Small Cap Value Report (Thu 30 Mar 2017) - TRAK, TET, AO., CARR, TIDE

Thursday, Mar 30 2017 by
72

Good morning! It's Paul here.

Both Graham and myself are busy preparing for various talks we're doing at the UK Investor Show this Saturday. I'm nervous, but excited, about the main stage slot I'm doing - I'll be interviewing Nigel Wray and veteran fund manager Paul Mumford.

Also, I (perhaps foolishly!) agreed to myself being interviewed by Tom Winnifrith. So I feel a bit like a lamb to the slaughter!

I think he wants to beat me up about Trakm8 Holdings (LON:TRAK) - although of course my bullish view on that stock in early to mid 2016 turned neutral/bearish once the company began issuing more negative updates in later 2016. I think it's probably over the worst now, and personally I went back into TRAK recently, in the 65p placing. The company has had a few mishaps, but it's got good & growing recurring revenues. So once the delays & problems associated with new product launches have been resolved, it might conceivably get back on track, who knows?

So I need to spend this afternoon, and most of tomorrow, getting up to speed with the facts, which I can hurl back at Mr Winnifrith. I'm trying to visualise myself as Margaret Thatcher, at the dispatch box. With Tom W being Neil Kinnock, or even better, Michael Foot, floundering in my wake, sinking under the weight of facts & figures being thrown at them!




Treatt (LON:TET)

Share price: 369p (up 3.4% today, at 10:48)
No. shares: 51.8m
Market cap: £191.1m

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

Trading update - for H1, the 6 months ending tomorrow, 31 Mar 2017.

You might recall that this food & drink ingredients company issued a very strong update on 23 Feb 2017, which I reported on here. That report is worth revisiting, as I also included a couple of useful links to audio/video content which readers had found & passed on to me. On the back of all that positive information, I added this company to my personal portfolio.

What's interesting, is that companies which release very positive trading updates often continue rising in price in the days/weeks/months after the initial surge in price. Mark Minervini mentions this in one of the many nuggets of gold in his book, How To Trade Like a Stock…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Treatt PLC is a United Kingdom-based ingredients manufacturer and solutions provider to the flavor, fragrance and consumer goods markets. The Company's geographical segments include United Kingdom, Rest of Europe, The Americas and Rest of the World. The Company's products include Essential oils, Citrus, Treattarome, Functional ingredients, Chemicals, Organic essential oils, Vegetable oils and Treatt brew solutions. Its Essential oils include Amyris Oil, Angelica Oil and Aniseed Oil. Treattarome products include Pineapple Treattarome, Honey Treattarome and Cucumber Treattarome. Its Citrus products include citrus oils, CitrustT, TreattZest and Citrus add-back range. Its Functional ingredients include beverage specialties, fragrance ingredients and sugar reduction products. Its chemicals include aroma chemicals, natural chemicals and Treatt Flavour Wheel. Its Vegetable oils include Borage Oil and Baobab oil. Its organic essential oils include Organic Aniseed Oil and Organic Lime Oil. more »

LSE Price
396.5p
Change
-0.3%
Mkt Cap (£m)
205.7
P/E (fwd)
20.6
Yield (fwd)
1.4

AO World Plc is an online retailer of electrical products. The Company operates through two segments: online retailing of domestic appliances to customers in the UK, and online retailing of domestic appliances to customers in Europe (excluding the United Kingdom). The Company offers over 5,500 stock keeping units (SKUs) in the United Kingdom, approximately 2,000 in Germany and over 600 in the Netherlands. The Company offers a range of ancillary services, such as customer finance options, an unpack and recycle service, product care packs, and disposal and connection services. In the United Kingdom, the Company operates in approximately three categories: Major Domestic Appliances (MDA), Small Domestic Appliances (SDA) and Audio Visual (AV). The MDA market offers built-in appliances, such as dishwashers. The SDA market comprises small appliances, food preparation and floor care. The AV market includes television, audio, set-top boxes, digital versatile disc (DVD) and Blu-Ray players. more »

LSE Price
135p
Change
 
Mkt Cap (£m)
619.4
P/E (fwd)
n/a
Yield (fwd)
n/a

Carr's Group plc is engaged in the agriculture and engineering activities. The Company's segments are Agriculture and Engineering. The Agriculture segment includes the sale of animal feed and feed blocks together with retail sales of farm equipment, fuels and farm consumables. The Engineering segment includes the design and manufacture of bespoke equipment for use in nuclear, oil and gas, and petrochemical industries. Its products include manipulators, robotics, specialist fabrication and precision machining. The Company's agriculture division develops and supplies a range of branded animal nutrition products into the livestock industries, as well as services the United Kingdom farming and rural communities through a network of retail stores and fuel businesses with manufacturing locations in the United States, United Kingdom and Europe. It is focused on the design and manufacture of pressure vessels and steel fabrications. more »

