Small Cap Report (31 Jan) - AGL, HYNS, RGD, MBH, NBI, ITM

Thursday, Jan 31 2013 by
11

I generally avoid blue sky, or story stocks, as my experience of the dot.com boom & bust in 1999-2000 has taught me that very few (in fact, hardly any) story stocks actually deliver on their promises. Even if they do deliver, it's usually years behind schedule, and many dilutive fund-raisings later.
That said, the financial memory is reputed to be around 15 years, and we are in a bull market, so there may be another opportunity to make hay whilst the sun shines, possibly?

Angle (LON:AGL) has always intrigued me, as they are developing a non-invasive method of screening for certain cancer cells in the blood, called a Parsortix device. The shares have recently spiked up, more than doubling in price to 65p. Another Placing today has put the dampener on that a bit, with 10% more shares being Placed at a not unreasonable discount (considering the recent huge upward move in price) of 17.4%. So the issue price is 50p. Shares in the secondhand market will obviously gravitate towards this price, as people who take part in the fundraising "flip" shares in the market, to lock in an instant profit, which can be done either by selling, or by opening a short position via a CFD/Spread Bet until the new shares are delivered.

I believe we need to lobby Government to radically reform the current system for company fund-raisings. The law needs to be changed so that a Placing is open to all shareholders (since anyone can buy the shares secondhand, why restrict who can buy newly issued shares?), and done instantly online, over say a 7-day period, with the shares being suspended whilst the Placing is undertaken. Also, instead of companies fixing the price of the Placing, it should be set by electronic auction, with firm bids submitted by existing shareholders first, and then opened up to anyone else subsequently. A minimum price could be underwritten by a third party, in return for a fee.

Going back to AGL, I am meeting the Directors today for lunch & their interim results presentation, so will report back with my impression either tomorrow or over the weekend. I've not read the accounts yet, although being a blue sky share, it's the narrative & outlook that matters more than the figures.

 

Car repair manual publisher, Haynes Publishing (LON:HYNS) has issued poor interims, with basic EPS down from 7.5p to 5.2p. The high dividend yield was a major support for the share price, but the interim dividend has been cut from 6.2p to 3.5p. There appears to be an H2 weighting to their results, it looks like they are only heading for about 15p EPS for the full year (my guesstimate, based on H2 falling a similar amount to H1 vs last year), which makes the share price of 200p rather difficult to justify. I would only be interested at around half that price, for a business that is clearly finding it difficult to adjust to the digital world. The balance sheet is strong, but that is negated by a £9.5m pension deficit.

 

I've never understood why so many investors get excited about Real Good Food (LON:RGD), it has always struck me as an unappealing investment, given its negligible profit margins, capital intensive nature, and far too much debt. Their Q3 trading update this morning is a complete mess, I have no idea whether it's a profits warning, or a positive statement, it seems completely contradictory, saying that Q3 trading was "lower than anticipated, with December proving particularly challenging", and then going on to say that, "overall the group has performed well"!?

On a more positive note though, they have completed a new 5 year bank facility with existing lenders. If anyone else can make sense of their trading update, then please comment below.

 

Michelmersh Brick Holdings (LON:MBH) announce in a trading update today that they finished 2012 with a positive Q4, and hence are now expecting a modest profit for the year, instead of breakeven. I met the management at a Mello Central event at FinnCap's offices last year, and several of us came to the conclusion that there isn't really a viable business there, in terms of it paying no dividend, and there not really being any prospect of a recurring dividend.

Instead, the operating business just chugs along, washing its face, and providing jobs for Directors and employees. The only value in it for shareholders is the surplus land, so it's a special situation really. Or you might take a more positive view of the operating business if you believe that it could make a sustainable profit once the building sector picks up a bit more?

