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Small Cap Report - AMO, CLL, TMMG, FTC, PRV, SEPU, SPRP, KBC

Monday, Jan 28 2013 by
20

Welcome to my first Small Cap Report published exclusively on Stockopedia!

I'll start with a share in my personal portfolio, Amino Technologies (LON:AMO). They announce results for year-ended 30 November 2012. They look good, in the context of a market cap of £40.2m at 73p a share. Amino is based in Cambridge, and makes TV over IP set top boxes. Its largest markets are the USA, and the Netherlands.

Particularly noteworthy with Amino is the very strong balance sheet, which is stuffed full of cash. Indeed, net cash has risen from £14.1m to £17.1, which is 43% of the market cap, so highly significant in valuation terms, and providing a solid underpinning to the share price.

Whilst revenue fell 6% to £41.7m, a much stronger gross margin (up from 32.7% to 42%) means that EBITDA rose 42% to £6.2m. I'm not terribly keen on the use of EBITDA for companies which capitalise material amounts of development spending into intangible assets, as this gives an inflated picture of underlying performance. Globo is another example of that, so it's worth checking the figures. In the case of Amino, it capitalised £2.1m into intangible assets, and amortised £3.1m, so that EBITDA figure is halved once you take off amortisation, or drops by a third once you take off capitalised development spending in the year. EPS is a much safer valuation measure, since it is stated after amortisation expense.

Earnings per share (EPS) came in slightly ahead of market consensus, at 5.4p.

Their outlook statement sounds pretty upbeat, and a final dividend of 3p has been proposed, with the stated intention of raising the dividend by at least 15% in each of the two next years, giving 3.45p and 3.97p. That works out at a dividend yield of 5.4% on the latter figure, which certainly appeals.

Therefore it's a thumbs up from me to these results from Amino, and I shall continue holding my shares. I could see them going a lot higher if some decent top line growth is generated, whilst the downside is covered by the bullet-proof balance sheet - which is exactly the type of low risk situation I like best - a value share with good growth potential in for free.

Marketing group, Cello (LON:CLL) has seen a 10% jump in its shares this morning at the time of writing, on the back of a solid trading update for calendar 2012. Trading is in line with expectations, net debt has reduced to £9m, and they indicate a solid start to 2013 due to good new business wins in Q4 of 2012. All sounds pretty good.

Cello has been on my radar for some time, but unfortunately I forgot to buy any shares in it, and baulk at paying 10% more this morning. Furthermore, as with many small caps, the Market Makers do their utmost to deter any deals by quoting a ludicrious 10% spread. I do wish we could move to an order-driven (instead of quote driven) market, and just give everyone direct market access. Why on earth can't this just be done?! We all have computers & internet, it should have happened years ago, I get so frustrated with our antiquated market structure in the UK.

I should also mention the attractive dividend yield at Cello, which looks to be just over 4%, with 1.8p in dividends forecast for 2012.

Another marketing group which issues a trading update today is Mission Marketing (LON:TMMG). Their quirky style of wording RNSs continues, which is beginning to get irritating. Just stick to the facts, instead to trying to turn RNSs into showcases of your promotional skills.

The key points are that calendar 2012 has turned out in line with expectations, net debt has reduced (but they don't give any figures, as usual), the outlook for 2013 is that, "early signs remain positive", and their intention is to resume dividend payments with the interim results in 2013.

The shares are up slightly this morning, and look fairly good value to me. The forecast PER is 7 times 2012 earnings, falling to 6 times 2013. Although I'd want to see the latest net debt figure before buying, as it was around half the market cap last year, which is a material figure.

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Interim results to 30 November 2012 are issued by Filtronic (LON:FTC).

The shares are going through the roof, up 17% at the time of writing, to 46p, which with 97m shares in issue give a market cap of £45m. I'm struggling with that, given that they barely got above breakeven in H1.

They do say that performance (both turnover and profit) will be above market estimates for the year, which is a good thing considering that the forecast PER is about 40! This one's not for me, with too much future growth (based on roll-out of 4G) already priced-in.

Specialist filtration group Porvair (LON:PRV) issues very impressive results for year ended 30 November 2012.

EPS rose 38% to 10.1p. Very good, but the share price of 179p puts that on a PER of 17.7, which means decent performance is already priced in. Hence not of any interest to me, as I'm looking for bargains, not share prices which already reflect good performance.

In a similar vein, Sepura (LON:SEPU) issues a solid trading update, but a forecast PER of about 15 looks fully priced to me.

