Small Cap Value Report (12 May 2015) - TTG, TPOP, CAMB

12th May '15 by Paul Scott

17 comments 16825 reads

Good morning.

TT electronics (LON:TTG)

Share price: 143.5p (up 8% today)
No. shares: 159.0m
Market Cap: £228.2m

I reviewed the issues facing this company here on 4 Nov 2014, when it issued a profit warning. My conclusion then was that, despite the various problems, it could make an interesting turnaround investment at some point.

Trading update - today's update sounds generally quite positive, saying;

The comments about having an enhanced focus on cashflow are a little worrying - that implies that the cash position might be getting tight? Or that the bank might be pressing them to reduce debt - net debt was £30.7m at end Oct 2014, which doesn't seem alarming, given the size of the company. I did notice that inventories looked high in the last set of accounts, so action to reduce them is a positive.

Outlook - the Directorspeak sounds upbeat, but note that it leaves the door ajar to another profit warning, if H2 doesn't improve on H1, as expected;

Valuation - tricky, because the company has been undergoing major restructuring, moving production from Germany to Romania. Note that the broker consensus has been steadily reducing over the last year, although seems to be bottoming out around 10p EPS;

Personally I like to see this chart going in the opposite direction! Although at some point estimates factor in all the bad news, and start rising again, we just don't know when that will be.

Assuming that broker estimates are correct, or even too cautious, then the valuation looks possibly about right, at the moment, who knows? It's impossible to say with any certainty, as we don't know how the turnaround will play out.

The divis look attractive, if they are sustainable - that's a nice 4.0% yield.

Note there is a large pension fund here, but the deficit is not too bad, but is still a cash drain of over £4m p.a. in deficit recovery payments.

My opinion - the shares have bounced nicely from the profit warning in Nov 2014.

One of the most frequent conversations I have with other investors, is when to sell - especially if there has been a profit warning.

Most people seem to think selling immediately is the best strategy, and they always say that "profit warnings come in threes!", etc. Yet…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Rusty2

12th May '15

Yes I agree about shares recovering after profit warnings, Asos and Xaar have both gone up over 100% in the last year, there are many others like Pure Wafer and Quindell that have gone up even more. But then there are others that seem to keep on falling, (falling knifes), any tips on picking the time to buy, what do you think about double bottom chart pattern?

jimbobjames2002

Hi Paul, if you get the chance to look at Cambria Autos (CAM) it would be much appreciated. Good looking results today from what I can see.

Thanks

markusm

A significant Director share purchase (£50,000) just announced for Cambria - so I guess there is an internal confidence that the good performance has much further to run

Raigerfield Capital Limited, a family company controlled by Philip Swatman (Chairman) and his wife Rosemary Swatman, has today acquired a total of 85,000 ordinary shares of 10p each in the Group ("Ordinary Shares") at a price of 59.25 pence per Ordinary Share.

shanklin100

Paul

IMHO, CAMB are well ahead of the current broker forecast, to the extent that they could perhaps deliver next year's forecast PBT & EPS in the current year.

Cheers, Martin

Paul Scott

Hi Martin,

Interesting, thanks. I didn't look at the seasonal phasing of results with Cambria Automobiles (LON:CAMB) but they do have a track record of out-performance against forecast.

If this link works, it might be of some interest - compares the 5-listed car dealers I found within the speciality retailers sector. Caffyns (LON:CFYN) could be the dark horse - as there are not any forecasts, but it pays nice divis, and has excellent asset backing, plus has unlocked some surplus property value from its freeholds recently. (I hold shares in CFYN). Although some people don't like the controlling family shareholding at CFYN, although I'm coming round to the Stredder/Lord Lee view on this, that as long-term investments, family controlled companies can be some of the best things out there.

Regards, Paul.

Hi Paul

Thank you for sharing your thoughts re CFYN. I had a small holding in them until fairly recently, having bought them not realising the extent of the pension deficit. Unfortunately I sold the shares just before the recent pension commitment rejig and property disposal, the former of which significantly benefited the company at the expense of its shareholders, with the latter also being positive.

Regards, Martin

simoan

Hi Paul,

Thanks for the write-up on CAMB. As ever, you make some excellent points about the company - the low dividend is a little frustrating but acceptable whilst the company is able to re-invest and grow faster than the industry average. I think one of the things which is really important with these type of situations is the quality of management, not something you will readily get from the fundamentals - although they are obviously important too.

One of my best ever investments many years ago was European Motor Holdings which had a similar modus operandi to Cambria in buying up underperforming dealerships and sites and using their skill to turn them round. The recent acquisition of a Land Rover dealership in Swindon seemed a particularly smart move in that respect. If the CAMB management are even half as successful as Ann Wilson and Richard Palmer were at EMH, myself and other holders will be very happy bunnies, especially if they sell out at the top of the market as EMH did in 2007 to Inchcape :-)

All the best
Si

carmensfella

The management at Cambria are in the top quartile IMO and certainly know how to build a very good business in this sector. If a couple of you would like to meet them tomorrow for lunch and a presentation then do email me.

