Webinars Galore – Intercede + AB Dynamics + Augmentum

I seem to be filling my days with webinars of late. Two today and one yesterday, partly because this is the season for half-year results announcements.

I’ll cover the recent ones – all on the Investor Meet Company platform, but I’ll only give you some general impressions and highlight particular points as you can watch recordings of them for the detail:

Intercede (IGP). Positive results and the company seems to be moving in the right direction – expanding products to cover a wider customer spectrum and making acquisitions. The presentation also covered what the company’s products provide in the identity/security sector but even though I have been a shareholder in this company for a long time it is no clearer to me what the products provide in terms of individual benefits or why people would buy them rather than competing products. Like many technology companies they have a communication problem!

One also gets the distinct impression that the products are complex to install and maintain. Does identity management really need to be that complicated? This and the above factor may be why the company has never grown as quickly as it should have done. But I remain a long-term holder of the shares.

AB Dynamics (ABDP). This company has come a long way since I first purchased the shares in 2015. From being a small UK company operating in a niche of the automotive engineering sector it has become a major international business. It now has a high proportion of recurring revenue from previously being reliant on one-off deals and has recovered well from the impact of the Covid epidemic.

A good presentation if rather too full of acronyms and there was a focus on ABD Solutions which is providing automated driving solutions to companies such as big miners. This company is also growing by acquisition and there seem to be more opportunities for that.

Both the above companies got somewhat bogged down in their presentations on the detailed financial results. This is both boring and unnecessary as we can all read the results announcements before the event. Only a very few key financial points need to be presented.

Augmentum Fintech (AUGM). This is an investment company which I do not currently hold. It focusses on the financial technology sector and the share price performance has been quite dire in the last eighteen months as a result of it being in a deeply unpopular sector. The presenter said there has been a sell off of risk assets but it could be a compelling market in 2023. I agree with the former comment but as regards the latter I would not like to take a view on it. Markets are composed of willing buyers and willing sellers and emotions have more influence than facts.

There were some interesting comments on digital assets such as crypto currencies and that the speaker had met FTX management but the company did not invest.

The company’s interim results reported that NAV per share had remained stable but NAV fell. These numbers are no doubt influenced by the share buy-backs the company has been doing and note that they have been buying back shares at an average discount of 42%!

Comment: The only way to judge the value of these kinds of investment companies is to look at the underlying holdings in which they are invested. That can be difficult to do as they are small unlisted companies and there was minimal information provided in this presentation on them. But a high discount to NAV is common on private equity investment companies.

However I think that valuations of small technology companies may have reached a plateau and may be now reasonable value. But it could take some time for investors to view the sector more favourably as many people have been badly burnt in the last year from over-optimism about the technology sector.

These are my personal views alone of course and should not be relied upon!

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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After IDEAGEN and EMIS, What to Buy? VIP Perhaps?

With bids for Ideagen (IDEA) and EMIS (EMIS), two of my larger and longer-standing holdings, I need to look for new small/mid cap technology stocks in which to invest. I may be willing to hold the realised cash for a short while but with inflation at 10% it’s going to be costly to hold much cash for very long.

I note AB Dynamics (ABDP) has been tipped in both Techinvest and Small Company ShareWatch last week but I already hold that and it does not look particularly cheap to me as yet.

Techinvest reported on their New Year Tips last week. With 12 stocks recommended the average fall is 17.7% to date which just shows how out of favour small tech stocks have been of late. Only one of the 12, Ingenta, rose with all the rest falling. I won’t mention the rest because none look greatly attractive to me.

What I am looking for is companies with good intellectual property, which can provide barriers to competition, in growing market sectors, with good returns on capital, high levels of recurring revenue, positive cash flow and with rising revenue (Ingenta has a poor track record in that regard and has low return on capital).

Readers should add your suggestions for companies to look at by leaving a comment (see left hand column of this blog).

