Small Cap Value Report (29 Sep 2014) - VP., CFHL, INL

29th Sep '14 by Paul Scott

26 comments 18848 reads

Good morning! For anyone interested, I interviewed renowned small caps investor David Stredder last night, and webcasted it. Click here to listen. If people like the format (chatting about results in the last week, and previewing results for the coming week) then we'll do more of them.

VP (LON:VP.)

Share price: 616p
No. shares: 40.2m
Market Cap: £ 247.6m

Trading update - there's a strong update from this equipment rental group today;

Vp has continued to experience positive trading conditions in the markets which the Group serves. The gradual but sustained recovery in the general construction and housebuilding markets, in particular, continues to be supportive to the Group's activities.
As such, the Board anticipate that the Group will deliver results for the year ended 31 March 2015 ahead of market expectations.

This might well have read across for other companies related to the construction sector, which seems to be firing on all cylinders at the moment.

Valuation - as you can see from the usual graphics below, the valuation seems reasonable on a PER basis, especially considering that EPS growth is decent too. Bear in mind that this data will be based on the previous day's closing share price. However, the shares are up about 8% this morning, and the company has reported it is ahead of forecast, so those two factors are likely to roughly offset, making the graphic below still relevant & in the right ballpark.

Earnings momentum - something I've been looking at more of late is companies which are continuously upgrading their forecast earnings. This is encapsulated in one of my favourite little charts on Stockopedia. Here you can see that VP has seen steadily improving forecast earnings over the last year - a very positive thing, especially when combined with a reasonable valuation;

My opinion - I wish I'd bought some of these when I saw management present at an EDIF event early last year. They impressed me at the time, but I decided (wrongly) that the shares were a little too pricey. The shares have doubled since then!

I'll have a think about this one - it still looks quite attractive, as a reasonably-priced growth company, in my view. It's not clear why the shares dropped suddenly in the last few weeks - there doesn't appear to have been any negative news, indeed today's news is…

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brucepackard

29th Sep '14

Hi Paul, webcast is OK, but unfocused. I think maybe if you got it down to 15 mins, with a bit more preparation, and make it tighter, would be a good format. I didn't manage to listen to the whole thing.

Paul Scott

Hi Thegrimester,

I don't really have anything to add on Zanaga Iron Ore (LON:ZIOC), as there hasn't been any news from the company.
Although clearly sentiment has turned against the share recently, presumably because the price of iron ore has fallen to about $80, due to oversupply.

Glencore made some comments about various commodity prices in their last set of results, and iron ore was the only one they were bearish on. Although they did say that they expected the price weakness to last a few years, before rising again longer term.

So I suppose the big question is whether they are prepared to look through the current price weakness of iron ore, in order to progress production to come on stream from 2018, when they expect the price to be higher. Or, whether they will seek to mothball the project? I don't know enough about it to form a view either way, so have reduced my position accordingly.

Regards, Paul.

Henry Walpole

I enjoyed the webcast Paul, I'd certainly be interested in listening to this on a regular basis.

pammiekins

Asked the same question this morning - here is the response from Stockopedia Alex "The results for Globo have not been provided by our data supplier just yet. I will drop them a line and keep you posted."

MGinvestor

I listened to all the webcast and found it interesting and would listen to it on a regular basis. Just some points:
Plug ins for important events etc not a problem IMHO
Would be nice to have a list of companies that you mention in the webcast so those interested can listen to it
Sound quality was generally clear but I think the volume needs to be a bit louder

Thank you and keep up the good work!

cycle

With regard to Inland Homes (LON:INL), Simon Thompson has published an article today saying that he believes the NAV to be grossly understated due to the open market value of the plots they own being higher than stated and higher profit per plot than is estimated. I don't understand house builders well enough to take a position but I have to admit I'm tempted by all the positive sentiment around house shortages in the South East.

intuitive6191

Re ZIOC

So I suppose the big question is whether they are prepared to look through the current price weakness of iron ore, in order to progress production to come on stream from 2018, when they expect the price to be higher. Or, whether they will seek to mothball the project?

I would doubt that they would want to officially mothball the project as this would probably give the ROC government the opportunity to revoke the license. I also doubt that money will be found to progress production

Very difficult. Could be a wise move to have taken some profits and reduced holdings

Paul Hill

Paul - if you are looking for an interesting read across wrt the construction sector, then have a look at Eleco, a profitable specialist provider of software and technology to the construction industry in the UK, Germany and Sweden.

