Small Cap Value Report (10 July 2017) - SDM, ACRL, FLO, CLLN, IPX

Monday, Jul 10 2017 by

Good morning!

Feel free to send in your requests and I'll work through them.



Stadium (LON:SDM)

  • Share price: 131p (-1.5%)
  • No. of shares: 38.2 million
  • Market cap: £50 million

Trading Update and Notice of Results

Checking the archives, I see that myself (one time) and Paul (several times) have refused to criticise this wireless/power/electronics business very much. It had a nasty profit warning last year which gave the share price a big shock, but it has recovered well and the shares have re-rated since then.

This short update confirms that things are back on an even keel, as trading is in line with expectations and ahead of the equivalent period last year.

Encouragingly during this period the Company's order book has continued to grow to above £28m, up from £25.8m at the year end. Consequently, the Board remains confident about delivering further positive progress in the current year.

The quality statistics shown below don't inspire me to to look into it in great detail but the StockRank is 93 and it's been a solid performer over the years, and the rating is still not terribly high. So it's a reasonable contender for a value portfolio.


Accrol Group (LON:ACRL)

  • Share price: 149.5p (-4%)
  • No. of shares: 93 million
  • Market cap: £139 million

Preliminary Results for the Year ended 30 April 2017

This loo roll manufacturer / tissue converter joined the market in June of last year, so this is its first set of results for performance as a listed entity.

Worth mentioning that it's an example of a successful IPO, at least over the short timeframe of one year. The IPO placing was at 100p.

Solid headline results, with the following selected highlights:

  • Revenue increased 14.2% to £135.1m (FY16: £118.2m)
  • Gross Profit increased 9.3% to £37.7m (FY16: £34.5m)
  • Adjusted profit after tax(1) increased 57.3% to £11.0m (FY16: £7.0m)
  • Profit after tax increased 29.3% to £7.4m (FY16: £5.7m)

And elsewhere (in my own words):

Net debt is reduced to £19 million, so the debt multiples look very safe now.

Market share is a very impressive 50% in the "Discount Sector".

New and expanding manufacturing facilities in Leyland, Lancashire.

Worth noting that Accrol is a tissue convertor - it's not actually manufacturing reels of paper. It's buying in…

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All my own views. I am not regulated by the FSA. No advice.

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Stadium Group plc is a provider of integrated electronic technologies. The Company operates through two divisions, including Technology Products, which incorporates wireless, interface and displays, power and stontronics, and integrated Electronic Manufacturing Services (iEMS) provided through design and manufacturing operations in the United Kingdom and Asia. It offers various services, such as design (electronic, mechanical and software), prototype, new product introduction (NPI), global procurement, in house tooling and molding, printed circuit board (PCB) assembly, box build and test, packaging and global logistics. It provides wireless machine-to-machine (M2M) connectivity solutions for original equipment manufacturer (OEM) devices in vehicle tracking, telematics, fleet management, smart metering, asset tracking, wearable technology, handheld devices, infotainment and security systems. It serves various manufacturers in the marine, aviation, medical and broadcast industries. more »

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Accrol Group Holdings plc, formerly Accrol Group Holdings Limited, is an independent tissue converter manufacturing toilet rolls, kitchen rolls, facial tissues and away from home products (AFH). Its AFH products include Centrefeeds, Hand Towels, Hygiene Rolls, Toilet Tissue, Wiping Rolls, Standard Jumbo and Mini Jumbo. Its Consumer Paper Products include Envirosoft, Facial Tissues, Handy, Mega, Mighty, Sofcell, Softy, Thirsty Bubbles and Triple Softy. The Company supplies a range of Independents, Discounters and Multiples, as well as a range of AFH customers throughout the United Kingdom. It imports Parent Reels from around the world and converts them into finished goods at its manufacturing, storage and distribution facility in Blackburn, Lancashire. The Company has 15 converting lines in operation providing capacity of approximately 118,000 tons per annum. Its subsidiaries include Accrol UK Limited, Accrol Holdings Limited and Accrol Papers Limited. more »

