Small Cap Value Report (Wed 3 Apr 2019) - placeholder

Wednesday, Apr 03 2019 by

Good evening/morning, it's Paul here, with the usual placeholder.

Before we start, I'd just like to thank a smashing group of Twitter investor friends, who held a barbeque at Bertie's place recently. I was told yesterday that they held a whip-around, and raised £130 for ZANE - the small but remarkable charity which I recently visited in Zimbabwe, on a fact-finding mission. What a lovely initiative, thank you!

Once I get my act together, I'll share some more of the amazing experiences in Zimbabwe a few weeks ago, as a guest of ZANE. It certainly was not a holiday. It was a privilege to witness what this amazing little charity does to deliver humanitarian aid to mainly destitute pensioners in Zimbabwe - many of whom served the Crown, the "forgotten legion" of Commonwealth soldiers of all backgrounds, & their widows, which Tom Benyon has campaigned for. I'm sure my visit only scratched the surface of things there, but it really was inspiring. These people really do deserve our support. I had no connection with Zimbabwe beforehand, but definitely feel a connection now that I have visited.

There is also the complicated & confused history to consider. As more than one person told me, "If you think you understand Zimbabwe, then you need to do more research!"

NB. I paid for my own flights, whilst everyone from the charity flew economy (ZANE's policy, but definitely not my policy for long haul flights!) from Jo'burg to London. "You bastard!" was jokingly mouthed to me, with broad smiles on both sides, by one of my great pals from ZANE, as I joined the business class boarding queue on the way home, for the 11 hour flight back to London.

Having seen some of its operations on the ground, and the lives being saved literally every day, for small amounts of money (e.g. $25 per month per person for essential medicines, or even small grants for food), I cannot emphasise enough how a little money will go a long way, if you can spare anything for ZANE, please do so with this link.

The best thing, is if you can commit to a regular amount. A monthly donation is amazingly valuable, as it allows ZANE to commit to helping someone, often for the rest of their life (it specialises in helping destitute pensioners). Everyone is means-tested.

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43 Comments on this Article show/hide all

Wimbledonsprinter 3rd Apr 4 of 43

Richard Kellett-Clarke, only last week moved up to non-exec Chair of dotDigital (LON:DOTD) (I hold), following the resignation of Frank Beechinor. Today Kellett-Clarke resigns as Chair “due to personal matters in his other directorship” - presumably meaning IDOX (no position). In the Idox (LON:IDOX) RNS, it stares today that Kellett-Clarke is resigning as an NED “to focus on other business interests”. (So not much clarity there.).  Kellett-Clarke had stood in as interim CEO at IDOX until mid 2018 and I note that several employees have recently been suspended at IDOX, following the uncovering of historic “contract irregularities”.

As usual in these situations, it is left to investors to guess/ imagine what is really going on. I have decided (rightly or wrongly) this has no effect on dotDigital (LON:DOTD).

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Leonmoon 3rd Apr 5 of 43

Lighthouse (LON:LGT). Offer price looks a little disappointing. I know AFHP were circling a while back. Worth holding on for a counterbid?

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john652 3rd Apr 6 of 43

Lighthouse (LON:LGT)

Lighthouse , i find these situations highly suspect. Here we have a business that in its reports is very upbeat, great opportunity to grow blah blah, I mean etc etc and they choose to recommend a bid to become part of something else rather than run their own show, at a small premium to an already lowing share price.

So my question is what’s in it for them, a lot I suspect, as if it is such a great business, load up on share options at these cheap prices & send the bidder packing, 3 years time they will be heavier & worth more as they clearly state in their ‘ opportunity for growth’ blah blah’s.

I don’t know about the other 40% who pledged support.

Am I cynical here, yes, unjust, maybe, bothered to read more about this deal nooo.

I can’t remember the company I held where this happened before but feels similar. I hold so the raise is welcome but not the reasons. Small caps I guess.

Counter bid? seems very sown up rather than ‘we have received a bid, we are in play’.

That said Leonmoon, always worth holding until the end (unless revolution bars :)

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Ramridge 3rd Apr 7 of 43

CMC Markets (LON:CMCX)

Today's trading update shows a further decline in forecast 2019 results.
"As a result, CMC expects to report CFD and spread-bet revenue of c. £110 million for FY 2019, 37% lower than the prior year, and net operating income of c. £131 million."

