Small Cap Value Report (15 Apr 2016) - ACL, VCP, BEG, C21

Friday, Apr 15 2016 by

Good afternoon!

I am writing this from the 23rd floor of the Hilton in Warsaw. I've come here with friends just for 2 nights, so a welcome break. The 4am start this morning however was not a good idea. I was going to post a picture from my hotel window, but luckily just realised in time that you can see me in my pants reflected in the window! Not something I would wish to inflict on you. I'm not a Labour MP, after all!

Thankfully there are no results, and only a couple of trading updates in my universe today.

The market has certainly felt pretty buoyant this week - lots of things in my portfolio seem to have woken up, with decent share price increases. Let's hope it continues. After all, the market does have to "climb a wall of worry" to go up.

Acal (LON:ACL)

Share price: 254p (up 3.7% today)
No. shares: 64.2m
Market cap: £163.1m

Trading update - this sounds good:

Trading since our last update on 12 February 2016 has been better than our forecasts. Underlying earnings for the full year are therefore expected to be slightly ahead of our expectations.

Broker consensus for y/e 31 Mar 2016 is for 16.8p EPS. So "slightly ahead" probably means about 17p-ish. That gives us a PER of 14.9.

A positive comments about margins too:

Gross margins continue to be strong and ahead of last year, demonstrating the value of our differentiated offering.

Outlook comments also sound positive:

New business generation was strong in the second half of the year with a number of new large customer contracts being won. These are expected to generate revenue towards the end of this new financial year and into subsequent years, driving the Group's organic growth rates in line with our expectations.

Acquisitions - upbeat comments here too:

The three acquisitions made this year, Flux in November 2015, Contour in January 2016 and Plitron in February 2016, are all performing well and as expected.

My opinion - as the company has grown by acquisition, I would want to see the figures for y/e 31 Mar 2016, to check that the balance sheet is not becoming stretched.

With earnings coming on stream from the recent acquisitions, forecasts for 2016/17 are increased, hence the forward PER below reducing to 12.9. Notice from the colour-coding, that Acal is average on pretty much everything. The margins are quite low, although…

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discoverIE Group PLC, formerly ACAL PLC, designs, manufactures and supplies components for electronic applications. The Company operates through two divisions: Custom Supply and Design & Manufacturing. The Custom Supply division provides technically demanding customized electronic, photonic and medical products to the industrial, medical and healthcare markets, both from a range of international suppliers and from the Company's Design & Manufacturing division. The Design & Manufacturing division manufactures custom electronic products that are designed or modified from a standard product for a specific customer requirement. The products are manufactured at the Company's in-house manufacturing facilities or by third party contractors. Its technology areas include communications & sensors, power & magnetics, electromechanical & cabling, microsystems, and imaging & photonics. more »

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Victoria PLC is a designer, manufacturer and distributor of flooring products. The Company's principal activities are the manufacture, distribution and sale of floorcoverings. Its segments include UK and Australia. It manufactures wool and synthetic broadloom carpets, carpet tiles, underlay and flooring accessories. In addition, it markets and distributes a range of luxury vinyl tile (LVT) and hardwood flooring products produced by third-party manufacturers. Its product offering in the United Kingdom ranges from both crafted, woven Wilton carpets to Tufted carpets in a myriad of fashion colors and styles. Its stock range offerings cover saxonies, tonals, velvets, twists and natural loop pile styles for residential use. The Company supplies its products to the mid to high end residential market and contract sector both in the United Kingdom and overseas. Its subsidiary, Munster Carpets Limited, is engaged in the manufacture and distribution of floorcoverings for the contract market. more »

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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

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22 Comments on this Article show/hide all

