Small Cap Value Report (Wed 1 Mar 2023) - MEGP, PURP, IPF, NICL, INL

1st Mar '23 by Paul Scott

46 comments 8054 reads

Good morning from Paul & Graham!

I'm not very good with dates, as you know. For some reason I thought it was Thursday until about my third cup of coffee. Now corrected!

I'll sign off today's report, as I need to move on to watching an IMC webinar from Beeks Financial Cloud (LON:BKS) (I hold). However. I've got some spare time later today, so will prepare some backlog items for tomorrow's report.

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 to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Paul’s Section:

£INL

Quick comment. This is looking increasingly likely, by the day, to go to zero,. Yesterday it said that more time is needed to complete the audit for FY 9/2022 accounts. I imagine PWC are probably having a feast on the fees. It’s hoping to publish accounts some time in March 2023. Today we’re told the Chairman & 2 NEDS have resigned. The Chairman stays on the Board for a maximum of 2 weeks, to allow time to reappoint a new Director (to avoid a breach of the Articles, which would require shares being suspended). Ironically, it says Stephen Wickes is returning to the Board (I suspect he’ll end up presiding over the collapse of the company he ran so badly for years).

My opinion - it’s been a bargepole job for me for a long time. I can’t see it lasting much longer, and the numbers cannot…

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Benson

1st Mar '23

Nichols (LON:NICL) This company usually gets a good report and is designated as a quality company but it’s shares have been in a downtrend since 2017? Don’t quality companies increase their value? The report details very competently it is going to run the company in the next 12months but I struggle to see that they will increase the value of my shares

Time will tell

sevenccc

Hi Norfolk

I think Base Resources (LON:BSE) forecast for 24 is so much lower as the existing resource will be running down. Its life has just been extended to run through 24 and the rest depends on new points of extraction coming on stream. The big issue for me though is the lack of permits to proceed in Madagascar as this appears to be the real future of the company.

Hopefully they will get the go ahead there and all the government blessings and everything and the share will fly. But that IMO is the risk you are taking. Kenmare Resources (LON:KMR) seems a comparatively solid, lower risk proposition. Might be just because I hold it that I take that view though!

Daz3

Out of interest, how do you get to a pre-tax profit of £2m?
Last years pre-tax was £0.843m and H1 pre-tax is up around 30%. If that was repeated in H2 and next year, I get to £1.42m.
Of course growth could accelerate but I think they will also see higher admin costs because of wage inflation etc.

thirty fifty twenty

hi Daz3. Aeorema Communications (LON:AEO) my calcs are for FY ending June 24 i.e. the next full year after this June closes. given the confidence they state for global contracts i was going for higher growth and thus margin gains compared to H1 and last year. what is clear for me is the growth record and trajectory of the company. given such i also don't try and 'predict' market ratings. thus whether they hit c.£2m this in 18mth or 24mths i am relaxed about. what is clear on the upside for Aeorema Communications (LON:AEO) is that that level of profit, plus net CASH, would give a nice margin of safety if buying at MV of c.7m

Thanks for the reply 30 50 20.
I agree still very good value, as growth looks very likely for the next 18 months at least.
I do think they will be affected somewhat by cost pressures (although that should eventually feed into higher prices they charge their customers), so I'm a little more cautious than you on pre-tax profit growth
It's only a trading update, so not much detail, we'll have to wait for the interim's for more comment.
Thanks again

Norfolk'n'Good

Thanks very much for the information - sounds like i need to do a lot more digging - much like Base Resources......

mjfgs

This is from the Base Resources (LON:BSE) website re the Madagascan project:

"Base Resources is progressing the Toliara Project in south-west Madagascar, 45km north of the regional town and port of Toliara.

The Toliara Project is underpinned by the large, high grade, ilmenite rich, Ranobe deposit, and is considered by Base Resources to be one of the best mineral sands development projects in the world.

The project is well advanced with mining license and environmental approvals already in place and is currently progressing towards development"...

So it looks as though they do have the go-ahead??

MH1

Getbusy (LON:GETB) ( I hold)

Polite request for a look at Getbusy. Numbers out today. Good growth across the board. Very sticky customer base. Opportunities to grow in other segments. Cash increased year on year. All growth self funded. High level of repeating revenues 95%. Finncap have become brokers and initiated today so a note is on Research Tree.

Post a management meeting, I still think they are under promising and over delivering which I'm happy with. Management remain big holders at over 40% of the equity.

Revs8

Not sure if this is new news but I have just read that SThree (LON:STEM) is to be added to the FTSE250 index. I assume this explains the recent rise in SP (apart from it being a super stock!).

