarious with its forthright candour.

"It is refreshing to be able to open a report to shareholders with an overdue sense of delivered achievement."
"Not only is it pleasing to report an improvement, but gratifying when the constituent elements of that improvement vindicate our policy of constantly moving towards more specialised, technical and higher margin products. "
(turnover up 9% , GP up 8% and operating losses more than halved.)

Outlook :
"Whilst now moving faster in a better, and we hope a right, direction, the current position is far from satisfactory. Each step forward appears to be thwarted by adverse happenings undermining the confidence of our customers' ultimate users, which hampers achieving the goals and targets we set for ourselves.

Nevertheless we will continue to strive and take advantage of every opportunity to take the company forward, with a return to profitability when we can make use of the accumulated pre-tax losses, for the benefit of all shareholders.

Realistically, we cannot be over-optimistic on short term results but more hopeful than not that those improvements we have shown might continue as we move through 2018 and beyond."

So, I think I'd take that as a profit warning then - nevertheless I really warm to the language used.

At a market cap of only £7m - clearly again outside of the remit here and an SR of only 21 probably not of interest anyway, but I do like the honest views on performance and prospects.

Ah yeah indeed, forgot to think that. Thanks in any case, & agree with your comments. They acknowledge the regulatory environment a couple of times in their update, generally saying the right things. Partly my take is they've obviously developed a very capable trading technology that's able to scale up, to do that I think you need to have very solid software engineering. With the money this is now generating it gives them options, e.g. diversification, OEM deals, acquisitions. All entirely speculative on my part, I just think good dev + lotsa money = possibilities (including avoid being curtailed by regulation.)

I bought a stake a month ago when it peaked so happy to see it now go above that on today's update.

Housemartin2

Water Intelligence (LON:WATR) Thanks for this Gromley. I thought it was just me that was being irritated by the language. It seemed to take a long time to cover the ground. It maybe we are both just curmudgeons however !
Long £WATR

Vader

Morning Paul, would be interested in hearing your thoughts on the cash call announced by Galliford Try (LON:GFRD) this morning.

Morning veganvader,

Sorry, Galliford Try (LON:GFRD) is over £800m market cap, so outside the scope of a small caps report.

Regards, Paul.

Calahan

Paul,

Galliford Try (LON:GFRD) was over £800M at yesterday's close, but it's well under that market cap now when you factor in today's 19% drop (at time of writing).

Small Cap Value Report (Wed 14 Feb 2018) - WATR, HSS, HSP, OTMP

Water Intelligence (LON:WATR)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

32 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...