Weekender #7

A weekly recap on European micro-caps

Good morning and welcome to your weekly source of European micro-caps news. We’ve started working on our Deep Dive #2 and a very excited about it! We will run a competition a week before we publish where you will get the chance to win a bottle of bubbly so stay tuned!

We are pleased to announce that our Deep Dive #1, CBOX, is starting to move in the right direction!

Let’s dive in


Highlights

The Science Group PLC (#SAG) /TP Group PLC (#TPG) saga continues! I wasn’t going to mention this takeover as I thought I had heard the last of it but just when I was logging off last night I noticed that SAG increased its stake in TPG to 24.03%! This is after TPG rejected SAG’s offer and SAG stated that it does not intend to make an offer above 6.5p (unless 3rd party announces an offer) and that it will retain its stake in TPG as a strategic investment. Let’s take a closer look at what’s going on:

TP Group PLC (#TPG) (mkt cap: £48m) is a UK based engineering company which focuses on the defense and energy sectors. Science Group PLC (#SAG) (mkt cap: £190m) is a UK-based international science and technology consulting company that provides independent advisory and product development services. The TPG share price is -10% over the last year vs SAG’s share price which is +80% (important re valuation). On 10 August, SAG disclosed a 10.3% (bought at 5p) position in TPG. TPG released a statement saying that it had been approached by SAG regarding a possible offer. This triggered Takeover Code Rule 2.6(a) - SAG must, by no later than 5pm on 7 September, either announce a firm intention to make an offer or announce that it does not intend to make an offer. SAG then released a statement which shed some light and what was going on. SAG has repeatedly tried to engage with the board of TPG with regard to a strategic investment/potential combination but all approaches have been rejected. SAG then takes the opportunity to present its case by highlighting that TPG would be a good fit with minimum overlap and plenty of synergies. SAG then takes it one step further by highlighting TPG’s poor historical performance performance relative to SAG’s.

TPG reported FY20 results on 15 June 2021 which included the statement that "a material uncertainty exists which may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern", a qualification repeated in the Independent Auditor's Report in the TP Group plc Annual Report.

SAG also mentions the replacement of TPG’s CEO.

On 16 August SAG released another statement saying that they made an indicative proposal to TPG’s Board on 13 August, potentially offering a significant premium to TPG’s 3.9p undisturbed share price but that TPG rejected the proposal without any discussion or engagement. SAG then continue by saying that as large shareholders in TPG they have written to TPG’s board requesting a General Meeting be called in order to allow shareholders to consider to replace two board members with SAG’s board members.

On 17 August TPG responds by sharing with the public that the proposal was 5.8p/share in cash and that this offer significantly undervalues the company. TPG then presents its case saying that cost reduction and new strategic plan is being implemented by the new CEO, that the company is well placed to create shareholder value as a standalone business (debateable given track record!), and that the proposal is opportunistic and seeking to capitalise on short-term weakness due to COVID-19. TPG announced that it is now required to convene a General Meeting as requested by SAG.

On 20 August SAG discloses that it had increased its stake to 17.9% (bought at 6.5p).

On 23 August TPG announces that it has received a second proposal, this time at 6.5p, and that it believes that the offer still undervalues the company. TPG then state that SAG has not provided them with evidence as to the sources and availability of cash to enable it to meet any offer it might make.

On 24 August SAG responds (now owns 18.03%) with - refusal to engage with them will result with SAG retaining its shareholding in TPG as a strategic investment and SAG will adopt an active engagement strategy in relation to its investment. The 6.5p indicative offer is final but SAG reserves the right to increase the offer if a third party announces an offer or possible offer for TPG. SAG continues to make its case highlighting how the deal would be funded and the potential synergies, as well as attractiveness of the offer relative to the undisturbed price. SAG then point out the narrowing window of opportunity. The deadline for a firm offer is the 7 September and can only be extended by the takeover panel if TPG agree (no intention in engaging). Also, in order for an offer to be made, SAG needs to complete due diligence, and some pre-conditions needs to be met such as “the unconditional recommendation of the offer by the Board of Directors of TP Group”. SAG also point out that the General Meeting to replace board members is likely to be convened after the deadline. Later in the day SAG announces that it has increased its stake to 22.3%.

And finally, last night SAG discloses that it has increased its position to 24%!

