Small Cap Value Report (19 Jun) - NRR, DEMG, WYN, IPEL, PDX, PEN

Wednesday, Jun 19 2013 by


Good morning! My favourite secondary retail property REIT, Newriver Retail (LON:NRR) has announced a £67m Placing at 205p. Whilst that seems a discount of 19p to the current market mid price of 224p, bear in mind that the shares go ex-divi on 26 June, so it looks like the new shares will not qualify for the 10p dividend. So it's really just a 9p discount, so should not concern existing holders.

They are issuing 32.7m new shares, which is almost doubling the number in issue (there are 34m in issue currently), so as one commentator suggests, that will dilute EPS and the massive dividend yield of around 7-8% whilst the cash is being deployed.

However, we recently met NRR management at a Mello Central investor evening, and were highly impressed with them. In a nutshell their business model is to buy secondary retail property (which is let to value-orientated retailers like Primark, Poundland, etc) on a 9% rental yield, and borrow money at 4% interest. The gap between prime rental yields and secondary is at record levels, so providing you invest with a management team who know what they are doing, then there should be good gains to be had long term in this space.

They also stand out because of the very active management and development of their centres. I was amazed at the range of initiatives they have underway to develop and improve their centres, including building a large new Morrisons store at one, and numerous other things such as installing free WiFi, Amazon collection lockers, etc. Shopping centres are morphing into meeting, social, and eating places, being just as important as the actual shopping aspect. So the threat from the internet is arguably overstated, especially at the value end of the market, where there is no threat from the internet at all - e.g. Primary don't have a transactional website, there's no point as you can go into the store & buy armfulls of cheap, disposable clothes, so nobody is interested in ordering them via the 'net.

It sounds like NRR has deals in the pipeline, so the cash should be deployed fairly quickly. It should also dilute management costs over a larger portfolio, so overall as a New River shareholder I am pleased to see this company expanding in this way.



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NewRiver REIT plc is a real estate investment trust engaged in the real estate business in the United Kingdom. The Company specializes in buying, managing, developing and recycling community-focused retail and leisure assets. The Company’s operations are organized into two segments, being investment in retail property and in pubs. The retail investments comprise shopping centres, retail warehouses and high street stores. The pub investments consist of over 650 community public houses. The Company owns or manages a portfolio of approximately 34 shopping centers and 19 retail parks with retail and mixed-use development opportunities and a range of high street retail assets. The portfolio totals approximately nine million square feet. The Company is focused on convenience-led retail assets that cater for everyday household spending needs. The Company operates Grays Shopping Centre, Hollywood Retail & Leisure Park, Hawthorn Leisure, and Star Pubs & Bars. more »

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Deltex Medical Group plc is a United Kingdom-based haemodynamic management company, which manufactures fluid management devices. The Company's segments are Probes and Other. The Company's Esophageal Doppler Simulator (EDS) enables clinicians to practice probe insertion, focussing and waveform interpretation outside of a patient setting. The Company's CardioQ-EDM and CardioQ-EDM+ esophageal Doppler monitors (EDM) are designed to allow clinicians to guide fluid and drug administration during surgery. The Company's oesophageal Doppler haemodynamic monitoring (ODM) uses ultrasound to measure blood flows in the central circulation of patients, and allows doctors to fine tune the circulation. Its probes include surgical probes, such as I2S and I2P, and critical care probes, such as I2C and EDP240. Its I2S and I2P are used in patients who are anesthetized, sedated or awake. Its EDP240 is used in patients under anesthesia or full sedation. It has operations in Spain and Canada, among others. more »

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Wynnstay Group Plc is a manufacturer and supplier of agricultural products. It operates through two segments: Agriculture and Specialist Agricultural Merchanting segment. The Agricultural segment is engaged in manufacturing and supply of animal feeds, fertilizer, seeds and associated agricultural products. Its Feed division, which operates approximately two compound feed mills and one blending plant, offers a range of animal nutrition products to the agricultural market. Its Glasson division is raw materials supplier and fertilizer blender and is also engaged in packaging of added value products supplied to specialist animal feed retailers. Its Agricultural Merchanting segment operates rural outlets and provides comprehensive range of products for farmers and rural dwellers. Its operated stores offers wide range of specialist products to farmers, smallholders and pet owners. Its Youngs Animal Feeds manufactures equine and small animal feeds from its production facility at Standon. more »

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

8 Comments on this Article show/hide all

nigelo 19th Jun '13 1 of 8

Hello Paul,

What do you make of this sentence from NRR's placing RNS?

