Small Cap Value Report (10 Jan 2014) - CHH, PMP, CRE, TTG, XPP

Friday, Jan 10 2014 by

Good morning! Churchill China (LON:CHH) issues a positive trading update today, saying that strong trading in Nov & Dec means that its operating performance for calendar 2013 will be "significantly ahead" of 2012, and will exceed current market expectations. It's a pity they have not quantified by how much they are likely to exceed expectations, as they have now created uncertainty. I would have much preferred if they gave an approximate percentage by which profits are likely to exceed the prior year, which should be possible if they have decent financial controls & reporting.

EPS for 2012 was 19.5p, and current broker consensus is for 23.2p EPS for 2013. So if they are likely to significantly exceed that, then I would imagine we're probably looking at somewhere in the 25-30p range? Maybe more, who knows? That's the problem now, we're being forced to guess what their performance might have been, which I don't like. They should have been more specific in the announcement, giving clear guidance by quantifying likely EPS, even if that means giving a range, rather than an exact figure.

I've re-written this section to reflect the big share price rise this morning:

The shares are currently 465p to buy, so a 25-30p EPS range means a PER between 15.5 to 18.6, probably towards the lower end of that range I would guess. The company also has net cash, and pays a decent dividend, which was held at 14p per share between 2008-2011, and started rising (slightly) in 2012. So a payout of 14.5p is forecast for this year, maybe they will pay 15p or more, as they have out-performed for the year? That equates to a dividend yield of 3.2% at the current buying price of 465p per share, which is fairly respectable.

The spread is very wide here, and it's a pretty horribly illiquid share. The three largest holders hold 50% of the shares, so that means the free float is quite small, and not many shares are traded on most days.

This one might make a good longer term investment though, as you would imagine that with many signs of the economy recovering, the hospitality sector is likely to be buying more crockery than in the last few years, indeed there is probably pent-up demand. So things are looking good for the company, well done to holders…

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Churchill China plc is a United Kingdom-based manufacturer and distributor of tabletop products to the hospitality and retail sectors across the world. The Company's customers include pub, restaurant and hotel chains, sports and conference venues, health and education establishments, and contract caterers. The Company's segments include Hospitality and Retail. The Company primarily offers ceramic tableware. The Company also manufactures and sources product sold through Retail customers for consumer use in the home, in various markets across the world. The Company offers Churchill branded manufactured products. The Company offers various types of products, such as accessories, beverage pots, bowls and dishes, cake stands, cookware, cups, mugs, cutlery, dip pots and sauce dishes, glassware, jugs, melamine items, plate towers, plates, saucers and wooden items. Its collections include Alchemy Fine China, Churchill Super Vitrified, Art de Cuisine, Sola Cutlery and Lucaris Glassware. more »

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Portmeirion Group PLC is a United Kingdom-based company, which is engaged in providing ceramic tableware, cookware, giftware and tabletop accessories. The Company has five brands: Portmeirion, Spode, Royal Worcester, Pimpernel and Wax Lyrical. The Company's segments include UK and US operations. Portmeirion offers tableware and gifts with collections, such as Sophie Conran for Portmeirion and Ted Baker collection. Spode brand includes Blue Italian, Blue Room and Christmas Tree. Royal Worcester is engaged in providing porcelain tableware and cookware collections. Pimpernel provides placemats, coasters, trays and accessories. Pimpernel also includes Wrendale Designs collection, which includes placemats, coasters, trays, ceramic and melamine gift sets. Wax Lyrical offers fragranced candles and reed diffusers. The Company caters to markets, such as United States, the United Kingdom, South Korea, India, Taiwan and Thailand. more »

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

22 Comments on this Article show/hide all

purpleski 10th Jan '14 3 of 22

Paul I agree completely with your last two paragraphs. Just summed the figures at for the 100 highest paid CEO's in the US at and this gives a total of $2.85 bill. Interesting.

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campbellsmith 10th Jan '14 4 of 22

Paul: I agree with your comments about directors remuneration. By now, with all our technology, there must be a secure way of enabling nominee account shareholders to cast their votes.

