Daily Stock Market Report (Tue 25 Feb 2025) - Selling pressure, CMCX, WG., OTB, STAF, JSE, MCB, TTG

Good morning!

1pm: I'm afraid we've run out of time for now!

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Spreadsheet that accompanies this report: updated to 14/2/2025.

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Companies Reporting

Name (Mkt Cap)	RNS	Summary	Our view (Author)
Smith & Nephew (LON:SN.)	Final Results	U/L Rev +5.3%, EPS +1.7%. 2025 targeting +5% rev. growth & improved profit margin
Croda International (LON:CRDA) ((£4.5b)	Final Results	2024 sales -4% (no Covid-19 sales), adj. PBT -16% (£260m). Outlook: adj. PBT £265-295m.
Unite (LON:UTG) (£4.2b)	Final Results	2024 adj. earnings +16% (£214m). Net tangible assets 972p vs 859p share price. Outlook: encouraging.
Lion Finance (LON:BGEO) (£2.4b)	Final Results	Changed name to Lion Finance. Loan book +65.9% year-on-year. Total dividend +12.5%.
CMC Markets (LON:CMCX) (£592m)	Directorate Change	SP -7% (-12% initially) CFO agrees with the Board to step down with immediate effect. He is thanked. Will support an orderly handover.	GREEN (Graham) [no section below] It’s a little unsettling as it’s abrupt and it sounds like he was pushed out, which raises the question as to why. Despite being with the company for c. 20 years, he was only CFO for 18 months. Personally I am not too concerned. My assumption is that it’s a CFO appointment that just didn’t work out entirely as they hoped it would. CMCX shares  are down by 45% from their high and now pass six bullish stock screens.
On Beach group (LON:OTB) (£381m)	AGM TU	Confident in delivering FY25 adj. PBT in line with consensus exps. Transaction value +10% y/y.	GREEN (Graham) Forward PER is less than 12x for a successful online business that has at times in the past been valued at more than £500m. Quality metrics should hopefully improve as profits grow, due to asset light business model. Very interesting candidate for further research.
Victorian Plumbing (LON:VIC) (£302m)	AGM TU	Confident profits will be in line with exps. Rev +5% y/y.
dotDigital (LON:DOTD) (£267m)	Interim Results	Rev +10%. Adj. EBITDA +11%. Momentum continued into H2. On track to meet exps for FY25.
John Wood (LON:WG.) (£257m)	Possible Offer	In cash, but no indicative price given.	PINK (takeover) / RED (high risk) (Mark) Selling themselves to a financially secure bidder solves a lot of the short-term issues, so accepting an offer makes sense. However, the bidder must know this, and their offer, if it comes, will surely reflect this. Without any price indication from either party, we are in the dark.
McBride (LON:MCB) (£248m)	Half-year Report	Flat rev. Adj. EPS +25% to 11.9p. In line for FY earnings. Net debt reduced to £117.6m.	AMBER/GREEN (Graham) Making progress towards a PER of 8x which is roughly where I think it might be trading at fair value. A dividend is planned as the company starts to deploy its vastly improved balance sheet strength.
City of London Investment (LON:CLIG) (£181m)	Half Year Results	FuM $10.1bn as of 31st Jan 2025 (Dec 2023: $9.6bn). H1 adj. PBT $15.2m (H1 LY: $13.3m).
TT electronics (LON:TTG) (£150m)	Update on 2024 Final Results	SP -7% Two week delay to complete audit. Adj. op profit in line. Leverage within target. Goodwill impairment.	BLACK/AMBER (Graham) There's a profit warning for 2025-2026 as the improvement plan at a US site is taking longer than anticipated. The adj. operating margin target is not expected to be achieved in 2026. There are too many complications here for my liking, even if it is very cheap in simple PER terms.
Jadestone Energy (LON:JSE) (£168m)	Trading Update & Production Guidance	2024 production 18,696 boe/d. FY25 guidance 19,000 - 22,500 boe/d. 25-27 FCF $270-360m.	AMBER (Mark - I hold) Production guidance is below my expectations, but an independent report highlights the continued valuation disparity here.
Avation (LON:AVAP) (£97m)	HY Report	Rev +20% to $55.4m, EBITDA +45% to $55.6m, Op Profit +7% to $18.8m, NAV +3.2% to £2.94.	(Mark - I hold) See upcoming Stock Pitch for Mark's analysis of AVAP!
Staffline (LON:STAF) (£32m)	Disposal of PeoplePlus	£6.9m net received incl. £2m deferred consideration.	AMBER (Mark) This looks like a poor price for PeoplePlus at just 3.8x PBT. Putting the money into a buyback should support the price, but I have to question if the balance sheet is really strong enough for this. It looks like reasonable value on FY25 forecasts, though.
Aurrigo International (LON:AURR) (£28m)	Full Year TU	Rev £8.9m (in line), LBITDA £1.9m (better than exps). Well capitalised after the January funding round.

