Small Cap Value Report (Wed 7 Jun 2017) - FREE, SHOE, SRT

Wednesday, Jun 07 2017 by

Good morning! It's Paul here.

Ed's charity bike ride

The boss here at Stockopedia, Ed, has signed up for a remarkable charity challenge, which is happening this Friday. Ed is attempting to cycle from London to Paris - in 24 hours - that's 300km. He's not even a keen cyclist, although has been putting in some serious training. It's a mind-blowing challenge, and would probably kill most of us just attempting it. Therefore this project clearly warrants our full support.

The charity concerned is raising money to find a cure for a disease called Duchenne. Friends of Ed's have a son with this condition. The explanation on Ed's charity fundraising page is very moving - one can only imagine what this child's parents (and others) have gone through, watching helplessly as their young child's health deteriorates.

As I haven't done a charity fundraiser myself for some time now, I'm feeling rather guilty. Hopefully SCVR readers will swing behind Ed, and donate generously. After all, Ed has paid me a fee for 4 years now to write these reports, which are free to read (not part of the subscription). So supporting this amazing charity challenge would be a nice way to give something back, to a very worthy cause. And most of us have done very well in this bull market!

So, good luck Ed!  I hope he emerges in one piece from something so physically gruelling. I very much hope he doesn't injure himself, so fingers & toes crossed.

Here's the online donation page link again.

On to the markets. It's General Election day tomorrow, 8 June 2017, so I'm almost wondering whether it's worth reporting on individual companies today! - will anyone bother reading my article on a day like today?!

We're seeing quite a few erratic price movements, and profit-taking in small cap stocks which have done very well in this bull run. I'm wondering how many of the sellers are intending to buy back on Friday, if the election result looks positive for the markets? (i.e. a workable Tory majority, which the markets perceive as equating to stability & generally more business-friendly policies)

These violent price moves in some small caps are a timely reminder that you can incur a hefty percentage loss very quickly, when there's a rush for the exit. A lot of small…

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FreeAgent Holdings plc is a holding company. The Company is a provider of cloud-based software-as-a-service (SaaS) accounting software solutions and mobile applications designed specifically for the United Kingdom micro-businesses. It is engaged in the development and provision of the FreeAgent SaaS solution. With its software, its offering streamlines financial management, bringing together invoice and expense management to value-added tax (VAT) and payroll. It even enables users to automatically generate and submit their self-assessment tax return filings to Her Majesty's Revenue & Customs (HMRC). Its SaaS solution comprises various features, such as core invoice generation and bank reconciliation functions. Its SaaS solution is also integrated with other suppliers and an application programming interface and associated developer portal to enable third-party developers to exchange data between the Company and their own products. It offers its services through its product platform. more »

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Shoe Zone plc is a footwear retailer in the United Kingdom and the Republic of Ireland. The Company offers women's shoes, men's shoes, boy's shoes and girl's shoes. The Company's online offering combined with its store network enables customers to shop through multiple channels. The Company operates from a portfolio of approximately 550 stores. Its customers purchase all of the products available in stores, as well as an additional approximately 400 product styles. The Company sells over 20 million pairs of shoes per annum. The Company has operations in various countries, including Germany, Italy, Spain and France. The Company's distribution center is located in Leicester, England. The Company's subsidiaries include Castle Acres Development Limited, Shoe Zone Retail Limited, Zone Property Limited, Zone Group Limited, Shoe Zone (Ireland) Limited, Shoe Zone Pension Trustees Limited, Stead & Simpson Limited, Zone Footwear Limited, Zone Retail and Walkright Limited. more »

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SRT Marine Systems plc, formerly Software Radio Technology plc, is engaged in the marine technology business. The Company's principal activity includes development and supply of automatic identification system (AIS)-based maritime domain awareness technologies, and derivative product and system solutions for use in a range of maritime applications from safety and security to fishery management and environment protection. AIS is a mesh network radio communications system technology specifically designed for the marine domain, and it uses a combination of global positioning system (GPS) and high frequency radio to enable real time, simultaneous data communication between multiple, independent entities providing information, such as identity, GPS position, speed and other customized data. It offers a range of AIS products and maritime domain monitoring system solutions, which also fuse other maritime sensor technologies, such as radar, closed-circuit television and communications. more »

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32 Comments on this Article show/hide all

Aislabie 7th Jun '17 13 of 32

In reply to post #192034

I am very happy to back a great cause and best of luck for the ride.
I was disappointed that in giving, even through PayPal, Virgin Money Giving has its sticky information collecting hands all over it (and their terms and conditions suggest that they are not going to be shy about using and passing on the data collected).
I think they should be paying commission to Duchenne rather than charging them!

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JohnEustace 7th Jun '17 14 of 32

In reply to post #191954

I have a USD account with TD Direct. It's a trading account and not an ISA. I only hold large caps in it so not sure about micro caps. If you name a couple of companies I can take a look for you to see if I would be able to buy them.

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Beginner 7th Jun '17 15 of 32

In reply to post #192094

Yup. Mainly from suppliers in Leicester.

