Weekender #5

A weekly recap on European micro-caps

Good morning and welcome to your weekly source of European micro-caps news. We have made good progress on our Deep Dive #1 and are pleased to say that we will publishing it next week, stay tuned to find out when! Just to wet your appetite, it’s a high quality, sub £150m market cap, AIM listed company. That’s all I’m going to say for now!

Let’s dive in


Highlights

Best of The Best PLC (#BOTB) profit warned on Friday and closed down 46%. If you don’t know what Best of The Best is then you haven’t been paying much attention when wandering around the airport terminals waiting to catch your next flight.

No, I’m not talking about the 1989 martial arts movie…. I’m talking about this:

Win you dream car and with a bit of luck you will also find a bag full of cash in the boot! (fyi BOTB is no longer at airports, only online!)

The profit warning was brutal….

“The new guidance the Board is providing today for the year ending 30 April 2022 is c.62% below current market forecasts with a commensurate impact on the following financial year.” 

And then the company says:

“However, should revenue trends improve, it can be expected that the reverse would occur and margins and profitability would increase materially due to the nature of the business model and the operational gearing.

Well that doesn’t really fill me with confidence. This is a clear indication that BOTB is a low quality company imo…

Anyways, the profit warning is not what interests me. What I find interesting is how did we end up here?

Today the company is worth £77m. On Thursday it was worth £143m. In March it was worth £330m and right before the pandemic it was worth £33m….yep a 10-bagger right there! It starts with a stronger than expected trading FY20 results (April year-end) which the company attributes to the new online only business model. The company announces a “heightened level of interest in the company following FY20 results…which could potentially lead to an offer”. The company initiates a “formal sale process” to facilitate dialog. The next few updates are “trading ahead of management expectations”. The formal sale process is closed stating that given the strong growth it is in the best interest of the shareholders to continue with the existing strategy. A month later the founder and family/directors place 2.5m shares at £24 crystallising £60m (company worth £225m). The next trading update (May 21) is in line with expectations and the shares soften. In June, the company announces FY21 results and you have the first major correct (stock -28%). “ However, in contrast to the summer 2020 period, we have experienced somewhat of a reduction in customer engagement since the latest easing of lockdown restrictions on April 12, 2021”. On Friday we had a profit warning and the stock fell 46%.

There’s a couple of things going on here. Firstly there’s the changing business model (shift online). This always creates uncertainty and risk. Why was the strong trading attributed to the online model and not to lockdown/covid? Yes, the shift to online was only finalised recently but the project started several years ago so it doesn’t make sense to suddenly have a step change in growth. Other gambling companies and brokerages benefitted from the lockdown, isn’t BOTB just another form of gambling Secondly given the BOTB product, I imagine that there was a lot of retail investors speculating on the stock which probably led to the wild swings. It is common for stocks like BOTB to have a large retail presence.

Moral of the story is: try to focus on high quality companies that are boring and do the same thing year in and year out. You will also sleep better at night! We think we have just the stock for you. Deep Dive #1 out next week.


Leaders

  • Bluejay Mining PLC (JAY): +61% (mkt cap: £141m): A UK-based company engaged in exploration and development of precious/base metals with projects in Greenland/Finland. It had quite the week, with news, director deals and notification of major holdings. On Monday it announced a JV with KoBold Metals, a mineral exploration company that uses machine learning to guide exploration for new deposits rich in the critical materials for electric vehicles. Behind KoBold are some heavy hitters including: Bill Gates, Michael Bloomberg, Jeff Bezos, Ray Dalio, and more. The CEO and a NED bought some stock and a UK based alternative investment manager announced a new position (see notification of major holdings section below).

  • Saf Tehnika As (SAF1R): +42% (mkt cap: £29m): A Latvia-based telecoms company that designs, produces, and distributes digital Microwave Data transmission equipment. The company announced a record Q4 with revenue +134% and a EUR2m profit vs a small loss last year. The company continues to accumulate material reserves due to the global shortage of various electronic components allowing it to fulfil most of the orders with normal lead times.

  • Nexstim Oyj (NXTMH): +40% (mkt cap: £25m): A Finland-based medical technology company specialising on improving rehabilitation for stroke patients through non-invasive brain stimulation. On Tuesday the company announced a new NBS system order (non-invasive brain stimulation diagnostics) from the Medical University of South Carolina. On Friday the company reported a record 1H with net sales +83% with strong growth in both diagnostics and therapy businesses. The company expects revenues to continue to grow in FY21 with a loss for the financial year.


Laggards

Excluding BOTB

  • AroCell Ab (AROC): -55% (mkt cap: £13m): A Sweden-based in vitro diagnostics company focusing on the precision monitoring of patients suffering from hematological malignancies, breast cancer, and other solid tumours. On Tuesday the company announced that it has withdrawn the 510(k) application for the AroCell TK210 ELISA after a discussion with the FDA. The company was informed that the 510(k) route was not applicable for the device. AroCell was surprised to receive the information so late in the process however is now evaluating the possibility of applying for product approval using the De Novo process.

  • Mccoll’s Retail (MCLS): -36% (mkt cap: £25m): A UK-based convenience shop and newsagent operator, trading under the names McColl’s, Martin’s and RS McColl. McColl also operates post offices in 1/3 of the estate making them the largest post office operator in the UK. It has been a tough week for MCLS, with Sky News announcing on Sunday that the company is in talks with investors to raise £30m. The company had to issue a statement Monday morning saying it is exploring a potential capital raise but that no decision has been made. The stock closed -16%. Three days later, the company released results at 3.50pm and announced a firm placing and open offer to raise £35m at 20p (30% discount to previous day close). The accelerated bookbuild for the firm placing was successful. The proceeds will be used to: 1) Accelerate pace of rollout; 2) improve grocery infrastructure; 3) invest in store estate; and; 4) reduce financial leverage.

