Small Cap Value Report (20 Nov 2014) - SPRP, RGI, SPGH, OUT

20th Nov '14 by Paul Scott

13 comments 18472 reads

Good morning!

The Pubcos really took a battering yesterday, as the news sank in of the potential ending of the tied pubs model. Analysts seem to think it will hurt profits considerably at pubcos, but that they will seek to increase rents to offset the lower profits from inflated beer prices to tenants. So it will be interesting to see how that pans out. Presumably there is likely to be a time lag with increased rents, and tenants may challenge increases with the independent adjudicator. I was considering buying some Marston's (LON:MARS) shares, but will hold fire until the lie of the land is more clear. The key point is to ascertain how many tied pubs (as opposed to managed pubs) each pubco has.

Sprue Aegis (LON:SPRP)

Shareholders here will be pleased with a strong update this morning. The company, which sells smoke alarms, seems to be going from strength to strength, helped by smoke alarms being a new legal requirement in France.

Since the release of its unaudited interim results on 22 September 2014, Sprue, one of Europe's leading home safety products suppliers, is pleased to announce that the Company's financial performance has continued to be strong and October was a record month for sales and profit.
Based on the current order book, and subject to products being built and shipped in line with the current delivery schedule, the Board expects that the Company's results* for the year ending 31 December 2014 will be ahead of market expectations.

Valuation - broker forecast is for 16.8p EPS this year, so if they are now perhaps heading for (at a guess) say 18p, then at 320p the shares would be on a PER of 17.8, which looks reasonable considering how fast earnings are growing - see the excellent track record below;

My opinion - I made a mistake here, selling out far too early around 200p. Can't bring myself to buy back, but if I still held, then I'd be very comfortable with the company's performance. The key question, as always, is whether the increased profits are sustainable, so more work is needed on that vital question. So far so good though!

Rose (LON:RGI)

This is an AIM-Listed property company, operating in Russia, which has a 73% major shareholder - it…

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Laughton

20th Nov '14

Hi Paul,

Hoping you'll have time to comment on NewRiver - I thought figures were really good. But the market doesn't seem to agree.

iwright7

Paul,
I had a long talk to the CEO and FD at Mello 14 and it's clear that Sprue are UK smoke and CO alarm market leaders. Their 5 year EPS 24% CAGR has been very impressive and there is more in the tank yet. The export opportunity is driven to a large extent by new legislation is significant, but there are new product offerings to. I was most impressed with their new "smart wireless" technology which can link battery alarms in the same house, so that if fire is detected in one room, all the alarms off together. The US forecast for these type of domestic "smart wireless" devices is 29% growth/annum until 2018 and what happens there will likely happen here. There is also a refreshed trade mains alarm range for early 2015 and new internet monitored wireless alarm systems for sheltered accommodation etc under trial.

So I can see 20-25% annual profit growth for the next few years. Needless to say I hold and have just topped up!
Ian

Sully8786

Yes, Sprue Aegis (LON:SPRP) are doing rather well at the moment. I caught some of the presentation @ Mello on the Friday.

I think that the FD sold half his holding at the start of the week. Now we have this update, I find that very strange.

Regards,

Sully.

Monty9

Re the pubcos. I find it personally depressing that contracts can be overwritten on the whim of a minority party. Increasingly the government thinks it has the right, duty even, to run everyone's lives for them. If a landlord doesn't want a brewer supporting his enterprise in a paternalistic manner he should save up and set up on a third party basis. Eventually everyone will be winging that they need the law changed to be fairer for their particular case and on of a few hundred MP's who have no understanding of the matter will issue an instruction based on pressure, not knowledge or common sense. It won't end well.

thassoc

Re OutSourcery, I own a software company and we sell Office365. I don't think it adds anything to the value of my company! Actually, with the recent announcement that PWC is moving its staff to Google Apps, like all 'Cloud' services, it strikes me that Microsoft, Amazon Web Services, Google and IBM are in a 'race to the bottom' to gain customers for their Cloud offerings!

cig

Newriver Retail (LON:NRR) is pretty much flat if you look a couple of days back. It only shows as the price going (slightly) down because there was a little closing spike yesterday, which is really noise. So if you want to interpret the price action as a "market view" I'd say it is "results as expected".

Re (un)tied pubs, if pubcos can't increase rent it will make converting pubs to other uses more attractive (as the yield on the property used as a pub goes down), which might be an own-goal from Parliament if their aim wasn't to close down pubs. Good time to buy off licence chains?

biloseli

My apologies Sully, I've somehow managed to give you a thumbs down instead of the thumbs up I intended, and there doesn't seem to be a way to reverse it.

Duncan

imranawan

Just had a look at the interim results from Dart (LON:DTG) and these look good. The interims suggests a basic EPS of 39p after making provision for the £17m for customer compensation claims. The stock report suggests consensus EPS should be 21.6p for the year ending 31 March 2015. I therefore assume profits and turnover will substantially slow down for H2 and accordingly costs go up? Am just a little confused that EPS is ahead of earnings estimates and presume this will therefore slow down in H2.

rmillaree

imranawan ref Dart

Airlines are about as seasonal a business as you get - so much so its common for them to lose money over winter and make a profit over summer. Presumably this is what is happening here. Just concentrate on peak period comparisons and also where they are guiding you with regard to year end earnings compared to last year. Sometimes any lumpy one offs are also best removed from the calcs when doing this to try and get the trend.

MichaelFBS

Hi Paul

Probably a bit late in the day for a reply but three points where I have a sort of vested interest:

1. Sprue Aegis (LON:SPRP) surely in theory the French effect is a one off? Smoke alarms are required to be fitted by March 2015 but after that assuming they have say a 10 year life (in my house they are still fine after 10 years) there will be no business for 10 years apart from new build but I am not sure much of that goes on in France? No holding.

2. Dart (LON:DTG) which hold sold of because of the court ruling on compensation but if anything I saw that as a positive because it will concentrate managements minds on delivery and therefore actually increase profitability because apart from price surely reliability is one of the key metrics for a travel company. Additionally with the divy covered 8/9 times surely that leaves scope for good increases in the future?

3. Outsourcery (LON:OUT) A good friend of mine is Piers Linney's partner (and therefore hope the venture is a success) on this venture but I could see no reason for investing at the beginning and just because they can sell Office 365 I can not see that this increases the value of the company by 50%. Bonkers. No holding.

Funderstruck

I believe this was against government policy pushed through by a joint LibLab action.

extrader

Hi sully,

Re the SPRP FD share sale, he's reduced his physical holding by half, from memory, but has approx 300,000 more shares in his LTIP, which are seriously 'in the money'.

So has to be seen in context, I think.

All IMHO, DYOR etc
ATB

Small Cap Value Report (20 Nov 2014) - SPRP, RGI, SPGH, OUT

Sprue Aegis (LON:SPRP)

Rose (LON:RGI)

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Paul Scott

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