Small Cap Value Report (12 June 2017) - SGI, MOTR, NTBR, KBT, TRD

12th Jun '17 by Graham Neary

19 comments 13426 reads

Good morning,

Ed completed his incredible charity cycle challenge from London to Paris, and apparently did so with ease. Congrats! Details are available at this link.

It was an eventful election and parliamentary outcome, and brings with it some shivers of uncertainty given the lack of a decisive result, but the FTSE is only down by 0.35% so far today. EURGBP is unchanged versus when I mentioned it on Friday.

So let's put all that to one side and stick to companies for now.

Graham

Stanley Gibbons (LON:SGI)

Share price: 11.125p (-15%)
No. of shares: 178.9 million
Market cap: £20 million

Statement re Possible Offer

Strategic Review and Formal Sales Process

Response to Stanley Gibbons Statement

As you can see, a string of updates from this stamp collectibles company and its potential bidder.

For those who aren't familiar with the history, this company has undergone a massive restructuring exercise to try to pay down bank debt and control costs after massive write-downs in 2015/2016.

Checking back to last month's trading update, I see that bank facilities with £18.3 million capacity were being utilised to an extent of £17.2 million. It was truly remarkable that even after a large fundraising and all the restructuring efforts, the debt level remained so high.

A sale of assets worth £2.4 million was announced with that update. A further £1.4 million disposal was announced later in the month, as the company attempted to control the debt level and return to core activities.

And that brings us to last Friday, when it confirmed "it has received an unsolicited approach from Disruptive Capital ("Disruptive") regarding a possible offer by Disruptive for Stanley Gibbons."

Disruptive is an investment vehicle chaired by Edi Truell; youcan browse its website here.

The bid approach by Disruptive has apparently triggered the Board of Stanley Gibbons into initiating the Strategic Review/Formal Sales Process:

The Board's success in achieving divestments from non-core assets to generate investment capital for the Group and the recent approach from Disruptive Capital, leaves the Board determined to ensure that the underlying strength of the core business is fully reflected in shareholder value.

The Directors believe that Stanley Gibbons with its heritage brands and expertise has significant strategic value not only in its…

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FREng

12th Jun '17

Finals from Triad (LON:TRD) today - one of John Lee's recent investments.

I see TRD as a profitable company with a solid balance sheet, trading on a low P/E, with the increased profits flowing cleanly into increased cash.

TRD seems to be held back by the share overhang caused by a 20% shareholder entering administration, leaving the trustee in bankrupcy to realise the assets for the creditors. TRD has announced a dividend today - perhaps so that more institutions are able to buy the shares. The chairman already owns 29% so he can't buy them himself without triggering a takeover.

It feels to me as though a re-rating will happen when the trustees shares have been sold to an institution, but I would welcome other's views. I'm long and considering becoming longer.

Decent trading update today from Northern Bear (LON:NTBR) (up 16% as I write) - I'm long. The company says it has net cash for the first time since flotation and that it will increase its dividend.

"The Board is delighted to announce that the unaudited preliminary results after tax for continuing operations for FY2017 will be ahead of prior year results and management expectations."

Low P/E - what's the bear case? Or should it re-brand as Northern Bull?

gsbmba99

The announcements relating to Stanley Gibbons (LON:SGI) are really strange. The Disruptive Capital announcement is dated 9 Jun but was released on 12 Jun at 7am. Presumably they submitted the announcement Friday after market close and it was released this morning. But apparently they didn't tell SGI or SGI chose to ignore it since the SGI announcement dated today at 7am refers to Disruptive Capital as a potential bidder even though they had already withdrawn on Friday. Additionally, SGI have placed themselves into an offer period on the back of an email from Disruptive which they believed constituted an "approach." Normally companies resist being placed in an offer period. SGI, on the other hand, seems desperate to be in an offer period.

deucetoace

I agree with you in all respects, I topped up this morning. It will take a bit of patience for the remaining 17% overhand to get through the market but from here I would hope for a significantly increased dividend over time as well as a rerating to a sensible PE

leyymgb

Out of curiosity, how do you know John Lee has recently invested?

Triad is not disclosed on his 'register of interests' page - http://www.parliament.uk/biographies/lords/lord-lee-of-trafford/1132

Trident

My portfolio is now clinging on marginally to gains. Was 8% now just under 1%. I wonder if more investors will start to sit on sidelines?

tabhair

I found Northern Bear (LON:NTBR) last year when looking at Lakehouse (LON:LAKE) and thought that it looked like a little gem. Quite foolishly, I didn't buy. Free cash flow generation in the last few years has been excellent, and according to these figures the business is now in a net cash position, so we are looking at free cash flow of about £2.5m for the year. Considering the market cap is only £12m even with the run-up, the shares look a cheap even now.

