Small Cap Value Report (Weds 17 Feb 2021) - GATC, MRL, TRT

17th Feb '21 by Paul Scott

57 comments 10846 reads

Good morning, it's Jack & Paul here with the SCVR for Wednesday.

Jack's section:

Gattaca (LON:GATC) - mixed update from cheaply valued STEM recruiter

Marlowe (LON:MRL) - ambitious growth targets laid out by this provider of regulatory compliance and risk management services

Paul's Section:

Transense Technologies (LON:TRT) - Review of interim results

Jack's section

Gattaca (LON:GATC)

Share price: 96p (-3%)

Shares in issue: 32,290,422

Market cap: £31m

Gattaca (LON:GATC) provides recruitment solutions within engineering and technology. Matchtech is one of the UK’s leading recruitment specialists, with market share estimated at around 5%.

This is a tricky, cyclical sector where it can be hard to build a durable competitive advantage. As such, operating volatility and low relative valuation multiples might be expected.

Gattaca’s international footprint provides some resilience but there have been problem acquisitions and questionable uses of capital in the past, so ongoing value-added capital deployment is a concern.

That said, trading at just 0.6x free cash flow, Gattaca’s valuation really is striking.

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No surprise to see that of the two Guru Screens it qualifies for, one is called Free Cash Flow Cows! Incidentally, both of the screens are Bargain strategies.

Trading update for the six months ended 31 January 2021

Net Fee Income ("NFI") to come in at £21.1m (H1 20 restated: £31.8m), primarily reflecting the market impact of the COVID-19 pandemic. Net cash before IFRS16 adjustments of £22.9m (July 2020: £27.3m).

Against a market cap of £32m, these are considerable numbers.

Improving activity levels through Q1 and UK NFI in Q2 was 2% higher than Q1, despite the return of tiered COVID-19 restrictions and extended national lockdowns.

NFI recovery for FY21 is likely to be at a slower rate than previously forecast. However, cost cutting and underlying improvements in the business should neutralise this and Gattaca expects full year underlying PBT to be in line with market expectations.

The ‘slower than expected’ line might be the market’s takeaway, given that sentiment on recruitment stocks has been quite poor.

Gattaca will announce its interim results for the six months ended 31 January 2021 on 31 March 2021.

Conclusion

This isn’t the type of company I tend to look at, but everything has its price and Gattaca does at first glance look…

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jsaunders

17th Feb '21

Just a comment to ridaveis regarding prospects for Creo Medical (LON:CREO) , I an a retired gastroenterologist; therapuetic endoscopy & minimally invasive surgery has been developing for around 50 years. Most doctors & surgeons get used to the feel of theirendoscopes & are reluctant to change to a new equiment supplier unless there is a clear improvement in usability which is more & more unlikely now as all suppliers provide excellent equipment. The cost to change supplier can also be massive so the accountants are also unhappy.This company seems to have assembled a massive workforce & are to my mind overly optimistic. I have had considerable success investing in medical companies as I can usually see when there is a big market potential for a product. I dont feel that this is one of them

ridavies

Re Creo Medical (LON:CREO), thanks for that jsaunders. Always useful to have inside information on the market and attitudes. We will see how they go. I hope you are proven wrong, but there you go. Lts hope their market research is more positive than you clearly believe.

greenhat2

“We're in a roaring market for speculative stuff right now, so this looks exactly the type of share that could catch the attention of the stampeding herd of bulletin board punters! It's quite tempting to pick up a small position in this, as a punt, for a quick profit, if market conditions remain frothy”

Paul

I agree

Here’s my short list of recent ‘punts’

£CLCO Cloudcoco - like my donkey profile pic - the name puts a lotta ppl off. BUT read the recent RNSs. From what I see they are set for £3.7m profit from £7.3 revenue and only £7.7 market cap? It would be great if you could run the numbers on this one as it seems one helluva an opportunity. Results out early March.

Immotion (LON:IMMO) - Immotion - supplying VR kits and experiences to theme parks. Like aquariums - punters can explore the oceans using Immotion (LON:IMMO) VR sets. They supply the whole shebang including UV cleaning kits. They sell direct to the public now. CV19 has obvs held back selling to venues but there seems to be a steady uptake.

Carclo (LON:CAR) - Carclo - turnaround situation - new management and new market - making high quality plastic LFTs for medical devices inter Alia Covid tests.... I think their plastic will be in demand. loads of recent Director buys too.

Ethernity Networks (LON:ENET) - Ethernity networks - producing hardware for 5G networks - they have some novel kit and I don’t really understand the tech but apparently if the telcos take it up it will really be in demand. Shares really hard to come by as well which is always a good sign

I like Riverfort Global Opportunities (LON:RGO) - Riverfort as well it has fingers in loads of pies

Apologies in advance if some readers consider this a “ramp”. Just ignore it.
As always

My view is I’m simply highlighting opportunities.

We’re all big enough and ugly enough to do our own research

PLS1nve5t

Had mine done yesterday (60 and diabetic), it was Astra's derived from the chimpanzee virus. Felt really rough last night - freezing and aching all over, but the paracetamol were effective. A bit better today but still ache, apparently about 1 in 10 get these symptoms.....

