I attended the Shares Magazine / Cenkos Corporate Brokers (epic CNKS) ‘Innovators and Investors’ Conference at the Business Design Centre in Islington, London, yesterday. This is the third year that I have been to this event and I have to say it was smaller in terms of ‘Investors’ than in the previous 2 years. The number and quality of the companies exhibiting was probably about the same. There was a dusting of snow in the morning and it might be that a few people were put off from attending due to this.
The companies attending were as follows:
Abzena, APC Technology Group, Atlantis Resources, blur Group, Brady, Deltex Medical Group, eg solutions, ELECO, Escher Group, Flowgroup, Forbidden Technologies, Idox, Imperial Innovations, Instem, KBC Advanced Technologies, Manx Telecom, MedaPhor, Mercia Technologies, Plastics Capital, Portr, Proxama, ReNeuron Group, Rightster, Rosslyn Data Technologies, SeaEnergy, ServicePower, Stadium Group, Starcom Systems, SQS, TyraTech, XLMedia.
- Brady BRY
- EG Solutions EGS
- Manx Telecom MANX
- Software Quality Systems SQS
- XL Media XLM.
Unfortunately I failed to meet the following companies (they might be worth further investigation because my quick ‘Triage’ threw them up as interesting) because we (a superb Investor friend of mine from old, Mark Otten, met me there) took the day at a leisurely pace and I spent quite a bit of time with John Rosier and 7Circles:
- Advanced Power Components APC
- KBC Advanced Technologies KBC - Mark liked these but we did not discuss much. Simon Thompson covers in Investors Chronicle.
- Imperial Innovations IVO - John Rosier spoke to these and was quite positive about them.
- Stadium Group SDM.
By the time we had finished a long discussion with Brady, the other stands were packing up - oops. However, I am not going to apologise for being rather relaxed about meeting these companies - I find that if you build rapport with the company representatives and have a laugh, they let their guard down and you learn so much more.
It was great to meet up with John Rosier (@johnrosier on tweeterer). He is a very experienced Investor who I believe used to be a Fund Manager. He runs a website called johnsinvestmentchronicle.com which is well worth a look. John produced an excellent performance last year and it was great to speak to him and understand how his mind works - you can learn a hell of a lot from experienced Investors with regard to what they buy and how they go about things.
Mike Rawson (@7circles on the Tweets) runs a website at http://the7circles.uk/ which is similar in many ways to what I am doing with WheelieDealer but seems to have more of a Pensions / Personal Finance focus. Mike has been running his site for probably about a couple of months shorter than WD has been Live - but he has achieved a lot and it is worth visiting his site. For me it was very interesting to compare notes and share frustrations !!
As ever, I only sat through the Presentations by Manx Telecom and XL Media - Mike Dee of Manx was excellent (I have to say that, he is an old mate !!) and XL Media was a good presentation in terms of sounding plausible but I am not really convinced - as I will cover below. We also caught the tail end of the bloke from Tyratech TYRU discussing Headlice and showing huge pictures of Insects with bloated stomachs from blood - hmmm, didn’t really go well with my lunch…….
The summaries below are only high level comments - I have not done thorough research and if I wanted to invest, I would do a lot more analysis and digging and would obviously need to get my Buy timing right.
Please note any numbers are lifted from ShareScope and are based on the figures from Tuesday 3rd Feb 2015 - they will be slightly different now.
I already hold a Position in BRY. I actually bought them before the Event last year and after meeting with the then new Finance Director, Martin Thorneycroft, I bought some more because I really like the company and it is reasonable value. I am pretty sure they will be taken over in the coming years.
Last year Martin mentioned the CEO Gavin Lavelle a lot and at the Event this year, I actually got to meet him. I have to say I am very impressed - one thing that really stood out to me was that he was able to quote detailed Finance figures and suchlike off pat - he knows his stuff. It’s a bit like the moment in Dragon’s Den when Peter Jones asks the ’Hopeful’ what their projections for Revenue and Profit are for the next 3 years - they rarely know, but Gavin would nail it !!
