Small Cap Value Report (Weds 21 Sept 2022) - ZOO, MOON, TEG, FDEV, ABDP, WAND, COG

21st Sep '22 by Paul Scott

59 comments 7505 reads

Good morning from Paul & Graham!

Agenda -

Paul's Section:

Moonpig (LON:MOON) - from yesterday. It's trading in line with previous guidance. Interesting that it doesn't seem to be having a problem with input cost inflation. The company reckons greetings cards are proven to be resilient in previous downturns, but personally I have my doubts. On closer inspection, and following a large acquisition, the balance sheet now looks over-stretched. I think MOON could have taken on too much bank debt, and overpaid for the acquisition, at the worst point in the cycle (as we go into a likely recession).

Ten Entertainment (LON:TEG) - impressive interim results. Liberum raises forecast profit for FY 12/2022 and the new forecasts don't look challenging, so I suspect it might out-perform again. Everything looks fine in the numbers, and the PER seems low - providing the "new baseline" of higher sales is maintained. The risk is that we're still seeing an element of pent-up demand, that could subside as consumer incomes are squeezed. On balance, I'm leaning towards a positive view of this share.

WANdisco (LON:WAND) - certainly not a value share, but the strongly rising share price, and a series of big contract wins with the same key customer, does suggest that something interesting might (at long last) be starting here. Continued heavy losses are forecast though.

Cambridge Cognition Holdings (LON:COG) [no section below] - I had a quick look at COG (I hold) shares yesterday, but didn't think there was anything much to say about them. P&L is a bit disappointing, with higher revenues absorbed into higher costs. Balance sheet look fine, as it gets paid cash up-front (at least in part). Order intake & outlook sound good. Probably priced about right for now, but a nice longer-term growth stock, with a strong moat. [no section below].

Graham's Section:

Zoo Digital (LON:ZOO) (£125m) (+11%) [no section below] - we covered this company’s results in July, and I suggested that Zoo finally, at last, had grown into its valuation. Today’s AGM statement and trading update confirm that the company continues to grow at a fantastic pace: H1 revenues +89% to at least $51 million (vs. H1 last year) which also represents growth of 17% sequentially (vs. H2 last year). The company expects “a significant increase in EBITDA, benefitting from operational gearing as…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Michael Tee

21st Sep '22

Hi Dieselhead2

Re: (LON:COG)

The long-standing CFO Nick Walters (since 2013) decided to retire. He was replaced by Michael Holton who left after a very short spell. It seems to me the issue may have been that Michael just was not a very good fit but we will probably never know for sure. Nick Walters returned for the interim period until Stephen Symonds was appointed.

Last night I watched the #COG webinar with Matthew Stork and CFO Stephen Symonds. Stephen came across very well and the chemistry between the two appeared very good to me. Obvs this is only my opinion.

Also, the accounts at COG are clean and quite simple to understand.

Michael

sharw

Strix (LON:KETL)

Yes, that is a drop in expectations and the market is not impressed (memo to self - should have sold before 09 00):

There is a webinar at 11 30 next Wednesday. You can register here: https://www.equitydevelopment....

andrewdb

I was just about to ask Stocko for an easy way of seeing relevant announcements.

However as Strix (LON:KETL) was in one of my Folios and there is a "NEWS" tab that can be filtered for "ANOUNCEMENT"

... no need. One pleasant surprise at least.

angelogr21

I have mixed feelings after watching the webinar today with Hostmore (LON:MORE) (I HOLD).I understand the effect of the economic situation we are in and that people are scared to spend money as much as they used to but I am concerned about the financials. CFO said that he agreed a new deal with the banks about the loans and he paid the leases up to December ( If I understood correctly). I think it is going to be a couple of years before the price goes north, sadly.

Dieselhead2

Hi Paul, thanks very much for your thoughts on COG. I too noticed profits were only £20K! Although that's what Mathew Stork said they would be. I still have a nagging concern as to why the former FD left the company without any explanation. I know it's history and a new broom has taken over...Fingers crossed for some decent profit in the future on their new product offering with decent margins.

I am a holder too.

Atb, DH2.

MiserableJacktPotato

One thing I do every morning is go to the "Today" tab around 07:10 and look for what news is in my portfolio.

Sorry to repeat my message, I forgot to 'refresh' the page and hadn't realised that I'd managed to have posted it first time! Doh!

Hi Michael, that's good to know and much appreciated. I must get round to watching the webinar.

atb DH2

Reacher

Ten Entertainment (LON:TEG) v Hostmore (LON:MORE)

Interesting to compare the operating profit per centre for TEG v operating profit per site for MORE for FY22 by using 1H22 run rates. I've done some back of fag packet calculations:

TEG operating profit per centre for 1H22 is £414k which equates to £38.9m for 12 months

MORE operating profit per site for 1H22 is £66k which equates to £11.9m for 12 months

Enterprise value of TEG is £137m giving a valuation per centre of 3.5x

Enterprise value of MORE is £55m giving a valuation per site of 4.6x

So, assuming 2H mirrors 1H and both businesses manage their cost headwinds, which they have indicated they will do, then Ten Entertainment (LON:TEG) looks more compelling.

rmillaree

Ten Entertainment (LON:TEG)

It might be slightly confusing but those amounts most definitely are receivables - a payment to suppliers as an advance deposit (money has gone from them to suppliers this period) goes as a debit in the balance sheet (asset) as the money has left their bank account - in theory if the future transaction was cancelled they would be receive that money back hence why it is chucked in receivables - the entry will move from receivables to capital additions and possibly P&L expenses in the later accounting period

