Small Cap Value Report (6 Oct 2016) - SRT, NETD, WAND

Good morning!

IG TV

As mentioned yesterday, I dropped into IG's offices to record a (now quarterly) video slot to discuss interesting small caps which have caught my eye. Here is the video link or if that doesn't work, the YouTube version. It's nice to fly the Stockopedia flag!

As always the shares mentioned are just ideas, and I hold a personal position in most of them. The key point remains doing your own research - mainly because I don't want to be blamed for the ones that go wrong! Also, given that I cover over 500 shares, there are bound to be things that I miss, so I feel much happier if people have done their own research before taking positions.

There are hardly any small cap results or trading updates today, so a short report. Then I'm off out for a nice relaxing lunch with the boss of Research Tree - a very useful service for providing broker research to private investors. I really hope it succeeds, as this very much helps level the playing field.

SRT Marine Systems (LON:SRT)

Share price: 40.6p (down 7.8% today)
No. shares: 127.6m
Market cap: £51.8m

Trading update - this covers the 6 months to 30 Sep 2016. It's not good;

Revenues for the first half were £2.7 million, resulting in a loss before tax of £1.2 million and a cash balance of £1.8 million as at 30 September 2016.

First half revenues were derived almost exclusively from the core business of individual vessel transceiver shipments. During the period there was material progress with several projects which will result in the completion of significant project deliverables in the second half.  Upon completion the Company will make further announcements and provide market guidance accordingly.

I'll be attacked for saying this, but I'm afraid that once again, it's jam tomorrow promises. Shareholders here will be used to lumpy performance, it's just the nature of the business.

My opinion - there is clearly a decent product here, but shareholders have been waiting for years now, for a decisive uplift in financial performance.

My feeling is that the £51.8m market cap is looking very aggressive, considering this weak H1 performance. So H2 had better be very much stronger, otherwise I could see the valuation being rebased back down again, sooner or later.

If the big project pipeline does eventually turn into blockbuster profits, then great, everyone will be happy.

NetDimensions Holdings (LON:NETD)

Unsolicited bid approach - this was issued yesterday, and led to a large rise in share price;

The Board confirms that it has had an unsolicited approach regarding a potential transaction, which may or may not lead to an offer being made for the entire issued share capital of the Company. It is emphasised that there can be no certainty that an offer will be forthcoming or as to the terms on which any offer might be made.

It looks as if people are profit-taking today, as it's down 8%.

My opinion - I've looked at this company before, and didn't quite understand the attraction. Growth doesn't seem to be happening at the required pace perhaps?

It depends who the bid approach is from, and how serious it is, which is not stated by the company. In this type of scenario, I usually sell half, to lock in the gain. Or sell out completely, if I was looking for an opportunity to exit at a better price. Many preliminary bid approaches fall through, then you're back to square one.

WANdisco (LON:WAND)

Reinstatement of David Richards - an odd announcement here. Apparently 58% of the institutional shareholders have given their "express backing" to his reinstatement.

A trading update is also given;

The Company confirms that WANdisco continues to trade in line with the expectations referenced at the time of the Company's Interim Results published in August 2016. There is a good pipeline of bookings and cash costs continue to decline which, combined with the new equity funding secured in June, have enabled WANdisco to remain on a path toward cash flow break-even.

Forecasts are for huge losses, so trading in line with expectations is not actually a good thing at all!

Private investors clearly don't share the 58% of institutions enthusiasm for Mr Richards, as the share price is down 21% today to 176p.

My opinion - the historic figures for this company have been utterly lamentable. It is however reducing its cost base somewhat, to stem the losses. Trouble is, where's the growth? Losses can be tolerated for a while, if there's strong growth, but there isn't here. I think it's very high risk, and a bargepole job for me.