Small Cap Value Report (10 Mar 2015) -MNZS, SNX, ITQ, BEG, GOAL, SIV

APOLOGIES - I'VE MESSED UP THE FORMATTING.

It took ages to get it back, so I daren't tinker with it any more & lose everything again.

Good
morning! Apologies for my outage yesterday - I wrote up a report
yesterday evening, so here
is the link for
that, where I reported on news
from: Tungsten (LON:TUNG), Maintel
Holdings (LON:MAI), Transense
Technologies (LON:TRT), Escher
Group (LON:ESCH), Clarkson (LON:CKN)

Lots
of results today, so this report will probably take me most of today,
therefore please refresh the page every now & then.

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John
Menzies (LON:MNZS)

Share
price: 388p
No. shares: 61.3m
Market
Cap: £237.8m

Final
results -
for calendar 2014 are out today. They're not very good, although that
was expected since the company issued a profit warning on 5 Nov 2014,
which I
reported on here,
when problems arose at its aviation division.

Then
on 16 Jan 2015 the company put out an in line with (reduced)
expectations trading statement.

Here
are the financial highlights for the 2014 results;

Points
to note;

• 
  It's
  a high turnover, low margin business (operating margin only 2.6%),
  so should be cheap.
• 
  Underlying
  EPS of 49.2p is a whisker below forecast of 49.9p, so that's OK.
• 
  Dividend
  cut - as I predicted in my last two reports, the dividends looked
  unsustainable, and have (sensibly) been cut by 39% to 16.2p for the
  year - a yield of 4.2% now.

Balance
Sheet -
there are a number of issues, and overall I describe the balance
sheet as weak. The company claims to have a strong financial
position, which just isn't true, so it's really annoying to see them
repeating that claim today. If the financial position was strong,
they wouldn't have cut the dividend, would they?!

• 
  Net
  assets of £69.7m become -£46.4m when you write off the £116.1m
  intangible assets. Anything below zero NTAV is a red flag for me.
• 
  Current
  ratio is 1.0, which is low (I look for at least 1.2, and preferably
  1.5+)
• 
  Debt
  is a little higher than I am comfortable with, at £143.6m, although
  this is partially offset by cash of £32.8m, giving net debt of
  £110.8m.
• 
  Capex
  - the business looks fairly capital-intensive, with £28.1m being
  spent on capex in 2014, and total property, plant & equipment
  having a NBV of £120.1m.
• 
  Pension
  deficit - as you would expect, this has got worse, with £59.0m
  showing on the balance sheet, although the imminent triennial
  actuarial valuation for 31 Mar 2015 will no doubt be considerably
  worse. The overpayments are considerable, at c.£13-14m p.a.

Outlook -
the H2-weighted year comments for 2015 worry me - that's usually a
deferred profit warning;

My
opinion -
at 388p per share, with 2015 EPS forecast at 50.8p, the current year
estimated PER is 7.6. Whilst that might look cheap at first sight,
once you factor in the pension deficit payments, and consider net
debt, together with lacklustre performance in low margin and
ex-growth activities, it's difficult to see much appeal here.

The
dividend was yielding about 7%, but that was clearly unsustainable
(anything over 6% usually is), and with the divis now cut to an
unremarkable yield of 4.2%, it has less appeal for income seekers
too.

Overall,
I can't see anything appealing here.

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Synectics (LON:SNX)

Share
price: 138p
No. shares: 17.8m
Market
Cap: £24.6m

Final
results -
for the year ended 30 Nov 2014. As expected, these are bad - the
company warned on profits last year, due to its biggest sector being
selling CCTV systems to the oil & gas sector, which has obviously
seen big cutbacks when the price of oil plunged.

The
company put out a profit warning on 27 Oct 2014, which I
reported on here.
Although without wishing to sound too smug, I also warned readers
earlier than that, on 29 Jul 2014 that the interim figures didn't
look right - in particular the very large debtor balance was a
big red flag. So it went on my bargepole
list on
that day at 335p per share. It's down 59% since then, which just
shows that checking the balance sheet for reasonableness is
worthwhile.

Here
are the highlights from today's results;

The
swing from net cash to net debt particularly worries me. Banks don't
like funding losses, so things could get sticky there if the company
cannot fairly quickly demonstrate an improvement in trading.

It
looks like they are roughly at breakeven on an underlying basis,
after reducing the cost base by £2.2m p.a.

Balance
Sheet -
this is still a big area of concern to me, and I'm seeing red flags
within current assets. In particular, whilst turnover has fallen from
£82.4m in 2013 to £64.6m in 2014, the debtors figure on the balance
sheet has only dropped a little, from £27.7m to £25.6m. That looks
way too high to me. To my mind, an acceptable level of debtors would
be about two months turnover, maybe three months at a push (to allow
for VAT). So three months turnover is £16.2m. The actual debtors
figure is £25.6m, so £9.4m more than what I consider to be
reasonable. Therefore getting a breakdown of what is in debtors, and
what the aging of those debtors is, would be imperative.

Similarly,
inventories should have gone down, but has actually gone up from
£9.7m last year, to £12.6m this year. Again, that doesn't make
sense, when turnover has fallen considerably, to be holding more
inventories.

It
all suggests to me that there could possibly be lots of junk on
the balance sheet, which might need to be written off, giving rise to
a further (and large) potential loss. These seem to be
preliminary, rather than audited results, so I hope the auditors have
spotted the red flags of high inventories & debtors, and will be
looking closely at those areas.

My
opinion -
if the figures don't look right, then I don't invest. These figures
don't look right, so it's staying on my bargepole list. It's high
risk, with bank debt having shot up, and the company being
loss-making. On the other hand, if they can recover to previous
levels of sales & profits, then all would be well. Shareholders
should probably be prepared for being asked to stump up more cash, as
the bank may not be prepared to continue funding any further losses.

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Interquest (LON:ITQ)

Share
price: 96.5p
No. shares: 35.2m
Market
Cap: £34.0m

Audited
results -
for calendar 2014 are out today. They look strikingly good, with
adjusted PBT up 96% to £4.5m. However, checking back to my
notes here from 8 Jan 2015,
that is in line with the trading statement released on that day. So
no surprises here, just in line results.

The
big jump in profitability seems to have come from an acquisition made
in late 2013.

My
opinion -
overall it looks OK. The PER is just under 11, which is about
right for a staffing company, there are lots on AIM at valuations
typically of a PER between 8 and 12.

The
balance sheet isn't great, relying on bank debt to part-finance the
debtor book, but again that's normal in this sector.

Net
tangible assets work out at only £2.6m, rather weak.

If
you recall, this is the group that put itself up for sale last year,
but nothing came of it. It's probably priced about right for the time
being.

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Begbies
Traynor (LON:BEG)

Q3
trading update -
profitability, and net debt, are said to be in line with
expectations.

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Goals
Soccer Centres (LON:GOAL)

Final
results -
for calendar 2014, show flat operating profit, but an improvement in
profit before tax due to a lower financing charge. It's a nice enough
business, but where's the growth? A 1% increase in underlying EPS to
14.5p is hardly worth writing home about. At 226p, the shares don't
look good value on a PER of 15.6, given the lack of growth, and the
still significant level of debt (although that looks under control
now, having been excessive in the past).

Overall,
I'd say the price is a tad on the high side. Current trading so far
in 2015 has been flat against last year.

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