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bsharman 10th Jan '14 5 of 22

Great article today Paul - totally agree with all the points about director remuneration and passive investors - you must have had your weetabix this morning!

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Ramridge 10th Jan '14 6 of 22

Shame that that Swiss voted against capping executives pay to 12 times the pay of the lowest employees. That would have been a shining example for other countries to follow.

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man741 10th Jan '14 7 of 22

It would be easy for the government to compel companies to reveal total directors pay as a % of pre tax profits in their annual report and accounts. This would mean it would leap out at you and make people question the figure, even the directors.

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wbsan 10th Jan '14 8 of 22

Many thanks for taking the time and trouble to produce these daily observations. As an inexperienced investor I find them very educational. In that context, could I ask where you get the figure of 19.5 for Churchhill China EPS as ADVFN and last year's results show the figure as 22.0 & 22.2 diluted?

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jraitt 10th Jan '14 9 of 22

I have nominee accounts with Barclays and Halifax, who send me letters to allow me to attend and vote at all meetings of all my holdings. Not ideal any your system of electronic voting better.
Keep up the good work

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Roger Lawson 10th Jan '14 10 of 22

In reply to post #80444

Re the comment on showing total pay as a percentage of profits, the first step in being able to do this is of course to show the "total pay" figure, including all the various bonus schemes properly evaluated because at present even working that out is a problem. The Government has actually already implemented that for large companies so you will see that reported in the coming year, but not for AIM companies unfortunately where "anything goes" continues to be the rule. ShareSoc did make representations on that point. They are also running a survey on voting and nominee accounts which anyone can contribute to - results will be published in due course. See:

Website: Roliscon
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Ultimate_behemoth 10th Jan '14 11 of 22

Hi Paul,

Thanks for your daily reports, i'm a long time lurker but thought i could contribute to today's conversation. In Australia they introduced a "2 strike" rule in 2011 relating to director remuneration where if 25% of shareholders vote "no" on the director remuneration report for 2 consecutive years there is a board spill and all directors need to stand for re-election. The below article gives a better description:.

2013 was the 2nd year since it's introduction and on the whole it seems to be having the desired effect. It's not perfect and there is clearly room for this rule to be abused for non remuneration reasons but it's a step forward for shareholder rights. Also as nominee accounts are less common that issue is less relevant.

Have a great weekend!

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campbellsmith 10th Jan '14 12 of 22

In reply to post #80446

I have nominee accounts with Barclays and a bank in France. I get letters allowing to me to attend and vote from the French bank but not Barclays! So am surprized that you get them from Barclays. I will contact them to seek an explanation.
Many thanks,

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Chrisfarrell21 10th Jan '14 13 of 22


Apologies, I think I gave you a thumbs down by mistake, slip of the mouse I'm afraid. I particularly like the middle section on director remuneration.


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cig 10th Jan '14 14 of 22

While I obviously agree that nominee holdings should be able to vote electronically (it's not rocket science, see how other countries with registered shares do it), people can already take action when they disagree with management actions: vote with their feet, aka the sell button (or not using the buy button).

Excessive director pay shows directly in lower earnings and mainline metrics (it depresses the E in PE) and so in so far as long term share prices reflect discounted future earnings will show up in share prices, and lower share prices mean higher cost of funding, lower share-based rewards, and higher takeover chances for the directors, so the tools for discipline are there.

I hope everyone who has commented on this has already been reviewing their holdings and pressed the "sell" button for the worst offenders, and added that to their checklist to avoid buying such companies in the future.

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cig 10th Jan '14 15 of 22

Re XP Power (LON:XPP) I fear the power supply industry may be revolutionised by VHF technology in the next few years (it's at startup stage at the moment, see for instance), and that XP Power (LON:XPP) being as far as I can tell run by bean counters will miss the boat.

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mcarfrae 10th Jan '14 16 of 22

Hi Paul
Re: TT Elec.
I've been following them for awhile - They make electronic components, subassemblies, resistors, cabling, optoelectroncs etc.
Big competitors on the LSE would be Electrocomponents(RS components), Premier Farnell and any number of international Co's too.
The primary problem I have with any of these component mfgrs and distributors is their profit margin - 10% is considered good. That's the reason I have so far steered clear despite getting excellent service from RS shops whenever in need of bits and also regularly visiting both Farnells and Electro's monolithic warehouses when I worked for DHL and nearly being mowed down by their robotised stock-picking machines (so well automated and efficient for sure)!! Anyway as they say `cash(flow) is King' but I would also add `Hi profit margins is Queen'. My musings for you......Cheers, Martin.

