Small Cap Report - ZZZ, STVG, HYDG, STAF, SWL, OSG

Thursday, Nov 15 2012 by

Good morning. A share that I previously held (but currently do not, as I felt the valuation was starting to look a tad stretched) is Snoozebox Holdings (LON:ZZZ)  - an innovative company which turns standard metal shipping containers into portable hotel or lodging accommodation.

They have raised £8.4m (before costs) at 55p a share, not bad considering that's a 13% discount to a fairly buoyant market price. Before the Placing the mkt cap was £34m. After the Placing the enlarged share capital will be 66.6m shares, so if they ease back to say 60p, that will be a £40m mkt cap. That looks a bit scary considering the company is still in its first proper year of trading, and  profits are as yet unknown.

So I shall continue watching from the sidelines. My experience of exciting small growth companies is that it nearly always takes longer and costs more, to get where they want to go. Hence at some point a buying opportunity will probably arise from a profits warning. So Snoozebox is currently on my watch list, but I'm not interested in paying up at this price. Halve it to 30p or less on some bad news, and I'd look again.

A share I do hold is Scottish TV outfit STV (LON:STVG). It's a typical old media type of company - on a very cheap forward PER (of only 3!), but has lots of debt & a pension deficit.

I'm a bit rusty on the numbers, but from historical & broker forecasts, I came to the conclusion that the debt is manageable, and that the shares could easily have a nice run from around the 100p level to say 150-200p if we're lucky. Hence why I bought some around the current price.

They've put out a Q3 IMS this morning which sounds reassuring on every KPI that they mention, apart from the most important one which they don't mention, namely profit! So not a very well constructed IMS at all. It should have been shorter, and just said whether or not they're on plan with profit expectations. However, I suspect enough can be inferred from this IMS to assume that profits are on track, so could see a bit of a lift in STVG, although the futures are pointing to another down day overall, so not sure if STVG can fight against that headwind today? I'm happy to hold anyway.

Specialist recruitment company, Hydrogen (HYDG) has put out a profits warning, so expect a sharp fall there today. They say that their stronger trading period, from Sept-Nov has disappointed, and therefore full year profits, "will be significantly below current market expectations". Ouch. That looks like a fairly serious warning, so my guesstimate is that will probably hit the share price by around 20%.

My favourite pick in the recruitment sector remains Staffline (LON:STAF), because it's fairly recession-proof, supplying mainly low wage, blue collar staff to essential sectors like food production & retail. Hence less likelihood of a profits warning there in my view (famous last words!). Incidentally, STAF shares have had a good week because they were tipped in the MIDAS column of last weekend's Mail on Sunday, hence the flurry of buying on Monday morning.

Another small cap profits warning, from Swallowfield (SWL), a UK company involved in cosmetics & personal care products. They say that due to various factors their Board, "expects full year earnings to be significantly below current market expectations". So I would have thought that's probably a 20%-ish share price fall too. Although they do say that things are improving in H2, so the market might possibly give some credit for that?

Profits warnings can provide a good chance to buy good companies at bargain prices, on temporary setbacks, but you need balls of steel, and an ability to sort the wheat from the chaff. Also I tend to find that sitting back and waiting for the dust to settle (sometimes weeks, or months later) is the safest strategy.
In these unsettled times, not many shares bounce back immediately from profits warnings, and often a second fall follows after the initial dead cat bounce.

I don't like the look of either Hydrogen or Swallowfield, so am not interested in trying to catch those falling knives.

OpSec Security (LON:OSG) interims look pretty good, with adjusted operating profit up from £1.4m to £3.1m, although driven by a large contract, and an acquisition. So it would need more time than I have available to delve into the numbers there.

That's it for now.

Regards, Paul.


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Snoozebox Holdings PLC is a United Kingdom-based company engaged in the provision of portable hotel and accommodation services. The Company is organized into two segments: Eventz and Hotelz. The Eventz segment includes all activities providing short term hotel accommodation at events, such as motor racing, horse racing, golf, tennis and sailing, and cultural events and festivals in both the United Kingdom and mainland Europe. The Hotelz segment includes all activities in relation to the provision of long term managed hotel solutions. The Company provides configurations and room availability. The Company’s products are steel shipping containers with 9 feet 6 inches height. Rooms within a container are fitted out to include an en suite wet room, a double and a single bed, air conditioning, wi-fi, television and a room safe. more »

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STV Group plc is a United Kingdom-based company which is engaged in the production and broadcasting of television programs, Internet services and the sale of advertising airtime and space in these media. The Company is focused on its television and digital media business. The Company's segments include Consumer and Productions. Its Consumer segment delivers content to attract mass audiences which are sold to advertisers to generate revenues. The content is delivered across multiple platforms, including digital, terrestrial, cable and satellite, online and through connected devices, such as games consoles and Smart televisions (TVs). Its Productions segment produces content for broadcast networks in the United Kingdom and overseas. Its subsidiaries include STV Central Limited, STV North Limited, STV Productions Limited, Limited, Ginger Television Productions Limited and STV Glasgow Limited. more »

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Hydrogen Group plc, along with its subsidiaries provides recruitment services for mid to senior level professional staff. The Company operates through two segments offering both permanent and contract specialist recruitment consultancy for the organizations. The Company recruits for roles in Professional Support Services, including legal, finance and technology placements. The Technical and Scientific segment includes market sectors, such as engineering, power, mining, oil and gas and life sciences recruitment. The Company's subsidiaries include Hydrogen UK Limited and Hydrogen International Limited in the United Kingdom; Hydrogen Group Pty Ltd in Australia; Hydrogen Group Pte Ltd in Singapore; Hydrogen Group Ltd in Hong Kong, Hydrogen Norge AS in Norway, and Hydrogen Group LLC in the United States, among others. more »

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  Is Snoozebox Holdings fundamentally strong or weak? Find out More »

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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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