Small Cap Value Report (1 Apr 2016) - LAKE, JDG, TRCS, NXR

Friday, Apr 01 2016 by

Good morning!

April Fool's Day today, and my favourite article is this corker from the Guardian, which had me in stitches once I realised it was not serious, about half way through.

Best Tweet of the day (well from last night, to be completely accurate) so far comes from the utterly brilliant (get this woman into Parliament) Julia Hartley-Brewer;


Lakehouse (LON:LAKE)

(at the time of writing, I hold a long position in this share)

Slater/Rawlings EGM statement - I was rather hoping that this announcement was also an April Fool, but sadly it appears not. As a LAKE shareholder myself, I'm getting increasingly perplexed and annoyed by the mud-slinging in public going on between the Slater/Rawlings team, and the incumbent management of LAKE.

This is just not the way things should be done. If they think management are no good, then Slater/Rawlings should have called an EGM to replace the executive Directors. Instead they have gone down the bizarre route of wanting to evict the NEDs, and put in Rawlings himself (the founder), and 2 other people they think would be good NEDs.

The company's response was to reject this - mainly on the grounds that the new NEDs would not be independent, which is a fair point. Although I think the company was foolish to then publicly slate the 3 suggested new NEDs, undermining their credentials in this announcement, which seems to have burned their bridges towards a compromise - not a good negotiation stance.

All in all, it's ludicrous situation that needs to be sorted out asap, as the company is just racking up unnecessary costs on numerous consultants, not to mention management time wasted, on this issue.

I can't help feeling that it's a bit of petulance on the part of Slater. They overpaid in a bad IPO, and are now throwing their toys out of the pram. If they're serious about changing management, then they should have just spoken to management, and if not possible to get the changes they want, then call an EGM to unseat the executive Directors, and put in new management. That's the way it should be done. Changing the NEDs but leaving in place the execs that they say have done a bad job, seems daft to me.

Anyway, the current situation is not showing anybody in a good light,…

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Sureserve Group PLC, formerly Lakehouse plc, is an asset and energy support services company. The Company is engaged in the construction, improvement, maintenance and provision of services to homes, schools, and public and commercial buildings. Its segments include Compliance, Energy Services, Property Services and Construction. Its Compliance segment delivers a range of services to local authority and housing association customers, and it is focused on gas, fire, electrics, and lift compliance activities. Its Energy Services segment, via its subsidiary Everwarm Ltd., provides domestic insulation, energy products and advice for social housing landlords and the Scottish Government. Its Property Services segment provides planned refurbishment, repair and maintenance, and responsive maintenance for social housing providers. Its Construction segment delivers extension, refurbishment, rationalization and new build works in the education market, particularly schools. more »

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Tracsis plc is a holding company. The Company is engaged in the business of software development and consultancy for the rail industry. Its segments include Rail Technology and Services, and Traffic & Data Services. The Rail Technology and Services segment includes its Software, Consultancy and Remote Condition Monitoring Technology, and also includes Ontrac Limited and Ontrac Technology Limited (together being Ontrac). The Traffic & Data Services segment includes data capture, analysis and interpretation of traffic and pedestrian data to aid with the planning, investment and ultimate operations of a transport environment and it also includes SEP Limited (SEP). It provides software products, consultancy services and delivers customized projects to solve a range of problems within the transport and traffic sector. It specializes in solving a range of data capture, reporting and resource optimization problems along with the provision of a range of associated professional services. more »

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Judges Scientific plc is a United Kingdom-based company, which is engaged in the acquisition and development of a portfolio of scientific instrument businesses. The Company's activities are predominantly in or in support of the design and manufacture of scientific instruments. Its segments include Materials Sciences and Vacuum. Its subsidiaries include Armfield Limited, engaged in the design and marketing of engineering equipment and research instruments; Fire Testing Technology Limited, which is engaged in the design, manufacture and service of instruments that measure the reaction of various materials to fire; Scientifica Limited, which offers micropositioning equipment, microscopes and advanced imaging systems used in electrophysiology and neuroscience; Quorum Technologies Limited, which manufactures scientific instruments primarily used for electron microscopy sample preparation, and Sircal Instruments (UK) Limited, which designs, manufactures and distributes rare gas purifiers. more »

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  Is LON:SUR fundamentally strong or weak? Find out More »

25 Comments on this Article show/hide all

simoan 1st Apr '16 6 of 25

In reply to post #125941

I think the problem for Norcros (LON:NXR) is the South African element, it seems the economy there is getting worse, I admit thats one reason why I sold mine a couple of months ago and thats why the share price has fallen back, there could be rate of exchange issues also.

Against that, we are looking at a PER < 8 even if they only match last years EPS (22p) which is entirely possible given that the Croydex acquisition could easily make up for any shortfall in SA? The SA business has been a problem for a while, so it's not really a new issue but it's one that has been cleverly diluted by the acquisition of Croydex, and today to a lesser extent, Abode. Let's face it, both look sound earnings enhancing acquisitions and yet they have not yet been reflected at all in the share price. 

