The Covid-19 enforced lockdown has forced millions of organisations to adopt remote working practises, providing a boom for remote conference meetings companies and one that could signal a major structural change in working arrangements longer term.
That’s the key reason why I suggested buying shares, at 138p, in LoopUp (LOOP:179p), a London-based premium remote conference meetings company (Alpha Report: ‘Tap into the remote working boom with LoopUp’, 2 July 2020). The company offers its information secure, reliable and easy-to-use remote conferencing technology to customers in key professional service verticals (law, accountancy, investment banking, corporate finance, private equity, asset management, insurance, PR and marketing). The client base includes more than 20 per cent of both the AmLaw Global 100 firms and the world’s top-100 private equity firms. With offices in North America, Europe, Hong Kong, Sydney and Barbados, LoopUp’s geographic footprint covers the world’s major business capitals.
A trading update at the tail end of last week highlights just how these secular trends are increasing the number of users, and profitability, too. LoopUp’s first-half revenue soared by 43 per cent to £31.9m, and on four percentage point higher gross margin of 71.5 per cent. Moreover, with overheads lower year on year, the operational gearing of the business really kicked in, so much so that first cash profits (earnings before interest, taxation, depreciation and amortisation) soared by 249 per cent to £12.2m.
Analyst Peter McNally at brokerage Panmure Gordon had been forecasting a cash profit of £10.7m on revenue of £50m for the whole of 2020, so has been forced to push through material earnings upgrades. In fact, based on what still looks like conservative upgrades, Panmure now forecasts annual revenue rising by 31 per cent to £56m to deliver cash profit of £16.9m (2019: £6.4m) and pre-tax profit of £10.2m (2019: £0.5m). On this basis, expect earnings per share (EPS) to rise from 2.2p to 15.1p, implying the shares are rated on a modest forward price/earnings (PE) ratio of 12, a hefty discount to the UK Small-Cap Technology sector average of 17.6.
It’s worth noting that with cash profit building so quickly net borrowings have been slashed by more than half from £11.4m to £5.4m since the start of 2020, well ahead of Panmure’s year-end estimate of £7.6m. This means that more of the economic interest of the enterprise can now be attributed to shareholders. The debt reduction also reduces interest costs, thus boosting net profits.
LoopUp’s share price has surged by 29 per cent to 179p since I published my Alpha Report and is well on the way to achieving my initial 225p target. Given the scale of the upgrades, the share price risk is clearly to the upside. So, ahead of the company’s operational update on Wednesday 29 July, I continue to rate the shares a strong buy.
| Simon Thompson's Alpha Small-Cap Reports (May 2019 to July 2020) | ||||||
| Date | Company | Offer price on publication (p) | Latest bid price or exit at target price (p) | Dividends paid (p) | Total return (%) | Target price (p) |
| 17 May 2019 | Venture Life | 45 | 84 | 0 | 86.7% | 95 |
| 21 June 2019 | Sanderson | 122 | 140 | 1.5 | 16.0% | 175 |
| 23 July 2019 | IXICO | 33 | 85 | 0 | 157.6% | 85 |
| 15 August 2019 | SRT Marine Systems | 38 | 55 | 0 | 44.7% | 55 |
| 27 September 2019 | CIP Merchant Capital | 51 | 43 | 0 | -15.7% | 72 |
| 25 October 2019 | Alternative Income REIT | 74 | 49.2 | 3.575 | -28.7% | 85.5 |
| 15 November 2019 | Frontier IP | 57 | 62 | 0 | 8.8% | 100 |
| 12 December 2019 | SigmaRoc | 46 | 42 | 0 | -8.7% | 60 |
| 21 February 2020 | Circle Property | 208 | 150 | 3.3 | -26.3% | 287 |
| 19 March 2020 | Hargreaves Services | 206 | 196 | 0 | -4.9% | 320 |
| 30 April 2020 | ThinkSmart | 14 | 24 | 0 | 71.4% | 35 |
| 4 June 2020 | RBG Holdings | 69 | 75 | 0 | 8.7% | 140 |
| 2 July 2020 | LoopUp | 138 | 178 | 0 | 29.0% | 225 |
| Average Return | 26.0% | |||||
| Source: London Stock Exchange prices | ||||||
Gresham House assets under management beat forecasts
Gresham House (GHE:643p), a fund manager specialising in renewable energy generation, solar power, wind, forestry, infrastructure funds and public and private equity investment strategies, has increased assets under management (AUM) by an eye-catching 17 per cent to £3.26bn in the first half of 2020, buoyed by organic growth of 10 per cent (£283m).