  • Abingdon Health (ABDX): -29% (mkt cap: £29m): A UK-based developer and manufacturer of high-quality rapid lateral flow tests. On Monday the company issued a statement to clarify some factual inaccuracies relating to the judicial review proceedings (decision by the Department of Health and Social Care (DHSC) to award contracts to Abingdon for the development of lateral flow tests kits to detect COVID-19 antibodies). The below CEO statement should give you a flavour of what’s going on. The government has refused to pay the company for the goods and services provided under the contract (£6.7m including VAT). The company was told by DHSC in January 2021 both verbally and in writing that the payment for the 1 million tests (£5.15m) had been cleared for payment. On Thursday the company released a trading update that was in line with guidance however the company now understands that the DHSC will not pay any of the outstanding sums until after the completion of the judicial review proceedings. The judicial review is scheduled to be heard in early December 2021.

Chris Yates, Chief Executive Officer of Abingdon Health commented: 

“At Abingdon Health we have sought to answer the Government's call for leading companies in the Lifesciences sector to respond quickly with solutions to mitigate the impact of the pandemic. We believe that antibody testing programmes will be rolled-out around the world, where there are clear use cases for antibody testing, including checking levels of immunity both prior to and after vaccinations, as well as potentially assess which individuals should be prioritized in vaccination or vaccine booster programmes. Given that our AbC-19™ rapid test could be a key tool in maintaining public safety, confidence in vaccines and supporting effective vaccine booster campaigns, it is very disappointing that we have been caught in the cross-fire of a battle over transparency and accountability, which has meant this British developed and British made rapid diagnostic has not been substantially deployed here in the UK.”.


Directors’ Deals

  • Chaarat Gold Holdings Ltd (#CGH): A gold mining company with projects in Armenia and the Kyrgyz Republic (mkt cap: £157m). Buyer: Chairman (Martin Andersson) via Labro Investments Ltd, 2.8m shares at 22p (£625k). Owns 44% of the company.

  • Kinovo PLC (#KINO): Recent name change from Bilby PLC, Kinovo is a UK-based company that provides specialist property services focused on safety and regulatory compliance, home and community regeneration (mkt cap: £23m). Buyers: CEO (£50k), Chairman (£50k), Group FD (£25k), COO (£10k) at 33.5p, now trading at 40p. Owns CEO (2.3%), Chairman (1.4%), Group FD (0.9%), COO (1%).

  • Kingswood Holdings Ltd (#KWG): Formerly European Wealth Group Ltd, is a private wealth management business. Buyers: Group CEO (£46k) at 31p, US CEO (£14k) at 28p. This after the US CEO bought £20k over the last month and Chairman Kenneth “Buzz” West bought £57k at 27p. Now trading at 33p.


Notification of Major Holdings

  • Purplebricks Group PLC (#PURP): A UK-based hybrid estate agency (mkt cap: £193m). Seller: Jupiter Fund Management continues to make the right decision by reducing its position as the shares keep on falling. Jupiter now holds 10.5% (17.5% in mid-July). PURP announced that it intends to move to a fully employed model for its field sales agents. The company now expects to incur a non-recurring cost of £3-4m in FY22 with ongoing administration costs expected to be c. £1m higher in FY22 and beyond. Marketing costs for FY22 are expected to be c.£3-4m higher than previous guidance. Medium-term guidance remains unchanged.

  • Kinovo PLC (#KINO): In addition to the director deals mentioned above, Tipacs 2 Ltd (registered in Jersey) increased its position from 9.2% to 12.9%. I can’t find anything on the company so if anyone knows what the relationship is, please let me know.

  • Bluejay Mining ('#JAY): A UK-based company engaged in exploration and development of precious/base metals with projects in Greenland/Finland (mkt cap: £141m) . This week the CEO bought £19k and a NED bought £31k. Sand Grove Capital Management (UK based alternative investment manager) announced a new 9.8% position and HSBC reduced its position from 8.4% to 6.8%.


Movers & Shakers

  • Smith News PLC (#SNWS): A UK-based company engaged in wholesale distribution of newspapers and magazines (mkt cap: £102m). On 5 May, the company announced that Tony Grace (CFO) would retire at the end of the year. Paul Baker will be appointed CFO on 4 October. He joins from Compass Group PLC (mkt cap: £27bn) where he was Integration Director. Chairman: “He brings with him a track record of delivering strategic and operational change in fast moving environments”. Maybe a sign of things to come.

  • Aspo PLC (#ASPO): A Finland-based company engaged in the ownership and development of a number of B2B corporate brands (mkt cap: £299m). Brands include ESL Shipping, Leipurin, Telko, and Kaukomarkkinat. CEO Aki Ojanen is retiring this year and will be replaced by Rolf Jansson (starting 16 August). Rolf Jansson joins from VR Group, a services company operating in travel/logistics/maintenance, where he was President/CEO.

  • Penneo A/s (#PENNEO): A Denmark-based software producer focusing on digital signatures (mkt cap: £120m). In September last year, Niels Henrik Rasmussen resigned as CEO to focus on his family. The Board appointed Nicolaj Hojer Nielsen (co-founder) as interim CEO. On 18 August, he will be replaced by Christina Stendevad who has experience as Managing Consultant at PwC and COO at Omada. Chairman: “He has solid experience within the digital identity space and in scaling a SaaS business.”


Tweets of the week


Have a great weekend! I know I will!

Dark Horse Research