Small Cap Value Report (16 Sep 2015) - ANP, VLK, EPWN, ALK

Wednesday, Sep 16 2015 by

Good morning!

A fairly brief report today, as  I'm meeting a friend for lunch, to swap small cap investment ideas, then I'm off to ShareSoc's company seminar at FinnCap's offices, which should be interesting - I'm particularly looking forward to meeting management from Somero Enterprises Inc (LON:SOM) , an interesting company which I hold shares in.

Anpario (LON:ANP)

Share price: 332p
No. shares: 21.8m
Market cap: £72.4m

Interim results to 30 Jun 2015 - every time I look at the figures for this company, I'm rather underwhelmed by the pace of growth, considering that the shares are on quite a high rating, These interims follow that same pattern. A small disposal has reduced turnover, but improved the gross margin, as its low margin activities drop out of the group accounts.

It looks as if about 1m share options have been exercised, as there's a mismatch between basic & diluted EPS in H1 this year, and H1 last year. So there is now less potential dilution, which is a good thing. So diluted EPS rose from 6.37p in H1 2014 to 7.31p this time, H1 of 2015. Note there was an H2 seasonal bias to profits last year, with diluted EPS for the whole of 2014 coming in at 14.76p.

So what EPS is the company likely to do this year?

Outlook - a little irritating that no mention of performance against market expectations is given. Although I assume that must mean the company is trading in line. Today the Chairman says;

“The second half has started well and we are confident of maintaining the momentum of the first six months’ performance. Our strong balance sheet, backed by the cash generative nature of the business leaves Anpario well positioned to finance further organic growth and also able to consider selective investments or earnings enhancing acquisitions as they arise.”

Valuation - assuming that the company hits broker consensus for 2015, of 15.4p this year, and 17.5p next year, then at 332p per share, the PER drops out at 21.6 for 2015, and 19.0 for 2016.

Balance Sheet - this remains fantastic, very strong indeed. There is no debt, and cash of £7.9m, a material amount, being about 10.9% of the market cap, or just over 36p per share, so the Enterprise Value (Market Cap minus net cash, or plus net debt) is 296p…

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Anpario plc is a producer and distributor of natural feed additives for animal health, hygiene and nutrition. The Company operates through two segments: UK and Eire, and International. The Company is focused on the manufacture and sale of natural feed additive products to agricultural markets. Its products for the poultry, pig, ruminant and animal feed markets include acidifiers, enzymes, essential oils, pellet binders, antioxidants, mycotoxin binders, mold control products and a range of nutritional premixes and performance enhancers. It offers natural feed additive/flavor called Orego-Stim. It offers its customers a number of omega 3 & 6 supplements for use in feed. Its products in the aquaculture range include growth promoters, immune enhancers and pellet binders for both shrimp and fish. The Company's trading brands are Kiotechagil, Meriden and Optivite, which trade across approximately 70 countries around the world. more »

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Pebble Beach Systems Group plc, formerly Vislink plc, is a software and technology company. The Company is engaged in the collection and delivery of video and data from scene to screen. The Company's Pebble Beach Systems division is a developer and supplier of automation, Channel-in-a-Box and content management software solutions for television broadcasters, cable and satellite operators. For the broadcast markets, the Company provides wireless communication solutions for the collection of live news, sport and entertainment. The Company's products include Marina, which is an enterprise level playout automation platform for multi-channel applications; Orca, which is an Internet Protocol (IP)-enabled cloud-based integrated channel delivery solution; Dolphin, which provides multi-format integrated channel delivery solutions based on information technology (IT) hardware, and Stingray, which is a self-contained Channel-in a-Box. more »

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Epwin Group Plc is a manufacturer of extrusions, moldings and fabricated low maintenance building products, operating in the repair, maintenance and improvement, new build and social housing sectors. The Company operates through two segments: Extrusion and Moulding, and Fabrication and Distribution. The Extrusion and Moulding segment is engaged extrusion and marketing of polyvinyl chloride-unplasticized (PVC-U) window profile systems, PVC-UE cellular roofline and cladding, rigid rainwater and drainage products and wood plastic composite decking products. It operates from extrusion and molding facilities in Telford, Tamworth and Scunthorpe, among others. The Fabrication and Distribution segment is involved in fabrication and marketing of windows and doors, distribution of cellular roofline, rainwater and drainage products, and manufacture of glass sealed units. It operates from over five window and door fabrication sites, and approximately two glass sealed unit manufacturing sites. more »

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30 Comments on this Article show/hide all

jonesj 16th Sep '15 11 of 30

The problem with shareholder power is most shares are typicaally held via institutions and the institution fund managers are another class who cream off an unfair sum. The pot is hardly going to call the kettle black.

