Small Cap Value Report (Weds 27 April 2022) - IGR, ABDP, CPC, SYME, CHLL, BIDS

27th Apr '22 by Paul Scott

44 comments 7923 reads

Good morning, it's Paul & Roland here this morning. Today's report is now finished.

Agenda -

Paul's Section:

Ig Design (LON:IGR) (I hold) - a trading update for FY 3/2022 reassures that trading is not deteriorating any further (after a previous series of profit warnings), and thank renewal of bank facilities is imminent. Bears might latch onto the long 3-year timeframe expected to restore profit margins, and guidance for much increased average bank debt. Overall, I think there's turnaround potential here, which hopefully a new CEO might be able to deliver. For now though, the jury's out.

£SYME & Chill Brands (LON:CHLL) - prompted by MrContrarian's report flagging deeply discounted fundraisings at these couple of basket cases, I expand on the theme of how difficult it now is for speculative shares to raise fresh equity. Hence investors beware, if you hold any jam tomorrow shares that need money, because the funding window has slammed shut in these bearish market conditions.

Bidstack (LON:BIDS) - FY 12/2021 results are out, which show another hefty loss. The placing from mid-2021 is not going to be enough - see the going concern note. Too speculative at this stage, although I'm keeping an eye on it, due to strong forward contracted revenue growth. High risk.

Roland's Section:

Ab Dynamics (LON:ABDP) - this British engineering group makes testing equipment for car manufacturers. Today’s half-year results suggest a return to growth after the pandemic. The stock rarely looks cheap, but strong cash generation and a history of growth suggest to me that this could be worth a closer look.

City Pub (LON:CPC) - this upmarket pub group appears to be trading well, but a decision to absorb rising costs means margins are under pressure. I think it’s a decent business, but I’m not sure it’s a great investment opportunity.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick…

Unlock with Email

Unlock with Google

Already have an account?
Login here

planetx

27th Apr '22

Sorry typo on B2B , should be B2C .

Regarding the % of Tandem that the outgoing CEO owns, Id be pretty confident these are not skin in the game shares bought like the rest of us with cold hard cash but vested low value options and incentives awarded by management to themselves for the incredible job they are doing.

Admittedly this is my "bete noir" and I truly dislike company management that reward themselves with low or zero value options despite industry under performance.

Tandem now has an outgoing CEO that has a decent chunk of shares that he has been awarded by renumeration committee.

As for having an FD become CEO, Sir Hugh Facey of Gripple once told me "umpires are there to keep the scores not score the runs".

Effortless Cool

A great write up on "blue sky/jam tomorrow companies - fundraisings", thanks, Paul.

Probably nothing that I did not already know, but much that I needed reminding of!

This is really valuable journalism.

gringo

Talking of placings, I notice 888 Holdings (LON:888) raised £163million at 230p to fund the purchase of William Hill 3 weeks ago. Not a small cap but they didnt appear to have any problem raising the cash.

888 Holdings (LON:888) now 20% below placing price. Im sure all institutions and potential short term flippers are thrilled. For everyone else tho it does present an interesting opportunity at 185p. Government gambling review out soon and obviously cost of living squeeze, both risks Id imagine.

Bouden54

City Pub (LON:CPC) shouldn't this be valued off its net assets? NAV per share is 145p so still on a more than 40% discount even after today's rise. Looks good value to me.

Snowbum

Concurrent Technologies (LON:CNC) looking very interesting against a backdrop of increased defence spending across nations. Last reviewed in SCVR on 05 Jan with favourable overview from Paul. Since then, there have been a couple of RNS's indicating from where future growth may start to kick in; due to report for full year this week... I like it, technicals and fundamentals look quite tasty, I have bought some today.

https://www.gocct.com/2022/02/...

abtan

Ig Design (LON:IGR) (I hold)

Hi Paul

Thanks for the £IGR write-up this morning.

I completely agree with your concerns around funding requirements and see it as the biggest risk.

Given the long lead times and the assumption that shipping contracts will be booked out in advance this year, my hope is that financing shouldn't be an issue and that, in theory, profitability should bounce back in due course too if many costs are known well in advance.

I think the point on director sales is a bit unfair though. The last big sale was December 2020, a time when many of our portfolios bounced back strongly. If I were in the CFOs shoes I'm sure I would consider selling a large chunk of my holding in the face of all the uncertainty.

I think it's also worth adding that it was well over a year after the last big director sale before the first profit-warning came through.

The incoming CFO has purchased some shares already, large enough for it not to be a gesture at this stage. Fingers crossed more directors start buying soon.

I bought a position last month and look forward to more clarity when the full year results come out.

ridavies

Re Tandem (LON:TND), they presented on Monday at Mello - not the CEO admittedly, but the Commercial and Financial guys, and they seemed to be relatively positive.

They were particularly positive about the move to go under one roof. They seemed quite positive about their strategic aproach to the various product groups and customer groups too.

No mention of significant overspend on the building that I can remember. Any thoughts from anyone else who listened in to the Mello presentation? I will receive it soon from Mello and will go through it again.

As you say, pretty abrupt departure and not very gracious.

Roland Head

**CORRECTION - re. City Pub (LON:CPC) **

Hi Bouden54,

Thanks for flagging this up. I was working off the year-end balance sheet, which showed City Pub's net assets (equity) as £92m, or around 89p per share.

Since then, the company has sold six pubs for £17.1m and used this cash to eliminate most net debt. The property portfolio has also been revalued to £150m, excluding the sold pubs.

Making these changes to the balance sheet while leaving everything else unchanged does indeed suggest a net asset value per share of 145p. My mistake - apologies.

In property value terms, this might be good value. But as an ongoing pubco business I'd prefer to value on earnings. The reason for this is that the group's income is tied to its operating activities, not the value of its properties. Unless City Pub sells its pubs, their value will remain locked up.

