Small Cap Value Report (Wed 17 Apr 2019) - ZOO, PDG, DTG, DIA, UNG, CAR

119

17th Apr '19 by Paul Scott

19 comments 8964 reads

Good morning!

It's Paul here.

I'm loving the positive energy we're generating this week - especially Robbie Burns' motivational message left in the comments section earlier this week! Nice one Robbie!

Quick initial review of RNS

(written from 7-8am, and not edited later - I'll try to stick to this format going forwards, as readers seem to like it. More detailed company sections are further down)

Zoo Digital (LON:ZOO)

Trading update - looks a poor performance for y/e 31 Mar 2019. Breakeven in H2 at EBITDA level.

It warned on profits in Jan 2019, so I'm not sure how much bad news is already in the price? Forecast looks to be a little above breakeven. Share price has already dropped more than 2/3rds since peak last summer.

Quite an interesting growth story that hit the buffers, so I'll take a closer look later.

Pendragon (LON:PDG)

Profit warning - poor Q1, due to lower margins & higher costs. Profits £10m lower than expected in Q1 - ouch. Strategic review being undertaken by new CEO & CFO.

Bad news, that's likely to have read-across for other car dealers too - expect a fall in share prices in this sector.

I'll take a closer look later.

Dart (LON:DTG)

Mid cap, so just a quick comment.

y/e 31 Mar 2019 - trading was slightly ahead of expectations. Leisure travel business doing well.

y/e 31 Mar 2020 - uncertain outlook. Pricing under pressure. Despite this, Board confident of meeting expectations.

An excellent business, in my opinion. Looks good value. Very high StockRank. Worth a closer look. Brexit concerns could be providing a buying opportunity perhaps? People won't stop going on holiday.

No further comments from me today on this one.

Dialight (LON:DIA)

AGM trading update - this industrial LED lighting group seems to be permanently trying to sort out operational problems.

Makes encouraging noises today, but says 2019 results to be "heavily weighted" towards H2. That makes it too risky for me.

I don't have enough information to take it any further today.

Universe (LON:UNG)

2018 results - small, but profitable, ex-growth EPoS software company. Hit by Conviviality insolvency. Despite…

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Vsihv

16th Apr '19

Also tipsy, maybe slightly past!
Given your acceptance of feedback, I now expect a video of you dancing in the Friday placeholder :D
Purchased Games Workshop (LON:GAW) on results, up 7% in two days, if only they were all like that

MrContrarian

17th Apr '19

My morning smallcap tweet: LTG acquires Breezy HR for a pretty breezy price.

Learning Technologies (LON:LTG), Carclo (LON:CAR), Fusion Antibodies (LON:FAB)

Learning Technologies Group (LTG) acquires Breezy HR for $12m plus $18m earn out 'based on ambitious revenue growth targets'. Breezy rev $3.6m ($1.3m) EBIT $0.28m. I hold.
Carclo (CAR) warns FY below mgmt expectations due to continuing production problems in the LED Technologies Division. Has made mgmt changes.
Fusion Antibodies (FAB) FY trading: H2 improvement seen in Feb continues. FY rev £2.2m down 19%. Confident significant revenue growth achievable this FY.

ambrosia

profit warning this morning from Galliford, its is going to be the 1st of many?

its now trading on a PE of 4.2, with a Div cover of 2

rmillaree

Pendragon (LON:PDG)

Thats a pretty brutal statement today, i am very negative on the "tied" car dealerships genrally speaking what with the changes to electric cars / leasing direct options rather than buying and in house maintenance possibilities long term (remote management via central console)

The decline in shareprice today seems very modest looking if we say thats £9 mill down for just 3 months - perhaps if this is quiet period of year and this could be one off bad - but it doesnt look good.