Aislabie 15th Apr '16 3 of 22

I believe that your lack of concern about brexit is horribly wide of the mark.
The key points are:
A) no country individually except Ireland relies on sales to us for any more than 10% of their business and so even the unlikely level of a reduction of a third in their trade with us is entirely bearable to them
B) those who manage the EU hate the idea of us leaving and want to ensure that we are hurt by doing so, they need to see us fail in order to squash the idea of any other countries joining us. It is not about whether the people of the EU wish us harm, they do not have a say in this. (Which is of course why we want change).
The idea that the EU administration will help us exit by entering into trade agreements is dangerous rubbish.
C) by EU treaty we are not at the table when the terms of our exit are set - it is not a negotiation the terms are simply dictated to us

There are plenty of reasons to dislike being mixed up in this uncontrolled gravy train which is run largely for the convenience of its bureaucratic managers - BUT, the idea that after a brexit vote it will just be business as usual is utterly and completely wrong. The remaining members are absolutely dedicated to ensuring that a brexit vote will damage us in every way they can imagine.

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Paul Scott 15th Apr '16 4 of 22

In reply to post #127919

Hi Aislabie,

That's a series of assertions & opinions, not facts.

As the UK is the world's 5th largest economy, the reality is that we'll do just fine either way.
Time for the country to grow a pair, in my view. It's all about whether we fundamentally want to be a self-governing democracy or not. That, to me, is priceless. It should be priceless to everyone else too.

The UK does not need to give away a large part of its sovereignty just to guarantee that it won't be invaded by Russia or Germany again - which was the core reason for the creation of the EU in the first place.

Regards, Paul.

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Fangorn 15th Apr '16 5 of 22

In reply to post #127919

Plenty to be positive about as well Ais

As to your last paragraph - let's see how punitive they want to be in the face of highlighted potential exorbitant tariffs on German car imports we will slap on if this is their chosen route.

Germany is the power behind any decision making. Germany's most important car market is UK.

I think you underplay Britain's potential - what we will need is a proper negotiator and not the limp wristed Dave that asked for little, caved, and secured nothing of meaning.

Democracy is priceless - it's more important that a slight hit to GDP.

p.s Don't recall Britain ever being invaded by Russia or Germany :)

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Aislabie 15th Apr '16 6 of 22

Paul , in many ways I agree that we should look to an independent , democratic policy, but my point was that it is seriously misjudging the situation to imagine that a vote for brexit is a non-event. It will be the start of a tumultuous and substantial set of changes from which, from a purely economic standpoint, it may quite possibly require decades to recover, and there is a risk of unrecoverable damage.

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Aislabie 15th Apr '16 7 of 22

Hi Fangorn, picking up on your remarks re German car markets I looked at BMW. The U.K. Is BMW's fourth largest market, being just over 10% of its sales. If we were to introduce tariffs that cut sales by a half BMW would therefore have a 5% cut in their revenue. Regrettable for them perhaps, but in no way threatening.
I am not strongly against brexit but I would advocate a realistic understanding that the EU absolutely can ( and wants to) make it very unpleasant for us.
And Paul, while I grant that B) in my note was an assertion , unfortunately A) and C) are facts

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Fangorn 15th Apr '16 8 of 22

You might want to add Mercedes and Volkswagen, Audi etc etc to the sum total as if we are going to target German car manufacturers it wont just be BMW!

If it's the "whole German car manufacturing sector"(as I generalised, rather than specifying an individual car company) then the threat is far more significant!

We can make it as unpleasant for them,as they us.

We aren't without cards to play either, despite what many in the Remain/StrongerIn campaign falsely present is the case.

5.2m odd European jobs are dependent on Trade (or Britain's membership of the EU)
whichever way you want to argue it - with massive unemployment in Europe, especially in southern Europe, I'm pretty sure reciprocal threats wont be taken lightly.

Either way, I'll take democracy and a slightly lower standard of living over loss of sovereignty/intrusion into how I live my life, or how this country is governed any day of the week.

Freedom is priceless - and we certainly don't have freedom at the moment given how much of our laws emanate from EU, how many cases are overruled by EU judges.