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Ajay_Gajree 7th Jun '17 16 of 32

In reply to post #192119

Thx a lot John

The two on microcaps front page are WLDN & STRP

Best regards


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seadoc 7th Jun '17 17 of 32

Boohoo.Com (LON:BOO) The second RNS is interesting, the sale of additional shares is presumably already agreed with institutions but after such a good update why would the directors want to sell 36m shares, worth nearly another £100m in the next 16hrs? Been watching for some time, Mr Market will probably disagree, share price may/will   and hopefully Paul will comment in the morning.

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InvestedGeordie 7th Jun '17 18 of 32

Hi Paul, if you are feeling like it tonight, I'd really appreciate your thoughts on Ramsdens Holdings (LON:RFX) as they released finals today. Thanks

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back2value 7th Jun '17 19 of 32

Seadoc, I disagree - the question is "when will SRT start getting paid for its big national systems?" When it does, there's a good prospect for a significant upward move in the share price. The current debtor issue, however, is a sobering reminder that it may not all be plain sailing. B2V

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JohnEustace 7th Jun '17 20 of 32

In reply to post #192134

At first sight, those both seem to be buyable on TDD. I can't be sure without buying some, but they come up on the search with Buy buttons next to them. You can search investments on their website without an account.

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Ajay_Gajree 7th Jun '17 21 of 32

In reply to post #192164

Thanks a lot John, gives a place to start :)

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topvest 7th Jun '17 22 of 32

Think you need to look at the adjustments on the SHOE results. PBT has gone from £1.9m to £0.3m if you add these back.

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seadoc 7th Jun '17 23 of 32

In reply to post #192159


" big national systems"

If they shore-based then I stand corrected, Belgium does have a lot of canals.

" it may not all be plain sailing"

Did a bit of that, hence my (misguided) comments.

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jonesj 7th Jun '17 24 of 32

In reply to post #192119

John, is your USD account with TDDirect any different to their normal trading account that allows purchase of US stocks ?

I severely dislike their 1.5% spread on forex. This is somewhat mitigated by the ability to sell US stocks & keep the money in USD for the next purchase.
However, even there they pull defeat from the jaws of victory by only allowing us to purchase stocks to 90% of the currency value, just in case of forex movements.
It's complete nonsense, considering the total funds I have with TD Direct are always about 20 times even the largest trade I tend to make. I have enough assets to cover any liabilities, so they should allow me to spend at least 98~99% of the cash. This is never a problem with domestic stock purchases.

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jonesj 7th Jun '17 25 of 32

I was about to make the modest default donation to the editor's charity ride.

1 I clicked the Paypal option, on the assumption it would be quicker. They came up with a sheet offering credit at 17%. I think the button at the bottom was just to pay with cash from my bank account, but it was not completely clear, so I backed out of that option. [Slightly alarming to see such confusion, since Paypal is my largest US holding]
2 The debit card option has 5 pages to register. Virgin Money need to streamline their process.

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JohnEustace 7th Jun '17 26 of 32

In reply to post #192214

Hi jonesj,

I haven't run up against that issue so far. I only hold US stocks in my account, which I opened earlier this year because of the high forex fees trading US stocks in my existing SIPP or ISA. I was looking for an account that lets me keep my funds in USD which is not allowed in an ISA.

I paid in GBP to my account and then transferred them into USD, which wasn't cheap (and it took a few days before the funds were available to trade) but I'm hoping it will be a one off hit as opposed to every trade. I then bought my US stocks. I only have about $300 left in cash so possibly I didn't hit the 90% barrier because my funds were already in USD before I started buying?

I haven't sold anything yet because they've all been doing OK even in sterling terms so can't comment on that aspect.

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FoolishBen 8th Jun '17 27 of 32

In reply to post #192144

I wouldn't worry too much about this. The CEO and biggest shareholder, Mahmud Kamani, has given himself the leeway to sell up to 11.3m of his 199m shares. That's less than 6% of his holding so I think it's safe to assume this relates more to his desire to start living like a multi-millionaire and less to do with him thinking the shares are over valued. Fair play to him (and the other directors) if you ask me. They have created a truly revolutionary and successful company, along with a lot of wealth for their shareholders. I think they deserve to enjoy some of their hard earned spoils. They have plenty of skin left in the game to stay motivated.

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Cisk 8th Jun '17 28 of 32

In reply to post #191929

John, I'm probably (overly) interested in this, purely from analyzing my own actions over the years, and like you, have a propensity to avoid re-investing in shares I've previously owned.

From a logic perspective, this is crazy. After all, the chances are you've already done the research and know the company already. So why chuck the baby out with the bathwater, just to invest in something new and unknown?

From my own investing over the years, it's abundantly clear that every dog has its day, some will go on to great things, some will come crashing back to earth and lose money. Timing, is of course, everything. But you might catch a stock you've lost money on, that's 'on the up'. I've lost count of the stocks that I've sold out of, only to see a few years hence that they recover and then surpass the price I sold them at. Or they go bust! So in my view, it's heavily skewed towards a binary result.