The balance of the increase came from the acquisition of TradeRisks, a fund management business and debt advisory services group to the housing and social infrastructure sectors. TradeRisks has the £184m management contract of Residential Secure Income (RESI), an investment company that owns portfolios of shared ownership, retirement and Local Authority housing. The acquisition is working out well. Gresham House chief executive Tony Dalwood revealed during our call that the company is planning the launch of a fund targeting the UK shared ownership market. Institutional interest supports an initial close of £100m later this year/early 2021, and he sees potential to scale the fund up to £1bn.
Mr Dalwood also notes that Gresham House Energy Storage Fund (GRID:118p), a specialist in UK energy storage systems (ESS), is also looking to scale up to take advantage of its strong pipeline of new projects. The structural need to ramp up battery storage capacity to enable the UK government to hit its green energy targets supports investor demand, as do the high investment returns. Shares in the £271m market capitalisation company offer a prospective dividend yield of 5.9 per cent, an income stream in a zero-interest rate policy environment.
Around three-quarters of Gresham House’s AUM are in hard assets that generate uncorrelated returns to equity markets, and offer enticing yields to attract new fund flows. These include £1.3bn in forestry funds. Strong industry pricing and ongoing demand from the housebuilding sector were key drivers behind the 11 per cent annualised investment performance from forestry in the half year, adding £72m to AUM. These positive dynamics are unlikely to change anytime soon. The focus on wind, solar, renewables and forestry also highlights Gresham House’s strong ESG (environmental, social, and governance) credentials, another reason why it continues to deliver underlying AUM growth.
Bolt-on acquisitions are still being considered as are cornerstone investments in new ventures. Gresham House has ample firepower as analyst Justin Bates at brokerage Canaccord Genuity believes that liquid assets and cash could be worth more than £50m by the year-end. Mr Bates will be reviewing his forecasts upwards given that AUM of £3.25bn already exceeds his year-end forecast by £150m.
Having delivered pre-tax profit of £10.3m on revenue of £34.6m in 2019, expect another year of profitable growth and one that Gresham House’s enterprise valuation of £120m fails to factor in. The holding has more than doubled in value since I included the shares, at 312p, in my 2016 Bargain Shares Portfolio, albeit the share price is little changed since I covered the annual results (‘Coronavirus winners’, 9 March 2020). That’s only because investors have failed to realise that the fund manager has been trading resiliently through the Covid-19 crisis. Ahead of half-year results in September, I maintain my 800p target price. Buy.
