Small Cap Value Report (30 Apr 2014) - THT, STY, PLA, SNX, VLX, SPGH

30th Apr '14 by Paul Scott

9 comments 19624 reads

Good morning! Quite a lot going on this morning.

I don't intend discussing the Globo (LON:GBO) results here, because even though I currently hold no position in the company, it just leads to pointless & unpleasant arguing. Let's keep that kind of nonsense off Stockopedia. In a nutshell, you either believe their P&L (in which case the stock looks good value), or you don't - on the basis that the company doesn't generate any significant cashflow, and all the profits just pile up on the Balance Sheet in excessive Debtors. I remain firmly bearish in opinion.

Thorntons (LON:THT)

As mentioned previously here on a number of occasions, the share price of Thorntons seemed to get ahead of itself, and there's been a fairly significant correction in the last two months, to a point where it's starting to look potentially interesting. There has been a particularly sharp drop to 115p this morning on a trading update.

The market seems to have interpreted today's Q3 update as a profit warning. The table of results by quarter shows a sharp deterioration of the sales growth trend within their FMCG division in Q3, as highlighted below. (note that Thorntons has a 29 Jun 2014 year end).

What intrigues me however is the final paragraph of today's trading update, which actually confirms full year guidance. So despite a poor Q3, the company is not warning on profits for the full year, as it says;

Despite this third quarter result we are satisfied with the overall performance of the business for the year to date and we look forward to our UK Commercial channel returning to growth in our short final quarter. The Board remains confident that Thorntons will perform in line with market expectations for the full year* and we continue to be confident that our transformation is on track and our strategy is appropriate and working."

* Consensus is £7.3m pre-exceptional PBT at 29th April 2014.

On the basis of that, I've picked up a little stock this morning at 118p. Although if growth is now becoming more hesitant, then investors will not be so prepared to put the stock on…

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britishb

30th Apr '14

From memory there were £15m in prefs with £1m having been redeemed in the year just reported. So £14m outstanding.

Katewarren

Paul, many thanks for your excellent article on Risk Management on Thursday April 24th Small Cap Value Report.
I actually, finally took the the time over the weekend to enter up my actual holdings on the relevant Stockopedia page. .........so I have discovered that my maximum holdings in particular shares works out at about 12.5%......and that I have a Small Cap Blend Bias ! I was surprised to learn that the " average stock holder owns 4 shares." I seriously doubt that any of your readers hold that few shares. ! .........we are not "average investors"
then.
Re. Globo. I have not seen the results and am not interested either as illustrated below ! I did post this poem on your report of 10/3/14 but rather late. Here it is again for those readers who didn't see it. It was just a bit of fun and written after a rather heated debate last year. Apologies to Jam7, Lightening Tiger and Monty 9 ........hope you have done well from it.

Another quick comment on Globo
But,... it has stimulated good debate and you see,
A whole host of us are just waiting
For what transpires and what will be.

So will Jam 7 be in heaven
With Lightningtiger and Monty9 ?
Will it be a 20 bagger ?
Could be something mighty fine.

Paul dusted down his barge pole
"This one's not for me,
An AIM Share, not based in Blighty"
Doesn't meet his criteria you see.

Well, I got squeezed on Asian Citrus,
And bombed on Bumi too
So now you know on those points above,
I just have to follow Paul's view.

But good luck to you Globo investors
Take some profits........perhaps you must,
In case the wind, it changes
And Globo bites the dust !

Sully8786

LOL - Very nice Kate :)

Mark Simpson

Paul,

Strange RNS from Pennant International (LON:PEN) yesterday evening which essentially incentivises the CEO to seek a takeover of the company at as high a premium as possible:

...allotted and issued 1,400,000 B shares of £0.001 each in Pennant to Mr Snook at a price of £0.005 per share, payable in cash.... [conferring] the right upon an offer for all the ordinary shares of Pennant becoming or being declared unconditional in all respects or upon a scheme of arrangement to effect such an offer becoming effective, to sell each B share to the offeror at a price equal to the amount by which the price offered for each ordinary share of Pennant exceeds 91p and otherwise upon such terms as are the same as those applying to the offer for Pennant's ordinary shares.

http://www.investegate.co.uk/pennant-int--group--pen-/rns/director-incentivisation/201404291620068187F/

First time I've seen something like this, have you ever come across anything similar? Can only think this puts the company in play - Chairman holds c.39% and is 66 so feels like a 'make me an offer' signal but last results narrative suggests no change in company strategy:

On current trading and prospects, Mr. Powell added:

"The strategy followed consistently over the last 5 years has been successful in achieving its goal of increasing shareholder value and this strategy will be continued.

A number of major new contracts have been won and completed to customer satisfaction, enhancing the Group's profile and reputation. As a result, the Group is currently actively involved in a number of significant opportunities with existing and prospective customers. These opportunities, together with the size and visibility from the current order book give confidence for the future."

http://www.investegate.co.uk/pennant-int--group--pen-/rns/final-results/201403100700068388B/

The company isn't expensive on most metrics so I think this could be a good heads I win, tails I don't lose much special situation.

Cheers,

Danger

Fegger

Ive been in Volex for over 10 years but have sold out today. Feel like you say the risk balance is too high at present and I was pleased to get a 10% boost today. Your instinct was good on Sweett Group and it feels right on this one too at present. VLX just doesnt feel quite right -as you say - where are the hard figures?

PhilHofGrowYourDough

Also of note today is that Sprue Aegis (OFEX:SPRP) has moved to the AIM from OFEX and completed a placing to "support sales growth"

http://www.investegate.co.uk/sprue-aegis-plc--sprp-/rns/placing--admission---first-day-of-dealings-on-aim/201404300700538386F/

cig

Aren't we a bit impatient here? Turnaround for this sort of business is a 3 to 5 year story and we've barely started for this particular round. Maybe the turnaround won't work out, but it is premature to judge it in my view.

Brokertobroker

Totally agree cig, the management is new - I think we should give them a chance. The traditional fundamental investment strategies simply don’t apply to turnaround/transformation/special situation investments. The valuation is totally screwed by historical poor performance. This is a punt, no doubt, but to speculate on further profit warnings would be completely unfair at this stage.

This reminds me of Findel (three years ago), the fundamentals would have told you to definitely sell and to some respect still do, but now look at the share price - why? The management - pure quality - a potentially good business, made good.

Paul - i totally agree with you on many levels and you’ll probably tell me that investing predominantly on management’s experience and potential to succeed is just crazy - but that’s exactly what I’m doing. It’s a 2 year horizon - I have very few investments like this.

Any indications that the new management is gaining traction with its recovery plan should see estimates move ahead sharply. This business is cyclical and revenue sensitive. Fill the spare capacity and watch this space….

(also - apart from the title of the announcement it is clear that this was an re:contract announcement, not a trading statement - PR confusion i think - please don't read too much into this - you are better than that... :) )

alanp211

2nd May '14

Spot on Brokertobroker, I don’t know of too many companies that produce two trading statements in the same month! Do you not think you are being a bit harsh Paul?

Small Cap Value Report (30 Apr 2014) - THT, STY, PLA, SNX, VLX, SPGH

Thorntons (LON:THT)

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Paul Scott

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