Small Cap Value Report (Wed 9 Oct 2019) - RCN, TCN, VTU, FAN, CDM

Wednesday, Oct 09 2019 by

Good morning,

A few bits to cover today.

Redcentric (LON:RCN)

  • Share price: 85.9p (-0.1%)
  • No. of shares: 149 million
  • Market cap: £128 million

Trading update

This is a simple one: trading in line with expectations.

Redcentric is a managed IT services provider that offers the IT/Cloud services you'd expect from a mid-sized group.

Net debt is light, at £16.5 million - no major surprise, then, to see that RCN is paying out dividends and also buying back £2 million of its own shares.

Net debt has declined over the past year despite dividend payments and "an acceleration of network and infrastructure capital expenditure in the period."

While reported net income has been nothing to write home about in recent years, if this company hits its forecasts from now on then it will offer decent value at current levels.


Tricorn (LON:TCN)

  • Share price: 11.2p (-38%)
  • No. of shares: 34 million
  • Market cap: £4 million

Trading Update

I'm not going to bother covering Alpha Financial Markets Consulting (LON:AFM), which was in the original list.

Let's move on and see if this announcement from Tricorn is worth looking at.

Paul covered the company in April. His summary opinion was:

It's difficult to get excited about this - a small engineering group, with a bit too much debt, is not going to attract a high rating. 

Deary me.

Today's announcement is a nasty one. Let me put the problems in bullet form:

  • USA demand "broadly in line with expectations"
  • USA margins are down, due to tariffs on Chinese imports. Tricorn phrases this elegantly, saying there is a "lag" between the imposition of these tariffs and its negotiation of higher prices with its own customers.
  • UK demand "slowed significantly", with H1 revenues down 12%.

The upshot is…

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All my own views. I am not regulated by the FSA. No advice.

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Redcentric plc is a holding company. The Company is engaged in supply of information technology (IT) managed services. The Company's segments include Recurring, Services, Product and Central. The Company's Recurring segment is engaged in the provision of its services to customers under long-term agreements, including data, connectivity, hosting, cloud, and support services. The Services segment is engaged in provision of consultancy, or installation services regarding the provision and set-up of a new service. The Product segment is engaged in the sale of third party products, which comprises hardware. Its services include Network Services, Collaboration Services, Infrastructure, Applications Services, Security and Mobile. Through Internet protocol (IP) telephony, messaging and video conferencing, it helps organizations enable communication among their staff. It offers a suite of Cloud services, as well as colocation, data management and virtualization services. more »

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Tricorn Group plc is a holding company. The Company holds interests in companies that develop and manufacture pipe solutions. The Company's principal activities include high precision tube manipulation and systems engineering. The Company operates in two segments: Energy and Transportation. The Energy segment includes manipulated tubular assemblies for use in power generation, oil and gas, and marine sectors. The Transportation segment includes ferrous, non-ferrous and nylon material tubular assemblies for use in on and off-highway applications. The Company also offers rigid, nylon and hybrid tubular products for engines, braking systems, transportation lubrication, fuel sender sub-systems and hydraulic actuation in a range of on and off road applications. The Company offers brazed and welded assemblies, tube hose assemblies and diesel injector lines for medium and heavy duty truck engines. It offers hydraulic tube assemblies and precision tubular products for the agricultural sector. more »

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Vertu Motors plc is an automotive retailer in the United Kingdom. The principal activity of the Company is the sale of new cars, motorcycles, and commercial vehicles and used vehicles, together with related aftersales services. The Company is engaged in the provision of management services to all subsidiary statutory entities. The Company operates a chain of franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles. The Company also operates various franchise dealerships, such as Volvo, Volkswagen, Land Rover, Audi, Mercedes-Benz and Jaguar, and operates Honda dealerships in the United Kingdom. The Company operates approximately 125 franchised and over three non-franchised operations across England and Scotland. The Company's subsidiaries include Bristol Street First Investments Limited, Bristol Street Fourth Investments Limited, Vertu Motors (VMC) Limited and Grantham Motor Company Limited. more »

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50 Comments on this Article show/hide all

JohnEustace Wed 5:45pm 31 of 50

In reply to post #520176

I’ve learnt the hard way that technology “fixes” for complicated issues where people can’t agree on the specs don’t help. If you want an IT system to work then simplify the issues first.