I went to Hazel Grove near Stockport and it was packed, the queue was out of the venue and stretching down the street but it still only took less than 10 minutes, all very efficient.

Don't know why, but I could just fancy a banana :-)

Rusty2

Burford Capital (LON:BUR) now down 7%.

Nebraska1977

Thanks Jack for the heads up on £MRL. Looks really interesting and reminds me of Judges Scientific (LON:JDG) in terms of their ‘buy and build’ approach but Marlowe trades on less than 2x sales (based on today’s capital markets presentation) whereas Judges trades on over 5x. Definitely worth doing some more work on this one.

barnetpeter

New IPO stock KNB Kanabo Plc nearly hit 50p today having been launched at just 6.5p yesterday. To quote a well known investor today "no sales, £500k assets = now valued @ £170m mkt cap, is that correct?". I think it was higher in fact at todays high. It raised a bit of new cash though. Volume so far of 29 thousand trades. Some on the bulletin boards are hoping for £1 by Monday.

Bubble? Here? Where?

Squashbox

Hi barnetpeter

Kanabo is not a new IPO it was Spinnaker Opportunities before and was suspended for about two years while they reversed into Kanabo or the other way around

rogerh

Hi jsaunders, I would love to know what you think about £SUN. If you have any helpful comments on other medical companies, they would also be greatly appreciated.

Surgical Innovations

Boon

FYI for those holding Saga (LON:SAGA) just read the news that three other cruise operators have now cancelled all cruises before the 31 May:

Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises

Looks like another month of extra delay for Saga could be on the cards. However, vaccination of all priority groups 50+ is still stated by the govt to be finished by end of May (first jab), with second jabs all finished presumably by 31 May + 12 weeks.

xcity

iirc the commitment is end April but on target to hit it much sooner.
The only issue re cruise freedom is degree of protection against variants such as SA and the probability of someone coming on board with such a variant.
SA is no more transmissible than the dominant Kent strain so unlikely to spread fast while that dominates. But once vaccines squash Kent those odds change. It's unclear how much protection having had Kent will provide against SA. It's not a major issue generally because vaccines will be reformulated and we'll all have another, but cruise ships are particularly vulnerable.

cjg

Surface Transforms (LON:SCE) I also use HL as a broker and got circa 10% of what I applied for in the excess. The frustrating thing here is the lack of transparency. OK leave it to management's discretion but at least publish how they exercised their discretion, i.e. the basis of allocation so that everyone can see and understand how the allocations were made.

Paul Scott

Hi greenhat,

I had a look at CloudCoco yesterday, but didn't write up a section on it, as it looked pretty poor to me.

The trouble is, we're now in a very frothy, speculative market. So fundamentals matter less, and less, as people chase speculative micro cap junk to insane valuations. Hence I'm not sure my analysis would help much, in fact it might even deter people from making money on some of the wild market moves that are happening at the moment.

I think the trick is to see these speculations for what they are, and not get too greedy, as a profit's not a profit until it's banked!

Regards, Paul.

Hi dahokolomoki,

For balance though, I think there was something out from Carnival today, confirming earlier resumption of cruises.

My favourite book at the moment is "100 Baggers" by Christopher Mayer, and it's really reinforced to me the importance of thinking longer term, and ignoring background noise from the market.

With that in mind, why on earth is anyone obsessing about whether SAGA's ships can resume in May, June, July, whatever? It really doesn't matter. You're not buying just this year's earnings. You're buying all earnings for the rest of time. A little bit of patience is all we need to make potentially great investment returns on the right stocks. In the meantime, the insurance business generates enough cash to cover the travel division losses. Ideal really.

BIACS

18th Feb '21

Re. your comment on CloudCoco: "I see they are set for £3.7m profit from £7.3 revenue"

Not really - they are still loss making and there is no real profit at all once you carry on down to the bottom of the P&L - they are quoting a 'gross profit' which is what I think you've quoted, but there is no real profit at all when you look at the accounts. Agree with Paul that so far this looks poor.

Thanks Paul

You’re right - nit one to put the house on.

I’ve small pints on all of these in my gambling pot.

Thank you very much for looking.

Thank you BIACS too.

hayashi22

Do you mean half pints then!? Or maybe 'punts'?

peterg

The only issue re cruise freedom is degree of protection against variants such as SA and the probability of someone coming on board with such a variant.

I think the other big issues are - can you go ashore? I think there will a lot of restrictions on that, or just straight bans in many places for sometime. OK for those happy with a cruise to nowhere, but that's a smaller pool, and would reduce margins.

Also of course, vaccination and testing for crews. That would need to be in place first.

All that will be part of the cruise companies' calculations. On the one hand they want to maximise business asap, in the other a major incident would have a catastropic effect for months. afaics most ports will be off limits for a very long time

Small Cap Value Report (Weds 17 Feb 2021) - GATC, MRL, TRT

Jack's section

Gattaca (LON:GATC)

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Paul Scott

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