Small Cap Value Report (Wed 28 Nov 2018) - OTB, VCP, TENG

Wednesday, Nov 28 2018 by
128

Good morning, it's Paul here.

It was a huge pleasure to meet & chat to the many Stockopedia subscribers who attended Mello London. The whole event was a terrific success. Mello has become a community of friends, and I really enjoy the gathering of the clan at each event. Congratulations to David Stredder, Georgina, and the rest of the team, for organising another excellent event.

I lost count of the number of people who thanked me & Graham in person for our work in producing these reports. It's very rewarding to receive such positive feedback, so thank you to everyone who took the trouble to speak to me. So much positive energy, I feel like a fully charged battery now!

Right, on to today's news.



OnTheBeach (LON:OTB)

Share price: 416p (up 3.5% today, at 08:06)
No. shares: 131.0m
Market cap: £545m

Preliminary results 

This is an online travel agent. It's reporting today on the year ended 30 Sept 2018.

So far, so good - the market has reacted positively this morning in early trades, share price up about 4%.

Revenues - up 24.5% to £104.1m. As disclosed in a footnote, the bulk of this increase is due to a recent acquisition (called "Classic"). The more meaningful number is that core business revenues were up 9% to £89.3m.

Marketing costs - many online businesses have marketing costs as their largest variable cost. This is a very attractive feature, since marketing spend can be dialed up or down, to suit market conditions. In a recession, it would be a major advantage over bricks & mortar competitors, which are stuck with largely fixed costs. Marketing spend here is huge, at 41.8% of revenues (down from 45.2% last year).

International - the growth in Scandinavia has stalled. Doesn't seem to be working yet, with a £2.2m EBITDA loss. Warm summer & discounting by competitors are given as reasons. To reiterate the point above about marketing spend, this was slashed to a background level.

Adjusted profit before tax - the key number for me, is £33.6m,  up an impressive 17.9%. Let me check that the adjustments are sensible. Footnote 3 explains the adjustments as follows;

(3)      Group adjusted profit before tax is profit before tax,
amortisation of acquired intangibles of £4.6m (FY17: £4.3m),
share based payments £1.4m (FY17: £0.5m),
exceptional costs of £0.6m (FY17: £2.7m) and

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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On the Beach Group plc is a United Kingdom-based online travel agent. The Company operates in two segments: Core and International. The Company's core segment conducts its activity through the United Kingdom Website (UK). The Company's international segment conducts its activity through Swedish Website (eBeach.se). The Company is an online retailer of beach short-haul beach holidays, primarily targeting customers in the United Kingdom under the On the Beach brand. The Company's technology platform enables customers to package the constituent components of their holiday (including flights, hotels and transfers) to build custom-made holidays from a range of flight and hotel combinations. The Company offers customers a range of flight and hotel products bookable through online channels (including by desktop, mobiles, tablets and applications) and over the phone. The Company's subsidiaries include On the Beach Beds Limited and On the Beach Travel Limited. more »

LSE Price
381.5p
Change
-3.3%
Mkt Cap (£m)
517
P/E (fwd)
15.1
Yield (fwd)
1.1

Victoria PLC is a designer, manufacturer and distributor of flooring products. The Company's principal activities are the manufacture, distribution and sale of floorcoverings. Its segments include UK and Australia. It manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of luxury vinyl tile (LVT) and hardwood flooring products produced by third-party manufacturers. Its product offering in the United Kingdom ranges from both crafted, woven Wilton carpets to Tufted carpets in a myriad of fashion colors and styles. Its stock range offerings cover saxonies, tonals, velvets, twists and natural loop pile styles for residential use. The Company supplies its products to the mid to high end residential market and contract sector both in the United Kingdom and overseas. Its subsidiary, Munster Carpets Limited, is engaged in the manufacture and distribution of floorcoverings for the contract market. more »

LSE Price
465.4p
Change
1.2%
Mkt Cap (£m)
576.8
P/E (fwd)
9.7
Yield (fwd)
n/a

Ten Lifestyle Group Plc, formerly Ten Lifestyle Holdings Limited, is a United Kingdom-based technology enabled lifestyle and travel platform company. The Company is focused on providing direct access to cultural, gastronomic and travel service. The Company offers a range of platforms such as Ten platforms Ten MAID (Management and Information Delivery), Ten Data, and Ten Content. Ten platforms enables user to access all the benefits of lifestyle concierge in the palm. Ten MAID is the repository of the Company’s knowledge-based, booking system, workflow, performance management, CRM and Management Information reporting infrastructure. Ten Data is focused on leveraging technology and delivers reporting, analytics, insights, and predictive modeling to stakeholders within and outside the business. Ten Content is the editorial and personalized/targeted communications. more »

LSE Price
31.82p
Change
-6.4%
Mkt Cap (£m)
27.4
P/E (fwd)
n/a
Yield (fwd)
n/a



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


48 Comments on this Article show/hide all

gregatr0n 28th Nov 29 of 48

Hi Paul. Is there any chance, time permitting, you could cast your eyes over the results from QUIZ (LON:QUIZ) yesterday? They looked reasonable to me and the share seems way oversold. Thanks.

