Small Cap Value Report (Wed 26 Aug 2020) - VNET, PEB, VLX

26th Aug '20 by Paul Scott

17 comments 5976 reads

Good morning, it’s Paul here with the SCVR for Wednesday.

It’s a quiet day for news, so I should be able to wrap up today’s report by late morning.

Today's report is now finished.

Technical gremlins struck this morning, so I was weighing up whether to go back to bed, or type up the SCVR in Word, then copy/paste it into Stockopedia once it was back up again. So I did both! Anyway, we're back in business now!

Vianet (LON:VNET)

Share price: 95.5p (up 2% today, at 13:00)
No. shares: 28.95m
Market cap: 27.6m

Trading & COVID-19 Update

Vianet Group plc (AIM: VNET), the international provider of actionable data and business insight through devices connected to its Internet of Things ("IOT") platform, today provides an update on trading and the Group's current status regarding COVID-19 ("C-19").

VNET has a 31 March 2021 year end, hence today’s update covers April – July 2020.

We are pleased to report that trading for the first four months of the financial year has been ahead of our own C-19 revised revenue and profit forecasts with a corresponding positive impact on free cash flow.

Ahead is good, but with no figures given, we don’t know how far ahead. Could be a little, could be a lot, so not a terribly useful update.

Working from home (WFH) - Interesting comments on staff working from home, which might have read-across for other companies too, possibly?

Very successful, but
Difficult for many
Often less productive & inspiring than working in an office

Maybe the gloss might come off working from home, as more companies recognise its limitations? Fine as a short-term emergency measure, but probably not a long-term replacement for the office, is my current feeling about WFH.

Re-opening - most customers have re-opened their pubs (now 80% trading), and beer sales are favourable versus last year. Vianet owns the Brulines beer flow monitoring business of course, which is the group cash cow.

Bars could be susceptible to possible future closures? And/or vaccines/treatment could eliminate this issue in time. Nobody knows for certain, and timings are key.

Pricing – discounts were given to all customers during lockdown, now being reduced. Re-opened pubs are being given a 30% discount until end October, when full price will resume. The 20% of closed pubs are getting a 70% discount.

Smart Machines business (vending machines) – more positive level of…

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UK_Investor_8888

26th Aug '20

With the site down for 12 hours (I check at bedtime, first thing in the morning, Martini time - anytime), one realises how much one misses it.

Paul Scott

I know, it threw me into an existential crisis lol!!! :-D

STrades

Agreed, I had to manually search for news this morning!

Volex continued…

Director buys announced recently have been;

26 Aug 2020 – 500,000 shares bought at 165p by company connected to Exec Chairman, Nat Rothschild. His total holding now 37.97m shares, 24.9% of the company.

19 Aug 2020 – 47,302 shares bought at 160p by CFO, Daren Morris. His total holding is now 1,070,000 shares, 0.7% of the company – quite a chunky holding for a CFO. Meaningful sized purchases in the market by a CFO are generally perceived as being a positive indicator.

7 Aug 2020 – 50,000 shares bought at 145p by wife of COO, Sharon/John Molloy. Their total holding is now 1,311,589 shares, 0.86% of the company – again, a meaningful sized stake.

5 Aug 2020 – 98,561 shares bought at 137p per share by wife of COO, Sharon/John Molloy.

6 July 2020 – 139,210 shares SOLD at 148.2p by CFO Daren Morris. This is curious! I wonder why he sold these shares, then bought some of them back at a higher price just weeks later (see above)?

26 June 2020 – issue of 432,040 new shares, re deferred management bonuses. Not stated, but I assume these have been issued for nil consideration as they’re bonuses, to: Nat Rochschild 155,201 shares, Daren Morris (CFO) 155,201 shares, and John Molloy (COO) 121,638 shares.

23 June 2020 – 67,171 shares bought at 151.4p per share by Nat Rothschild (Exec Chmn)

22 June 2020 – NED buys 10,000 shares at 156p per share

The only oddity in the above list (which I stopped at an arbitrary point working backwards), is the CFO selling his bonus shares on 6 July, but then buying some back shortly afterwards. I wonder what the reasons behind that were?

