Small Cap Value Report (18 Jun) - SSP, AND, SDL

18th Jun '13 by Paul Scott

8 comments 11681 reads

Good morning! Preliminary results from Solid State (LON:SSP) have been issued for the year ended 31 Mar 2013. This share has been on my watch list for a while, and I last mentioned them on 2 May 2013, concluding that it looked potentially interesting.

Solid State shares have more than 10-bagged in the last 4 years, and the company continues to trade well. At 225p per share the market cap is £15.6m.

As you can see from the Stockopedia excerpt from the StockReport on the right, Solid State scores highly on forecast PE Ratio, and on Dividend Yield, with strong green bars in both cases indicating a high ranking in both its industry (the left hand bar) and the whole market (right hand bar).

Note also that a new feature has been added this week so that if you roll your mouse over these bars in the StockReport, a box giving more details pops up - I like it! (that feature won't work on the picture on the right).

Their results today look good, with turnover up 22% to £31.5m, profit before tax & exceptionals up 17% to £1.87m, and EPS up 12% to 21.8p.

They are acquisitive, so some of that growth might have come from companies bought during the year. This is important, as I've been caught out before over-paying for growth that I assumed was organic, but turned out to be from acquisitions. The difference being of course that an acquisition just bolts on growth on a one-off basis, hence does not justify a higher PE rating once you have included the acquired company's profits in the E bit of the PER calculations.

They seem to have come in slightly ahead of broker consensus EPS (forecast was 21.1p, against 21.8p achieved), putting them on a PER of 10.3. That looks fairly good value to me, although with a bit of debt, and the order book flat against last year, it's difficult to see there being much upside from here in the short term. Maybe 10-20% upside, which doesn't excite me in terms of risk/reward.

Solid State have raised their dividend by 10% to 8p, which is in line with broker consensus forecast dividend.This breaks down as 2.75p interim dividend paid on 28 Jan 2013, and a final dividend of…

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Wilmo1979

18th Jun '13

Hi Paul

My first post here - so wanted to start with a thank you. Could not agree more with your DYOR comments, however given the limited time many of us have, I find your daily reports a great place to start and narrow down the number of small caps to have a more detailed look at.

Having followed your commentary and DMOR on Vianet (LON:VNET) I took the plunge at 90p following the profits warning and topped up a bit at 79p following the sell-off as a result of the regulatory warning. I agree with the statements which Vianet (LON:VNET) have made, and many of your comments and the comments on the report - it would seem a hugely backward and misguided step for the government to ban the flow monitoring tech. I see the risk here as Vianet (LON:VNET) not being able to prove the accuracy of their equipment, in effect the same risk we all take investing in any tech - if the tech doesnt do what it says on the tin we are in trouble!

I note in a couple of your reports you were going to try to speak to Vianet (LON:VNET) - I was just wondering if you had managed to do so yet?

Thanks again for the highly informative reports.

Matt

deucetoace

The results this year for SSP are good (I've had them on my watch list for a little while) but it is worth noting that they had one very large order last year (a;beit at lower than usual margins) that won't be repeated. Outside of this I imagine growth in the business but this will hold the share back this year IMO.

bobdouglas

Paul,
Just a query regarding the net debt of Solid state - on my calculations when you take the bank overdraft and bank borrowings off the cash the net debt is around 2.3M?

Paul Scott

Hi Bob,

Arrgghh!! You're right! Thanks for pointing out my error. I took cash of £1,097k, deducted £905k bank borrowings, but assumed that was all-inclusive, and somehow didn't spot the £2.5m overdraft.

Schoolboy error on my part, I do apologise.

I'll edit the article now, and many thanks for pointing out my mistake.

Cheers, Paul.

Hi deucetoace,

Very good point, thanks, I will include this point in an edit of the article now.

Cheers, Paul.

doverbeach

excellent landing page - I hadn't seen that before - very useful

tads

Yes..would be good to hear if Paul managed to speak to them. I tried to speak to them a couple of months ago and I must say I was distinctly unimpressed with their attitude. Lets hope Paul has had more luck.

I am going to the AGM so it will be more difficult for them to ignore me there.

Mike

Hi Wilmo,

Thanks for your kind comments, appreciated!

Re Vianet (LON:VNET), no I've not spoken to the company yet. The trail went cold after I replied to their financial PR people trying to schedule a phone call. It's pretty pointless calling the company, as they seem to employ former GP Surgery receptionists on their switchboard, who see their role in life as being to prevent anyone actually getting through to the person they need to speak to.

On the other hand, management are busy, and as a shareholder I would rather they are dealing with the Govt's consultation document right now, than chatting to shareholders & commentators like me!

It does surprise me generally that many companies and the City focus their attentions so overwhelmingly on Institutions who may or may not buy any shares, whilst completely ignoring thousands of private investors who create all the liquidity in the shares & set the price.

One or two financial PR companies and brokers have twigged this pretty obvious reality, but the rest are totally clueless to be honest.

That said, Vianet have been pretty forward-thinking in publishing results presentation videos on their website, which is a great initiative. Trouble is, they were wildly bullish in tone, and the company's performance has fallen well short.

Over-promising & under-delivering, as I commented in my last Equity Active note (the only truly independent notes out there, as we're not paid by anyone - my opinions cannot be bought. Now, or ever).

To a certain extent also, when an issue like this regulatory threat comes along, the last people you should be talking to are the company (Vianet) themselves. It's what independent & wise people think that counts. I reckon the threat is worrying, but will probably be fought off. The share price is telling us that too. It would have caved in big-time by now, if the regulatory threat was serious.

I'll publish more when I know more, but for the moment I don't know enough & am quietly absorbing & thinking. As mentioned last week, I've cut back on my personal shareholding in Vianet, as I was heavily overweight (in the shares, not generally!!) and wanted to adjust the risk down somewhat.

As always, please DYOR, these reports are only my personal opinions, some of which will be right, some will be wrong.

Cheers, Paul.

Small Cap Value Report (18 Jun) - SSP, AND, SDL

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