Small Cap Value Report (13 Nov 2014) - NXR, VLX, CTO, ABDP, SWL, IDOX

Thursday, Nov 13 2014 by

Good morning! I'll try not to get too distracted today, and get a report out a bit earlier.

Norcros (LON:NXR)

Share price: 15.75p
No. shares: 594.9m
Market Cap: £93.7m

Interim results - for the six months to 30 Sep 2014 are issued this morning, for this bathroom fittings group.

My first impressions are positive. The headline figures look strong, and I particularly like that, after years of restructuring, the figures are now becoming clean - i.e. statutory profit (after all costs, whether exceptional or not) is now close to adjusted profit. Also, look at the cash generation! Remember these are only six month figures, so annualise them, and you get a lot of business for a £93.7m price tag, in my opinion.


The company seems to have shrugged off currency issues - some people were worried about the depreciation of the S.African Rand, but as I've mentioned here before, it doesn't really matter because if both sales & costs are in the same currency, then it's only the profit which is translated at a different rate. Since Norcros's S.African operations make very little profit, the currency impact is therefore insignificant on group profit.

Interestingly, the company says;

...assuming no further devaluation of the Rand in the year, this strong constant currency growth should start to convert to Sterling growth in the second half of the year.

Outlook - the all-important outlook statement looks consistent with the last trading statement, saying;

With our strong brands, leading market positions and continued self-help initiatives focused on market share gains, the Board remains confident that the Group should continue to make progress in line with market expectations.

I've bolded the key words, because that's really all that matters. Every outlook statement should refer to market expectations, and how the company's performance compares with them, which this does, so that's fine.

There are interesting comments about the main UK business;

UK construction activity and an improving UK housing market continue to drive the UK trade sector recovery, and we have seen strong evidence of this across all our UK businesses.  However, the UK retail sector remains subdued with consumer confidence still weak.

Taxation - EPS has previously been flattered by brought forward tax losses, but that seems to have washed through now, so the tax charge now looks more normal, although at 25% it's a bit high - looking at note 6 that's because…

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Norcros Plc is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. The Company's segments include UK and South Africa. The Company has six United Kingdom businesses, including Triton Showers, Vado, Croydex, Abode, Johnson Tiles and Norcros Adhesives, and three businesses in South Africa, including Johnson Tiles South Africa, TAL and Tile Africa. The Company is focused on showers, taps, bathroom accessories, tiles and adhesives. In the United Kingdom, the Company offers a range of bathroom and kitchen products both for domestic and commercial applications. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. more »

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Volex plc is a supplier of power cords and cable assembly solutions servicing a range of markets, including consumer electronics, telecommunications, data centers, medical equipment and the automotive industry. The Company's segments include Power Cords, Cable Assemblies and Central. The Power Cords segment is engaged in the sale and manufacture of electrical power products to manufacturers of electrical/electronic devices and appliances. These include laptop/desktop computers, printers, televisions, power tools and floor cleaning equipment. The Cable Assemblies segment is engaged in the sale and manufacture of cables permitting the transfer of electronic, radio frequency and optical data. These cables range from universal serial bus (USB) cables to high-speed cable assemblies, and are used in a range of devices, including medical equipment, data centers, telecoms networks and the automotive industry. It is also engaged in contract manufacturing service and product development. more »

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TClarke plc is a United Kingdom-based building services company, which delivers electrical, mechanical, and information and communications technology (ICT) services. The Company provides electrical and mechanical contracting and related services to the construction industry and end users. Its geographical segments include London and South East, Central and South West, the North and Scotland. The Company's businesses include Intelligent Buildings Green Technologies, Facilities Management, Transport, Mission Critical, Manufacturing Services, Residential & Hotels, M&E Contracting and Design & Build. The Company within its M&E contracting business has capabilities in sectors, including commercial offices, retail, education, healthcare, financial services and media. Its Manufacturing Services business includes in-house precision prefabrication and engineering services. Its projects include Beckley Court, Chiswick Park, Kettering Hospital, Project Nova, Mitie Care Home and Rathbone Square. more »

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

19 Comments on this Article show/hide all

bsharman 13th Nov '14 1 of 19

Hi Paul,
I'm a holder of Norcros (LON:NXR) because it ticks a number of boxes including:
~ It's paying a dividend, which has increased year-on-year
~ It's a business which is easy to understand!
~ It's on a low valuation.

However, having said that - the margins are very small and I am very puzzled as to how they will double revenue to £420m by 2018, which is their strategic target. They will need to make some acquisitions to achieve this.. Vado was a good acquisition, so I back the management to find other such businesses and integrate them within the group but it does seem like a difficult target to achieve in the next 4 years?

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dosh 13th Nov '14 2 of 19

do you have any thoughts on the benefits from the purchase of the freehold of the Sheffield premises?
From what I can see the immediate ongoing benefit is the saving on the £0.2m pa rent although I assume they will still have to pay the other £0.2m which will probably be associated with rates, site maintenance fees for the industrial estate management company and their own caretaker costs for an empty building. Do you feel the strategy is to find a buyer for the freehold and then save all site costs?

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whitepjs 13th Nov '14 3 of 19

Hi Paul

You said: 

once the UK consumer starts spending

What do you think is likely to trigger that?

To my mind it will be a fine balancing act next year between:

No spending - interest rate cycle, political cycle, weak wage growth and high levels of personal indebtedness.

Spending - lower oil/petrol prices, lower food inflation, lower general inflation and improving job security.

I'm not sure which will win.



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AlanJenkins2 13th Nov '14 4 of 19

There's a huge budget deficit and national debt ,so spending cuts and perhaps tax increases expected if one party were to gain an overall majority in the election.That seems unlikely,but it could still happen with a coalition.

