Small Cap Value Report (6 Aug 2014) - IND, JPR

6th Aug '14 by Paul Scott

8 comments 15791 reads

Good morning!

Indigovision (LON:IND)

Share price: 477.5p
No. shares: 7.6m
Market Cap: £36.3m

There's a trading update today covering the year to 31 Jul 2014 from this high-end CCTV over IP company. It's really a software & video compression company above all else, with the hardware (cameras, encoders, etc) being the devices on which their software is sold.

Note that the company has very sensibly changed its bizarre 31 July year end, to a 31 Dec year end, so the results to 31 Jul are actually a second set of interim results, and the full results will be for the 17 month period ending 31 Dec 2014. The problem with the old 31 July year end was that it was so difficult closing sales, as many clients would be relaxing on a beach somewhere, not signing off purchase orders. This led to erratic results which were highly dependent on whether individual orders happened to fall into the current, or the next financial year. So the new 31 Dec year end should give more predictability to results, and will tie in with most client year ends too.

Positives

Revenue for the 12 months to 31 July 2014 exceeded £37m, more than 15% higher than the previous 12 months, and in constant currency over 20% higher.
All major regions have reported year on year revenue growth.
Gross margins were marginally ahead of the previous year (good, as some investors have questioned whether the company's high margins were sustainable)
Before foreign exchange movements, operating profit will be around £2.7m, approximately 50% higher than last year

Negatives

Profits were affected by sterling strength against the US dollar (in which the majority of the Group's sales are denominated)
Overheads were increased by approximately 15% as IndigoVision continued to develop global sales and distribution.
The share price has fallen 6% this morning, so clearly investors were expecting more.

Personally my take on things is that I was hoping for a slightly better profit figure. The operating profit result of £2.4m was blunted by currency movements to a greater extent than I anticipated. So in the back of my mind I was hoping for a £3m+ figure.

However, underlying sales growth of 20%, and underlying profit growth of 50% are not to be sniffed at, especially when you consider that this is entirely organic growth.

Valuation - at £36.3m this company is not aggressively valued at all, in my opinion. Especially now it has revamped its…

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Mrx9000

6th Aug '14

Would be interested to hear your thoughts on JPR's results this morning Paul...

Delpher

Good morning Paul. IND has clearly overcome the issues causing the downturn in 2013. The heavy investment in new products and sales and distribution is paying off. In his report for the 2013 f/y he said " The
benefits of the substantial increase in headcount in the sales team made in the second half of last year are not
currently expected to show through in revenues until the latter part of 2014." The increase in overheads was expected. Bearing in mind the company's prudent approach to announcements it's reasonable to expect that the full year will show an appreciable increase in earnings.

bsharman

Morning Paul. Thanks for the write up on Indigovision (LON:IND). I like the company, the products and the progress they are making, however I sold out when they touched £5 a couple of months ago because I was raising cash as protection against the markets.. I will keep them on the watchlist. With regard to the markets - I would very much like to hear your take on the state of play at the moment. People everywhere are talking about us being overdue a correction of 10-15%, of low volatility, and the CAPE being high. However there seems to be a disconnect between the US and UK (the FTSE100 is slightly down for 2014) and European markets and also between large cap and small cap (aim has been in a bear market for the majority of the year) There is also a big disconnect between different sectors. For example, resource (O&G) and mining stocks have been under the cosh for the past few years.. What is your opinion of the markets at the moment, how do you position your portfolio accordingly and do you have any other advice for us who are relatively new to investing? Thanks again for the commentary each morning, which always gives me some new ideas to research.

AIM Prospector

This comment is under review

Boltonreddave

AIM Prospector,

Nice to see your comments but i do think that you would be better off setting up your own page on Stockopedia rather than riding Piggy Back on Paul's page. The comments on here should be about what has been mentioned in the post. Set yourself up and I will look forward to reading both posts each lunchtime.

Dave

FreakNomad

Hey,

FWIW, I think JPR's was the 'first round'. A second round will be necessary and maybe even a third. If the company still exists at that stage, it may be investible.

woakesd

I agree with Boltonreddave, create your own space to publish this stuff, it looks valuable though.

Paul Scott

Hi FreakNomad,

I agree with you. Johnston Press (LON:JPR) clearly still has a dire Balance Sheet, so will need to raise more equity at some point in the next few years.
Apparently management tell a wonderful story. It's astonishing that they have been able to refinance it, who on earth in their right mind would pour fresh money into that black hole of a Balance Sheet, for such an obviously declining business?

P.

Small Cap Value Report (6 Aug 2014) - IND, JPR

Indigovision (LON:IND)

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Paul Scott

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