Small Cap Value Report (Wed 24 Jan 2018) - FEVR, UBI, HSW, EMR, HOTC, CRPR, STAF

Tuesday, Jan 23 2018 by

Hi, it's Paul here.

Please note that I added more company sections to Tuesday's report last night. So to recap on yesterday's report, here is the link. It covers the following companies:

Elecosoft (LON:ELCO), LPA (LON:LPA), Boku Inc (LON:BOKU), Eagle Eye Solutions (LON:EYE), Flowtech Fluidpower (LON:FLO), SCISYS (LON:SSY), Velocity Composites (LON:VEL), LoopUp (LON:LOOP), Lakehouse (LON:LAKE), dotDigital (LON:DOTD)

Please feel free to add your comments, and small caps requests below from 7am! I like it when readers give your own view, rather than just asking for mine! This is a team sport, so your views & ideas are welcomed.

I will start off by tackling 7 companies today - Fevertree Drinks (LON:FEVR) , Ubisense (LON:UBI) , Hostelworld (LON:HSW) , Empresaria (LON:EMR) , Hotel Chocolat (LON:HOTC) , James Cropper (LON:CRPR) , and Staffline (LON:STAF) - so since those are already on my list, there's no need to request them in the comments below.

Fevertree Drinks (LON:FEVR)

Just a brief mention of this premium mixer drinks company, as it's now way above our usual market cap range here.  It announces today 2017 revenue of £169m, up 66% on 2016. This is also above the broker forecast of £159.3m shown on its StockReport.

Profits? "Comfortably ahead of market expectations". Talks about the global opportunity. There have been recent takeover bid rumours/speculation in the press. It's on a very high (c.60) forward PER, but when a company keeps beating expectations, as this one does, then the actual PER is lower than it appears. Well done to investors who spotted the opportunity here. A learning…

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Fevertree Drinks plc is a United Kingdom-based holding and investment company. The Company is a developer and supplier of premium mixer drinks. The Company's premium mixers consist of a range of all natural carbonated mixers, including Tonics, Ginger Ale, Ginger Beer, Bitter Lemon and Lemonades. The Company sells a range of products under the Fever-Tree brand, which include Indian Tonic Water, Naturally Light Tonic Water, Elderflower Tonic Water, Mediterranean Tonic Water, Ginger Ale, Ginger Beer, Naturally Light Ginger Beer, Bitter Lemon, Sicilian Lemonade, Lemonade, Spring Soda Water and Premium Cola. The Company caters to hotels, restaurants, bars and cafes, as well as supermarkets. The Company sells its products to a range of markets, such as the United Kingdom, Europe and North America. more »

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IQGgeo Group PLC, formerly Ubisense Group Plc, is engaged in providing enterprise location intelligence solutions for manufacturing, logistics, transit, communication and utility companies. The Company operates through Geospatial. The RTLS segment takes real-time location data from its own sensing hardware, or from standards-based integration with third party hardware, and transforms this data into spatial event information, delivering asset identification, real-time location and spatial monitoring. The Geospatial segment delivers software solutions that integrate data from any source, including geographic, real-time asset, global positioning system, location, corporate and external cloud-based sources into a live Geospatial common operating picture. The Company offers various products, such as Smart Factory, myWorld, myWorld Damage Assessment, myWorld Inspection & Survey, myWorld Network Insight, Dimension4 and AngleID. more »

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Hostelworld Group plc is an Ireland-based company, which provides hostel-focused online booking platform. The Company operates through over 20 different languages by connecting young travelers with hostels around the world through its brand Hostelworld and supporting brands Hostelbookers and The Company, through its subsidiaries, provides software and data processing services that facilitate hostel, hotel and other accommodation across the world, including ancillary online advertising revenue. The Company focuses on hostels, which maintains a global hostel database with over 13,000 hostels and approximately 22,000 other forms of budget accommodation available across the world. The Company builds a progressive internal training policy that includes ongoing skills training, personal development training plans and management development. The Company has over eight million reviews across approximately 33,000 properties in over 170 countries. more »

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

69 Comments on this Article show/hide all

MrContrarian 24th Jan '18 1 of 69

My morning smallcap tweet:

Countrywide (LON:CWD), Cloudbuy (LON:CBUY), STM (LON:STM), Ubisense (LON:UBI), Eservglobal (LON:ESG), Staffline (LON:STAF)

Countrywide (CWD) CEO resigns, immediate effect. She says "Since joining in 2014 I have worked hard, within a difficult market, to structure a fragmented business into one set for success. I believe those actions will serve Countrywide well in the future. However, the time is now right for me to step aside. I look forward to seeing the business build back and return to growth." If you've done a good job why resign w/o notice? It's BS. Chmn says "...we have a strong and successful business in Financial Services, B2B and Commercial led by an experienced and committed management team. Within our core Sales and Lettings area, however, we have lost focus and a key priority will be to implement changes that will enable this area to start delivering once again." So CEO leaves a screwed core business but is allowed a smug paragraph. You haven't fooled anyone but yourself! I'm short.
Cloudbuy (CBUY) FY trading. Revenue expected to be below market expectations, EBITDA loss broadly in line with market expectations at about half of 2016. "Whilst 2017 was another difficult year for the Company, we have continued to execute our strategy of focus and simplification to half [sic] our EBITDA loss...". Last time chmn said "Whilst this has been a difficult year for the Company we have continued to make operational progress, the benefits of which we would expect to see next year..." Can you write next year's for him?
STM Group (STM) guides FY in line, pretax at least £3.8m. Movng head office to UK this month. Gibraltar not to your liking anymore now the regulator has taken his muzzle off?
Ubisense Group (UBI) FY trading. Rev up - Own product revenue growth has more than offset the expected transition away from legacy third party services projects. Net funds £6.6m.
eServglobal (ESG) Trading for 14 months to December. Core business revenue expected to fall short of previous guidance, group revenue €8.3m to €8.5m. This is due to delays in the signing of certain significant orders. €3M orders which were expected in Q4, have now been signed in January, with the full value recognisable over 3 years.
Staffline Group (STAF) Shows how fast FY results can be produced. 24 days, and they're audited. EPS 71.1 (58.8) . U/L EPS down at 112.6 (114). FY div 26.7p (25.8p). Outlook positive. New 5-year target of 200p EPS. CEO resChris Pullen and Mike Watts to be appointed CEO & CFO, respectively, from 24 Jan, as prev announced. I hold.

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slopsjon 24th Jan '18 2 of 69

Staffline (LON:STAF) results and Fevertree Drinks (LON:FEVR) update please

One of my local pubs which has been serving Fevertree now has Schweppes alongside it. 

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gus 1065 24th Jan '18 3 of 69

Empresaria (LON:EMR) also reporting today as a comparator to Staffline (LON:STAF) in the recruitment sector.,LON:STAF

Presumably Fevertree Drinks (LON:FEVR) update also on the radar screen, albeit it’s only an SCVR alumnus these days with a market cap north of £2 billion.


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Paul Scott 24th Jan '18 4 of 69

In reply to post #303468

Morning MrC,

Wonderful comments this morning, thanks! Companies certainly cannot pull the wool over your eyes, that's for sure :-)

Regards, Paul.

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Reacher 24th Jan '18 5 of 69

Bango (LON:BGO) announcing a placing at 180p to raise £5m to fund an acquisition. Share price currently 190p. RNS released at 8:20am.

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Reacher 24th Jan '18 6 of 69

In reply to post #303468

Great summary, and very accurate MrC!! Thank you!!

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unwise2 24th Jan '18 7 of 69

I held Fevertree Drinks (LON:FEVR) for a few months last year and have been looking for an opportunity to buy back in. In todays results I noticed that revenue growth is slowing, 58% in H2 compared to 77% in H1 and 73% for 2016.

58% is still a great result but when a share is as highly rated as FEVR slowing growth may hold back the share price.

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JohnEustace 24th Jan '18 8 of 69

I see James Cropper (LON:CRPR) AND Accrol Group (LON:ACRL) both saying this week that they are being impacted by rising timber pulp prices.
Which raises the question in my mind - how can I invest in timber? Is there a tradeable vehicle that invests in this area or a company that will benefit from the higher prices?
I’m a bit advanced in years to plant a forest and wait 30 or 40 years!

