Small Cap Value Report (Wed 17 Oct 2018) - FISH, TSTL, ASC

Wednesday, Oct 17 2018 by

Good morning! 

Not a very busy day on the RNS feed for small-caps so I might devote some time to ASOS (LON:ASC), which is up 15% with its final results.

Other stories to mention:

  • Fishing Republic (LON:FISH) - suspended, out of funds, new CEO won't be joining.
  • Tristel (LON:TSTL) - final results.

Fishing Republic (LON:FISH)

  • Share price: 5.25p (suspended)
  • No. of shares: 52 million
  • Market cap: £3 million

Statement re Appointment of CEO

I mentioned this last month at its interim results, arguing that the c. £2 million market cap was "about right", and that it was a delisting risk.

The delisting has happened faster than expected, although it's yet to be made official.

For now, the shares are merely suspended. According to an RNS yesterday:

Group sales have been significantly affected by strong competitive pressures.  This difficult trading environment has continued and the Board has been informed that certain major shareholders are no longer willing to provide further short-term financial assistance to the Group.

It's the end of the road for the business in its current form (and possibly any form?)

An inconvenience for the new CEO, who was supposed to join today! His appointment has been cancelled.

There was a point in time when I thought this might have turned out ok for shareholders, but it become clear soon enough that the offering was not competitive and that its financial characteristics were too ugly (e.g. massive inventory requirements) for it to earn a good return on capital.

We still have Angling Direct (LON:ANG) as a publicly-listed contender in the fishing space, although it's very highly rated and I'm not sure how its own rating is justified. The Stocko algorithms aren't sure either, assigning it a very weak Value Rank. So I wouldn't be in a rush to buy shares in that one either!

Tristel (LON:TSTL)

  • Share price: 257p (-8%)
  • No. of shares: 44 million
  • Market cap: £112 million

Final Results

Tristel plc (AIM: TSTL), the manufacturer of infection prevention and contamination control products, announces its audited results for the year ended 30 June 2018.

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

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Fishing Republic plc is a fishing tackle retailer in the United Kingdom. The Company's principal activities are the retailing, production and wholesaling of fishing equipment. The Company operates through the segment, being that of the retail of fishing tackle and equipment. It operates from a chain of retail outlets principally located in the North of England and online. It caters for various types of the anglers, such as coarse, carp, game and sea fishing, and supplies a range of products, including brands. It also offers consumables, such as bait, lines and hooks; clothing, and luggage products. The Company's product offerings include a range of own-brand ranges, such as Klobba for clothing and Theseus for carp fishing products. Its stores are located in Barnsley, Doncaster, Hull, Manchester, Rotherham, Sheffield and Sunderland. Its subsidiaries include Fishing Republic Trading Limited and Fishing Republic Retail Limited, which are engaged in the retail of fishing equipment. more »

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Tristel Plc is a United Kingdom-based manufacturer of infection prevention and contamination control products. The Company's technology is a chlorine dioxide formulation. The Company operates through three segments: Human Healthcare, Animal Healthcare and Contamination Control. The Human Healthcare segment is engaged in the manufacture, development and sale of infection control and hygiene products, which include products that are used primarily for infection control in hospitals. The segments products are marketed under the brand, Tristel. The Animal Healthcare segment relates to manufacture and sale of disinfection and cleaning products into veterinary and animal welfare sectors. The segments products are marketed under the brand, Anistel. The Contamination Control segment addresses the pharmaceutical and personal care product manufacturing industries. The segments products are marketed under the brand, Crystel. Its manufacturing facility is located in Newmarket, Cambridgeshire. more »

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Asos PLC is a global fashion destination for a range of things. The Company sells and offers a range of fashion-related content on The Company's segments include UK, US, EU and RoW. It sells over 85,000 branded and own-label products through localized mobile and Web experiences, delivering from its fulfilment centers in the United Kingdom, the United States, Europe and across the world. It offers approximately 75,000 separate clothing ranges, spanning women's wear and menswear, footwear and accessories, alongside its jewelry and beauty collections. The Company's collection of specialist own-label lines includes ASOS Curve, ASOS Maternity, ASOS Tall and ASOS Petite. The Company caters a range of customer segments and sizes, across all categories and price points. It also operates returns centers in Australia and Poland. It operates country-specific Websites in Australia, France, Germany, Italy, Spain, Russia and the Unites States. more »

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

28 Comments on this Article show/hide all

gbjbaanb 17th Oct '18 9 of 28

In reply to post #409499

re: Softcat (LON:SCT) I have no idea - revenue up, profit up, customers up.

