Small Cap Value Report (Tue 16 Nov 2021) - G4M, KINO, RBG, DOTD, IDHC, RTN

16th Nov '21 by Paul Scott

63 comments 12648 reads

Good morning! It's Paul & Jack here with the SCVR for Tuesday. Today's report is now finished.

Mello - starting at 17:00 tonight, there is a free online event, on Investment Trusts & Funds. More details here. Also, we'd like to add our hearty congratulations to Mello's founder, David Stredder, who has won a lifetime achievement award at the recent Small Caps Awards. It's a very popular choice, as David has been a good friend to many of us over the last two decades, and has done more to connect private investors and small caps management, than anyone else I can think of. Well done David, and keep up the great work!

Agenda -

Paul's Section:

Gear4music Holdings (LON:G4M) (I hold) - Interim results are in line with expectations. However, there's a profit warning, due to Q3 (Oct-Dec 2021) sales being slower than expected, blamed on Brexit-related distribution problems. Recently opened new distribution centres in Spain & Ireland should resolve this problem in Q4, so doesn't look particularly worrisome. EBITDA guidance is reduced back to where it was back in June 2021, before a previous upgrade. Not a disaster, but clearly a setback.

Revolution Bars (LON:RBG) (I hold) - results for FY 06/2021 are as expected (awful, due to the pandemic). Current trading is still strong, although growth has moderated somewhat from the last reported number. Plenty of cash & facility headroom, means the company is now back in expansion mode, with 8 new sites, and many refurbs planned. I continue to believe this share is a good value opportunity, if you look forwards, rather than back.

Restaurant (LON:RTN) - a spectacular 19% rebound from a seemingly relentless downtrend in share price today. RTN says it's trading well, and gives us revised (upwards) EBITDA guidance for FY 12/2021, but I haven't been able to find out what the previous guidance was. With no broker updates available to us either, I can't take this any further.

Jack's Section:

Kinovo (LON:KINO) - positive update with revenue and profits up, and net debt down. This is an active turnaround, management is doing a good job, and there is further upside potential. But the historical performance has been patchy, the shares are illiquid, margins are typically low, and there are ongoing challenges around supply chain inflation and labour availability, so…

Unlock with Email

Unlock with Google

Already have an account?
Login here

NeilS

16th Nov '21

£DOTD I find it irritating and unnecessary because it makes year on year comparison more difficult when trying to establish the health of the business and particularly when you then take their statement on gross margin into consideration :

“The gross margin for the period for continuing operations was 82% (FY20: 92%).
Whilst the gross margin for email and standard channels remained above 90%,
the decline in overall group gross margin comes from the growth of premium
messaging channels, (routing purchased via a third party on a per message
basis), such as SMS.”

I’m still holding, but perplexed!

davidjhill

Tremor International (LON:TRMR) Just FYI I am told by IR the question around shareholder sales will be addressed at the IMC meeting at 2:30pm as I know several of you are interested in the rationale.

JCPr

That rule looks like an easy one to get around these days. You just issue a trading update saying you're trading in-line, the share price drops 20% then you can buy up the shares on the cheap.

Snazzytime

Dotdigital (LON:DOTD) - imho being perplexed but still holding doesn't tend to end well

They are with Investor Meet Company this Friday and we’ll see how they answer the questions.

abtan

Revolution Bars (LON:RBG) (I hold)

Hi Zipmanpeter

I'm actually quite impressed by the idea of 2 new brands.

I'm not sure the 2 chosen ideas will actually work (not my sort of thing), but when I see the high gross margins of niche hospitality retailers (eg Escape Hunt (LON:ESC) and Hollywood Bowl (LON:BOWL) - no position in either) or the popularity of speciality evening venues (eg https://www.bouncepingpong.com...) I'm quite intrigued where this might lead.

And if there was ever a time to try something new, then now seems like a good time - rents are low and a desire to go out is seemingly still quite high.

One would hope that these new brands are supported by short leases, in case the new concepts don't work out, but in any case the main bars are so cash generative (my perspective now as well as pre-covid) that small risks every now and then are worth taking.

---

As for today's results, I remain a reasonably happy holder.

I'm not convinced they will hit revenue forecasts this year, but even if they miss, their high cash generation still implies a higher share price.
Some numbers have confused me, such as the year end net debt figure, which seems to have changed since the July TU: £5.0 (then) vs £3.6m (now).

It looks like the company might have been previously including their dilapidation provision within debt, as I can't see anything else on the balance sheet that could explain the difference. It's a minor point, but I'm put off by a simple number not being communicated clearly.

But other than that, the future looks okay for now.
I'm sharing the below as I've already done the work, though please note that, if you can actually see them, the coloured cells are complete guesses & the clear cells should be correct.

