Small Cap Value Report (Wed 29 Apr 2020) - DIA, NWF

29th Apr '20 by Paul Scott

67 comments 8997 reads

Good morning, it's Paul here with the SCVR for Weds.

Estimated timings - there's not a great deal of small cap news today, so I should be finished by 1pm.

Today's report is now finished.

Dialight (LON:DIA)

Share price: 199p (up 10% today)
No. shares: 32.6m
Market cap: £64.9m

Dialight plc (LSE: DIA.L), the global leader in sustainable LED lighting for industrial applications, is today issuing the following update relating to its manufacturing footprint further to its announcement on 21 April 2020.

Today's update comes just 8 days after its last update, so I need to look back at that first. I'll summarise the 21 April update below;

21 April update - summary of key points -

Temporarily suspended production in Mexican & Malaysian factories - applied for "essential business" orders
Order intake normal until softening in late March
Order by region - USA (largest market) resilient, EMEA "significantly impacted" by lockdowns, APAC "more resilient"
Cost cutting - usual stuff e.g. suspending capex & discretionary spending, furlough (number not stated) & pay cuts
Board - taking 20% pay cut, Chairman waiving fees for now (impressive leadership/commitment, good for him!)
Net debt slightly down from 31 Dec 2019. Now £16.2m - unwinding working capital (worth noting, as once business improves, likely to suck cash back into receivables & inventories)
Bank - £25m facility to Feb 2023. Talking to bank about enlarging facility & relaxing covenants
Expectations for 2020 significantly reduced (no figures given). Confident about longer term

That all sounds fairly much as I would expect. The funding position looks potentially problematic, if bank not prepared to be flexible. Dialight has not performed very well in recent years, hence bank support may not necessarily be a given, if things get seriously bad in 2020. Depends if it is able to qualify for a Govt loan guarantee scheme? Clearly that would help greatly.

29 April update (today) - summary -

Mexican factory can now re-open, in phases starting today
Malaysian factory also re-starting (underway)
This means all facilities will be operating, albeit at reduced capacity

Balance sheet - at end 2019 looks OK, but inventories look too high.

My opinion - it's impossible to value at this stage, as there's no visibility on sales/losses.

Relying on bank support for now is OK, but Dialight would probably need to raise fresh equity once business is recovering, to fund increased…

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grumpy5

29th Apr '20

Clearly, we would conquer global markets! ;-)

xcity

Problem with companies increasing their cash reserves is higher cost and lower demand.
The market has always been awful at pricing risk which is why PE makes its fortunes overloading businesses with debt.
BoE already trying to instruct banks not to make provisions because they are worried about loans being limited.
The whole level of the worldwide economy is predicated on high debt. Everything now pointing to recession at least into medium term - except for habitual behaviour, which says it will go back to normal quicker than we think.

Zoiberg

Londoners have been relocating to Brighton for the last several years as the commute is bearable if you only have to do it 3 or 4 days per week. I think you're right in that the exodus from London will now become more general.

Martin Verlaine

I am in 2 minds about WFH as it is difficult to manage productivity and for certain industries you need to be on the ground and not at distance. I agree to some extent this is a new world. I also share the notion that it is evident that COVID impact is greater in areas of population density like London and this would always be the case for such a virus. More rural areas have had little impact from the spread of the disease. I can well see that extended families and those who can WFH would want to move out of London. Better quality of life and clean air would trump the facilities to me. I live in Devon have high quality fibre which makes connection not an issue . I worked in a London for many years and can see it from both sides.

timarr

I am in 2 minds about WFH as it is difficult to manage productivity and for certain industries you need to be on the ground and not at distance.

Barclays are suggesting that they may refit some branches to allow people to work locally rather than commuting. You'd probably end up with a mixture of home working, local working and occasional centralised meetings. Allegedly there are lots of enquiries with managed service companies about using their officies for meetings.

A lot of centralised working is due to habit - managers like to see staff working and executives, who tend to be older, are less comfortable with the technology around remote working. All of this relates back to working practices grounded in pre-computer, pre-web days where we had to gather together.

There was a similar transition around the introduction of electricity which took about 30 years to reap the expected productivity benefits because simply electrifying steam powered industries made little difference. You needed to re-engineering working practices and the buildings to make it efficient.

As it happens that transition finally happened on the back of the Spanish flu pandemic, although I've never seen any evidence that was a trigger (although people have suggested that electricty caused the Spanish flu, some things never change). Anyway, Tim Harford wrote about this:

When the electric dynamo was as old as the web is now, factory owners were still attached to steam. The really big changes were only just appearing on the horizon. The thing about a revolutionary technology is that it changes everything - that's why we call it revolutionary. And changing everything takes time and imagination and courage - and sometimes just a lot of hard work.

https://www.bbc.co.uk/news/bus...

simoan

However the big drawback is if lots are working in isolation, creativity and ideas generation are stifled big time.

Screen time is great but no substitute for the energy created when a group of great brains assemble together.

I think this just needs a change of mindset. I work with multinational technology companies all the time where a project team is split across two different US offices, a team somewhere in Europe, and another team in Israel, India or China, many of whom are working from home. OK, it makes finding a common time for everyone to get on a conference call fun, but even that's becoming a bit old fashioned these days.

This is a very common way to work in technology; it doesn't hinder creativity and often greatly improves productivity i.e. the team in the US office can hand off modules to the team in India for testing ready for when they are back in the next day, or vice versa. In this way you get a much longer effective working day and improved productivity. This idea that everyone has to be in the same room standing round a whiteboard with marker pens from 9 to 5 to be creative is really outdated.

