Small Cap Value Report (15 Nov 2016) - LVD, SRT, AVAP, RCN

15th Nov '16 by Paul Scott

32 comments 17588 reads

Good morning!

Sorry yesterday's report was late - here is the link. I looked at some unusual shares, including a speculative special situation at Johnston Press. Also a complete basket case in The Peoples Operator - almost certainly destined for the knacker's yard in my view. Plus I unravelled the complicated share structure at Dewhurst. Also a fleeting glance at results from Carr's and Castleton Technology, neither of which interest me at all.

Profit Warnings Webinar!

This is going to be great - I've already seen some of the data, but won't spoil it.

A team of analysts at Stockopedia HQ have spent months ploughing through last year's profit warnings, and drawing out statistical conclusions - e.g. should we buy after profit warnings? If so when? How do shares perform after profit warnings, and lots more.

The webinar is tomorrow starting at 12:30 - here is the sign-up link. It will be about 30 mins, with some Q&A after, I believe. There should also be a free eBook as well.

I strongly recommend readers join the webinar if you can, as this is such an interesting topic. I've lost so much money over the years by catching falling knives, that any guidance I can glean from this webinar will be very helpful.

Although of course our biggest winner here in the last 2 years was a stock I bought at 23p, straight after a big profit warning - Boohoo.Com (LON:BOO) - which has since 5-bagged!

So what to do, when, after a profit warning is a fascinating & controversial topic. Let's see what the big data at Stockopedia tells us.

Lavendon (LON:LVD)

Share price: 134.8p (up 2.9% today)
No. shares: 170.0m
Market cap: £229.2m

(at the time of writing, I hold a long position in this share)

Q3 trading update - up to 30 Sep 2016.

This generally reads quite well, and there's a fair bit of detail, mainly about revenues. A key point is that the group is benefiting from weaker sterling, as overseas earnings are translating into larger sterling amounts.

Overall performance sounds good, but this announcement is badly worded. Unnecessary confusion has been caused by the use of this phrase;

Board confident of delivering results for the full year marginally ahead of its original expectations

What original expectations? It doesn't say. This phrase is used again in the Directorspeak…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Aislabie

15th Nov '16

Avation is essentially a finance company so the debt level is normal. But by buying aircraft that they then attach an earning stream to they considerably enhance those assets.
Their statement is that over an average lease period of 6.3 years "in excess of $305 million" will be received by a buyer, at the end of which they will have a re-leasable fleet of 22 aircraft, mostly under 10 years old.
This should realize enough to make the remaining Avation fleet of 17 mostly young jets carry a very much reduced debt. I would expect them to use this as a springboard to load up more debt and accelerate their jet acquisitions

apad

TRCS “Look and Feel”.

8th January, John McArthur, Chief Executive, disposed of 120,000 ordinary shares of 0.4p each ("Ordinary Shares") in the Company, at an average price of 515.9p per Ordinary Share.

10 Mar 2016
IP Group plc (LSE: IPO) (“IP Group” or “the Group” or “the Company”), the developer of intellectual property-based businesses, is pleased to announce that it has realised its entire holding in portfolio company Tracsis plc.
The Group received net cash proceeds of £13.1m from the sale.

Sean Lippell, Non-Executive Director and former corporate law partner, has departed with immediate effect. He has been removed from the website.

Friday 8 April, John Nelson, Non-Executive Director, disposed of 130,000 ordinary shares of 0.4p each ("Ordinary Shares") in the Company, at a price of 500p per Ordinary Share.

19 April 2016Uni Leeds sells 500,000
1,000,000 left.

25 April Leeds Uni disposal less than 4% left.

No large framework order.

US order small, could still take years - what is their driver.

Acquisitions look bitty. Missed a big one, but “it wasn’t good enough for us.”

Doesn’t return cash to shareholders.

Only 8 solid job vacancies.

So, on the whole, looks to be ex-growth to me.

Trident

TRCS

Will certainly be looking at organic growth compared to acquired growth in their annual report which is due tomorrow, I believe?

The business has several different divisions and these probably all have their own individual growth characteristics.It does pay a dividend, but is not a big yielder, so it does return some cash to shareholders. It is avowedly acquisitive, so always a balance between new targets and rewarding shareholders.

Some of these business have pretty high net margins (which they do not advertise) so if it is able to successfully cross-sell from acquired operations, or grow organically, it should materially benefit the bottom line. Of course cross-selling is easier said than done!

They do pick and chose their acquisition targets to match certain published criteria (referred to on their website). So no desperation there for a fundamentally cash generative company. The problem may be that it may have picked up all the 'cheaper' acquisition deals, and new deals may get more expensive, and use more of the cash generation.

I am holder, albeit given the decent multiple they are on, a little nervous.

FREng

We'll see what Tracsis (LON:TRCS) reports on 17 Nov. The stampede towards driverless cars seems irresistable: Ford, Uber and others say it's five years away, the academic researchers say the technology needs some research breakthroughs which will take between 10 and 35 years, and the politicians want to capture the revenues, jobs and innovation. Meanwhile, any company with technology that might offer an edge seems to attract a premium valuation. This isn't going to end well, but there's money to be made on the way.