Anything else just postpones the necessary decisions and wastes lot of money on the likes of IBM consultancy.

The current benefits system comes to mind as an example.

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Trident Wed 6:06pm 32 of 50

I went to Eire for a lovely holiday with my wife (a foreign national with residency in the UK), and a relative of the wife who was a tourist visiting the UK.

Myself and the tourist relative didn't have to obtain an Eire visa, but my wife did?

We reached crossed a Motorway which went into NI, and I did wonder whether we should have a day trip there, but being worried in case some obscure visa breach came to light, and might harm my tourist relative or wife's status somewhere down the line, so we didn't do it. Obviously there was no visible restriction on us doing it.

It all seemed a bit topsy turvy, and as the taxi driver said the policy decisions made in Eire were often ridiculous (usual taxi banter!:-).

Dublin seemed at that time to have quite a reasonable eat European homeless/Romany begging problem, and again the Dublin Taxi driver said open European access wasn't all that! But then he didn't have a cushy job with Tax havening Apple/Google etc.

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timarr Wed 6:19pm 33 of 50

In reply to post #520191

I’ve learnt the hard way that technology “fixes” for complicated issues where people can’t agree on the specs don’t help. If you want an IT system to work then simplify the issues first.

I've spent the last 35 years designing some of the most complex IT systems on the planet, I know this won't really work, especially if governments are involved and they keep changing the requirements. But the whole thing's a compromise - it needs a face saving solution all round to move on.

Of course, that assumes everyone wants to move on ...


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peterg Wed 6:34pm 34 of 50

In reply to post #520051

The idea that the UK will not impose border checks is pure fantasy. They may claim all sorts things now, but faced with the reality that will unravel, just as promises of cake and eat it and easy deals did after the referendum. No checks will mean large scale smuggling (and it's quite likely that would-be paramilitary groups would benefit from that, as they have in the past). Plus the Ireland/UK border would be wide open for people to enter the UK without full rights. The papers and politicans who are promising no checks now would be the first to be demanding them within a few months of a No Deal - one of Johnson's few recent honest statements has acknowledge they would have to exist. And of course the EU would require them too, for exactly the similar reasons - to protect the integrity of the single market.

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Beginner Wed 7:05pm 35 of 50

In reply to post #520086

Hello FR.  You have an excellent and very clear understanding of the situation.  Few do! Pre-EU legislation guarantees Irish and British citizens equal rights in both countries: this includes rights to reside, claim benefits and receive medical treatment.  The EU can insist that measures are taken to ensure goods, people and services entering the RoI (and therefore the EU) are monitored and taxed.  This will destroy the Irish economy (as well as a very good chunk of the Northern Irish). For example my local creamery supplies all 'Irish butter' to Asda.  80% of the milk used comes from the RoI (and most of the tankers are driven by Bulgarians!!)  Waitrose source their 'British chicken' in large part from NI.  The birds are grown and processed in NI (largely by Slovaks), but half  the chicks are hatched and raised in the RoI.  

The border is  not capable of being monitored, and the UK has said it is happy not to do so.  A tariff war was engaged in in the 1930s, largely for political reasons.  It was instrumental in establishing three decades of Irish economic stagnation.   This time around though, EU money will immeliorate the problem, at least in the short term.

The current offer from the UK actually solves most of these problems, but the EU clearly see it as too generous to the UK.  We are at another impasse.

What to own in the current market?  Perhaps all the things we don't want to buy, but have to: insurance, tobacco, oil, gas and electricity.

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doublelutz Wed 8:02pm 36 of 50

timarr - without responding to all of your points you say "The same applies in reverse - the EU has to charge the UK the same tariffs as any other country trading with it on WTO rules. So somehow there needs to be some form of border check (physical or virtual) to prevent the NI border becoming a backdoor for tariff free imports into the UK/EU. The alternative is to have checks at the point of entry into the mainland, but that creates a de-facto border in the Irish Sea, which the DUP are opposed to, or with the Republic, which breaks the Treaty of Rome (and won't happen)".