Only yesterday morning I was using the Circuit extension for Chrome to go through some data in a spreadsheet with a company in China - it was a very efficient use of time for everyone and given the time of day I assume, like me, many of them were at home. With collaboration tools like Microsoft Teams, this idea of working in isolation no longer need exist. And of course, you don't get the distraction of office politics, can spend more time with your family instead of 2 or 3 hours commuting to and from the office, and save on transport costs. I believe this lockdown is going to prove to a lot of previously reticent companies that have traditionally been office based with minimal home working, that they can save money, improve productivity and have a happier, less stressed workforce. Of course, we also end up with a greener planet. Greta will be chuffed :-)

All the best, Si

Bob Cratchit

Working with others really stuffs my creativity. All my best ideas arrive while I'm alone, without distractions or having to explain everything to other people. Perhaps many others like me and WFH will catch on permanently?

However, I'm also capable of partying like an animal! But eveything has its place, maybe

Timarr

Do not disagree with you as I see this COVID as a catalyst to change which needs IT investment in structures that can support WFH in a manner that is not liable to failure which can restrict productivity. This may need upgrading IT systems at a cost which companies need to bear If they are serious about such facilities, rather than seeing them an adjunct to working from the office. Not sure I support the implication that the age of senior managers is to blame for not moving forward when IT investment for no obvious ( at the time) gain in productivity. Hi The needs of the client in some industries will mitigate against a complete work from home environment. The future is more likely that many non client facing can be WFH

Maybe it's been an issue of trust. Managers don't really sometimes fully trust their employees. But now that they've seen how most people aim to show how well they can do without close supervision, perhaps they will trust them to WFH from now on

ezlifeme

Hi Greenhat2 Nice idea but everyday is counter productive how about Fridays only when company news tends to be less, how about sharing ideas daily in a structured way remotely via the discussion threads?

Michael C

From a Reddit thread inspired by the Barclays analyst call:

'Downsizing our office footprint has been on the cards for a while but we
have had problems convincing certain senior staff that remote working
was viable (some old school who like to see bums on seats); something
that has taken us 4 years of discussion was largely resolved and proven
to work in less than a week and I doubt that we will ever really go back
to having everyone in the office.'

I have just been elected Chair of the board of a small, very old company where the previous Chair couldn't cope with the idea of remote conferencing or, really, anything to do with technology, and resigned his position. We have adapted within a few days. I see enormous opportunities for models including private hubs like Barclays have suggested and shared hubs/workspace like Iwg (LON:IWG) as suggested above. But there will be models that haven't even been thought of yet, and an enormous opportunity for serving the WFH market with innovative ideas some of which I am having myself. I think the existing tech to support distributed teams will look very dated within a couple of years. The time will come when the idea of having a team in one place all the time will just seem mad. I also think the demand for rural and semi-rural properties with garden space for drop-in office modules will be enormous. After the worst of the contagion phase is over accommodation providers may also benefit by offering facilities and packages for group bonding get-togethers if managers feel they really do need their team to meet each other physically occasionally.

Dons

I completely agree, we wfh at our peril, long term. Consider how much easier it is to bounce ideas and really work collaboratively when co-located. I wfh just now, but prefer the office; I work in IT. I also wonder how the next generation will collect new skills if everyone sitting at home, and indeed how many of them will even get employed; given what globalisation has shown us. isn't it equally likely employers will just employ more dispersed, cheaper staff thousands of miles away. And what is the city without networking? What is the Cambridge biotech hub without critical mass, or Silicon Valley?

Maybe working in IT has made me biased, but I've seen what happens when people start to think co-location, soft skills, networking doesn't matter and I can assure you the future is lower productivity, lower skills and lower salaries in this country if that's what we want :-(

Cisk

barnetpeter, your first paragraph is so true. Held Avacta (LON:AVCT) on and off many times, for example, share price has had a rocket’s rise recently, on covid-related hopes, and as you say, same with many others. Reminds me of the time when anything with .com went up, or blockchain, or internet of things etc. Most of these companies have never made money, many never will.

One company I continue to hold is Ekf Diagnostics Holdings (LON:EKF), who, apart from the covid hype as they make the tubes the test samples need to be transported in, also have a solid business in testing and diagnostics, are profitable and have cash on the balance sheet.

GTrader

DYOR

bryans1311

Yeh, but it’s going to be more difficult for me now, to chat up Sally from HR at the photocopier! ;)

mark1308

30th Apr '20

Yes indeed , how many romances were / are office based ! I married from an office romance as I guess did many others !

One major thing imho that needs sorting for future plane journeys to be safe is how to stop the recirculation of air.

GrahamF

I agree.

As a manager, training someone completely new to the job face to face is much easier than training them remotely and it’s much more difficult to build up a relationship with someone remotely. Dealing with staff problems is also much easier face to face.

A spontaneous chat with colleagues who you bump into in the office can spark ideas and creativity that you are less likely to get remotely. I seem to recall that Steve Jobs deliberately had the Apple HQ designed to ensure these random meetings occurred.

For a company to work effectively the different departments need to cooperate well together. Remote zoom meetings tend to limit the interaction with other departments and there is more risk of a silo mentality.

Richard Darlington

just taking it all in at the moment Oxford biomedica is of interest to me cos I have a few shares

just having a look round interested in Oxford Biomedica cos iv got a few of there shares

Small Cap Value Report (Wed 29 Apr 2020) - DIA, NWF

Dialight (LON:DIA)

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Paul Scott

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