Small Cap Value Report (19 Aug 2014) - HRN, CGS

Tuesday, Aug 19 2014 by
18

Good morning!

Hornby (LON:HRN)

Share price: 64p
No. shares: 39.16m
Market Cap: £25.1m

This models company has been having trouble for a while now, due to messing up its supply chain when they moved production offshore. I was very scathing about it last time, perhaps too much so, but it looks as if the company is beginning to recover, and there might be turnaround potential in the shares.

Trading update (IMS) - issued today, it covers the period since the last year end, on 31 Mar 2014. On sales they say;

The sales performance of the Group in the period up to the end of July has been in line with Company expectations and slightly ahead of the corresponding period last year.  Recent sales of Airfix and Corgi have been encouraging, the former driven by the launch of the '1/24 Hawker Typhoon MKB1' to great acclaim.  Management of aged stock has been a priority in the period and good progress has been made across the brands.

I haven't bolded the bit about in line with company expectations, because the above only refers to sales, whereas it's profit that matters most. I'm somewhat concerned by the comment about aged stock, which suggests there might be further write-downs of stock in the pipeline perhaps?

On supply chain problems, it sounds like they are making progress, but are not out of the woods yet;

There continues to be significant focus on the production processes for Hornby and Scalextric product from our supplier partners in Asia.  We are working with an increased number of factories in our network and improving the capability of vendors and therefore, whilst we still foresee challenges in ongoing production, we remain confident that supplies of key products will improve over time

Hmmm, that doesn't sound particularly encouraging. Translation - we're still in a bit of a mess!

A new MD for Asia has been appointed, with good supply chain experience. Let's hope he can sort things out.

Net Debt - has risen to £10.7m at end July 2014 (£7.4m a year earlier) which is of some concern. Looking back to the last set of results, the company has banking facilities available until Dec 2015. Banks don't like lending money to loss-making companies, so I'm nervous about this.

So whilst the risk of the bank pulling the plug completely might be low (at the moment), don't be surprised if the company tries…

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Hornby Plc is a holding company. The Company is engaged in developing, designing, sourcing and distribution of hobby and interactive products. The Company distributes its products through a network of specialists through its online activities and various retailers throughout the United Kingdom and overseas. The Company has operations in the United Kingdom, the United States, Spain, Italy and the rest of Europe. The Company offers its products under various brands, such as Hornby, Scalextric, Airfix, Humbrol and Corgi. Its subsidiary, Hornby Hobbies Limited, offers products under various categories, which include Train Sets, Locomotives, Train Packs, Tracks and Extras, Wagons and Coaches, and Spares and Accessories. Its subsidiaries include Hornby Espana S.A., which is engaged in the development, design, sourcing and distribution of models, and Hornby America Inc., Hornby Italia s.r.l, Hornby France S.A.S and Hornby Deutschland GmbH, which are distributors of models. more »

LSE Price
31.72p
Change
-3.3%
Mkt Cap (£m)
41.1
P/E (fwd)
n/a
Yield (fwd)
n/a

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
429p
Change
1.4%
Mkt Cap (£m)
184.6
P/E (fwd)
12.1
Yield (fwd)
3.6



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


4 Comments on this Article show/hide all

purpleski 19th Aug '14 1 of 4
3

I wonder, supply chain problems aside, whether the HRN group of products (trains and airfix) have simply had there day? I have an 8 year old and I never think of looking at these products. Trains are too expensive and take up space and though I use to make the airfix models it does not occur to me to buy them for my son.

Hornby is a great brand but ......

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lucien2k 19th Aug '14 2 of 4

Hi Paul

Any thoughts on XLM? They announced they are acquiring a "UK Sports Betting Website" but didn't say which one. Seemed a little odd

Thanks!

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Lion Tamer 19th Aug '14 3 of 4
1

@purpleski
I believe their products are popular with adults more than children. I have many retired people living near me, several play trains in their sheds or outbuildings, and they like to indulge in the latest products. The sliver pound is still strong in these parts, and the retired demographic is growing. Of course, this still does not make HRN a buy.

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jonesj 19th Aug '14 4 of 4
1

How long will retired people still want to buy train sets for?
That strategy might work on a 5~10 year timeline, however computer games were around over 30 years ago.
People retiring in 10 years time will have had widely available computer games around when they were in school (maybe less than 10 year for al I know).
Maybe only a relatively small percentage of them would consider train sets as a retirement hobby.

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

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