Small Cap Value Report (Tue 2 Jan 2018) - INL, CMCL, SECG | Graham Neary

2nd Jan '18 by Graham Neary

19 comments 11117 reads

Happy New Year!

It's a quiet start to 2018, news-wise. Everyone is either still on holiday, or only today back in the office after their break, so there aren't too many updates for us to digest.

I'm going to take a look at Inland Homes (LON:INL).

(Please note that I own shares in Inland Homes)

Inland Homes (LON:INL)

Share price: 62p (+3%)
No. of shares: 201 million
Market cap: £125 million

Strong end of year momentum and positive outlook

This is a decent little house-builder with a good track record of paying dividends since 2012, though it has been listed since 2007. I covered it once last year, and Paul has also written about it several times over the past few years.

It operates in the South and South-East of England regions, owning land from Poole/Bournemouth through Greater London and up to Colchester and Ipswich.

This is a nice little update:

"As we head into the New Year, Inland Homes is well placed to achieve further significant growth in 2018, with the in house construction team now well established and beginning to bear fruit. We have had an extremely productive period, culminating in a number of profitable land sales and a growing order book for Inland Partnerships, our new business principally dedicated to delivering residential units for housing associations and other residential landlords such as PRS funds or Local Authorities. Our housebuilding programme is at a record level, with over 500 homes currently under construction and a healthy pipeline of new development projects in place for the coming months, supporting our positive outlook."

Recent activity growth has indeed been superb at Inland. It is forecast to produce c. £133 million in revenues in 2018 (prior to today's update), versus £91 million in 2017.

Today's update also spells out £13 million in land sales and describes a new purchase for a 40-home site in Berkshire, near the forthcoming Crossrail network. We additionally learn about a £29.5 million building contract secured by its subsidiary, Inland Partnerships.

As you've probably guessed from the disclaimer at the top of this section, I've decided to get my feet wet and purchase a few shares in this company. The size is less than 2% of my portfolio.

I don't expect huge returns…

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MrContrarian

2nd Jan '18

My morning smallcap tweet:

Inland Homes (LON:INL)

Inland Homes (INL) sells land for £12.7m plus other progress. "Inland Homes is well placed to achieve further significant growth in 2018, with the in house construction team now well established and beginning to bear fruit."

runthejoules

A new NED for Paul's punt: Mobile Streams ( Mobile Streams (LON:MOS) ), the emerging markets focused mobile media company, is pleased to announce the appointment of Jonathan Bill to its board as a Non-Executive Director with effect from 1 January 2018.
Jonathan worked a Vodafone from 2002 to 2013 initially starting as Head of Internet Services in the UK before becoming Director of Internet and Data Services for Vodafone Egypt. In 2009 Jonathan became Head of Emerging Markets, Vodafone Group Marketing for Vodafone Group before being appointed as Senior Vice President of Internet Services & Innovation at Vodafone Essar Limited in India. In this last role he played a key part in developing Vodafone India's internet and data strategy focused on 23 local markets and 150 million customers. Since leaving Vodafone, Jonathan has remained in India and has launched a number of start up businesses, including BillBachao, an online mobile prepay recharge website and data usage app which was subsequently sold in September 2015. Jonathan is currently the CEO and co-founder of CreditMate, an Indian fintech company focused on providing finance for the used motorcycle market in India.
Simon Buckingham, CEO of Mobile Streams, commented: "I am delighted that Jonathan has joined the Mobile Streams board. His expertise from living and working in India is the perfect match for us. He understands our products and markets and is a successful entrepreneur, investor and fundraiser." Sounds alright if not material.

FREng

Something up at Parity (LON:PTY) today - up 26% on no news. I hold :-)

EDIT: up 10% on the ADVFN live price

vik2001

a lot of stockopedia price changes for the day are out of sync

According to the ADVFN live price, Wey Education (LON:WEY) is making a new high today at 43-45.

Thunderball

Inland Homes (LON:INL) - a very decent company with solid fundamentals and very good management, its just a shame that the market doesn't share the sentiment, lets hope this is a signal for a change for the better.