Gavin told us about a new contract they had won with LG - the huge Asian conglomerate. They do a lot of manufacturing of stuff like washing machines and TVs etc. - all of which has a large metal requirement. So LG have bought software from BRY to managed their Metals Trading - this is a whole new market sector for them to aim at and I like that a lot.
I raised the subject of them being acquired and it was obvious that the CEO sees the company being taken over as a possible future. In the meantime, it is clear that BRY has the firepower (£9.5m cash roughly and no debt) to buy more bolt on acquisitions. They tend to do about one acquisition per year.
Recently the Share Price has suffered as Investors have dumped the stock due to Commodities falling in value. This is understandable but a bit silly. BRY customers are Commodity Traders in the main - they thrive on Volatility and the actual price is irrelevant - in certain Commodities, it is likely that Volatility has increased which is good for BRY customers.
BRY got hit hard at the end of 2013 because they announced the Signing of the 2 Largest Contracts they have ever had. The problem was one of Revenue Recognition - they only book Revenue and Profit when the Software is actually implemented or Milestones achieved - this meant a Short Term Profit Warning but was really a bit silly.
In terms of value, BRY is on a forward p/e of about 12 once you strip out the cash pile of £9.5m at the current price of 83p. The Divvy Yield is 2.3% and the Market Cap is £67.4m. If there was to be a takeover, I think a p/e of 18 would be fair - this is 50% Upside from here !!
The Long Term chart looks quite pretty.
These were the first people we spoke to - partly because I was on a mission for @conkers3 to say “Hello” to Elizabeth Gooch who is the CEO. When we got to the stand, it was empty of ’punters’ and there were 4 people from EGS stood there and I guessed that one of them was Elizabeth and I was right. She asked where @conkers3 was and pointed me at her colleagues for an explanation of the business. Seems a nice lady and clearly in charge.
EGS seem to do a sort of Process Workflow software but the difference from the usual stuff is that it has a ‘people’ focus - it is all about matching tasks with actual people. Workflow software usually is just process driven and sort of dehumanised - this stuff really takes account of individual’s skills and apparently employees like this and it helps deployment of the software.
Workflow software is about moving a bigger task around various people to get bits completed and bring the thing together in an organised, structured and timely way. I guess an example would be a Mortgage Application - the ‘paperwork’ involved gets sent round to different Individual workers to get elements done to it - like the Surveyor’s Report, Seeking References, Land Registry checks, etc. The Workflow software sort of automates and drives this process and does functions that would have been a human ‘Manager’s’ role in the past.
There was an interesting comment about Trade Unions. I asked what kind of reaction they got and the answer was that they find Trade Unions actually support the implementation of their software. This is because it is very much about People getting recognition for their skills and a “fair day’s work for a fair day’s pay“……
They do a lot of work for Banks and Insurance companies in Scandinavia and these companies are highly unionised.
I asked about Geographies and got a funny answer when I asked about how many contracts they had in the US - it went along the lines of: “we’ve got loads - er……one”. They have no installations in Europe and they have a bit in Australia. It is a small company in early growth mode so this is no surprise or problem. They have several in the UK.
They said they were gaining lots of business from existing customers having refreshers where EGS go in and do a review and amend the software etc. as processes change. I take this as a good sign that customers are happy with what they do and ask them to come in and do more.
I like what I see at EGS - seems a good product, that is well liked, and clearly a growing business. It is a bit small for what I normally like to invest in but I will break this rule for the right stocks. It needs proper investigation but has a lot of potential as an Investment I suspect.
In terms of value, at the current 75p Share Price, the forward p/e is 31 for 2017 and for 2016 the EPS is a Loss of 1.20p - this looks very stretched so any Investment here would need proper evaluation. It is a small company so it could grow quickly - there is clearly risk around this. The current Market Cap is £16.9m. They don’t appear to have much debt which is good.