I would be interested to hear Graham's view as he covers this stock (and he is invested).

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john652 3rd Apr 8 of 43

Photo-Me International (LON:PHTM), I quite like this company, has risks but diversified into laundry which seems to be doing very well, lots of cash, high drepreciation policy, bumper yield, long term management who hold shares. A comment last time was was why so much debt if they produce so much cash.

After some investigation a reliable source tells me it is €30m loan raised at under 1% fixed for 6 years, not libor+, fixed under 1% !! Acquisition?

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ambrosia 3rd Apr 9 of 43

Topps Tiles Topps Tiles is reporting today

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Snoo 3rd Apr 10 of 43

In reply to post #465041

Yes, I remember commenting on Photo-Me International (LON:PHTM).

It would make sense for them to make acquisitions, as it does appear that their laundry business is still in its infancy. I would think to gain market share they would need to start buying up family operations which already have great locations (I think CVS group had the same approach to vets). They could probably get these businesses at very low cost.

What irks me a bit is that it seems that the dividend is not sustainable here if there are going to be costs in expanding.... it is fair to say that with mobile phone camera technology continuously improving the photo-booth business is in structural decline. The machines are all over the shopping centres, but I do wonder in a couple of years something else might fill their place.

So I guess longer-term it depends on what your outlook is for laundry. I am not a fan of it, I think its a rather low-tech business with limited potential. I can't see how demand for that product will increase in the long-term and may even decrease over time with technology.

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tabhair 3rd Apr 11 of 43

Any thoughts on M Winkworth (LON:WINK) - it reported today and looks a cracking business that has defied all the general UK property malaise and generates a huge amount of cash flow for its size. For the record, I own it.

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janebolacha 3rd Apr 12 of 43

In reply to post #465051

Snoo, Photo-Me International (LON:PHTM) do not buy up existing laundry operations. Instead, they put their machines into locations such as hypermarket or supermarket car parks or next to carwash units, locations with existing high footfall but requiring no high capital investment. People can load in their washing, then go and do their shopping or fill up their car while the wash is done. The machines are relatively advanced and of large capacity. My nearest small town in France has two installed locations, one right next to the Leclerc carwash and filling station where people go for cheap petrol before or after doing their shopping, the other a couple of km away on a junction next to a different carwash station and close to the Action, Super U and LIDL shops. This is in a small market town of only 6,000 inhabitants but with a catchment area two or three times greater than that. I would imagine they have their cost model very carefully worked out and that capital investment requirements would be quite small in terms of individual locations with any poor locations being able to be quickly and easily closed.

(Not now a holder, having been so previously)

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Snoo 3rd Apr 13 of 43

Maybe I'm mistaken, but I remember looking at their brochure:

The 'Laverie' type thing seems to be a location, and it would be ideal to just convert from existing operations as these would already have an existing clientele.

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janebolacha 3rd Apr 14 of 43

In reply to post #465076

I shouldn't think Photo-Me International (LON:PHTM) would need to buy up existing operations, they would not need to invest capital that way. In bigger towns, there may well be some street locations for reasons of parking and accessibility but they would, imo, likely be existing shop locations (really any kind of shop) rented by them or by others and then fitted out anew. There would, imo, be no need to lay out capital to buy existing locations from existing operators. To do that would rather undermine the low capital model they have developed.

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Snoo 3rd Apr 15 of 43

In reply to post #465081

I agree, that Photo-Me International (LON:PHTM) shouldn't, but if the buy price is extremely low, why not?

In my view, some towns are better suited than others to have a laverie. But these towns would be very likely to have one already, and it doesn't seem to make much sense to add another one. A bit like seeing a lucrative bus route, and adding your own to compete, it would be better long-term to simply buy the existing one.

I did have a look at the machines as they installed one at a Shell station near me. I have to disagree and I think they are very low-tech, the last time I did any washing in a pay machine was over 20 years ago and it seems little has changed.

Let me ask, what happens if you pack all your stuff and go to the washing machine, only to find a couple of people already loading the wash into the machines? Or if some selfish git decided to leave their washing in for 2 hours instead of 1 because that was how long their shopping took?

It would have been better off if these machines were internet connected, so by loading an app you could see how long it had remaining, and also pre-paying for slots, which would be possible by using a PIN code to start the machine. This is nothing high tech at all, but would instantly give some kind of differentiating advantage over the old-style shops.

