Small Cap Value Report (10 Feb 2015) - ENTU, HRN, SIM

Tuesday, Feb 10 2015 by

Good morning! I'm looking forward to Ed's next webinar here, at 12:30 today, explaining more about StockRanks - a proprietary Stockopedia system which I am growing in confidence about, as it has already established a very good track record. It tends to favour stocks which fit many of my criteria too (a lot of my bigger holdings seem to have high StockRanks), although personally I like to apply additional filtering to exclude companies with weak balance sheets. I'm very happy that StockRanks provide an excellent starting point for a shortlist anyway, so it is not only steering us away from shares that are likely to underperform, but also saves a lot of time. I'll be out of a job here if StockRanks gets too good!!

Entu (UK) (LON:ENTU)

Share price: 121.5p
No. shares: 65.6m
Market Cap: £79.7m

Final results - for the year ended 31 Oct 2014. These are maiden results as a listed group, since Entu floated on 30 Oct 2014. It is a group of home improvement companies - e.g. replacement windows, conservatories, boilers, solar panels, etc.

I flagged up this company here on 15 Dec 2014 when it issued a positive trading update, so results this morning were expected to be good, and they are. Very good actually.

Trading - turnover is up 24.6% to £119m, and pre-exceptional operating profit up a tremendous 69.5% to £10.3m. Note 4 to today's results (segmental analysis) shows some dramatic shifts in profitability by division. So the home improvements division (which is nearly 71% of turnover, at £84.3m) generated a relatively modest operating margin of 4.5%, with operating profit of £3.8m (up 6.3% against prior year).

The energy generation & saving division saw operating profit shoot up from £0.2m to £1.8m. A similar strong rise in profits occurred at the Insulation division, where profit shot up from £0.4m to £2.7m.

I have put a call in to the company, to get a bit more flavour on what has driven these strong increases in profit at two of the smaller divisions, so will report back later if there is anything interesting to convey.

Valuation - adjusted EPS came in at 12.3p (up 57.7%), which is ahead of broker consensus, which was for 11.97p. Therefore the shares are only rated on 10 times historic earnings now, which seems a very reasonable price for a business that is performing well.


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Entu (UK) PLC is engaged in the sale of replacement windows, double glazing, entrance doors, patio doors and exterior improvement products within the United Kingdom. The Company's segments include Home Improvements, Energy Saving & Insulation, and the Repair and Renewal Service Agreements (RRSA). The Home Improvement segment products, doors, windows, conservatories and roofline, are sold through separate brands. The Energy Saving & Insulation segment products include solar photovoltaic installations, air-to-air heat pumps, voltage regulators, remote heating controls and boilers, as well as cavity wall insulation, external wall insulation and loft insulation. The Company's brands include Astley Facades, ZEST, Zenith, Weatherseal, Penicuik, Europlas, St Andrews, St Helens, Eco Piggy and Job Worth Doing. Astley offer external wall insulations and render systems, lightweight external wall framing, composite and timber cladding, as well as specialist terracotta and aluminum rain screens. more »

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Hornby Plc is a holding company. The Company is engaged in developing, designing, sourcing and distribution of hobby and interactive products. The Company distributes its products through a network of specialists through its online activities and various retailers throughout the United Kingdom and overseas. The Company has operations in the United Kingdom, the United States, Spain, Italy and the rest of Europe. The Company offers its products under various brands, such as Hornby, Scalextric, Airfix, Humbrol and Corgi. Its subsidiary, Hornby Hobbies Limited, offers products under various categories, which include Train Sets, Locomotives, Train Packs, Tracks and Extras, Wagons and Coaches, and Spares and Accessories. Its subsidiaries include Hornby Espana S.A., which is engaged in the development, design, sourcing and distribution of models, and Hornby America Inc., Hornby Italia s.r.l, Hornby France S.A.S and Hornby Deutschland GmbH, which are distributors of models. more »

