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

Wednesday, Apr 17 2019 by

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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Games Workshop Group PLC designs, manufactures and sells fantasy miniatures and related products. The Company's segments include Sales channels, Product and supply, Central costs, Service centre costs and Royalties. The Sales channels segment includes Trade, which sells to independent retailers and includes magazine newsstand business and distributor sales from its publishing business (Black Library); Retail, which includes sales through retail stores, its visitor center and global exhibitions, and Mail order, which includes sales through its Web stores and digital sales. The Product and supply segment designs and manufactures products and incorporates production facility in the United Kingdom. The Central costs segment includes its overheads, head office site costs and costs of running Games Workshop Academy. The Service centre costs segment provides support services and undertakes strategic projects. The Royalties segment includes royalty income earned from third-party licensees. more »

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ZOO Digital Group plc is a holding company. The Company's principal activities include provision of a range of services to allow television and movie content to be subtitled in any language and prepared for sale with online retailers, and research and development of productivity software in those areas. The Company operates through two segments: Software solutions, which includes development, consultancy and software sales, and Media production, which includes localization and design. The Company offers services, including subtitling, captioning, dubbing and digital distribution. The Company offers services through its cloud computing platforms, including ZOOsubs, which offers subtitling and captioning services; ZOOcore, which is a workflow management platform; ZOOstudio, which is a self-service distribution platform for ordering, tracking and delivering digital content packages, and ZOOdubs, which is a dubbing process management platform. more »

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Pendragon PLC is an automotive online retailer. The Company's principal market activities are the retailing of used and new vehicles and the service and repair of vehicles (aftersales). Its segments are Stratstone, which consists of its vehicles, truck and commercial vans brand, including the sale of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities; Evans Halshaw, which consists of its volume brand, including the sale of new and used motor vehicles and commercial vans; US Motor Group, which consists of its retail operations in California in the United States, including the sale of new and used motor cars; Pinewood, which consists of its activities as a dealer management systems provider; Leasing, which consists of its contract hire and leasing activities; Quickco, which consists of its wholesale parts distribution businesses, and Central, which represents its head office function and includes all central activities. more »

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19 Comments on this Article show/hide all

sharmvr 16th Apr 1 of 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

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MrContrarian 17th Apr 2 of 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.

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ambrosia 17th Apr 3 of 19

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

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rmillaree 17th Apr 4 of 19

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"

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andrea34l 17th Apr 5 of 19

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.

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MBFP 17th Apr 6 of 19

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)


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Trident 17th Apr 7 of 19

In reply to post #470086

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,

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

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tomps3 17th Apr 8 of 19

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.

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Howard Adams 17th Apr 9 of 19

In reply to post #470106

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.


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Howard Adams 17th Apr 10 of 19

In reply to post #470146

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.


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jonesj 17th Apr 11 of 19

In reply to post #470111

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:

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.

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mrosbiston 17th Apr 12 of 19

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.

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Richard Vasey 17th Apr 13 of 19

In reply to post #470146

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.


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iwright7 17th Apr 14 of 19

In reply to post #470206

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.

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Robbie Burns 17th Apr 15 of 19

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

Thanks for the nice emails about the podcast. The more recent one
is here

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.

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Paul Scott 17th Apr 16 of 19

In reply to post #470221

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.

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Chris Britton 17th Apr 17 of 19

In reply to post #470146

Thanks for posting this - very interesting.

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Funderstruck 17th Apr 18 of 19

In reply to post #470146

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.

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Gromley 18th Apr 19 of 19

In reply to post #470161

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.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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