I am familiar with the Management who have a long and succesful track record so trust their tenure. I have held on and off (currently off) for a few years, but sadly the price has dropped in that time contrary to the good news story that is Inland Homes. I note it is also an IC buy tip and a Simon Thompson favourite. I may just add a few back into my portfolio.

Brian Hamilton

Inland Homes is a big buy for me. It's attracting interest from insurance and investment companies who like its niche market and way of doing business. As an investment, it's up there with Tristel and Somero. Three big buys for 2018.

jpsc01

INL is a fairly safe bet given NAV v Share price. But it has been around a while and never been that well received. I would suggest that management see it as undervalued but have no real plan to close the gap. Doing share buy backs but at a very low level and not adverse to giving options to managers. They are trying to create a story around the building arm, which is new but yet unproven. Not sure that it is clear as yet whether all the investment they have had to put in to create the new business is value for money. I hold a few but wouldnt see a need to rush in or in my case increase the position.

alterego

Inland Homes (LON:INL) regarding the in house building arm, I agree it's as yet unproven but the motives behind its creation were spelled out at last year's finals and appear very sound.

"This facet of the business will deliver improved processes and structures that will accommodate an expansion in our production. Moreover, by managing this construction activity ourselves, we can deliver cost savings over the long term and enable greater control and certainty over the delivery and timing of projects. "

Today's update provides more reassurance that all is proceeding to plan and consequently I've added to my holding.

peterthegreat

Re: Caledonia Mining.
Thanks Graham for your thoughts on Caledonia Mining, particularly as you so rarely write about mining companies. I equally rarely invest in them, but I made an exception for Caledonia last year when it became clear that Mugabe was on his way out. I have a familial connection to Zimbabwe and prices of some properties have already started to increase rapidly (particularly in tourist areas) in anticipation that the new regime may at least be able to make the economy functional, which should encourage investment. I would also highlight the fact that according to Stockopedia, Caledonia's ROCE has averaged over 20% over the past 5 years which must be a rarity for a small mining company.

Graham Neary

re: Caledonia Mining (LON:CMCL)

You're welcome, Peter, and thanks very much for your personal insight on it. They have done a good job and it's an interesting little company, indeed.

Cheers

LeoInvestorUK

Caledonia Mining (LON:CMCL) - The dividend history is wrong/misleading on Stockopedia due to a share consolidation - multiply the older figures by 5 to see the progression. Also the latest total annual dividend doesn't add up and the news feed has stopped.

This made me concerned that the forecast PE reported by Stockopedia may also be wrong so I investigated further.

Based on the forecast dividends and cover freely available from Morningstar, for FY 2018 it is 5.1. This is for a period 1 quarter later than Stockopedia is / should be reporting and given margin improvements as production increases might be expected to be lower than Stockopedia's 3.8. Given recent results Stockopedia's figure factors in quite a bit of growth but ultimately seems quite feasible - certainly it is not a factor of 5 out.

Also I checked the balance sheet and the Stockopedia's figures seem to be in the same ballpark - reported figures look better if anything.

I really have no experience investing in this sector, but potential issues I can see (beyond those mentioned by Graham) are:
* Most revenue is from a single mine. An accident or strike could be disastrous.
* Re-iterations that they have enough money to complete their investment plan makes me paranoid that they might not - certainly cash is being burnt. However since production continues, it seems they would delay it rather than issue equity (or even cut dividends) if there was an issue.
* They mention a new "export incentive credit" in 2007, which I'd guess was to help with the balance of payments and may may be removed again especially as the economy continue to stabilise and foreign investment comes in. However this is minor compared to the improving margins from increased production.
* Wages in Zimbabwe will presumably increase over time as the economy improves. But since they have abandoned their own currency there shouldn't be any sudden increases in costs.

On the plus side, there is clearly a possibility of both increased profits and a re-rating due to the political situation as well as increased production. Dividends are being held back by investment and may rise significantly if/when this reduces. And of course it gives some exposure to gold.

kbkb

I have held shares in INL for a while, and have previously sold them after making a decent return, but bought back in over the last 12 months.
Frustratingly, they are still showing a small paper loss, although the news is almost totally benign and the management are showing themselves to be flexible and capable.

