Mello – May ’23 Preview

My sincerely apologies for potentially misleading people, but many of the companies I wrote about are not in fact attending. I have contacted the organiser for an explanation as all the companies below were advertised as firm attendees in the lead up to the event.

The Mini Guide is here.

Physical Mello has previously been by far the best conference for serious private investors. As well as keynote speakers and panel discussions, around 30 companies present at each event.

Andrada Mining

The company came to AIM in late 2017 named “AfriTin” after having acquired the tin assets of Bushveld Minerals in Namibia and South Africa. Throughout 2020 it was reporting a progressive ramp in production from their Uis tin mine in Namibia. In November they market started to believe they might reach their targets and in December they did so resulting in a strong share price performance and good returns for initial investors. In May 2021 their raised a further £10m to expand the processing plant which was causing a bottleneck, quoting a rate of return of 54%.

The additional shares and perhaps lack of positive newsflow may have then contributed to share price weakness until a rash of announcements towards the end of 2021 / start of 2022. Although petalite (lithium) and tantalum by-products were always in the plans for phase 2, the possibilities of producing a sellable product become more concrete with an updates in September, November and December 2021. In March 2022 they announced spodumene (battery-grade lithium) had been discovered within their licence area 11km from the existing mine.

In August 2022 the confirmed the substantial completion of the tin processing expansion project, and in September a funding package including a £15m placing to process the petalite from the working mine and continue funding the spodumene exploration. In January they changed their name to Andrada to distance themselves from the tin side and reflect that the main value now related to lithium.

The share price is very newsflow driven with a particular surge caused by a quarterly update on 20th March. The company looks to be very capable of profitability from its existing operations but will need to raise significantly more cash if it is to develop spodumene production itself. Even though the company appears to be in the top 5% of junior miners by performance to date and future prospects this is not something I personally would invest in, however mining company presentations can often be surprisingly interesting.

Belvoir Group (BLV)

Belvoir are primarily a lettings agency franchise that has “branched out” into sales and financial services. They also own some of their own offices and provide some funding for franchisees to expand by acquisition. They are a regular at Mello shows.

The exceptionally strong pricing and volumes seen in the property market in 2021 was not sustainable, but the extent of the weakening through 2022 and early 2023 surprised most commentators. The financial services side was hit badly by reduced remortgaging activity after the Truss/Kwarteng budget. However, despite weak results in confirmed in March the company reported light at the tunnel, with increased activity in the first quarter likely to feed in to H2 financial results. The strong rally that ensued was reasonably vindicated by the optimistic AGM statement a few days ago.

All things considered the company has kept its long-term GARP and dividend stock credentials intact. Their strong free cashflow is likely to facilitate further bolt-on acquisitions which would be earnings enhancing to their currently forecast forward PE of 13x.

CentralNic (CNIC)

CentralNic used to be solely a domain registrar and now describe themselves as a “global internet platform which helps online consumers make informed choices”, which appears to relate to their “Online Marketing” business. This is described in their annual report as revolving about AI-generated advertorial and review websites which guide users to click on pay-for-click advertisers. Some of the review content is human generated “by freelance journalists”, but is of low cost and low quality.

So in other words, they spam the internet with content-free websites and spam social media, search engines etc. with links to them. In a synergy with their domain registration side they are able to leverage expired domain names as a channel / sewer. The previous CEO in December, whether because he could no longer look himself in the mirror, because he wanted to sell his shares without making disclosures or some other reason we don’t know because none was given.

Aside from the “products” and management change, there are some red flags. The balance sheet is stuffed full of intangible assets from acquisitions but their preferred profit measure excludes amortisation. They have significant debt but do not disclose the name of the lender. In the latest quarter cash was flattered by working capital movements. However these factors have are somewhat reflected by the share price falling 30% year to date despite positive reported trading.

Competitors include Vox Media, AdvisorPeople and some Future Publishing sites.

Checkit (CKT)

Checkit used to be known as Elektron Technology when it was home to a number of mostly unrelated businesses. These were gradually disposed of culminating in the sale of Bulgin in 2019, a return of excess cash, and a change of name to match a remaining business, namely Checkit.

The Checkit product appears to be similar to Crimson Tide (TIDE)’s mpro5 product, aimed at optimising productivity of deskless workers, but also extending into asset and building monitoring. Checkit has been moving to a SaaS model with revenue now well over 90% recurring. However the transition of existing customers has flattered ARR (Annualised Recurring Revenue) growth which has now slowed as the process has largely completed. ARR growth of +30% in H2 2022 gave way to +12.7% in H2 2023 and is forecast to fall to 7-8% each half in FY 2024. Continuing cash burn and losses are forecast through to the end of the 2025 at least.

However they do at least appear to be fully funded until 2026 at which point valuations based on ARR multiples could be back in fashion and the company could prove a bargain. In the meantime the share price seems to move solely on investor sentiment and so maybe an appearance at Mello could be just the ticket?