One alternative to investing in tech stocks is property companies and I read the Annual Report of Value and Indexed Property Income Trust (VIP) over the weekend. Property companies are a good hedge against inflation, particularly as VIP has a focus on holdings with index linked rent reviews. Their comments on future prospects make for interesting reading.  To quote:

“Total returns will be lower but still satisfactory over 2022 as a whole. They may be around 12% overall with returns for industrials, retail and the alternative sectors all in the early teens but offices only around 5% with capital values flat, rents under pressure and voids through the roof. Property’s real returns will be far lower, with the RPI already up 9% year on year. It will stay higher for far longer than the Bank or England or the market expects. Stagflation is here to stay for at least as long as the war in Ukraine drags on”.

That’s a good summary of my own view and investors might be happy with a 3% real return this year as world economies go into recession.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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AB Dynamics Placing, and Metro Bank Troubles

AB Dynamics (ABDP) announced a placing to raise £5 million this morning. The money will be used to finance potential acquisitions, add production capacity and meet working capital requirements. This company provides vehicle testing systems and has been rapidly expanding recently. The share price has also been rising like a rocket in the last few weeks and on fundamentals the company is now very highly rated – prospective p/e for the current year is 47. So perhaps the company just saw this as a good opportunity to raise some money.

The new shares are being placed at 2200p though which is a discount of 13% to the share price last Friday. However although this is being done via a placing to institutional investors there is also an “open offer” for those such as private shareholders who cannot participate in the placing. This is the way to do such things and as a holder of the shares I will probably take up the open offer just so as to avoid dilution, although I don’t consider the price as particularly attractive. The share price dipped first thing this morning on the news but has subsequently recovered most of that fall.

Metro Bank (MTRO) has been in trouble since the start of the year when it disclosed it had wrongly risk-weighted some of its loans which meant its capital ratio was wrong. Metro is one of the so-called “challenger banks” that aim to tackle the dominance of the big high-street banks in the UK. The company did a placing to raise another £350 million last week to shore up its balance sheet.

But depositors have been spooked by the news and apparently there were queues of customers withdrawing money from branches in West London recently. Is this another run on a bank, as happened at Northern Rock? Where a falling share price and collapsing confidence in the bank caused depositors to panic? The FT ran an editorial saying it was not similar but it looks very much so to me. Although the Financial Services Compensation Scheme (FSCS) now protects deposits up to £85,000 that will not help many retail customers and the delays in obtaining compensation will encourage depositors to move all of part of their funds elsewhere and promptly. Corporate clients have no such protection anyway. When confidence in a bank is lost, even if it is technically solvent, depositors don’t hang around.

Here’s a good quote from eminent Victorian author Walter Bagehot: “Every banker knows that if he has to prove he is worthy of credit…in fact his credit has gone” (in another letter in the FT today).

From my experience of trying to open an account with Metro Bank recently, I have doubts about the quality of this business anyway. I gave up in the end. Needless to say I don’t hold shares in Metro. But all banks are becoming exceedingly difficult to deal with. My long-standing (over 50 years) bank recently made me visit a branch to prove who I was. There was a letter complaining about the service from banks in the FT on the 15th May. It suggested that “something has gone badly wrong” with frontline bank service. I had similar problems with a business account at HSBC who proved impossible to talk to other than by visiting one of their branches – and even then they were unable to resolve difficulties. It is extremely annoying that banks are becoming paranoid about KYC and security checks so that they won’t even talk to you on the telephone about simple queries.

If any readers can recommend a bank who acts more reasonably and sensibly, let me know.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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AB Dynamics, Self-Driving Cars and Global Warming

AB Dynamics (ABDP) published some very positive interim results this morning. Revenue up 60%, pre-tax profit up 95% and it looks like it should easily meet analysts forecasts for the full year. The share price is up 9% so far today, at the time of writing. I hold the stock.