Obviously you are well aware but if the Republic are importing goods from the UK they would not charge the UK but would add duties to the cost of the goods which the importer pays and which their government retains and which makes our goods more expensive. So good news for the Republic as far as their revenues are concerned. Whatever controls it needs to collect such duties does not seem to be something they should be worried about since this would be entirely in their favour.

If goods enter the Republic in Dublin and they come from, say, China then the importer will already have paid duties which would be the same as we would charge if they came directly into the UK. There could possibly be rules to allow the Republic to ensure that the duties paid cannot be reclaimed by their importers on re-export to the UK so again no loss to them.

If goods are imported into Dublin tax free from the EU and those goods along with goods originating in the Republic are sent to the UK they would be very happy to know that we were not intending to impose duties if that were the case. Obviously, we would want the ability to charge duties but I am at a bit of a loss as to why the DUP should object to our charging such duties on arrival on the mainland provided they are not charged on goods originating in Northern Ireland and there are provisions to protect tax free trade between the Republic and NI.

I am not suggesting that this is what the UK should want but I feel that the problems are being made deliberately intractable.

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doublelutz Wed 8:20pm 37 of 50

In reply to post #520211

Beginner - I thought there were proposals relating to agricultural products that would cover the businesses you mention. Or is your concern that there will be no labour to run them? If a company requires foreign workers I cannot imagine they will not be allowed to recruit. I believe that a persons residency should be dependent on them retaining suitable employment. I know someone who employs a large number of overseas workers. He has no concerns as to their continued availability.

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doublelutz Wed 8:25pm 38 of 50

In reply to post #520206

peterg - "No checks will mean large scale smuggling"

From where to where? Surely there will be no less checks than there are at present for Irish goods entering the UK.

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Michael C Wed 9:10pm 39 of 50

Vertu Motors (LON:VTU) - In 2014 we bought our new Mazda from them (under their Bristol Street Motors brand - a name I remembered from 50 years ago). The individuals we dealt with were good and the car has been a successful purchase for us but then they cancelled our service agreement unilaterally, dumped the Mazda dealership, and basically told us to PO (they have a USA style of management). The overall impression I got is that they are quite good at squeezing profit out of their trade with a very hard-nosed attitude and when I think the timing is right I am a buyer of the shares. I don't think there is an ounce of customer loyalty or goodwill left in the car trade so the fact they treated us badly doesn't influence me as an investor. I think that in the car trade all one should look for as an investor is the right moment in the cycle to buy businesses which have the knack of squeezing the juice out of every opportunity they get. If you want warm and cuddly investments, or long-term buy-and-hold, don't even think about car traders.
Come to think of it, I suspect that in the world we now inhabit customer goodwill is pretty much a thing of the past in most trades. I blame the price comparison websites which force all suppliers to pare their offer to the bone, grab business by being the cheapest, and survive by using every trick in the book to keep costs low and stuff existing customers who can't find the time to switch.

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timarr Wed 10:45pm 40 of 50

In reply to post #520216

Hi doublelutz

The point I was making was in response to the idea that both the EU and the UK could choose not to levy tariffs on goods being legally transferred across the NI border. They can't, it would all be governed by WTO rules outside of a free trade agreement.

However, you're making a different point, I think, about when tariffs are paid - but the problem is not that, but where the customs checks are performed to ensure that they are paid.

The DUP's objection would be to goods manufactured in NI being checked on arrival in mainland UK - but if they're not checked how do we distinguish between goods legally imported from NI and those illegally imported via Eire? Unless, of course, there are checks on the NI border - also ruled unacceptable because of the Good Friday Agreement.

Of course, customs checks are not purely about tariffs - they're also about regulatory compliance. Post-Brexit the UK and the EU will diverge, so regulatory checks at the borders will also be necessary.

Given that the UK wants to close its borders with the EU and retain an open border in Ireland the only way of resolving this is via a gigantic act of political fudge. However, both sides appear to have backed themselves into corners that it's going to be difficult to extricate themselves from.


