Small Cap Value Report (Wed 2 Jan 2019) - SPSY, URU, CTEA

2nd Jan '19 by Graham Neary

30 comments 9487 reads

Happy new year!

News is very thin today, so I'm struggling to come up with ideas to discuss in today's report. I'm also learning to type "2019" in all of the places where I used to type "2018".

Several readers have requested a look at Spectra Systems (LON:SPSY), which I note has a StockRank of 92:

Spectra Systems (LON:SPSY)

Share price: 119p (+13%)
No. of shares: 45 million
Market cap: £54 million ($68 million)

First Orders for TruBrand in China

This US-based company currently describes itself as:

a leader in machine-readable high speed banknote authentication, brand protection technologies, and gaming security software

It's based in Providence, Rhode Island (East Coast).

Today's announcement relates to orders from China for its TruBrand™ product. Nice to see robust trading between the US and China!

TruBrand enables the authentication of high-value products - such as cigarettes.

Today's order is from "Zhejiang Tobacco" which I understand is a reference to "China Tobacco Zhejiang Industrial Co.", one of the main provincial tobacco companies in China,

Unfortunately, Zhejiang Tobacco's own website is not working today - even when I use a proxy server based in Hangzhou.

Spectra reports that the order is for Zhejiang's Liquan Yundun Series, which I have identified is probably the Liqun Leisure Cloud, whose official price is 100 yuan for a small box.

Fake products are a fact of life in China. Official methods for checking the authenticity of cigarettes consist of looking at the stamping and printing on the box and cigarettes - this is the old-fashioned way. With Spectra's method, you take the human error out of it.

CEO comment:

We are optimistic that this first launch with one of the highest value cigarette brands in China will lead to the adoption of TruBrand^TM across larger volume product lines, that could downstream result in over a billion units annually from this supplier alone."

This looks like a trial to me - Zhejiang will try out the product on between six and eight million packs of the Liqun Leisure Cloud. If it works then it will be continued and could be rolled out to other product lines.

Valuation

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Vsihv

2nd Jan '19

Hi Graham, Stockopedia et al,

A very happy new year to all and also thanks for the fantastic work in 2018. Great summary to end 2018 Graham - especially the lessons included against the not so great picks.
Brief question - is there a loss % before you consider a stock a failure ( £BAT comes to mind as a fail, but closed with not worked out "yet" )

And since it is the first day back with not much happening, www.johnlewispartnership.co.uk/content/cws/financials/weekly-figures/latest.html

John Lewis weekly sales figures are out and seems they had a great week to 29th Dec, at the expense of the week to 22nd Dec (especially at Waitrose).
Sales perhaps a little better than I thought given media, but I would get the impression that margins are not that great - savvy shoppers indeed.

I sold out of a number of value retail stocks with great pain over 2018 - only Ted Baker (LON:TED) , Walker Greenbank (LON:WGB) , Portmeirion (LON:PMP) which I consider to be much better quality. Also very small position in GAME Digital (LON:GMD)
My lesson to apply in 2019 - I would not buy excrement just because it was on sale or free - same applies to companies!!

Good luck for 2019 all - I think there are some good opportunities around

barnetpeter

I mentioned I was too tempted by FOOT in the last small cap report at 25. Plenty of reports the stores are busy and a nice rally this morning. Potential offer for Ophr too. Are we near the lows in the market for the moment? Some real bargains around I must say!! Time for me to put some cash in....carefully.

ACounsell

Yes this is correct and AJ Bell have advised me after lengthy discussions that the Somero Enterprises Inc (LON:SOM) issue has now been sorted out and there should not be any similar delays in the future. We shall see!

dustyie

Just a thought on spectra systems Spectra Systems (LON:SPSY) , is this business is vulnerable to the spread of contactless cards etc. . at some time in the future, cash will be a thing of past . when is the question . Just a thought .

Graham Neary

Hi IG, I've done my best re: £SPSY!

Cheers,

G

Cheers Julian, Francis & Leo, I've had a bash at Spectra Systems (LON:SPSY). Hopefully you find the various links and resources I've shared to be of some interest. Cheers. G

Howard Adams

Hi Graham

Thanks for the research on Spectra Systems (LON:SPSY) that's very useful commentary.

Regards
Howard

MichaelFBS

Hi leoleo73

There was mention of of Somero Enterprises Inc (LON:SOM) ‘s late payment of the divi in another report a couple of weeks back. This caused me to check my account with II and the divis were received in to the SIPP and ISA on exactly the right date; this even though II’s SIPP is administered by AJ Bell.