The Chart is interesting with a steady Uptrend but there is clearly Strong Horizontal Resistance around 105p that I have marked with the Red Line.
I was very happy to go and speak to MANX because the CEO is an old mate of mine - he used to be my Customer when he was the FD at MANX about 18 years ago !! It’s been several years since I last saw Mike so it was great to catch up - he is a very likeable bloke, as I find are most people from the Isle of Man - must be an Islander thing, they really are great people.
I also know the head of the Global Solutions bit, Tom Meageen from my days as the Account Manager for Fujitsu. Tom has kindly put me up at his home a couple of times for the TT - if you have never been to the TT, you really must make the trip, it is a brilliant and rather crazy week of partying and general silliness.
The great thing about knowing people like this is that I know when they are being economical with the truth - Mike is a very open bloke so I could spot a mile off if he was pulling the wool !!
MANX reminds me very much of KCOM which I hold in my Income Portfolio but I actually am starting to wonder if maybe MANX would be the better one to invest in - I am not sure. They are both Income Stocks - you buy them for the Divvy, don’t expect much, if any, Capital Growth. However, of the 2, I suspect that MANX could deliver a little more in terms of some Share Price upside. The Chairman of MANX was formerly at KCOM - the Telecoms world really is very small (to stress this point, my mate Mark also knows the Marketing Director of MANX via another route !!).
In simple terms, MANX is a Cash Cow Island telephony business with a couple of other bits added on which could provide growth - although the winding down of some on-Island stuff is probably offsetting some growth.
MANX effectively has a Monopoly on the Island and it will almost definitely stay this way. This is because the Isle of Man has its own government and it is well understood that you could not get the necessary investment into Telephony and Data communications if you had more than one Network - the costs would be prohibitive. There is a token competitor but they only have 30% at the most of certain bits of the various Telephone service offerings. This Monopoly is also helped by the fact that one of the Non Execs is the Former First Minister of the Island !!
The new growth could come from the Datacentres business which is expanding nicely with one of 2 existing Datacentres being expanded and more capacity coming on line over the next 3 years (I think that is what the presentation said). Another growth area is the Global Solutions business which is about providing Telephony and Data services for companies outside of the Island. This is growing well I understand.
At the current price of 179p, the Market Cap is £202m but ShareScope is showing no Earnings Forecasts. From what Mike Dee said and from what I remember of the IPO documents, I think the Divvy Yield for this year will be about 5.5% and they will have a Progressive Divvy Policy (nice).
What a beautiful Chart - and it might be good time to nibble soon. Remember this is a recent IPO so not much Chart History.
I have been aware of SQS for many years and have flirted with investing in it but never actually got round to it - damn shame as the stock has been pretty good in recent years. It was tipped by t1ps.com a while back and they got it spot on and did very well for their subscribers who got in.
SQS are a German company who are specialists in Software Testing. I am a bit surprised that they are so unique - it appears to be that most Software producers have their own Testing Teams - and the big Systems Integrators (IBM, Fujitsu, HP, EDS. Etc.) have their own functions. The big problem with these ‘in-house’ teams is that they are “marking their own homework” and lack independence. SQS claim that they are agnostic and objective and I think this is a fair point to make.
They have several German car companies in their customer base and I guess this is where they started off from. This has enabled them to win business in the US with General Motors and Ford (I think that is correct !!). It is notable that they have gone from Zero to $25m revenues at their US office in one year - that is impressive.
I asked about IT Security work as that is a hot topic - the answer was that they did get involved in some of this. It was also mentioned that they get called in early in a Software Consultancy Project in order to help design testing needs and solutions - that is a good bit of business to have. They are clearly benefiting from the general trend for businesses to Outsource bits of their IT needs.
I really like SQS and it certainly deserves further investigation.
