Small Cap Report (31 Jan) - AGL, HYNS, RGD, MBH, NBI, ITM

Thursday, Jan 31 2013 by

I generally avoid blue sky, or story stocks, as my experience of the boom & bust in 1999-2000 has taught me that very few (in fact, hardly any) story stocks actually deliver on their promises. Even if they do deliver, it's usually years behind schedule, and many dilutive fund-raisings later.
That said, the financial memory is reputed to be around 15 years, and we are in a bull market, so there may be another opportunity to make hay whilst the sun shines, possibly?

Angle (LON:AGL) has always intrigued me, as they are developing a non-invasive method of screening for certain cancer cells in the blood, called a Parsortix device. The shares have recently spiked up, more than doubling in price to 65p. Another Placing today has put the dampener on that a bit, with 10% more shares being Placed at a not unreasonable discount (considering the recent huge upward move in price) of 17.4%. So the issue price is 50p. Shares in the secondhand market will obviously gravitate towards this price, as people who take part in the fundraising "flip" shares in the market, to lock in an instant profit, which can be done either by selling, or by opening a short position via a CFD/Spread Bet until the new shares are delivered.

I believe we need to lobby Government to radically reform the current system for company fund-raisings. The law needs to be changed so that a Placing is open to all shareholders (since anyone can buy the shares secondhand, why restrict who can buy newly issued shares?), and done instantly online, over say a 7-day period, with the shares being suspended whilst the Placing is undertaken. Also, instead of companies fixing the price of the Placing, it should be set by electronic auction, with firm bids submitted by existing shareholders first, and then opened up to anyone else subsequently. A minimum price could be underwritten by a third party, in return for a fee.

Going back to AGL, I am meeting the Directors today for lunch & their interim results presentation, so will report back with my impression either tomorrow or over the weekend. I've not read the accounts yet, although being a blue sky share, it's the narrative & outlook that matters more than the figures.


Car repair manual publisher,…

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ANGLE plc is a holding company. The Company's principal activity is undertaken in relation to the commercialization of its Parsortix cell separation system, with deployment in non-invasive cancer diagnostics. The Company is a specialist medical diagnostic company, which offers products for cancer diagnostics and fetal health. Its Parsortix cell separation system uses a microfluidic technology in the form of a one-time use cassette to capture and then harvest circulating tumor cells (CTCs) from blood. The cassette captures CTCs based on their less deformable nature and larger size compared to other blood components. The resulting liquid biopsy (blood test) enables the detection and investigation of mutations in the patient's cancer for personalized cancer care. The harvested CTCs have a range of applications, including diagnosis, prognosis, mutational analysis and drug selection, drug development, assessment of treatment effectiveness and remission monitoring. more »

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Haynes Publishing Group P.L.C. is a United Kingdom-based company, which creates and supplies practical and informative content to consumers and professional mechanics in print and digital formats. The Company operates through two geographical segments: UK & Europe, and North America & Australia. The UK & Europe segment has subsidiaries in the Netherlands and Italy, among others. Its core business is the publication and supply of automotive repair and technical information to the professional automotive and do it yourself (DIY) aftermarkets in both a print and digital format. The North America & Australia segment publishes DIY repair manuals for cars and motorcycles in both a print and digital format. It publishes titles under the Haynes, Chilton and Clymer brands, in both English and Spanish. It has a branch operation in Sydney, Australia, which publishes various products under both the Haynes and Gregory's brands. Its consumer content is delivered via both print and digital channels. more »

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Real Good Food PLC is a food manufacturing and distribution company. The principal activities of the Company are the sourcing, manufacture and distribution of food to the retail and industrial sectors. The Company's segments include Cake Decoration, Food Ingredients and Premium Bakery. The Real Good Food (Cake Decoration) division manufactures, sells and supplies cake decoration products and ingredients for the baking sector in the United Kingdom and abroad. The Real Good Food (Food Ingredients) division sources, manufactures and supplies a range of food ingredients from bagged sugars and dairy powders to chocolate coatings and jams to food manufacturers, wholesalers and retailers. The Real Good Food (Premium Bakery) division manufactures, sells and distributes added value bakery and dessert products to the United Kingdom retailers and foodservice customers. more »

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  Is Angle fundamentally strong or weak? Find out More »

6 Comments on this Article show/hide all

Asagi 31st Jan '13 1 of 6

Northbridge have said 'in-line'.

Stockopedia has 27.6p of EPS forecast for 2012. 32.4p forecast for 2013.

bit of an outlook statement in today's RNS from the CEO:

investment into hire equipment and the new UK location are important ... and will help sustain our growth into the future. We are now beginning to reap the benefits in cash flow .. The second six months of 2012 were a record for the Group as a whole and this momentum has continued into the start of 2013. We hope that the early signs of improvement in the overall world economy will continue and that Northbridge will see further advancement in 2013.

