Small Cap Value Report (23 Aug 2016) - PSN, JNY, HSW, BVXP

23rd Aug '16 by Paul Scott

26 comments 20032 reads

Good morning!

We've settled into our villa in Paxos, and I'm starting to unwind. We have a 2 hour time advantage here, so 7am UK time is 9am Greece time. So I can both have a lie in, and make a prompt start reading RNSs. This is a good thing, and is making me wonder whether I should permanently relocate to a time zone which better suits my body clock?

Further good news is that the mosquitoes which normally eat me alive in this area, seem largely absent. We can't decide whether this is a natural phenomenon, or whether our liberal application of every imaginable type of mosquito repellent, is doing the job? So far I don't have a single bite, which is very pleasing indeed.

Persimmon (LON:PSN)

Share price: 1794p (pre market open)
No. shares: 308.3m
Market cap: £5,530.9m

Interim results to 30 Jun 2016 - this was one of my favourite Brexit plunge shares, and it's already come roaring back, so has been a very good trade.

However, the outlook comments today almost made me fall off my chair. The company is not only reporting strong interim figures, but it appears the new house market is not only surviving, post-referendum, it's doing rather well:

"While the result of the EU Referendum has created increased economic uncertainty, customer interest since then has been robust with visitor numbers to our sites around 20% ahead year on year.

Our private sale reservation rate since 1 July is currently 17% ahead of the same period last year. The Group is now trading through the traditionally slower summer weeks but customer demand remains encouraging and we anticipate a good autumn sales season."

So, as we've seen with many other companies reporting of late, the referendum result has been shrugged off by UK consumers. Although as others have pointed out in the comments section here, nothing has actually changed as yet. So we could yet see longer term disruption, but so far, so good.

So expect a strong day for housebuilder shares.

Journey (LON:JNY)

Recommended bid at 240p per share - Christopher Mills of Harwood Capital has done it again! This is the latest in a series of takeover bids he has made for companies in which Harwood has a shareholding. The trouble is, he finds undervalued companies, then puts in a cheeky bid…

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bicboy100

23rd Aug '16

Paul,
As you have discovered the 2 hour difference makes life so much easier when needing to check 7AM notices. One of the reasons why my trips to our place in Cyprus is so relaxing is that I can chill until 9am before needing to check morning RNSs. Gives plenty of time to react to whatever news.
If I didn't have other commitments, I'd definitely spend a lot more time there just based on that reason alone.

Lee

stepone

The trouble is your body clock will adapt, and you'll find you need to move further east every year or two. Eventually you'll end up back home :-)

Tortoise investor

Thanks for covering Hostelworld (LON:HSW) Paul, I agree with many of your comments. I would have liked more info in the RNS about the impairment charge and there is a risk it could have another with Hostels.com although it could certainly afford it. Why have three websites in the first place? In some ways I wonder if it might benefit the business to have these other domains as often punters like to check 2 or 3 other websites to make sure they're getting the best price and it might be advantageous to own the alternatives!

The big risk with Hostelworld (LON:HSW) is competition from Tripadvisor and AirBnB. I picked some up in July because I thought the price looked too low, the dividend is decent, and because a lot of its revenue is derived from outside the UK so helps my portfolio to be less UK centric post Brexit.

There is a positive in today's RNS about good growth in Asia which could potentially help revenue growth but agree this looks fairly ex-growth now.

browndogwork

Having stayed in many hostels over the years, I cannot see how AirBnB or any other platform is going to steal market share from the hostel crowd. With hostelling, it's not just down to cost, but the social element which draws in younger people to meet other backpackers and like-minded people. You just don't get this with hotels or any other form of accommodation, except the odd B&B here and there. I've been travelling on extended trips and not actually wanted to stay in any other form of accommodation, for fear of not meeting people and having some people to hang out with.

Hostels are few and far between in Asia, so I think this region is ripe for growth.

Disclaimer - I haven't stayed in a hostel for about 2 years, so things may have changed!

JohnEustace

I agree hostels have a good niche, but that doesn't necessarily translate to success for Hostelworld. If you search on Tripadvisor for hostels you can book them via booking.com, expedia, agoda, hotels.com and others as well as hostelworld. I think the hostelworld.com site has much better in depth information but they don't have any exclusivity.

smatthews1

This concerned me as well, hopefully with their expertise they should be able to add value to it. They mention they will be paying asda commissions, business rates and costs of utilities for these, is this normal practice for them to pay rates and utility costs on top of commissions?

So I hope there is enough margin in it for them to make it worth while, and not just getting impatient sitting on their massive cash pile.

Sean.

apad

Hi Paul,
The only thing I disagree with you about yesterday's coverage of BVXP is vulnerability to loss of key staff. In my opinion there is only one key person and it is Harrison. The model is principal investigator supported by research assistants, who are bright graduates that do as they are told.
Recent scientific papers report huge sensitivity increases to cardiac troponin, but nowhere have I seen this related to delta, which is the key to success as it specifies the time gap between tests.
apad

gsbmba99

Thanks for the updated Bioventix (LON:BVXP) forecast.

They've normally just had (with the benefit of hindsight) an extremely conservative +5% EPS for the current financial year. I think I'm right in thinking that FY16 was upgraded to 53p or 55p around this time last year. While they reported very good growth for 1H16, at the half year stage, forecast EPS was upgraded to 57.3p for FY16 which still looked absurdly low considering 1H16 was 27.2p and 2H15 was 29.0p (diluted) ie 56.2p assuming 0% 2H16 on 2H15 growth. Now FY16 expected to be 64.9p.