Wimbledonsprinter

I am also a holder but outraged by the Cash Distribution Plan. I had to read it several times and I am still not sure that I am reading it correctly.

But, if I am reading it correctly, if the company hits the stretch target of £150m Daniel Rabie will receive 15% (£22.5m) and Haworth would receive 10% (£15m). Can this really be correct???? I hope I am misinterpreting something.

Sure , we can say that if the stretch target is met, then shareholders will be happy. But these sums are outrageously large for a microcap and surely unnecessary to “incentivise” mangement to do the best job they can do.

I see that Finncap as NOMAD (appointed only 4 days previously) has been consulted by the independent NEDs as to the awards’ fairness and reasonableness.!!! It does not put AIM in a good light.

Snowbum

SP has moved a bit today, the risk / reward still looks excellent imo. The MD has highlighted a few drivers:

Prices for their products have actually held up and have not moderated as was previously expected.
Kwale mine life extension is expected beyond 2024 following resolution of issues with local tribe leaders. They have rigs mining this area now, furthermore is known to be present but needs drilled to quantify.
Toliara negations with Govt have progressed well and a PFS will be advanced through this year.

AstonGirl

Provident Financial (LON:PFG) are no longer a doorstep lender Quilleron

“During 2021, the Group's evolution continued and involved the closure of its
home collected credit business, which carried the 'Provident' brand”

They now focus on credit cards, vehicle finance and personal loans & this has prompted the name change to Vanquis Banking Group

I hold both International Personal Finance (LON:IPF) & PFG, tho I do appreciate that not everyone is comfortable with this type of finance companies

The Annual Report also makes mention of their being keen to make appropriate acquisitions

I would imagine access to such cheap finance would enhance the attractiveness of acquiring businesses complementary to the existing ones making up ME Group

As a holder I shall watch with interest to see what they find

mojomogoz

2nd Mar '23

I’ve read outrage and derision on Getbusy (LON:GETB) today…

On the remuneration plan of mgt are getting a big payout as they have distributed £70m cash over 7 yrs then I’m not going to begrudge CEO £5m and CFO £1.5m and I’ll be delighted they’ve stuck around for next 7 yrs delivering this to us…and if it’s £150 gross cash distribution and they are deep in reward bonus…well the market cap is likely something at least 20x now.

The new loan facility requires some explanation. Maybe SVB pulled the old one for some reason (I’ve sought a biz loan from SVB in the past and they are pain in ass and changeable) and elder Rabie is providing a stopgap until they can get alternative

Mojomogoz. I hope you are correct re Getbusy (LON:GETB) Cash Distribution Plan. What is not clear from the text in the RNS, is it only talking normal dividends or also the sale of parts or all the company. My reading is that it includes the sale of the company - because that seems the only way to hit the targets - but I admit it is not crystal clear.

To sell the company for £150m within 7 years - does not seem too much of a “Stretch target” - say to get ARR to £40 or £50m and to sell at 3-4x ARR.

I would think management had done an OK job if that came to pass - not some stellar job. Management should not get some special reward for seeing the multiple expand.

Getbusy (LON:GETB)

I have contacted the management and as I understand the numbers the CEO and CFO would receive an incremental £7.5m at the stretch target of £150m. That would be split roughly equally between the two of them. As you say below the reward vs the length of time taken to get there is a relevant consideration.

WimbledonSprinter- I live in Wimbledon fyi!

Mike

shanklin100

Interestingly Trident Royalties (LON:TRR) recently bought a royalty over Kwale on the basis that prospects for life extensions beyond 2024 were positive. See RNS below…

https://www.investegate.co.uk/...

Yes, looks positive. I believe the issues weren’t in relation to ‘is there any ore left’ but were more to do with relationships with tribal land owners, which appear to now be resolved.

You might be right in your dastardly inference! Qs to be asked. Based on interactions I trust mgt at Getbusy (LON:GETB) but they always have the opp to lose it. I wouldn’t be happy with a £70m take out (or even £150m) as I think the company will be worth much more.

4th Mar '23

Mike and Mojomogoz

Thanks for your replies. I have also contacted management, who I found very forthcoming and precise with their answers, which has changed my understanding a bit but not necessarily in the direction I wanted to hear.

I now understand that if the entire business were sold for cash within the 7-year timeline for £150m, then shareholders would receive £123.25m and the two recipients of the CDP would receive £26.75m.

Mike - I live within jogging distance of Wimbledon.

Small Cap Value Report (Wed 1 Mar 2023) - MEGP, PURP, IPF, NICL, INL

Paul’s Section:

£INL

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Paul Scott

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