I think it's worth noting that a number of other pub companies with property portfolios also trade a substantial discount to NAV. Unless profitability improves, I think these discounts are justified by the use of the property.

Regards,

Roland

Paul Scott

Hi EC,

That's nice, thank you! :-)

As you say, nothing new, just a timely reminder.

This reminds me of a very recent trip to Malta, when I got chatting to a couple of chaps in a Valletta bar, and they told me they were running a tech startup. I can't remember anything much about the conversation, as I was enjoying the real ales. They didn't ask for my advice, but I gave it to them anyway, having ascertained they were burning through cash, and didn't have much left. I said, the funding window has slammed shut, so don't assume you'll be able to raise more cash. Better to get plenty of cash in the bank, for several years' operations, and give away half the company, than end up owning 100% of nothing.

They left shortly afterwards, one saying I'd asked great questions, the other one didn't say a word, he just got up and left.

Best wishes, Paul.

rmillaree

"They didn't ask for my advice, but I gave it to them anyway, having ascertained they were burning through cash, and didn't have much left."

Lol great stuff Paul - ps very sensible comments so hopefully they did the opposite of what most people should do when "pub talk" is involved (leave it in the pub)

Thanks Roland. I'm still not sure whether to value this off NAV or earnings. Perhaps a 50/50 split would be appropriate? Still think it looks good value though, and good asset backing which I always like (and differentiates it from say Revolution Bars (LON:RBG)).

CamRaid

I think @SYME is a load of nonsense.

Everytime they publish something they are claiming to be linking to some big name.

One minute they are targeting global micro businesses they next they will be funding partners for major corporates.

It looks to me like the directors will be drawing salaries and wasting other people's money.

TheFloatingInvestor

Thanks Forsby, I like what I see and the CEO comes across well, as he said the benefits of his changes won't be seen this year, due to product cycle...I guess the million dollar question is where is the market going between now and then...but on my watch list and would look to buy on a dip! Thanks again!

Harry Hindsight

Time for an update on Morses Club (LON:MCL) methinks. If use stocko metrics then something still in play and could take off - but reality is - well leave that to the brains.

Anyone interested in cigar butts Thg (LON:THG) up 15pc this week. I bought the IPO - lesson learned.

In 1750+ (don't shoot the messenger) they called it the "coffee shop" - some of our institutions were born there. Then came unis - Microsoft, Facebook etc. So where the next coffee shop - or market square as Mr Tusk observes.

Did Donald Tusk just buy Twitter or was that some other fella :-)

Sorry for the typos! You knew what I meant.

Boon

28th Apr '22

Interesting update yesterday from Time Finance (LON:TIME) that the long-time biggest shareholder, Wellesley Finance (aka Cloverleaf) has sold their entire 19%+ stake to a US-based investor, Arena.

This was a bit of a stock overhang, as the stake had to be sold sooner or later, as Wellesley spectacularly collapsed into administration a few years ago. So this huge overhang and uncertainty with the largest shareholder in Time Finance has now been cleared.

I'd never heard of Arena before, they are self described as "a global institutional asset manager that provides creative solutions for those seeking capital in special situations" as well as "flexibility to engage in transactions that cannot be addressed by banks and other conventional financial institutions"

Now, the interest thing about Time is that they have an ambition to double their own book lending. Currently, they use their own balance sheet. And they also make fees from originating loans and passing them on to their financial partners to put on their books.

Might Arena be the source of funding that will unlock Time Finance's own book lending potential and allow them to scale in a big way in the next few years? I wait with anticipation to see what Arena does. It seems clear that Arena didn't just buy the shares just to be the largest shareholder, passively.

Another puzzle is Seguro via GPIM, who are the second largest shareholder with now 17%. I haven't been able to unravel exactly their intentions, but they were commercially related to Wellesley (providing them with investment management services), so I wouldn't be surprised if their stake is potentially up for sale too. Maybe Arena will be a buyer, to consolidate to an almost 40% stake?

(I hold)

mojomogoz

3rd May '22

I've been busy with non market distractions for couple of months now so limited comment from me but noticed a Bidstack (LON:BIDS) SCVR comment whilst travelling in the last couple of weeks and that peaked my curiosity so getting back to it now...

You know a speculative stock has deflated and markets are damaged when there's no bite in the SCVR to a comment by Paul! ;)

I own Bidstack (LON:BIDS) ...its not the cleverest thing I've done and I don't recommend the stock to anyone. Highly uncertain and a number of execution f-ups along the way to here. I first bought early this year at 7p after disappointing TU thinking there was strong evidence they had operationally turned the corner and had an executable strategy plus my hunch was that financing was in hand. It might trade lower but chance it might not etc. I was wrong and they messed up financing and traded down sub 2p post raise...where I bought significant amount more. At current sp I'm below water but not much.

The addressable market is huge. They have been working hard to overcome commercial resistance to use of their ad platform. Its a slow process. They are not the only operator out there (see Adverty, Anzu, etc) but I think they are likely the best placed from a commercial standpoint.

Anyway, brief comment. There's a lot of detail to dig into but not got time right now. With VCT/EIS sort of guys now as holders then future funding assuming some operating progress should be quite straight forward as BIDS is an ideal place for them to invest. They are likely to have planned on a next round of funding but they probably quite like the price to be low to do so. This is a short term danger for PIs (ie in next 12 months).

I've no view how big BIDS can be but my minimum hope is a takeout at multiple of current once the platform proves out some more...and best hope is independence and growth/scale over 10+ years.

Small Cap Value Report (Weds 27 April 2022) - IGR, ABDP, CPC, SYME, CHLL, BIDS

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

44 comments

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

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