Small Cap Report (13 Feb) - API, HVN, RGO, LCG, HIBU, NXR

Wednesday, Feb 13 2013 by

It's likely to be a rough day for shareholders in API (LON:API), as they announce that the protracted company sale process has now fallen through (incidentally just to emphasise, if it's not obvious, where I put in a link, as in the last sentence, this clicks through to the relevant announcement on, or to something else relevant, e.g. a previous comment).

This follows an ominous announcement on 25 Jan 2013, when API stated that indicative proposals from potential buyers of the company had been below the then market price of 90p, and also the sales process sounded like it was unlikely to continue. I've been sceptical about this sale process for some time now, as stated in previous comments here. It was taking too long, and the pension deficit was likely to be an impediment to a takeover. Also, risk/reward was all wrong after 25 Jan, with the upside capped at below 90p, yet downside from the process falling through.

API also issues a trading update today, which is a very mild profits warning, saying that results for y/e 31 Mar 2013, "are likely to be marginally below previous management expectations", but, "will demonstrate substantial year on year improvement". The outlook sounds mixed. So I suspect these shares are likely to take another lurch downwards today. There is no dividend yield to cushion the fall either, although clearly they will now need to introduce a dividend, after all paying divis is what companies exist to do! (something that management often forget).

I'm not terribly interested in chasing this one down, unless it gets really cheap, because we now know that it's a company nobody wants to own! Its large shareholders want out (they pressed for the sale process in the first place), and nobody in the trade or private equity seems to value it at a worthwhile premium. I might get interested at 50p, but probably not much higher than that, but let's see where the price settles & then take a view. My commiserations to friends who were in this one - I suspect the damage is done, so if I held then I'd probably park this in the long-term, hasn't really worked out, section of my portfolio, or just dump it & move on.


Recruitment group Harvey Nash (LON:HVN) puts out a positive trading update, saying that results for year-ended 31 Jan 2013 are, "expected to be slightly ahead of expectations, which were upgraded in Nov 2012, and that it intends to recommend an increase in its final dividend of 10%".

Stockopedia's StockReports include a nifty little chart that shows the last 12 months trend for market expectations of  forecast EPS.

Here is the one for HVN, so you can see the jump in forecast EPS to 8p in Dec 2012, which is what their trading statement is referring to. A rising trend in forecast EPS can be a precursor to favourable trading news, so it's a useful indicator.

HVN shares have jumped up 8% to 72p this morning, so that puts them on a PER of just under 9. They had net debt of £14.1m at 31 Jul 2012, which is fairly material at 19p per share. However, they report today that this turned into a net cash position of £4m at 31 Jan 2013. This seems to be mainly due to seasonal working capital movements, as trading cashflow alone would not be anywhere near enough to have caused an underlying reduction of that extent.

Overall it looks priced about right to me now. Smaller recruiters don't command high valuations, although the dividend yield at HVN is still quite attractive, given that they should pay out 4.4p for the year, so that's a very good yield of 6.2%. I'd be tempted to buy on any dips, just for the dividends.


What next? Micro cap 2Ergo (LON:RGO) intrigues me, although I sold my shares recently, because I needed money to buy something else with more immediate upside, Clean Air Power (LON:CAP). It was horribly illiquid though, and I had to take a price of 12p (when the quote was 13p, and the offer was 15p) to shift just a couple of £k worth of shares.

RGO has scaled back its operations to two key product lines, so it's very much in last chance saloon, with the Directors using their own money to heavily back its last, massively discounted fund-raising. Despite this, the products look good, and relate to electronic discount coupons for smartphones, which can be redeemed using a touch terminal at the till point. Clever idea, but hasn't really taken off. If it does, then expect RGO's market cap to multi-bag from here.

Previously they had said that they expected to reach profitability in 2013, but that has now slipped to, "in the year ending August 2014". They have £800k left in the Bank, but do have unutilised bank facilities - which is strange, as I'm surprised any Banks would lend to a loss-making minnow like this, so I wonder if Directors have any personal guarantees in place? Would be a nice sign of commitment if they did, on top of putting in £700k of their own money into the last Placing - nothing focuses the mind like having your own money on the line, which is one of the things that intrigues me about RGO. For the moment it stays on my watch list. The contract wins they mention today look pretty insignificant to me, so no big breakthrough yet.