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Graham's Section

On Beach group (LON:OTB)

Up 2% to 241.7p (£389m) - AGM TU - Graham - GREEN

This update is in line.

Please note that OTB’s year-end is in September, so we are being updated on progress since then.

Some key points:

• Total transaction value +10%

• TTV +18% for Winter 24/25, +17% for March-June.

• Summer TTV +19%, and “the current positive booking trends provide the Group with confidence that Summer 25 will be significantly ahead of Summer 24”.

The company-compiled consensus is for adj. PBT of £38.2m this year.

Buyback: 64% of the £25m buyback programme has been completed.

CEO comment:

I am pleased to report double digit Group TTV growth with new and existing customers trusting On the Beach to help them holiday better and reflecting the strength and breadth of our holiday proposition.

I am really excited by the progress we have made following the recent launch of our strategic growth initiatives focused on selling City packages and package holidays from the Republic of Ireland. Demand for Cities has been strong with routes to Amsterdam, Paris and Krakow proving particularly popular with both existing and new customers. Similarly, our first marketing campaign in the Republic of Ireland has generated strong bookings growth across both City and beach…

Graham’s view

Roland has covered this one recently, e.g. in December when he was GREEN (at 194p).

This company has at times been valued at £500m+, both pre-Covid and post-Covid. When that happened in the past, it usually looked overvalued to me.

In more recent years, the share price has been in something of a slump. But its profits are on track to far exceed pre-Covid levels this year. I think the market could give it a bit more credit for its financial recovery.

It’s now trading at a PER of <12x, which in my view is not particularly challenging for a successful online business that's growing market share.

And forecast momentum is positive:

I’m hopeful that OTB’s “asset light, low fixed cost operating model” will see its quality metrics return to their previously very high levels, as its revenues and profits grow. That is the only piece of the jigsaw puzzle that's missing.

I’m therefore happy to leave Roland’s GREEN stance unchanged.

In passing, I should mention that I’ve noticed a lot of strength in the pound against the euro over the past year, as the euro has fallen from 86p to 83p:

There are other factors at play of course but this swing in purchasing power can’t hurt when it comes to UK demand for Euro holidays!

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McBride (LON:MCB)

Up 1.5% to 144.65p (£252m) - Half-year Report - Graham - AMBER/GREEN

McBride, the leading European manufacturer and supplier of private label and contract manufactured products for the domestic household and professional cleaning/hygiene markets, announces its unaudited interim results for the six months ended 31 December 2024 (the 'period').

We already had an H1 trading update that I reported on in December.

Therefore let’s skip ahead to today’s outlook section.

Emphasis added by me:

Full-year earnings on track to be in line with internal expectations

Private label markets expected to maintain higher share penetration as cost-of-living challenges continue

Materials costs mostly stable going into the second half; other inflation remains a headwind

Transformation initiatives maturing over the next twelve months, delivering further benefits

Normalised funding position, providing the Group with optionality for value creation

The “normalised funding position” is key, as MCB survived a debt scare and is now in a far healthier place, with more options now in terms of how it proceeds from here.

Net debt has fallen by a remarkable £28m to £118m (Dec 2023: £146m).

The company reports a “net debt cover ratio” which I would refer to as the leverage multiple. It’s the net debt to EBITDA multiple, as calculated by MCB’s banks.

This leverage multiple is just 0.6x as of Dec 2024, vs. 1.2x as of Dec 2023. Back in June 2023, it was 2.9x.

CEO comment:

McBride today reports excellent half-year results, which are in line with our new elevated financial performance expectations and on track with the medium-term targets outlined at our Capital Markets Day in March 2024. Our divisional teams continue to execute their respective strategies, with all five divisions healthily profitable. These results demonstrate a business delivering a consistently improved performance.

With the Group's prospects in a much healthier position and with a more normalised debt position, the Board recently announced its intention to reinstate an annual dividend, details of which will be communicated at the time of the final results in September 2025.

Estimates

Thanks again to Zeus for publishing on MCB.

They upgraded their forecasts in January and make no change today. Forecasts for the current year (FY June 2025) include revenue of £952m, adj. EBITDA of £84m, and adj. PBT of £49m.

These forecasts suggest a modest reduction in profitability this year, due to higher costs, before hopefully returning to profit growth in subsequent financial years.