Investec Bank plc has informed the Company that it will resign as joint broker with effect from 18 July 2013 and NewRiver accepts that position.

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bobdouglas 19th Jun '13 2 of 8

Ref. Wynstay - accept your point that it is a bit dull and the nature of this sector is low margin always has been. However, since 2007 they have steadily grown from 28M net assets to 60M shown in their half yearly report and the share price from circa 250p to 500p in the same period. The dividend has risen in a similar fashion and the dividend cover is around 4. Steady but not spectacular - I suppose it is whatever floats your boat!

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DarwenLad 19th Jun '13 3 of 8

Re:Investec's resignation. Seems a bit strange. Could it be that they were not happy about the size and price of the placing?

Having had a quick glance through past RNS statements NRR raised £25m at 250p a share at its September 2009 IPO. It has since raised £10.5m (@250p) in April 2010, and £40m (@250p) in June 2011.

I might have missed something but all these three placings were done at 250p a share.

Given the size of the current placing at 205p, perhaps Investec might have raised doubt about why investors ,who have been backing this company at 250p a share in earlier placings ,should now stump up yet more money again for another highly dilutive share issue when the share price has still not reached its original IPO price of 4 years ago?

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Johns54 19th Jun '13 4 of 8

I hold New River and I worry about this placing.

To benefit me it has to improve EPS and I am not sure how it will do that.

Either the new projects have to be more profitable than the existing investments or if not give the company the benefit of spreading the overhead base across higher rental income and I am not convinced either will happen to any great degree.

I can see that I am taking on more risk as the company undertakes new investments but where is the return going to come from?

I was at the Mello event and I agree these guys looked impressive but this looks like a vanity move to grow the business.

Am I missing something.

Yours ready to be convinced

Concerned Investor

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bobdouglas 19th Jun '13 5 of 8

In reply to post #74385

Not much fun holding a share you are worried about especially if you feel you have been led up the garden path.

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fredahad 19th Jun '13 6 of 8

Wynnstay: Just back from the results presentation. Impressions: Well run, conservatively with competent, thrifty CEO and FD,on the acquisition trail but will not be cavalier about prices paid. Slow, steady solid company, moderate dividend, which has been increased inexorably year by year. They are sensitive to grain harvests, commodity pricing, seasonal weather, but on the other hand, the business is well diversified so if one sector suffers, another has a good year, at least to some extent. The pets and retail stores are growing quite nicely. They have good freehold property in Wales which is on the books at very old acquisition price, and therefore some decent asset backing to mitigate quite high level of balance sheet intangibles. WYNN was here 20 years ago and will probably still be here in another 20, but as Paul suggests, perhaps not much in the way of fireworks here.

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marben100 19th Jun '13 7 of 8

In reply to post #74379

Hi nigelo,

The RNS also says: 

The Placing will comprise the Firm Placing and the Additional Placing. Cenkos and Liberum are joint brokers to the Placing. Investec Bank plc has informed the Company that it will resign as joint broker with effect from 18 July 2013 and NewRiver accepts that position. The Company has entered into the Placing Agreement with, amongst others, Cenkos and Liberum, pursuant to which Cenkos and Liberum have agreed to use their respective reasonable endeavours to procure institutional and other placees (including certain existing Shareholders) for the Placing Shares.

I take that to mean that when push came to shove, Cenkos & Liberum were able to come up with placees, whereas Investec were not. It's a dog-eat-dog world. NRR doesn't need 3 brokers!

However, I tend to agree with Johns54 and don't see how this move will benefit me as a shareholder. I therefore sold my holding this morning.



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nigelo 19th Jun '13 8 of 8

In reply to post #74392

Hi Mark,

You might be right although DarwenLad's suggestion seems slightly more plausible, except for the fact that that also seems somewhat honorable. Cynicism aside, losing a well known broker like Investec without a decent explanation is disconcerting.

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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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