The underlying owners of the fund somehow need a voice in this situation.

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Cisk 16th Sep '15 12 of 30

Don't hold Vislink shares but if I did I'd dump them immediately on the basis of the proposed VCP scheme. Paul, agree with your comments on this.

We defo need a 'name-and-shame' bargepole list of people - i.e. CEOs / non-execs of companies, such as Vislink, who are so blatantly milking everything out of the companies for whom they work.

@Ed - when will stockopedia include shareholding data? I know this is something you were keen on going some time ago.

To be able to drill down and use management shareholding as a search criteria would be invaluable. Especially if it could be gleamed how many of those came from options / incentive plans etc.

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glluckett2 16th Sep '15 13 of 30

Paul, As a shareholder in Vislink I would be happy to send a copy of your article today to the Directors asking for their comments. Would this meet with your approval ?
Geoff Luckett

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simoan 16th Sep '15 14 of 30

In reply to post #106579

To be able to drill down and use management shareholding as a search criteria would be invaluable. Especially if it could be gleamed how many of those came from options / incentive plans etc.

To be fair, the Vislink interims were equally uninspiring last year and the directors did put their hands in their pockets and buy shares in the market. It remains to be seen whether they do the same this time.

As a contrarian I am drawn to Vislink today, as I feel the baby is fast disappearing with the bathwater. The results were not great (neither were last year's interims by the looks of it) but the outlook statement was reasonably good under the circumstances. If you put to one side reservations about the management, which are well founded so it's a big "IF"! Vislink has acquired some very good, technologically innovative businesses in the past few years, such as Gigawave and Pebble Beach. I know because I've worked with one of them and they make great market leading kit. In fact you could make the case that the management have done a great job in transforming the company because it is the old legacy and declining Vislink business that is hitting profits, and had they not made such good acquisitions things would be a whole lot worse.

I'm more sanguine about the VCP thing as I wouldn't want to be a long term holder, and if the hurdle for the VCP scheme is set at 70p I'll be long gone before then. If this goes below 40p I will be buying because there is definitely value to be had here and I thought that's what we did hereabouts?.  

I realise the above will go down like a lead balloon given the bad vibes towards the company, but I told you I was a contrarian :-)


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purpleski 16th Sep '15 15 of 30

Thanks for your comments on Vislink (LON:VLK) and like @bsharman I am pleased to have exited with a profit. While I think the aims of David Stredder and Sharesoc are laudable the words head and brick wall spring to mind.

With tens of thousands of companies to invest in I think it best to leave the likes of Vislink (LON:VLK) to those who are happy to back this sort of management. They (the shareholders) may or may not make money but I would rather make or not make my money elsewhere!

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simoan 16th Sep '15 16 of 30

In reply to post #106589


One of the things that most attracts me to situations like this is that I can see a certain amount of "groupthink" amongst PI's going on and people selling based on negative emotion towards the management and largely ignoring the fundamental value of the company. IMHO Pebble Beach on it's own is probably worth more than the market cap of the whole group... there is value here.

Emotion is a pretty short term thing and can lead to stonking bargains arising to those that are prepared to hit the "buy" button whilst holding their nose :-)


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bsharman 16th Sep '15 17 of 30

In reply to post #106590

Hi Si,

I don't think it's based on emotion at all. I simply feel that you have to be able to trust that the management who run the business are fully capable of acting in the interests of shareholders. Vislink (LON:VLK) have been over the years one of my best investments and I have bought and sold based on the fundamentals. However, when it became clear (like Purleski) that this management are in it for themselves and have created a system whereby they benefit and are not fully aligned with shareholders - then it was time to say goodbye and move on. It's correct that there is value BUT (and it's a big but) can management release that value for the benefit of shareholders?? Probably not.
There are plenty more fish in the investing sea.
Ben :-)

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xcity 16th Sep '15 18 of 30

Epwin down 5%, Entu down 8% today.
Nothing positive in comments about trading conditions.

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JDW72 16th Sep '15 19 of 30

As always Paul, great article. I'm learning loads from you in the process of reading these every day (to go with the knowledge that sitting in hotel bars with you in Peterborough until 3am setting the world to rights can lead to a somewhat"slow" day afterwards :-) )

On the subject of Vislink, I would have sold my shares a while ago when I concluded that the upside was limited and the downside larger, particularly with the exec and non-exec management being as greedy (exec) and toothless (non-exec) as they are.

However, this fight against the VCP is one that we have to have if we are not to get legged over time and again in the coming years and I held on to my shares to support David and his campaign. I feel that my voice is more powerful if I am a shareholder. It's cost me money and quite possibly might cost me more, but it's a price that needs paying.

