Small Cap Value Report (13 Jun 2014) - JPR, TRT, COMS, BON, ESR

13th Jun '14 by Paul Scott

4 comments 16253 reads

Good morning! I'm using a different computer today, so hopefully the formatting will be a bit better than yesterday's shambles! Although lying in a hammock in the garden is presenting some challenges with respect to posture whilst typing this, but it seemed too nice an idea not to try out!

Johnston Press (LON:JPR)

The result of their Rights Issue has been announced this morning. I'm scratching my head wondering why there was only 92% acceptance for the new shares at 3p, given that at all times the market price of these shares has been well above that (in percentage terms). So the people who failed to take up their Rights have handed an instant profit to the underwriters, which seems most odd. Presumably then the underwriters will bank that profit by selling the 355m spare shares in the market at 3.9p, bagging a 30% gain? That seems the logical thing for them to do.

Therefore the price might come under some short term pressure possibly?

I'm not familiar with the terms of underwriting agreements, so it might be that they are obliged to find third party buyers for the shares instead?

EDIT: Another announcement has been issued saying that the rump shares have been placed at 3.5p (down from around 3.9p earlier) which explains the price weakness today. The surplus of 0.5p per share over the 3p Rights Issue price will be paid to the people who let their Rights lapse.

Transense Technologies (LON:TRT)

There is a profit warning from this maker of tyre pressure control systems, but it's not a disastrous one, and the company emphasises that it has enough cash.

"The delays in placement of certain new orders is expected to result in an EBITDA loss for the current year, rather than the previously anticipated breakeven result. However, given the encouraging trends in the business including the strong top line growth, robust gross margins in line with expectations and better-than-expected overheads, the EBITDA loss for this financial year will be less than half that sustained in the previous year."

The shares are down about 10% this morning to 6.6p. That values the company at just under £20m. The valuation rests on hopes of future turnover growth, but at least they have a viable product that is selling, albeit not yet in properly commercial quantities. So it's not a complete punt, and…

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FREng

13th Jun '14

Paul

I thought that (unlike an Open Offer) nil-paid Rights had a market value and would be sold by the company broker for the benefit of the rights holder. Have I misunderstood?

AnonymousUser37607

Re. Coms the Annual Report released on 10 June looked like it had been rushed out as the share price continued to fall – it contained numerous typo’s which did not reflect well given how long Coms took to produce this document. If public documents are of this standard I always wonder about the robustness of the underlying contracts and documentation in the business that investors are not able to see (from a commercial and risk point of view).

By the way the revised Annual Report released today still has typo’s …. One would have thought this would have been re-read numerous times over night.

Following the results announcement and review of the ‘first’ Annual Report I decided that I had seen enough and that my capital was better deployed elsewhere so I followed yesterday’s suspension from the side-lines. I did manage to come out with a profit although clearly not as good as it was looking a few months ago.

Also the way that the MITIE issue has been handled and communicated was very poor and this should have been flagged earlier – suspect that this will not deliver anything like what was originally anticipated. As noted previously in another post I had my doubts about the CEO and events now seem to have caught up with him. Market seemed to give him the benefit of the doubt in 2013 with the acquisitions and top line growth story but the business is now at a point where solid execution, integration etc are required – on this front I am not convinced.

Also seems a clear risk in the second half of the financial year if Coms is unable to make up the one-off reorganisation costs that have been carried over (MITIE issue could yet be a factor again)

The Coms story has been about what the contracts and acquisitions will deliver going forward – in my view the visibility has deteriorated off the back of the results
The strategic comments in the Annual Report did not articulate a clear vision for what Coms is aiming to be i.e. how do all the acquisitions fit together?
Adjusting the reported profit for one-off items (e.g. fully reversed a provision of £593,990, accrual releases £478,338, profit on sale fixed assets £225,096 – also the capitalisation of development costs increased from £8,543 to £222,480). All in all these are more than the reported PBT so whilst Coms was profitable in an accounting sense the ability to translate profits into generating cash will be a key issue going forward

As an aside I noted that Sue Alexander (FD) seems to have been granted 4 million options and the grant date seems to be before she actually joined Coms

RNS 13 June 2013: “Sue Alexander who joined the Group as FD last month will be resuming all Finance responsibilities.”
Annual Report page 22 shows the grant date as 20 March 2013, the same as the CEO
Share price was significantly higher in May 2013 (when she joined) compared to March 2013
Exercise price is 0.84p so they were significantly in-the-money in May 2013

clissold345

Morning Paul, I think you mean "... Bonmarche has quite a low operating profit margin ...". Regards, Chris.

Aislabie

Anyone interested in Enteq Upstream (NTQ) which announced results today? It has collapsed from an IPO at 120p to 35p now but today's results suggest some reality is breaking through. The wirelogging and directional drilling technology appears well accepted and there is growth in revenue (although not as much as management forecast at IPO). They have now written off inflated goodwill and management seems pledged to both some reduction in costs and a concentration on growing the businesses they have acquired rather than making any major purchases.
The heavyweight investors (including Soros) appear to be staying with it and Schroders joined in April. With £12million net cash as a backstop it seems to to me that not too much has to go right to see this move up sharply from here. (But then I thought that at 50p when I bought!).
Does anyone want to give my cautious confidence a well argued knock?

Small Cap Value Report (13 Jun 2014) - JPR, TRT, COMS, BON, ESR

Johnston Press (LON:JPR)

Transense Technologies (LON:TRT)

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Paul Scott

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