LSE Price
142.13p
Change
2.6%
Mkt Cap (£m)
129.9
P/E (fwd)
14.0
Yield (fwd)
2.8



  Is Treatt fundamentally strong or weak? Find out More »


39 Comments on this Article show/hide all

cic 30th Mar 20 of 39
1

Paul, in post 5 you say pension liability is "much safer debt to have than a bank loan". I can see why that is true, in a sense, as it is very long term and cannot be called in. However, in another sense, in the long term it seems to me that it is more risky. When the pension is reviewed the liability could unpredictably increase (or decrease) giving an accounting hit (or boost) in the year. Since few companies are accepting new entrants into defined benefit schemes in the very long term it will all come out in the wash, but there could be risky effects in the meantime. I find understanding this topic difficult and would be really interested if know of a digestible discussion of the issues somewhere. Looking forward to the battle on Saturday - my money is on you, Paul.

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aflash 30th Mar 21 of 39
1

In reply to Paul Scott, post #8

Paul,

Let Tom Winniwith attack himself. Just use one liners; 'That's innaccurate'..'I do n't agree' etc. Avoid launching into long explanations. He has an advantage in his punchy verbal style. You do not. Practice in front of a mirror. You have the facts, do not worry.
There is a big difference in the styles. His written style is crude and without subtlety. Yours constantly surprises all of us with the imaginative use of words and vocabulary which is unusual for a numbers person.
His verbal style is so good that what he says remains with us long after the event. You are respectful and hesitant. This time please change. You cannot imitate him, just parry his blows and he will tie himself in knots.
Hope this helps.

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porban 30th Mar 22 of 39
1

Hi Paul

TW chat. Enjoy it - you are his guest and you don't have anything to prove/case to answer. Additionally, you are an engaging and interesting public speaker so why would TW want to "catch you out"? It would reflect badly on him in front of 5000 people (no pressure then LOL). He has more to lose than you if his session (at his trademark event) fell flat. He will also have tickets to sell for the next UK Investor Show 2018 so he cannot lose face.

Of course, if he was interviewing Amit Ben Haim of Cloudtag fame instead, his style would be somewhat different!

Good luck and hope to share a little time and a beer with you, in leiu of all the sound investing advice you freely offer!
Peter

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shipoffrogs 30th Mar 23 of 39

In reply to cic, post #20

The issue with pension liabilities is not so much whether they are safer than bank loans, it's more that the amount of the bank loan is quantifiable - the pension liability is an estimate based on inputs which are constantly jumping about.

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JohnEustace 30th Mar 24 of 39

Paul,
Thanks for highlighting Crimson Tide (LON:TIDE). It looks interesting to me given it's self financing it's expansion in a controlled way with strong finances and an attractive PEG. It's not a company I would have come across without your work but I think I'll open a small position.
I'll be cheering you on on Saturday. Focus on the positives. We all make mistakes, it's the overall return that matters.

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Tanglands 30th Mar 25 of 39
1

DB schemes are a nightmare to value in terms of the liability due, as other have said, to the variables. However some of those variables are relatively stable, longevity for instance. Others are harder, investment performance and the big one, discount rate. One of the reasons why there are so many pensions in deficit is that the discount rate that is forced to be used is so low which is a reflection of current interest rates. If you believe that over time(define what!) rates will rise and if you believe that when they do this will not negatively impact on investment performance, over time, then the pension defect, in some cases, literally disappears, do that with bank debt! The short term challenge is the legal responsibilities of trustees and the rightly aggressive stance taken by a regulator, both of which need to deal with the here and now not the possible/probable of rising discount rates and potentially stable investment returns. Those funds that are heavily invested in bonds do not of course get the same benefit from a movement in interest rates. That is why looking at how the fund is invested, usually a note at the back of the accounts, can impact on your view as to the company's ability to "lose" the deficit. My personal view, which I think I have read Paul share something similar, on a few occasions, is that if the company can cover the current required cash contribution cost then over time the impact of rising rates will be of huge value in reducing some deficits. I am not saying buy companies with them but don't not buy a good one, because they exist.

