Small Cap Report (13 Feb) - API, HVN, RGO, LCG, HIBU, NXR

Wednesday, Feb 13 2013 by

It's likely to be a rough day for shareholders in API (LON:API), as they announce that the protracted company sale process has now fallen through (incidentally just to emphasise, if it's not obvious, where I put in a link, as in the last sentence, this clicks through to the relevant announcement on, or to something else relevant, e.g. a previous comment).

This follows an ominous announcement on 25 Jan 2013, when API stated that indicative proposals from potential buyers of the company had been below the then market price of 90p, and also the sales process sounded like it was unlikely to continue. I've been sceptical about this sale process for some time now, as stated in previous comments here. It was taking too long, and the pension deficit was likely to be an impediment to a takeover. Also, risk/reward was all wrong after 25 Jan, with the upside capped at below 90p, yet downside from the process falling through.

API also issues a trading update today, which is a very mild profits warning, saying that results for y/e 31 Mar 2013, "are likely to be marginally below previous management expectations", but, "will demonstrate substantial year on year improvement". The outlook sounds mixed. So I suspect these shares are likely to take another lurch downwards today. There is no dividend yield to cushion the fall either, although clearly they will now need to introduce a dividend, after all paying divis is what companies exist to do! (something that management often forget).

I'm not terribly interested in chasing this one down, unless it gets really cheap, because we now know that it's a company nobody wants to own! Its large shareholders want out (they pressed for the sale process in the first place), and nobody in the trade or private equity seems to value it at a worthwhile premium. I might get interested at 50p, but probably not much higher than that, but let's see where the price settles & then take a view. My commiserations to friends who were in this one - I suspect the damage is done, so if I held then I'd probably park this in the long-term, hasn't really worked out, section of my portfolio, or just dump it & move on.


Recruitment group

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API Group plc is a manufacturer and distributor of foils, films and laminates for use primarily in packaging for fast moving consumer goods and printed media. The Company's segments include Laminates, Foils Europe, Foils America and Holographics. It is a producer of carton board laminates for the packaging of consumer goods. Its product range includes metallised polyester and aluminium foil laminates and holographic and Fresnel lens finishes, which can be customized to fit specific printed graphics, as well as green options which are repulpable and biodegradable. It also makes functional laminates, such as microwave susceptor and fire retardants. Its products can be found across arrange of applications and sectors, including wines, beers and spirits, tobacco, personal care, food, greeting cards, vehicle licensing and number plates, passports and identity (ID), banknotes and financial cards. It operates in the United Kingdom, Rest of Europe, Americas, Asia Pacific and Africa. more »

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Harvey Nash Group plc is a United Kingdom-based recruitment business company. The principal activity of the Company is the provision of professional recruitment and offshore solutions. The Company's segments include United Kingdom & Ireland, Mainland Europe and Rest of World. Services provided by each segment are permanent recruitment, contracting and outsourcing. The Company provides executive search, interim management and leadership consulting services. Its leadership services include board evaluations, management development, audits, assessments and strategic human resource (HR) consulting. Its professional recruitment services include technology recruitment business and recruitment solution business. Its offshore services include projects and software services, which provides application development, third party software maintenance and outsourced software services to clients across the world, and managed services/business process outsourcing. more »

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MXC Capital Limited is a Guernsey-based merchant bank. The Company is engaged in investing in technology companies. The Company is a permanent capital vehicle that is responsible for its strategy, capital raising and investment decisions, as well as the supervision of its London-based merchant banking activities. The Company's segments include Capital Markets segment, Advisory segment and Central. The Capital Markets segment includes the Company's corporate finance and related services division. The Advisory segment includes the Company's advisory and consultancy division, responsible for originating and advising on investment opportunities and providing operational and strategic guidance to clients. The Central segment includes the provision of merchant banking services, including the management of the Company's investments. It focuses on investing in managed services, government and public sector, Internet of Things (IOT), robotics, security and Internet service providers (ISPs). more »

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  Is API fundamentally strong or weak? Find out More »

5 Comments on this Article show/hide all

marben100 13th Feb '13 1 of 5

Hi Paul,

You're doing great work here at my favourite financial web site, keep it up! :0)

One more smallcap worthy of mention today is Avingtrans (LON:AVG) . Their announcement was a little late (10am), which is why I guess it didn't make it into your morning report. Further confirmation that their transformation/recovery is on-track. IMO the stock continues to remain cheap on a P/E of < 10, a 2%+yield and substantial EPS and profit growth anticipated. Debt appears manageable. I guess there could be an upgrade following today's announcement.

I have been a long-term holder of these and will continue to hold at current levels. Not a screaming bargain any more, but hardly overpriced either.



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Paul Scott 13th Feb '13 2 of 5

In reply to marben100, post #1

Hi Mark,

Thanks! Yes you're right, I only look at announcements between 7-8 am each day, as that is enough to cope with, let alone any further ones later in the day.
I've checked out the Avingtrans (LON:AVG) statement from this morning, and it looks helpful, although not particularly material to their over turnover each year, at £2.5m p.a., but it's a good strategy to build long-term contract revenues - likely to make results more stable & predictable, and lowers risk.

We met mgt of AVG at a Mello Central last year, and I recall thinking they seemed sensible & competent, and liked the company, but I didn't see any particular value in the shares - they did (and still do) look priced about right to me.
Maybe the company will do well, and you might make a 25% gain in a year, or 50% in 2 years, but if they don't execute as well as planned, then it might go down.

So it just doesn't look a particularly exciting risk/reward play to me. I'd rather invest in things that are trading well, and on a fwd PER of 6-8, but there aren't many left! AVG also has a fair bit of debt relative to the mkt cap. So I'm not looking at it thinking that it's a bargain. Could be a takeover target though, who knows?

Regards, Paul.

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fredahad 13th Feb '13 3 of 5

I totally agree with Mark's sentiments Paul - your summaries are enormously useful for time-poor investors, and seem to always seem to cut straight to the kernel! I am also a huge fan of the Stockopedia website -it is for me the single most useful resource on the web, and crazy-good value to boot. If I have any complaint, it is that there are so many features that one rarely gets time to fully explore the offering. For this reason, you highlighting little snippets of what can be done on the site are a great idea -please keep them coming.

For the "suggestions box" -one Stockopedia usage-tip per day, (included on your small-cap summary), would be a very digestible training resource -if you agree, please run it by Ed.

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Paul Scott 13th Feb '13 4 of 5

In reply to fredahad, post #3

Hi Freddie,

Thanks for your kind comments, much appreciated!
I was a bit unsure about whether to include any pointers in my morning report on Stockopedia features (and to reiterate, they have not even asked me to do so, I have total freedom to write about whatever I like, which is great, and I wouldn't have it any other way!!), but as I'm a fairly new user to Stockopedia myself, thought it would be useful to flag up particularly useful features buried in the website.

I'm always raising "green tickets" and suggesting new ideas to Ed & Dave at Stocko too, and love the way they always respond immediately, and are constantly adding new features and improving the site based on what customers ask for.

I'll flag up more good features of the site as I come across them (am still exploring it myself!), and will continue putting them in my morning report, but will probably restrict it to days when there aren't many relevant company news releases (like today), otherwise it takes too long (2-3 hrs is about as long as I can concentrate for when doing these reports!).

Cheers, Paul.

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Edward Croft 14th Feb '13 5 of 5

In reply to fredahad, post #3

Freddie - thanks for these kind words ! It really means a lot to us. I think this is a really interesting idea - a usage tip of the day. We are hoping to start creating many more screenshares etc over the coming months and so on - but I think the annotated screenshots are really quick to understand so perhaps we'll do more of them. As Paul says he's doing this off his own bat really - excellent stuff !

If anyone's reading this then vote up for this comment if you'd like to see more usage tips, and down if you don't !

Blog: Follow @edcroft on Twitter
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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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