The supremacy of EU law is unacceptable - as are the terms of EU membership.It is time for this nation to reclaim its sense of nationhood, its identity,and its freedom of will.

My great grandparents didn't fight and die so that our country could be handed over to a foreign power to rule us, to demand money as and when they see fit, to tell us who we can and can't allow to migrate to our shores, or ,even , to tell us who we can or can't deport!

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Tanglands 15th Apr '16 9 of 22

Fangorns last post and its last part sums up the out core, it's about race? Why vote to leave now, that would be irrevocable never to get back in. Why take that risk for democracy who are people kidding. The impact on most people's lives form the eu is negligible the impact form leaving is unknown but hay lets just go for it. Unless people of intelligence and quality such as Paul can give an explanation of what out will look like and how it will be achieved, the leavers will be just guessing what life will be like.

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Fangorn 15th Apr '16 10 of 22

"Fangorns last post and its last part sums up the out core, it's about race?"

No it's about self determination - ruling ourselves. We are a nation of many nationalities after all so it's got bugger all to do with race.

Viz the impact of EU being negligible on our lives.Have you done any reading? Supremacy of parliament, the Judicial system. it doesn't reside in UK - do you think that in 1970's when we were told it would have no impact on our sovereignty that we would be where we are today with 50% of our laws made over seas by people we haven't elected?

"Unless people of intelligence and quality such as Paul can give an explanation of what out will look like and how it will be achieved, the leavers will be just guessing what life will be like."

Go listen to Daniel Hannan. He's far smarter than you, clearly! And myself.

Thanks for the little dig btw as well as the initial misrepresentation in your opener!

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herbie47 15th Apr '16 11 of 22

The German car industry is already rocking from VW scandal and Chinese market almost vanishing, I think the last thing they need is the UK to stop importing. If we leave Europe I can see the EU falling apart. It will only be Germany and France supporting all the other countries, when the next recession comes along could be a right mess, so yes we maybe a lot better off out of it. I'm for leaving, yes they maybe trading problems, but there is already now, look at steel. We need to get control, Europe will get worse, our taxes will go up, immigration is not controllable. I think a lot of politicians want us to stay in EU is because its the easy option, if we leave there will be a lot more work for them to do. Have you ever watched the EU parliament on tv? How much do we pay into the EU? £12 billion, we are the 2nd highest contributor, why do we pay more than France? Maybe we can get our fishing industry back, probably not as most cod has been killed due to EU quotas.

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James RH 15th Apr '16 12 of 22

In reply to post #127940

'The impact on most people's lives form the eu is negligible the impact form leaving is unknown but hay lets just go for it.Unless people of intelligence and quality such as Paul can give an explanation of what out will look like and how it will be achieved, the leavers will be just guessing what life will be like.'

I don't really see this as a reason to maintain the status quo, though.

Surely, when forming the EU, the politicians and the like we're only 'guessing' what life would be like as nothing on this scale had ever been done. 

If we all carried on as normal for fear of change, we'd never progress.

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jonesj 15th Apr '16 13 of 22

Anyone with any common sense should be able to negotiate a cracking trade deal, considering our huge trade deficit.
However, there is very little common sense or business nous amongst our politicians.
Olympic stadium was redeveloped at great expense and rented out to West Ham for almost nothing. As Barry Hearn said, my dog could negotiate a better deal.

I presume Barry Hearns dog could also negotiate nuclear power at a much lower cost than Hinkley Point & also avoid the expense of the world's most expensive high speed railway. Which just happens to be connecting Euston to Curzon Street, with nowhere in between. No one actually wants to go to Euston or Curson street, so after the fast and very expensive high speed line, the minor gains will be lost with poor onward connections.

This is what happens when politicians spend money.

I think it's not beyond them to completely foul up negotiations over a trade deal.
Anyone with common sense would start of from the stance that we will stick a 50% import tax on all those German cars if no deal is done. Then we would quickly get some good deals done.
Our politcians will start off with the stance that we're desperate to do a deal & we may then get a desperate deal. 

