Small Cap Value Report (Fri 16 Sept 2022) - WINE, ADF, PMP

Good morning from Paul. Running slightly late today.

Agenda - a very slow news day.

Naked Wines (LON:WINE) - the former CEO returns as an unpaid adviser for the next 2-3 months. Let's hope he can help extract some shareholder value, or reinflate the bubble?

Facilities by ADF (LON:ADF) [no section below] - I had a look at the recent interim results, which seemed slightly disappointing. I still think this is one of the best recent floats, because the company raised fresh money, for expansion, at a reasonable price with its IPO. As opposed to a lucrative exit for existing shareholders, like so many recent floats. An issue seems to be that smaller contracts incur additional costs, moving equipment around, thus profit slightly disappointed. But the H2 outlook sounds good. Admirable clarity on who its customers are. Still looks quite good, I think. (I'm not currently holding).

Portmeirion (LON:PMP) - I cast my eye over interim results. A broker update shows that this is really a profit warning, with forecast EPS reduced by 20%, which seems to be concealed in the company's commentary. Good strong balance sheet, but note inventories are up a lot.Energy costs are hedged into Q1 2024, so no panic there.   I think this share is attractively priced, if you take a long-term view.

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Explanatory notes -

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Paul’s Section:

Naked Wines (LON:WINE)

90p - £67m market cap

The former CEO is back, as an unpaid adviser, for 2-3 months - suggesting that maybe a deal is envisaged, possibly? I’ll leave it up to you to decide whether his services, gratis, represent value for money or not. He owns 2.1m shares, being 2.9% of the company.

The Chairman says -

"We wanted shareholder involvement in our ongoing operational and financial planning process. I welcome Rowan providing his insight to us because his operational familiarity with the business and his viewpoint as a shareholder will provide a unique and valuable perspective to the Board as we position Naked for long-term sustainable growth"

My opinion - there are two things necessary at WINE - turning the sky high inventories into cash, and slashing overheads. There you are, my consultancy services are also free!

Maybe he can invent some new KPIs to convince people that the business is massively profitable? He's good at that.

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Portmeirion (LON:PMP)

324p - £44m mkt cap

Interim Results

Portmeirion Group PLC, the designer, manufacturer and worldwide distributor of high quality homewares under the Portmeirion, Spode, Royal Worcester, Pimpernel, Wax Lyrical and Nambé brands, is pleased to announce its results for the six months ended 30 June 2022.

We looked at Churchill China (LON:CHH) earlier this week. There are differences, with CHH supplying the catering trade, with rather stylish and hard-wearing crockery. Whereas PMP products are a bit higher end, and targeted at households.

Bear in mind that PMP has been acquisitive, so the growth isn’t all organic.

Also, PMP has a heavy H2-weighting, due to some of its products being popular as Christmas presents, e.g. the Christmas Tree range, which is popular with collectors, especially in America, apparently.

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I'm not at all keen on the Christmas Tree range. As mentioned before I really like Portmeirion's classic "Botanic Garden" design (picture below). It's quite interesting, that when you buy some, you end up adding more, particularly when good special offers come through by email. I've got stacks of it now, far more than I need, and it's remarkably sturdy - I've not broken, chipped, or cracked any of them yet - despite being clumsy - I pity whoever lives in the flat below my kitchen!

My notes from reviewing the interim results -

H1 revenues up 5% to £45.5m

Headline PBT £2.0m (H1 LY: £1.5m) - but remember most profit is made in H2 each year.

Online channels are now 55% of total revenues.

EPS 12.0p (H1 LY: 9.1p)

Divis resumed, with a 3.5 interim dividend.

Outlook - sales “at least in line” with 2021. Profit also ahead. Encouraging growth in July & August. Cost inflation & labour worse than previously forecast. Significant upside in medium & long term. Is this code for a mild profit warning?

Balance sheet - very strong. Most noteworthy is a big increase in inventories. I’m relaxed about that, as supply chain problems mean lots of companies have increased inventories to ensure supply continuity, and of course unit prices will be rising. Confident about US market, cautious on UK.

Profit warning - It’s not explicit in this announcement, but Singers has reduced FY 12/2022 forecast profit by 20%, to EPS of 44.5p. I’ve heard complaints that this was effectively a profit warning, but not properly spelled out. That’s a fair criticism, I think.

Energy costs - are hedged until Q1 2024, so no immediate panic there.

My opinion - forecast EPS of 44.5p puts PMP shares on an attractive PER of only 7.3. Sure, there’s a risk that short term profitability might come under further pressure if consumers cut back, although I imagine PMP end customers are affluent, so probably not under financial pressure, but even so, people may still economise a bit.

Long-term, I think the current price could be providing an attractive entry price. Shorter-term, anything could happen, as we know!

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