Small Cap Value Report (24 August 2016) - CALL, LTHM, HEAD

Good afternoon!

We're having glorious weather in the mornings here in Greece, but thunderstorms in the afternoons/evenings. Therefore I decided to reverse my schedule today, and sunbathe/swim this morning, then write a report this afternoon.

So apologies for this report being a little later than usual. It should be finished by 3pm UK time, so please refresh this page later.

Exchange rates

I'm intrigued to see that sterling appears to be recovering some of its referendum-related losses. To my mind that makes sense, so I've been long of cable (£ vs $US), once it became clear that economic armageddon was actually not going to happen any time soon (if at all).

It's worth monitoring the key exchange rates for UK companies (i.e. £:$US, and £:Euro), because that will affect earnings for lots of companies. Maybe some of the recent share price movements triggered by weak sterling could reverse somewhat?

Cloudcall (LON:CALL)

Share price: 58p (down 2.5% today)
No. shares: 20.1m (after Placing, and additional EIS/VCT placing)
Market cap: £11.7m

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

Result of General Meeting - this is nothing more than a formality really - to approve the issue of placing shares. However, it's always worth reading all RNSs, as sometimes there can be an interesting nugget of information contained within.

So this comment is worth mentioning;

Peter Simmonds, Chairman of CloudCall, commented: "We are delighted with the institutional support we have seen in undertaking this transaction.

We believe we are at an inflection point where the additional funding will enable us to capitalise on the strong pipeline of opportunities that exist by increasing our sales and marketing capacity, particularly in the US where we are seeking to leverage our important relationship with Bullhorn."

I think this is important, because Peter Simmonds has considerable credibility - being a relatively recently appointed, and independent Chairman. He is also credited with having steadied the ship, and helped management focus properly with some important strategic improvements. His track record at dotDigital (LON:DOTD) is of course, excellent. So a credible figure.

Also, I've spoken to a couple of larger institutional shareholders at this company, and have been quite surprised at how bullish they are about the company's prospects. There's a gulf between bullish institutions, and generally exasperated private shareholders.

This company has repeatedly disappointed to date, but I think the most recent, well supported fundraising, indicates that the big holders now believe this is going to work. Otherwise they would have demanded another deep discount, instead of paying up the full current share price.

So I reckon this share could see a turnaround in sentiment, if the company does indeed achieve accelerated growth from the partnership with Bullhorn. This is probably my last significant (for me) investment in a jam tomorrow share, as they practically all disappoint, and I'm nursing heavy losses here. That said, if you get the timing right, with the odd one, they can work. Overall though, jam tomorrow shares are a mug's game.

James Latham (LON:LTHM)

Share price: 660p (down 2.2% today)
No. shares: 19.6m
Market cap: £129.4m

AGM statement (trading update) - a fair bit of useful information in this update today;

Revenue for the first four months of the current financial year, namely April to July 2016, is 3% higher than the same period last year. This is largely the result of product mix but also higher volumes traded, with more orders delivered from our warehouses.

Margins are higher than for the same period last year, although slightly down on the quarter ended 31 March 2016.

Overall the Company is trading in line with full year market expectations.

The trading environment remains competitive, and activity show signs of slowing for both for timber and panels, however we continue to see growth in the newer product lines that we have taken on.

Bad debts continue at a low level.

Since the year end we have completed the purchase of a new site in Yate at a cost of £5.2m. Fitting out is expected to cost an additional £1.2m and we expect to relocate into this site by June 2017.

We are also in negotiations for a site for the relocation of our Wigston warehouse.

We have increased our capacity to meet growing demand for our specialist panels with further investment in racking at Hemel Hempstead.

The outlook remains uncertain but our wide spread of customers and strong balance sheet means that we are well placed to take advantage of opportunities.

My opinion - overall I read the above as neutral. Trading in line for the current year, but mention of competitive pressures, and uncertain outlook.

It's got a fantastic balance sheet, and overall it's a company I like - as a steady, well-managed, good long-term investment. It's not currently one I hold - was waiting for a better price to nip in and buy some post-referendum, but sadly it didn't fall as much as I was hoping.

A couple of quickies:

Headlam (LON:HEAD) - I had a quick skim of their interim results this morning, and they look good, with PBT up 22.4% for the 6m to 30 Jun 2016. So this is just to flag that the company might be worth a closer look perhaps?

There's a very good dividend yield too, of c.5%.

Net funds of £33.9m. The balance sheet looks strong - a nice surplus on working capital. There's a small pension deficit.

Also, the outlook comments sound good;

It is pleasing to report further progress during the first half of 2016, reflecting the continued outperformance of our UK business, an improving trend in our Continental Europe businesses and the ongoing delivery of our strategy to increase market share.

August is traditionally one of the group's peak trading months in the UK with the annual summer refurbishment of educational institutions.  To date, this seasonal business seems to have been unaffected by the result of June's referendum on EU membership.

However, the referendum result gave rise to a weakening in sterling, and the group has sought to mitigate this adverse inflationary effect by implementing price increases earlier this month for residential floorcoverings imported from Continental Europe.  It is pleasing that these price increases appear to have had no adverse impact on the level of residential revenues to date.

Our market appears to be robust and, subject to the key trading period in the run-up to Christmas, the board remains confident of achieving full year expectations.

Overall - looks interesting.

OK, I have to leave it there for today.

I see that Molins (LON:MLIN) and Bioquell (LON:BQE) have both reported today, and have fallen 13% and 9% respectively, but can't motivate myself to look into them.

Regards, Paul.

(usual disclaimers apply)