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Flowtech Fluidpower plc is a United Kingdom-based distributor of technical fluid power products. The Company operates through two divisions: Flowtechnology, which is geographically split into Flowtechnology UK (FTUK) and Flowtechnology Benelux (FTB), and Power Motion Control (PMC). FTUK and FTB focus on supplying distributors and resellers of industrial maintenance, repair and operation (MRO) products, primarily serving urgent orders rather than bulk offerings. The PMC division is engaged in the design and assembly of engineering components and hydraulic systems, which are managed by component supply along with a service and repair function. Its business is focused on its distribution offering in over three categories: Pneumatics (products that enable the use of gases to provide mechanical motion), Hydraulics (products that enable the use of fluids to provide mechanical motion) and Industrial (products and accessories that act as conduits for gases and liquids). more »

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  Is Stadium fundamentally strong or weak? Find out More »

43 Comments on this Article show/hide all

crazycoops 10th Jul '17 24 of 43

Hi Doug

I'll second that as Microgen (LON:MCGN) is one of my core holdings. The TU was super positive and results will be published before the end of July, so not long to wait. Maybe Paul or Graham could review in-depth on results day (24 July)? Without the updated numbers, the shares looks expensive but hopefully, that will correct once results are published. It will also be interesting to see the shift towards recurring revenues, renewal rates and geographic split. Personally, I feel the company is a prime takeover target, even with a highlish rating.


Blog: Share Knowledge
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tabhair 10th Jul '17 25 of 43

Regarding Carillion (LON:CLLN), I would be extremely concerned about the £170M of convertible bonds that are outstanding on this. Who owns these? If it's the hedge funds that have been shorting the common shares, they may decide to use their leverage to convert the bonds to equity at very low prices.

I think ordinary investors are best staying away from this one. Despite the significant headline pre-tax profit, only an average of £33.5M in free cash flow was generated over the last 10 years.

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Graham N 10th Jul '17 26 of 43

In reply to jonno, post #1

Hi Jonno, covered that. Cheers!


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gsbmba99 10th Jul '17 27 of 43

I had the pleasure of meeting Ray O'Rourke once or twice a long time ago. He had recently purchased Laing Construction from Laing for £1 to form Laing O'Rourke. From memory, he even left Laing holding the bag for pensions and cost overruns. An absolute steal for Ray. Laing ended up also selling off property development to Kier and house building to Wimpey and focusing exlusively on owning infrastructure assets. Amongst other things, Ray talked about the dangers of fixed price contracts and the need for intense management focus on contract risk. He seemed acutely aware of the dangers of the construction industry.

“It is with humility that I have to report our first loss in 15 years of trading as Laing O’Rourke. In the trading period to 31st March 2016 the group made a loss of £245.6m. The genesis of this deterioration in profitability is rooted in the fact that coming out of a recession that had a negative impact over some six years (2009-14), it would have been difficult to avoid the severe headwinds our industry has endured through this period, which drove margins down to painful levels, alongside revenue reductions." That's a quote attributed to Ray O'Rourke (

Even the smartest and most successful people in the construction business aren't immune from losing their shirt at least once.

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ap8889again 10th Jul '17 Reported for Advertising

I found someone describing this as Carillion "shitting the bed" while googling the train wreck earlier:

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waterloo 10th Jul '17 29 of 43

Graham/Paul, would be interested in your view on ATYM. Update Thursday I think.

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Redrichmond 10th Jul '17 30 of 43

Gately Holdings PLC results tommorow (11th july 2017)

In the 2 years they have floated only 1 time did a result pull the shares down(sept 15). Hopefully a 10-15p rise would be nice

With Brexit and all these other contracts needing revisiting the law industry is milking it

£500-£700per hr --yep per hr... Billback phone systems,everything is chargable

Im super over weight Law with BUR and Gately

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Graham N 10th Jul '17 31 of 43

In reply to cholertonandrew, post #4

Hi Andrew, in short, my views are mostly in line with those of the Austrian school when it comes to monetary analysis. So I prefer gold to paper money. But I also agree with Warren Buffett and Munger that equities and other productive, real assets will vastly outperform gold over the long run. Pawnbroking shares make sense to me because they are productive assets which are also positively correlated to the price of gold.