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nigelo 28th Nov 30 of 48
6

Hi Paul,

Maybe this is too obvious, but in case anyone is confused.

In the On The Beach (LON:OTB) section, the reference to Telit Communications (LON:TCM) should be to Thomas Cook (LON:TCG).

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Wimbledonsprinter 28th Nov 31 of 48
4

In reply to post #422348

David

Smartspace Software (LON:SMRT) I can’t claim to know the business well - but I did own the shares earlier this year - when it was still Redstone. It is on my “watch” list. The current cash position is more like £10m I think (£13m reported at end-July minus £4m for purchase of Swiped On plus maybe £2m from repaid WC from Redstone sale), DYOR. I think it optically looks cheap and if management can deliver then it could be a great buy. The reason I am not buying and am feeling cooler rather than warmer include:

1). I am not convinced by the Swiped On purchase. Managing a business in NZ cannot be easy, if problems arise.
2). The strategy is to build a SaaS business. From the July results, there seemed a low level of SaaS business. The new contract announced today (while encouraging) seemed to be on a licence sale basis not a SaaS basis.
3). The July results also did not indicate any momentum in the business (admittedly during a 6 month time period when management focus was elsewhere - selling Redstone).
4). Historically the group has had numerous issues and profit and EBITDA have rarely been transformed into positive cash flow.
5). Frank Beechinor has come out of semi retirement (from executive roles) to be CEO. He had been Chair of Smartspace/ Redstone for around 3 years before that. He is also chair of dotDigital (LON:DOTD) and maybe can take credit from its success. But he needs to show that he still has what it takes to be a CEO.
6). Company has just appointed a new CFO and NOMAD (Singer N+1 from Canter). I don’t see a cause for concern - but still it poses a question mark.

Company presented at Mello on Tuesday - and I think it was videoed by PI World - If you were not there, maybe in due course it will be on the PI website.

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dgold 28th Nov 32 of 48
6

I wasn't able to attend Mello, but definitely wouild like to join in the thanks to Paul and Graham for their reports which are always highly informative.

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jonesj 28th Nov 33 of 48
3

In reply to post #422408

I was intending to speak to Smartspace Software, but unfortunately there was a more interesting presentation clashing with theirs.

They seem to be making a strategic move towards space management, particularly those smart meeting room booking facilities. My former employer adopted such a system and one advantage is that it cancels meeting bookings if no one turns up, so it's very good for improving meeting room availability without the capex to extend the building.

However, that system was made by a competitor.

I did some research on google and gave up after quickly finding at least 10 companies offering such a system
My number 1 question would have been about the competition in the field & how do they expect to deal with this.

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Trident 28th Nov 34 of 48
4

The last time I looked at significant board purchases, it was for £UPG and in due course it headed for a profit warning.

Noting from Paul's comment that there have been significant purchases by Victoria (LON:VCP) directors looks interesting. But for me the way they announced previous sales by the Exec Chairman ( and main man) in such a low key fashion, seems to me to smack of a selective approach to announcements.

As Paul points out the amount purchased represents relative chump change for the Exec Chairman on his share sales, not taking into account the fact that he also pledged his shares for a massive loan.

I guess they could be just taking advantage of a significant share price fall, but as Graham pointed out the share price is quite well valued at the current level.

Its odd isn't it. On the one hand shareholders commentate on the over-remuneration of execs, and their preference for alignment with shareholder interests, but on the other when the Exec chairman takes nominal remuneration, as he does here, but who then habitually sells or pledges his shares for massive amounts, it still makes one feel queasy.

I guess its the worry that being wholly share focused creates a traders mindset, where bad news or negative connotations are fudged (remember the highly technical announcement that was really a profit warning).

Maybe I am over analysing, but this arguably selective approach to announcements worries me.

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fwyburd 28th Nov 35 of 48
8

Re Smartspace Software (LON:SMRT)
I attended their presentation and came away underwhelmed. I used to work in this space a few years ago and know how customers buy technologies like this. 