Today's statement gives some updates about their surplus land situation, including negotiations with Persimmon over a 15 acre site at Telford. Once the property has been disposed of, and the proceeds distributed to shareholders, it would probably make sense for Michelmersh to become a workers co-operative, instead of a Listed company. It really is high time that policymakers innovated on this issue, and created new structures to encourage more enterprises to be owned by their own staff. I suggest that any company which distributes at least 50% of its profits to its staff, should be exempt from corporation tax. The savings on the welfare bill (no housing benefit or tax credits neeeded) and additional payroll taxes, would surely make this at least self-funding? Plus the owners of the business would see a more motivated & productive workforce. We need to challenge the status quo of screwing wages down to a level that are inadequate to live on, to maximise profits, since the social cost of doing so is so enormous, and the bill is picked up by the taxpayer.

 

 Special Offer: Invest like Buffett, Slater and Greenblatt. Click here for details »

I've not looked at Northbridge Industrial Services (LON:NBI) before, it's a £42m market cap equipment hire business.

They have issued a pretty upbeat sounding trading update this morning, saying that 2012 results will be in line with expectations, and that 2013 has started well. Might be worth a further look perhaps?

 

Results from ITM Power (LON:ITM) look an absolute car crash to me. Just £30k in turnover, and a £3.8m loss. This is for just 6 months! They had £8m in cash at 31 Oct 2012, so look to be burning at least £0.5m per month, so by now they probably only have about a year's cash left. So another fund-raising likely. The £32m mkt cap looks bonkers to me, but shareholders must believe that a dramatic turnaround is likely to happen. There are so many companies, large & small active in this fuel cell space, that it's not an area I would even consider gambling on again, in the hope of picking one of the few winners.

 

There are lots more trading statements today, it felt like trying to find a needle in a haystack. Just a reminder that I only usually cover small caps between £10m-200m market cap, and I specifically exclude the resources & financials sectors, and usually only cover UK-based companies.

Although it has to be said that one or two resource shares are beginning to appear on my value filters, so I'm thinking of relaxing my exclusion of resource shares, if they are producers on a low PER, and pay a reliable dividend.

Have a good day, and see you same time tomorrow morning.

Regards, Paul.

(of the shares mentioned today, Paul holds no positions, either long or short in any of them)


Get Paul Scott's Small Cap Value Report in your email inbox weekdays at 11am!

Disclaimer:  

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.


Do you like this Post?
Yes
No
11 thumbs up
0 thumbs down
Share this post with friends



ANGLE plc (ANGLE) is a holding commercially driven specialist medical diagnostic company with pioneering products in cancer diagnostics and foetal health. The Company’s principal subsidiaries are Parsortix Inc (Parsortix) and Novocellus Limited, which are commercially driven specialist medical diagnostics companies with pioneering products in cancer diagnostics and foetal health. ANGLE also owns a major investment in Geomerics Limited, a business with a computer graphics technology platform, and a specialist technology consultancy. The Company operates in four segments: Controlled investments in medical diagnostics, Non-controlled investments, Ventures and Management services. ANGLE has developed its Parsortix technology to capture circulating tumor cells (CTCs) in cancer patient blood. In December 2013, ANGLE plc sold Geomerics Limited to ARM Holdings plc. more »

Share Price (AIM)
73.3p
Change
-1.0  -1.4%
P/E (fwd)
n/a
Yield (fwd)
n/a
Mkt Cap (£m)
33.3

Haynes Publishing Group P.L.C. is a holding company. The Company is engaged in production and sale of automotive and motorcycle repair manuals. It operates in two geographical segments: UK & Europe and North America & Australia. The Company through its Dutch subsidiary, Vivid Holding BV, is a European supplier of digital technical information to the motor trade. Its core business is the publication and supply of automotive repair and technical information to the professional automotive and DIY aftermarkets. The business also publishes a range of titles, which are practical, instructional, easy to read and aimed at those with an interest in more general DIY related activities, as well as motoring, motor sport, transport, aviation and military. Effective September 18, 2013, Haynes Publishing Group Plc acquired Clymer Manuals, an Overland Park-based publisher of business and trade magazines. more »