At the current 565p, the Market Cap is £172.7m and the Forward p/e for 2015 is 14.8 - this is not a steal, but equally it seems fair value for a Quality Business. The Divvy Yield for 2015 is 2.08%. They might have a tiny bit of debt.
I really wish I had bought them a couple of years ago when I was looking at them - check out that Chart - doh !!
This is a bit of a weird one for me. I think it probably could be a very good investment - although I am jaundiced because I have a dim view of Online Gambling stocks after being a bit frustrated with both TTR and NPT which I hold in my ISA.
To be fair, it is not only these 2. I actually have a terrible record in this sector - and I don’t really know why. A couple of years ago I actually screamed out “that’s it, I am never buying a f***** Online Gambler ever again,” after an irritating Lucky Escape with WMH. This was after a similar episode with 888 - I concluded I was crap at the Sector and best to leave it alone. Stupidly I ignored my previous experience and dived into TTR and NPT - both are quite irritating - although they appear good value……..
Rant over. XLM does have some attractions that mainly are around Cash Generation and the growth and divvy. Firstly we went to their Exhibition Stand and had a chat with the girl there. It was a bit weird because she does not actually work for XLM - she was from a Financial Services PR company and had only been working on the account for about a month !! To be fair, she did a pretty good job and it meant that by the time we trotted off to the Speech, we had a rough idea about the company.
I am not sure why they have a PR company - is it because they don’t have many staff in the UK perhaps or is it a bit more sinister? Is it a bit of a promotion thing ala QPP? I think investors need to consider what is going on here. In my experience, this is very unusual. Yes, companies have NOMADs and stuff, but a separate PR company as well is a bit OTT.
The other off-putting thing is that we couldn’t actually figure out what they do. They seem to have 3 bits to their business. Firstly they have about 2000 sort of Educational Websites about online gambling - punters go to these for advice and then they click on links which take them through to Online Gambling companies and if they sign up as New Players, then XLM gets a kickback payment. That seems fair enough and a good business, although I wonder about Barriers to Entry and competition. I bet if you give me £10m I could copy this !!
The next bit of their business is the confusing part. I think they called it ‘Media’ and it seems to be that they create and distributes Adverts online and on mobile. These Ads can be for their own websites or they can be done jointly with Online Gambling companies who help with the Branding and Design but XLM pay for the Ads. When punters click through, XLM gets a kickback payment again. That is how I understood it - but I am not sure. Again, this seems easy enough to replicate so seems to lack an ‘Economic Moat’ as Buffett would say.
The third part could be really exciting in the near future - they recently bought a company that specialises in Social Gaming - this is really hot stuff. The basic thing is that Online Gamers ‘watch’ other Expert Game Players playing things like ‘World of Warcraft’ or ‘Some other Gaming crap that I am too old to possibly know about or understand’ in the hope that they will learn how to play them better. The analogy I thought of is that it is like when we were kids all crowded around the ‘Space Invaders’ machine watching over the shoulder of the Best Kid in your Class when it came to shooting down the Aliens. ‘Watching over their shoulder’ now means seeing some geezer you have never met doing it on the other side of the world via the Interweb. Apparently kids go bananas for it.
Mind you, having said all that, I have no idea how XLM make money in this Social Gaming bit !!
At the current price of 56p, the Market Cap is £112.7m and the Forward p/e for 2015 is 9.5 which looks on the Cheap Side - nice. For 2015, the Divvy Yield forecast is 4.57% - tasty.
The company has at least £9m cash according to ShareScope (I have not checked the latest Trading Updates) so this could be very good value. It is Israel based - maybe that is putting buyers off? It seems well cheap really - but then anything linked to Online Gaming is probably cheap……….
The Chart below is interesting - this is the Worst Chart of all the ones in this short Report - it is in a Downtrend and not very pretty - I am surprised by this. Bulls will need a Breakout above my Red Line before this can run higher.
A fun day out and well worth the visit. Shame no Choc Brownies and we had to buy our own lunch this year !!
That’s all folks, wd