Odd that for some brokers it seems difficult to cash US cheques!

I am long Somero Enterprises Inc (LON:SOM), it is my 6th largest holding.

jonesj

A cynic might consider the risk of a small order for Spectra Systems (LON:SPSY) followed a few months later by some knock off equivalent from a local company.

timarr

This caused me to check my account with II and the divis were received in to the SIPP and ISA on exactly the right date; this even though II’s SIPP is administered by AJ Bell.

I keep track of exactly when my dividends are received so I know it was over 5 weeks after the payment date. But the date shown on my account is, also, exactly the right date. Fake news is everywhere ...

Very cynical!!

Hi Graham,

In terms of companies trying to sneak out bad news in the holiday period I would put Xaar (LON:XAR) pretty near the top of the list! This was there pretty awful trading update on Friday 28th December:

https://www.stockopedia.com/share-prices/xaar-LON:XAR/news/xaar-plc-trading-update-urn:newsml:reuters.com:20181228:nRSb6159La/

Clearly trading to hide yet more bad news for a share which traded at over £11.00 five years ago! The business would seem to be in terminal decline with no sign of any success to deliver improvement. Any thoughts welcome.

Bagir (LON:BAGR) an Israeli textile company, manufacturing out of Ethiopia might compete with Xaar (LON:XAR) .
https://www.stockopedia.com/share-prices/bagir-LON:BAGR/news/bagir-group-ltd-trading-update-and-directorate-change-urn:newsml:reuters.com:20181231:nRSe7755La/

On 31 December:
Trading in line - Chinese company that will own 53% completion delayed to May 2019 (including $13m of $16m funding for new shares) and the CFO resigned.
Last 3 years: share count increased 500% and book value per share fell 80%

Held previously - one of the on sale excrement companies I referred to earlier!!!

Wol

Thanks Graham. They do seem to be something of a black box company and that does make it difficult to come to any clear conclusions. And especially thanks for the link to that enjoyable little film from one of Spectra Systems (LON:SPSY) 's competitors.

nickjd

3rd Jan '19

Well, my Somero Enterprises Inc (LON:SOM) dividends paid into my ii ISA account arrive promptly, or at least that due on 17 October last did. It was shown as received on 17 Oct and paid out the same day by BACS to my bank current account. That could of course have been back-dated by ii - except for the fact that my bank statement shows that my bank received it on 19 October.

I'm not quite sure how that happens if Somero pay divis by cheque unless they send cheques out in advance. However, well done ii and Somero as far as I am concerned!

peterg

A lot of brokers credit divs on the payment date, or soon after, rather than wait for the funds to clear, presumably ii is happy to transfer funds credited on that basis. AJB seems to be alone (or at least rare) in waiting for final clearance before crediting accounts. My Somero Enterprises Inc (LON:SOM) div turned up 2-3 days after the payment date in Selftrade. No idea exactly what that delay was due to - could be when they or their bank got the cheque, or due to admin working out which accounts got what.

bobsandy12

HNY and thanks for very useful comments on Spectra which I wil start following now.
Is there any chance that you could comment on Accesso Technologies following the 50-60% price drop on “ red October “ and two pretty scathing analysts reports suggesting Accesso are being misleading in reporting growth? Is this just shorting activity or???

Thanks Bob

smilingmickey

The new business win at the Chinese Cigarette manufacturer should come as no surprise to Spectra followers given the previous comments in recent reports issued by the Company. It has been listed as one of their key targets for some time. Given the nature of Spectra's bank security business, multiple patent holding and significant royalty revenue it would maybe be reasonable to assume that the deal struck with the cigarette company covers IP protection. I would hazard a guess that the main payments to Spectra will be royalty payments based on sales volumes of cigarettes sold for the period of the patent life.

https://irpages2.equitystory.com/websites/rns_news/English/1100/news-tool---rns---eqs-group.html?article=26198378&company=spectrasystem

12th Feb '19

I note that Spectra share price has moved upwards strongly in the past couple of days. No news releases. Maybe they are preparing their accounts, who knows!

The Company have previously said that they would beat market expectations for 2018. I'm not really sure what those expectations were but I would hazard a guess at higher than 2017, which was in itself a bumper year

Their web site seems to have had a make over and for those wondering how they will make their money in the future there is a list of patents that they own with an invitation to third parties interested in their technology to enter into collaborations with them.

I'm something of a novice on these boards but maybe this post will stimulate a response.

Small Cap Value Report (Wed 2 Jan 2019) - SPSY, URU, CTEA

Spectra Systems (LON:SPSY)

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Graham Neary

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