Small Caps Live Weekly Summary

IPX LIKE RBGP TIG

Another relatively light summary this week. Partially a lack of news, partially seasonal illness. On the plus side, Leo has found time to organise another SCL meetup on 21st of January in London. The key parts require free registration to the Olympia Toy Fair and the evening’s Shares Magzine Event. Those interested in joining should register for Shares Evening ASAP, as they do fill up and can be cancelled if things don’t work out. Full details of the meetup can be found here:

Here’s a selection of what we did manage to discuss:

Impax Asset Management (IPX.L) - Q1 AUM Update

This is another blow and worse than Leo expected in terms of both outflows and investment losses:

US AuM appears to be up in October / November, especially in sterling terms. So, there is validity in them highlighting Asia-Pacific weakness this time round. The trouble is that issues seem to be rolling from one region to the next at the moment - Europe to UK to Asia-Pacific with the big UK SJP outflow still to come.

Equity Development cut their AUM estimates but keep their operating profit and EPS ones. However, they may be optimistic in assuming AuM will be 34.1bn at year-end, given the big SJP exit is yet to come and this latest quarter does not read well. Leo estimates current assets adjusted, for SJP and SKY acquisition to be £32.4bn. The valuation of 0.95% of AuM surely already factors in further losses.

Still, the share price fall this week was greater than the 8% fall in AuM, so this continues to become better value, especially for an acquirer who can take out fixed costs. The move into more Fixed Income not only diversifies but increases capacity headroom - their key UK open-ended fund hit capacity constraints in July 2020 still remains (mostly) closed to new investments. Calling the bottom is a fool’s game, but surely we must be close to the bottom?

Likewise (LIKE.L) - Trading Update and Buyback

Trading is in line:

Total Group Revenue increased by 7.5% with Sales in Likewise Floors increasing by 15.5% and the Group is on track to deliver current market expectations for profit after tax for FY24 as well.

This shouldn’t come as a surprise, just 1 month at the last trading update. What is a surprise is a £200k buyback. This is de minimis, at 0.4% of the share capital at current prices. It probably should be, too, given they are buying back shares on 28x 2024 earnings. This is earning un-enhancing compared with paying down bank debt. In reality, this appears to just be another two fingers to struggling competitor Headlam!

RBG Holdings (RBGP.L) - Termination of consultancy agreement

This is an absolute humdinger of an RNS! Founder Ian Rosenblatt is alleged to have set up another law firm in contravention of the restrictive covenants in place as part of his agreement with the firm. Resulting in:

…the Board has concluded that the Company can no longer be associated with Ian Rosenblatt and has therefore terminated his Consultancy Agreement.

The Board will be exploring options for the recovery of the Restrictive Covenant, and also the loss of revenue anticipated over the next three years.

Given the debt the company has we commented that there is a high risk that the company doesn’t make it to enforce the restrictive covenants. They may still manage to get the SRA involved, though. Perhaps they read our comments as they then brought out an RNS saying:

…the Company continues to trade and enjoy the support of its principal creditors, whilst it explores ongoing opportunities to strengthen its balance sheet.

The Company has been engaged in discussions with its lender and other parties in relation to its options. It appointed financial advisers in Q4 2024 to assist with these discussions which are now well advanced. Should an agreement be reached on the terms currently being negotiated, the Board anticipates the Company will have sufficient cash headroom for the foreseeable future. In the event the Company cannot reach an agreement with its principal creditors, it will need to explore alternative financing options immediately.

Not sure that reassures us!

Team Internet Group (TIG.L) - Possible Offer & Not-Possible Offer

When Team Internet Group renamed themselves from their original CentralNIC name, they decided to use the ticker TIG, previously in use for Rob Terry’s now-defunct The Innovation Group. This didn’t stop two possible offerors, TowerBrook and Verdane, from making separate possible offers on Tuesday this week:

Each proposal is for 125 pence per Team Internet share in cash with an option for Team Internet shareholders to elect for an unlisted equity alternative in respect of Team Internet shares.

The two proposals follow earlier approaches from each of the respective offerors, both of which were rejected by the Board as undervaluing the Company and its future prospects.

The precise nature of the offers and earlier proposals suggests that 125p is the minimum the board would consider, and the maximum the bidders would. Being willing to let the business go for just 7x earnings estimate consensus for the year just ended, and below where the shares traded two months’ ago, gives one an interesting insight into how the board view the prospects here. Still, two bidders is good, even with some preconditions:

Both proposals are subject to satisfaction or waiver of a number of pre-conditions, including completion of satisfactory due diligence, finalisation of financing and definitive transaction documentation.

We commented that due diligence could be an interesting process here. And so it proved to be for Towerbrook who announced two days later:

TowerBrook today confirms that it does not intend to make an offer for Team Internet.

Perhaps, they simply weren’t prepared for a second bidder and 125p already felt a stretch for them, but equally, we wouldn’t rule out something coming to light rather quickly in the DD. Over to you Verdane.

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