Small Cap Value Report (Wed 6 June 2018) - RDL, TCN, CPR, MSI, AMO, HVN

6th Jun '18 by Graham Neary

34 comments 12907 reads

Morning folks.

These are the stocks which have caught my eye today:

Ranger Direct Lending Fund (LON:RDL)
Tricorn (LON:TCN)
Carpetright (LON:CPR)
MS International (LON:MSI)
Amino Technologies (LON:AMO)
Harvey Nash (LON:HVN)

1pm edit: Lots of interest in Amino Technologies (LON:AMO), so I'll be taking a look at this, too.

Cheers,

Graham

Ranger Direct Lending Fund (LON:RDL)

Share price: 797p (unch.)
No. of shares: 16.1 million
Market cap: £128 million

Oaktree releases open letter to Ranger shareholders

Some (most?) of you are probably familiar with Howard Marks of Oaktree Capital. He runs an alternative investment firm with particular expertise in high-yield bonds, distressed debt, etc.

Marks has become well-known through his published memos (available here), containing a great deal of investment wisdom.

His memos have also been published in book form: The Most Important Thing: Uncommon Sense for the Thoughtful Investor, which I enjoy reading and am happy to recommend. His value-oriented philosophy can be applied to pretty much any asset class.

So I was intrigued to discover recently that Marks' firm has been engaging in some activism in relation to a small British investment vehicle: Ranger Direct Lending Fund (LON:RDL). (Note that Marks himself is unlikely to be heavily involved in this project.)

Oaktree has bought up 19% of Ranger and is now pressing for Board representation, with the view that a wind-down would be in the best interests of all shareholders.

What went wrong

Ranger's strategy has been to invest in a portfolio of debt obligations issued by direct lending platforms, and distribute quarterly dividends to shareholders.

In USD terms, the returns generated by Ranger on capital deployed over the last three years is as follows:

2015: 9.36%
2016: 5.53%
2017: -2.95%

One particular investment has gone very badly, the "Princeton Alternative Income Fund LP".

This was unfortunately a very large investment relative to the size of the fund as a whole. $55 million was originally invested…

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AlanJenkins2

6th Jun '18

I agree.However,they are cheap in relation to the rest of the market,so I am holding.

Graham Neary

Hi Paraic, no worries about hogging the comments!

Yes, the company said nothing about steel today. In the outlook, it guided for "further significant progress." Maybe it's not affected by tariffs? Good question, though.

dahokolomoki

I really think Amino Technologies (LON:AMO) could have done a better job with their trading update today, in providing more concrete evidence of why they think H2 would come good. This poor communication is definitely not going to help the SP next few months.

I still think that this share is a great macro play. All telco and media players are getting pressure now to invest in nextgen hardware for their customers, which has been enabled by faster broadband speeds. Also customers will be demanding UHD and 4K content increasingly, now that TVs support it as standard. This can only be delivered over IPTV.

The key risk with Amino is that revenues will always be lumpy, due to the B2B nature of the business.

I like the update today. No change from strategy and plan from last update, things progressing well.

We won't see the benefits in this year's financial results, but next year should be pleasing.

A lot of interest in Amino Technologies, so I'll take a look at it! G

rhomboid1

I was at the Billington Holdings (LON:BILN) AGM on Monday & we discussed steel / trump etc..for the record they had no concerns..steel prices in the UK are not likely to see an impact , they thought that given the constraints on US steel production..big users will simply pay the tariffs ...steel prices in the U.K. are likely to be stable as continental steel uses a higher component of scrap for legislation reasons than UK steel producers so U.K. steel is more niche & higher up the value chain. Useful research here http://www.nass.org.uk/Publications/Publication4410/Atradius_Economic_Research_Trump_tariffs_Mar_2018_ern032202en.pdf

MarkOR

Thanks for your comments on Ranger Direct Lending Fund (LON:RDL), Graham. I see it as a stock with little downside risk (from current price), good ongoing dividend yield (c.100p a year on 800p price) and a 10% capital upside if they sort out the current mess. The rest of the portfolio (ex Princeton) is in decent shape and delivering ROA of 12-14%, which in turn "spits out" 8% divis on NAV after taking into account fees etc. Never going to be a five bagger, but certainly a strong risk reward (relative to cash in a 2-year duration, high interest bank account). I hold.

Mrken

EMIS
Just used their updated Patient Access App for the first time.
Definitely not as good as before.

Mrken

Impvesta

I sold out of AMO first thing this morning on the back of the trading statement. Would have liked more guidance on what the Directors' expectations are. Seemed a bit lukewarm to me and I'm happy to bank a small profit and move on.

Cheers Mark. That sounds like a useful synopsis you've given. Good luck. G

Hi Newbie, I've had a go at Amino Technologies (LON:AMO) although it's my first time looking at it so apologies if my review of it was a bit basic. On balance, I would give management the benefit of the doubt re: the second half weighting. A judgement call, though.

Bezhe

I enjoy reading these articles and comments but sometimes I get a bit grumpy, especially about spelling. So this is a special request to Graham to spell it as "defence". Even though I share Graham's nationality, I'm a traditionalist regarding English usage; hence "licence" (noun), "license" (verb) etc. (I'm sure Graham has fond memories of the Irish Leaving Certificate exams - which started today with English.)

Bezhe, I have granted your request. Typo's and misspelings annoy me too, so please feel free to let us know if you spot any more. Thanks :)

Laughton

Well yes, I too like correct spelling but I think you have to allow some leeway. He accomplishes an awful lot in a short time and spellcheck doesn't always pick up everything.

Full proofreading and editing would only result in long delays and I think most on here appreciate reading comments on today's announcements today rather than some day in the future.

shipoffrogs

Shouldn't that be - typos?

dgold

And "misspelings" is actually a misspelling.

back2value

7th Jun '18

You seem to have missed Graham's tongue being clearly in cheek there...

newbieinvestor

Thank you Graham.

As is always the case, it’s about the level of trust one has in the management team and their ability to correctly and honestly tell us the situation re. H1/H2 weighting. Lets hope for the holders out their, including myself, that they are correct.

simoan

As is always the case, it’s about the level of trust one has in the management team and their ability to correctly and honestly tell us the situation re. H1/H2 weighting. Lets hope for the holders out their, including myself, that they are correct.

As a former holder of Amino Technologies (LON:AMO) I would actually trust the management "current expectations", even though the TU was not the best worded statement you'll ever read. IMO they have executed well enough over the past few years (despite a sales blip) to earn my trust.

It's quite possible they will have a blow out H2 (£50m revenue) to meet current estimates for the full year, but at the same time the risk is now much increased that they won't. Who's to say the major customer won't "re-phase" product delivery again? I like the company, and the market they operate in, but I sold first thing yesterday and will wait to see what they say at the interims in July.

All the best, Si

herbie47

Amino Technologies (LON:AMO) not sure I would trust them after what happened in 2015, interims results were good: Adjusted operating profit up 56% to £2.8m (H1 2014: £1.8m) before exceptional items. The outlook was very promising:
"Today's results mark a real turning point for Amino. Following a significant amount of hard work, and thanks to a clear and well thought-out strategy, our business has reignited its organic revenue growth, extended its margins and profitability, and begun to put in place some very exciting building blocks for the future."

3 months later issued a profit warning.

If I was a holder I would sell and watch.

Small Cap Value Report (Wed 6 June 2018) - RDL, TCN, CPR, MSI, AMO, HVN

Ranger Direct Lending Fund (LON:RDL)

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Graham Neary

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