Very much sets the scene for further growth in 2013. Today, Northbridge trade on a 2013 P/E of just 8.1 times earnings.



(long NBI)

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Paul Scott 31st Jan '13 2 of 6

In reply to Asagi, post #1

Hi Asagi,

Good points, NBI does indeed look good value on a fwd PER basis.
The 2% dividend yield is not brilliant, but OK.

The trouble is with hire companies, you have to think about the debt too. NBI seems to have geared up a fair bit (not to dangerous levels though) which will always flatter EPS and hence PER at a time of very low interest rates. Higher interest rates in a recovering economy are likely to hurt, but it depends on what terms the debt is on, and what hedges they have in place.

I met the mgt of VP Group recently, and they have a mix of fixed, and capped interest rate hedges, which seems sensible. Also, they told us that equipment hire is all about finding a profitable niche, not a low margin mainstream area. NBI seem to be focused on the oil sector?

Overall though, it looks moderately interesting as a potential growth at reasonable price (GARP) situation.

Cheers, Paul.

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Asagi 31st Jan '13 3 of 6

Agreed Paul - thanks for posting further thoughts.

Another thing I like about Northbridge is the dividend increases. According to the Stockopedia data page (or whatever it is called!) for the company here:

the dividend has increased every year since 2007. In the last five years, the dividend has increased at an average of 21% a year. The dividend increased 6% at the interim stage in 2012; a 9.5% increase is forecast for 2012 (versus 2011) to be followed by a 10.6% increase the year after.

You make some factual comments about debt etc. I remember discussing the share with another investor who was deterred. The price then was 230p!

It would be a good question for management on what they hope to do with the debt in future. No doubt the dividend would be higher without it. Likely they will not make another acquisition for awhile and pay some down but who knows?

But I think that such worries are a little bit 'worthy' to be honest - below 250p the shares were a steal and I won't be worrying about debt while the shares are still under 300p.

Some of the brokers have updated today, reiterating a 350p target price. I agree.

Asagi (long NBI)

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BrianGeee 31st Jan '13 4 of 6

"I believe we need to lobby Government to radically reform the current system for company fund-raisings. The law needs to be changed so that a Placing is open to all shareholders (since anyone can buy the shares secondhand, why restrict who can buy newly issued shares?), and done instantly online, over say a 7-day period, with the shares being suspended whilst the Placing is undertaken. Also, instead of companies fixing the price of the Placing, it should be set by electronic auction, with firm bids submitted by existing shareholders first, and then opened up to anyone else subsequently. A minimum price could be underwritten by a third party, in return for a fee."

l couldn't agree more strongly, although I would tend to go further and say that fund raisings could only be via modified renouncable rights issues. That way the price at which the rights are issued makes little difference. 

- Each existing shareholder has a right to apply for his proportion of new shares.

- Each existing shareholder can sell his rights.

- Any shareholder taking no action will retain his existing holding, and have his rights sold in an excess rights auction. This auction will be open to all.


No opportunity for brokers to "earn" silly fees for putting their favoured clients into the best placings.

No need for underwriting - as the price can be set to ensure all rights are taken up, at no disadvantage to existing holders.

Simple and transparent.

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BrianGeee 1st Feb '13 5 of 6

"I've never understood why so many investors get excited about Real Good Food (LON:RGD), it has always struck me as an unappealing investment, given its negligible profit margins, capital intensive nature, and far too much debt. Their Q3 trading update this morning is a complete mess, I have no idea whether it's a profits warning, or a positive statement, it seems completely contradictory, saying that Q3 trading was "lower than anticipated, with December proving particularly challenging", and then going on to say that, "overall the group has performed well"!?
On a more positive note though, they have completed a new 5 year bank facility with existing lenders. If anyone else can make sense of their trading update, then please comment below."



The last quarter of their prior 15 month year was very weak, as has been the first half of the current year in terms of profit.

With H1 eps of 1.4p, it seemed too much of a stretch for the broker's estimate of 7.5p for the full year to be met. The business is seasonal, but not to that degree. Looking at prior year H1/H2 figures:

                H1           H2

2008       -1.7        0.0

2009       -1.3        2.6

2010       -1.4        3.6

2011       1.2          4.8          Year-end changed in 2012, so 2012 figures

2013       1.4          ???

So why in thier Interims and at a Dec presentation were they adamant they'd meet full year estimates?

Well, I don't know, but the share price clearly indicates that investors didn't believe them.

At the Dec presentation, all orders would be known, most delivered, and if the financial department were on top of their job, the position would be known. They confirmed at the presentaiton that they this was true and still said they were on target.


So now they've realised they're not on track and are trying to save a little face, but due to stupidity since the interims, there's no avoiding the loss of credibility.

They're saying that the medium and longer terms plans are still on track, although it looks like it will take quite some work to achieve.

Given what they say, for this year I'd expect eps of around 5.8p, and probably about 8p next year.

They could also do with a decent broker to replace Shore Capital.

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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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