| Simon Thompson's 2016 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price (p) 5.02.16 | Bid price (p) 20.07.20 or exit price (see notes) | Dividends (p) | Total return (%) |
| Bioquell (see note one) | BQE | 125 | 590 | 0 | 372.0% |
| Volvere (see note six) | VLE | 419 | 1150 | 0 | 188.2% |
| Gresham House | GHE | 312.5 | 640 | 7.5 | 107.2% |
| Oakley Capital | OCI | 146.5 | 218 | 15.75 | 59.6% |
| Bowleven (see note two) | BLVN | 18.935 | 5.5 | 15 | 43.2% |
| Gresham House Strategic | GHS | 796 | 1030 | 43.35 | 34.8% |
| Juridica (see note three) | JIL | 36.1 | 14 | 32 | 27.4% |
| Mind + Machines (see note four) | MMX | 8 | 7.5 | 0 | 2.8% |
| Walker Crips (see note five) | WCW | 44.9 | 23.2 | 5.59 | -35.9% |
| French Connection (see note seven) | FCCN | 45.7 | 11 | 0 | -75.9% |
| Average return | 72.4% | ||||
| FTSE All-Share Total Return | 5180 | 6564 | 26.7% | ||
| FTSE Aim All-Share Total Return | 747 | 1008 | 35.0% | ||
| Notes: | |||||
| 1. Simon Thompson advised buying Bioquell's shares at 149p in February 2016. Bioquell bought back 50 per cent of shares in issue at 200p each in June 2016 through a tender offer and Simon recommended buying back the shares in the market at 145p to give an average buy in price of 125p (‘Bargain shares updates’, 22 June 2016). Company was taken over at 590p cash per share in January 2019. | |||||
| 2. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The company subsequently paid out a special dividend of 15p a share on 8 February 2019 and Simon then advised selling the balance of the holding at 5.5p ('Taking stock and profits', 9 December 2019). | |||||
| 3. Simon Thompson advised buying Juridica's shares at 41.2p in February 2016. Juridica subsequently paid out a special dividend of 8p a share in June 2016 and Simon recommended buying shares in the market at 61p using the cash proceeds to take the average buy in price to 36.1p (‘Brexit winners', 1 August 2016). Juridica then paid out a special dividend of 32p a share in September 2016 and total return reflects this distribution. Simon advised selling the holding at 14p ('Taking Q1 profits and running gains', 4 April 2017), hence the price quoted in the table. | |||||
| 4. Simon Thompson advised buying Mind + Machines shares at 8p in February 2016. Mind + Machines subsequently bought back 13.22 per cent of the shares in issue at 13p a share. The total return reflects this capital distribution. Simon advised selling the entire holding at 7.5p which is the exit price stated in the table ('Strategic acquisitions', 9 May 2018). | |||||
| 5. Simon Thompson advised selling Walker Crips shares on Monday, 4 March 2019 at 25p ('Bargain Shares Portfolio updates', 4 March 2019). This is the exit price quoted in the table. | |||||
| 6. Simon Thompson advised rendering 41.18 per cent of your holdings back to company at 1290p a share. Tender completed 19 June 2019 ('Tenders, takover and hitting target prices', 3 June 2019), and balance of the holding at 1,150p ('Taking stock and profits', 9 December 2019). | |||||
| 7. Simon Thompson selling French Connection shares at 11p ('Targeting value plays', 16 March 2020). | |||||
| Source: London Stock Exchange share prices | |||||
Jarvis' massive earnings upgrades
Half-year results from Aim-traded Jarvis Securities (JIM:625p), a financial services outsourcer and retail client stockbroker, were outstanding and have prompted huge earnings upgrades.
Higher trading volumes from 100,000-plus retail clients who use Jarvis’s ShareDeal-Active and X-O low-cost online share trading services was the key reason why first-half pre-tax profits rose 50 per cent to £3.6m on revenue up 30 per cent to £6.8m. The other is that Jarvis is seeing decent ongoing demand from pension funds and wealth managers looking to make cost savings by outsourcing their financial administration services to the company’s corporate division. That business is benefiting from operational gearing, too, having restructured its pricing in recent years, and is now capturing increased trade flows (cash under administration up 23 per cent year on year) on a relatively fixed cost base.
Post results, analyst Nick Spoliar at house broker WH Ireland upgraded his full-year revenue forecast by 13 per cent to £13.2m and his pre-tax profit estimate by 23 per cent to £6.8m (2019: £4.8m). On this basis, expect EPS to rise to 50p, up from 35.8p in 2019. There is good news on the dividend, too. Jarvis has paid out two quarterly dividends totalling 17.75p, up 42 per cent year on year, and WH Ireland now expects a total dividend of 37.5p to be paid this year, 25 per cent higher than previously forecast.
