Small Cap Report (25 Apr) - DIA, NBB, HNT, STY, WAND, BAE

Very late comments

I apologise for being late today, slept through my alarm, due to a very enjoyable evening at the inaugural Small Cap Awards at BAFTA on Piccadilly, or as Siri (on my iPhone) interpreted as "bath tub" when I needed directions there. Do I have a northern accent?! Maybe Apple should engage the voice recognition services of Eckoh, for more accurate results?!

Sadly, I didn't win "small cap analyst of the year", it went to George O'Connor of Panmure Gordon, who by all accounts was a very worthy winner, so congratulations to him. I was thrilled just to have made it as far as the final shortlist of three (the other being Simon Thompson of Investors Chronicle), so in my view the shortlist was well chosen in having one City person, one journalist, and one blogger, which reflects the new reality.

Also it was great to chat to many interesting & colourful characters from the small cap world!

 

There are lots of trading statements and results today, so I'll stagger through the wreckage and see how far we get before I need to lie down in a darkened room and take an alka seltzer.

 

Not a small cap, but £400m market cap Dialight (LON:DIA) reports upbeat trading - which they need to, to justify the historic PER of 30, which falls to 23 times for 2013 estimates, and 18 times for 2014 estimates. The growth is coming from LED lighting. This is a Mark Slater stock, and have today confirmed their confidence in meeting full year expectations.

 

Norman Broadbent (LON:NBB) is a £4.5m market cap recruitment company which I've not heard of before, but am tentatively looking at sub-£10m market cap companies, because the risk of de-Listing seems to be receding, at least for companies which are profitable.

It's funny how the same names pop up at new companies, and I note that their Chairman is Pierce Casey, who I met years ago when he was Chairman at IT distributor, Fayrewood. He sticks in my memory because he behaved very oddly in a results presentation years ago, and we found out why shortly afterwards - he had sold all his shares, and made it perfectly obvious from his body language that he didn't give a damn about the company! Things like that stick in your mind.

Anyway, NBB report turnover up about 10% to £7.6m, and profits flat at £0.3m. I don't normally bother with anything making less than £1m p.a. profit. I would expect Casey to do deals to grow this company though, that's what he does, so it could be one to watch.

 

 Shares in Huntsworth (LON:HNT) have shot up 18% today to 62p, on the back of results for calendar 2012 issued today.

They describe themselves as a "global public relations and healthcare communications group". Revenues are flat at £173m, but profit is up 17% to £22.5m. That's a pretty good profit margin. Diluted EPS is up 11% to 6.9p, and the full year dividend is flat at 3.5p. At 62p that looks like a PER of about 9, and a 5% divi yield, which looks good value at first glance. I wonder how much debt they have? Ah, here's the catch! They have £67m in net debt, which is almost half the market cap. So it doesn't look good value any more.

 

Styles and Wood (LON:STY) shares are down 13% to 7.6p, a market cap of only around £5m. We met the company at a Mello Central investor evening some time ago, I think it was last year. They're a very low margin shop-fitting company.

They made £2.5m operating profit on turnover of £98m, so I was beginning to get excited by a market cap of only £5m, which looks amazingly cheap, but of course there had to be a catch, which I've just found. There are £10.4m of preference shares on the balance sheet, and about two thirds of the profits go to pay interest on those. Also they have warned on profits for 2013. So moving swiftly on ...

 

WANdisco (LON:WAND) results look dreadful, a $6m operating loss on $6m turnover. The market cap is around £165m. I don't know what they do, but clearly there are high hopes for the future amongst investors.

 

CEO interviews

As an aside, I've found that CEO interviews are so useful, that I've decided to do a series of them myself, with interesting value & GARP small caps.

Regulars might recall that myself & renowned small cap investor (and all round good bloke!) David Stredder  did a video interview last year with the Chairman of Plastics Capital (LON:PLA).  It's a bit of a palava doing a video, so I'm going to trial some audio interviews, similar to the excellent format pioneered by BRR Media.

So far I've invited two companies to participate, and both seemed interested, so more to follow on that in the not too distant future hopefully. My focus will be on good solid companies with interesting growth prospects, and I'm not going to charge for the first couple, as it's more about getting useful info out there to the investing community, rather than trying to make a profit.

 

Beale (LON:BAE) looks to me like a throwback from the 1970s, a small department store group, which has always looked precarious. However, they are getting a shot in the arm from the potential disposal of their Tonbridge store to Sainsburys, for £4m in total by the looks of it.