Share Price (Full)
169.5p
Change
0.0  0.0%
P/E (fwd)
9.0
Yield (fwd)
5.7
Mkt Cap (£m)
25.5

Real Good Food PLC, formerly The Real Good Food Company plc, owns a non-refining distributor of sugar in Europe (Napier Brown), and is a supplier of dairy ingredients, bakery ingredients, coatings and sauces and is also a manufacturer of sweet bakery products for a range of retail customers. The Company has five operating divisions: Napier Brown, which is engaged in the distribution of bulk sugar and manufacture and supply of packed sugar to the retail and industrial food sectors; Garrett Ingredients, which is engaged in the distribution of bagged sugar and dairy products to the industrial food sector; Renshaw, which is engaged in the manufacture and supply of marzipan, and ready to roll icing to the industrial and retail sectors; R&W Scott, which is engaged in the manufacture and supply of chocolate coatings and jam to the industrial and retail sectors, and Haydens, which is engaged in manufacture and supply of ambient cakes and desserts to the retail sector. more »

Share Price (AIM)
24.75p
Change
0.0  0.0%
P/E (fwd)
12.1
Yield (fwd)
n/a
Mkt Cap (£m)
17.2



  Is Angle fundamentally strong or weak? Find out More »


6 Comments on this Article show/hide all

Asagi 31st Jan '13 1 of 6
2

Northbridge have said 'in-line'.

Stockopedia has 27.6p of EPS forecast for 2012. 32.4p forecast for 2013.

bit of an outlook statement in today's RNS from the CEO:

investment into hire equipment and the new UK location are important ... and will help sustain our growth into the future. We are now beginning to reap the benefits in cash flow .. The second six months of 2012 were a record for the Group as a whole and this momentum has continued into the start of 2013. We hope that the early signs of improvement in the overall world economy will continue and that Northbridge will see further advancement in 2013.

Very much sets the scene for further growth in 2013. Today, Northbridge trade on a 2013 P/E of just 8.1 times earnings.

Regards,

Asagi

(long NBI)

| Link | Share | 1 reply
Paul Scott 31st Jan '13 2 of 6
1

In reply to Asagi, post #1

Hi Asagi,

Good points, NBI does indeed look good value on a fwd PER basis.
The 2% dividend yield is not brilliant, but OK.

The trouble is with hire companies, you have to think about the debt too. NBI seems to have geared up a fair bit (not to dangerous levels though) which will always flatter EPS and hence PER at a time of very low interest rates. Higher interest rates in a recovering economy are likely to hurt, but it depends on what terms the debt is on, and what hedges they have in place.

I met the mgt of VP Group recently, and they have a mix of fixed, and capped interest rate hedges, which seems sensible. Also, they told us that equipment hire is all about finding a profitable niche, not a low margin mainstream area. NBI seem to be focused on the oil sector?

Overall though, it looks moderately interesting as a potential growth at reasonable price (GARP) situation.

Cheers, Paul.

| Link | Share
Asagi 31st Jan '13 3 of 6
1

Agreed Paul - thanks for posting further thoughts.

Another thing I like about Northbridge is the dividend increases. According to the Stockopedia data page (or whatever it is called!) for the company here:

http://www.stockopedia.com/share-prices/northbridge-industrial-services-LON:NBI/

the dividend has increased every year since 2007. In the last five years, the dividend has increased at an average of 21% a year. The dividend increased 6% at the interim stage in 2012; a 9.5% increase is forecast for 2012 (versus 2011) to be followed by a 10.6% increase the year after.

You make some factual comments about debt etc. I remember discussing the share with another investor who was deterred. The price then was 230p!

It would be a good question for management on what they hope to do with the debt in future. No doubt the dividend would be higher without it. Likely they will not make another acquisition for awhile and pay some down but who knows?