I advised buying the shares, at 460p (‘Jarvis offers medium-term value’, 15 August 2018), since when the board has paid out 72.5p a share of dividends to produce a total return of 52 per cent, during which time the FTSE Aim All-Share Total Return index has shed 17 per cent of its value. I last advised buying, at 505p, after WH Ireland’s last earnings upgrade (‘Stock picking value open to future gains’, 4 May 2020), targeting fair value of 600p. Although that target has been hit the shares are still only priced on a forward PE ratio of 13 and offer a prospective dividend yield of 5.7 per cent. That’s hardly excessive for a company that’s in a strong earnings upgrade cycle and I raise my target price to 700p. Buy.
| Simon Thompson's 2017 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price on 3.02.17 (p) | Bid price on 20.07.20 (p) or exit price (see notes) | Dividends | Total return (%) |
| BATM Advanced Communications (see note seven) | BVC | 19.25 | 147.5 | 0 | 722.6 |
| Kape Technologies (formerly Crossrider) | KAPE | 47.9 | 196 | 3.55 | 316.6 |
| Cenkos Securities (see note two) | CNKS | 88.425 | 106 | 9.5 | 30.6 |
| Manchester & London Investment Trust (see note three) | MNL | 291.65 | 377 | 3.0 | 28.4 |
| Avingtrans | AVG | 200 | 270 | 9.6 | 39.8 |
| H&T | HAT | 289.75 | 325 | 27.1 | 21.5 |
| Chariot Oil & Gas (see note one) | CHAR | 8.29 | 1.9 | 0 | 7.5 |
| Management Consulting Group (see note five) | MMC | 6.183 | 6 | 0 | -3.0 |
| Bowleven (see note four) | BLVN | 28.9 | 5.5 | 15 | -6.1 |
| Tiso Blackstar Group (see note six) | TBG | 55 | 17.7 | 0.54 | -66.8 |
| Average | 109.1 | ||||
| FTSE All-Share Total Return | 6485 | 6564 | 1.2 | ||
| FTSE Aim All-Share Total Return | 977 | 1008 | 3.2 | ||
| Notes: | |||||
| 1. Simon Thompson advised selling two-thirds of the Chariot Oil & Gas holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Return reflects the profit booked on this sale. Simon subsequently advised using some of the proceeds from the share sale to participate in the one-for-8 open offer at 13p a share in March 2018 which is taken into account in the total return ('On the earnings beat', 5 Mar 2018). Simon turned buyer of the shares at 4p on 17 April 2019 when he suggested using the profit banked to reinvest in the shares ('Chariot's North African adventure', 17 April 2019). | |||||
| 2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 and the 106p price quoted in the above table is the exit price on the holding ('A profitable earnings beat', 3 Apr 2017). Please note that Simon has since included the shares in his 2020 Bargain Shares Portfolio and rates the shares a buy ('exploiting cash rich value plays', 21 May 2020). | |||||
| 3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). The 377p price quoted in the table is the final exit price. | |||||
| 4. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The company subsequently paid out a special dividend of 15p a share on 8 February 2019 and Simon then advised selling the balance of the holding at 5.5p ('Taking stock and profits', 9 December 2019). | |||||
| 5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). The price quoted in the table is the 6p exit price. | |||||
| 6. Tiso Blackstar has transferred its UK listing to the Johanesburg Stock Exchange. Price quoted is sterling equivalent bid price at current exchange rates. | |||||
| 7. Simon Thompson advised banking profits on half your holdings in BATM shares at 49.9p, and running the balance for free ('Bargain Shares: Exploiting pricing anomalies and top-slicing', 3 December 2018). Simon then advised buying back the shares at 43.5p ('BATM armed for a re-rating', 11 July 2019). Total return takes into account these trades. | |||||
| Source: London Stock Exchange share prices. | |||||
Xaar’s recovery on track
Cambridge-based Xaar (XAR:71p), a leader in the development of inkjet technology and maker of piezoelectric drop-on-demand industrial inkjet printheads, has released a solid pre-close trading update ahead of half-year results in September.