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ganthorpe 30th Mar 26 of 39

Treatt deal in commodities which can be cyclical (e,g,.when their essencies fell in price in 2011) Not just a straight buy/sell operation..

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seadoc 30th Mar 27 of 39

In reply to ganthorpe, post #26

Like diamonds and gold? Not that I invest in either but I have done well with miners (of coal)  in the past.

Seadoc

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iwright7 30th Mar 28 of 39
1

In reply to ganthorpe, post #26

Ganthorpe,

If you study what Treatt (LON:TET) do you will see that they buy in commodities and make most of their money from "added value" highly skilled  distillation/fractionation  - Anyone for Water Melon Essence? http://treattbrewsolutions.com/how-do-we-make-them...

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Cleeve 31st Mar 29 of 39

Have held treatt for over 3 years and it is up 430% it's a great share which you can put away and forget about, that figure does not include dividends. Paul did ask you on twitter but you may have missed it any thoughts on twitter I can't work out if its a buy or a falling knife. Are you reporting on avation and fair point as the reports show them listed but can't see the reports. Good luck this weekend am sure there will not be too many more interesting speakers are you being filmed?

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herbie47 31st Mar 30 of 39

In reply to Cleeve, post #29

For discussion on shares just go onto the Stockreport page and click on discuss then it will come up with all the posts: http://www.stockopedia.com/share-prices/fairpoint-LON:FRP/discussion/

Paul's last report on Fairpoint (LON:FRP) was in Demember 2016.

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FREng 31st Mar 31 of 39
3

Another company that has risen on successive good news is SCISYS (LON:SSY) (I'm long). Their results a couple of days ago are excellent - all divisions going well and their latest acquisition is already adding value. The directors are a conservative team and responded very well to the contract problem two years ago that led to a profit warning (I had the opportunity to grill them about it at an investor lunch). I expect them to keep rising steadily from here - they are in a good sector of the IT market, with their established strengths and IP in the space and media secors especially.

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sminers 31st Mar 32 of 39
1

You can ask TW about today's allegations if he starts acting up!

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deucetoace 31st Mar 33 of 39

In reply to FREng, post #31

I agree re SSY & bought some yesterday. A forward PE of 10 is rare in the current market especially when combined with a growing business which is paying a dividend. Looks much too cheap to me.

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FREng 31st Mar 34 of 39
2

In reply to deucetoace, post #33

Skockopedia's computers appear to agree.

QR 72, VR 83, Momentum 82, StockRank 94

The price graph since the profit warning is a classic. Once the pre-warning price was reached again, SCISYS (LON:SSY) just continued up.

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Cleeve 31st Mar 35 of 39

In reply to herbie47, post #30

Hi herbie. Thanks but if you look st the reports from around 3 days ago fair point is in the title i.e. Stocks being covered but there is no coverage, same wit avation from a few weeks ago

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herbie47 31st Mar 36 of 39
1

In reply to Cleeve, post #35

Sometimes Paul is too busy to complete all the intended reports, I think he said yesterday he has a backlog that he will try to clear but he is busy doing interviews etc. so it may not happen.

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Paul Scott 1st Apr 37 of 39
3

In reply to herbie47, post #30

Re Fairpoint (LON:FRP) - I've not had time to look at it, and don't really want to.
I think it's rubbish, and has failed, so why waste any more time on it?

Time is limited, so for me, it's best to focus on decent, quality, expanding companies, not get bogged down in failures.

Regards, Paul.

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Paul Scott 1st Apr 38 of 39
1

In reply to FREng, post #31

Hi FREng,

Yes indeed, results from SCISYS (LON:SSY) look really good. A nice company, and I've met management a few times. There's value in that company I think. Not one I currently hold, but good. Although a bit accident-prone perhaps re contracts?

Regards, Paul.

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Paul Scott 1st Apr 39 of 39
4

In reply to Cleeve, post #35

Hi Cleeve,

I know, sorry about that. I've been trying to find efficiencies in writing the reports, so started putting all the tickers in the header at the start, but then it goes wrong when there isn't time to finish everything. Will go back to the old system. Sorry for any inconvenience.

You wouldn't believe how busy & chaotic my days are. I'm pulled from pillar to post all the time, with hundreds of emails & messages every day, wanting me to do this & do that, and I try to please everyone, but it's often rather overwhelming.

Plus I have other roles, such as managing my own portfolio, and being a NED for several smaller private companies, which can quickly descend into a nightmare when problems emerge.

So all in all, am doing the best I can! And of course Graham's a huge benefit too, helping considerably.

Regards, Paul.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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