Probably off topic but the slow and steady progress with regard to automated cars is continuing - Tesla have now released the beta version of their advanced summon feature to the masses - you can get your parked car come drive itself to you (or your chosen location) while you dance around the carpark singing 80's tunes.

example of this in action with a loon summoning the car whilst trying to block it by standing in the way at the same time available here. roll on the official "come collect me and get me home cos i am drunk feature with automatic retracting sickbag available via voice command"
https://www.teslarati.com/tesla-full-self-driving-advanced-summon-preview/

andrea34

I'd be interested to hear any views on whether you think there is any value in GB (LON:GBG) at this level after the latest update, indicating ahead-of-expectations profits. My own gut feeling is 'not at this level' - Stocko assigns a Value Rank of 6 which is hardly heart-warming.

Michael Tee

Hi Paul,

I noted you have a holding in LTG which announced the acquisition of Breezy today. The share price seems very beaten up still -160p at its peak last Summer and now only 70p, especially when the company is very positive on its prospects. I am interested to hear your view.
(I hold also)

Michael

Trident

I know like we are sposed to love positive energy, like, and get with the programme like, and be all Californian, like, and love technology, like, and be woke, like, but its kinda, like, a real bumma, like, if you are a miserable b**t**d, like, like..me.

Hail Marvin the depressed Android.. a true vision of the future of techno future

TamzinPiworld

Just posted, the second part to Stephen English's piworld interview, here. Stephen talks about market liquidity (or lack of it), as an unintended consequence of regulation, his criteria for stock selection, and much more, in his knowledgeable, passionate and entertaining manner. Absolutely fantastic!

Further Stephen English viewing:

Stephen English's piworld interview Part 1. This has been watched my many PIs, with much acclaim, highly recommended if you haven't seen it, find it here.

Stephen's epic presentation at Mello Hever 2018: Performance Enhancers for your portfolio. Don't forget, Stephen will be at Mello London this May. Get your Mello London ticket here.

Howard Adams

Hi Andrea341

REf your question about GB (LON:GBG)

One of my screening tests is to examine share price growth for all the time points Stocko holds. This being 1wk right back to 5yr and all spots in between.

At the highest level I assess a share to see if it will produce a compound annual growth on share price of greater than 7.1% annualised (in Benjamin Graham's Intelligent Investor he notes that a share price growth at this rate or greater will double your money over ten years).

I have calculated what a compounding 7.1% SP growth rate needs to be at all the time slots in Stocko (1wk to 5yrs) and also used the test .... Price 5y CAGR % > 8.18 ... as I have calculated that this equates to the 7.1% annualised to give me the double your money in ten years (I fully accept my maths might not be correct here as its not my strong suit).

GB (LON:GBG) passes all my seven time point tests but also scores very highly on this ... Price 5y CAGR % > 8.18 test as it actually score .... GB Price 5y CAGR % = 32.5 ...... That is to say it is scoring 32.5% 5yr CAGR vs my minimum test of 8.18%. That is quite notable (clearly a SP growth stock).

In addition to this SP compounding screen I asses a stock against other screens and GB (LON:GBG) scores well in these as well.

Clearly GB (LON:GBG) is expensive but its a growth stock which often demands a high purchase price. Also, its margins are not great, and divi is small, but this is more akin to an Amazon whereby profits are reinvested rather than distributed.

I bought and sold GB (LON:GBG) in the past with a bit of loss. I have just bought a small entry purchase today as the update reminded me to take a look at GB (LON:GBG).

Clearly GB (LON:GBG) is not for many people and its important to DYO.

I have benefitted from your posts in the past and as this was fresh to my mind I thought I would provide you with my assessment of GB (LON:GBG), noting that my quants are predominately backward looking.

Hope this offers you some insight.

Regards
Howard

Hi Tamzin (tomps3)

Just to endorse your points, these are excellent vids. Very thought provoking.

Many thanks for these are all your other efforts. Much appreciated by me.

Regards
Howard

jonesj

Learning Technologies (LON:LTG) seem to have acquired another "Talent Acquisition" software company, so LTG clearly intend to grow both in training AND recruitment. I suppose there may be synergies on the sales side, when HR departments tend to mange both functions.
There seems to be quite a lot of competition in the Talent Acquisition field: https://www.capterra.com/sem-compare/recruiting-software?gclid=CjwKCAjwndvlBRANEiwABrR32CiF_NEAyIOZk3nr7ChBhrZSWrx-64f0XtazgLM_CzZmbRhb10PwPBoC4p8QAvD_BwE

I don't yet understand why LTG has responded so positively to the announcement.