Graham’s view

I suggested previously that a fair price for this would involve a high single-digit P/E multiple.

Normally I would put manufacturers of commoditised products on very low PERs (e.g. 5x). MCB arguably deserves better that that, due to:

• Strong positioning in private label during a time of cost-of-living pressures.

• Very high ROCE both according to Stockopedia (35%) and itself (35%).

• Transformation programme with an ambition to deliver £50m of benefits over five years - we can’t blindly trust this but even partial success could be of great benefit.

So in my mind, a PER in the high single-digits makes sense. In principle, that’s fair for a manufacturer of cheap cleaning products that’s performing very well, appears to have good prospects and has improved its balance sheet, while still carrying net debt.

Zeus also put a price target on this (180p) that represented a PER of 8x.

It is getting there:

Please note that despite the dividend yield shown above, no dividend has been proposed or paid yet, not since the year 2020. But a dividend is expected later this year.

Sometimes a dividend announcement can be a catalyst for a positive share price reaction. In this case, I expect that the market has already gone a long way towards pricing in the dividend announcement, as it has been flagged well in advance and the brokers are forecasting it.

At 180p-200p I’d be tempted to switch back to a neutral stance.

For now I can remain moderately positive.

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TT electronics (LON:TTG)

Down 7% to 78p (£138m) - Update on 2024 Final Results - Graham - AMBER

It’s remarkable that TTG rejected a bid at 140p from Volex (LON:VLX). According to the TTG Board, they also received and rejected an all-cash bid from someone else “at a significantly higher value” than the Volex bid.

And here we are with the share price at just 78p.

I was previously bullish on TTG, but I turned neutral on it last September after a major profit warning rocked my confidence in management. There were “operational efficiency issues” which forced me to question my positive view on the company.

Today we learn of a delay to the results:

TT Electronics plc ("TT", "the Group"), a global engineer and manufacturer of electronic solutions for critical applications, announces a delay of up to two weeks to the release of its final results for the year ended 31 December 2024 due to additional time required to complete the audit.

Results were previously scheduled for March 4th.

A bit like an abrupt CFO resignation, delayed accounts can be interpreted as a (potentially serious) sign that all is not well. For example, a delay can in theory result from too much complexity in an organisation, issues with record-keeping, management unhappiness with the results, etc.

New CFO

TTG’s CFO was due to step down on March 4th. His replacement has already been lined up.

This change will also be pushed back by two weeks.

I note that the new CFO was most recently the CFO at Ceres Power Holdings (LON:CWR). He stepped down from that role last September “to pursue other interests”. I turned negative on CWR last week due to concerns relating to its cash burn - hopefully I don’t need to turn negative on TTG for some time!

2024 results in line

We get confirmation that 2024 adj. operating profit is expected to be in line, and that leverage is within the target range 1-2x.

According to the Nov 2024 trading update, FY24 adj. operating profit was expected to be at the lower end of the range, £37-42m.

Less positively:

In light of the previously disclosed downturn in components demand and operational execution challenges in North America there is likely to be a non-cash accounting impairment of goodwill and fixed assets for the region of up to £35 million as well as a prior year results adjustment of up to £6 million in relation to the Cleveland site

Impairments and prior year adjustments are the type of thing that can delay results.

2025 outlook - profit warning

We continue to expect good adjusted operating profit progress relative to 2024 but expect the outturn to be in the range of £40 million to £46 million. The improvement plan for Cleveland is underway but the benefits will take longer to realise than originally anticipated. We continue to drive our action plans to work towards our medium term 12% adjusted operating margin target, however we now do not expect this to be delivered in 2026.

Graham’s view

Even at the lower end of the 2025 forecast earnings range, this is very cheap.

Stockopedia’s valuation metrics are all very green:

So it’s very tempting for me to resume my positivity on this. Especially considering that other companies were willing to pay 140p per share (and more) for it.

However, I feel unable to turn positive on it yet.

The prior profit warning, as I’ve already mentioned, shook my confidence in management.

Remediation of the problems which caused that profit warning are ongoing - the problems have not been fixed.

Similarly, expectations for profit margins to improve towards a new target have also been pushed back.

And now we have a delay to the results, as a new CFO waits to take the hot seat.

The only major bright spot is that leverage is within the target range. But I wonder how close it might be to 2x, the upper end of that range? We’ll have to wait and see.

I do think this share is intriguing at this valuation, and could be worth looking into in further detail. But I can’t quite force myself to take a positive stance on it. There are just too many complications for my liking.