Down 9% as of writing. Most peculiar.

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Damian Cannon 17th Oct '18 10 of 28

In reply to post #409594

Yeah I'd be interested in thoughts on Softcat (LON:SCT) as well. Revenue and profits up, by circa 30%, with profits improving more than sales which is indicative of margin improvement. Then there's the cash generation and special dividend. What's not too like?

Possibly the price is down because FY19 forecast is for limited growth? I don't see how this ties in with the reported strong markets but it does make the share look expensive.

Blog: Ambling Randomly
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cholertonandrew 17th Oct '18 11 of 28

Hi Graham,

I’d be interested to know what you make of Tristel’s share-based payments and whether you think they’re excessive.


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FREng 17th Oct '18 12 of 28

SCISYS (LON:SSY) has just announced a change to its corporate structure as part of BREXIT contingency planning.

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PortsmouthPirate 17th Oct '18 13 of 28

Tristel's management have a track record of paying themselves rather than shareholders, in my opinion. I wouldn't touch the company with a bargepole until there was huge change at the top.

A few years ago, some commentators were suspicious that Tristel had withheld poor trading news to ensure management bonuses would vest. There is no evidence that could not be described as circumstantial, but it is a must read for anyone considering an investment. Come to your own conclusions, but I am sceptical of the CEO and CFO...

The bonus (which was sizeable) was dependent on the shares remaining above a certain price for a certain period of time (30 days if I recall). The shares hit that level just before the AGM - and the company released less information about trading during this period at the AGM than they had in previous years. Revenue guidance was omitted.

The shares remained above the level required for their bonus, but rather soon after the AGM the company reported slowing revenue growth and shares plunged 20%. This news was reported after the 30 day window required for the bonus... and some commentators reckon the directors must have known about slowing revenue growth at the time of the AGM and withheld it to keep the shares above the bonus level.

Sorry if that explanation is a little unclear, I've got lots of work to do and am in a rush - no time to edit for clarity.

The following is taken from a blog post detailing this suspicion in more detail:

"You see, throughout 2015, TSTL had been confident about its near-term revenue performance.

Results issued in February 2015 and October 2015 had both cited (in the RNS) a £20m revenue target for 2017 — implying near-term revenue growth of roughly 15% a year.

It was a bold, public prediction, and naturally shareholders had considered this revenue target in their own valuation sums… which was reflected by TSTL’s c70% share-price gain recorded during 2015.

Importantly, TSTL’s management was given the opportunity to clarify its first-half revenue performance at the AGM.

Financial writer Richard Beddard quizzed the board at the meeting but there was nothing forthcoming about revenue:

Here’s what Richard has recounted to me:

“He just refused to comment. Can’t remember the exact words but it was something like we’ve said what our expectations are and we’re not going to say any more about it.”
Now at the time, all of this could have been viewed as something about nothing — especially as the AGM statement had claimed “Growth is coming from all areas of the business”. What’s more, the directors had bought a few shares on the day of the meeting.

But roll on to last week’s interim results, and the AGM statement takes on much greater significance:

***They must have already known the £20m target 
would be “unlikely to be met”***

Last week’s results revealed first-half revenue had grown by 8% — some way short of the c15% growth rate that had been projected by TSTL’s management for 2016 and 2017.

TSTL’s management confirmed during the results webinar — but not actually in the results RNS — that the £20m revenue target for 2017 was now “unlikely to be met”.

Stalled UK revenue — the NHS has apparently become a much more difficult customer — was cited as the main reason for not reaching the original goal. It all led to TSTL’s shares dropping 20% on the day.

Anyway, my suspicion is that TSTL’s executives must surely have known at the December AGM that first-half revenue would be up only 8% — and that the original £20m by 2017 target would now be “unlikely to be met”.

