Small Cap Value Report (4 Feb 2015) - PLA, XLM, BRY, EGS, BLUR, WGB, DSG

Good morning! I dropped into the Shares/Cenkos investor forum yesterday afternoon, and saw some interesting companies. Brief comments on the handful of companies that I spoke to;

Plastics Capital (LON:PLA) - looking potentially good value again, now it has fallen to 100p. Had a quick chat with their CFO, and he pointed out that the divi yield is now quite good, at 4%. If the forecasts for 2015 are achieved, then this could be a good entry price perhaps? Although checking back my previous notes, the last interims were not great, and I do have a concern about the size of the adjustments to profits.

XLMedia (LON:XLM) - I hovered around their stand for 5 minutes, and listened in on discusssions between a lady from XLM and investors. These shares cropped up on one of my value filters recently, and the numbers look quite attractive. It is an overseas company on AIM, which I try to avoid, as so many of them go wrong. However, in this case the figures look good, and it pays decent divis. So worth another look possibly.

Brady (LON:BRY) - I chatted with their CFO for a while, and felt that I understand the business better as a result. Seems a reasonably-priced niche software company. I like that 50% of their revenues are recurring in nature.

eg Solutions (LON:EGS) - this is one I already hold. It doesn't look cheap at first sight, but has raised £3m in a Placing, and is now embarking on an expansion drive. Has a very impressive client list, of large companies, for its back office optimisation software. Moving to a cloud-based model, which should give much greater proportion of recurring revenues. If the sales drive is successful, then this stock could do well.

Blur (LON:BLUR) - the surprise of the day. I went into a 15 min presentation from the company, expecting it to be a joke, but the presenter (who I think was the new CFO?) gave an interesting & coherent explanation of the company's progress to date. So I'm prepared to give this one another chance, and will look at the next set of figures with an open mind.

Walker Greenbank (LON:WGB)

Share price: 198p
No. shares: 59.8m
Market Cap: £118.4m

Full year trading update - for the year ended 31 Jan 2015. This reads positively, with the key paragraph saying;

I don't have the range of analyst forecasts, but Stockopedia shows broker consensus being £82.6m forecast sales, and 11.0p foreast EPS. So given that sales have come in about 0.5% ahead, then allowing for operational gearing profits might have come in say 1% ahead, so about 11.1p EPS looks likely for the year just completed.

That's a very good increase on the previous year's normalised EPS of 8.14p. It makes me think that the broker consensus of 11.0p EPS for 2015/16 looks too light. I would have thought a figure of c.13p is more likely, which if I'm correct would put the shares on a fairly reasonable PER of 15.2 - not bad for a company with strong brands, that is growing at a decent pace.

My opinion - overall this share is starting to look potentially interesting again. Not exactly a bargain, but it looks as if it could be due some forecast upgrades, and that could propel it through the 200p barrier, which has held the shares back for about a year now. I could see perhaps 20-30% upside on these shares in the next year, if strong trading continues. So it might be one to have a look at?

It's probably not quite cheap enough for my taste at the moment - but it's one to go on the watch list anyway, for a possible future purchase, if the price drifts down to a more attractive level, or spikes down on a general market wobble.

Dillistone (LON:DSG)

Share price: 108p (up 13% today)
No. shares: 19.4m
Market Cap: £21.0m

Trading update - says that trading for calendar 2014 was, as expected, similar to 2013. No great shakes there then. What is more interesting, is that order intake is strongly up. Therefore the outlook for 2015 looks good.

I like this company, and it seems reasonably-priced. A further attraction is the generous dividend yield.

The downsides are that the shares are extremely illiquid, so the bid/offer spread widens to about 5% typically, and you can struggle to trade in any significant size. So it's very much a tuck away and forget for a few years type of share, in my view.

I didn't think there was enough growth potential to justify doing that, but after today's announcement maybe that should be reappraised? I suspect there are probably plenty of stale bulls in this stock who will be grateful for the opportunity to exit, given today's buying interest. So personally I will keep it on my watch list, and may buy a few shares once the price has drifted back down again, which it usually does.

As you can see from the chart, the pattern is for short bursts of excitement, followed by drifting back down again. I can't help feeling this company is really too small to justify being separately-listed - it would make more sense for it to be acquired and put into a group of similar companies, to give a more liquid share.

Notwithstanding these gripes, there's no denying that the update today was encouraging news.

Right, gotta dash, as I have an investor lunch to attend. See you tomorrow!

Regards, Paul.

(of the companies mentioned today, Paul has a long position in EGS, and no short positions. A fund management company with which Paul is associated may also hold positions in companies mentioned)