On the surface it looks cheap, but has an amazing way of dealing with its legacy defined pension liability, which it believes it can transfer into the PPF and then walk away from Scott-free!

bsharman

Hi Paul, I really enjoyed listening to you and David chew the fat on the webcast and this would be a fantastic weekly edition (bonus) to your daily reports!

shanklin100

Hi Paul & David,

I have just listened to the whole of your webcast. The webcast did hang about 5 times whilst I was listening to it; but I just refreshed the page, selected play and moved the cursor forward to the time of the hang and this made for fairly minimal inconvenience.

Going forward I agree with the suggestions that you could usefully tighten it up a bit. If you add some text on the page, from which one plays the webcast, giving background on each of you, the purpose of the webcast and a general disclaimer, then you will not need to cover this in the webcast.

Additionally I suggest you assume the same level of listener knowledge as you do on your daily updates... ...and agree before you start recording as to which companies you are going to cover, so that you are both up to speed on them... ...then this could work quite well.

I didn't gain a great deal from the webcast but as I speak with David every few days and read Paul's daily Stockopedia musings, I would not expect to gain massively from it. Even so, I found a few points helpful.

HTH. Cheers, Martin

Redrumtum

It's worth understanding the scale of this project: new generating capacity to power a small city, a 300km pipeline out to the coast, and a new deep-water port to ship the slurry abroad. In a climate of falling prices, the market is pricing the risk accordingly.

Fangorn

Paul,

Just to add to the sentiments above . Twas a very interesting webcast, no need to make it tighter or more focused as it's far easier listening as you guys wander randomly though the investment landscape. We have far too much structure in our lives as it is. This format was perfect and I think those asking for it to be far more focused forget that this is really just a weekly relaxing chat you and David have, two mates chewing the fat over stocks of interest.

In similar fashion to Shanklin, the webcast did hang twice before getting halfway, but that was only because I was listening via Google Chrome. Using IE it played with no problems at all.

An interesting addition to your daily blog.

kbkb

Hi Paul

I have had INL for a little while, which has co-incided with the share price being somewhat becalmed!!

My suggestion to yourself is that it would be worth digging a little deeper, as they have quite a lot going, which to me seems like the potential for quite a bit of upside, as there is quite a lot not currently factored in to the nav, which may cause you to revisit your decision above.

Not sure if anyone else agrees with me, I think they are worth holding at present.

Cheers

Kevin

William Partridge

Paul, Market is derating rate sensitive names. Which makes sense to me. I also think small cap investors are seeing outflows so this combination makes it hard, I think to garner positive share price action in names like the names written today, William

jonno

Paul

I really enjoyed listening to your chat with David. Easy to listen to, informal and at times incisvie. I agree with kbkb on the informal and relaxed approach and musings on the merits or otherwise of topical small caps.

marben100

Another factor affecting sentiment on Zanaga Iron Ore (LON:ZIOC) may be the comparison with fellow West African iron ore miner London Mining (LON:LOND) . Despite having an already operating mine, London Mining seems to have got itself into financial difficulties, and the mine is losing money (even at higher prices prevailing in H1 this year):

http://www.investegate.co.uk/london-mining-plc--lond-/rns/financing-update/201409290700188231S/

IME mining projects frequently don't meet their promised cost or production targets. Therefore, a project needs a very large margin of safety to be investable. In the current environment of iron ore oversupply and depressed prices, that margin of safety doesn't exist, and I can't see much prospect of progress at Zanaga. Moreover the small amount of capital the company has, relative to the capital required to bring the project onstream, means that Zanaga's negotiating position is weak, irrespective of "cast iron" agreements with Glencore.

dpaccount

Two [hopefully seen as constructive!] comments on the webcast:

i) Apologies, but I didn't find the audio quality to be that great. Given how easy it is to eg stream 1080p video flawlessly these days, anything other than a crystal-clear, pin-sharp audio file is a little disappointing.
ii) I may have missed if such a feature is available, but the ability to download the file in its entirety so that one may listen to it when out and about/in the car would be great. Essentially what I am proposing is more of a 'podcast' approach.

Other than that an interesting listen, and great to be able to put voices to the web persona.

Sully8786

Hi Paul,

Liked the webcast, be nice if you can keep them up when time allows.

Any idea which days Bioventix (LON:BVXP) and Sprue Aegis (LON:SPRP) will be presenting at Mello?

Regards,

Dave S.

carmensfella

30th Sep '14

BVXP will be there on the Thursday and Friday...Sprue are there all three days I think.

Friday is the most popular day with some very well known presenters on the main stage so single day tickets will soon be restricted for that day to ensure we have balance and everyone is able to be seated for the popular talks. Try to book as soon as you can.

5th Oct '14

Chhers David,

Hopefully see you on Friday.....just waiting for my leave to be authorised :)

Regards,

Sully.

Small Cap Value Report (29 Sep 2014) - VP., CFHL, INL

VP (LON:VP.)

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Paul Scott

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