I mean, past AGM statements had indicated first-half revenue figures… yet management remained tight-lipped — even when pressed at the meeting.

Now you could say management has done nothing wrong here.

For one thing, earnings for the current year are set to meet forecasts because of higher margins — so the lower revenue expectations might not really have constituted ‘price-sensitive information’.

Furthermore, the NHS difficulties may have started only after the AGM. And/or perhaps the firm’s broker has given some bad advice about market communication.

Normally I would try and give management the benefit of the doubt with this sort of setback, because the future is always uncertain and disappointments can always happen.

But in this particular situation, I have my doubts.

Indeed, it just seems so obvious to me (at least now) that a revenue figure ought to have been included in the AGM statement — and the market could then have decided for itself whether that figure constituted ‘price-sensitive information’ or not.

Furthermore, overall UK sales have been at a standstill for 18 months now, which suggests the NHS difficulties are nothing totally new. (And yet, if you recall, the December AGM statement claimed “Growth was coming from all areas”!) Oh, and TSTL found no problem communicating its original £20m revenue target to investors.

But what really rubs salt into the wound from all of this is the the revelation about the recent vesting of staff options worth £1m…

***They never said all these options could vest immediately***

All of a sudden, this innocuous statement from last August has come to the fore. Here is what it said:

“Tristel plc (AIM: TSTL), the manufacturer of infection prevention, contamination control and hygiene products, announces today that Paul Swinney, CEO and Elizabeth Dixon, Finance Director, have been granted options over 636,567 ordinary 1 pence shares (“Ordinary Shares”) under the Tristel plc Performance Share Plan 2015. The options are exercisable at 1 pence per share subject to certain profit objectives being met or the share price of the Company being equal to or greater than 134 pence per Ordinary Share for a period of 30 consecutive dealing days.

The options are exercisable for a period of five years from date of vesting in three equal tranches following publication of the annual results. The first tranche will vest, if performance conditions are met, on publication of the results to 30 June 2016.”
What was not said at the time — and revealed only last week in the results presentation — was that there were 1.2 million options granted and that they would all vest immediately if the 30-day share-price condition was met.

The original statement certainly reads to me that vesting on any condition would only occur after the 2016 results, and in three separate tranches.

Anyway, last week’s results confirmed the 30-day share-price condition had been met and the interim results carried a £1m share-option charge (a substantial sum when annual operating profit (pre-option costs) currently runs at about £3m).

It just so happens the 30-day share-price condition was achieved on 6 January. As such, the 30-day period must have started on 23 November…and day 17 was 15 December, the day of the AGM.

***I suspect they deliberately withheld a revenue figure***

Now imagine you are part of TSTL’s senior management team. You have been awarded part of 1.2 million options at 1p each, and the share price has been at or above 134p for 17 days.

So there are just 13 more trading days to go before you collect part of a £1m-plus option jackpot.

It’s a tantalising windfall — and one that appears to at least double your team’s annual pay (the 2015 annual report cites “key management” — including the two executives — received total compensation of £944k last year).

But you have to issue an AGM statement. What do you do?

Well, I have no proof about this of course…but I suspect TSTL’s management deliberately withheld a revenue figure from the AGM statement for fear of missing out on the £1m-option windfall.

Judging by the share-price reaction last week — the shares fell 20% on the results day — I am sure news of 8% first-half revenue growth would have also prompted the shares to drop below 134p…and thus leave this £1m-option award dangling for another time

Full write-up is available here - most of it in the comments:

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Damian Cannon 17th Oct '18 14 of 28

In reply to post #409644

Couldn't agree more PortsmouthPirate and thanks for bringing this back to people's attention. Circumstantial it might be but the whole episode stinks to high heaven. I would agree that this share is uninvestable with the current management.

Blog: Ambling Randomly
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PortsmouthPirate 17th Oct '18 15 of 28

In reply to post #409654

Thanks Damian. I know my post was damned long but it is a complicated situation and one that new investors should be aware of before making the plunge with Tristel shares.

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cholertonandrew 17th Oct '18 16 of 28

In reply to post #409644

Re Tristel, relating to historic concern over lack of detail in a 2015 trading update and subsequent large bonuses.