Laughton

SCVR - it must be a drug. When it's not there you really need it.

SlickMongoose

I was re-reading "One up on Wall Street" the other day, and Peter Lynch is fairly adamant that director sells should be ignored in an otherwise good company. You can drive yourself mad worrying about it, but the reasons why it might happen are nearly infinite.

Small cap investors are conditioned by the regular AIM pump & dumps to think director sales are a terrible sign, but how often do they actually signal bad news in a company that otherwise looks great? I don't think it's very often.

Jeffvshepherd

it threw me into an existential crisis

Who said that? ;-)

Silver Moon

DM's This is Money was also down, there must be have been an update going on further up the line.

Wimbledonsprinter

Good to see Stockopedia back up. You don’t know what you miss until it is gone.

I hold Volex (LON:VLX) - therefore I am naturally positive - mostly for the reasons Paul gives so clearly above.. The two points I would stress to slightly temper enthusiasm are:

1) Although the management stress they are looking for organic and inorganic growth - management has not been the clearest in stating what real organic growth has been. Even in the past when it has stated LfL sales - this has been adjusted not just for acquisitions but also the decline in power cords business from its largest client. In reality, as the business has been restructured much of the business has historically seen falling true organic sales. The largest part of the business has been the power business. In FY20 this continued to see negative organic growth (see the ImC Q&A qs 4 and 14) - although now Volex see it as being in an “inflection point”, partly due to the growth of electric vehicles and Tesla. The IMC business, which now accounts for half the revenues has seen higher organic growth and grew organicaly by around 5% in FY20 - but even this figure has to be pulled out of the company.

2). As Paul says the 5 year plan is to grow revenues to $650m, with profits of $65m. Given the management track record I would not be surprised if this was met. But I would be surprised if this were not done with a considerable increase in the share count. Many of the recent acquisitions have been at least partly for shares (MC Electronics, Silcotec, GTK, Servatron). As FCF has improves, hopefully future acquisitions will be less dilutive - and if so then the likely increase in market cap will closely correlate with the share price.

Star8

It could be that he had a sudden demand for cash e.g. prospective house purchase and that this demand proved abortive i.e. the house purchase fell through . There are other possible explanations too .

FREng

Does anyone here know what has caused the spike in activity and SP at Immotion (LON:IMMO) over the past 2 days?

davidjhill

Nope - I suspect there is an update due on the covid cleaning product. Had meant to buy a few more but didn't get around to it.

Surrey Steve

Hi Paul

Thanks for your work on SCVC and for bringing some interesting companies to my attention.

In relation to Volex (LON:VLX), initially I thought that the CFO might be trying to manage his CGT position, but looking back through the directors' deals, Stocko shows 8 sales, and even more purchases, by the CFO during the last 18 months. I'm surprised that he is able to trade this frequently given that he must be in possession of "unpublished price sensitive information" much of the time! The reason for the sales remains a mystery.

I also noticed that n FY20 share based payments are 50% of PBT. I suspect that this is not connected but it does seem to be a large proportion.

Gromley

i have to admit that I was a little alarmed by Paul's assertion that the Vianet (LON:VNET) trading update tells us virtually nothing. (Have held in the past and it remains on my watchlist.)

However, having now read the report (whilst I broadly agree with Paul) I am pleased to see that they managed to squeeze the obligatory word "exciting" into their update.

the exciting growth opportunities that we see ahead of us.

All is well with the world, the Vianet (LON:VNET) board continue to be excited about the future (anything less would have me stockpiling tinned food and bunking up in my cellar)

sharw

...but they didn't use the other obligatory word 'resilient' - now that is a worry.

To be fair, thye used "robust" twice - does that not cover it?

My comment was only really a side-swipe at the fact that VNETs board live in a constant state of "excitement" about future prospects.

2ShedSam

Website for this product has certainly improved. Looks much more polished with ability to buy direct through the site £3k to £5k a pop. No idea who would buy but channel is there. Still far more excited by the VR concept itself having had a go with my daughter at legoland I thought it was great fun.

Small Cap Value Report (Wed 26 Aug 2020) - VNET, PEB, VLX

Vianet (LON:VNET)

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Paul Scott

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