Small Cap Report (12 Mar) - SDM, KBT, SIV, FCCN, KBC

12th Mar '13 by Paul Scott

7 comments 15062 reads

Pre 8 a.m. comments

As usual, I'll check out one or two company results that interest me the most, and publish comments just before 8 a.m., then I'll review a few more company results at a more leisurely pace, and update the article in stages until it's finished around 10 a.m., when the last typos have (hopefully!) been eliminated.

Stadium (LON:SDM) has caught my eye as a special situation before, although it's not a share that is currently in my portfolio. It does sub-contract electronic manufacturing, and makes power supplies. A poor year was expected for calendar 2012, and turnover fell from £45m to £41m. Adjusted profit before tax fell from £2.6m to £1.4m.

The accounts are a bit fiddly, as there was a £2.4m one-off profit on the disposal of its Hong Kong property, delivering £3.3m in cash proceeds, which has brought the group to effectively a net cash neutral position of £0.1m.

Reported EPS dropped from 9p to 4.2p, although one of the main attractions is the dividend, which has been held at 1.75p for the final, giving a total payout of 2.8p (after the 1.05p interim dividend paid in Oct 2012). This equates to a dividend yield of a stonking 6.2%, with the shares currently at 45p.

There were also some reorganisation provisions, so a fair few things to untangle in order to ascertain the underlying performance of the business.

The key question is how EPS compares with broker consensus, and the reported 4.2p seems to have come in a little ahead of consensus, which is for 3.1p EPS in 2012, rising strongly to 7.25p in 2013.

It looks potentially interesting, if you think management can turn around performance in 2013, and deliver the increased forecast EPS. The outlook statement is mixed, with reference to "difficult market conditions", but that they have "self-help programmes" to make them more efficient. Their strategy includes making acquisitions where they can leverage their manufacturing know-how, and exploit cross-selling opportunities.

I've just found the pension deficit, which is a £7.1m liability shown on the balance sheet, and given that the amount disclosed on the balance sheet can often be just the tip of the iceberg, I think that rules out SDM as a potential investment for me. So I like the dividend yield, and the potential earnings recovery, but it's operating in a competitive & low…

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tads

12th Mar '13

Hi Paul

Given that VNET now has iDraught installed in 2000 American pubs, do you know how much this will be worth to them?

Cheers

Mike

Paul Scott

Hi tads,

Well, the wording in Vianet's last RNS doesn't actually say they have iDraught in 2,000 American bars!

They are beginning a mixture of pilots and roll-outs with chains which together have a total of 2,000 bars. So the USA expansion is likely to be (at best) breakeven for the next year by my reckoning, but has longer term potential. I've got a 2-year investing horizon with VNET, but am happy to sit & collect the 6% divis whilst we wait for them to get on with the US expansion, vending growth, and moving the fuel business into profit. It should all stack up quite nicely once they get things moving, but management have a clear tendency to over-promise on growth, and then announce delays.

That said, the CEO is hoovering up decent sized blocks of shares on a regular basis, and when I spoke to him recently he's excited about the USA especially, and spending a lot of time managing that.

With hindsight the previous Cenkos note was overly bullish on the timing of growth, but not on the actual growth prospects, which are good.

Cheers, Paul.

SevenPillars

The question of when IR's will "normalise" is one that may be around for a long time. I'm not convinced that Government and their Central Banks will do anything in terms of raising IR's to any degree for the foreseeable future for fear of hurting the banks. We have already had 5 years of the BoE ignoring price inflation in the system because they know that to raise IR's would hurt the banking system that provides the lifeblood - money in the form of credit - to the economy. Although there are differences, in one sense the Western financial and economic system has turned Japanese. We could well see official BoE IR's at around the 1% or less mark for another 20 years.

Therefore, dividends above about 3% will probably be good for the long term, because you are unlikely to get that for cash at the bank for years. The main question that remains with shares paying a good dividend yield will be as always how safe it is and how safe is your capital. As Aviva and RSA shareholders who bought recently now know, a high dividend yield that looks too good to be true often is and should be questioned.

Hi Paul

just tried to speak to one of the directors and was told (quite rudely) that the director (Foster) would not speak to me.

First time this has happened to me. Both myself and my wife are shareholders.

Would be interested in your comments.

Cheers

Mike

Hi Mike,

That doesn't surprise me. I had considerable difficulty talking to Directors at Vianet too, but eventually the CEO spoke to me.

I think that's the wrong approach to take. If you're a Listed company (especially a small one), then Directors should be happy to speak with shareholders. Otherwise they should take it private. But acting like a private company when you're actually Listed, is wrong in my view.

That said, VNET have gone to the trouble of publishing results video commentary on their website, which is a lot more than many companies do.

As long as they keep paying the divis though, I'll accept their approach, warts & all.

Cheers, Paul.

Thanks Paul

had an e-mail back from them.....mostly a lot of guff.

Cheers

Hi tads,

Well at least they replied.
One of the times I asked to speak to the FD, his secretary refused the call, but asked me to submit any questions by email, and I later got detailed replies.
Strange way of doing things, but there we go.

Cheers, Paul.

Small Cap Report (12 Mar) - SDM, KBT, SIV, FCCN, KBC

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