Dillistone Group (DSG)

Unfortunately it appears this company has cancelled and is not in fact attending

Dillistone is a £4m market capitalisation company providing software to recruitment agencies, previously with seven main products:

  • Voyager VDQ, a legacy product which has just discontinued
  • Infinity, a well established recruitment CRM covering permanent jobs, but more popular with agencies recruiting for contract and temporary positions
  • ISV.Online, a skills testing product
  • Mid-Office, a timesheet / payments / invoicing system
  • FileFinder, their legacy recruitment CRM product that nonetheless remains their most popular executive recruitment product
  • GatedTalent, a closed version of LinkedIn that never quite took off
  • Talentis, their latest executive recruitment product which is under active development and enhancement. It brings together data from various sources including LinkedIn to help with executive search, candidate research as well as providing CRM functionality.

Revenue has been on a declining trend due to the inability to replace waning sales of their older products with newer offerings. Additionally their licence model is per user and many recruitment agencies have been reducing headcounts, something that appears to be at risk of being exacerbated as AI improves productivity. Product investment costs and a lack of scale hold back cashflow and profits, although recurring revenues mean they can operate at very low levels of cash.

Eleco (ELCO)

This company is not presenting, but they are due to have a stand

Another software company, this time in the construction industry. The focus here is on SaaS metrics, but ARR growth of +14% seems pretty pedestrian considering they are actively converting existing customers to subscription licenses. However, unlike many SaaS companies they are generating cash and paying a small dividend. Broker finnCap are forecasting EPS will reach 7.1p in 2026 which doesn’t seem to leave much room for outside returns at the current share price.

Fintel (FNTL)

Unfortunately it appears this company was announced in error and is not in fact attending

Fintel last visited Mello under their previous name of SimplyBiz in November 2019 soon after buying Defaqto. The business consists of three divisions, each producing approximately £20m of revenue:

  • Intermediary services, providing compliance and business services to FCA regulated financial intermediaries such as financial advisors, mortgage advisor and wealth managers. Gross margins increased from 30.8% to 40.4% in FY 2022.
  • Distribution channels, delivering data, distribution and marketing services to product providers. Underlying growth here has been better than in intermediary services, but margins were only up marginally to 39.8%.
  • Fintech and Research is their highest profile and fastest growing segment that trades under the well recognised Defaqto brand. Revenues grew by 18.7% but gross profit margins fell slightly to 62.8%. Notably they have almost doubled profits here since acquisition in 2019.

Despite the term “SaaS” appearing frequently in their last results, this is a serious business that has made consistent steady progress over a number of years once you adjust out the impact of covid in 2020 and 2021’s exceptional gains. That the share price sits well below December 2019 levels speaks more of the higher valuations generally at that time than any fundamental weakness that I can see. They are now in a position to make further earnings enhancing acquisitions using their £12.8m of cash and £80m loan facility.

Forward Partners (FWD)

This investment company specialising in high-growth, early-stage UK technology businesses suffered a reduction in NAV of 41% during 2022 despite starting the period 27% in cash.

In addition to general valuation headwinds, Forward suffered from very high costs of £7.8m (8% of closing NAV). However much of these were due to a Forward Advances, a failed lending subsidiary and costs for FY 2023 are expected to be closer to £4.8m. They also suffered from an ill conceived investment in US quoted Cazoo, albeit they sold far above current levels.

Downwards valuation adjustments were amplified because many of their early stage equity stakes have been subordinated by subsequent investors who now take the first slice of any returns. Their accounting policy states that valuations are done quarterly, however valuations are only published every six months and so there could be further reductions in that they have not yet disclosed.

On the positive side, their FY2022 results issued this time last year contained a clear warning that about H1 valuations which isn’t present today and through their broker Liberum guides that NAV remains close to year end values of 72p.

The share price has flatlined at all time lows of 35.5p as has investor interest, with only two trades in the whole of last week, both on Monday, only one substantive. It is evident that there is currently a stock overhang with a large order being worked.

Although very high risk I therefore see several drivers that could compound to produce exceptional returns:

  • They claim 40% of their investments related to “Applied AI” at year end, one of three areas of focus since they came to the market in 2021. This percentage is up from 29% a year earlier and is probably higher still now given the likely outperformance of this segment, making them primarily an AI investment fund.
  • Even a faint echo of the dot com boom in the AI sector would likely result in rapid rises in the valuations of several of their investments
  • Any recovery / rise in valuations would be amplified in their NAV due to the gearing effect of their subordinated equity holdings
  • During the mania stage of the dot com boom many investment companies traded at a significant premium to NAV, whereas Forward Partners currently trades at a 50% discount.

Frenkel Topping (FEN)

Unfortunately it appears this company has cancelled and is not in fact attending

There’s a great summary of this Personal Injury / Clinical Negligence company here. This type of company can suffer from high receivables and indeed they are over five months worth of revenue here, but they do not appear to be growing uncontrollably.

