Small Cap Value Report (14 Dec 2015) - NXR, WTM, TRB, WGB, CHRT, BOOM

Monday, Dec 14 2015 by
42

Good morning!

Firstly, a couple of announcements from Friday which I omitted to comment on last week:


Norcros (LON:NXR)

Share price: 194p (up 1.2% today)
No. shares: 61.0m
Market cap: £118.3m

(at the time of writing, I hold a long position in this share)

S.Africa politics/economics - the share price of this bathroom fittings group is volatile at the moment, reacting to events in S.Africa, and the consequent volatility of their currency. Most of the profits come from its UK operations, so personally I'm not going to react at all to these events - which have a habit of sorting themselves out over time anyway.

The problems seem to have been caused by the country's Finance Minister being fired last week. This BBC article updates with the appointment of the third Finance Minister in a week! Interestingly, Norcros shares have not recovered much of the dip last week (yet).



Waterman (LON:WTM)

Share price: 91.6p (up 0.1% today)
No. shares: 30.8m
Market cap: £28.2m

(at the time of writing, I hold a long position in this share)

AGM statement - an upbeat statement from this group of engineering & environmental consultants was issued on Friday last week. It details work on particular large projects, and concludes by saying;

"We have experienced continued growth in our markets during the first five months of the current financial year.  The Board looks forward to announcing further progress when our half year results are issued in February 2016." 

"I would like to take this opportunity to thank all our staff and shareholders for their continued support and valued contribution during the last financial year.  We are continuing to recruit and I welcome all the engineers and environmental consultants who have joined Waterman in 2015, during which period we have increased our Group headcount by 11% to 1,339."

The "further progress" comment is a bit of a cop out, as it side-steps making any reference to market or management expectations, which is the information that is needed. However, the overall tone is clearly positive, so I think it's safe to assume that the company is probably trading in line with expectations, although it's always better when a company specifically says so.

My opinion - I like this sector, as it is clear that the UK is experiencing something of…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


Do you like this Post?
Yes
No
42 thumbs up
0 thumbs down
Share this post with friends



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 »

LSE Price
218.04p
Change
1.9%
Mkt Cap (£m)
172
P/E (fwd)
6.3
Yield (fwd)
4.3

Waterman Group plc (Waterman) is a United Kingdom-based holding company that offers a range of engineering and environmental services. The Company, through its subsidiaries, is engaged in the provision of design services and advice in the fields of civil, structural, mechanical and electrical engineering together with environmental, and health and safety consultancy. Its segments include Property, and Infrastructure & Environment. The Property segment consists of the United Kingdom structures and building services consulting businesses, which are involved in development projects both in public and private sectors. In addition, this segment includes its overseas business in Australia, Ireland and Poland. The Infrastructure & Environment segment comprises Waterman's civil, transportation and environmental consulting business, which trades as infrastructure and environment consulting and Waterman's highways and transportation outsourcing business, which trades as Waterman Aspen. more »

LSE Price
139.5p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

Tribal Group plc is a United Kingdom-based company, which provides software and services for education management. The Company's segments include Product Development and Customer Services (PD&CS), Implementation Services (IS), Professional and Business Solutions (PBS) and Quality Assurance Solutions (QAS). The PD&CS segment represents the delivery of software and subsequent maintenance and support services. The IS segment represents the activities through which it deploys and configures software for its customers. The PBS segment represents a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services, and the QAS segment represents inspection and review services, which support the assessment of educational delivery. Its products and services include license and development, implementation, maintenance, professional and business solutions, quality assurance solutions and other systems related. more »

LSE Price
71.75p
Change
 
Mkt Cap (£m)
141.2
P/E (fwd)
15.2
Yield (fwd)
1.8



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


16 Comments on this Article show/hide all

Graham Neary 14th Dec '15 1 of 16
1

Re: South Africa. The minister who just got sacked wasn't reinstated, but it was indeed a previous finance minister who was put back in!

| Link | Share | 1 reply
herbie47 14th Dec '15 2 of 16
2

Paul, Re Waterman (LON:WTM), their margins look very low and large contracts, I thought you did not like those sort of companies as if anything goes wrong they are in trouble?

| Link | Share | 2 replies
Paul Scott 14th Dec '15 3 of 16
1

In reply to post #114660

Hi Graham,

Thanks for that, I'll amend the article. I only read the news headlines, didn't dig into the detail.

Regards, Paul.

| Link | Share
Paul Scott 14th Dec '15 4 of 16
4

In reply to post #114663

Hi Herbie,

The margins at Waterman (LON:WTM) are better than they look at first sight, because it has one loss-making division, which is now expected to breakeven this year. So once you adjust for that, the margins are lowish, but not desperately low.

Also, as Waterman is basically a people business, I think there is less contract risk than there would be for other contracting businesses which provide physical goods.

I'm not saying I want to hold WTM shares forever, just that this looks to me the right point in the cycle to be long of the shares for perhaps a couple of years.

Regards, Paul.

| Link | Share
simoan 14th Dec '15 5 of 16
2

Paul,

RE: Norcros, I'm with you and would never sell a share for currency reasons alone. Apart from anything else, the proportion of profit from SA has decreased as a result of the Croydex acquisition. The sell off makes no sense to me especially since the rand has recovered more than it lost on Friday today.

RE: Walker Greenbank, I'm not sure I agree. Even with insurance cover making any losses recoverable the loss of operational growth has to be a problem on a PER of 18 - the insurance company are not going to bake in any growth in profits are they? Also a large proportion of profit was from contracting fabric manufacture for other companies (Ted Baker et al) and they will have to go elsewhere in the interim. So competitors may profit from lost business. 

