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Small Cap Value Report (Weds 17 Mar 2021) - ANP, TRB, SIS, HSW

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Good morning, it’s Paul amp; Jack here with the SCVR for Wednesday.

Timing – I’m taking a break for lunch now, and will try to do some more sections this afternoon.

Agenda -


Anpario (LON:ANP) – good final results, but shares look pricey after a strong run up recently (like so many other things).

Tribal (LON:TRB) – Preliminary results – an earnings miss at adj EPS level, which is glossed over. Weak balance sheet. I’m not keen any more.

Science In Sport (LON:SIS) – 2020 results – in line with the January trading update. Reduced losses, and looks potentially interesting now breakeven is possibly within reach.


Hostelworld (LON:HSW) – Covid disruption continues but cost controls and June 2020 share placing should see this OTA through

Paul’s Section

Mello Tuesday was very interesting last night, a 3-4 hour investment webinar all about gold amp; other miners. I never invest in this sector, because it’s so difficult to pick the winners from all the dross. Also I feel that some sector knowledge is needed, which I don’t have. That said, I found the presentations by Caledonia Mining (LON:CMCL) and Afritin Mining (LON:ATM) very interesting.

For me (Paul) though, I think too much of it is guesswork, and having a business with lots of capital (it’s very expensive to start, and maintain a mine), which sells a product with an almost random selling price, subject to wild swings from boom to bust, just doesn’t appeal to me.

All very interesting though, and I can see why a lot of subscribers here like low PER producers (as opposed to speculative explorers). Plus of course so many shares in the natural resources sector have done tremendously well in the current “everything rally” as one commentator describes it. I’ve probably missed the boat, so think I’ll stick to my knitting, rather than branching out into the resources sector.

Anpario (LON:ANP)

612p – mkt cap £142m

Final Results

Anpario plc (AIM:ANP), the independent manufacturer of natural sustainable animal feed additives for animal health, nutrition and biosecurity is pleased to announce its full year results for the twelve months to 31 December 2020.

Like practically everything it seems, Anpario shares have risen strongly. Results day is crunch time, when we find out if the increased valuations of late are justified or not. It can sometimes be a bit of shock, once people crunch the numbers and realise how expensive many shares have become of late.

Note from the 5-year chart below, that after a great run in 2017-18, Anpario shares had quite a big, and prolonged correction, before embarking on the current run, which has seen it almost double in the last c.18 months. At times like this, it’s worth reminding ourselves that share prices can go down, as well as up. If we overpay for things, then it can take a long time to recoup losses after a correction.



Headline figures today look fairly good -

· 5% increase in revenue to £30.5m (2019: £29.0m)

· 9% increase in gross profit to £15.8m (2019: £14.5m)

· 22% increase in profit before tax to £5.4m (2019: £4.4m)

· Diluted earnings per share up 13% to 19.89p (2019: 17.61p)

· Proposed final dividend of 6.25p (2019: 5.5p) per share, total dividend for the year 9.0p (2019: 8.0p) an increase of 12.5%

· Cash balances of £15.8m at the year-end (2019: £13.8m)

High profit margin of almost 18% (profit before tax, divided by revenues), indicating this is a quality business, with pricing power. Stockopedia flags the high quality of Anpario -



Earnings beat – the reported 19.89p looks to be nearly 4% ahead of the broker consensus of 19.2p – pretty good. Further down, it gives a different EPS figure (diluted, adjusted) of 21.15p.

Valuation - share price of 612p, divided by 19.89p EPS, gives a PER of 30.8 – a punchy rating. I think growth would need to accelerate, to justify such a high rating.

The PER comes down to a still high 28.9 times, using the diluted, adjusted EPS figure.

Looking at the Stockopedia graphs, Anpario’s track record looks respectable, rather than exciting. This is an 8-year period (including forecasts), so the EPS growth over that time has been rather pedestrian for a stock that’s valued on a premium rating -




Given that animal feed must be a vast market worldwide, Anpario’s revenues of only £30.5m, suggest that it’s very much a niche product. Is that likely to change, if so why?

Anpario seems to have proven very resilient during covid, so shareholders here don’t need to worry about the impact of future pandemics.

Dividends – 6.25p final divi announced, making total divis of 9.0p for the year (LY: 8.0p). That’s a yield of 1.5%

Outlook -

There has been a strong start to trading in the current year…

Travel restrictions may inhibit sales opportunities.

Setting up a European warehouse, to help alleviate “customs discrepancies” re Brexit.

Mentions the possibility of using the cash pile to make acquisitions.

Balance sheet – is really strong. NAV: £37.5m, less intangibles of £11.5m, gives NTAV of £26.0m. The company seems to generate very good profits from a light capital base – there’s only £4.1m in property, plant amp; equipment.

There are few creditors, so the £15.8m net cash pile looks largely surplus to requirements, providing potential upside if they do a decent acquisition for example. Share buybacks wouldn’t make sense with the valuation this high. Too much cash is a high quality problem to have!

I would regard about 10% of the market cap as being surplus cash, so it’s sensible to adjust the PER down by 10% as well, which would bring it down to a cash adjusted PER of about 26..

Cashflow statement - looks clean, this is a genuinely cash generative business. Note that £663k in development costs were capitalised – which needs to be taken account, when using EBITDA (which ignores these costs, and the amortisation of them too).

Directors Remuneration – considering the company made a profit of £5.4m, the 2 Executive Directors seem very well paid. 100% bonuses take their total remuneration to £568k and £361k, £929k in total (up from £456k in 2019). Add that back to profit, of £5,350k, gives £6,279k profit before Directors remuneration. That makes the £929k Director remuneration 14.8% of the company’s profit! That’s too much.

Looked at another way, the 9.0p divis multiplied by 23.16m shares = £2.08m cost. Executive Director remuneration (only 2 people remember) is 45% of the total amount paid in the year to shareholders. Again, that strikes me as excessive. It does make me wonder exactly whose benefit this company is being run for? Directors seem to have small personal shareholdings too, so not much skin in the game.

This does put me off a bit, from wanting to buy this share.

My opinion – this is a small, niche, decently profitable business. The balance sheet is strong, with surplus cash, and there’s a smallish dividend yield.

I’ve got three gripes with this share;

  1. Lacklustre growth. Sure, covid might have limited the growth this year, but longer term, considering it has also made 4 acquisitions along the way, the growth isn’t impressive. I’d want to see a step-change in the growth rate to make this share appealing. If its products really start to take off, then it could get very exciting, but there’s no evidence that is happening.
  2. Valuation – the shares have had a great run, and now look too expensive to interest me. We’re in danger of over-paying for things, as we’re in a roaring bull market right now. I’m not convinced that risk:reward makes sense at 600p+
  3. Director remuneration looks excessive, due to 100% bonuses in 2020.

Overall therefore, I don’t see the appeal of this share, at the current price, whilst recognising that it’s a good quality little business.


Tribal (LON:TRB)

104p (up 8% at 10:33) – mkt cap £214m

The market seems to like results out today from this supplier of software amp; services to the education sector, internationally. Share price up 8% as I type this.

I reviewed this company’s trading updates 4 times in 2020, and have just re-read my notes from 28 Oct 2020, which covers the main points. I was impressed with the positive trading update, and thought the valuation looked reasonable at 70p, and gave it a thumbs up (always just my personal opinions, never a recommendation – you need to always do your own research, because I might have missed something, or got something wrong). Moving on to today…

Preliminary results – for year ended 31 Dec 2020

EBITDA is meaningless for software companies that are capitalising a lot of costs, as Tribal does. So I prefer to value it amp; measure performance on adj EPS.

It’s quite difficult to find the adj EPS numbers, because the results statement tries to steer us towards EBITDA. Looking back to my previous notes, we were expecting 4.6p adj EPS, and this looks like a significant earnings miss at the EPS level -

Adjusted diluted earnings per share from continuing operations before other costs and intangible asset impairment charges and amortisation, which reflects the Group’s underlying trading performance, decreased by 10% to 4.0p (2019: 4.4p) due to the increase of the overseas current tax charges.

Revenue is down 6% to £73.0m – not bad considering how disruptive covid has been, so that’s fine by me. Below the surface, there’s a good trend on annual recurring revenue (ARR) -

ARR committed as at 31 December 2020 increased 12% to £47.5m (2019: £42.3m) thanks to a strong sales performance in the second half of the year, increasing revenue for future years but having minimal benefit to 2020 results.

That’s important because lockdowns have given many organisations a push into buying cloud-based software, so that staff can work from home more readily, if required. Tribal seems to be in the right place for this trend, moving its customers over to its cloud product.

Outlook - sounds positive – I like it when companies tell us that they expect to beat FY expectations so early in the year. That’s a good sign that things are looking positive.

The Group has had a positive start to trading in 2021 compared to 2020 and now anticipates performance for the year to be slightly ahead of the Board’s expectations

Product development – I see heavy spending on developing new products as a positive thing, providing the money is being spent well, which we don’t really know until the new products are launched -

The Group spent £11.6m on Product Development, of which £6.6m was capitalised in relation to Tribal Edge and £0.2m was capitalised in relation to Tribal Dynamics. (2019: £10.7m spent, £6.1m capitalised).

Going concern note - is very useful, with lots of interesting information about the business, so well worth a read. It concludes that having stress-tested forecasts, the risk of breaching bank covenants amp; being unable to pay creditors is “so remote” that it doesn’t present a going concern risk. That’s fine. I agree that, with strong recurring revenues, and proof from the last year that customers continue paying in tough times, then the business looks resilient, despite not have the best of balance sheets. Recurring revenues from financially strong customers, is more important than balance sheet strength, in my opinion.

Forecasts - many thanks to N+1 Singer, whose analyst Harold Evans has crunched the numbers in much more detail than I can here. He’s pencilled in 5.1p adj EPS for FY 12/2021. That sounds feasible or beatable to me, given that we hope covid restrictions should ease over time. Also, Tribal has high visibility on revenues amp; profits. Winning big contracts recently is a good sign too that more could follow.

At 104p per share, that gives us a PER of 20.4 times forecast 2021 earnings. That looks about right to me, maybe with some upside in a frothy stock market?

Balance sheet – I really don’t like this, it’s quite weak. NAV of £38.2m becomes NTAV of negative £(12.8)m once we write off £26.7m goodwill and £24.4m other intangible assets.

Working capital looks particularly weak, with current assets of £24.6m, compared with current liabilities of £40.8m, a poor current ratio of 0.6.

The liability that jumps out at me is £(23.1)m called “contract liabilities” – which sounds like deferred income – i.e. the other side of the double entry for cash paid up front by customers for future periods.

Does this matter? Maybe not, but I think it’s worth flagging that the balance sheet doesn’t have any fat in it. The company’s running on advance payments from its customers. Lots of software companies do that, and for a business which has hardly any tangible fixed assets, maybe we shouldn’t worry too much about a precarious-looking balance sheet? Personally I like to see a much more solid balance sheet. Should it be paying dividends whilst the balance sheet is this weak? I think not.

Cashflow statement – this leaves me uneasy. It didn’t really generate any cash in 2020, and not much in 2019. Certainly the cash generation numbers are nowhere near the headline adjusted profit figures. That’s a concern.

My opinion – there are lots of things to like about this company, e.g. cloud products, high development spend, high recurring revenues, sticky clients, proved resilient during covid.

On the downside, the accounts leave me uncomfortable – lots of adjustments, and little in the way of cash generation.

Also, it’s glossed over in the narrative, but the adj EPS figure was a significant miss – 4.6p was expected, and 4.0p was delivered. Therefore the Oct 2020 positive trading update turned out to be wrong, if you measure things at the EPS level, as I always do.

The shares have had a great run (what hasn’t?!) hence I’m not interested in chasing up the price. Given my concerns over the accounts, then I think this share looks high enough for now. For me, the bullish story doesn’t stand up to closer scrutiny of the numbers.

The longer term track record could be described as patchy.




Science In Sport (LON:SIS)

54.5p (up 3%, at 15:22) – mkt cap £74m

I’ve haven’t looked at this company here since 2017, so can’t remember anything about it. Thankfully Jack wrote up a very interesting briefing here on 14 Jan 2021, which has motivated me to take a closer look.

The 2 year chart looks like everything else at the moment – a big hit from the covid crash a year ago, then a big bounce back from Oct 2020 to date.




I’ve just missed an online presentation at 14:30 today on InvestorMeetCompany (“IMC”), but they’re usually recorded amp; can be watched later, so I’ve added SIS to my followed companies list, and should then get an email when the video is available. The link is here, but at the moment it says “not ready yet”. IMC is a superb platform, I’m looking forward to meeting the founders of IMC once lockdown ends, to buy them a nice lunch to say thank you for providing us with a brilliant, and free service, that is helping connect PIs to many companies.