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SimiGon Ltd is engaged in developing learning, training and simulation technologies and applications for use in professional communities. The Company has developed SIMbox, a personal computer (PC)-based software platform to create, modify, manage and deploy any simulation-based content across a multitude of domains, such as training, research development, operations analysis and entertainment. SIMbox is a three dimensional (3D) simulation engine including software modules that enable users to create new products and content. The Company also provides KnowBook is a training solution for aircrew and organizations. KnowBook includes all types of simulation, knowledge management, mission rehearsal, after action review (AAR), and time management. The Knowbook family consists of AirBook, GroundBook, and MarineBook. In addition, the Company offers AirTrack, which provides passenger inflight entertainment solutions, and D-Brief PC, an offline/real-time debriefing application. more »

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

18 Comments on this Article show/hide all

Ramridge 10th Feb '15 1 of 18

Hi Paul
Entu (UK) (LON:ENTU) I liked the numbers too and managed to pick up a few shares before the strong rise. In addition to your comprehensive analysis I'd like to add two further positives.
- Cash Flow from Operations = £10.4m;    +93% (greater than PBT = £9m)
- Free Cash Flow = £8.4m;    +115%

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Paul Scott 10th Feb '15 2 of 18

In reply to post #91920

Hi Ramridge,

Thanks for that. From what I can make out, accounts for Entu (UK) (LON:ENTU) look clean - I can't see any funnies in there, or anything untoward.

I know some people were unhappy with the pre-IPO related party transactions - in particular a c.£10m loan to a Manchester Sale rugby club, which was then written off. I can understand this raising eyebrows, but people can do whatever they like with a private company, and if they want to give away bucketloads of cash to a rugby club, then they could do when it was private. Of course that type of thing is strictly prohibited now it's a public company, which I am sure they appreciate.

There are still some related party transactions, in terms of trading, but that is disclosed in the notes, and providing it's on arms length terms, is tolerable, if not ideal.

It's the divis I'm after though, an 8% yield from IPO was a powerful driver for a re-rating, and that's what seems to be underway now, with the shares up about 20% since the float. I think there could be more to come, if trading continues to be positive.

Regards, Paul.

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dasv 10th Feb '15 3 of 18

rugby club - yep that's why I didn't buy. I almost did. Just didn't rate a management that would ever do that.

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Graham Fraser 10th Feb '15 4 of 18

Would a Ping Pong club have been ok?

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browner 10th Feb '15 5 of 18

dasv - likewise. I take on board some people's arguments that it is different now that they are a listed company and they were perfectly entitled to provide a large loan to a rugby club that subsequently had to be written off. Of course they were.

However I have decided to err on the side of caution and have taken the 'leopards don't change their spots' approach wrt the management. I may well miss out on a fantastic opportunity but ENTU is one that I am happy to watch from the sidelines. Aimho. Good luck to all those that do invest. I hope it works out.

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mrwhits 10th Feb '15 6 of 18

Hi Paul,

Agreed that ENTU now looks great value, bought into them this morning and hoping for a rerating.

As a small cap writer, did you notice TERN.L reported this morning?

They are a tech company which owns a large part of cryptosoft, an encryption company that is into "the internet of things" loss making last full year(reported today) but looks like its going in the right direction re profit/earnings/cash flow etc.

Might be worth a scroot.



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Sutherland 10th Feb '15 7 of 18

Fairly recent member of Stockopedia . Usually read Paul but this is the first I have been encouraged to buy. It looks very good opportunity, I only hope the company performs better than the Sale Rugby Club

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Paul Scott 10th Feb '15 8 of 18

In reply to post #91932

Hi dasv,

I can't see what the problem is. Lots of private company owners (probaby most actually) draw no distinction between their personal finances, and a company they own. If you own 100% of a company, and you decide to splurge £ 10m on a rugby club, then it's entirely your own business.

I remember having to persuade a Director of a private company that his wife should stop popping into the nearest branch, to plunder the till for hundreds of pounds when she fancied a shopping spree! She stopped doing it, but actually even then, there was nothing illegal about it - I correctly accounted for the VAT on the sales, so after that it is perfectly permissable to put the net amount of cash withdrawn through a Directors loan account in the books, which they theoretically have to repay at some point. You can literally do whatever you want, if you own the company, and providing the transactions are correctly treated for tax and other reporting purposes.

In a way I find it rather encouraging that Entu (UK) (LON:ENTU) is so cash generative that it was able to easily fund a £ 10m donation to a rugby club when it was a private company!

