Small Cap Value Report (14 Nov 2014) - CGS, MTEC, CPP

Friday, Nov 14 2014 by
23

Good morning!

Castings (LON:CGS)

Share price: 402p
No. shares: 43.6m
Market Cap: £175.3m

This company is an iron castings & machinery business. It's track record in recent years has been really excellent, and overall it looks a smashing business, with a strong Balance Sheet. It scores highly on Stockopedia, with a StockRank of 95, and high quality scores too. The valuation appears reasonable too. So that's a good starting point.

The problem is that the company has repeatedly stated that it has an uncertain outlook. Top marks for being open & honest, but it's clearly a worry that if profits are unsustainable, and/or totally unpredictable, then how on earth do you value the company?

Interim results - for the six months to 30 Sep 2014 are issued this morning, at 9am. Annoyingly, this company ignores market convention of putting out results at 7am (so that everyone has an hour to read them before the market opens) and instead inconveniences investors by issuing its results at 9am, when the market is already open. This causes unnecessary stress to investors, and gives a potential advantage to people who happen to be looking at their screen at 9am on results day. It's just bad practice. Results should always be issued at 7am, to give everyone a fair chance to read the figures before making any decision on whether they want to buy or sell when the market opens at 8am. Almost everyone else report figures at 7am, so why is this company different?

Profitability & Outlook - profit has fallen 12.9% from £9.6m in H1 of 2013, to £8.3m in H1 of this year. Although it looks as if the company has correctly guided down market expectations in the past, as they comment today;

It was reported at our Annual General Meeting in August that sales were below our expectations. Market forecasts of an increase in volumes in the third quarter of 2014 did not materialise. Forward schedules suggest a reduction in demand.

With the increasing concern over the strength of the recovery in Europe it is difficult to forecast the outcome for the remainder of the year. However, the directors anticipate that the year end results will be in-line with current market expectations.

Valuation - broker estimates (confirmed above) for this year ending 31 Mar 2015, are for 32.4p EPS (down from 39.1p last year). So at the current share price…

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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. ?>


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Castings P.L.C. is an iron casting and machining company. The Company caters to both domestic and export markets. Its segments include Foundry operations and Machining. The Company has over three trading operations, including Castings (Brownhills), William Lee Limited and CNC Speedwell Limited. Castings (Brownhills) supplies spheroidal graphite (SG) iron castings to a range of manufacturing industries from its mechanized foundries. William Lee Limited supplies SG iron castings from its foundries in Dronfield, Derbyshire. CNC Speedwell Limited is a machining operation primarily focused on the prismatic machining of iron and aluminum castings from its sites in Brownhills and Fradley. It produces ductile iron castings, SG iron castings, austempered ductile iron (ADI) castings, Simo castings and nickel (Ni)-resist castings up to approximately 40 kilograms in weight using over four Disamatic molding machines and approximately three horizontal Green Sand molding machines. more »

LSE Price
359p
Change
1.1%
Mkt Cap (£m)
156.6
P/E (fwd)
11.5
Yield (fwd)
3.9

Gattaca plc, formerly Matchtech Group plc, is a human capital resources business dealing with contract and permanent recruitment in the private and public sectors. The Company operates through two segments: Engineering and Technology. The Engineering segment comprises Barclay Meade and Alderwood recruitment consultancy brands. The Technology segment includes the Connectus recruitment consultancy brand. The Company is a provider of specialist recruitment services to the engineering and technology industries, both in the United Kingdom and internationally. The Company offers three core solutions: Contingent Workforce Solutions, Permanent Recruitment Process Outsourcing (RPO) and Total Workforce Solutions. more »

LSE Price
167.25p
Change
3.6%
Mkt Cap (£m)
53.8
P/E (fwd)
6.8
Yield (fwd)
n/a

CPPGroup Plc is engaged in the provision of assistance products. The Company operates through three segments: UK and Ireland; Europe and Latin America, which includes Spain, Italy, Germany, Turkey, Mexico, Portugal, France and Brazil, and Asia Pacific, which includes India, Hong Kong, China, Malaysia and Singapore. The Company operates assistance business in the United Kingdom and overseas within the financial services and telecommunications sectors. The Company operates a business-to-business-to-consumer (B2B2C) business model providing services and retail, wholesale and packaged products to customers through Business Partners and direct to consumer. Its assistance products help to provide security. The Company's products include Card Rescue, Card Protection, Identity Safe, Phonesafe, Packaged Accounts and Travel Assistance. Card Rescue is a membership service that gives users around the clock assistance to cancel their lost or stolen cards and sort out replacements for user. more »

LSE Price
5.33p
Change
 
Mkt Cap (£m)
45.9
P/E (fwd)
11.3
Yield (fwd)
n/a



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


6 Comments on this Article show/hide all

apad 14th Nov '14 1 of 6
3

Castings specialises in ductile iron (cf GDWN: steel) so it tends to be relatively low-tech. However, this does not mean that it is overly susceptible to low labour costs competition. Casting is still highly skill and experience oriented. CGS is more susceptible to more mass production, companies.
When Adam was a lad I watched some researchers trying to convince CGS about the merits of flow modelling to design the runner and riser systems for casting with no success: they had one PC to do the accounts at the time. Computer modelling will still not design you a decent mould on its own.
So, what are the implications of this for your analysis? In my opinion it is that buying timing should be predicated on CGS's customer demand rising, not on concerns about competition - buying crap castings is an extraordinarily expensive mistake, whether for a production line or for a nuclear reactor pump body.
Disclaimers: I have a large holding (for me) in GDWN and no CGS. Also, my technical expertise is a little tarnished.
apad

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Thegrimester 14th Nov '14 2 of 6
4

Regarding the EFH con, any thoughts on the pithy RNS from IGas Energy (LON:IGAS) today. Certainly made me feel like selling!

I cant believe these various directors do not understand that saying "it is his full intention" to buy the shares back is not the same as having to! Therefore it is a sale... surely?

Thanks


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cig 14th Nov '14 3 of 6

In reply to post #87823

Amusingly they misnamed EFH as "Energy First Partners". Probably a genuine typo, or else they're ashamed and don't want the release searchable...

On your main question it's a swap of a direct holding against a call option, so it's not quite a straightforward sale.

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jonesj 14th Nov '14 4 of 6
7

Publishing results at 17:00 would be much fairer than 7:00 am.

Any private investor who is expected to get to a day job for 8:00am isn't going to have a fair chance to evaluate any 7:00 am results announcements.

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Ramridge 14th Nov '14 5 of 6
3

RE. CPP.

The company is still in discussions with the Bank of Ireland and separately with the FCA in relation to more transgressions. It adds:

"There can be no guarantee that other claims or matters may not arise against the Group from these discussions. However, at this time, it is unclear that present obligations exist in respect of these claims or matters and as such no provision has been recognised."

In other words an open unknown liability that could potentially run into millions. I wouldn't invest my kid's pocket money with this lot.

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JTG 14th Nov '14 6 of 6
2

In reply to post #87829

Quite agree. Why isn't 'after the market' better than 'just before the market'? The latter favours traders over investors.

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 Are LON:CGS'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 »

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