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oldnotbold 10th Jan '14 17 of 22

I've not looked at Churchill China in depth, but it would seem to me that PMP is a much higher quality business as it has the huge 'moat' of the Spode and Royal Worcester brand names. Its H1 numbers were depressed by anti-dumping duties, but they state that they will have mitigated this somewhat in the critical H2 period (78% of profits typically). Meanwhile they achieved record ever production in their UK factory. It is also a good play on the recovering UK and US economies. It's never going to get very cheap but like so many old British brands that get taken over, when it happens you kick yourself and think 'goodness me, that was obvious, why do I waste my time with non-branded companies'.

Meanwhile, just to correct an earlier posting, TT Electronics is a manufacturer rather than a distributor, a very different business.

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Igotts 10th Jan '14 18 of 22

Hi Paul,
Re CHH I was having a look at this the other day. I have followed your blog for a while and now taken advantage of the Xmas offer for Stockopedia. I put together a screen for the parameters I have learnt about from you and 2-3 others (ie GARP), and apart from bombed out mining stocks it showed up CHH and Portmeirion. CHH numbers looked ok against the criteria I have started using, but I then sampled a few days trading to see several days with no trading at all, and recalled your comments about major writedowns if the market falls. However, the graph has been a nice steady uptrend over time, so I was mulling over whether to buy it and tuck it away. A pity I didn't so this earlier, with this 15% rise today! Then I read your blog and took comfort from your analysis that I might even be on the right track. So thank you for your work, as it's clearly benefiting my analysis of shares. Can I find the shareholder info through Stockopedia?

I'm still struggling with what is meaningful on Stockopedia and when. For instance CHH has quite a few yellows in Growth & Value, two big ambers in Margin of safety, yellows in ROE & ROCE, only passes one value screen and only manages a B rating on the Magic formula. Presumably some of these are more important than others? It's useful to have the information, but now I need to turn it into knowledge (and then hopefully into wisdom!)

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jjis 10th Jan '14 19 of 22

In reply to post #80452

Paul, thanks for writing up XPP - another one I've held for while :-). I know what you mean about the rating and in your piece today. I'm finding many of my stocks have done well but are obviously no longer looking such good value given that and it is getting increasingly hard to find decent value out there. I guess that's telling us something about the broader market. cig - your VHF thing doesn't look too scary to me for XPP given the following from their website:

We segment our customer base into the following industries:

  • Industrial: Power solutions for factory automation, automated test equipment, industrial control, test and measurement, instrumentation and hazardous environments.
  • Technology: Power solutions for semiconductor production equipment, audio visual broadcast equipment, mobile & wireless communications, computing and data processing.
  • Healthcare: Medically approved power solutions for use in patient vicinity applications and in the lab environment, including class II approvals for homecare devices, highly efficient convection-cooled designs for low noise patient area devices and defibrillator-proof DC-DC converters for applied part applications

We have industry specialists who are versed in technical requirements and power supply legislation applicable to each of these different sectors. This way our people can add genuine value to our customers during in the design in phase but can also use the knowledge they gain from these customers to develop new products to meet the needs of the market.

Nothing wrong with bean counters wouldn't you say Paul?


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cig 10th Jan '14 20 of 22

In reply to post #80458

Listening to customers is not the most relevant thing here, it's a supply side issue, as once/if the technology matures the VHF solutions will just trump, and ultimately replace, current tech for the same client-side specs. But maybe they do have the techies necessary to respond appropriately and I'm worrying needlessly.

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jraitt 10th Jan '14 21 of 22

To Cambellsmith,
You have to ask them and they renew it every 3 years.

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jules2k6 15th Jan '14 22 of 22

XPP: Regarding the VHF power threat. This will really only apply to charging small consumer products such as mobiles. Industrial power conversion will most likely be unaffected.

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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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