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doublelutz Thu 8:38am 41 of 50

Hi timarr - Goods manufactured in NI would be accompanied by a vat invoice. Goods from Eire would not although they may in some cases be accompanied by a fraudulent invoice. I would have thought some computerised checks could be put in place to help catch these. It is little different to goods currently coming into the UK duty free from the EU and other goods from the rest of the world being subject to duties. If the DUP object to this then it is they who are causing the difficulty. After all HMRC can currently visit their premises to inspect vat records so having some paperwork checked when their goods cross into the mainland seems a trivial issue to me.

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peterg Thu 9:57am 42 of 50

In reply to post #520311


All those ideas work fine where everyone is law abiding, keeps and shares good records and has no interest in fiddling the sytem, either in terms of duties, tariffs or H&S standards. The real world doesn't work like that - which is why countries have checks at borders.

It is little different to goods currently coming into the UK duty free from the EU and other goods from the rest of the world being subject to duties.

It's completley different. Currently all non EU goods arriving in the EU from outside have to pass border checks as they enter the EU - if they are coming to the UK via Ireland they would pass checks in Ireland. Post Brexit the EU border is the NI border. While in the EU we have coordinated regulations, tariffs and customs arrangements - so once in the EU goods can flow freely, and it doesn't matter which country of entry the checks are made at. If we are outside that no longer applies, and checks need to be made at the EU/UK border, like any other.

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Trident Thu 10:06am 43 of 50

Here in the UK I listened to a programme about where a houseful of East Europeans died in a House fire in the Norfolk area of a Town in which there has been a large influx of East European people causing some disjunction of the locals. Lots of Polish shops.

Polish shops are being used to sell illegally available cigarettes, avoiding UK duties etc. Turns out the shops aren't owned by Polish people, but behind the scenes are owned by foreign third parties.

The illegal cigarettes do not have the mandatory slow burn additive, so represent a fire risk, and are obviously cheaper. Hence the sad deaths of homeless and people with drinking problems from East Europe.

So there's a lovely little knot of problems that has arisen just from being in the EU. Its hard to predict what are the unforeseen consequences of top down policies.

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Howard Marx Thu 10:57am 44 of 50

Stockopedia, can I report a problem with your software.

I've just logged into the Small-cap-value-report but instead have arrived at some political discussion group

Can you look into this please?

Thanks in advance.

There's a time & a place:


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doublelutz Thu 11:01am 45 of 50

In reply to post #520351


I am aware of what happens in real life. I have had clients receive lengthy prison sentences for vat fraud without import or exports even being involved. I alluded to fraud when I mentioned that there could be fraudulent vat invoices. Because some people are dishonest it doesn't mean we don't try to enforce tax, vat and duties laws. We set up systems to try to identify frauds which as you say is why there are border checks.

It is already accepted by all parties that there will be no border check at the actual border between Eire and NI. NI could be treated as a special case for receiving imports from Eire which I think has already been proposed in relation to agricultural products but goods need to be checked before arriving in mainland UK. I don't think it is impossible to find an answer if Eire/EU and NI and the rest of the UK really wanted to.

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doublelutz Thu 11:03am 46 of 50

In reply to post #520376

Howard Marx - you are looking at the wrong day. Discussion on shares has moved on!!

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Weasel Thu 12:04pm 47 of 50

In reply to post #520096

There are a few of us! ;-)

I have often toyed with the idea of trying to organise a gathering or a meet up, probably over dinner, but not sure how much interest there would be.

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Beginner Thu 10:15pm 48 of 50

In reply to post #520221

Apologies for late response.  The current deal offered by the UK solves all these problems, at least for four years, but the EU seems reluctant to take this up.  Who knows!

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bryans1311 Thu 11:16pm 49 of 50

In reply to post #520406

That would be great if something like that could be organised, and I would certainly be interested. I read on Twitter about certain share discussion meet-ups in England, but haven’t seen anything based in NI.

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Weasel Fri 12:17pm 50 of 50

In reply to post #520526

Yeah, not much in NI for us PI's, probably a reflection of the smaller numbers. There needs to be a certain level of attendance to make it worthwhile. The dinner thing would be more a group of people getting together for an informal chat about shares and to bounce ideas off each other.

I'll post something and see what interest we get.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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