It's entirely possible that Norcros (LON:NXR) is a value trap, and to be fair it's never attracted a PER above 10 in recent years, but these things can change and while we wait it has a very safely covered 3.5% yield. So not the worst place to have some money parked. 

With regard to exchange rates, it's bad enough trying to judge the business prospects of a company without second guessing currency markets on top, so it's not something I personally ever base investment decisions on.

All the best, Si

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herbie47 1st Apr '16 7 of 25

In reply to post #125950

Thanks Paul for that information, yes it looks good. I came across this article, it seems its not just commodities that is the problem:

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Fugwit 1st Apr '16 8 of 25

Re Abode's Companies House filing: I track a couple of private firms accounts via Co House and it is not unusual to have to wait a a few days for the accounts to appear online after the filing deadline so I suspect your guess there is spot on.

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imranawan 1st Apr '16 9 of 25

Hi Paul

Thanks for the write-up about Boohoo.Com (LON:BOO). I wondered where you got the information about PLT from. I've had a look at their accounts on Companies House (BETA) and see they are listed as 21 Three Clothing Company Ltd, but can't see their full accounts, just an abbreviated section of the balance sheet. I've come across a few articles, saying their growth in revenues has been strong, but just wondered whether they had published their accounts.


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carmensfella 1st Apr '16 10 of 25

With regards to Lakehouse and the Agm which I attended and asked many questions alongside at least 30 other shareholders. The facts and my thoughts are....

1. Steve Rawlings attended and voted all his shareholdings against various resolutions. The votes were very significant and there were some members of the board with only just over half of those eligible to vote actually in favour of their re election. The votes are here....

2. Institutions do not attend Agms and usually vote well in advance of AGMs. It is likely that Slaters were unaware of the feelings of Steve Rawlings at that stage.

3. I am passionate about shareholders taking responsibility for their share ownership rights and that includes larger shareholders attending Agms so that all parties will be aware of the views of the other owners. It is the Annual meeting but institutions rarely attend or send representatives. This could have been averted with institutions attending and supporting each other to gain sensible agreed changes after the meeting rather than in public airing like this.

4. I think there should be compromise with regards the NED appointments and that at least one should be retained and a totally independent NED appointed to represent the mass of private shareholders who currently feel disappointed that this is causing distraction and unnecessary cost.

5. Steve Rawlings did not previously want a place on the board and was happy to let the executives look after his very significant investment of previous time and wealth. That has changed and with over 25% within his and family holdings i see no reason why he should not be entitled to a non executive position. That is the case at hundreds of companies where shareholdings are over just 15%.


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Ramridge 1st Apr '16 11 of 25

When it comes to "buy & build" strategy, don't forget Victoria (LON:VCP) which has been on a tear since current chairman Geoff Wilding came on board in 2013.
He has done 4 or 5 major acquisitions since then with an average EBITDA mutiple of 4.5 (source: SCSW). The share price has rocketed from around 500p in Jan 2015 to a current 1500p.
But there is no free lunch. Net Debt has soared to £80m from Net Cash of £8m prior to the acquisitions. Although the company maintains they are still within the bank convenant limit of 3x EBITDA, by my calc they are over 5x Operating Profits.
FCF is also worrying low. This is a cyclical business and having a weak balance sheet is not a good idea.

Declaration: Not long or short. I am watching from the sidelines. Today the risk/ reward doesn't look that attractive.

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herbie47 1st Apr '16 12 of 25

In reply to post #125977

Yes have been discussing this on another post. Geoff Wilding also got a £7m payment, I won't be investing in such a company. They are also looking at another acquisition. Looks very risky now.

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investimouse 1st Apr '16 13 of 25

In reply to post #125968

Imran - the info on PLT is in their admission document.

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eezymunny 1st Apr '16 14 of 25

NMD worthy of your views methinks. A contractor whose recent history has been plagued with problem contracts overrunning etc. Most and possibly all of those are now resolved, and with strength of order book I reckon they could do £5+m pbt this year vs a market cap of just £14m (for a P/E of c. 3.5). All plausible with an order book of almost £200m. In 2006 (pre-recession and all these contract overruns) they did £5.4m pbt on turnover of £175m (paying an 8.5p divi). The shares traded over 500p in 2007 (vs 138p today).

Looks a better bet than LAKE at the price (to me!) give that there's very little debt.

Results today

Accidents, however, may happen!

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simoan 1st Apr '16 15 of 25

In reply to post #125950


Sounds pretty good, no? Although maybe things have deteriorated since, who knows?

We'll find out soon enough! Norcros financial year ended yesterday and there is normally a trading update in the next week or so. 

All the best, Si

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JohnEustace 1st Apr '16 16 of 25

I agree with you that the battle at Lakehouse is holding things back. I captured some of the price recovery but took my profit and am waiting on the sidelines to see how this plays out. Likewise I'm puzzled by the focus on the NED's and believe there's no reason why they all should be independent. I don't see how they can deny Rawlings a seat given the size of his holding. But wouldn't he better off raising funds to take it private? Presumably it's all deeply personal.

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gus 1065 1st Apr '16 17 of 25

Hi Herbie.

