Small Caps Live Weekly Summary

Mello Birmingham BKS CKT KITW

Probably one of the most boring news weeks for quite some time for the type of stocks we tend to follow meant little in the way of substantive discussion. But amongst the boredom and bad weather, there was some good news on the horizon. Mello is back, and this time it’s in Birmingham:

This is great news for those of us who live fairly near, but with the venue so close to New Street Station, the reality is that the door-to-door time from Euston Station is about the same time as it takes to get to Mello in Chiswick.

Early Bird tickets are close to half the price of the final release at just £49, and are available until 25th February at 11:59pm, so it pays to be quick on this and reserve your place.

Some SCLers are likely to have a pre-event meet-up in a pub close to the venue on the night before the event. Details of that to follow nearer the time.

As already said, not the most substantive discussions this week, but here is a summary of a few things we did discuss. (Remember this is a summary of many opinions, and isn’t the view of any one commentator; check out the actual discussion on Discord if you want the nuance of the different opinions.)

Also, a gentle reminder that posting comments on Substack is likely to be a waste of your time, as it is unlikely to be read or replied to. It also risks advertising to the world that you don’t get one of our in-jokes (for example, we know Crimson Tide doesn’t make nuclear subs, and that Celebrus isn’t really named after a dog from hell). We are tempted to kill the comments on Substack (but it would prevent some of the sharing functionality). It is not that we don’t want contrary viewpoints. Indeed, we actively encourage them. Just that the point of the summaries is to generate comments on Discord, where companies can be actively discussed. Do head there instead.

Beeks (BKS.L) - Trading Update

In their outlook statement in their Final Results, the company said:

Pipeline is at record strength across each of our offerings, with multiple opportunities in the sales funnel, including several of the world's leading financial institutions

But this week, they said:

H1 recognised revenues are expected to be £14.7m (H1 FY25: £15.8m), reflecting a lower level of up-front Proximity Cloud® revenue in the period as a result of the timing of the Proximity Cloud® wins and the move to a revenue share model within Exchange Cloud®.

Gross cash was largely maintained at £7.0m (30 June 25: £7.4m). Unaudited net cash was £3.3m (June 2025 net cash £7.0m)

So the outcome of that “record strength” is lower revenue, and net cash declining rapidly. Yet they also claim:

We have entered the second half of the year with record levels of revenue visibility, underscoring our confidence in full year numbers, and our focus remains on executing against a strong pipeline.

They need a 65% H2 weighting now to hit the forecasts. Seems tough for a business which is meant to be mostly monthly recurring revenue. If you take 50% of the current ACMRR (£16.4m along with the £3.5m TCV expected to be recognised in H2 ), then that gives visibility of £19.9m in H2 and FY26 of £34.6m versus forecasts of £39.5m.

Our recollection is that they may have had form in the past of claiming in-line, and the brokers cutting the numbers in the background. No sign of this so far. However, unless they pull something out of the bag for H2, any warning will surely see the share price fall precipitously, given the rating they are on.

Checkit (CKT.L) - Trading Update

This seems good news:

Full year Adjusted EBITDA2 at break-even, ahead of market expectations, following delivery of £4.0m of annualised cost savings

However, we have to remind ourselves that adjusted EBITDA is meaningless for a company that capitalised £1m of product development in H1. They also had £24m in cash in 2022, burning most of it to go from £8m in revenue to £13.6m in revenue in FY26.

While further revenue growth looks elusive in the short-term, the cash position looks like a genuinely positive step:

Net cash of £3.0m at year end (£2.7m at 31 July 2025), ahead of market expectations, reflecting a cash-generative H2

While we haven’t seen the actual balance sheet, at H1, payables exceeded inventories plus receivables, reflecting upfront software payments, so surely they can’t have relied on working capital flows alone to generate this cash? This means that they appeared to have actually taken the much-needed action of firing their developers to reduce costs, or at least moved them to directly billable work.

With cash increasing, they now look like they will survive without relying on an equity raise in a fickle market. However, it is too soon to say the business is worth something; there’s no revenue growth, and with product development surely materially reduced due to cost-saving actions, years of simply breaking even doesn’t make them worth any more than net cash. However, this buys them time, and there is now hope for the future. Something that was sorely lacking prior to this week’s update.

Kitwave (KITW.L) - Trading Update

Bad news:

However, lower-than-expected demand in the hospitality sector resulted in an unfavourable revenue mix that has negatively impacted gross profit margin for the Period. Profitability has also been negatively affected by continued investment in the Group's South West depot and ongoing overhead inflationary pressures, including increases in NIC and the National Minimum Wage. The Group's adjusted operating profit during the Period was materially behind the Board's expectations.

However, this appears to be another situation where shareholders have escaped without any damage via an ongoing takeover offer.

In a UK public takeover governed by the Takeover Code, an offeror is effectively prevented from simply “pulling out” once it has announced a firm intention to make an offer under Rule 2.7; from that point, it can only let the bid lapse or withdraw it by properly invoking a stated condition with the Panel’s consent. A material difference in expected results might be sufficient if the Panel agrees.

Of course, if the PE acquirer is willing to take the long-term view, this would strengthen their hand, as what looked like a relatively modest premium now looks like a great deal vs a 50% or so fall that would surely occur if the deal fell through.

Whereas many investors will have hung on, thinking a lack of support for a relatively modest premium may lead to an enhanced offer, it may now be better to let the takeover arbs take the risk on this one.

That’s it for this week. Have a great weekend!