I'm struggling to get a price quote on Sprue Aegis (OFEX:SPRP), which is a pity as it looks potentially cheap. Their trading statement this morning indicates revenue to be slightly ahead, and earnings to be slightly below market expectations. The outlook sounds good, and the StockReport page here shows an attractively low PER, high dividend yield, and net cash. Looks worthy of more research.

Finally, a quick mention of KBC Advanced Technologies (LON:KBC). The price has dipepd 2p this morning, and this looks like a buying opportunity to me. Although the shares have risen strongly of late, this is on the back of a strong trading update and a $100m contract win. The forward PER is still only 8.5 times 2013 forecasts (which may well be revised upwards, given strong current trading). I believe these shares could re-rate to a PER of 12 or 13 in 2013, giving decent upside.

Have a good day, and see you back here tomorrow morning.

Regards, Paul.

(of the shares mentioned today, Paul has long positions in AMO and KBC only, and does not hold any 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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Amino Technologies plc specializes in the development of Internet protocol television (IPTV)/ over-the-top (OTT) software technologies and hardware platforms, which enable the delivery of digital entertainment and interactivity over Internet protocol (IP) networks. The Company delivers IPTV/OTT solutions with customers, including a Western European network operator. Amino Aminet A129 is the next generation MPEG-2 and MPEG-4 Standard definition IPTV/OTT set-top box (STB) for standard deployments. Amino Aminet A140 is the next generation MPEG-2 and MPEG-4 High definition (HD) IPTV/OTT set-top box (STB) for HD deployments. Amino Aminet H140 is the next generation high definition, high performance IPTV/OTT set-top box (STB) for Guest Room IPTV systems. Amino Aminet A540 is the next generation high definition, high performance IPTV/OTT set-top box (STB) with integral personal video recorder (PVR). Amino Aminet M140 is the next generation high definition, high performance set-top box (STB). more »

Share Price (AIM)
94p
Change
0.0  0.0%
P/E (fwd)
13.1
Yield (fwd)
4.6
Mkt Cap (£m)
51.7

Cello Group plc is a United Kingdom-based holding company. The Company, along with its subsidiaries is engaged in the market research, consulting and direct marketing services. The Company operates in two segments: Cello Health and Cello Consumer. The Cello Health Division provides market research, consulting and communications services principally to the Company’s pharmaceutical and healthcare clients. The Cello Health Division provides market research, consulting and communications services principally to the Company’s pharmaceutical and healthcare clients. The Company’s subsidiaries include 2CV Limited, Cello Group Inc, Cello Business Sciences Limited, Chiaros Holdings Limited, Fenix Media Limited, Insight Medical Research Limited, Leapfrog Research and Planning Limited and MedErgy Europe Limited. In April 2014, Cello Group plc acquired Line Digital Limited. Effective May 13, 2014, the Company acquired iS Healthcare Dynamics Ltd. more »

Share Price (AIM)
91.5p
Change
-0.5  -0.5%
P/E (fwd)
11.5
Yield (fwd)
2.8
Mkt Cap (£m)
77.4

The Mission Marketing Group plc is a United Kingdom-based company engaged in marketing services, providing national and international clients with marketing, advertising and business communications. It operates in four segments: Branding, Advertising and Digital; Media; Events and Learning, and Public Relations. It's operating subsidiaries include April-Six Limited, which is engaged in integrated communications, specializing in the technology sector; Big Communications Limited, which is engaged in brand planning and strategic development; Bray Leino Limited, which is engaged in advertising, events and public relations; Fuse Digital Limited, which is engaged in new media marketing, including Website design and advertising, and Story UK Limited, which is engaged in brand development and creative direct communication. Effective October 23, 2013, The Mission Marketing Group PLC acquired Solaris Healthcare Network Ltd. more »

Share Price (AIM)
51.25p
Change
-0.3  -0.5%
P/E (fwd)
9.5
Yield (fwd)
2.2
Mkt Cap (£m)
39.7



  Is Amino Technologies fundamentally strong or weak? Find out More »


9 Comments on this Article show/hide all

loglorry 28th Jan '13 1 of 9
3

Hi Paul

Great first post on s'pedia. Wonderful to see you here with your excellent analysis a real scoop for Stockopedia in my view.

Looks a little to me that a lot of the easy money has been made in small caps in recent months as prices have run up. Nothing is jumping out to me as very very deep value any more. Maybe it is time to sit on our hands a bit longer - or go for a run :-)

Log

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rb2 28th Jan '13 2 of 9
1

Hi Paul,

Good to see you here continuing with your penetrating and insightful ideas. Being new to the world of small caps I hope I can draw useful lessons from them.