I hope that's helpful, and thanks for sharing your reasoning too.



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Graham N 10th Jul '17 32 of 43

In reply to dahokolomoki, post #14

Great point, which I have mentioned in my write-up.


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Graham N 10th Jul '17 33 of 43

In reply to crazycoops, post #21

Hi Simon, updated for IPX now, thanks for the suggestion.



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crazycoops 10th Jul '17 34 of 43

Thanks for adding your perspective on Impax Asset Management (LON:IPX) Graham, much appreciated.

Blog: Share Knowledge
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Paul Scott 11th Jul '17 35 of 43

Why would anyone hold shares in anything with low margin contracts??? Crap!

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andrea34l 11th Jul '17 36 of 43

In reply to Paul Scott, post #35

Didn't you hold shares in CTO at one point Paul...?

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herbie47 11th Jul '17 37 of 43

In reply to Paul Scott, post #35

I would agree however Costain (LON:COST) is low margin and it has not done so badly in the last year, up 50%.

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michele68 11th Jul '17 38 of 43

I've had a look at Gately Holdings. Positive results and looks like plenty opportunities for futher growth to come. Anyone else been watching this or indeed invested here?

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muckshifter 11th Jul '17 39 of 43

Interesting to see how clln have handled their problem – perhaps they have learned from the disastrous way Balfour Beatty and Interserve handled theirs over the last couple of years. Both BBY and IRV fed their bad news out piecemeal, which gave investors the distinct impression that their respective managements didn’t know their arses from their elbows. Same result in each case – new management – lessons learned etc – but my suspicion is that these sort of “construction conglomerates” are almost impossible to adequately manage, because the reporting of the true financial state of major contracts has to get from site level through a considerable chain of command, with the possibility of damaging many careers. When combined with the fact that individual job forecasts, produced by the site staff, are subject to the opinion of people whose continued employment might be jeopardised by a pessimistic forecast, you have a recipe for potential trouble, especially where the board is trying to put the best gloss on results rather than a conservative one.

I haven’t studied clln results in detail, as they are not a company I would be interested in, but a couple of things stood out in a cursory look this morning. IIRC they said that the future cash outflow to be incurred because of the bad contracts was expected to be £150m, with a write off of £850m. That makes me think that they are writing off very substantial “contractual entitlements”, or claims as we used to call them – they were always a very important and subjective part of regular site forecasting, which I used to make as project manager. They are also very difficult to challenge from above as they often rely on a detailed understanding. It would not surprise me if clln have gone quite a bit too far the other way with their write off, as the senior quantity surveying types working with the accountants to come up with the figures are, imho, much better served by overegging the pudding than not. So, although it might take a year or two, I reckon some of that write off may be written back – perhaps £200m? Whether clln and its shareholders are still around to benefit from such a windfall if it occurs, or some other company has “saved them” in the meantime remains to be seen.

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cholertonandrew 11th Jul '17 40 of 43

In reply to Graham N, post #31

Hi Graham, thanks that's very helpful and makes a lot of sense. Thanks for replying.


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guyrendell 11th Jul '17 41 of 43

I'm typically wary of acquisition sprees, but given that the raison d'etre of Flowtech Fluidpower is to consolidate a fragmented, cottage industry this does not concern me. Ticks a lot of my boxes and Malcolm Diamond's (of Trifast fame) involvement is encouraging.

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Paul Scott 13th Jul '17 42 of 43

In reply to andrea34l, post #36

Hi andrea,

Didn't you hold shares in CTO at one point Paul...?

Yes, I can't remember exactly when, but I remember buying this share when a positive update came out. It was a fairly good trade from that point.

Over time, it dawned on me that it wasn't as good as I originally thought.

I've since tightened up my checklist, and wouldn't now buy a very low margin contracting business, unless it got ridiculously cheap.

Regards, Paul.

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Paul Scott 13th Jul '17 43 of 43

In reply to guyrendell, post #41

Flowtech looks a nice, decent margin niche business. Worth a look (I don't hold currently).

Regards, Paul.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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