Disclosure: No position, although it is on the watch list, mainly due to Mr Brode as chairman.

mrosbiston

Pendragon (LON:PDG) - whole sector definitely worth further investigation as a basket short. Don't forget any potential impact of the FCA investigation into responsible lending - yes this is mainly an issue for dealers - but would expect a little contagion.

Richard Vasey

Thanks for this.

I found both parts of the Stephen English interviews most informative and thought provoking. He comes across as a down to earth, self-effacing individual, well able to deliver his ideas and thoughts in a simple and effective way.
More value in these two interviews than in many of the book offerings by better known investors.

Excellent.

iwright7

Yes, I agree with the Steven English interviews compliments. He strikes me as of a balanced combination of many sage Guru investors. Excellent.

I gather he is speaking at the May Mello Event on the Thursday - I look forward to it.

Robbie Burns

You are very welcome Paul.

How about a website called
Paul Scott X-rated. Or Paul Scott Untamed. I'll sign up!

I didn't signal an NT update but a full update live now http://nakedtrader.co.uk/

Thanks for the nice emails about the podcast. The more recent one
is here https://soundcloud.com/thenakedtrader/christmas-newyear2019

Don't miss my newsreader Ben Footsie with the news headlines at the start!

Have a lovely Easter all. Off to Bournemouth with a bucket and spade. Easter
is great, Xmas without the hassle. Forget about shares and money and have
a brilliant time.

Paul Scott

Hi Robbie,

How about a website called
Paul Scott X-rated. Or Paul Scott Untamed. I'll sign up!

Already exists - it's called Twitter LOL!! ;-)

TweetDeleter automatically deletes all my tweets within 24 hours, it's brilliant - serial offendees cannot then subsequently find whatever nugget of commonsense that I had said, which offended them so much originally.

I'm off to Munich for the Easter weekend, to do my bit for European peace & harmony, in bierkellers mainly :-D Don't tell David Lammy, as no doubt he would imagine that it's some kind of Nazi tribute, because I favour Brexit. What a wally!

Best wishes, Paul.

chrisgb

Thanks for posting this - very interesting.

Funderstruck

Tamzin;
thanks so much for the links, A pleasure to listen to a fund manager who is not only erudite but also clearly has thought through his whole investment strategy & presents it with authority., linked with in depth Company & Macroeconomic knowledge.
And thank you for another professional job.

Gromley

18th Apr '19

At face value I am pretty happy with the Learning Technologies (LON:LTG) acquisition of Breezy.

We know that acquisitions were planned to be part of their growth strategy. Their target is to increase EBIT to £55m by 2021 (from £27.2m in 2018) and I previously stated my view that if they can achieve this with minimal dilution then the share price should be significantly higher.

This acquisition is “funded from existing cash and bank facilities and is expected to be immediately earnings accretive.”

The scale is fairly small at this stage – Breezy made 2018 EBIT of $280k in 2018 – but it is growing rapidly and has strong operational gearing. However, I don’t personally have the insight to see how significant this may be as a contributor to earnings over the next three years.

The initial consideration is $12m, rising to $30m (I think I read that correctly) based on “ambitious” revenue growth targets in the next three years. If we take that at face value, together with the operational gearing then it seems reasonable to conclude that this could make a significant impact on the EBIT growth required.

I am not a great fan of growth by acquisition, but it does seem in this case that Learning Technologies (LON:LTG) are seeking to merge complimentary businesses that will create a better “whole” than the parts and the previous PeopleFluent acquisition begins to establish a record of competence in this regard.

It is not necessarily massively profound but overall I think it looks good as part of the ongoing development here.

Small Cap Value Report (Wed 17 Apr 2019) - ZOO, PDG, DTG, DIA, UNG, CAR

Quick initial review of RNS

Zoo Digital (LON:ZOO)

Pendragon (LON:PDG)

Dart (LON:DTG)

Dialight (LON:DIA)

Universe (LON:UNG)

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Paul Scott

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