We have a very poor government.   I presume the other parties would be even worse.

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herbie47 16th Apr '16 14 of 22

Its unfortunate that our politicians are so weak now, we need someone like Thatcher to do a deal. Really the EU should have done some reforms because if we leave they will be losing probably more than we do.

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Richard Goodwin 16th Apr '16 15 of 22

In reply to post #127940

Sorry tangland I hit dislike by accident and can't change it.

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herbie47 16th Apr '16 17 of 22

In reply to post #127940

We can all guess the future, why is just the leavers? how about this: in the next recession which maybe fairly soon Greece, Italy, Spain and Portugal all go bankrupt then what for the EU? If some former Russian states join the EU then there could be a war with Russia? If Turkey joins what then? What is the EU policy on immigration? The EU farming policy seems to be causing a lot of problems. What happens if 10m people do turn up in the UK, why not we will give them houses and good benefits which they can't get back in their homelands. If the EU does not trade with us it will be damaging for EU companies probably more than for us. Of course the EU policies have always benefited our industry.

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Housemartin2 16th Apr '16 18 of 22

Well I am not sure that the European Industry will have much input to the leaving deal we will be handed by the European politicians and Eurocrats. Not taking notice of their people seems to be one of the traits of the European elites which is one reason we want out. I agree that they will make it very hard for us; as has been said before, our leaving would not be a negotiation & they certainly would want to make an example of us in order NOT to pour encourager les autres etc.
Those with whom we negotiate trade deals of substance, we are always going to be the smaller and weaker party and our terms of trade will it seems to me, always going to be worse than that which we have currently.
With our ingrained twin deficits, our economy is not really in a strong position generally. Leaving would, it seems to me, however reduce our standard of living to one more aligned with our ability to pay for ourselves in the world, giving us dose of reality.
If the Outers are right, then the dislocation and downturn would only last a few years. If not then it would be somewhat longer - Argentina has only been in decline for 80 years for instance.
But surely this is not what leaving the EU is all about. Its not just about economics. Its about getting back control of our institutions. We may be poorer but we would control our own destiny - well as much as a small country among large power blocks can. ( I could never understand why the Scottish Referendum kept going on about oil revenues when the question was far more fundamental)
The thing that does keep me awake at nights is that we vote out but the ensuing recession (even if in the long run its good news economically, surely the short term will be a problem ?) sees the Tories blamed and Jeremy in Downing Street in 2020. Now that's what I call a step into the unknown !

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FREng 18th Apr '16 19 of 22

It's interesting to see such enthusiasm for UK democracy.

We get a vote once every five years for our MP. In most constituencies, the winning party is a foregone conclusion and the MP was chosen by a tiny group with no democratic accountability. The winning party almost never gets 50% of votes cast, so most people do not want them to win. Then the MP gets to parliament where they are told what to do by this party's whips and almost always do it. Many laws and policies are plainly incompetent - some of them get blocked by a totally undemocratic second chamber. Many laws are changed by Ministers through Henry VIII clauses that mean there is no debate or possibility of amendment. Ministers' accountability to parliament is weak and the accountability to electors is absent: even a million people marching cannot change a decision to commit British troops to war - a decision made in secret on the basis of a private agreement with a foreign President.

Remind me what's so much worse about the EU?

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rhomboid1 18th Apr '16 20 of 22

In reply to post #128057

"Remind me what's so much worse about the EU?"

Simply put , the EU brings a whole new level of corrupt, complex, obfuscatory, democracy defying bureaucracy that compounds the current lack of accountability.

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herbie47 18th Apr '16 21 of 22

I've heard Germany and France want a referendum now. EU needs reforming otherwise it could all fold up.

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garkum01 19th Apr '16 22 of 22

Control of our destiny should be the main principle in the EU referendum, as it should have been in the Scottish independance referendum

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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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