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Andrew L 24th Jan '18 9 of 69

Paul, interesting points on Hostelworld but I would take a different view. The main brand is Hostelworld and that is now the bulk of the business. I wouldn't worry about the other brand going into decline as it is better for them to focus on one brand. It benefits them if they only focus on one brand. So I don't see this as a problem I view it as a positive.

Hostelworld is a global business operating in a niche of the booking sector. Hostels are seeing some growth with young travellers wanting a social travel experience. However, the shift to mobile apps supports Hostelworld as it reduces marketing costs.

Hostelworld's main business is in Europe but the group should have strong potential in Asia. In terms of revenue growth this is only one leg of a business like this. Margin improvement is critical. I think a lot of investors get growth wrong. Hostelworld may be growing "slowly" but its underlying market has good long-term potential. In other words the group is subject to long-term growth dynamics due to increasing global travel.

Is this a mature business? Well if they can crack Asia then I don't think so. Even if it is mature we get a great dividend yield with special dividends. New hostels are being built around the world and more young people are travelling.  6% booking growth in the whole of 2017 doesn't seem to be a mature business to me even if the second half was a bit slower.  I think the strength of the core Hostelworld brand is encouraging with a 13% increase in bookings in 2017. It should be remembered that travel is a volatile area and as such like-for-like bookings in any one period can be volatile.  Hostelworld saw weakness in 2016, for example, due to a number of terrorist incidents.  They did flag that the comparatives for H2 2017 would be tough I think.

In line with Board's expectations - I agree this is vague but it just really states that things are roughly in line. With small companies there may not be a sufficient depth of broker forecasts with which to reference.

Competitive position - For me this is a strength of Hostelworld. They appear to have a strong market position in the hostel booking category. I think it is hard for general booking platforms like to offer the same kind of service. Hostels are a niche of the travel stay sector.

Hostelworld versus On the Beach - This is a difficult call. On the Beach is in a court case with Ryanair that may see it be unable to book Ryanair flights for customers going forward. On the Beach's growth strategy in Europe is also fairly risky. On the Beach also has lots of competition such as Love holidays. Hostelworld, meanwhile, appears to have a much stronger competitive hold on its market niche. I agree though that if On the Beach can crack Europe then it should perform well. Hostelworld is a platform type business. 

On the Beach is ok but appears to be in a more competitive environment. But they should probably both do well. On the Beach's expansion plan in Europe is somewhat risky and may not work. Hostelworld can easily expand without having to do local country marketing.  On the Beach is loss making in the Scandinavian countries it is expanding in.  By contrast Hostelworld can be profitable straight away around the world and can have a truly global brand.  The risk with On the Beach is that it tries to expand in a country like Germany, for example, and fails to do so successfully.  This would result in a large investment going wrong.  Hostelworld can expand just by promoting its brand around the world on Google Search.  On the Beach generally has to do significant local country marketing to get going (TV adverts etc).

It is also worth noting that On the Beach is driven entirely by the UK in terms of profit.  Hostelworld is a global business that isn't dependent on one country.  So On the Beach would take a hit if something comes along to impact its competitive position or trading in the UK.  Hostelworld is exposed to Europe but is not exposed to any one country.  In this sense I think that Hostelworld may have a lower risk profile.

Investment case - with Hostelworld you are getting a cash rich business, paying special dividends that is subject to travel growth trends. The canabilisation of a legacy brand is a red herring in my view. I think too much can be read into the growth in one half period. Just because H2 2017 was weak it doesn't mean that fundamental growth trends aren't reasonable. The key for Hostelworld is the scope to improve profitability. Even if top-line growth is modest we should see robust bottom line growth. This is because more customers will book directly through the app.  If Hostelworld grows its dividend at say 3% a year this will offer an attractive income stream.  The crux, though, is to crack the Asian market.  In terms of the valuation it is fair to point out the circa 20X P/E.  However, net cash will be robust at the year-end and so the P/E excluding cash will be more modest.  

The key from the update is really this comment: "During the second half of the year we delivered an efficient booking mix with marketing costs for the full year marginally lower than our previously guided range. We continue to execute well on our strategy and this positions the Group well to make further progress in 2018."

What this effectively means is that the group saw good margin progress in the second half due to lower marketing costs as a percentage of revenue.  Marketing is the main cost for booking platforms such as Hostelworld and as such this should have a meaningful bottom line impact.

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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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