The fact that in order to fight this we need the support of the fund managers who have also got their noses in the trough without much justification (on the whole) makes it harder and means PI's must step up where they can.


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herbie47 16th Sep '15 20 of 30

In reply to post #106590

You may well have a point but having seen what happened at Anite and now at Vislink I'm glad I sold out before all this was tabled. I don't like the way it has been done, announced just after the AGM.

I will ask you one question do you think its right that a part time Chairman of a company that makes about £5m should be earning around £700,000 (last year) and then have this VCP as well, I think it is gross, pity because it could be a great company.

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herbie47 16th Sep '15 21 of 30

In reply to post #106598

Yes but Epwin's figures were good and inline unlike Entu figures were. I sold my Entu this morning and bought some Epwin. There are slightly different companies, Epwin is about 3-4 times larger and supplies the materials (Upvc, Doors, double glazing etc.) Entu is more of a fitter of those products, plus some others like solar panels and boilers (both have problems). Entu have also taken over Astley's which is a relative large loss making company, a lot will depend on whether than can turn that around. Management have not got off to a good start.

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xcity 16th Sep '15 22 of 30

In reply to post #106606

True, though I think good is a bit of a stretch.
But hard to see the trigger for the Entu fall as anything other than the Epwin results. With the usual initial move a few days before the announcement.

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herbie47 16th Sep '15 23 of 30

In reply to post #106607

Well operating profit was up 31%, margins up 31%, EPS up 60%, look pretty good to me unless I'm missing something? Cash was down £3.6m but debt is down by £17.2m. H2 is expected to be better than H1.

Not sure why Entu shares fell, yes probably due to Epwin. Just had a look at Entu sp and the fall was just before the market close, some large sales around about 16.27 so maybe not to do with Epwn as their figs were out in the morning. 

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xcity 16th Sep '15 24 of 30

From Roland Head's piece in August:

"Firstly, last year’s rise in operating margin appears to have come from falling costs, not rising sales. Epwin’s sales rose by just 1.6% last year, and have fallen by 12% since 2012. Top-line growth is expected to resume this year, and in my view this is essential. If sales aren’t rising at this stage in the cycle, I’d see that as a warning flag."

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xcity 16th Sep '15 25 of 30

In reply to post #106610

Entu's price has been slipping for a week or so,  dropped a few pence earlier today before the big sales at the end. Too much of a coincidence for me. 

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Paul Scott 16th Sep '15 26 of 30

In reply to post #106581

Hi Geoff,

Absolutely, feel free - these articles are in the public domain, so no issues with forwarding my views on to anyone.

Regards, Paul.

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purpleski 16th Sep '15 27 of 30

In reply to post #106590

@simoan re Vislink (LON:VLK) In away I think I agree with what you say but I just don't want to make money with management who act like this. I am not saying you shouldn't, I am just saying that is my choice to exit.

I just think it a shame that management, any management, feel they have to operate this way.


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simoan 17th Sep '15 28 of 30

In reply to post #106620


With my devil's advocate hat on, the same management bought Pebble Beach for a net consideration of £9m in March 2014 and it will in all likelihood generate way more than that in revenue this year and £3.5-4m in operating profit. That is a high quality little software business with an impressive operating margin bought for next to nothing. It's just a shame it's got so many lower quality, low margin hardware businesses bolted on to it that have lumpy revenues.

I am not for one minute condoning the egregious VCP scheme, all I'm saying is let's keep our value hats on, not our tin hats! Everything has it's price, no matter how putrid the smell and I'd be a buyer if the price was right.

All the best, Si

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Ramridge 17th Sep '15 29 of 30

In reply to post #106623

Hi Si -
I'd be interested to know if you draw a line at all in investing in a particular stock, or is it the case of 'if it is legal, then I will invest as long as the price is right and it passes other investment criteria.'

I am no bleeding heart liberal, but quite recently I sold the shares of a digital marketing company whose profit model is to turn casual social gamblers into hard core ones. Perfectly legal operation but morally repulsive and indefensible.
Regards, Ram

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simoan 17th Sep '15 30 of 30

In reply to post #106632


I'd be interested to know if you draw a line at all in investing in a particular stock, or is it the case of 'if it is legal, then I will invest as long as the price is right and it passes other investment criteria

I come here to chat about shares only. I left TMF because I got fed up with people addressing me personally and misrepresenting what I was writing. Please don't start trying to paint me as being some awful unprincipled person, I'm just a value investor. I notice your post has got 3 thumbs up so I can see where this is all heading and so I will not be contributing any further.


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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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