Small Cap Report (12 Feb) - LOQ, NARS, DSN, PRES,

12th Feb '13 by Paul Scott

6 comments 11544 reads

Lo-Q (LON:LOQ) issues solid results for a "52 week and 6 day" financial period ended 4 Nov 2012 (unusual!).

Revenue rose 19% to £29.1m, and profit before tax was up 17% to £3.2m. This translates into basic EPS up 26% to 14.6p (EPS is flattered by a Corporation Tax charge which has fallen from 28.2% last year to 20.0% this year).

The year-end net cash pile of £8.9m has since been spent on the acquisition of an American company in a similar space, virtual queuing systems, called Accesso. That used up £4m of the cash, and incurred £4.0m in debt (which has been refinanced with Lloyds today, as planned), plus an additional payment made in 1.8m new shares. So they are effectively now more-or-less cash neutral.

LOQ has clearly been a success story, as the historic data table below shows;

Interesting to note however that EPS has actually been flat from 2008-2011 at 11-12p. (please note that TTM is "Trailing Twelve Months")

That has jumped to 14.6p for 2012, and is forecast to grow again to 16p in the current year (ending 31 Oct 2013), fuelled by the acquisition of Accesso. There is no dividend.

I like the company, but remain sceptical about the elevated valuation. The market cap is now around £90m, or 3 times sales, at around 450p a share. I cannot see how this represents value at 31 times EPS just reported, and 28 times forecast EPS for the current year. But we are in a bull market, and valuations for growth companies are becoming pretty racy again, so who knows maybe the momentum will keep going here? To my mind a sensible price would be around 300p, or just under 20 times current year forecast EPS.

However, I also know how enthusiastic shareholders are about LOQ, and if you think they are likely to beat forecasts, then the numbers might stack up on a long term view at the current share price?

(Edit: new Edison research note on LOQ just published, click here to view it)

Nationwide Accident Repair Services (LON:NARS) issues a trading update today. They operate a chain of car crash repair workshops across the UK. Results for calendar 2012 are expected…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Asagi

12th Feb '13

Hi paulypilot.

In the last year, the price of gold has fallen 5%. In the last two years, the price is up just 20%. I say 'just' because a 20% rise in two years cannot be considered boom conditions.

Albemarle & Bond Holdings (LON:ABM) did very well indeed out of the gold boom. This was not profiting from people's misery but giving them a nice bunce for scraps that they had tucked away.

Albemarle & Bond Holdings (LON:ABM) used the gold boom to expand its operations and increase its dividend payments.

Before the credit crunch and gold boom, the company was making 11p per annum (using 2007 figures - not perfect as the credit crunch began in August 2007). Investors will be concerned that earnings could go back to that pre gold-boom level. Even worse, the company could incur significant costs if its store expansion programme has to be put into reverse.

So, it appears that Albemarle & Bond Holdings (LON:ABM) has made hay while the sun has been shining. Nothing wrong with that but anyone analysing the shares will have to wonder how much further earnings could fall.

Asagi (no position)

Beginner

Hi Paul
Regarding Densitron, the court case involves up to £600,000 in unpaid rent, and about £60,000 in unpaid rates. From what I can see the landlord has a relatively strong case, and having refused to enter arbitration, at the very least this will rumble on for a long time. This being the case, it may be best to let this one pass (despite many other positive indicators).

[Just posted above on your blog, but have now sussed Stockopedia registration! D'Oh!!]

Paul Scott

Hi "Beginner",

I saw you post this on my Blog, and was hoping you'd also post it here, as useful info.
My worry with any legal action is the costs, which can often spiral into huge amounts.
So as you say, might be best to avoid Densitron unless/until the outcome & total costs are known.
They own some land in BlackHeath too, I believe, wonder what that's worth, and if anything is happening with it?

Cheers, Paul.

Ramridge

Hi Paul.
Re. NARS. The pension issue is a big one. I have been looking at NARS's FY 31/12/2011 accounts and their accounting treatment of the pension liability is disgraceful. Buried in Note 15, you find that the unfunded liability stands at £26m. Then by a magic sleight of hand (Paul Daniel would have been proud) they apply something called "unrecognised actuarial losses" = £37m and turn it into an asset of £37m - £26m = £11m. So now we have an asset shown in the balance sheet of £11m. All other pension related bad news is off balance sheet buried in obscure tables. A figure of £37m which is bigger than NARS's market value is put in their footnotes under an obscure heading without any explanation. Talk about the elephant in the room.
I understand that the IAS 19 rules taking effect from jan 2013 will make pension scheme funding deficits more transparent, but also hear that it will have a negative impact on reported earnings for those running large deficits. The sooner NARS management comes clean the better.
Regards, Ram

Ram,
I know, I wrote a report giving chapter & verse on NARS misleading accounts (linked to in today's report), but here is the link again. It's an outrage! The accounts should never have been published, as they fail the "true & fair" test. Also I don't trust management that would approve such accounts. Common sense should have made them stop and say, "this is wrong". That doesn't happen enough generally in business these days I'm afraid.
cheers, Paul.

Paul. Should have followed your link first time. You were there lot earlier than me.
Regards, Ram

Small Cap Report (12 Feb) - LOQ, NARS, DSN, PRES,

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

6 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...