Small Cap Report (4 Feb) - WGB, CRE, MUR, EGS, SAA, KBC, NXR, IND

Monday, Feb 04 2013 by

I'll start with two companies whose shares I hold. Firstly, Walker Greenbank (LON:WGB) which is an up-market wall coverings & furnishings group, which had a market cap of £46.7m last night. The shares are up 8% to 86p this morning, on a very good trading update.

Incidentally, it's worth pointing out that most websites update key information (such as market cap) overnight, so often that won't reflect a sudden increase or decrease in share price during the day. So it's always worth finding the number of shares in issue (which is situated near the bottom left of the StockReport on Stockopedia) and multiplying that by the current share price, to be sure that you are using the very latest market cap after a big move in share price.

Also, if a recent Placing or Rights Issue has taken place, then you should always double-check that the number of shares in issue is correct. If you find an error (which is very rare, but can happen), then flag it up by raising a "green ticket" using the help & feedback button on the right hand side of the page. I recently found a glitch in the data on DP Poland (due to a large recent Placing), flaggged it, and Stockopedia had corrected it, via Reuters who supply the data, within 24 hours.

The key phrase in the WGB trading update (for the year ended 31 Jan 2013) is that, "pre-tax profits will be ahead of the top end of analyst forecasts". This is where the guesswork starts, as of course most investors don't have access to the full range of broker notes. So the only figure I have to work on is the market consensus, which is shown as 8.77p, so perhaps we might be looking at c.9p EPS? That's a big improvement on last yea's 6.7p EPS, so a share price of 87p, giving a PER just under 10, seems pretty reasonable to me. I shall therefore continue to hold these shares, and expect them to continue rising. A price under about 110p looks good value to me. Results are due to be released on 15 April.

Buying into reasonably priced companies which are trading well, is an excellent investing theme at any time, but especially at the moment, where value is becoming harder to find. The market seems to (sometimes) have a delayed reaction to good trading updates, giving an opportunity for the well prepared investor to jump in early and get a bargain.


Creston (LON:CRE) issues an IMS which seems particularly difficult to interpret. Is it a profits warning, or are they trading well? I've had to read it about 3 times to work out what the overall message is!

They have a 31 March year-end, so this update covers H2 from 1 Oct 2012 to date. The problem is that they don't put anything into context. They start with a positive paragraph, which says that headline PBIT grew for the three months to 31 Dec 2012.

The next paragraph then gives several measures of turnover, all being down.

The outlook statement is the same - both cautious & optimistic! So I'm left pretty confused, and that's probably why the share price dropped intially this morning, but is now creeping back up again. So a marketing company that cannot clearly explain its own trading performance, hasn't exactly impressed me! The key omission is that they should have indicated how profits will be compared with market expectations. That's all we need to know, but are none the wiser about.

Also worth noting that Creston have done a deal on a new Soho office, which involved a thumping great £7.2m reverse premium and up-front payment by the landlord to Creston for agreed dillapidations. So that will flatter their year-end cash figure considerably. (Reverse premiums are lump sum payments made by the landlord to the tenant, as an inducement to sign a new lease, often because the rent is higher than market rent, and/or if market conditions are difficult to attract new tenants).


Future (LON:FUTR) is a magazine publisher which appears to be making the transition from print to digital quite well. Their IMS today for the period since 1 Oct 2012 to date shows group revenue down 3%, but within that digital revenues are up 24% (although still only 23% of total revenues).

There's a fair bit of debt, at £16.8m.

The key sentence is where they say, "We expect trading for the full year to be in line with our expectations." That appears to be EPS of 1.3p, so at 20.4p these shares look to be on a pretty aggressive PER over 15, so don't interest me.


Murgitroyd (LON:MUR) sounds like a robot from Doctor Who, but is actually a European patent & trade mark attorney. They have a good track record, of growing at roughly 5-10% each year, and paying a dividend of about a third of EPS.

