Small Cap Value Report (13 Aug) - TRB, SWJ, WTL, CGS

Tuesday, Aug 13 2013 by
8

Good morning! It's very quiet for news this morning, so this will be a comparatively brief report. The Futures are indicating the open should see the FTSE 100 Index up 15 points at 6,589.

 

Tribal (LON:TRB) issues its interim results for the six months to 30 Jun 2013. The market seems to like them, as the shares have opened up 3% at 207p, which values the company at £194m. Tribal provides services to the education sector.

Turnover rose 12% to £62.1m, and adjusted operating profit rose 15% to £5.4m for the six months. Adjusted EPS rose 36% from 3.6p to 4.9p, but was flattered by an unusually low taxation charge this period. The company says that trading will be weighted towards H2, and the outlook statement sounds good, with them confirming "at least in line with our expectations for the full year".

So really it all looks good until we get to valuation. Broker consensus is 11.4p EPS for this year, and 12.4p next year, which look about right, if you normalise the tax charge. So the shares look expensive to me at 207p, which is a PER of just over 18 times this year's earnings. That's too expensive by far to my mind. Tribal has always been fairly cheap when I've looked at it before, and personally I wouldn't pay more than a PER of 12 for what is really a pretty ordinary business, that's been quite accident prone in the past.

The dividend yield is lousy, at only 0.7% forecast yield.

Furthermore, Tribal also has a weak Balance Sheet, with negative working capital (current assets are £36.0m, versus current liabilities of £53.3m), with another £19.4m of long term liabilities too. My internet is about to go down for a little while, as fibre optic man is here to upgrade us, so will continue when I am reconnected ...

... yes I'm back, and apparently 10 times faster!

Going back to Tribal's Balance Sheet, it has £77.6m in Goodwill, and further intangibles of £14.8m. Writing off both of these takes net tangible asset value down to minus £31.4m, which is not a good position at all. It might be fine for the time being, but what happens if they run into trading difficulties, as they have done in the past? There's nothing to cushion the impact.

I just cannot understand why…

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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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Tribal Group plc is a United Kingdom-based company, which provides software and services for education management. The Company's segments include Product Development and Customer Services (PD&CS), Implementation Services (IS), Professional and Business Solutions (PBS) and Quality Assurance Solutions (QAS). The PD&CS segment represents the delivery of software and subsequent maintenance and support services. The IS segment represents the activities through which it deploys and configures software for its customers. The PBS segment represents a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services, and the QAS segment represents inspection and review services, which support the assessment of educational delivery. Its products and services include license and development, implementation, maintenance, professional and business solutions, quality assurance solutions and other systems related. more »

LSE Price
49.5p
Change
-2.0%
Mkt Cap (£m)
95.8
P/E (fwd)
36.6
Yield (fwd)
n/a

John Swan and Sons Plc is a United Kingdom-based company, which is engaged in auctioneers, livestock agents, valuers and estate agents and operates livestock marts in Newtown St Boswells and Wooler. The Company conducts sales of pedigree and commercial livestock and also provides a private sales facility either between farms or from farm to abattoir. Its services include rural and commercial estate agency, SFP entitlement trading, liquidation and insolvency sales, farm sales and cessation of business Sales, a variety of valuation work and fine art and antique Sales. The Company trades from two Mart facilities: Newtown st bosells and wooler mart. Newtown st bosells is the Livestock Centre servicing the entire South East of Scotland and situated in the heart of the Scottish Borders. Wooler mart is Livestock Market in the North East of England situated in the center of the renowned productive livestock rearing county of Northumberland. more »

LSE Price
1325p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

Waterlogic PLC is an Ireland-based company, which is engaged in designing, manufacturing, distributing and operating the attached point-of-use (POU) drinking water purification and dispensing systems. The Company offers its products to various environments, such as offices, factories, hospitals, hotels, schools, restaurants, home, hospitals and senior living communities, and building and refurbishment projects. The Company offers products for the home, which includes Waterlogic Firewall Tap and Waterlogic 1000GF (WL1000GF); for the workplace, which includes UV Countertop Water Purifier-Waterlogic Firewall Cube, and essentials, such as descaler, leak controllers, carbon dioxide (CO2) cylinders, waterblocks and gas regulators. The Company's technology includes carbon filtration, ultraviolet (UV) purification, BioCote and Reverse Osmosis (RO). The Company's products are distributed in North and South America, Europe, Asia, Australia and South Africa. more »

LSE Price
147.5p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a



  Is Tribal fundamentally strong or weak? Find out More »


4 Comments on this Article show/hide all

johnrosier 13th Aug '13 1 of 4
1

Paul I agree with you. I held this in JohnsInvestmentChronicle last year but sold out far too early. In at 60p out at 86p! Seems far too expensive but I guess the main thing it has in its favour is that it has seen fairly consistent upgrades to earnings over the last 18 months but may be that too has run its course.

We still own in an Investment Club I am a member of; I think I will give the sponsor a nudge!

ps Looking forward to FCCN trading statement; should be exciting one way or the other!

Website: JohnsInvestmentChronicle
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rick 13th Aug '13 2 of 4

Regarding Tribal.

It has undergone fundamental change in the business over the last 2 years, new management, new business model, new products. Sales and EPS have expanded and EPS forward visibility has improved dramatically. Couple that with products that are being taken to new (international) markets and winning new market share, my feeling is that a fundamental re-rating of the stock is underway. Also management are betting on share price improvement by putting money where their mouth is and the dividend is being increased (up 25% yoy) and this looks sustainable. All positive.

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johnrosier 13th Aug '13 3 of 4

When I put Paul's points to my investment club this morning by email I got one reply from someone with industry knowledge who agreed with the points rick has made. He also said "My insight is that they have only scratched the surface of a market that is primed for growth over the next few years. I have been partnering with xxx (a big multinational) and they have more enquiries than they can deal with on collaboration software in the education sector and I can see there are a wealth of opportunities there".

Share price momentum is good and valuation can stay high for longer when a fundamental change is occuring. Whilst I can understand people being nervous of buying at this valuation we have decided to hold on for the time being.

Website: JohnsInvestmentChronicle
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acdoug 13th Aug '13 4 of 4
2

re WTL; I looked at WTL back in Sept 2012, with the aid of an Edison Quickview, when it stood at 190 , but was put off by some serious sales at 200p at the time, and the fact that it looked overpriced cf peers/sector, and a silly PE (f, I think) of 158 (but going for great growth in 2013).
On 18.10.12 there was no real explanation, or reason, as far as i could see, why the CFO retired, after only a year.
Since then it seems to have foundered under its many and rapid acquisitions (a real risk that Edison pointed out), its profit has halved and ROC reduced from 10 to 2.6 (I haven't tried to work out the accounting reason why it hasn't halved like the profit).
The forecast for 2013 does not seem to have changed(?), gauging by the doubling of EPS, but today'sTrading Update is suspiciously short on profit comment.
All that said, the products (generated by Jeremy B-D's brother Jonathan in R&D? Why isn't he a director?) seem to be technically superior, and you might take the view that if they can digest the acquisitions the bottom line will eventually benefit.
That's just a quick look, but overall I don't like a 25 PE, and anyway I doubt the profit forecast.

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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 Stockopedia.com 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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