Small Cap Report (1 May) - ASY, HAYT, SNX, SPGH, RNO, EGX

Very late comments

Please accept my apologies for being so late with today's report. I've been travelling home, and finally have got a spare few minutes to review today's small cap trading statements and results.

Andrews Sykes (LON:ASY) is a wonderful business that I've followed for many years, and used to hold shares in. It's a niche hire products business (including pumps and aircon), and generates wonderful cashflow every year, with good dividends being paid over the years (it's paid special divis every now & again too).

The main drawback is that 89% of the shares are held directly or indirectly by the Directors! So to many people that will make it uninvestable, but to me I would consider it because they have never behaved in a way which has harmed minority shareholders - who in fact have done quite well along the way.

Their results for the year ended 31 Dec 2012 are superb, although boosted by some one-off sales re the Olympics. It generated 26.4p basic & diluted EPS, so at 223p the shares are on a bargain rating of 8.4 times. The balance sheet is also ungeared (unusual for a hire business), and their depreciation policies have proven to be conservative in the past. It's just a cracking business, and if you can live with the ownership issue is well worth considering as a long term holding.

If the ownership was more conventionally diversified, then I think this would probably be on a PER of 12-15, so that implies a share price of 317-396p. So at 223p there is a deep discount (perhaps too large?) for the ownership issue.

 

A positive-sounding trading update from Hayward Tyler (LON:HAYT) has put their shares up 10% to 30p today. Management presented to a group of us at a Mello Central evening last year, and didn't create the best of impressions I think it's fair to say. There were some question marks over a rescue refinancing in the past, where a major shareholder had inexplicably injected fresh equity at a premium to the then share price. We didn't really get to the bottom of that at the meeting.

They still have too much debt, but it has fallen 12% to £8.5m. I might put this on my watch list. I do recall being impressed by their niche products - which are specialised pumps for the electricity generation market, and they are winning big orders in China & India, which is pretty impressive.

 

Synectics (LON:SNX) issues an in line trading statement for their AGM today. Normalised EPS forecast consensus is 30.5p for this year (ending 30 Nov 2013), so at 415p that puts the shares on a PER of 13.6, which looks about the right price, so is not of any interest to me - I only like bargains!

 

Existing shareholders have had a bad day today at Superglass Holdings (LON:SPGH), with a rescue refinancing announced which involves massive dilution via a Placing at 2p (65% below yesterday's share price!). It's been obvious for a long time that the business was in trouble, with far too much bank debt, so people holding the shares should have already known it was a very risky situation.

What is interesting is that the Clydesdale Bank have agreed an unusual deal whereby £6.5m of existing indebtedness is coverted into convertible shares, which could become 10% of the enlarged ordinary share capital on conversion from 30 Apr 2015. A further £3m of bank debt will be repaid from the Placing, but the bulk of the funds will be fresh working capital. So it looks like a pretty comprehensive refinancing.

If I were an existing shareholder, then I would already have been on the phone to the company, demanding to be allowed to participate in the Placing. Don't just assume that you will automatically be excluded from a Placing at a deep discount. If you kick up enough fuss, there's a good chance you will be allowed to participate in it.

Superglass manufactures fibre glass roof insulation in the UK, so let's hope this refinancing will preserve some jobs in the UK.

On the other hand, as the refinancing announcement makes explicitly clear today, the existing equity has no value, as without the refinancing then the company would have to be placed in Administration.

 

Renold (LON:RNO) has issued an in line trading update. Consensus estimate is shown as 1.35p for 2012/13, so at 20p the shares look to be rated on a rather warm PER of about 15. That looks very expensive to me, given the company has considerabl net debt, and a pension deficit. So I'm not tempted to buy any of these.

 

Shares in Energetix (LON:EGX) have fallen out of bed today, down 25% to 17.25p on results which show negligible turnover, and a £5m loss. It's clearly blue sky, so not my thing.

 

Finally, 4imprint (LON:FOUR) has issued an IMS that reports Q1 turnover up 13% against last year's comparable period. There's no mention of profitability anywhere in the announcement though, which is a bit of an omission. Turnover for vanity & profit for sanity, as the saying goes. So I would have preferred an in line with expectations type of message, rather than just talking about turnover growth.

 

Right, that's it for today, apologies again for it being so late. I will try to get tomorrow's report out on time!

Regards, Paul.

(of the companies mentioned today, Paul has no long or short positions in any of them)