I may have got my wires crossed, but I recall reading that Wilding picked up 11m shares for his leveraged re-cap/acquisitions spree with Victoria (LON:VCP). The £7m you refer to came when he sold 1 million shares, i.e. 1/11 of his LTIP derived shareholding. Also not a holder (or shorter) and happy to be corrected if I am wrong. Not sure whether his shareholders see him as King Midas or a corporate mugger. I guess at £15 share, there can't be too many complaints.


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Ben1 1st Apr '16 18 of 25

Paul, your views on the Scisys result which came out yesterday would be appreciated

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jimbobjames2002 1st Apr '16 19 of 25

Hi Paul, couldn't agree more regarding Boohoo.Com (LON:BOO) and Pretty Little Thing. Looks an absolute steal at £5m for a business growing very quickly. Clearly the Kamani family are very good at what they do! Like father like sons!

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herbie47 1st Apr '16 21 of 25

In reply to post #125998

Yes I think you are correct, seems he got 7m shares. I'm not a holder either way. The shares have done very well but I won't be investing now. Timing of next recession is crucial for Victoria (LON:VCP) shareholders.

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FrankJackson 2nd Apr '16 22 of 25

Ref Lakehouse I bought on 16th March after the Company confirmed it was on track to meet its revised projections. As Paul pointed out this seemed to make the shares an absolute bargain. The public spat between the Board and Slater/Rawlings then intensified. The Company's circular included the remark :-
"The Requisitionists' actions have caused unnecessary disruption to, and uncertainty within, the operations of the business at a time when the Board wants to focus on the trading performance of the Group" -
which made me wonder whether they really are on track to meet the new targets or not.

For all of my holdings I regularly question "If I didn't already own it, would I want to buy today?"
I took the view that the balance of risk had shifted in the last couple of weeks and the answer was no. I was able to sell at 25% nett profit on Friday 31st. I was happy with that but suspect I may have exited prematurely.

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xcity 2nd Apr '16 23 of 25

Does seem to be every chance that the next set of results will be disappointing with an optimistic statement. The winner of the battle will have other people to blame, so I would expect them to take every opportunity to make pessimistic interpretations of the current position so they will look better themselves.
I nearly bought, but didn't, so I don't have a 25% profit to bank. :(
- but I would if I could.

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FrankJackson 3rd Apr '16 24 of 25

Slight timing error in my post above. I actually bought LAKE on 8th March (not 16th) @39.49p and sold on 31st@49.76p.

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carmensfella 18th Apr '16 25 of 25

Regarding Judges Scientific....

It has been an exceptionally busy last few weeks for David Cicurel the energetic CEO of Judges Scientic who always enjoys coming back to Mello to update the tens of our regular attendees who have become shareholders in the company over the last seven years. This evening our Mello in Beckenham will be welcoming David and his FD Brad Ormsby back to the SeaSalt restaurant for their latest update especially as the final results were out just last month. The share price of JDG was just £1.78 when David made his first appearance and are now over £18 so you can see why we like to have him back...

The recent news has been very good with the results and two acquisitions linked below...

Feb 2016

Judges Scientific, the parent company of a group engaged in the design, manufacture and sale of scientific instruments, announces that it has today acquired 100% of the issued share capital of CoolLED Limited ("CoolLED"), an instrument maker based in Andover, Hampshire. CoolLED designs, manufactures and markets illumination systems for fluorescence microscopy (the "Acquisition"). The Board expects the Acquisition to be immediately earnings enhancing.

March 2016

Final results

and a further acquisition

Judges Scientific, a group involved in the buy and build of scientific instrument businesses, is pleased to announce that the Company's wholly-owned subsidiary, Fire Testing Technology ("FTT"), has acquired the business of Fire Instrumentation & Research Equipment ("FIRE").

April 2016

Just in case we did not believe they come in threes like London buses along comes another company deal...

Judges Scientific, a group involved in the buy and build of scientific instrument businesses, announces that it has today acquired 100% of the issued share capital of Dia-Stron Limited ("Dia-Stron"), an instrument maker based in Andover, Hampshire. Dia-Stron designs and manufactures systems to test the mechanical properties of fibres (the "Acquisition"). The Board expects the Acquisition to be immediately earnings enhancing.

So lots to talk about in Davids presentation tomorrow evening or tonight when most of you read this. Our Mello evenings are always flagged up on the website and all investors are welcome. We meet for drinks from 6pm with the first presentation always starting just after 7pm and you can stay for dinner afterwards which is a great opportunity to do more networking and ask even more questions as the directors usually stay on for dinner too.

If you would like to join us then just email me by replying to this post or through the website so that the restaurant have an idea of the numbers involved.

As an added bonus this month we will have a special guest who will be doing a 30 minute Q&A with investors on the subject of Excessive Remuneration and discussing some of the recent headline cases that have been picked up by the media....BP, Persimmon etc and BP actually lost their remuneration vote at the Agm but will there be much done about it around the boardrooms of the UK ?

Our guest will reveal all as he is a top remuneration consultant but has now officially left the industry and believes there are some ridiculous pay schemes that suggest 'enough is enough' and he wants to show investors what can be done to stop all this excessive greed at the top of UK Plc !

It should be an interesting evening....why not join us ?


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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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