Well done to shareholders in London Capital Hldg (LON:LCG), a small spread betting group, as they announced yesterday that they have received takeover approaches from three competitors! The shares have shot up from 34p to 54p. I'm kicking myself on this one, as it came up on one of my value screens a couple of weeks ago, I researched it, and almost bought some, but held back due to competitive worries, and ongoing legal & compensation problems.

However, it is a reminder that there is still value out there, lurking undiscovered amongst the laggards which have not participated in this big rally in smaller caps over the last 6 months. I shall be writing another stock screening article shortly which will try to find such laggards.

Incidentally, I always Tweet when new articles are published, so by all means follow me on Twitter @paulypilot to get an alert & link to all new articles I write, and our gracious hosts here, @Stockopedia on Twitter. Some people are dismissive of it, but if you use Twitter as a tool to focus in on relevant stock market people & organisations, it is a terrific source of bang up-to-date news & opinion. Very useful indeed to investors.


Youu know that a management have no idea what to do, when they abandon an existing brand name and replace it with something new & completely meaningless. Such was the case with Yellow Pages, or Hibu (LON:HIBU) as it is now called.

It's been obvious for years that the equity was worth nothing, due to extreme levels of debt, and an underlying business in terminal decline due to the internet. However, they stated as much in an IMS yesterday, which talked about restructuring the debt. Buried within this announcement was a statement that little or no value will be attributed to the existing shares, i.e. they are worthless.

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Despite this, some lunatics are still trading the shares, but I do want to emphasise to readers that HIBU shares are almost certainly worthless gambling chips, and the market cap of £8m is a nonsense. I just wanted to flag this up to readers, so you don't get sucked in.


I'm not obliged (or even asked) to promote anything about Stockopedia, so when I do mention features here, I'm doing so because I like them! There are tons of useful tools buried in the site, and I found one yesterday that is worth mentioning, as it's very useful & not something I've found elsewhere.

If you go to "Folios" on the top menu, and then click on "+Create Portfolio", you can build a list of your shares just by keying in the EPIC codes, separated by commas. So only takes a few seconds to set up. You then get a portfolio list, which not only shows share prices, but also has a load of other customisable views, and can be sorted by any column. So here is my basic Watchlist (called "main_holdings", but it actually contains lots of things I do & don't hold!):


Now I've clicked to view my Watchlist by forecast dividend yield (can be any field you want, on multiple pre-set, or customised screens):



Here's my favourite bit! If you click on "Events", it gives you a calendar of forecast announcements for your portfolio (this can be imported using an ical file, but I couldn't get it into my Google Calendar):


Pretty nifty, huh?! So I know to look out for Norcros (LON:NXR) results tomorrow, which is one of my favourite value shares.


That's it for today, fairly quiet on the results front, so thought I'd mention some other useful ideas.

Bracing myself for a deluge of 31 Dec 2012 results, which must be imminent!

Regards, Paul.

(of the companies mentioned today, Paul has long positions in CAP and NXR. Paul has no short positions)

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

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API Group plc is a United Kingdom-based manufacturer and distributor of foils, films and laminates. The Company’s caters to the alcoholic drinks, confectionary, tobacco, perfumery, cosmetics and healthcare markets in packaging of fast moving consumer goods and in printed media. Its products include metallised film laminates, holographic laminates, aluminium foil laminates, portabio film laminates, Fresnel lens laminates, bespoke/print-registered holographic and lens, and microwave susceptor. The Company has four operating businesses, which are API Laminates, API Foils Americas, API Foils Europe, and API Holographics. The Company’s foils, films and laminates are used to add metallic and holographic finishes and effects to labels, cartons, containers and closures for many consumer brands. more »

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Harvey Nash Group plc is a global professional recruitment and outsourcing consultancy. The Company supports multinational organizations and smaller companies to recruit and retain outstanding executives and senior management talent through a specialist search approach and leadership consultancy service. The Company’s leadership consulting businesses support owners, boards and executive management with a range of strategic leadership services, including board evaluations, leadership development, management development, management audits, assessments and strategic human resource (HR) consulting. Through its Interim Management consultancy Impact Executives, it provides independent business consultants to its clients on a flexible contract basis across a range of sectors and functions. It provides application development, software maintenance and outsourced software services to its clients. more »

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MXC Capital PLC, formerly Broca plc, is an investment and advisory company. The Company is focused on the TMT sector. It provides a full suite of corporate finance advisory services through MXC Capital Advisory. MXC Capital Advisory provides specialist corporate finance advice on all forms of corporate transactions, including buy and sell side mergers and acquisitions mandates; initial public offerings (IPOs), secondary public market fundraisings and private company fundraisings; debt and convertible debt issuance, and advice on the city code on takeovers and mergers. more »