Thank you.
Ramesh

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Asagi 28th Jan '13 3 of 9
1

Hi Paulypilot - any chance we could have some comment on you r.e. today's trading statement from Chamberlin (LON:CMH)?

Regards,

Asagi

(no position)

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Paul Scott 28th Jan '13 4 of 9
1

In reply to loglorry, post #1

Hi Log,

Many thanks for your feedback, much appreciated!
I'm also thrilled to be doing my morning reports exclusively on Stockopedia, it's a fantastic quality site, which I use extensively myself for researching shares, so great to be associated with.

I also agree with your 2nd paragraph. There's been a big re-rating of small caps since July 2012, and deep value has now largely gone.

My current investing theme is therefore to catch companies which are delivering out-performance in their current trading & outlook, yet whose shares are still at reasonable prices. Broker forecasts often lag behind improved trading, hence if you can find something like KBC Advanced Technologies (LON:KBC) where the fwd PER is only 8.5, yet estimates have scope to be upgraded (hence lowering the PER), then there's still good upside.

I also feel that once economic recovery is established, we should get used to higher multiples, so that things which currently trade on a PER of say 8-10, might not only deliver higher earnings, but also get a PER of 12-14. But that's thinking 1-2 years ahead.

Companies with good operational gearing also interest me, like say Indigovision (LON:IND), where a 20% increase in sales would double profits, due to 60% gross margin and fixed cost base.

On the other hand, it's only a matter of time before more shocks to the system trigger a market correction, so always wise to keep some powder dry & top-slice big winners.

Cheers, Paul.

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warren12 28th Jan '13 5 of 9
4

Hi Paul,

excellent first article for Stockopedia, keep them coming!!

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PhilH 28th Jan '13 6 of 9
3

I've been looking at Sprue Aegis for a while. It's hard to get a price for them. Via Sippdeal I have to enter their SEDOL number (3050875) through the dealing interface, which showed an offer of 62p today. I went to buy and the system said I had to call to buy and when they got a price for me it was 67p. I was told no market makers wanted to offer a price and that only two trades had gone through today.

I'm think I'm going to pass on it.

Professional Services: Sunflower Counselling
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Glasshalfull 28th Jan '13 7 of 9
3

Sprue Aegis (SPRP)

PhilH - Normally you have to deal via phone.

FWIW, the bid & ask were 65p vs 67p for the duration of today...at no stage were they 62p to buy! trust me on that.

I've a detailed investment thread with up-to-date header here.

http://uk.advfn.com/cmn/fbb/thread.php3?id=24324751

Investment write-up over on The Fool,

http://t.co/JnFg0CXs

FWIW - For clarity, Westhouse have adjusted PBT coming in at £3.25m for 2012. This is £150k down on £3.4m previously forecast & probably equates to 6.8p EPS. Taken in context, SPRP has a £25m market cap, around £6m net cash after repayment of £500k loan in 2012 and currently forecast to provide a dividend yield of 4.5% this year.

They are forecast to grow earnings to 10.5p in 2013....earnings growth of 53% or thereabouts and prospective PER of 6.3

Way undervalued when one considers barriers to entry, exclusivity with major retailers and deals such as those with British Gas and Baxi coming on stream. It's all in my write-up & on the ADVFN thread.

Kind regards,

GHF

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Paul Scott 28th Jan '13 8 of 9
1

In reply to Asagi, post #3

Hi Asagi,

Not sure how I missed the profit warning from Chamberlin (LON:CMH) this morning, but have run my slide rule over the numbers this evening, and comment as follows (it's not a company I can recall looking at before, so this is not a hugely in-depth comment).

Whenever a company warns on profit, I tend to ask 3 questions to start with;

1) How severe is the profits warning (i.e. can we quantify what profit is likely to be, and how far off forecast is it),
2) Is the survival of the company under threat? (if it is, deploy the bargepole!)
3) What factors caused the profits warning, and how quickly is the company likely to recover?

In the case of Chamberlin, looking at the RNS, they say that market conditions have "materially softened", which sounds bad. They don't quantify how bad, and just state that, "the Group will deliver pre-tax profits below market forecasts for the full year".

