Small Cap Report - UNG, DLC, IPEL, QPP

Several interesting small cap RNSs today. Universe (LON:UNG) is a £7.5m (at 4p/share) payment and loyalty systems group. It's hovered on my radar for years, and management impressed at a FinnCap/Mello Central event earlier this year.

Their pre-close trading update today looks good - profits will be ahead of market expectations. They are also confident about the outlook for 2013. I have an indirect shareholding in Universe, through Vianet (VNET), which holds 13.2m shares (7%) in Universe. The hideous bid/offer spread puts me off, although a good telephone broker can usually solve that problem by ringing round the various market makers to find shares priced well within the spread.

Anyone interested in a broker recommendation is welcome to email me privately, as I have a special arrangement with a proper broker which is priced very competitively, but only available to investors who trade in reasonable size/frequency (say £10k+ deals, several per month).

CAD/CAM software group, Delcam (LON:DLC) continues its excellent performance, with a trading statement indicating profits will be ahead of current market expectations of £4.3m. Sales have reached a new high of £46m for the year.

Very good to see Delcam actually state what market expectations are, which few companies do. So often one is left scrabbling around trying to find out what figure a company thinks it is likely to beat! So let's hope more companies adopt this very helpful approach of specifying the market expectations figure which you are expecting to beat. It's surprising how often market expectations vary from one informational website to another.

On a PER of 17, and with a yield of just under 1%, Delcam doesn't exactly look a bargain, but high quality companies rarely do.

Specialist publisher of car repair manuals, Haynes Publishing (LON:HYNS) puts out a trading update with somewhat mixed messages, but seems to overall be saying that conditions remain tough. This is another company which is struggling to find a direction to take in the move to digital. Although one would imagine that car repair manuals are one area where sticking with a hard-backed paper product makes a lot more sense than trying to go digital - I rebuilt a MkI Vauxhall Cavalier in my student days using a Haynes manual, and the idea of fiddling with an iPad whilst loosening bolts underneath the chassis, covered from head to toe in oil & grit, just doesn't make sense!

Beware of the published mkt cap with Haynes - I seem to recall that it has 2 types of shares in issue, so the apparently cheap £11.3m mkt cap shown on some websites is incorrect! The PER is about 10, which doesn't appeal to me, I'd want an entry price of half that for a company with an uncertain strategy & future.

A share which looks potentially interesting is recruitment company Impellam (IPEL). Their trading statement this morning confused me, as I mis-read it as saying that operating profit is going to be £3m lower at £5.5m. But if you look closer, it's actually saying that exceptional charges are going to be £5.5m, and that operating profit will be £3m lower than last year. So I now have to look up what last year's profit was, which was around £24m, so it seems to be saying that profit this year should be £21m. Could they not have simply said so in the first place?! So Delcam wins this morning's clear RNS award, and Impellam gets the most confusing RNS of the day award. Please just keep it simple - we have to read so many of these things, clarity is everything.

They are proposing a £15m special dividend, which together with a PER which looks low, makes this one an interesting potential buy. Sadly the ludicrous bid/offer spread of 305p/325p rules it out - absolutely crazy for a £140m mkt cap company. Yet buys seems to be going through at 317p, a full 8p within the quoted spread! Market Makers - why do you keep doing this?! i.e. publishing a ridiculously wide spread, then actually transacting at much tighter prices? Since most private investors use online brokers, not telephone brokers, this just puts people off from dealing at all. So the liquidity dries up, so you then make the quoted spread even wider still! We all want to see more liquidity in smaller caps, and that will only happen if the Market Makers tighten the quoted spread to the minimum level they are prepared to transact at. Not an artificially wide spread which seems to be set wide, in order to deter anyone from dealing at all! Just quote the price we can actually deal at! Jesus, it's not rocket science, is it?!!!

Quindell Portfolio (QPP) puts out another positive trading update. I don't like this company one bit, it reminds me too much of all those dodgy car hire companies that never got paid by the insurance companies (Helphire, Accident Exchange, etc) - reporting bigger & bigger profits, and longer & longer debtors, until eventually it all implodes. Quindell may be completely different, but it set off alarm bells when I looked at it a while back, and it usually pays to listen to your instincts. I lost a lot of money on Accident Exchange, hence am not going anywhere near anything in an even vaguely similar area ever again.