Also a former holder, but I probably will not be back.

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herbie47 3rd Apr 16 of 43

In reply to post #465071

Hi Jane,
I had a look on their website for locations near me and was surprised there are some, the 3 nearest are all in small petrol stations, one in the country, one in a small town and one in a seaside village, I would have thought none have a high footfall. I don't agree about doing your washing while you fill up unless they are very high tech and can do the washing in about 10 minutes. I would have thought a supermarket car park would be a much better location for these. What has happened to the photo business they bought from Asda, the one in my one closed soon after they took it over. That is when I sold my shares. The photo booth is a declining business, many visa and passport photos you can just use a phone or tablet image now. Not convinced about the laundry business, more people have their own washing machines now. £4 - £8 sounds a lot of money to me for one wash.

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rhomboid1 3rd Apr 17 of 43

In reply to post #465101

Re Photo-Me International (LON:PHTM) if there was one near us I’d be a frequent user ...only way to wash the dog beds as they’re too big for even the biggest domestic washing machine...same argument for equine folk I guess

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peterg 3rd Apr 18 of 43

In reply to post #465051

What irks me a bit is that it seems that the dividend is not sustainable here if there are going to be costs in expanding.... it is fair to say that with mobile phone camera technology continuously improving the photo-booth business is in structural decline. 

I've not been a close follower of Photo-Me International (LON:PHTM) but had worries in the past about the future of the photo side of the business. The threats to that business were bought home to me recently when I renewed my passport. The photo was taken on my mobile against a wall in my house. The passport office software trimmed and approved it automatically. All done in a few minutes. Why would I ever use a photo booth again?

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Zipmanpeter 3rd Apr 19 of 43

In reply to post #465101

Re Photo-Me International (LON:PHTM) - I think their Laundry business, led by Revolution machines, has strong potential. Revolution operations are focused on big laundry loads especially including large items like duvets. These are not easily handled at home where typical machine size is only 5kg-7kg. They are located in easy to park places makes like Supermarkets ie these are NOT old style 'student' laundromats (although some places may support Revolutions in these kind of places.

They do also have Laundrette businesses eg La Wash acquisition in Spain and B2B operations - see P21 of analyst powerpoint presentation, July 18)

The financial model for Revolution has been clearly tested and the market is there - in previous presentations, the company has shown the revenue per year per machine at >16,300 Euros pa/unit . I agree they can evolve and provide more advanced services eg App showing when free or to make them reservable would be good - who wants to drive 5miles with smelly laundry to find the machine full. But these are potential developments not barriers to success; this is proven already.

It is strategically advantaged in doing this because it already has a network of contacts with space (eg Supermarkets with photobooths desperate for additional footfall and with utilities in place) plus service engineers and remote machine experience. Utility and vending companies probably could compete but don't - it is a classically boring but profitable interest area). Machine CAPEX cost is coming down in new machines since Dec 18. These machines are also adding softener and from a smaller footprint to further manage yield up. Adding 80 machines/month to an estate of >4500 with a target of 6000 by 2020 and (IMHO) a huge global opportunity to go global.

However, the (Revolution) laundries are only a small part of the total group. They are also experimenting with acquiring laundry companies for B2B (La Wash April 2018) and traditional-style B2C consumer laundry ops. This is a nice adjacent expansion area if the the laundry business really gathers steam. So if the laundry business were standalone one, I would buy.

However, much the biggest part of the Group revenue (more than 3/4) remains in photobooths. This is at high risk of sudden technical and regulatory obsolescence. For this reason, I remain nervous about investing in them and have not bought.

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JamesrWilson1989 3rd Apr 20 of 43

I've used Photo-Me International (LON:PHTM) beforehand - the machines are great for bulky items that wouldn't fit in your own washing machine , or washing something like the dogs bed, or staying in a local Air BnB that doesn't have a washing machine.

So I think there is a market out there for them but its very low tech, low barrier for competitors to enter the market.

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InvestedGeordie 3rd Apr 21 of 43

In reply to post #464956

You were a supporter as of last Saturday ;)

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DJCP 3rd Apr 22 of 43

Off-topic with regards to shares, but just received an email from Stockopedia, stating that the SCVR will only be available to subscribers from 12th April, along with all the other editorial.

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rhomboid1 3rd Apr 23 of 43

In reply to post #465136

But now DD so fully on board;-)

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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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