Small Cap Value Report (13 Jul 2015) - ALNT, SPRP, CVR

13th Jul '15 by Paul Scott

15 comments 16452 reads

Good morning!

Greece

Grexit now appears to be off the table, with an all-night EU leaders conference apparently having thrashed out an outline agreement. So we're seeing a bit of a relief rally in UK shares this morning, although I think the market had correctly anticipated that a compromise would in all probability be reached.

No doubt the next panic will be whether the Greek Govt is able to pass the necessary legislation internally, or whether the Govt collapses, triggering elections? So I'll be keeping an eye on things, but personally it's only having a marginal effect on my portfolio decisions. Let's hope they get things properly sorted, so that Greece doesn't descend into a humanitarian crisis. Although things are bad in Greece, it's nothing compared with the terrible conditions being endured by people elsewhere, e.g. Syria - evidenced by the large numbers of people risking the dangerous crossing by sea, and arriving in packed dinghies in e.g. Lesbos - there was a fascinating TV programme about that last week.

M&A

Another interesting investment theme which I've mentioned recently is the surge in M&A activity - in particular, the high ratings for US companies means that they are hunting for relatively cheap acquisitions in the UK.

Today there is another deal announced - Alent (LON:ALNT) is up 45% this morning on news of a cash bid at 503p per share from a US company called Platform Specialty Products Corp. I'm lucky enough to have the European & US data on Stockopedia, so I've had a quick look at the StockReport for Platform Specialty Products (LON:PAH) and it looks pricey - a fwd PER of 17.5 looks high, given that Platform has a lot of debt, and a weak balance sheet (which is negative once you write off intangibles). Although scanning the news announcements from the company, it seems to have raised fresh equity and bonds since the last balance sheet date of 31 Dec 2014.

Here's the top part of the StockReport for Platform:

Contrast that with the target company it's buying, Alent (LON:ALNT) and you can see why the highly rated & heavily indebted US company sees the UK company as a bargain:

So I hope some of the M&A activity spills…

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kenobi

13th Jul '15

Cannot help but wonder if there's some suitable US based company for whom buying IND would make sense at this point ? if they had a good brand in the market in the US but could use some of their by all accounts good high end products wouldn't this be a match made in heaven ? Not that I know enough about the us comptetitors to know if there's anyone suitable in the market I must admit,

Good news that a Grexit has been averted, (hopefully), the EU haven't covered themselves with glory here, a bit more compassion for the greek people wouldn't have gone amiss. Although I appreciate that if they did too much Spain, portugal, italy and ireland would be knocking on their door tomorrow. Clearly a warning shot to the public that they can vote for anti austerity parties but they won't get it. I can't help but feel that a less austerity approach might have been better for europe. I remember deep in the crisis suggesting that the ecb just print a trillion euros, put it in a fund to lend to countries over a range of maturity dates at low interest rates to allow european countries to refinance and limit the cost of their debt burden perhaps with part of the coupon repaying the capital. Not sure that austerity has really worked where it's just caused a deeper and deeper recession such as in Greece.

Rusty2

But if you give countries easy loans, would they change? Greece has had 2 bailouts already. Their pensions in 2012 were 17.5% of GDP. Greece needs to change.

Ramridge

Re. M&A activities. Not surprisingly as the chart below shows the M&A hot sector is by far Technology, Media and Telecomms (TMT) followed by Pharmaceuticals. Perhaps a bit of focus where we should be looking for the next potential targets.

janebolacha

Herbie, this article from Wall Street Journal is rather more instructive about pensions in Greece:

http://blogs.wsj.com/brussels/2015/02/27/greeces-pension-system-isnt-that-generous-after-all/

As for the bailouts, they were very largely exercises in bailing out German and French banks and allowing them to get off scot-free from the consequences of their poor judgement and bad business decisions. About 90% of the funds from those bailouts went straight back out of Greece to those banks. It was the Greek equivalent of the UK taxpayer being landed with the bill for the mistakes of RBS, Lloyds, Northern Rock, etc, etc.