So that at least implies that they will still be profitable for the full year (and not loss-making). They made around £0.9m at the Interims to 30 Sep 2012, which was up about £0.1m on the prior year H1. There doesn't seem to be any seasonal bias to results, so I would estimate that H2 might be anything from a profit of say £0.6m, to a loss of £1m. That is roughly the implied range of outcomes which would have triggered this warning, by my estimates.

They go on to say that the group remains cash generative, so this doesn't appear to be a life-threatening profits warning. Moreover, they had minimal net debt of only £887k at 30 Sep 2012. So that looks fine, no problem of the Bank withdrawing support seems likely.

There is a pension fund deficit of £3.3m, but that's a long-term liability and not big enough to cause solvency problems.

Looking at its track record, 2012 was the first year in 6 that it made any appreciable profit. So it strikes me as a low margin business that is struggling to eke out any significant profit even when things are going well, which sounds about right for a light engineering company - lots of competitors, lumpy sales, not really very exciting.

I think the price would have to be well below a quid a share to get me interesting.

DYOR as usual, just my opinions.

Regards, Paul.

 

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mudpump 28th Jan '13 9 of 9
2

A few of us met with Chamberlain at the end of November. In case it's of any interest, these were my notes from the time.

-------------------------------------------
Unusually he started off by stressing how strong the company was on corporate governance. I don’t know whether Biddicks (their PR) had pre-briefed him that some of his audience had some recent bad experiences in this area, but anyhow it was an unusual start. He outlined how CMH had been a fully listed company, and then when he joined in 2005 he’d spent £120k to move to AIM. He said that they kept all the same corporate governance standards, and the move didn’t really save any money. I asked if they’d consider moving back to the full list, but he said no, mainly because of IHT investors. Generally Tim came over very well, and he’s someone I’d trust. Perhaps he’s not in the same dynamic mould as the Avingtrans CEO.

Tim outlined how he’d found the company to be a real basket case. He got rid of most of the management and changed virtually everything. It normally concerns me a little when CEOs blow their trumpet in this way and belittle their predecessors, but in this case it’s probably worth giving him the benefit of the doubt. Anyway, he’d pretty much completed when the downturn hit, and there was a huge de-stocking in all the supply chain above them. They went to part time work in Nov ‘08 and survived.

After the pick-up, it sounds like they were still suffering some quality problems - which seems to have been most of their difficulty - but he indicates that’s mostly cured now. So, in their current situation, they look to have good steady customers, although tied to automotive and general industrial macro trends, and they’re paying down debt very rapidly with their strong cash flow. I’d guess that in a year or two when the debt’s gone, they’ll look like a traditional (fairly low tech) engineering business on a P/E of about 9, with a 7% yield. So it sounds fairly fully valued on that basis.

Tim talked through their growth plans, and to be honest, that’s the area where they sounded a bit weak to me.. He talked about macro factors in the automotive turbo market as being the main growth opportunities. He also mentioned gearboxes for the turbine side of the businesses. I asked why they weren’t in the electric motor casings business, as that was surely much bigger than turbine casings, etc. He said he’d talk to his new marketing guy when he got back.

In relation to inorganic growth, Tim discussed how they’d looked at buying several machine shops in the past, but the valuations were crazy, and he’d end up earning just 2-4% return on capital. I asked why that would be any different than his own business, and whether it was only viable because all the fixed assets were devalued. He said it would probably cost about £25m to rebuild one of his own foundries from scratch, but it was only held on the books at say £4m. I’d need to look some more to see if there was any significance in that statement.

He said that they rarely quote on the same jobs as Castings Plc, and if they do, the customer’s normally made a mistake. Having now looked at Castings Plc, that seems an interesting statement. Castings Plc simply look like what CMH should be if it grew properly and substantially. I’d be interested to see if he agreed with this, or had any vision of trying to reach that scale and capability, instead of picking up the small crumbs that fall off the bigger table.

During the meeting, I asked if they have design guides that the provide to their customers to help them optimise their designs for the CMH process capabilities. He said they hadn’t and that sort of thing was too complicated, so it was better having the two sets of engineers meet and discuss the designs. While I sympathise with this to a degree, it’s a big help to customers and in generating business if there are some basic design rules. Interestingly Castings Plc has its basic casting tolerance rules published on its home page, and also examples of benefits of its added value design service. CMH could partner with a very competent company like Mechadyne to offer a similar service.
--------------------------------------------
Brian.

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About Paul Scott

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Paul trained as a chartered accountant with Price Waterhouse. He then spent 8 years as FD for a clothing retail chain. "Retired" in 2002 to become an independent investor & analyst. more »



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