The supply chain is complex, with manufacturers of hardware and software at one end, distributors and resellers in the middle and system integrators/consultants and architects at the other end selling/advising the customer. Companies fitting out offices tend to use large national or local suppliers to help them muddle through the complex array of technologies available which is why distribution is key for software and hardware vendors. I asked Frank about this and he was adamant direct selling was best. I completely disagree. I don't think he necessarily should go through resellers but he certainly should work with the systems integrator/consultant community all of whom have enormous influence on what the customer specifies.

Secondly, these technologies have been around for years (although apps on smart phones are clearly new) and they all suffer one major problem: they fall into the category of groupware. Post purchase issues are common place which is why the customer experience of Groupware needs careful management and lots of support in order to get technologies adopted and used properly. Whilst their UBM case-study is great, I wonder why UBM (now part of Infoma) haven't rolled this out across the world? I suspect FM professionals are sceptical because they know the problems of getting adoption - after all this is not a new way of managing people and space.

And thirdly, they are not the only ones offering such technologies and so have no real moat. Yes they have a deal with Phillips and Evoko to integrate SMART software with their hardware but it's a big world out there with many, many competing hardware and software players.

Hope that helps

Francis

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nquaile875 28th Nov 36 of 48
2

Thanks Paul,

Great analysis as ever, easy to understand and gets to the heart of the main metrics that helps newbies like me learn how to value a share/company. Thanks also for the hand drawn diagram!!

I don't know if you've any interest in Safecharge but if you do perhaps a quick look at their trading update?

Cheers,

Nick

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gus 1065 28th Nov 37 of 48
2

Just (4.30) had a “nudge” from my account at IG saying the oft discussed stock IQE (LON:IQE) is up 15% on the day. Can’t see any obvious news, and Stocko is showing rise of about 9% at the moment, but either way seems to be a reasonable move. Anything heard on the grapevine?

Gus.

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davidjhill 28th Nov 38 of 48

In reply to post #422438

Smartspace Software (LON:SMRT)

Thanks to those that commented. That was useful. I will wait and view the presentation from Mello on video as well I think then. Seems I need to wait for some more evidence of successful strategy execution on this then. The Swiped on acquisition could be interesting if it continues current levels of growth. I think wimbledonsprinter is right though that the £4.5m cash cost needs to come off, so cash is circa £10m or half market cap.

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tomps3 28th Nov 39 of 48
2

In reply to post #422203

piworld filmed T Clarke, so you can catch up in full ... when it's edited! Give us a bit of time.

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tomps3 28th Nov 40 of 48
1

In reply to post #422348

Smartspace Software (LON:SMRT) presentation at Mello will be available in due course

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tomps3 28th Nov 41 of 48
2

In reply to post #422318

Leave it with us ....

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mmarkkj777 28th Nov 42 of 48
1

In reply to post #422488

Sorry to possibly be adding to your workload Tomps3, but will that include Volvere?

Thanks, Mark.

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mmarkkj777 28th Nov 43 of 48
1

In reply to post #422453

Interesting Gus,

I notice that the open short positions on them have reduced too!

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Paul Scott 29th Nov 44 of 48
2

In reply to post #422323

Hi Reacher,

Thank you very much for flagging up the On The Beach (LON:OTB) results presentation slides, that was incredibly helpful of you! :-)

I've looked through the slides, and they answer my main queries on seasonality of bank balances, and extent of customer repeat orders. So I've edited the main article to include this new info.

Thanks again, much appreciated.

Best wishes, Paul.

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Paul Scott 29th Nov 45 of 48
2

In reply to post #422393

Hi nigelo,

In the Telit Communications (LON:TCM) should be to Thomas Cook (LON:TCG).

Yes you're correct, apologies for my ticker error.

I spotted it myself first thing this morning, and have corrected it.

Best wishes, Paul.

P.S. Memo to self - must check tickers and not rely on my memory!

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Paul Scott 29th Nov 46 of 48
2

In reply to post #422428

Hi Trident,

Your comment above on Victoria (LON:VCP) reminded me of a question I asked the Chairman at a meeting recently. I asked him about the shares he pledged for an enormous personal loan, and was there a risk he would become a forced seller, on a margin call.

He replied that he's not drawn down anything on that facility, it was just "for a rainy day"!

Regards, Paul.

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Paul Scott 29th Nov 47 of 48
2

Re reader requests above for Ramsdens Holdings (LON:RFX) - I've never looked at this company before, but Graham has covered it loads of times. Graham is writing Thu & Fri reports this week, so perhaps you could ask him to take a look at it?

Yours with sloping shoulders,  ;-)

Paul.

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SundayTrader 29th Nov 48 of 48

In reply to post #422508

Less downside opportunity at these levels for the shorts, after the recent TU, so it is not surprising some have been closing out. I don't think the bounce tells us much - IQE is historically very volatile.

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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