Cheers

BnB

Re: Dotdigital (LON:DOTD) The company's largest competitors are Twilio in US and Sinch in Europe. Both fell hard (20%-30%) on recent earnings so I wouldn't read too much into the fact that DotDigital has sold off as well. The falling margin story is going to stay with us (I'm an investor in all three) since the the other two, much larger and stronger in SMS, have considerably lower gross margins of 52% and 29%. But cashflows are good and that gives comfort and optionality.

These cPaaS companies are riding a huge wave of secular global growth in message-based customer comms and my personal view is that you stay on the bus for the long term. In fact, I topped up Twilio, by far the largest and least profitable of the three, on its big fall. I'd top up DotDigital here if the position hadn't already grown to one of my largest, even after today's haircut.

rmillaree

Revolution Bars (LON:RBG)

Abtan

Some numbers have confused me, such as the year end net debt figure, which seems to have changed since the July TU: £5.0 (then) vs £3.6m (now).

The £5 mill figure previously notified had a c infront (circa) to indicate it was rough and ready - as one would expect 1 day after period end.

yiannos1

Hi everyone ,

It is crystal clear that many of the recommendations or opinions that have been expressed here are close to their stop loss price.

Regards

Rusty2

What recommendations?

What is a stop loss price?

Momoko Miyamoto

Integrated Diagnostics Holdings (LON:IDHC) is one of my favourite and largest holdings alongside Airtel Africa (LON:AAF) . I would buy more london listed companies operating in Africa as the growth potential and valuations are more favorable than in most developing and emerging markets. Both companies pay decent divis but I would rather they reinvest these to grow their businesses and profits faster still.

For me, the issue with Integrated Diagnostics Holdings (LON:IDHC) is the poor performance of the stock relative to the first class fundamentals. I'm not completely averse and have owned profitably in the past. But It's flat since the start of 2016 and actually down since listing, all on relentless multiple compression. I guess that has to end some time but the fact is there are midcaps in the same field with equally great operating numbers in the US (eg Medpace) and even UK (eg Ergomed (LON:ERGO)) with relentlessly higher growth that have made much better investments without having to worry about war and political regime change - Capitol Hill riot aside.

Yes a very good point, l have held Ergomed (LON:ERGO) and it has done very well in the last 2 years. I do hold some shares in Airtel Africa (LON:AAF), I think there is a lot of protection but as you say some risk in Africa, there are major issues in some African countries such as Ethiopia, Nigeria it’s largest earner also has some on going issues. I don’t know Integrated Diagnostics Holdings (LON:IDHC), Egypt puts me off.

RE : Integrated Diagnostics Holdings (LON:IDHC) the revenue growth since 2016 does need to be adjusted downwards for EGP currency devaluation but the growth is still impressive even after factoring this in. The company is able to maintain and increase profit margins in the very high inflation environment of the Egyptian economy. I think the EGP reporting puts some investors off as they can’t be bothered with the conversion to USD or GBP.

Hi rmillaree

Yes, I saw the 'circa' on the £5m, which would have been fine if it was within £0.1m-£0.2m of the final figure, not off by £1.4m (c.28%.)

A company cash/debt balance is really something every CFO should be able to access instantly.
And given that the company only makes about 5 RNS announcements a year, it's really something that they should communicate well.

But I'm being picky. I'm sure there's a reasonable explanation. I'm not angry...just disappointed.

Yes it's a business with an excellent management team and large runway in front of it. Great company but, so far, poor stock. I'd also be concerned about the unwinding of the Covid boost that is forecast for next year - est. revenues -20% - although this isn't the only stock for which you could make that observation, eg our own Sdi (LON:SDI), which I've trimmed for that reason.

Paul Scott

This comment has been moderated

GUYUKTRADER

17th Nov '21

Yes that post is a little random and lacking in detail but there should be no excuse for calling somebody an idiot and unstable on Stockopedia. Especially from a contributor. That is disappointing.

andrewdb

the link with SG was that a lot of those coins and stamps were v. rare and expensive. they were valued at SG's value and no-one could say otherwise until the value was about to be actually realised. There was a base value for the things that were easily saleable - like gold coins and property.

The same is true of the unlisted investments here - outside the bank of georgia (hopefully easily saleable) we are told the value of those businesses by the CGEO mgt.

I put this as a point to consider rather than a reason to avoid. If there is anyone out there who has 'boots on the ground' that would be v. useful.

5th Dec '21

https://www.lancasterguardian....

Small Cap Value Report (Tue 16 Nov 2021) - G4M, KINO, RBG, DOTD, IDHC, RTN

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

63 comments

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

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