That’s really helpful, thanks for sharing. I did have my suspicions about this at the time- lack of a revenue figure in the late 2015 trading update which had the effect of keeping the share price high and subsequently large bonuses vested. Revenue was then shown to be disappointing.

There were also two small share purchases by the CEO and CFO (circa £7,000 each) both on the same day around this time. When I saw them, I looked at the market cap of the company and thought it’s so high I wonder why they are buying shares and why for such a small amount. I did wonder after the bonuses subsequently vested and the revenue growth was shown to be disappointing if those share purchases had been intended to send a signal to the market and to attempt to buoy the share price allowing for the bonuses to vest. I don’t know whether that was the case but it did look suspicious to me and it really worried me as to what their intentions had been with those co-ordinated share purchases. I have to emphasise though that this was just a concern on my part and we don’t know the intention behind those share purchases.


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andrewjames 17th Oct '18 17 of 28

In reply to post #409689

On the issue of the terms of the 2018 Scheme for Tristel (LON:TSTL), see the RNS issued on 2 November 2017. The split between the directors of the 990,000 share options subsequently granted on 1 January 2018 is set out, as are the vesting terms. Briefly, one third vest if the SP reaches £3.50, a further third if the SP reaches £4.25 and the final third if the SP reaches £5.00. There are some further conditions, including a requirement that the average SP must be above the applicable hurdle rate for at least three months. I recall that there was quite a lot off shareholder and financial press comment at the time, but I believe that I was the only external shareholder to show up at the 2017 AGM and ask the Board/Nomad about the background to the scheme and the industry comparable used. I then voted in favour.

As to whether the company is investable with the current management, each to their own view, but I consider the company to be more transparent than most small caps and also more PI friendly. To that end, they do presentations and Q&A sessions following publication of interim and FY results and they also host a shareholder open day at their HQ each Summer. All those events are usually well attended and there is never a shortage of questions.

Finally, I suspect (but it is obviously a guess) that the main reason that the SP has gone down today is because of the timing of the FDA submission, rather than general Brexit malaise. The company has now said that it expects to make its submission to the FDA for use of Duo as a high-level disinfectant (it already has approval from the EPA for use of Duo as an intermediate level disinfectant) by the end of the current FY (i.e. by 30 June 2019). It had previously said in its July 2018 TU that it expected to submit by end December 2018. So, whilst we are all guessing at likely revenue levels if approval is secured, some people doubtless have a hole in their projections. I am not sure that it matters that much in the grand scheme of things, but it is certainly a topic to explore at the Q&A sessions following the presentations in London tomorrow.

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Graham Neary 17th Oct '18 18 of 28

In reply to post #409719

Hi Andrew - thanks for pointing out the November 2017 RNS. I have updated the article to reflect its contents. ATB. G

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GavSmith01 17th Oct '18 19 of 28

I think this is very harsh towards Tristel (LON:TSTL) management, and hopefully Maynard is reading so he can give some further context around his blog post you have quoted (incidentally this was when the shares were less than half the price they are now). As andrewjames comments, I find Paul and Liz open, approachable, and very PI friendly; they have hosted webcasts in the past and they currently host annual presentations at their premises. I feel the current incentives are challenging (£3.50, £4.25, £5.00 share price targets) and are aligned with shareholders' interests. The numbers in the business speak for themselves - 10%-15% revenue growth, 20% margins, net cash, frequent special dividends, US expansion imminent. If they perform as they have done, I am more than happy to cede 5-6% of the company to them. I'd actually welcome any negative impact on the share price as it would give me the opportunity to add at reasonable levels. For some years their rating has reflected their intrinsic quality (i.e. a premium PE) - any discount to this would be welcomed!

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laurie 17th Oct '18 20 of 28

Tristel (LON:TSTL) 's products are based on a chlorine based bleaching agent, chlorine dioxide, which is not patentable. Others supply this, too. It is quite a nasty substance, and there is a risk of explosion during the manufacturing process. There are many other bleaching agents which are suitable for disinfection purposes; these are widely used.

Here are their patents: . Most, perhaps all --I have only read the recent patents-- relate to dispensing methods.