ACounsell

A little surprised that no comment on the interim results announcement from Hostmore (LON:MORE) (down 18%+) in SCVR today given the previous discussions on this company and the associated £UBG I recall that the flotation of these two businesses out of the Electra Private Equity Investment Trust was viewed as badly handled and the result was a significant fall in value which has worsened dramatically. Using Paul's valuation model that was discussed at the time the valuation fo these two businesses combined implies an equivalent share price of 73p:

	Price	No. of Shares	Value (£m)

UNBOUND GROUP PLC (XLON:UBG)	10.75	38.97	4.19
HOSTMORE PLC (XLON:MORE)	19.25	126.13	24.28
Pre demerger	0.73	38.97	28.47

As the price of the Electra Trust was around £5.50 pre the demerger and as I understand it these were the only two businesses remaining in the trust this is close to a 90% fall in valuation. Even allowing for the mishandling of the demerger have conditions really deteriorated this much since the demerger or were investors misled by the valuation put on these businesses by the Private Equity managers? Would be interested to know what people think and have I missed something or interpreted things incorrectly.

AstonGirl

Warpaint London (LON:W7L) I realise that you and Graham are wading through vast numbers of results at the moment (& doing a sterling job thank you) but if you have time I would appreciate you circling back to todays Interims results from Warpaint

They added a little more colour to the recent ‘ahead of expectations’ TU with more details on the US orders secured. In addition, there was an excellent webinar with the management team this evening at which energy costs were discussed & the current higher levels of inventory (seasonal & will reverse by year end)

Those who know me will recognise my question

Paul Scott

We had 14 companies on our to do list today (see below). We just had to pick the ones that looked most significant. A restaurant group saying demand was slowing shouldn't have been a surprise to anyone, so we thought TEG was more interesting, saying that things were going surprisingly well.

We cannot cover everything. Judging from the number of thumbs ups, readers prefer us to cover 4-6 of the more interesting companies.

Previous coverage doesn't matter. It's what is most interesting on the day, amongst what is, at the moment, a blizzard of news.

Thanks.

Actually, we can knock ITIM (LON:ITIM) off that list. I read the results this afternoon, and thought it looked disappointing, and was lucky to get away with a 19% drop in share price today. The story on that recent float, was that it was seeing good growth. But results today actually showed a big increase in costs, and profits disappearing. So I think we can forget about that one.

Hi Lee,

Sorry, but we're mainly value-focused here at the SCVR. So a blue sky thing like Clean Power Hydrogen (LON:CPH2) which seems to have almost zero revenues, but a £114m market cap, is not something I could give a view on.

Happy to listen to why you think it's great though, if you want to brief us.

We always keep an open mind, here at the SCVR. Occasionally blue sky stocks do deliver on their promises. VERY occasionally!

Regards, Paul.

Leebod

Ab Dynamics is more about using computers and virtual modelling for testing cars rather than automation in cars isnt it? (at least it was unless I've missed something!)

Hi AstonGirl,

Absolutely, I'll put rings & asterisks around Warpaint London (LON:W7L) on my pad, as it's a share we very much like here at the SCVR, and have reported positively on several times this year.

Usual problem at the moment - about 15 companies reporting each day, and we can only generally look at about 5. When we do more, we get fewer thumbs ups, so readers don't seem to like being overwhelmed with large numbers of shares being reported on each day here.

I'm also trying to line up some more CEO interviews, but those take a lot of work behind the scenes to prepare for.

Looks like SThree (LON:STEM) might talk to me, and I'd like to also talk to Warpaint London (LON:W7L) - both interesting value/GARP shares, in my opinion (disclosure: no personal holding in either, currently).

Regards Paul.

BnB

22nd Sep '22

Ab Dynamics is more about using computers and virtual modelling for testing cars rather than automation in cars isnt it?

Yes but a high proportion of the the parts they are modelling/testing are the automated bits!

Looks like SThree (LON:STEM) might talk to me

This might be an unconventional offer Paul, but I’d be happy to join you on that call with the CEO if you’re both amenable. I founded and ran a similar LSE-listed multi-disciplinary recruiter back in the 90s and since owned a prominent IT recruiter until I sold in ‘17. Might add depth to the operational detail - and I believe Timo Lehne is an operations, rather than a financial guy.

No probs if not appropriate :-)

abtan

Ten Entertainment (LON:TEG) (no position)

I'm a little late to this, but I thought I'd share a quick finding.

The yellow row below shows #customers/site/year.

The 168k I've calculated for FY22-H1 ties in with the 150k customers per week mentioned in the interim results presentation, so I'm going to assume that my 2019 and 2021 calculations here are also fairly accurate.

So it looks like footfall really has gone through the roof since 2019 (128k ---> 2022-H1 168k customers/site/year).

The company says this is a new baseline, but for prudence I'm assuming it slips back down to 128k customers/site/year in FY23 across their soon-to-be 54 venues (up from 48 at the moment.)

I've accounted for some price inflation (£15.98 --> £16.78 spend/head) and come to annualised revenue of £116m.

That's still excellent growth, but I fear that if maintenance/refurbishment capex continues at its current pace, then there won't be much left to fuel geographic expansion and/or pay a dividend without some share dilution or debt funding.

I'm going to continue to twiddle my thumbs here and no doubt miss an excellent buying opportunity.

Small Cap Value Report (Weds 21 Sept 2022) - ZOO, MOON, TEG, FDEV, ABDP, WAND, COG

Agenda -

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

59 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...