TRCS
Listening again to the PS interview Nov. 15 and looking at the subsequent data it clearly didn't deliver on the tone of the interview and a lot of important holder's voted out.
However, with such a small cap it could be premature to judge harshly on a year's performance.
I expect some good news to be saved up for the results.
apad

Cricketfan

Re Avation,
I agree that disposal of the 22 ATR aircraft would release good shareholder value assuming the right price. It would also allow a beneficial rejig of the remaining fleet. Pipeline ATR orders would still be available to either retain or sell whilst probably more profitable but more expensive A320 series aircraft could be added to the fleet. Result a better balanced fleet with a wider end user profile with commensurate less risk. Seems positive to me.
Mark

Paul Scott

Hi Staverly,

Did you publish your thoughts after recent chat with STAF

Yes, I published my audio interview with STAF's CEO here last week: http://qualitysmallcaps.co.uk/ceo-or-fd-interviews...

Regards, Paul.

Hi apad,

I'm doing my traditional annual interview with John McArthur next week, on 23 Nov.

I thought that would give readers time to digest the results (out tomorrow morning) and come up with some good questions.

I'll put up a form on QSC in the next few days, to ask for your questions.

Regards, Paul.

P.S. I'm not charging a fee, and don't hold TRCS myself, so it's completely independent.

Investor1942

I've held AVAP for over a year and am sitting on a reasonable profit. Inclined to hang on. and see what becomes of the offer if any.

Carcosa

16th Nov '16

For a more detailed view of the potential ATR fleet sale and its potential impact on the company, see http://www.lemonfool.co.uk/viewtopic.php?f=33&t=315

Carcosa

Excellent, Paul.
apad
ps
Do you have an easy way of checking the rate of change of shares in issue, their most common rns is about printing more shares!

andrea34

I thought you were going to do a write up of CAR? I guess you ran out of time...
...so, for those interested, CAR announced interims yesterday and a positive in-line trading update... although the price has softened after the initial rise, possibly due to the huge increase (more than doubled) in IAS 19 retirement benefit liability

Beginner

It is always worth reading the Chairman's statements at Samuel Heath and Sons (LON:HSM). Today's is no different, nor any less refreshing than normal. (The read across to Norcros (LON:NXR) is not particularly encouraging for the near future).

psyche100

20th Nov '16

Paul

I see that LVD's operating cash flow for the last year was negative, largely due to investment in renewing the rental fleet. If I’m reading the reports correctly they invested £91m in 2015 and a further £55m in H1 2016. Presumably there will come a point in the fairly near future when such substantial fleet investment will no longer be necessary and operating cash flow will revert to being positive, as it was consistently from 2010 to 2014. Any thoughts on when this might be?

Generally I wondered what you thought about Stockopedia's DCF tool. I know it's there 'for educational purposes only' etc. However, over the last few months I've been recording the 'crude' values it spits out in a spreadsheet for a number of companies; then (1) dividing given DCF value by price at time X and (2) dividing price now by price at time X. The correlation between the values for (1) and (2) has come out at nearly 0.8, way higher than the correlation of 0.1 between Stockopedia ranks at time X and (2).

Regards, David

rhomboid1

Part of the Lavendon (LON:LVD) picture is they've got a persistent overage debtor position in Saudi which is hitting cashflow , it's going to turn into cash or bad debt, company says cash but I sold when they didn't respond to my email asking for a few more details to get me comfortable that it wasn't a problem.

Aside from that it looks very cheap .

Nick Ray

(1) dividing given DCF value by price at time X and (2) dividing price now by price at time X. The correlation between the values for (1) and (2) has come out at nearly 0.8, way higher than the correlation of 0.1 between Stockopedia ranks at time X and (2).

You need to divide successive (e.g. daily, weekly or monthly) values for DCF by the previous value and compare that with the same calculation based on price, before you calculate the correlation. If you don't do that, you will have what is called a unit root in your data which will overstate the amount of correlation.

gus 1065

22nd Nov '16

Cash bid at 205p per share just announced for Lavendon (LON:LVD) . Here is the RNS link. Not sure it is quite the knock out blow recently seen for Avesco (LON:AVS) but company now in play.

http://www.investegate.co.uk/tvh-group/lvd/final-cash-offer-for-lavendon-group-plc/201611220700117677P/?fe=1&utm_source=FE%20Investegate%20Alerts&utm_medium=Email&utm_content=Announcement%20Alert%20Mail&utm_campaign=TVH%20Group%20Alert

Busy time on the M&A front.

Best,

Gus.

Not recommended by the company though... so lets see how much higher it may go?

Lavendon (LON:LVD) share price is up but c.25p off the putative offer suggesting the market initial reaction is that (a) may not be another bidder; and (b) TVH won't go hostile (I.e. Will only proceed with a management recommendation which may or may not come depending on shareholder reaction). A gambling man might think it worth a punt to buy at the current 183p market offer if they thought either of the above don't apply.

Best,

Gus.

imranawan

Would agree with you gus, but even at 183p its not expensive. At least we know what TVH are prepared to pay for it, so have a better handle on valuation. I think the broker target was 275p, so 205p looks cheap.

Small Cap Value Report (15 Nov 2016) - LVD, SRT, AVAP, RCN

Profit Warnings Webinar!

Lavendon (LON:LVD)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

32 comments

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

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