They have issued interim results to 30 Nov 2012. It seems more of the same, with basic EPS up 7.9% to 18.7p for the six months, and an interim dividend of 3.75p (up from 3.5p last year's H1). Current trading is in line with market expectations, so I can see that this is a share which would be very calming to own.

The PER looks reasonable at about 12, and the dividend yield not bad at 2.8% forecast for this year. In my opinion this would be a good share to tuck away in a pension fund, as it would deliver steady growth & dividend income over the long term. One would imagine that business is likely to pick up in an economic recovery too, so probably some quite good cyclical upside here too.


Shares in eg Solutions (LON:EGS) have plunged 19% to 90p this morning, on the back of a profits warning and discounted Placing at 73p. However, the Placing looks interesting, as it is to cement a strategic partnership with Aspect Software, which is injecting £1.25m for around 10% of the enlarged share capital, and is part of a deal where they will package & re-sell EG's software.

There are also 800,000 Warrants granted to Aspect, exercisable at a price of 79p (Warrants are like Options, in that they give the holder the right (but no obligation) to subscribe for new shares at a pre-determined price - so it gives them additional upside, at no risk, and are sometimes used to sweeten a deal. The cost is borne indirectly by existing shareholders, who see partial dilution if & when the Warrants are exercised).

The profits warning relates to new business being deferred as a result of the Aspect deal, which is understandable, but doesn't exactly inspire confidence. Why does activity need to grind to a halt just because a deal is being done?

I looked at EGS last week, after a friend mentioned them appearing at an investment event. My feeling is that the company probably Listed too early, and should have instead built up a better financial track record before Listing. The CEO holding 51% is also a red flag. So I'll pass for the time being.

Also, I feel it probably wasn't wise to appear at an investment show, talking up the share price, a few days before a discounted Placing! Not exactly likely to impress anyone who bought shares last week, to see an instant 20% loss on information that was known by the company, but not disclosed to investors at the time. I feel that companies should only meet investors when they can be open about everything, i.e. not in a closed period, or when major deals are imminent.


M&C Saatchi (LON:SAA) has come up on several of my value filters in the last year, but I never bought any. Things seem to be going pretty well there, with a statement today saying results for year-ended 31 Dec 2012 are likely to be in line with expectations, and they anticipate further progress this year. Great brand name too, which must have cachet for its clients.

In my opinion the shares look good value, as they are on a PER of 11.9, with a dividend yield of 2.7%. Not amazing value you might say, but given where we are in the economic cycle, these could end up looking  cheap once a couple of years' more normal economic growth is factored in. My macro view is that we're probably over the worst, and I'm positioning myself for an economic recovery in 2013 - so I'm long in cyclical companies at modest valuations.


Of the shares in my own portfolio, which can be found on the relevant page on my Blog, the ones that are still in buying range for me, are KBC Advanced Technologies (LON:KBC) (big contract win, reasonable valuation against forecast earnings), and Norcros (LON:NXR). I am also perplexed as to why Indigovision (LON:IND) has fallen so much in a buoyant market in recent weeks, but suspect that it might possibly be people selling a dormant share to raise cash for more exciting opporrtunities elsewhere? On a forecast PER of 9.3, and 4.1% dividend yield, IND is itself now looking quite appealing on valuation grounds, but as always the results are variable because they rely on lumpy, high margin contracts - so booking a contract before or after a period end can have a material impact on results.

That's it for today, see you at the same time each morning, Mon-Fri. I aim to publish by 10am, or at the very latest on a busy day, by noon.

Regards, Paul.


(of the companies mentioned today, Paul has long positions in: WGB, CRE, KBC, NXR, and IND. He has no short positions)

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Walker Greenbank PLC is a United Kingdom-based interior furnishing company. The Company designs, manufactures and markets wall coverings, fabrics and complementary products. The Company’s brands include Harlequin, Morris & Co, Sanderson, Scion and Zoffany.  The Company’s manufacturing units consist of the Anstey Wallpaper Company and Standfast & Barracks. Anstey Wallpaper Company is a commission printer of wall coverings. The business offers a combination of design, printing and finishing of wallcoverings by gravure, rotary, flexo, surface, screen and hand block printing methods. As well as production for the Walker Greenbank brands, Anstey also produces wallpapers for many third party customers in the UK and overseas. Standfast & Barracks uses rotary and flatbed screen printing techniques to produce prints for design-led home furnishings and apparel brands. more »

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Creston PLC is a United Kingdom-based marketing communications company, which delivers a range of digital technology-based marketing solutions to blue-chip clients. The Company operates through two segments: Communications & Insight, and Health. The Company's Communications & Insight division's services include advertising, brand strategy, customer relationship marketing (CRM), digital and direct marketing, local marketing, market research using qualitative and quantitative face-to-face, telephone and online data collection techniques, social media marketing and public relations. The Company's Health division provides an integrated communications solution to the healthcare and pharmaceutical sector and offers services, which include advertising, advocacy, digital and direct marketing, public relations, issues and reputation management and medical education. more »

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Murgitroyd Group PLC, the holding company of Murgitroyd & Company Limited (the Company). The Company is engaged in the provision of Intellectual Property services, including filing, prosecuting, litigating, licensing, assigning and renewing Patents, Trade Marks and Designs, advising on Copyright and assisting clients with the management of their Intellectual Property. Patent services sectors include engineering, electronics, chemistry and biotechnology with clients ranging from multi-national corporations to individual inventors and both in-house and external Patent Attorneys. The practice services include Trade Mark clients from the personal care, clothing, food and drinks, tobacco, pharmaceuticals, chemicals and oil industries together with service sector, sport and entertainment and retail industry clients. Trade Mark services are also provided to other private practice Trade Mark Attorneys. more »

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  Is Walker Greenbank fundamentally strong or weak? Find out More »

4 Comments on this Article show/hide all

Boros10 4th Feb '13 1 of 4

Another great piece Paul.

I agree with your comments on e.g solutions. The Company has been treading water for some years now. Profits have been tiny. Also around £1m of software development has been capitalised. Had this been expensed as incurred we might have been seeing small losses. Before today's announcement the valuation at over £15m was just too high given less than £5m of revenues, no growth and little or no earnings.

The strategic partnership with Aspect might be the catalyst for the business to move forward in the US and Asia. It is an important step in the right direction and makes a bit more sense of the valuation. I'd want earnings potential of £1.5m in the next couple of years to justify an investment here but I can't judge whether the Aspect deal will be able to deliver this kind of punch.

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madmix 5th Feb '13 2 of 4

Of the shares in my own portfolio, which can be found on the relevant page on my Blog, the ones that are still in buying range for me, are KBC Advanced Technologies (LON:KBC) (big contract win, reasonable valuation against forecast earnings)

Another contract win was mentioned on their website last week :

(31 January 2013) – KBC Advanced Technologies plc ("KBC"), a global provider of software and consulting solutions, today announces that it has signed a contract with TonenGeneral Sekiyu K.K. ("TonenGeneral").

Under this multi-million US dollar contract, KBC will provide a five-year licence for Petro-SIM™, selected SIM models and software services to TonenGeneral. The contract will include initial software implementation services.

FWIW, I bought some on the day of the trading update, and have added more since.

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PhilH 12th Apr '13 3 of 4

Walker Greenbank (LON:WGB) appears to be making some strong moves in the run up to the preliminaries next week.
I've held them since Aug 2011 & I've done well off them doubling up. I've recently sold 50% banking my profit and I'm letting the rest run for now. Be interesting to see how the preliminaries go down!

Professional Services: Sunflower Counselling
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Paul Scott 12th Apr '13 4 of 4

Hi Phil,

I know, am kicking myself for selling my WGB too soon. Was just over-stretched & needed to cut back on a few things. It's a very good company I think, that has traded well in difficult times, so likely to do very well in better economic times.


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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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