This is far from over and we expect further headlines next week as we approach the deadline (if no offer - there’s a six month restriction). Replacing two out of the six board members would certainly help and SAG will have to convince TPG’s largest shareholders which include M&G (19%) and Canaccord (12%), which actually holds stakes in both companies. If I was a shareholder, given that the share price has done nothing for 10 years, I probably wouldn’t give management/ the Board the benefit of the doubt and would probably take the cash and invest elsewhere!


Leaders

  • Abingdon Health (#ABDX): +91% (mkt cap: £59m) - A UK-based developer and manufacturer of high-quality rapid lateral flow tests. In the Weekender #5 ABDX made the laggards list and this week it’s at the top of the leaders list! It has been a volatile month for the company. On Monday ABDX announced the launch of the BioSure COVID-19 IgG Antibody Self Test. Abingdon has an exclusive worldwide manufacturing agreement with BioSure. This test has been CE marked specifically for self-testing. The test uses a fraction of a drop of finger-prick blood (2.5uL) with results in 20 minutes. This allows individuals to know and monitor their own antibody status pre-vaccination, post vaccination and following infection with the SARS-CoV-2 virus. More info here: https://biosuretest.com/

  • Mediazest (#MDZ): +66% (mkt cap: £1.2m) - A UK-based media company that focuses on audio visual solutions. This is definitely the smallest company that I’ve mentioned in the Weekender and I’m not sure why a company like this remains listed. 45 years experience, 60 countries, 500 locations, 2000 displays supported…. not bad for a £1m mkt cap company. The free float is 56%, spread 10% and average daily volume c.£10k, so not the easiest stock to trade! On Tuesday the company released an upbeat trading update which is a tad light on detail. “continues to win additional new project”, “notable improvement in company’s performance”, “recurring revenue contracts continue to be robust”, “outlook encouraging”. With no numbers released, it is hard to justify the price spike.

  • Nanosynth (#NNN): +36% (mkt cap: £17m) - A UK based company that focuses on the synthesis and application of nanoparticles. It includes three subsidiaries: 1) Pharm 2 Farm Ltd; 2) Nanosynth Ltd; and; 3) Cloudveil Ltd. On 20 August the company announced a partnership between Pharm 2 Farm Ltd and India’s VKE Enterprises to distribute MHRA approved Pro-Larva mask which is proven to kill Covid-19 and influenza viruses using unique patented nano-technology developed at Nottingham Trent University. On Friday the company said that the VKE partnership could generate over £17m in revenue (1x mkt cap). The company is looking to make delivery of 250k masks in the next few weeks, with the remainder of the initial order to follow.


Laggards

  • Bbs-bioactive Bone Substitutes Oyj (#BONEH): -23% (mkt cap: £10m) - A Finland-based biotech company that develops and distributes medical device implants used in orthopedic surgery. The company reported 1H21 results on Wednesday. Cash expenditure has grown due to significant investments into production. During the first half of the year and after that, delivery delays,
    non-conformities and equipment failures have occurred leading to delays
    regarding the CE marking process. Company’s estimate of the delays for CE
    marking application filing is not accurate at the time of the release and it
    will be published as soon as possible but at latest at the end of September. No net sales are expected for FY21 as the CE mark will not be obtained during 2021. The company is therefore making preparations to acquire new equity.

  • Fashionette Ag (#FSNT): -23% (mkt cap: £154m) - A Germany-based company which provides online platform for fashion accessories. The company issued a profit warning on Thursday, driven by temporary logistical challenges due to the change of logistics partner. This is expected to have a significant impact on 3Q21. FY21 Group revenues are expected to be EUR133-143m (previously EUR141-150m) and adj. EBITDA EUR3.3-4.3m (previously EUR5-6.9m).

  • Lightair AB (#LAIR): -13% (mkt cap: £13m) - A Sweden-based manufacturer of air purifiers which uses proprietary technology and markets under brands IonFlow and CellFlow. 2Q21 revenues halved and the operating loss nearly doubled. The numbers are mostly impacted by the new strategy to switch to a subscription based payment system which leads to initially lower billing, but a significantly higher value over the life of subscription vs number of product units sold. Demand for air purifiers has slowed and returned to a more normalised level. The company has also been impacted by increases in transport/logistics costs of up to 500% and by component shortages.