00mrmark00

Morning Paul any thoughts on the Conviviality figures this morning and the potetial reverse take over annouced late last week of Matthew Clark.

Seems like a decent price - £200m for a company recently reporting PBIT of £20m

CVR's balance sheet looks weak to me, with the potential need to riase another £200m from shareholders. Twice the current MCAP.

I'm a small holder here and so would be interested in your views.

Cheers, Mark

Morning Paul, I see Sprue Aegis (LON:SPRP) has a trading statement today. Looks pretty good "the Board expects Sprue's results for the year ending 31 December 2015 to be significantly ahead of market expectations"

In 2009 the average Greek state pension was Euro 1,350 per month. Considering the cost of living in Greece compared to the UK, I wish my state pension was that high. Many proffessions like hairdressing are classed as hazourdeous so women can retire at 50. End of the day they can't afford it. The bailouts in the UK went straight to the banks as well? We had years of austerity, we have changed, still long way to go yet but slowing we are recovering.

Paul, thanks for Sprue Aegis (LON:SPRP) review. In early June they said they " results for 2015 to be line with market expectation. " Now about 6 weeks later they are saying "significantly ahead of market expectations", confusing or what? I did think about buying some more at 260p but was put off by their statement and Paul's views.

Paul Scott

Hi Herbie47,

Yes you're right, that it's unusual for Sprue Aegis (LON:SPRP) to have said in line with market expectations just 6 weeks ago, and now saying significantly ahead. So they've obviously landed some big contracts from France in the last few weeks.

As mentioned above, I wasn't bearish on SPRP, in fact I said in June that I saw 10-20% upside on the share price. So not clear why that put you off the company!?

Regards, Paul.

Hi Jane,

Many thanks for the WSJ article on pensions in Greece.

It's striking how, even after all those adjustments, Greece is still spending far too much on pensions.
That is the fundamental problem with Greece - it's a poor country which has been masquerading as rich for the last couple of decades, and expecting creditors to fund its expensive lifestyle. The party's over now, and they will just have to accept a much lower standard of living.

Regards, Paul.

Thanks Paul, Well it was not just that 10-20% upside but some of the other comments, "So clearly the company has traded very strongly in H1, but drops a bit of a bombshell by saying H2 will go backwards. Why? No explanation is given." I think there was a lot of talk about France legal requirement being a one-off and distorting the 2015 trading.
I'm not blaming you in any way, we just work on the information available. It just looked like at the AGM things were either flat or going backwards. So in my opinion the shares were a hold not a buy.

Yes maybe they have had some recent new contracts/orders.

This Greek malaka has cost me a lot of money. I closed down a number of long positions over the past 4 weeks to reduce my portfolio risk, Sprue Aegis (LON:SPRP) being one of them.,
Grrrr...exit

Camtab

I suspect QE has damaged your wealth much more.

Thanks Paul. Assuming an equity raise is required, what usually determines whether its a placing or rights issue?

From what I know, PI's can usually take part in a rights issue, but less often the case with placings.

Cheers, Mark

cig

That article is skipping on the broader picture: pensions are a larger part of the welfare system in Greece than elsewhere as there's very little unemployment benefit, income support, etc. So people end up using early retirement or having entire poor households live off granny's pension to a greater extent than elsewhere. So even if abusing the pension system that way is a bit messed up and it would be good to tidy it up, the total welfare bill is likely nothing special compared to other European countries.

Also a country can't be treated as if it was one person. While the profligacy of the past was relatively widely spread, you can guess who benefited the most. The guys who are sent the bill now -- the poor and the lower middle class -- are getting a much larger share of the bill than is really fair. Should people really pay for their neighbours' or parents' misdeeds?

As for expecting creditors to fund their lifestyle: first, they have a balanced budget and are not asking for any new net credit, the debate is only on who should pay for the errors of the past and how much. Second, nobody was forced to lend to Greece, and looking at the place's credit history what happened wasn't exactly a surprise. You can't really argue that irresponsible lenders should never lose any money, can you?

Small Cap Value Report (13 Jul 2015) - ALNT, SPRP, CVR

Greece

M&A

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Paul Scott

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