Inspiration Healthcare (IHC)

This is the forth time running at Mello for the acquisitive medical devices company. Ahead of their November appearance I identified a serious red flag over the level of their receivables ahead of their last appearance and also a concern over inventory build. Soon after they issued a profits warning and both receivables and inventory worsened in H2. Although to their credit payables reduced, this leaves them in a net debt situation. Capitalised development costs also merit closer examination.

As with their appearance at Mello in May 2022, the timing is unfortunate as their annual report for the year to 31st January is not yet available. Although they have borrowing facilities available providing liquidity the term is not provided beyond that the RCF expires “in 2024”.

This is not a company I would contemplate investing in without going through the annual report with a fine tooth comb, however it appears the market has at least partially caught up with the risks, with a PE on FY to January 2025 forecasts of 6.7x.

Intelligent Ultrasound (IUG)

IUG are new to Mello, but have traded on AIM since 2014, originally as an ultrasound simulation / training company under the rather dubious name “MedaPhor Group” (MED). In 2017 they purchased Intelligent Ultrasound, a company then described developing deep-learning based ultrasound image analysis software, including the ScanNav product.

In the early days there was some inconsistency about to what extent ScanNav used wider machine learning including fixed algorithms vs deep-learning though neural networks to achieve its goals, from May 2018 it has been described simply as “AI” in line with marketing trends. As I understand it the software neither meets the commonly understood definition of AI from a few years ago nor is in the category of Generative AI where recent public breakthroughs have been made.

Later in 2018 they raised a further £7m 2018 in to fund further development of the “AI” products. In 2019 they changed their name to IUG and announced an AI framework agreement with an ultrasound machine manufacturer. In 2020 another £5m was raised, again primarily to fund AI development, and GE Heathcare launched an ultrasound system incorporating their software. FDA approval for one application was received in 2022, followed by a further £5m fundraise.

Revenues on the more highly valued “AI” side are now coming through, although they were only 10% of total revenues in H2 and no specific forecasts are available. Their simulation / trading side also continues to grow. Cashflow remains negative, but looks like it could be positive after adjusting out claimed R&D spend net of tax credits, and they appear to have several years of cash runway remaining even without increasing revenues. Actual forecasts show revenue continuing to grow strongly leading to overall profitability and a positive cashflow in FY2024.

Although shareholder returns have been poor since the original flotation, business performance has been by no means bad in the past five years. Although as a loss making growth company the shares will not suit everyone, the April rally seems to me to have been well justified if current forecasts can be met.

Judges Scientific (JDG)

Unfortunately it appears this company was announced in error and is not in fact attending

Judges Scientific were last seen at Mello in May 2019. The company has an excellent track record of acquiring and developing companies in the scientific instrument sector. In May 2022 they made by far their largest acquisition to date by paying £80m in cash and shares for Geotek, a geological core analysis company. Performance there so far is good and the maximum earn-out has already been paid, but it involved taking on a considerable amount of debt. Although Judges have subsequently announced some smaller deals, the scope for doing further large deals without material shareholder dilution is now more limited.

While it remains possible that problems at Geotek could still come to light, the main question here is whether their past performance can continue and whether the relatively high valuation can be justified. These are the same questions that have been asked for at least 10 years now, but it may be instructive to look at a time when things went wrong (at least from a shareholders perspective) in the past.

In Spring 2014 the share price hit £22.50 with a forward PE of 24x, similar to that of today. That level was not regained until January 2018. What went wrong? By 16th July 2014 they share price had fallen 26% to £16.70 and the next day they issued an update saying that trading performance had proven challenging in H1 with organic revenue growth of just 3.2% with profits flat, and that order intake was poor. This resulted in a downgrade in full-year EPS forecasts of around 15%. In October 2014 the share price fell to a low of £10.50 with a reported forward PE of around 12x. In May 2016 they issued a further profits warning and it wasn’t until January 2017 that the share price started its recover and normal service was resumed. At no point did they report losses and a 20% EPS fall in 2016 was followed by an 80% rise in 2017.

Accordingly buyers at the current valuation should probably be prepared to be in it for the long haul.

Remaining companies

Unfortunately I only have time to write one-liner descriptions at this time. I revisit ahead of the show.

Kelso (KLSO)

Investment company

Literacy Capital (BOOK)

Investment trust

Manolete Partners (MANO)

Insolvency litigation

NetScientific (NSCI)

Investment company

Oberon Investments (OBE)

Financial boutique

Poolbeg Pharma (POLB)

“Clinical-stage infectious disease” pharmaceutical company was carved out of Open Orphan, now known as hVIVO (HVO). Flu speciality.

React (REAT)

Cleaning group trading as React, Fidelis and LaddersFree.

SmartSpace (SMRT)

Unfortunately it appears this company was announced in error and is not in fact attending

SaaS room management


Scottish ITV operator.

Tandem (TND)

Unfortunately it appears this company was announced in error and is not in fact attending

Bicycle and electric mobility brander and importer

ThruVision (THRU)

Walk-through security

Velocity Composites (VEL)

Composite material kits for aerospace etc.

Warpaint (W7L)


Xeros Technology (XSG)

Textile technologies to reduce microplastics

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