I Read The News Today Oh Boy! 14-Sep-2018

14th Sep '18 by matylda

9 comments 2339 reads

Morning all!

SThree ( SThree (LON:STHR) ) – 345p – £450.2m – PER 11.2

Q3 Trading Update – Gross Profit up 13% (84% of this comes from outside the UK) – Confident of FY prospects.

Last time I looked at this company (in July) I said “Stockopedia (StockRank 92) still likes this more than I do – I remain Neutral”. That StockRank now stands at 79 and I still remain Neutral.

Connect ( Connect (LON:CNCT) ) – 37p – £91.6m – PER 3.24

Trading Update For Q1 Of The Financial Year To End August 2018 – The bad news just continues, even worse, an “organisation review” is now in progress, that’s a good idea!

This is going on my Avoid list for now and I will cease coverage until I see some positive news.

Character ( Character (LON:CCT) ) – 500p – £106.1m – PER 10.7

Trading Update For The 12 Months To End August 2018 – H2 strong as anticipated with record UK sales. FY to “comfortably reach market expectations”. Confident for autumn/winter (Christmas).

Still like this but not quite enough, I remain Neutral and will keep an eye out for Broker notes and those final results in November.

Avon Rubber ( Avon Rubber (LON:AVON) ) – 1390p – £431.2m – PER 19.0

Trading Update Ahead Of Year Ending September 2018 Close – H2 has continued to be strong, FY Adjusted PBT to be in-line with the Board’s expectations. Order book strong going into next year.

Not a huge amount in this update to be fair. Again I will comment, I always keep saying I think it’s fairly priced (and all it’s done is gone up in price) – But I really do think it’s fairly priced so I am going to take it off my Watchlist (it was on there with me waiting for a pullback (Doh!)) and go Neutral for now.

As always, all comment most welcome!

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MrContrarian

14th Sep '18

My morning smallcap tweet: Connect delivers damaged expectations.

Phaunos Timber Fund (LON:PTF), Connect (LON:CNCT), Image Scan Holdings (LON:IGE), Character (LON:CCT)

Phaunos Timber Fund Limited (PTF) Hostile bidder Stafford Capital Partners makes final offer of $0.52, up 6% and equal to NAV.
Connect Group (CNCT) warns on FY due to tough parcel freight market.
Image Scan Holdings (IGE) guides a FY loss due to slow sales of portable X-ray systems to security and counter terrorism forces. Even that assumes it finalises several orders before the year end. "There is no evidence that this decline in orders reflects anything other than changing Government budget schedules and the typically "lumpy" order intake that has been a characteristic of the business from time to time."
Character Group PLC (CCT) FY trading "will comfortably reach market expectations."

andrea34

I held Avon Rubber (LON:AVON) for a while and eventually sold for a small profit when the selling price inexorably dwindled from 1450 to just below 1300, below my stop loss. This update doesn't persuade me to want to buy back, despite the Stock ranks, for two reasons:

Revenue growth is pretty pedestrian - the Avon Protection business revenue growth is +7% while the milkrite business is only +4%.
I am still trying to get my head around why they have two such disparate businesses

Sadly I still hold Image Scan Holdings (LON:IGE) and hope that I am right in that it is not all bad news, the portable side is not doing so well but the industrial systems seem to be strong.

Aislabie

Avon Rubber (LON:AVON) has these different businesses having evolved from a tyre company (in the fifties I believe that your Rolls-Royce, Bristol, and Armstrong Siddeley etc would come with Avon Turbospeeds). General rubber businesses were added and these have evolved into the rubber hazmat suits and rubber dairy equipment that we see now, long after the tyre business was sold.
Matylda finds the business boring and fairly priced - there is much I like about that (I hold)!
The order book goes up, business goes up, the price goes up. I can live happily with that. Wishing to see strong world class manufacturing companies growing in the U.K. I also fear that this will be on the buy list of a foreign company and we will lose another company before it can become world size.

InvestedGeordie

I have to agree with you on Avon Rubber (LON:AVON) and I sold out completely on this update. Growth prospects vs share price I felt was not in my favour, so decided to exit. GLTAH

matylda

Avon Rubber (LON:AVON)

For me the ROCE & Margin are pretty good, my main concern is...

EPS

2017A (80.0p), 2018E (72.5) & 2019E (73.1)

2017A growth 35% (great), 2018E growth -9.42% and 2019E growth +0.86%

On a PER of 20 or so that's "growth" I don't believe is worth paying up for.

Revenue forecast as flat 2018E and <5% growth in 2019E.

Just a simple view of course but simple just works for me. Sure, they're all estimates/forecasts and subject to change.

Ha - I was posting at the same time - I concur (as you can see).

Andrew Gray

Avon Rubber (LON:AVON)

Just my two cents:

On top of the company having an attractive ROCE & Margin as you mention, I would suggest you look at free cash flow rather than EPS. The company generates a large amount of cash from operations and the cash flow conversion is usually 100% of profit.

Also, on a valuation basis, P/FCF is currently 16.7 times, much below the P/E of 19 times. This suggests there is still a lot of built in value.

The other major positive about Avon Rubber is that it is cash positive (to the tune of £40m as it stands). As they have shown in the past, management are usually quite adept at using excess cash for intelligent small-scale acquisitions that add more value to the long-term performance of the company.

All in all, I would say the company is still a very attractive investment, especially for the buy and hold investor (of which I am one).

Thanks for the feedback - Way more above my simple approach which is more focused on EPS

Johnny2509

Andrew, I agree with your comments on Avon Rubber (LON:AVON).

Cash flow per share is out stripping EPS, and as you mention conversion is around 100% of profit.

With hardly any debt and a large chunk of cash in the bank coupled with steady growth, this is a promising long term hold.

Phil Oakley did a pretty thorough review of the company back in January 2018 for those interested:

https://knowledge.sharescope.c...

I Read The News Today Oh Boy! 14-Sep-2018

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Matylda

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