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Mark's Section

Selling Pressure on Small Caps

Yesterday seemed an unusually weak day for smaller caps, and AIM in particular. The AIM All Share was down 1%:

This is a reasonable amount but not out of the ordinary. However, several individual stocks have been more badly hit. For example, Renold (LON:RNO) fell 5.5%:

I’m no great chartist, but the drop below a psychologically important 40p level on increasing volume is perhaps portentous of more downside to come:

All this may be just noise, but it suggests to me that a fund somewhere is a keen seller. In illiquid markets, this can severely hit share prices in the short term. I wrote about the impact that such fund wind-downs could have here. At the time, the risk was that Miton UK Microcap Trust (LON:MINI) would be forced to wind down. This has now been announced, although shareholders can move their holding to an open-ended equivalent, which means that not all these positions will hit the market:

Shareholders will have the option to roll over their investment into shares in the Premier Miton UK Smaller Companies Fund, an FCA authorised open-ended investment company with assets of approximately £45.3 million (which is expected to be the default option), and/or receive a cash exit. This proposal follows shareholder feedback in support of the investment manager and will allow Shareholders to retain exposure to a small and micro cap strategy.

Here are their top 20 holdings from the January fact sheet:

Another factor impacting the UK closed-end fund market is that the US hedge fund Saba Capital has been targeting funds for wind-down. The latest one is Herald Investment Trust (LON:HRI) , where Saba owns 29.1%. While resolutions to replace the manager there recently failed, the trust is warning that they could be facing a negative outcome from an upcoming continuation vote if other shareholders don’t vote.

All this means we could be seeing further forced selling in smaller companies. This doesn’t change the fundamental value of the businesses and actually creates opportunities for those with capital to deploy and a long-term investing horizon. However, it can make for tricky markets to navigate when holdings drop for what appears to be no reason.

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John Wood (LON:WG.)

Up 9% to 40p - Possible Offer - PINK (takeover) / RED (high risk)

Yesterday afternoon, the FT ran an article titled “Embattled Wood Group enters takeover talks with UAE’s Sidara”. The company responded by saying it:

…confirms that it has received an approach from Dar Al-Handasah Consultants Shair and Partners Holdings Ltd ("Sidara") in relation to a possible offer for the entire issued and to be issued share capital of the Company (the "Proposal ").

Which was then confirmed by Sidara:

Sidara notes the recent announcement by Wood and confirms that Sidara made a preliminary approach to the Board of Wood regarding a possible cash offer for the entire issued share capital of Wood.

Importantly, Sidara also confirmed that they are not bound by restrictions on making an offer after their previously aborted attempt:

Sidara is no longer bound by the restrictions under Rule 2.8 of the Code that were in place following its announcement on 5 August 2024 that it did not intend to make a firm offer for Wood.

During the previous offer period, Sidara made four proposals, and 230p was enough to get the board to open the books. However, shortly after they completed due diligence, Sidara announced they would not make an offer, citing "rising geopolitical risks and financial market uncertainty".

They may well have spotted the onerous contracts that have caused the share price to collapse, too! However, the 23p the shares were trading at prior to this news is a bit of a different proposition from 230p. So I can easily see why Sidara is back. I can also see why the board would consider an offer at what will no doubt be a fraction of the price previously discussed. After all, this is what Graham said less than two weeks ago:

Totally uninvestable. Admits it has problems with its financial culture. Terrible balance sheet, debts expiring next year. Needs to fix a range of problems before I'd consider changing my stance.

Selling themselves to someone more financially secure goes a long way to solving their short-term issues. However, Sidara must also be aware of this, and an offer, if it comes, will no doubt reflect this.

Mark’s view

Fundamentally, this doesn’t change the underlying nature of the business. So, as a rating on Wood Group themselves, this remains a RED. However, the rationale for selling themselves to Sidara seems compelling, and I can easily see an offer being made. I have no idea what level it could be at or whether it will be recommended, though. This makes it a special situation, and investors will need to do their own probabilistic assessment of the various possible outcomes to determine if the shares are worth buying/selling/holding at 40p. I wrote an article on how to do that here.

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Staffline (LON:STAF)

Up 15% to 27.5p - Sale of PeoplePlus - Mark - AMBER

This is a major shake-up for this blue-collar staffing business as they sell the training part of the company. This has been underperforming for several years now and was one of the major factors in the most recent profits warning earlier this month when they said:

PeoplePlus faces challenges due to prolonged delays in public sector bid announcements, which will weigh on short-term results.