I'm not entirely sure what to make of the jump from 64.9p FY16 to 71.2p FY17. That's almost 10% forecast EPS growth compared to their normally very conservative 5%. Is this a bolder forecast or a more confident Bioventix with a bit better visibility into demand?

One of the interesting things about this company is they have both forward looking and backward looking revenue streams. The sales of antibodies are forward looking in the sense that the licensee has to buy them to create the reagent which is then sold to the end user customer who consumes the reagent when the test is run. The royalty revenue (2% of test revenue) is backward looking in the sense that it can be reported to Bioventix months after the test has been run and many months after the initial antibody was sold. What could give Bioventix a more positive outlook on FY17 than has ordinarily been the case? I'm going to guess that they've seen an encouraging rise in antibody sales (or perhaps sales of a new antibody) which they see as a precursor to enhanced royalty sales in FY17 (or maybe a large batch order post period end). As I've just stated, this is a guess. It's just me theorising about the mechanics of their business model and what circumstances might give management additional visibility. At any rate, it still looks reasonably conservative relative to the company's historical financial performance.

topvest

Hi Paul - agree with you that Chris Mills is a shrewd investor. I'm happy enough to take 240p as it's the second time I will have profited from Journey, buying back in 9 months ago on the contract news and following Chris Mills adding. Think its a fair exit at this point albeit Chris Mills has probably pounced just as things are about to "take-off". Two thoughts: Harwood have been loading up on Journey whilst much better thought of investors such as Rothschild sold out at about £1 2 years ago. Secondly, Chris Mills is well worth following through North Atlantic Smaller Companies Investment Trust which is a great small company value investor fund with a 30 year record of 14/15% per annum return. Possibly this is a better way for investors to have continuing exposure (through NASCIT or Oryx) to Journey going forward, rather than the private company option. Thanks for your article. Hold Hostelword as well and think that is still undervalued.

Boros10

gsbmba99

I think the Bioventix upgrade for FY 17 is down to a mixture of continuing growth in Vit D and other royalties streams and a positive currency effect post the Brexit vote (95% of its revenues are earned in USD and Euro both of which have appreciated by approx. 13%).

FREng

24th Aug '16

Aug 24: 09:44 Paul: are you back on UK time already :-)

What do you think about the Molins (LON:MLIN) interim's today? Equity Development say "Given the tough short term outlook, we reduce our target price from 120p to 90p a share. At 61p, we rate the shares as good value, trading at a 19% discount to net tangible assets (75p) and on modest EV/EBIT and PE multiples of 7.7x and 8x respectively, whilst also offering a 4.5% prospective yield (2.7x covered).".

Rusty2

Even better value now at 52p!

hayashi22

I think Molins is dead money -seems to have been struggling for so long now..........

gus 1065

From memory, Molins (LON:MLIN) had/has issues with a large pension deficit, presumably made worse by the recent cut in UK interest rates and Gilts buy back. Also, given the pension issues are not currently picked up by Stockopedia, the Stock ranks probably give a flattering view of the company's true position. One to be careful with even if it does appear cheap.

Best,

Gus.

It's on Paul's bargepole list, they have a pension deficit problem. Debt has also soared and profits are falling.

Some guy at Equity Development thinks its good value -but as he is paid by Molins to say that his view is worthless....

VegPatch

27th Aug '16

Boros10, I think H2 16 has already benefited from Sterling devaluation, so the FY17 will only benefit from one half ie H1, of a weaker Pound. This is because of the payment methodology that BVXP employs. It gets paid twice a year in arrears by its customers. So Siemens etc pay the royalties in August for testing they have done in Jan through to June and in Feb for testing they have done in June through to December. The royalty revenue is booked for the first half all in one go as it gets a bullet payment by the customer, so unlike for normal companies that get paid throughout a period, the average rate does not apply. The exchange rate that the company gets is the rate on the day in August or February when the royalty payments are remitted to BVXP then translated from euros or dollars to GBP. So while sterlings crash has happened around the end of June post brexit, the post June 30th further devaluation has already benefitted BVXP. Hope this helps

28th Aug '16

Vegpatch

Excellent post. You are quite correct.

3rd Oct '16

Looks as though the Journey (LON:JNY) shareholders have given Harwood Capital the finger in their small premium cash offer for the company.

http://www.investegate.co.uk/journey-group-plc--jny-/rns/result-of-court-meeting-and-lapsing-of-offer/201610031148235064L/

Pyrrhic victory for shareholders against the offer in the short term as the shares are down more than 10% on the news, but perhaps a longer term reward if the company performs and/or Harwood come back with a revised offer.

Gus.

4th Oct '16

Might be back on again after all .....

http://www.investegate.co.uk/journey-group-plc--jny-/rns/possible-offer-for-journey-by-jaguar-holdings/201610040700055708L/

Same cash offer price of 240p indicated but a lower acceptance threshold requirement. The Grand old Duke of York springs to mind ....

Gus.

Small Cap Value Report (23 Aug 2016) - PSN, JNY, HSW, BVXP

Persimmon (LON:PSN)

Journey (LON:JNY)

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Paul Scott

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