The restructuring of the group’s bulk printhead business and the decision to sell directly to original equipment manufacturers (OEMs), so to avoid a previous conflict of interest in aftermarket sales, is paying off. Furthermore, despite product printing systems sales being impacted by Covid-19, Xaar’s first-half revenue of £23.7m was in line with the second half of 2019 and both divisions have improved their cash position. Net cash of £23.9m (30.5p a share) is down only slightly since the start of the year, highlighting success of the new management team in reducing cash burn and turning around the business.
I suggested buying Xaar’s shares, at 36.4p, when my 2020 Bargain Shares Portfolio was published online (magazine price 38.5p) based on the recovery potential. That is clearly now gaining traction, hence the reason why the share price is now 71p. I am also encouraged by comments that product development and testing is progressing well in Xaar’s 3D printing business. Stratasys, a leading 3D printing company, has a call option (expiring in December 2022) to buy out Xaar’s 55 per cent stake in this operation for £26.4m (34p), or three times the carrying value of the investment in its 2019 accounts. I wouldn’t bet against that happening.
I last rated Xaar’s shares a buy, at 55p, when I covered the annual results ('Five bargain shares success stories', 11 May 2020). As the turnaround gathers pace expect the share price to move to a decent premium to net asset value (NAV) of 82p. Buy.
| Simon Thompson's 2020 Bargain shares portfolio performance | ||||||
| Company name | TIDM | Market | Opening offer price 7.02.20 | Latest bid price 20.07.20 | Dividends | Percentage change (%) |
| Metal Tiger (see note two) | MTR | Aim | 11.8p | 25p | 0.0p | 111.9% |
| Xaar | XAR | Main | 42p | 70.2p | 0.0p | 67.1% |
| Creightons | CRL | Main | 44p | 51p | 0.0p | 15.9% |
| Northamber | NAR | Aim | 54.9p | 60p | 0.3p | 9.8% |
| Chenavari Capital Solutions (see note one) | CCSL | Main | 61.4p | 40p | 0.0p | -1.4% |
| Anglo Eastern Plantations | AEP | Main | 570p | 471p | 0.4p | -17.3% |
| CIP Merchant Capital | CIP | Aim | 57p | 44p | 0.0p | -22.8% |
| Cenkos Securities | CNKS | Aim | 56p | 43p | 0.0p | -23.2% |
| Brand Architekts | BAR | Aim | 160p | 110p | 0.0p | -31.3% |
| PCF | PCF | Aim | 33.3p | 18p | 0.4p | -44.7% |
| Average | 6.4% | |||||
| FTSE All-Share Total Return index | 7,796 | 6,564 | -15.8% | |||
| FTSE Small-Cap Total Return index | 9,300 | 7,921 | -14.8% | |||
| FTSE Aim All-Share Total Return index | 1,099 | 1,008 | -8.3% | |||
| Note 1. Chenavari Capital Solutions made a compulsory capital redemption of 34.73 per cent of the share capital at 85.72p a share in March 2020, and subsequent compulsory capital redemption of 21.9 per cent of the share capital at 72.93p a share in July 2020. The total return takes into account the capital redemptions. | ||||||
| Note 2. Metal Tiger shares consolidated on the basis of one share for every 10 shares previosuly held on 1 July 2020. | ||||||
| Source: London Stock Exchange. | ||||||
A fintech winner
Shares in fintech fund Augmentum Fintech (AUGM:107p) have re-rated significantly since I suggested buying, at 57.5p (‘Exploiting market mis-pricing’, 26 March 2020) and are now back above the 102.4p entry point in my 2019 Bargain Shares Portfolio. That’s quite a round trip, but one that shows how inefficient markets can become when investor risk aversion is at extreme levels.