At the time, Zeus took 28% out of PBT forecasts for FY25 and reduced FY26 by a whopping 38%. Despite this, the shares rose as the market perhaps saw this as the low point and the end of the downgrade cycle. This makes it a strange time to be selling this division. After all, they are not getting much for it. The headline figure of £12m, quickly gets reduced by the adjustments:

The consideration is on a cash free, debt free basis and subject to a deduction of £5.1m of advanced payments received in respect of future revenue. The net proceeds of the Disposal (including the deferred consideration) are expected to be £6.9m. The £2.0m of deferred consideration is contingent on the commencement of potential new contracts expected to take place within the next 12 months.

So that is £4.9m cash today for a business that despite underperforming expectations had the following unaudited results:

For FY 2024, PeoplePlus contributed approximately £65m* of revenues to the Group and generated profit before tax of approximately £1.3m*, with gross assets of c.£16m*ᶧ at 31 December 2024.

That works out to be 0.08 P/S and just 3.8xPBT. The asset side is complicated by an intercompany debtor balance of £23.4m. Looking at previous subsidiary accounts, this appears to be at least partially due to money paid upfront to PeoplePlus that they lent to the parent. Either way, it seems hard to argue that Staffline got a great price for this business.

The cash they will recieve, and more, is being used on a sizable buyback up to a maximum of £7.5m. This would be around 18% of the market cap at current prices. The size of this appears to be why the market has bid the price of the stock up this morning. Their broker, Zeus, say:

We adjust forecasts for the disposal and share buyback, with the net impact being a 2.3%

increase to underlying diluted EPS in FY25 and 12.1% increase in FY26.

However, these are nowhere near the magnitude of the recent downgrades. The company reports net cash in the recent trading update:

And forecasts for net cash are actually reduced by Zeus in their latest note, presumably as the buyback is for more than the cash proceeds. However, the forecast of £5.5m of net interest costs shows that this doesn’t represent the true underlying picture. Instead, there is off-balance sheet debt as they have factored receivables on a non-recourse basis. At the half year, they had net debt, with on balance sheet working capital roughly equal. The net cash reported at 31st December is likely to be reflected by a negative working capital position. So I struggle to see this as a strong balance sheet. In the past, any issues, such as adverse minimum wage judgements, have seen them have to raise equity from the market.

This means that the argument by the brokers that we should value this on an EV basis looks spurious to me. However, looking at the P/E, a forward figure 8 looks reasonable value if you believe the downgrade cycle is over.

Mark’s view

A buyback of this size should support the share price in the short term, but it also increases the risk. The net cash they report is almost certainly at the expense of maintaining a negative working capital position. The price they got for PeoplePlus looks underwhelming. However, if the forecasts are accurate, this isn’t expensive. I find it hard to get excited by this type of business, hence I’m neutral overall. AMBER

Jadestone Energy (LON:JSE)

Down 6% to 29p - Trading Update - Mark (I hold) - AMBER

Production comes in line with previous guidance, and is a decent uplift versus the previous year:

2024 average production of 18,696 boe/d, a year-on-year increase of 35% (2023: 13,813 boe/d).

However, the company had previously said that they expect production at the lower end of 18.5-21kboepd. So while no further miss will come as some relief to embattled shareholders (of which I am one), this should be viewed in that context. However, I am a little underwhelmed by the forward production guidance:

Production: 19,000 - 22,500 boe/d

Bear in mind that the company previously reported:

During October 2024, average daily Group production was over 22,000 boe/d and for various periods reached a record in excess of c.24,000 boe/d as Akatara intermittently achieved its daily contract quantity rate of c.20mmscf/d.

Some of this will be due to the natural decline of mature fields and planned shutdowns for maintenance, but it is disappointing to see them guide below the previous production rate without Akatara at full daily contract. This may be the new management making sure they finally under-promise an over-deliver, but until we get some actual 2025 production numbers, this is hard to judge.

Things are better on the cost front, with OPEX guided in line with FY24 despite increased production and, having taken on $100m or so of net debt in order to develop Akatara, capex is guided to be much lower and is focussed on the Skua-11 sidetrack in Q2 which will increase Montara production. So the good news is that the financial situation should be transformed:

Based on an US$70-80/bbl Brent oil price range, the Group expects to deliver c.US$270-360 million of free cash flow (pre debt servicing) over the 2025-2027 period…

The 2P reserves are valued by ERCE at US$799 million, or an implied per share value of 102 GBp after deducting the Group's year-end 2024 net debt position of US$104.8 million.

While it would be nice to see more details, and I question whether a discount rate of 10% adequately covers the risk of oil production, this suggests that the shares remain undervalued on a DCF basis.

Mark’s view

This is a bad news/good news update, with production guidance below my expectations, but confirmation of the continued transformation of the finances of the business. I retain my AMBER rating until there are signs that these forecast production figures are conservative or the forecast prodigious cash flow starts to flow back to shareholders.