Directors’ Deals

  • Quartix Technologies (#QTX): A UK-based supplier of vehicle tracking systems and services (mkt cap: £235m). I mentioned it in the last Weekender and I mention it again. The stock is close to an all-time high and there is a meaningful amount of insider selling:

    *the holdings disclosure for Laura Seffino (6,635) clearly wrong as unchanged post sale

  • Gresham House Strategic PLC (#GHS): A UK-based investment company that invests primarily in smaller UK public companies (mkt cap: £57m). Insiders are buying, with Tony Dalwood, CEO, and Graham Bird, Director, buying a combined £160k at around £16/share. The CEO owns 1% and Graham Bird owns 0.8%.

  • Capital Limited (#CAPD): A mining services business providing a range of drilling and mine site services to mineral exploration and mining companies with a focus on African markets (mkt cap: £151m). Stuart Thompson, the CEO of MSALABS (geochemical laboratory services) sold 145k shares (£115k) this week.


Notification of Major Holdings

This week we are focusing on retail buyers. Why? there are some rare instances when retail money is the smart money. See below:

  • Holders Technology PLC (#HDT): A UK-based company which supplies specialty laminates and materials for printed circuit board manufacture and operates LED solutions provider to the lighting and industrial markets (mkt cap: £3.2m). Yes, it’s tiny. Last week, David Loughran buys 3.1% of the company (c.£100k position). Two days before results he increases his position to 4% (now £125k position). Yesterday the company reports strong 1H21 results and the stock closes up 9%. Luck or skill? who knows but putting on a £125k position in a £3m mkt cap stock a few days before results is punchy. If you know David Loughran’s story, please let me know.

  • Evgen Pharma PLC (#EVG): A UK-based clinical stage drug development company developing sulforaphane-based medicines focused on the treatment of cancer and inflammation (mkt cap: £18m). On the 13 July the company updated the market announcing it had submitted the Glioma Orphan Drug application to the US FDA and that it has preclinical data demonstrating that SFX-01 was effective in in vitro models of certain blood cancers. Two days before the announcement, and on the day when the stock gapped down due to the company not reaching the interim futility hurdle re STAR COVID-19 trial, James Robert Kight initiated a 3.6% position. He has been steadily increasing his position and now owns 8.7% of the company (£1.5m). The stock was trading around the 5p level and now trades at 6.4p (30% return). Once again, I can’t find any information on him. Ping me an email if you know his story.

  • Logistics Development Group (#LDG): A UK-based investment company that invests in the logistics services business (mkt cap: £98m). Richard Griffiths, a man who needs no introduction, regularly appears on my list. This time it’s a new 4.5% position in LDG. Given his accomplishments in the financial services industry (founder Evolution Capital) and his experience advising growth companies, his trades are worth following!


Movers & Shakers

  • Anglo Pacific Group (#APF): A UK-based company which focuses on royalties connected with the mining of natural resources (mkt cap: £272m). Julian Treger, the CEO, resigned after eight years at the company. He leaves on good terms and will remain CEO until 31 March 2022 ensuring a smooth transition. He will purse other business interests in due course.

  • Ricardo PLC (#RCDO): A UK-based company which focuses on global engineering, environmental, and strategic consulting (mkt cap: £240m). Dave Shemmans, the CEO, steps down after 16 years as CEO. Graham Ritchie will replace him as CEO starting on 1 October. Graham is a qualified Chartered Accountant and has previously worked as Intertek’s (mkt cap: £8.4bn) Group Financial Controller.

  • Bialetti Industrie Spa (#BIA): An Italy-based company that makes coffee machines, cookware and small kitchen appliances. Bialetti has been on my mind because I have been thinking about retiring my Nespresso machine and replacing it with this:

Let me know what you think.

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The CFO, Alessandro Matteini, announced this week that he will be leaving the company to pursue another opportunity. I don’t blame him. The share price has been struggling and competing against Nespresso and other coffee machine providers can’t have been easy. He has been with the company for nearly three years.


Tweets of the week

  • If you believe that investing/trading is a way of life, then you will love this


Enjoy the bank holiday weekend all! I’m pleased to see Switzerland is on the green list. Summer holidays up in the mountains are seriously underrated so get booking now! If you need some inspiration watch Mike Horn’s videos promoting Switzerland and the great outdoors! #Valais (fyi - I’m half Swiss)