Of course now it is Listed, then all such activities are strictly outlawed. Totally different ballgame being a Listed company. In fact, let's not even tempt management by calling it a "ball game"!!

Regards, Paul.

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Paul Scott 10th Feb '15 9 of 18

In reply to post #91950

Hi mrwhits,

No, Tern (LON:TERN) is too small for me.

The company had quite a bad reputation too in the past. I did look at it a while ago, when it was a tiny cash shell. I see they are now using it as a tiny incubator company for investing in fashionable sectors that use buzzwords like "cloud" and "mobile".

Looks rather ramperoony to me!

Regards, Paul.

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dasv 10th Feb '15 10 of 18


I can see where you are coming from.

inevitable but.....I worked for a plc which never listed but was a public company. They told investors they would list but then never bothered! (no exit). Then the owners ploughed company money into vanity projects: theatre productions, a terrible movie (self-penned). I had options and when I had an option to cash in I did immediately and even left the co. I figured the management were not sufficiently focused on running the core side of their business.

Also I remember Sibir energy - an oil co. funding CEO's property gambles? V. dubious imo.

As for ENTU - I think they look like value but worry about the moat/barriers to entry. Great ROCE, surprisingly fat margin. Quite surprised to see that actually. I'll have to take another look - wasn't expecting margin 31% and ROCE 61.1%

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jonesj 10th Feb '15 11 of 18


Looks like you will have done very nicely on Character in the last 3 months alone!

Looking back:
(i) Positive trading statement in early September
(ii) Several high value director sales in late September (admittedly leaving big holdings afterwards)
(iii) Very good results just a few weeks after that, with a large increase in share price..

I would have swiftly dismissed it on the director sales alone. Not good decision making there.


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Paul Scott 10th Feb '15 12 of 18

In reply to post #91980

Hi jonesjeff,

Indeed, I've had a very good run with Character (LON:CCT) . The unfortunate thing is that, because it's so illiquid, and has a wide bid:offer spread, I didn't buy enough of them personally, and sadly wasn't able to get any at all for the clients of the portfolio service that I assist with (as it was below the minimum liquidity threshold that we are able to deal at with the service provider). Pity.

Funny you should mention Director selling not being a good indicator in this case. I've found that Director buying/selling has been a fairly poor indicator in the last year or so. It's led me up the garden path a couple of times (e.g. big Director buying at PuriCore (LON:PURI) came to nothing).

So I'm tending to de-emphasise Director dealing these days, unless it's an absolutely massive buy or sell.

Regards, Paul.

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kenobi 11th Feb '15 13 of 18

Sounds interesting, and this is probably a silly question but why is stockopedia showing no p/e or yield for entu ?

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Paul Scott 11th Feb '15 14 of 18

In reply to post #92028

Hi Kenobi,

Thomson Reuters doesn't seem to have picked up broker forecasts for Entu (UK) (LON:ENTU) .

I have raised a green support ticket, so hopefully should get fixed in the next few days.

Regards, Paul.

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kenobi 11th Feb '15 15 of 18

In reply to post #92043

Ok, great, Thanks Paul,

keep up the good work !


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Paul Scott 11th Feb '15 16 of 18

In reply to post #91962

I could tell you lots of other stories about wealthy people putting money into rugby clubs, and regretting it, but to save time just google it! The usual approach is that, with a few million they will turn a rugby club into the next Manchester United. Once they've put in about £5-10m, they realise it's a total black hole!


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peterg 12th Feb '15 17 of 18

In reply to post #92073

The usual approach is that, with a few million they will turn a rugby club into the next Manchester United. Once they've put in about £5-10m, they realise it's a total black hole!

Do they often realise the ball is the wrong shape first?

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iwright7 14th Feb '15 18 of 18

Just been through the Entu (UK) (LON:ENTU) numbers and concluded its a Growth share prices at a Value share multiple. My notes below:

Cyclical, New SP high, Low ttm PE, Inter-company Cross selling opportunities, Top line growth, Fantastic cash generation and returns because no manufacturing base and low centralized fixed costs. Operationally geared, Acquisitive, Boring with High Dividend, Under the Radar. Undervalued. Rgds Ian

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 Are LON:ENTU's fundamentals sound as an investment? Find out More »

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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