It will be in London at their PR company Tavistock at noon.

David

Additionally with regards to Cambria...The H1/H2 underlying eps splits for the last three years whilst sales have been so buoyant are actually very interesting and do show the seasonally strong H2 effect...

2012 H1 0.80p
2012 H2 1.84p (70%)
Full year 2.64p

2013 H1 1.04p
2013 H2 2.53p (71%)
Full year 3.57p

2014 H1 1.56p
2014 H2 2.59p (62%)
Full year 4.15p

2015 H1 2.59p (just reported today)
2015 H2 ???
Full year ???

If we use last years 62% as a base then we can see a second half with 4.25p and a full year total of 6.84p. Now that would be perfectly fine if last year was replicated, however....If they can do the historic average nearer to 70% at 68% then the H2 underlying eps would be 5.51p and give a full year total of 8.1p which would totally smash forecasts for this year and next year!

It looks certain to me that with sales steadily increasing and monthly figures for the whole sector beating like for likes for 40 months on the trot my fairly safe assumption is that the second half will bring us at least 4p and that 6.6p for the full year is a good target....rather interestingly that is 5% better than the 2016 broker forecast. So upgrades are surely on the way.

Beginner

13th May '15

Vertu Motors (LON:VTU) results out today also show some improvement, adding to the general upturn in the sector. Well spotted sir!

14th May '15

Hi Paul

With the CAMB interim results having been loaded onto Stockopedia overnight, the V and Q metrics have increased significantly and the StockRating has gone from 77 yesterday to 91 today.

Not quite as high as LOOK which I see issued a TS today, but still quite handy.

I continue to hold CAMB having added a few more on the day of the interims.

Cheers, Martin

Hi Martin,

A very good point! This reinforces my belief that man+machine is the best approach - ie. a shrewd market participant can not only manually screen out the dodgy things like small Chinese AIM stocks, which get past the machine with high scores for a while, and only slip down the rankings once they lose momentum (because human beings have realised that they are not what they appear to be!)

But man can also anticipate forthcoming changes to StockRanks by recognising which companies are likely to out-perform (from interpreting trading statements). So I love it when stocks I already hold rise up the StockRanks, as it helps confirm that my analysis was correct.

Hence why personally I find the StockRanks so useful - it gives me a shortlist of new ideas, and also helps confirm which stocks in my portfolio are more likely to do well, especially when the StockRank gradually rises after I've bought. It's particularly enjoyable when we spot the nuggets of gold before the StockRank has caught up with the positive fundamentals!

Since most stocks are too expensive right now, my main hunting ground is looking for stocks where there is some indication from the company that it's going to out-perform the broker forecasts. Recent examples which are doing well are Avesco (LON:AVS) and Character (LON:CCT) .

E.g the StockRank of AVS went like this;

Oct 59, Nov 64, Dec 77, Jan 85, Feb 75, Mar 88, Apr 86, May 91.

I wonder if Stockopedia could do a StockRank chart for each share, showing how its StockRank has moved over the last year, say, as I would very much like to see that, and home in on shares with rising StockRanks.

Regards, Paul.

Damian Cannon

"I wonder if Stockopedia could do a StockRank chart for each share, showing how its StockRank has moved over the last year, say, as I would very much like to see that, and home in on shares with rising StockRanks."

This would be awesome wouldn't it Paul? In the same way that a trend of broker forecasts being hiked is a 'good thing' a rising stockrank trend could be indicative of improving fundamentals and a possible re-rating. Definitely an idea worth sharing with Ed.

Hi Damian,

Yes it would be great if the StockReport page could be amended so that there are 2 little charts next to each other - one showing the trend of broker forecasts in last year (as now), with a new chart next to it showing the StockRank change over the last year, for each company.

If Ed doesn't pick up on these comments (he usually does lol!) then I'll message him with the idea.

Regards, Paul.

Makes sense to me Paul. I find charts like this one very useful and would love to see them against every stock:

55546816ebb6a55523ae1d9314__Stockopedia.

Of course then it would be useful to be able to screen against a trend (rising or falling) in order to filter candidates for further research.

Cheers.

Edward Croft

Yes we do plan on adding them... just can't promise when and can't promise it will be at the same price as we're working on a whole StockRanks upgrade bundle. Deeper hierarchy of ranks (cashflow rank, earnings momentum rank, low vol rank etc etc ;-)), histories, charting and more backtesting plus portfolio building tools. I hope we'll be able to let subscribers build their own StockRanks too... will be some time though.

Thanks Ed - looking forward to the new features already! My only concern is that having more than, say, six pieces of information won't improve my investment analysis....

Small Cap Value Report (12 May 2015) - TTG, TPOP, CAMB

TT electronics (LON:TTG)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

17 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...