The company specialises in testing systems for major car manufacturers including a range of driving robots, soft vehicle and pedestrian targets and driving simulators. This is just what is needed to test the new Advanced Driver Assistance Systems (ADAS) and autonomous vehicles (“self-driving” vehicles) that all car manufacturers are now investing a large amount of money in developing.

For example Elon Musk of Tesla recently predicted that his cars will have self -driving capability by mid-2020 – they just need the software upgrading to achieve that he claims. He also promised a fleet of “robo-taxis” by the same date. These claims were greeted by a lot of skepticism and quite rightly. This is what ABDP had to say on the subject in today’s announcement: “There will be many phases to the development of fully autonomous vehicles and we foresee extended periods of time before they can satisfy a significant part of society’s mobility requirements.  There remain significant barriers to adoption including technical, ethical, legal, financial and infrastructure and these challenges will result in the incremental implementation of ADAS systems over many years to come. The ongoing regulatory environment and consumer demand for safety are also driving technological advancements in global mobility requirements and this provides a highly supportive market backdrop to the Group’s activities”.

As an active member of the Alliance of British Drivers, I can tell you that they are very wary of self-driving vehicles. None of the vehicles under test offer anything like the reliability needed for fully-automated operation and expecting human operators to take over occasionally (e.g. in emergencies where the vehicle software cannot cope), is totally unrealistic. In other words, even “level 3” operation for self-driving vehicles which requires drivers to take over when needed is fraught with difficulties and offers little advantage to the user because they have to remain awake and alert at all times, something not likely to happen in reality.

But even if that future is unrealistic, ABDP should still find a big market for testing of Autonomous Emergency Braking (“AEB”) and other ADAS systems.

Extinction Rebellion and their supporters who have been blocking London’s roads lately seem to want to remove all vehicles from our roads in the cause of reducing CO2 emissions which they claim is the cause of global warming (or “climate change”). I won’t even attempt to cover the latter claims although it’s worth stating that some dispute the connection and that climate change is driven by natural phenomena and cycles. But three things are certain:

  1. Reducing carbon emissions in the UK alone will have negligible impact on world CO2 emissions. China, the USA and other developing countries dominate the sources of such emissions and China’s are still growing strongly due to their heavy reliance on coal-fired power stations for electricity generation. China now produces more CO2 emissions than the USA and EU combined and is still building new coal-fired power stations. The UK now runs much of the time with no use of coal at all and rising energy contribution from wind-power and solar although gas still provides a major source.
  2. Environmental policies in the UK and Europe have actually caused many high energy consumption industries to move to China and other countries, thus enabling the UK to pretend we are whiter than white but not solving the world problem.
  3. A typical example of this approach is the promotion of electric vehicles. A recent article in the Brussels Times suggested that in Germany electric vehicles generate more CO2 over their lifespan than diesel vehicles. The reason is primarily the energy consumed in battery production – for example a Tesla Model 3 battery might require up to 15 tonnes of CO2 to manufacture. Electric car batteries are often manufactured in locations such as China although Tesla produces them in the USA.

In summary the UK and other western countries are being hypocrites and environmental campaigners are demonstrating in the wrong places and for the wrong reasons. The real problem is too many people in this world wanting to move to a high energy consumption lifestyle as we have long enjoyed in the western world. Population control is the only sure way to limit air pollution or CO2 emissions but nobody is willing to face up to that reality. In the meantime we get a lot of virtue signaling from politicians but a failure to tell the public the facts of energy consumption and production. Energy consumption is still growing world-wide and will continue to do so due to demographic changes and the desire for western lifestyles.

Finally just one comment on the Extinction Rebellion demand for a “people’s assembly” or “citizen’s assembly” as it is sometimes called. Is not the parliamentary democracy that we have at present such a system? Or is it simply a case that they want unelected people to decide on future policies? It has been suggested that such an assembly would be chosen at random from the population which hardly seems a very practical idea to me. This demand is a classic example of how muddled the thinking actually is of Extinction Rebellion supporters.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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