Paul Scott

hi Graham,

Thanks for another interesting report. can I just query 80000 ounces production per day which you mention for Caledonia full stop that equates to a gigantic turnover if each ounce of gold is worth over $1,000 full stop

Best wishes, Paul.

Caledonia Mining (LON:CMCL). Hi Paul - thanks very much for spotting that. The plan is for 80k ounces per year from the mine. I've fixed the text. Nice one! G

InvestedGeordie

Thanks for the report, Graham. I too bought Inland Homes (LON:INL) today on the update, but added to an existing position. It's never going to rock the world, but the positive news is welcome and a brownfield specialist should do well over the next couple of years. The Tory government are seemingly wanting to build more houses, but safeguard the greenbelt. Inland Homes (LON:INL) seem canny at site selection, so I saw no reason not to add on the news.

tripuram

thanks Graham for the great report. I have exited Inland Homes (LON:INL) this year at a loss after patiently waiting for 2 years. Initially bought at 80p through NAPS analysis..

Although the fundamentals may be good but looks like market is just ignoring. While I wish everyone the best but I doubt whether there will any +ve change in the price for foreseeable future... sorry being pessimistic...

mojomogoz

3rd Jan '18

Caledonia Mining (LON:CMCL) the -ve is single mine with, currently, a single shaft. The investment taking place includes a second shaft. Also Zim based and gold price are risk factors. However, with net cash and p/e of 2.5x then within a portfolio context the risk is worth taking. As a mining area it is a very well developed and good geology.

I bought this at about 40p...so 200p factoring on share consolidation. Its a sure fire 10 bagger....well, not quite sure fire of course (see above meaningful risks). I believe that Caledonia Mining (LON:CMCL) will give us organic top-line and margin expansion....and then there is extra upside from gold itself IMO. With capital discipline every extra £100 in gold price is big bump to bottom line.

I have liked gold miners for about 2.5 years now. The sector went through a tough negative capital cycle as the sector believed the gold higher for ever story and over invested just at the end of the massive bull run...having spent much of the bull run over hedged to the rising gold price. So its possible to find tightly run companies with a pragmatic capital allocation perspective.

So I invest from a value and capital cycle perspective. But I think I am picking up a real growth option too as I believe that the gold price will move significantly higher in coming years. The 2008 crash and freeze of the eurodollar market (the engine of both economic and financial growth for decades before IMO) has led to extreme monetary response to seek to fill the whole. An inevitable consequence of this will be the questioning of the USDs role and the integrity of official money.

In addition, the US has applied its power very fiercely thro trying to cut off the supply of USD to its enemies. A sort of new form of economic sanction or even war without the immediately obvious cost. The result is that many countries wish to find ways to move outside the USD system. Gold will have a role to play as reference of value in this. Russians and Saudis will be happy to take it return for the oil they sell to China.

I'm not a goldbug. Like paper money, gold is rather useless stuff. However, if you have issues with the USD there is only one thing that can be universally accepted as an alternative payment, or reference for value at least. Most central banks still believe that gold is ultimate money after all.

But the clock is ticking as the downside of small miners is that production is not for ever so the cash return has got to come rather than never never. Will players in the sector return cash or burn it looking for more? If I'm right on the gold price rising significantly then investors will want them to burn cash hunting more gold...and that will be a good point to sell.

@mojomogoz

Rusty2

I also owned some Inland Homes (LON:INL) shares but back in 2014/15, I know what they did, they delayed the 2015 results in order to include a large sale which should have been in the 2016 year. This fooled Stockopedia, the figures looked really good, however the market was not fooled and the share price soon drifted down. Wickes who is CEO sold 2.5m shares. He has been buying a few recently though. I did make a comment in the NAPS 2016 post about it.

Small Cap Value Report (Tue 2 Jan 2018) - INL, CMCL, SECG

Inland Homes (LON:INL)

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Graham Neary

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