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  Is API fundamentally strong or weak? Find out More »

5 Comments on this Article show/hide all

marben100 13th Feb '13 1 of 5

Hi Paul,

You're doing great work here at my favourite financial web site, keep it up! :0)

One more smallcap worthy of mention today is Avingtrans (LON:AVG) . Their announcement was a little late (10am), which is why I guess it didn't make it into your morning report. Further confirmation that their transformation/recovery is on-track. IMO the stock continues to remain cheap on a P/E of < 10, a 2%+yield and substantial EPS and profit growth anticipated. Debt appears manageable. I guess there could be an upgrade following today's announcement.

I have been a long-term holder of these and will continue to hold at current levels. Not a screaming bargain any more, but hardly overpriced either.



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Paul Scott 13th Feb '13 2 of 5

In reply to marben100, post #1

Hi Mark,

Thanks! Yes you're right, I only look at announcements between 7-8 am each day, as that is enough to cope with, let alone any further ones later in the day.
I've checked out the Avingtrans (LON:AVG) statement from this morning, and it looks helpful, although not particularly material to their over turnover each year, at £2.5m p.a., but it's a good strategy to build long-term contract revenues - likely to make results more stable & predictable, and lowers risk.

We met mgt of AVG at a Mello Central last year, and I recall thinking they seemed sensible & competent, and liked the company, but I didn't see any particular value in the shares - they did (and still do) look priced about right to me.
Maybe the company will do well, and you might make a 25% gain in a year, or 50% in 2 years, but if they don't execute as well as planned, then it might go down.

So it just doesn't look a particularly exciting risk/reward play to me. I'd rather invest in things that are trading well, and on a fwd PER of 6-8, but there aren't many left! AVG also has a fair bit of debt relative to the mkt cap. So I'm not looking at it thinking that it's a bargain. Could be a takeover target though, who knows?

Regards, Paul.

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fredahad 13th Feb '13 3 of 5

I totally agree with Mark's sentiments Paul - your summaries are enormously useful for time-poor investors, and seem to always seem to cut straight to the kernel! I am also a huge fan of the Stockopedia website -it is for me the single most useful resource on the web, and crazy-good value to boot. If I have any complaint, it is that there are so many features that one rarely gets time to fully explore the offering. For this reason, you highlighting little snippets of what can be done on the site are a great idea -please keep them coming.

For the "suggestions box" -one Stockopedia usage-tip per day, (included on your small-cap summary), would be a very digestible training resource -if you agree, please run it by Ed.

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Paul Scott 13th Feb '13 4 of 5

In reply to fredahad, post #3

Hi Freddie,

Thanks for your kind comments, much appreciated!
I was a bit unsure about whether to include any pointers in my morning report on Stockopedia features (and to reiterate, they have not even asked me to do so, I have total freedom to write about whatever I like, which is great, and I wouldn't have it any other way!!), but as I'm a fairly new user to Stockopedia myself, thought it would be useful to flag up particularly useful features buried in the website.

I'm always raising "green tickets" and suggesting new ideas to Ed & Dave at Stocko too, and love the way they always respond immediately, and are constantly adding new features and improving the site based on what customers ask for.

I'll flag up more good features of the site as I come across them (am still exploring it myself!), and will continue putting them in my morning report, but will probably restrict it to days when there aren't many relevant company news releases (like today), otherwise it takes too long (2-3 hrs is about as long as I can concentrate for when doing these reports!).

Cheers, Paul.

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Edward Croft 14th Feb '13 5 of 5

In reply to fredahad, post #3

Freddie - thanks for these kind words ! It really means a lot to us. I think this is a really interesting idea - a usage tip of the day. We are hoping to start creating many more screenshares etc over the coming months and so on - but I think the annotated screenshots are really quick to understand so perhaps we'll do more of them. As Paul says he's doing this off his own bat really - excellent stuff !

If anyone's reading this then vote up for this comment if you'd like to see more usage tips, and down if you don't !

Blog: Follow @edcroft on Twitter
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About Paul Scott

Paul Scott


Paul trained as an accountant, then spent 8 years as FD for a ladieswear retail chain.He became a professional small caps investor in 2002 to date.Paul writes a small caps report for on weekday mornings. He joined Fundamental Asset Management Ltd as a research associate in 2014, as part of their Small Cap Value Portfolio team. more »

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