ShareSoc Seminar – Ideagen, Zegona, LoopUp and Anexo

Some brief notes on the ShareSoc Seminar I attended yesterday (10/7/2019). There were four companies presenting:

Ideagen (IDEA): This company has presented many times before to ShareSoc members and those who invested after the first such event will have done very well indeed (I hold the stock). This time we had CEO Ben Dorks presenting rather than Exec Chairman David Hornsby and Ben did a good job explaining their buy and build strategy for this software company. They now have 4,700 customers including many big names and 7 out of 10 UK audit firms – not that this seems to have solved most of the poor audit quality I commented on in a previous blog post probably because box ticking does not help when “judgmental” issues and failing to challenge management seem to be the big problems there.

Organic growth might be slightly reduced this year due to transition to an SAAS model but they plan to add £30 million in revenue from acquisitions. There were some interesting comments on how they integrate acquisitions – they “ideagenise” the companies, the people and the products!

A question arose concerning the apparent low return on capital of this company (as reported by Stockopedia et al). I have looked at this in the past and the key is to look at the cash flows and return on cash invested, as David Hornsby suggested.

Zegona (ZEG). This is an investment company that is investing in European telecoms operators where they think there are opportunities for consolidation. In essence a “buy, fix and sell” strategy. Their main investment at present is in Spanish company Euskaltel.

The financial ratios may look attractive but I doubt I can keep track of European telecoms operators and their regulatory environment so this looks like a “special situation” to me that is for the experts in this area only.

LoopUp (LOOP). This company provides teleconferencing services. I hold a very few shares in this company whose value has halved after a recent profit warning related to forecast sales revenue falling. It was therefore particularly disappointing that the Co-CEO who was due to present did not appear due to sickness. Instead we have Gareth Evans from Progressive Digital Media who provide research reports on the company. He covered the business well and he mentioned they use LoopUp themselves.

Recent problems allegedly relate to the slow build-up of new “pods” (sales teams), diversion of experienced sales staff into training and “general economic factors”. But I thought the general economy was doing well so I doubt that the latter is a good explanation.

One thing not mentioned in this presentation was the announcement on the same day that SFM UK Management (a subsidiary of Soros Fund Management) had acquired over 8% of the company so someone still has faith in it.

Progressive did supply their latest analysis of the company that shows forecast adjusted eps of 6.2p for this year and 8.5p next year which makes them not expensive on a p/e basis. I think this is one to monitor to see if there is no more bad news in which case it may be an opportunity to acquire a business with many positive characteristics.

But the share price fell again this morning. But that’s just following the trend in small cap technology stocks over the last few days – Ideagen included. That’s after a good positive run in such companies in the last few weeks. Small cap stocks are suddenly out of favour it seems and that’s nothing to do with Brexit as companies such as LoopUp and Ideagen will not be affected in any way and actually might benefit from the falling pound that has resulted from nervousness over Brexit.

Anexo (ANX). This is an interesting company that I had not come across before. It provides litigation and courtesy cars to impecunious drivers who have no-fault accidents. The company maintains a stock of vehicles to provide as courtesy cars but that includes a large number of Mercedes cars so not all their customers can be impecunious.

They mainly get their business from introductions from small vehicle repair shops, and claim a success rate of 98.5% in recovering from insurers. The latter consistently ignore claims until they are taken to court and just before a court hearing.

The management spoke well in their presentation and clearly have ambitions to grow the business substantially – they claim only 2% market share at present. But they do have to fund the cost of vehicle provision and legal costs before a claim is settled.

The business may be at risk of changes to the law on what can be recouped from third parties but it certainly deserves closer examination.

Just one general comment on the event. It is disappointing that several of the powerpoint presentations were poor. Too many words on them in too small a font and with not enough graphics to make the points they are trying to get across. This seems to be a common failing in small cap company presentations. The slides should support what the speaker is saying with a few key messages, not distract from the spoken words.

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

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