This is alongside the wonderful work also being done by our friends Tamzin amp; Tim at PIWorld, and of course the wonderful David Stredder and his team at Mello Events. All doing excellent work that informs amp; educates us. Bravo to them, and other companies also providing online webinars. They’re incredibly helpful, and definitely have improved my stock selection, and introduced me to many interesting companies. I seem to have two or more webinars or zoom meetings every day at the moment, it’s so much more efficient that having to traipse into London, using up a whole day.

Final Results

Science in Sport plc (AIM: SIS), the premium performance nutrition company serving elite athletes, sports enthusiasts and the gym lifestyle community, is pleased to announce its audited final results for the financial year ended 31 December 2020.

  • Revenue £50.4m (similar to 2019: £50.6m) – growth crimped by lockdown impact on retailers
  • Online sales grew 39%, now 50% of all sales – impressive
  • Gross margin improved to 49% (2019: 44%) – that’s a good improvement
  • Underlying EBITDA profit of £1.1m (2019: loss of £0.2m) – I’ll dig into the numbers below to see how real or not this number is! As you know, I don’t trust EBITDA as a performance measure, although it does have its uses in our toolkit of various measures.

The above numbers are all exactly as previously announced in the 14 Jan 2021 trading update, so this is an in line with expectations announcement today.

Profitability – the real numbers (i.e. profit before/after tax) show that it’s still loss-making, £(2.27)m loss before tax, but improved from £(5.06)m in 2019. The figures are moving in the right direction, with gross profit improved by £2.4m, and admin expenses down by £0.4m. Therefore I’d say breakeven looks within sight, especially if sales improve in 2021 when lockdown eases.

Current trading -

Trading for January and February is in line with the same period in 2020, despite the current COVID-19 lockdown in the UK and other key markets. We have continued to make gross margin improvements, and this will underpin EBITDA progress.

Our Online business continues to perform very well with strong growth of 65% versus the same period in 2020, representing 54% of group sales and offsetting the adverse effect of COVID-19 on UK Retail. We continue to see good recovery in our International Retail business.

Trading in March is in line with plan
, and we are well placed for growth as lockdown lifts in our key markets.

Outlook – bit of a cop out here I think, companies really should be reinstating guidance now that we have a timeline for re-opening in the UK -

Whilst it is too early to reinstate market guidance, given the current COVID-19 lockdown, we are well funded and remain very optimistic about the long-term growth prospects for the Group”.

That sounds encouraging, the tone of the announcement amp; commentary is certainly upbeat. Although talk is cheap!

Balance sheet - is decent, in good shape. NAV: £48.0m, less intangibles of 32.1m, gives NTAV of £15.9m, which includes net cash of £10.5m.

There’s very little in tangible fixed assets, and the commentary mentions enlarging its warehouse, so I’d be curious to know how much it plans to spend on expansion capex? Providing future capex is not excessive, then the cash pile looks ample to sustain the business without another fundraising, given that losses have now fallen to c.£2m p.a. and are on an improving trend. Jack rightly pointed out in January here that SIS has previously diluted shareholders heavily with repeated fundraisings. That doesn’t bother me though, as I’m not an existing shareholder, and am only interested in the situation as it stands today.

I’ve learned the hard way not to back cash-burning, early stage growth companies, as they never come anywhere near to the IPO forecasts. There will practically always be repeated fundraisings, often at lower prices each time, as they miss targets. The trick is to buy when everyone else is fed up, yet they’re on the cusp of achieving profitability. Easier said than done!

Overall then, I don’t have any solvency concerns, and think this balance sheet looks quite safe now that losses have been reined in, therefore it shouldn’t deteriorate much before hopefully the breakeven turning point is achieved.

Cashflow - nothing unusual here. Note that it’s capitalising £1.4m p.a. in development spend (hence why EBITDA isn’t meaningful).

£4.5m in fresh equity funding was raised in 2020, which appears on the cashflow statement, which is the main reason for the cash pile growing from £5.1m to £10.5m during 2020.

My opinion – I was expecting to find a crock here, but it actually looks a fairly decent punt. The company’s achieving meaningful revenues, half online, growing well, with the prospect of retail sales improving when lockdown ends.

The balance sheet is sound, so it looks fully funded I think.

The market cap is now £74m, which looks a bit steep, given that the company hasn’t ever made a profit yet. So you’re paying for the future potential, not the historic results.

Breakeven amp; future profits now look in sight. It only needs to grow revenues another 10% which would be enough to reach breakeven at a 49% gross margin. That looks achievable.