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purpleski 13th Nov '14 5 of 19

I am also a holder of Norcros (LON:NXR) and another box they tick is that the CEO holds £1.25mil of shares and the FD just over £125k. Both I feel are significant enough to aline interests.

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rick 13th Nov '14 6 of 19

The only likely pick up in consumer/domestic spend is if a there is a Labour election victory (or coalition). Only poor people spend their money in the real economy.

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Sully8786 13th Nov '14 7 of 19

Hi Paul et al,

I think there may be scope for Norcros (LON:NXR) to re rate a little but I think cyclical stocks in general are currently being priced with a degree of caution.
I've made good money on the house builders ( Persimmon (LON:PSN) Berkeley Group (LON:BKG) Galliford Try (LON:GFRD) ) and on companies like Cambria Automobiles (LON:CAMB) but they are all hovering around a PER of 10 at the moment - on the face of it - Good value?

I seem to remember that sometimes these apparent levels of 'cheapness' occur when there is some cautionout there - I think there is at the moment.

As an aside, I thought Mark Lavery was an excellent speaker @ Mello.



Company: Dave Sullivan - Talking Stocks
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bsharman 13th Nov '14 8 of 19

In reply to post #87771

With insight like that Rick you should be working for Mr Miliband.

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dosh 13th Nov '14 9 of 19

Just been through the interim results presentation available on the Norcros site and the intention is to sell on the freehold of the Sheffield site in the short term; page 10 of the presentation. To me the whole thing seems good business as they immediately achieve a £0.2m p.a. saving in not having to pay rent and then another saving of £0.2m p.a.(I assume site feed, insurances, rates) which should be released when they move the freehold on.
They certainly seem to be getting their house in order.

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rick 13th Nov '14 10 of 19

In reply to post #87773

My comment is perhaps flippant (and likely to annoy some) but speaking as a capitalist myself any economist worth his salt will tell you that the proportion of income spent is much higher for the poor than the rich.

Indeed French economist Piketty has written some thought provoking work on this. In which he argued that it is a fundamental law of capitalism that wealth will grow more concentrated absent destabilizing events like global wars. One consequence of this is that (whether you believe in his solutions or not) the amount of income spent in the real economy will fall in such circumstances, which has implications for company profitability and economic growth.

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bsharman 13th Nov '14 11 of 19

In reply to post #87777

It has been shown that charity giving is greatest in low socio-economic areas - and I agree that it probably follows that the "poor" spend a greater proportion of their disposable income - but I doubt this has anything to do with which party are in power. What we need is rising real incomes across the spectrum (I think this week it was announced that incomes are now finally rising above inflation) and this should lead to economic growth in the "real economy". People should feel better off because food inflation is incredibly low and margins in the supermarket sector are being squeezed - unless you shop at Planet Organic! and fuel prices are decreasing due to the oil price being under $80 a barrel.

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Beginner 13th Nov '14 12 of 19

Re T Clarke (LON:CTO) , I have a tiny holding and was waiting for 40p to top up (D'oh!). I have commented on the company here positively before, only because my nephew is a former employee and really rates the company on every level. The slogan was 'If you want it done properly, get Tommy to do it!' It is still true. The poor recent figures are down to the fact that the company took on a lot of work at VERY low rates just to keep the staff in work and to prevent lay-offs. This is a quality company doing quality work.

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Reynart 13th Nov '14 13 of 19


I took a look at ABDP today - I notice that you have commented on it several times without having had time to do detailed research. Two things to note in today's statement:

- there is a turnover analysis by customer which you don't see very often. This makes it clear that turnover is lumpy and non-recurring. I wonder if the auditors reviewed the statement and asked them to include this note? It certainly makes you think there may be some shocks along the way.
- all the turnover growth is from outside the UK/EU - the statement mentions China as particularly strong. And unsurprisingly in that context, trade debtors at the year end represent 114 days sales, vs 34 days 12 months ago. As a result cashflow from operations is negative.

So this may be a quality British small company, but I would not be surprised to see some growing pains over the next couple of years.

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fanmail 13th Nov '14 14 of 19

Agree with Beginner re T Clarke. Long term quality company that rides out cycles and takes the long view. I became a holder a couple of months back but have watched them for a number years. Have much in common with Severfield as it happens.

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narp 13th Nov '14 15 of 19

My contribution tp the political posts:

Capitalism is the exploitation of man by man, communism is the opposite.

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Paul Scott 13th Nov '14 16 of 19

In reply to post #87791

Thanks Reynart,

Very useful comments, much appreciated.

Regards, Paul.

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SparksTrader 14th Nov '14 17 of 19

Paul keep up the good work, your research is very helpful to us novice investors.

Also since you use spreadbetting, (I have read your previous advice), would you ever consider small caps with spreads over 10% as a spreabet ?

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Reynart 14th Nov '14 18 of 19

Chairman of NXR and his missus bought 250,000 shares yesterday, good show of confidence.

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woodcutter 14th Nov '14 19 of 19

ABDP results are pretty decent but to state the headline figures they've given is to say the least a little disingenuous

revenue increase of 14%
pbt increase of 43%

sounds rather spectacular!

Looking at the full detailed results provides a rather different picture

revenue increase 13.7% so okay at 14%
pbt increase actual after adding back last years AIM costs is around 22.7% or half that quoted. This more like for like imv

still good but not as spectacular as stated.

In addition whilst the revenue growth was 14% the admin growth was 50.7%. To some extent this may be investment for the future expansion and growth of the business.

On the plus side the gross margin was improved by 3.4%. One wonders whether the costs of sales and admin cost balance has been shifted. And as another poster noted the cashflow and receiveables don't inspire

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 Are LON:NXR'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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