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

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API Group plc is a manufacturer and distributor of foils, films and laminates for use primarily in packaging for fast moving consumer goods and printed media. The Company's segments include Laminates, Foils Europe, Foils America and Holographics. It is a producer of carton board laminates for the packaging of consumer goods. Its product range includes metallised polyester and aluminium foil laminates and holographic and Fresnel lens finishes, which can be customized to fit specific printed graphics, as well as green options which are repulpable and biodegradable. It also makes functional laminates, such as microwave susceptor and fire retardants. Its products can be found across arrange of applications and sectors, including wines, beers and spirits, tobacco, personal care, food, greeting cards, vehicle licensing and number plates, passports and identity (ID), banknotes and financial cards. It operates in the United Kingdom, Rest of Europe, Americas, Asia Pacific and Africa. more »

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Harvey Nash Group plc is a United Kingdom-based recruitment business. The principal activity of the Company is the provision of professional recruitment and offshore solutions. The Company's operating segments include United Kingdom & Ireland, Mainland Europe and Rest of World. Its portfolio of services includes executive search and leadership services, professional recruitment and offshore solutions. The Company conducts managed information technology (IT) services and projects, software development services and business process outsourcing (BPO) operations in Vietnam. The Company provides interim management services in various industry sectors, such as business services, manufacturing and industry, technology, financial services, retail and consumer, and transport and infrastructure. The Company conducts its business through various brands, such as alumni, Bjerke Luther, Mortimer Spinks, Nash Tech, Nash Technologies, impact executives and Harvey Nash. more »

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MXC Capital Limited is a United Kingdom-based merchant bank. The Company is engaged in investing in and advising companies in the technology, media and telecommunications (TMT) sector. The Company specializes in investing in technology companies and building value in the companies it invests in, as well as for its own shareholders. The Company's segments include Corporate Finance Division and Other. The Company focuses on various sectors, including analytics, managed services, government and public sector, Internet of Things (IoT), robotics, security, financial technology, Internet service providers (ISPs) and opportunist. The Company's subsidiaries include MXC Guernsey Limited and MXC Capital (UK) Limited, which are investment and intermediate holding companies, and MXC Capital Markets LLP, which is engaged in corporate finance. 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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