Overall, I think SIS shares look worth a closer look. I haven’t got time, as I just quickly review the numbers here, but readers might want to delve deeper. I think the key things are to investigate the products – are they any good, and crucially, do customers become repeat customers? If the product is popular then good profits are far more likely than if SIS is on a treadmill trying to recruit new customers all the time, who don’t repeat buy. How do its products compare with the competition? I would imagine this is quite a crowded space.


Jack’s section Hostelworld (LON:HSW)

Share price: 90.89p (+2.12%)

Shares in issue: 116,321,185

Market cap: £105.7m

Hostelworld (LON:HSW) is an online travel agent (OTA) for ‘budget-conscious travellers’ – we were all skint university students once.

The group’s core online platform provides the opportunity for hostel owners and other low-cost accommodation providers to advertise their accommodation to independent travellers. Most of the revenue is generated through taking a commission from bookings made through its technology platform, including the Hostelworld website and related Apps.

This efficient business model has favourable working capital attributes and strong cash conversion. It’s a profitable, cash generative operation that was previously seeking to hold its own against some deep-pocketed, big tech competition. But then Covid came and bodyslammed the industry.

Cue a €15.2m share placing in June 2020, representing up to 19.9% of the existing ordinary share capital, and a cancellation of dividend payments.

This dividend was also reduced in 2019, before Covid. So clearly Hostelworld has been through the wars. What is immediately interesting here is the scale of the share price fall over the years, coupled with the group’s track record of free cash flow generation.


Here’s the free cash flow per share:


True, that has turned negative on a trailing twelve month basis and had also dropped in 2019, but if you take the average for that period it comes to about 15.5p, which would value the group at around 5.7x ‘normalised’ free cash flow.

So if the group stands to not just recover but grow as an OTA, that’s a potentially attractive entrypoint. But then again, in more normal times, Hostelworld faces stiff competition from well-funded operators.

Preliminary results

And the above aside, the financial results for 2020 are pretty grim. Hopefully this is as bad as it gets.

  • Full year net booking volumes declined by 79% (2019: -6%),
  • Net revenue of €15.4m, a decline of 81% compared to 2019 (2019: €80.7m),
  • Net Average Booking Value (“ABV”) of €9.33, a 22% decline versus 2019 (€11.97), due to the impact of increased cancellations and reduced bed prices,
  • Marketing costs reduced by 72% to €9.3m in 2020 (2019: €32.7m), aligning spend to sales volumes,
  • Administrative expenses reduced by 43% to €36.1m in 2020 (2019: €63.4m), including both fixed and variable costs,
  • Adjusted EBITDA loss of €17.3m, down from €20.5m profit in 2019, and
  • Adjusted free cash flow absorption of -71% (2019: 53%).

The balance sheet has been strengthened by the placing and a post-year end €30m term loan facility. Total cash at 31 December 2020 was €18.2m (2019: €19.4m) of which €1.2m was a short-term invoice financing facility (2019: €nil).

But there’s no getting around the fact that these results are poor. The question is whether Hostelworld can recover over the next year or two and then compete effectively against other OTAs going forwards.


In a previous update back in August 2020, the group pointed to improving demand with revenue down 69%. Six months later and FY revenue is down 81%. Obviously lockdowns have a direct impact so perhaps we shouldn’t read too much into this.

The group CEO, Gary Morrison, comments:

As vaccination programmes continue to be rolled out in our key geographies across the world, I am confident our loyal customer base has a strong desire to travel once restrictions allow, even more so after a prolonged period of confinement… I remain confident that Hostelworld will emerge from the pandemic stronger than before and able to seize market opportunities when normal travel patterns resume.

And that’s the crux of the investment case here. Can Hostelworld not just survive current conditions, but thrive on the other side?

Shares have already rerated from the Covid crash and the recovery across multiple geographies could be bumpy and inconsistent. Hostelworld is not giving any guidance for FY21 and dividends are still off the table. And there’s no getting around the fact that FY20 results are poor.

So the group is not out of the woods yet, and the share price has recovered strongly over a one-year period. But Hostelworld has raised cash, strengthened liquidity and the balance sheet, and enhanced its core platform.

It looks like there’s plenty more work to do around its core tech stack though, which does make me wonder how well it will compete in future against some very sophisticated OTAs.

Hostelworld has a resilient and flexible business model, with good control over its cost base, but this recovery is likely to take time. A global, vaccine-led recovery from Covid would obviously be a strong tailwind but longer term, competition continues to be a threat in my view.



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