Small Cap Report (15 Mar) - IND

Great News, I've been meaning to top up for some time, So this morning I have sold a chunk of BP which I am becoming increasingly worried about, and moved the money into IND, look forward to reading your update, many thanks,

K

Not sure whether you intended to cover it, Paul, but I'll mention Holders Technology (LON:HDT) - a real microcap. (£2m mkt cap), highly illiquid,  with results out this a.m.

At first glance looks pretty poor:

• Revenue 21% down
• Net loss £437K, after £240K profit last year
• Dividend slashed from 5.35p to 2.0p

Digging a little, deeper, however there are some features that make this a little more interesting:

• It's a stonking Graham net-net, with NCAV of £4.7m vs £2.3m mkt cap.
• Cashflow was highly positive, generating +£634K, resulting in a £700K cash balance at year end. [much of the loss was a non-cash impairment of £287K]
• Management appear to have got well on top of the situation, refocussing on more profitable LED business, which has grown strongly, and controlling costs, including "salary sacrifices by the plc board" - big brownie point for that. Cashflow shows that current assets have been well managed with good stock and creditor control, in difficult times.
• Positive outlook: 

We believe our PCB activities can maintain their relative position and be of continuing major benefit to the Group. The growing opportunities we see in our LED markets coupled with the commitment of our staff and the strength of our balance sheet leaves us well placed to make further progress in this area. Overall we expect a stronger performance by the Group in the current year.

This is one of those situations where having met the management and maintaining a dialogue pays off. Holders' management is not prone to hyperbole and I trust them to deliver on positive expectations - leading to dividend growth, in time.

There is a pension obligation - to precisely one employee from an historic acquisition (gross liability £199K)!

There are also a few further issues/risks that investors should consider:

• Succession planning: the business is still run by its founder (and largest shareholder), Rudi Weinreich, who is now 66. Though there is an executive team in place, my feel is that Rudi still has a firm hand on the tiller, especially through these difficult times, and it is impossible to know how the business will do when he eventually steps down.
• It does seem hard to justify the overhead of being listed, for such a tiny enterprise, so there must be a potential risk of delisting at some point. OTOH, taking those and other corporate costs out, would make this an attractive acquisition at a significant premium to the current SP, considering it's assets and ability to generate cash from them, if and when Rudi was ready to step down.
• There was some upset amongst some minority shareholders in 2007, when a buyback was largely used to acquire some of the founder's shares, not allowing time for other shareholders to participate.

I decided to take a punt some time before the results, as I felt that the shares had been oversold - too early as it turned out. Added a few more early this a.m. Somewhat risky, considering the above, but I do like the business and the way it's run, so expect I'll hang in there until recovery or denouement.

Cheers,

Mark 

In reply to marben100, post #2

Hi Mark,

I did have a quick look at Holders Tech, but thought the results looked poor, hence not worth doing a write-up.

I originally had some shares in it about 10 years ago, so it just seems a little company that trundles along, going nowhere.

Can't see the point in investing in illiquid shares that really have no business being Listed at all. What's the point? There needs to be some outer - good growth prospects, or an amazing dividend yield. Even then, I'm very reluctant to go below £10m mkt cap. If they decide to De-List, you've lost at least half your money in the blink of an eye. Why take the risk when you don't have to???

Cheers, Paul.