But I think that such worries are a little bit 'worthy' to be honest - below 250p the shares were a steal and I won't be worrying about debt while the shares are still under 300p.

Some of the brokers have updated today, reiterating a 350p target price. I agree.

Asagi (long NBI)

| Link | Share
BrianGeee 31st Jan '13 4 of 6
1

"I believe we need to lobby Government to radically reform the current system for company fund-raisings. The law needs to be changed so that a Placing is open to all shareholders (since anyone can buy the shares secondhand, why restrict who can buy newly issued shares?), and done instantly online, over say a 7-day period, with the shares being suspended whilst the Placing is undertaken. Also, instead of companies fixing the price of the Placing, it should be set by electronic auction, with firm bids submitted by existing shareholders first, and then opened up to anyone else subsequently. A minimum price could be underwritten by a third party, in return for a fee."


l couldn't agree more strongly, although I would tend to go further and say that fund raisings could only be via modified renouncable rights issues. That way the price at which the rights are issued makes little difference. 

- Each existing shareholder has a right to apply for his proportion of new shares.

- Each existing shareholder can sell his rights.

- Any shareholder taking no action will retain his existing holding, and have his rights sold in an excess rights auction. This auction will be open to all.

So:

No opportunity for brokers to "earn" silly fees for putting their favoured clients into the best placings.

No need for underwriting - as the price can be set to ensure all rights are taken up, at no disadvantage to existing holders.

Simple and transparent.

| Link | Share
BrianGeee 1st Feb '13 5 of 6
3

"I've never understood why so many investors get excited about Real Good Food (LON:RGD), it has always struck me as an unappealing investment, given its negligible profit margins, capital intensive nature, and far too much debt. Their Q3 trading update this morning is a complete mess, I have no idea whether it's a profits warning, or a positive statement, it seems completely contradictory, saying that Q3 trading was "lower than anticipated, with December proving particularly challenging", and then going on to say that, "overall the group has performed well"!?
On a more positive note though, they have completed a new 5 year bank facility with existing lenders. If anyone else can make sense of their trading update, then please comment below."

--------------------------

 

The last quarter of their prior 15 month year was very weak, as has been the first half of the current year in terms of profit.

With H1 eps of 1.4p, it seemed too much of a stretch for the broker's estimate of 7.5p for the full year to be met. The business is seasonal, but not to that degree. Looking at prior year H1/H2 figures:

                H1           H2

2008       -1.7        0.0

2009       -1.3        2.6

2010       -1.4        3.6

2011       1.2          4.8          Year-end changed in 2012, so 2012 figures

2013       1.4          ???

So why in thier Interims and at a Dec presentation were they adamant they'd meet full year estimates?

Well, I don't know, but the share price clearly indicates that investors didn't believe them.

At the Dec presentation, all orders would be known, most delivered, and if the financial department were on top of their job, the position would be known. They confirmed at the presentaiton that they this was true and still said they were on target.

 

So now they've realised they're not on track and are trying to save a little face, but due to stupidity since the interims, there's no avoiding the loss of credibility.

They're saying that the medium and longer terms plans are still on track, although it looks like it will take quite some work to achieve.

Given what they say, for this year I'd expect eps of around 5.8p, and probably about 8p next year.

They could also do with a decent broker to replace Shore Capital.

| Link | Share

What's your view on this article? to Comment Now

 
 
You are feeling neutral

Use the £ sign in front of a ticker to turn £VOD into Vodafone PLC

You can track all @StockoChat comments via Twitter

 Are Angle's fundamentals sound as an investment? Find out More »



About Paul Scott

Paul Scott

Follow

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 Stockopedia.com 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 »



Stock Picking Tutorial Centre


Related Content

Stock Picking Simplified

Stockopedia takes your stock picking to the next level with cutting edge Stock Reports & Screening tools.


Get started
or Take a Tour to find out more.