The most recent patent is this one:
Hand-held pump apparatus
Patent number: 9970431
Abstract: A hand-held pump apparatus has a peristaltic pump head and a container for a liquid to be dispensed. The pump head has a rotatable peristaltic pump member and a flexible dispensing tube in fluid connection with the inside of the container. A finger-actuated trigger is arranged to drive the peristaltic pump member when actuated so as to cause the peristaltic pump member to turn and pump fluid through the dispensing tube. The pump head has a thumb hole disposed through it, the thumb hole being disposed within an area around which the peristaltic pump member turns when actuated.
Type: Grant
Filed: July 31, 2013
Date of Patent: May 15, 2018
Inventor: Jeremy Turner

I have something similar at home for dispensing hand soap.

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Orangetree 17th Oct '18 21 of 28

I'm going against Graham's consensus on ASOS. I believe the competitive advantages that ASOS once had has changed.
Article out tomorrow.

Blog: Walbrock Research
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Snoo 17th Oct '18 22 of 28

Surprised that Flybe got missed out here - down over 40% on the day.
Would it not be worth acquiring for the aircraft?

Admittedly, the business looks in a tough place: plenty of headwinds regarding costs (oil, labour) and unlike the other low-costs they seem to lack a super-peak season due to their locations.

Last year flew Gatwick - Newquay for cheaper than the train ticket and this was the end of July.

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OldSchool05 17th Oct '18 23 of 28

Tristel (LON:TSTL) is audited by the same office of Grant Thornton as our friends at Patisserie Valerie - Grant Thornton in Cambridge!

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simoan 17th Oct '18 24 of 28

In reply to post #409744

I find Paul and Liz open, approachable, and very PI friendly; they have hosted webcasts in the past and they currently host annual presentations at their premises.


I think you need to be careful that you are not unduly influenced by the apparent openness of the management. It seems they are maybe only open and transparent when it suits them, and after all, they need some punters to offload their share options to when they dump them! Certainly you calling them by their first names makes me a little uncomfortable. I never attend company meetings or AGMs for this reason and I very much enjoy being an arms length investor. It works for me and means I am not open to undue influence. I would highly recommend you or anyone else that attends these meetings reads the brilliant book by Dr. Robert Cialdini:

FWIW I have a very small historic position in Tristel (LON:TSTL) but it is not a holding I am that comfortable with because of the reasons mentioned on this thread. It is clear that the CEO and CFO are not shy in filling their boots with options using a very dubious hurdle as a basis for vesting. IMHO performance metrics for options should not be based on the share price but rather metrics better matched to the performance of the business e.g. ROCE, margins etc.

All the best, Si

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coniston 17th Oct '18 25 of 28

Thank you Graham for highlighting TSTL remuneration,i was interested in investing in them 18 months ago, after reading quite a few blogs & then investigating decided not yo invest on the grounds that it wasn't an even playing field,felt that as a shareholder i was taking all the risks to supplement their no risk bonuses & options,Thank you PortsmouthPirate for taking the time to write a comprehensive & passionate analysis.

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Banzii 18th Oct '18 26 of 28

In reply to post #409759

btw, Orangetree, your blog link doesn't work.

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PortsmouthPirate 19th Oct '18 27 of 28

In reply to post #409744

As I said it is circumstantial evidence, but enough for me to want to avoid it. A number of readers agree with me, it seems. I presented the facts and gave my interpretation of them. There are thousands of stocks out there. This is a good enough reason for me to avoid this one. I do my best to avoid mistakes. If i avoid mistakes regularly I figure I'll do well. The managment are indeed friendly and approachable but they ignored a submitted question regarding the aforementioned pay scheme too, according to Maynard's blog. Perhaps comments might have clarified the situation, but they ignored to opportunity to do so. Similarly, according to Maynard's blog apparently they did not answer Richard Beddard's question RE revenue guidance at the time of the share scheme.

I linked to the entire article so people who click through can read Maynard's entire opinion of the business. Of course, I directly quoted the bits relevant to my opinion and no more. The post was already long enough.

Sorry if you feel it is harsh but there's no room for sentimentality in business. I owe the directors nothing.

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PortsmouthPirate 19th Oct '18 28 of 28

In reply to post #409654

Especially with further bonuses based on share price levels. I really don't like the incentives behind them.

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 Are LON:FISH'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 »


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