I believe people have been pretty pragmatic about the flooding until today's announcement. I think the reason for the fall is that reduction of 15% in pre-tax profit is larger than expected... this is roughly how much the fabric manufacturing contributes in a full 6 months, so how has this been lost in only 7 weeks? It points to issues in other parts of the business and so is a veiled profit warning.

I like the company and hope to buy in again, but not right now as there could be delays in getting the full fabric manufacturing up and running and outsourcing will surely generate lower margins.

All the best, Si


| Link | Share | 1 reply
simoan 14th Dec '15 6 of 16

In reply to post #114678

BTW This is what Walker Greenbank had to say in the interims on 14th October:

Brand sales in the first ten weeks of the second half are up 7.5% in reportable currency (7.9% in constant currency) compared with the same period last year. This is an encouraging performance ahead of our key Autumn selling period and reflects strong trading in the UK, where Brand sales are up 7.5%, and in overseas markets, where Brand sales are up 8.5% in constant currency. Manufacturing also continues to perform strongly. The Board remains confident of meeting expectations for the full year.

How has the flood in one factory last weekend resulted in this position changing to...

Disruption to the factory is expected to have an adverse effect on the Company's trading performance in the current financial year ending 31 January 2016, with pre-tax profits expected to be approximately 15 per cent lower than current market forecasts before exceptional items.

IMHO it sounds like the "key Autumn selling period" has maybe not gone as well as expected.

All the best, Si

| Link | Share
AlanJenkins2 14th Dec '15 7 of 16
2

Paul,I am puzzled by your purchase of Tribal.Even if the rights issue does help with the balance sheet,it will have to be at a discount to the share price then.Given that the stock is unlikely to be popular,that may have to be quite a substantial discount.

| Link | Share | 1 reply
Brothersinarms 14th Dec '15 8 of 16
4

Simoean, you're forgetting operating leverage. They will have incurred 7 weeks of costs (factory + staff) with no revenue generated, so the effect of that loss on the PBT will be much larger than foregoing the normal profit contribution. Hence the 15% reduction and most probably a significant H1 reduction as well. However, those losses and the foregone profit will be recovered from the insurance settlement next year.

| Link | Share | 1 reply
simoan 14th Dec '15 9 of 16
1

In reply to post #114687

Yes, good point about the operational leverage. I guess they won't comment on overall trading until January so I'm trying to look beyond the flood damage (assuming the insurance will payout in full) and have tried to read too much into today's announcement. I like the company and it's products (lord knows there's enough of them hanging around our house!) but won't invest until things are clearer. If that's at a higher price than today, then so be it.

Cheers, Si

| Link | Share
cig 14th Dec '15 10 of 16
2

In reply to post #114684

It is counter-intuitive, but the price of a rights issue doesn't matter for an existing shareholder who takes it up: you own X% of the existing business and the £Y cash raised per share both before and after the issue. The only change is that the cash moves from direct (your bank account) to indirect ownership (your claim on the company's cash via your shareholding). So the price of the issue is a technicality, which should be set to whatever it takes to minimise underwriting fees.

| Link | Share
AlanJenkins2 14th Dec '15 11 of 16

Cig,what you say is true as far as it goes.However,a rights issue [assuming it succeeds] makes the market stump up for shares when it really doesn't want to,leading to disgruntled shareholders and an effective stock overhang.

| Link | Share
Beginner 14th Dec '15 12 of 16
2

Just a wee comment on Tribal (LON:TRB) . I have had experience of the company on two occasions, and my friend's wife is a former employee of theirs. Their software offerings are not particularly innovative or user friendly, and equivalent packages are available free of charge from some American educational institutions. Where Tribal (LON:TRB) have succeeded they have done so by having and extremely aggressive and persistent salesforce. I would not touch this with someone else's bargepole.

| Link | Share
drvodkaquickstep 14th Dec '15 13 of 16

In reply to post #114663

Herbie - I echo Paul's comments that Waterman's margins are improving and they have a 6% target. If you look at most (well performing) Consulting Engineers they typically have margins in the mid to high single figure area. ATKINS (ATK) and some other competitors are also trying to improve margins by reducing back-office costs and / or moving into higher margin areas such as nuclear / energy and the like.

Paul is also correct that Consulting Engineers do not have the same contract risk exposure that contractors such as Costain, ISG etc do although that does not mean there is no risk; typically the risks lay with having clients who want to change things but dont want to pay for it. Contractors typically just dont do the work in those instances - not so easy for Consultants. Waterman have a great client list and very strong (forged over many years) relationships that help mitigate such risks. The move out of the UAE also mitigated lock-up / debtor day issues caused by some clients who thought paying you for the work you have done was optional!

It is very easy to see Waterman's share price continue to re-rate with continued strong performance and I have had a circa 150p target since this time last year. Even with the big movement in the share price over the last 12 months they are not highly rated and someone wanting to buy the company in this market would be getting a bargain at under 200p.

| Link | Share | 1 reply
drvodkaquickstep 14th Dec '15 14 of 16
1

Waterman £WTM shareholders might also like my write-up here updated for 2015....


http://boards.fool.co.uk/waterman-wtm-a-slinky-13140560.aspx?sort=whole

| Link | Share
herbie47 15th Dec '15 15 of 16

In reply to post #114723

Thanks for the information, I will look into Waterman (LON:WTM) further.

| Link | Share
tjones180 15th Dec '15 16 of 16

Re TRIBAL (LON:TRB) It's a brave man that places money on anything related to Education these days. School/Higher Education budgets in my county are envisaged to be reduced by 13% over the next three years.
Since the emphasis will be on maintaining teaching staff levels the spending on support materials will inevitably decline sharply.

| Link | Share

Please subscribe to submit a comment



 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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis