Small Cap Value Report (19 Jan 2015) - PMP, SPRP, THT, PRES, FIF, CMS, BRY, CVR, BEA, APH

19th Jan '15 by Paul Scott

29 comments 30158 reads

Good morning! Just a quick reminder (as lots of regulars read these reports) that it's the monthly Mello Beckenham investor evening tonight. I'll be attending tonight, and might give myself a night off, and have my first drink of 2015! Well, 18 days abstinence isn't bad. Their draught Peroni is just too good.

Portmeirion (LON:PMP)

Share price: 887.5p
No. shares: 10.7m
Market Cap: £95.0m

Trading update - the outcome of 2014 was never really in much doubt, as previous updates have been bullish. However, it's still reassuring to read the usual "in line with market expectations" statement today from this up-market ceramics manufacturer.

Revenue is said to be "over £61m" for calendar 2014, c.5% up on last year, and the sixth consecutive year of record sales. Profits and divis have followed a similar upward trajectory, as you can see from the Stockopedia graphic below;

That's what it's all about - nice steady, dependable organic growth.

Valuation - as you can see from the usual graphics below, the fwd PER is medium at 15.0, and the dividend is a useful 3.0%. However, bear in mind that this is a high quality business - note that all three quality scores are high. So the valuation metrics seem reasonable to me.

It also has a very strong balance sheet, so financial stability is thrown in for free. The company has net cash, and bought the freehold for its HQ site last year - a very positive point in my opinion, as I love freehold property on companies' books.

Growth - the market does not seem to have reacted yet to this interesting section in today's report, indicating a substantial increase in manufacturing capacity is being implemented in 2015. This surely augurs well for continued organic growth.

My opinion - this for me is my ultimate sleep soundly stock. It doesn't deliver nasty surprises - mainly because a lot of the products have very reliable, predictable sales patterns. Management seem strong, and the valuation is still reasonable. Plus there is good organic growth. I feel this share should be on a premium rating, so there's the chance for the PER to rise, as well as continued increases in earnings. All its main markets (USA, UK and S.Korea) are growing.

Note from the two year chart how pullbacks are relatively modest…

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Ramridge

19th Jan '15

Hi Bouvier -
Sprue Aegis (LON:SPRP) I don't think the Sterling/ Dollar is significant. In the 2013 accounts, the geographical split of revenues is shown as UK & Eire £26m, Continental & other £21m.
How much of the 'other' is US I can only guess. I suspect maybe 10%? £2m? 5% of overall revenues?
If someone has better knowledge, please can you enlighten us.

shanklin100

Paul

Re THT, as I posted earlier on ADVFN...

"H1 sales down £11.4m on the previous year, with no obvious reason to believe H2 sales will be better than last year. Looks like the broker forecasts are ludicrously optimistic.

All IMHO, DYOR. No position in THT."

Cheers, Martin

janebolacha

Paul, yes, Thorntons made, imo, an enormous strategic error in deciding to turn itself into just one more FMCG supplier, rather than going upmarket as a luxury chocolate-maker with small shops in shopping centres as well as a good online operation. Smaller but building a moat would have been better, imo. Now they're obviously being squeezed to death by the big retailers and have increasingly nowhere else to go. Their only hope would be a takeover from the likes of Nestlé but how realistic is that prospect?

TheWatchmaker

Re SPRP : impact from dollar exchange rate.
Sprue Aegis use manufacturing operations (Pace Sensors) in North America, therefore, costs will be impacted by exchange rate movements - I think Pace are Canada based, therefore, Canadian Dollar impact.
Sprue have been seeking acceptance of Pace components for the US market which will have development costs in US$

From 2013 Sprue Aegis Accounts
Price Risk
The group is exposed to the risk of changes in commodity prices and movements in exchange rates between US$ and the Euro, the US$ and Sterling, the Canadian $ and Sterling and Sterling and the Euro. Changes in exchange rates and commodity prices are monitored regularly by the Board and forward foreign exchange contracts are used to try to mitigate the impact of short term fluctuations in exchange rates.

Glaws2

Ramridge - SPRP - there are very little (if any) dollar sales. I believe the dollar effect is on the purchasing side.

Thanks Glaws2. I also gathered that is the case from theWatchmaker's reply. Would be good to know exactly what this currency exposure is.
Regards, Ram

PJBY

SPRP
The company clearly stated at Mello that they expect uptake in France to take upto 24 months, so that should level out Sales somewhat, although I accept hard to predict. SPRP were the only supplier who could ramp up production to meet demand. That has probably opened up other opportunities.
Germany (and others) some products are now have, or near to, end of life and large Landlords will be replacing in Bulk. Some of these landlords are Housing Associations and can place orders in excess of 200k units. I believe there are also x2 Regions yet to become compliant in Germany.

Roland Head

Paul, Martin,

Re. Thorntons (LON:THT) valuation -- the pre-Christmas update/profit warning indicated that full-year profit will be lower than last year, but this hasn't yet been reflected in broker forecasts for Thorntons and wasn't reiterated today...

This gives a slightly misleading impression to anyone looking at the forecasts without checking recent RNS announcements.

Cheers, Roland

Re. Pressure Technologies (LON:PRES) This was a cracking company before the oil price collapse. It is not totally dependent on the oil & gas sector, 73% - but large enough.
With oil & gas companies daily announcing drastic cuts in 2015 budgets, PRES 's sp is a falling knife, difficult to judge what its stable price would be in a stable world. The problem is that we just do not know what the stable world would look like. A high stakes "who blinks first" game is being played out between Saudi Arabia and the US.

Carcosa

Re LON:PRES Funnily enough I was looking at this one myself today. The concern I have is that although PRES have non-O&G sectors in which they work those other O&G engineering companies will be bidding hard for business in those areas in which PRES operate and I imagine taking business and margin away from PRES. Much to early to judge, as yet but this is a company worth keeping an eye on over the next year.

Gostevie

You've excelled yourself with today's mammoth report Paul. You definitely deserve those Peronis! :-)

Steve

jonno

I have looked at Pressure Technologies on several occasions since its prelims on 9 December and been tempted to buy. The difficulty as people more able than I have pointed out, is to quantify the impact of the current oil price on the the Company's earnings. Some of this impact is likely to be offset by growth in the alternative energy division that accounted for £5.7m of the £18.5m last quarter revenue. Having said that I find forecast eps of 49p and 60.5p (see stock report) for the next two years difficult to believe given the turmoil in the oil and gas sectors.

I have similarly considered Northbridge Industrial Services on the basis that the perceived impact of the falling oil price on the company's earnings is likely to be greater than the reality.

Jonno

Rusty2

I have some Sprue Aegis, the figures look good even with the French situation. One thing I don't understand is why are they having products made in USA or Canada when they don't sell much there? Surely they can have them produced in Europe or Far East? Yes the Euro will fall cant believe its been so strong for last few years with so many problems there.

jugsjugs

thank you mr scott

iwright7

20th Jan '15

I note that the excellent Sprue EPS growth to let's say 21p in 2014, all of which prior to the French fire alarm legislation kicking in March 2015. Previous Sprue 5Y EPS growth has averaged 25%, so assuming similar continued success the 2015, this will give 2015 PE of just <13, which is a low price for a high ROCE/growth company. This is a small Buffett style company if ever I saw one.
Ian

referencepoint

21st Jan '15

I spent quite a time talking to the CEO of Sprue Aegis at Mello.
To sum up, I think they have only just scratched the surface with sales in France to date If you look at their turnover figures against the potential market, (in the hundreds of millions) then sales I'm sure are guaranteed for next few years.
From memory they took over a firm in Canada selling their own products in the USA. This arrangement is not so favourable an competition much stronger, but not a major factor for the company. They hope to unwind this are start selling their own branded products in future.
Germany has a lot of potential with housing associations etc.
Also new range of products as part of 'Internet of Things' so that e.g. housing associations can remotely monitor hundreds of devices at some time being developed.
Lots of things to like about this company for next few years.
Strong Hold.

Hi referencepoint -
Sprue Aegis (LON:SPRP) Thanks for this update. What I like about this company is that they execute their strategy and execute it well. Strategising is all well and good, but if you can't deliver then it will end in tears. All down to a solid seasoned management team. I am in SPRP for the long term.

andrewjames

Sprue Aegis update also much appreciated - thank you. I thought that the company presented very well at Mello Derby. I bought in after that (earlier would clearly have been much better, but I believe that there is more to come). The Sprue Canadian subsidiary is Pace Sensors, which manufactures CO sensors for use in the CO alarms. As I understand it (and the AIM admission document contains helpful information in this respect - see the listed risk factors in particular - although no doubt things will evolve), the company is otherwise reliant on third party supply arrangements, Jarden owned companies comprising the majority, with most of the manufacturing carried out in China.

Long term, the North American market must be a possibility (or even more likely another takeover bid from that direction), but there are clearly much more palatable targets elsewhere, where the competition/barriers to entry are less fierce.

Have to agree with the Mello 14 Sprue comments. I keep written notes of why I buy and sell companies and my own notes following Mello are as follows:

"Excellent presentation by CEO and FD - Both live and breathe smoke alarms. 6 strong UK fire/CO detector brands (value to premium) to slice/dice market. Manufacture in US/China, but innovate in UK. Strong growth from French landlords liable for smoke alarm legislation, a new mains trade range in early 2015 and wireless versions coming on. BRK royalty reducing (and weaker BRK position). Operationally geared and sales driven management, (completion between sales team segments). No debt. Plan to beat broker forecasts and I strongly suspect to sell out. Should be my biggest holding".

Ian

22nd Jan '15

I have been looking at some figures to try to get a reasonable fix on what the market for smoke detectors in France might be?
The Potential Market - the last figures for number of homes in France was in 2005 and estimated at about 25m
Say Sprue were to capture 50% of this market (achievable) and average spend was £10 then potential for £125m of sales.
Their figures for H1 of 2014 states that they had sales of circa £11m in Continental Europe, so lets say that was £7m in France. The latest Trading Update suggests strong growth in France so lets also say their sales in H2 of 2014 increase to £10m.
So as I said previously, Sprue have to date only scratched the surface of the potential in France. Difficult to predict how many households will have complied with the Law by March 2015. From a low base of 2%, I would doubt whether this figure will have grown to even 25% by March. If I am right, then this market will take a number of years to mature and Sprue are exceptionally well placed to benefit. Barriers to new market entrants are stiff, giving Sprue time to strengthen their first mover advantage.
As they continue to improve their products, the average spend will increase and the above figures could prove to be rther conservative.
Also I like the fact that this company doesn't seem to attract the 'Hot Money' So Investors rather than Speculators.

Small Cap Value Report (19 Jan 2015) - PMP, SPRP, THT, PRES, FIF, CMS, BRY, CVR, BEA, APH

Portmeirion (LON:PMP)

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Paul Scott

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