There is no doubt in my mind that Augmentum is performing well. Annual results revealed an unrealised portfolio gain of 18 per cent on invested capital. NAV rose more sedately, up 6 per cent to 116p a share, only because the cash raised from a placing last summer is still being invested. During the financial year, £17.8m of cash was invested in new investments, and a further £15m in exiting portfolio companies. Augmentum’s investment manager, Tim Levene, has enjoyed a fair amount of success.
| Simon Thompson's 2019 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price 1.02.19 | Bid price 20.07.20 or exit price (see notes) | Dividends | Percentage change |
| TMT Investments (note one) | TMT | 250¢ | 402¢ | 20¢ | 203.4% |
| Futura Medical (note two) | FUM | 14.85p | 34p | 0p | 129.0% |
| Augmentum Fintech | AUGM | 102.4p | 106p | 0p | 3.5% |
| Ramsdens | RFX | 165p | 150p | 7.5p | -4.5% |
| Inland | INL | 57.75p | 54p | 0.85p | -5.0% |
| Mercia Asset Management (note three) | MERC | 29.57p | 27.5p | 0p | -7.0% |
| Driver Group | DRV | 74p | 64p | 1.25p | -11.8% |
| Bloomsbury Publishing | BMY | 229p | 193p | 8.03p | -12.2% |
| Litigation Capital Management | LIT | 77.5p | 61.6p | 0.71p | -19.6% |
| Jersey Oil & Gas | JOG | 205p | 140p | 0p | -31.7% |
| Average | 24.4% | ||||
| FTSE All-Share Total Return index | 6,852 | 6,564 | -4.2% | ||
| FTSE Aim All-Share Total Return index | 1,023 | 1,008 | -1.5% | ||
| Note 1: Simon advised taking profits on TMT Investments at 580¢ a share to bank 140 per cent gain including dividend of 20¢ ('Takeovers, tender offers and taking profits', 9 September 2019), and subsequently advised buying the shares back at 318¢ ('On the hunt for recovery buys', 6 July 2020). | |||||
| Note 2: Simon advised taking profits on Futura Medical at 34p a share on Monday, 14 October 2019 ('Bargain Shares: golden opportunities', 14 October 2019). The selling price is used in the performance table. | |||||
| Note 3: Simon advised selling Mercia Asset Management at 27.5p a share on Monday, 9 December 2019 ('Taking stock and profits', 9 December 2019). The selling price is used in the performance table. | |||||
| Source: London Stock Exchange opening offer prices at 8am on Friday, 1 February 2019 and latest bid prices or on date when Simon advised exiting the holding. | |||||
For example, a £4m initial investment in Farewill, an online will writing company that writes one in every 25 wills in the UK, has now doubled in value. Business is booming as highlighted by a nine-fold rise in revenue this year. Farewill is attracting investor interest, too, having recently closed a £20m funding round in which Augmentum invested a further £2.6m of its year-end £15m cash pile.
Last September’s investment in German technology rentals platform Grover has paid off in double-quick time. Surging demand for Grover’s range of 2,000 tech products has more than doubled Grover’s annualised revenues to €40m (£36m) as office workers adopted home-working during the lockdown. Augmentum’s £5.3m initial investment has been marked up 17 per cent in value.
Interestingly, Mr Levene notes that “Covid-19 has fundamentally changed behaviours, accelerated the digitisation of financial services and created significant opportunity for further disruption”. Augmentum is well placed to capitalise on what could be a once-in-a-generation transformation in digital adoption. Moreover, with 93 per cent of NAV now fully invested, and the shares trading 8 per cent below NAV, prospects for the company to maintain its high-teens investment performance is being undervalued. Buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.25 [UK].
Special offer: Both books can be purchased for the special price of £25 plus discounted postage and packaging of only £3.95. The books include case studies of Simon Thompson’s market beating Bargain Share Portfolio companies outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and stock screens he uses to identify small-cap companies with investment potential, too. Details of the content of both books can be viewed on www.ypdbooks.com.
Simon Thompson was named 2019 Small Cap Journalist of the year at the 2019 Small Cap Awards.