Anyway, this long-winded waffle from a night-time in LA, is purely is to say that:
1. Never discount a stock you've owned previously, you may well be able to make money off them, after all, you've already have done the research
2. Don't confuse this with catching a 'falling knife'. I'm not talking about averaging down. More revisiting old strategies, back testing them and see if they still hold true.

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FREng 8th Jun '17 29 of 32

Thursday 8 June:

SCISYS (LON:SSY) (which I hold) issued a positive trading statement this morning as its AGM statement. SSY appears to have fiully recovered from the project overrun that led to a profit warning over a year ago and to be making further progress. They have a good set of customer relationships and a strong track record in space applications in particular. Mike Love has always been cautious in his forecasts (which is why I still hold Dillistone (LON:DSG) and I'm thinking about buying more after the price fall) so I expect broker forecasts will improve after today's statement.

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alterego 8th Jun '17 30 of 32

In reply to post #192079

SRT is clearly not a stock that everyone understands well.Talk of sales to yacht owners and Belgium misses the point. Yes, SRT does sell equipment to boat owners but all of it will be sold via a dealer who buys the stock from SRT. Belgium is not so far as I know a major buyer of SRT kit although perhaps some European dealers are registered there. It's also possible that the Inland Waterways mandate has some connection with Belgium but it's certainly not the Belgium government shelling out.

The Middle East is a major territory for SRT sales but it is governments not boat owners driving sales. Bahrain unlike many of SRT's customers has been prepared to go public and have been very helpful as a reference for other buyers of which we know that Saudi is one of 3 others. The total value of these country specific projects was estimated last year by SRT at $95m.

It is important to note that SRT is no longer just a box seller although individual AIS units are sold via dealers. Many of these are not branded as SRT but will be sold under a number of well known marine electronics brand names. This is just one facet of a business that has become the leading supplier of complete systems which include the boxes that are fitted on boats, coastal station equipment to receive signals, buoys that not only transmit an AIS signal to alert shipping but which also signal weather and tidal data amongst other information.

Key to SRT's success in winning business from governments is its ability to supply all the elements that make up the system including the innovation display software called GeoVS. Half of all SRT R&D is now focussed on adding functionality that allows the operator to identify targets of interest and fuses AIS date with radar, sea charts, weather and tides. This allows SRT to provide a package of equipment which also includes the ability to feed the system with AIS data detected by satellite far out to sea, well beyond the reach of shore based stations.

Last year a contact was announced to supply a complete marine domain awareness system to a country in Asia. This project was subsequently paused to allow the end customer to redefine the scope of the project and we have been told this is now in the sign off stage and could lead to an increase in the size of the project which was previously in the region of $100m. This led to a significant outstanding payment which SRT believe will be paid once the scoping revision is complete as it reflects the definition of the project targeted in phase 1. Although the identity of the country involved has not been disclosed by SRT, keen SRT watchers are convinced it is Indonesia.

Increasingly national authorities need to be able to monitor their waters to prevent illegal fishing and to defend themselves against sea born terrorism. This has led to a number of potential projects which SRT calls the VSO (verified sales opportunities) which have progressed far enough to be considered realistic and warranting active involvement in pre contract planning. At least 3 other Asian countries are part of the VSO pipeline along with 2 in Latin America.

Large projects do not come to fruition overnight. Bahrain spent a year trialling equipment and another 6 months in contract negotiations. This causes investors to become impatient and lose interest but the work going on out of sight is real and we have been told significant progress has been made this year.

Basing an investment decision on SRT's EPS today overlooks the significant future revenues that are implied by the project pipeline being developed. Of course there's no guarantee that all of of the pipeline will occur but I'm convinced that SRT are the only company capable of supplying an end to end system that meets the needs of national authorities. To me that means that if a country wants to monitor its maritime domain, SRT will be the company they talk to first.

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muckshifter 13th Jun '17 31 of 32

In reply to post #192539

The point you make about the anticipated revision of the major contract, assumed to be Indonesia, is exactly what I was anticipating in this post in the SCVR of 13th April:
"I agree with you kalkanite about the potential future workload for SRT. In particular, I think everyone tends to concentrate on thinking about "new" contracts with "neighbours" generated by the success of installed systems in regions, whereas I'm also interested in the potential for huge extensions to existing work.

The contract with Indonesia is a particularly interesting one to me. I very much doubt if the contract as currently issued covers more than a small fraction of the coastline and territorial waters of a nation with more than 18,000 islands stretching over thousands of miles in both directions, and a history of internal unrest. So, my hope is that this contract provides an extremely impressive system to Indonesia, leading to a series of similar contracts to increase national cover. The Philippines is a very similar country - don't know if SRT are involved with them at all, but hope they are.

IMHO, the downside to all this potential, is the fact that two of the best potential state customers (Indonesia with 18,000+ islands and Philipines with 13,000+ and I gather that the latter is well along the path of verified potential contracts), both stretched out on a huge scale, are among the world's most corrupt countries.


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herbie47 13th Jun '17 32 of 32

In reply to post #193731

Philippines has about 7,600 islands (only about 2,000 are inhabited) Indonesia has about 13,000 islands.

But terrorism is a real problem in the Philippines, quite a few terrorists were recently killed on Bohol in attempted kidnapping.

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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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