The only point of concern I would have is that the company's profit driver (roofing) is extremely weather dependant. Also, it's a cyclical business so any downturn in the economy is likely to hit it hard, so this isn't one for the squeamish.

BB chatter. Thanks for checking - I had forgotten he lists his portfolio on http://www.parliament.uk/biographies/lords/lord-lee-of-trafford/1132

Luthrin

I came across Northern Bear (LON:NTBR) last year when I screened for companies with a market cap below £10m. I reasoned that because so many investors appear to use £10m as an absolute floor when screening, there might be some underrated value plays at close to that figure. As a result I ended up purchasing shares in Northern Bear (LON:NTBR) and Titon Holdings (LON:TON), both of which had very high Stockopedia ranks.

Titon looked so cheap (P/E of 5 with a market cap below £10m and over £2m in cash with no debt) that I couldn't believe there wasn't a hidden catch, and I regret not buying more shares (the share price has since doubled).

Northern Bear's lowly valuation was more understandable due to the rather unexciting nature of the business and its unimpressive balance sheet, but the financials showed it as strongly cash generative and on the verge of becoming debt-free. I was also encouraged by an analysis of the company by Lewis Robinson (who I believe posts here on occasions as ExpectingValue) and so I built up a fairly substantial stake. I do appreciate however the risks in holding such a lowly capitalised company with a relatively small free float.

The shares have jumped sharply today, but I wonder what investors' reaction will be when the full results are released. The company sold its asbestos removal subsidiary Chirmarn Holdings Ltd in March for just 50K, and this had a goodwill carrying value of 3.9m in the 2016 accounts, so there will be a major non-cash write off in this year's accounts that won't look pretty. Personally I don't see this as an issue, but there may be a knee-jerk response to so much red ink.

gillianmoon

Do you have time to look at Triad Group (LON:TRD) please Graham?
It looks really cheap to me, so I can't help wondering if I'm missing something, or is it just because of a stock overhang, as suggested above?

gus 1065

Hi gsb.,

I agree the situation at Stanley Gibbons (LON:SGI) looks odd and fear the management have painted themselves into a corner in their enthusiasm to get a deal done. Today's RNS seems to confirm they see no future as an independent entity but without an anchor prospective buyer now that Disruptive have backed off, they're effectively in fire sale territory. Given the high debt levels I can't imagine the private equity buyers will be that interested unless there is significant tangible value in the stock inventory so in the absence of a high net worth or trade "vanity" buyer who sees value in the Stanley Gibbons name I fear they might be toast.

I've sold out my small position at a touch over 11.4p this morning and consign this Sucker Stock to someone else's tender mercies.

Gus.

JohnEustace

There's gloom and doom for UK consumer spending in this Bloomberg article. I must admit I've joined those taking some profits and losses and accumulating cash. I have done well ytd and locking some of that in feels prudent.
https://www.bloomberg.com/news/articles/2017-06-12/the-party-s-ending-for-british-consumers

Mark Carter

"The Board's success ..."

Well, I guess someone's got to laud the Board, if only themselves.

Richard Goodwin

Over what period @Trident?

Graham Neary

I've had a look at it,

Cheers

Graham

1James1n1

Many thanks Graham for the comments on Triad (LON:TRD). Appreciate your regular incorporation of requests into the reports and as a holder, it is interesting to have another perspective on the shares. I think the introduction of what I believe is a maiden dividend will also help bring it to the attention of people who may have otherwise disregarded it until now.

Prashant Kothari

Motorpoint (£MOT) : Many online reviews suggest they sell imported cars in the UK, often with the customers not knowing about that fact. Perhaps that explains their cheaper prices; but is that sustainable?

Thanks for your comments on Triad Group Graham. I have learned such a lot from reading your reports.

13th Jun '17

Hi Richard

Sorry, it was just a spot check on what my marginal gains are standing as of yesterday, not a thorough analysis of returns overall, as I have reserved some cash earlier on some gains/losses. Not helpful really, I know, but just reflecting on whether the market is pulling back and positioning itself to seek some safety in cash in the current political hiatus.

Small Cap Value Report (12 June 2017) - SGI, MOTR, NTBR, KBT, TRD

Stanley Gibbons (LON:SGI)

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Graham Neary

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