Small Cap Value Report (19 Oct 2015) - MBH, TRB, VNET

Monday, Oct 19 2015 by

Good morning!

It was interesting visiting Canary Wharf on Friday afternoon, especially at 5pm onwards, when vast streams of people were spilling out of every building, and congregating for drinks in the various bars. Makes you realise just how many people now work there - it must be an important financial centre in its own right.

I met a lawyer friend, whose office is based there. She mentioned how one client arrived to see her, and as he looked around Cabot Square, he commented, "You can just smell the money here, can't you?". She replied, "No dear, I think that's falafel you can smell, there's a little shop selling it just over there!".

Michelmersh Brick Holdings (LON:MBH)

Share price: 94.7p (down 6.7% today)
No. shares: 81.2m
Market cap: £76.9m

Trading update - I had to read this several times, to make sure I understood it properly;

Michelmersh Brick Holdings Plc (AIM: MBH), the specialist brick manufacturer and landfill company, today reports to the market on a better than expected trading performance in the second half of the year to  31 December 2015, achieved through operating efficiencies, continued low energy costs and aided by the additional capacity from Freshfield Lane.
Delivery volumes are below previous expectations as a result of a softening of the market, however average selling prices are ahead of those budgeted. As a consequence, the Group is likely to exceed the market expectations of profit before taxation for the year. The results for the full year are scheduled for release on 21 March 2016.

That's quite a strange combination of positives and negatives - which seems to be summarise as: costs down, selling prices up, but demand softening = profit ahead of expectations.

The trouble is, when demand for anything softens, then usually selling prices start falling, as manufacturers compete harder on price, in order to achieve the required sales volumes.

I vaguely recall, from a presentation by Michelmersh a couple of years ago, that supply of bricks is semi-fixed - i.e. production capacity can be increased, but it takes quite a while to set up the increased manufacturing capacity. So in the short term, prices can rise a lot, if increased demand occurs.

Valuation - as you can see, this stock looks aggressively priced right now, even allowing for it exceeding market expectations;


My opinion - I'd be worried…

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Michelmersh Brick Holdings Plc is a United Kingdom-based company, which is engaged in the manufacture of clay bricks, tiles and pavers. The principal activity of the Company is the management and administration of its subsidiary companies. The Company's segments are Building materials and Landfill. The Company's Building materials segment is engaged in the manufacture of bricks, tiles and building products being principally facing bricks and clay paviors at Blockleys, which is based in Telford, Shropshire; Charnwood, which is based in Shepshed, Leicestershire; Freshfield Lane, which is based in Danehill, West Sussex, and Michelmersh, which is based in Romsey, Hampshire. The Company's Landfill segment is engaged in landfill operations, through New Acres Limited, which is based in Telford, Shropshire. The Company's brands include Blockleys, Charnwood, Freshfield Lane, Michelmersh and Hathern Terra Cotta. Its Blockleys brand manufactures a range of standard special shaped bricks. more »

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Tribal Group plc is a United Kingdom-based company, which provides software and services for education management. The Company's segments include Product Development and Customer Services (PD&CS), Implementation Services (IS), Professional and Business Solutions (PBS) and Quality Assurance Solutions (QAS). The PD&CS segment represents the delivery of software and subsequent maintenance and support services. The IS segment represents the activities through which it deploys and configures software for its customers. The PBS segment represents a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services, and the QAS segment represents inspection and review services, which support the assessment of educational delivery. Its products and services include license and development, implementation, maintenance, professional and business solutions, quality assurance solutions and other systems related. more »

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Vianet Group plc is a provider of real time monitoring systems, data management services, and actionable insights for the leisure and vending sectors. The Company's segments include Leisure Services, which includes design, product development, sale and rental of fluid monitoring equipment, data management and related services; Vending, which includes design product development, sale and rental of machine monitoring equipment, data management and related services; Technology, which includes the provision of data management and technology related services, and Fuel Solutions, which includes wet stock analysis and related services. Its Leisure division consists of the core beer monitoring business (including the United States), and gaming machine monitoring. Its subsidiaries include Brulines Trustee Company Limited, Vianet Americas Inc and Vianet Limited. more »

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

15 Comments on this Article show/hide all

Paul Burkitt 19th Oct '15 1 of 15

Hi Paul,

I see why you had to read it several times

"better than expected trading performance in the second half of the year to 31 December 2015" - we still have 2.5 months of this periond to go!! I thought that trading statements gave the trading upto a date (normally in the past!!) - which will have an impact on 2nd Half results. I assume they are saying that volumes are not likely to pick up. Higher production (assumed with additional capacity) and higher selling prices - but lower deliveries - sounds very odd

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tads 19th Oct '15 2 of 15

Re Vianet. A contract win in America could transform the company.....but no mention of America this morning.

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herbie47 19th Oct '15 3 of 15

Re: Michelmersh Brick Holdings (LON:MBH) why is demand softening? I thought building was increasing? I know there was a delay before the election with some projects.

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MGinvestor 19th Oct '15 4 of 15

Hi Paul,

Lakehouse (LON:LAKE) gave a trading update saying that it's trading is in line with expectations. Their house broker has pencilled in profits before tax of around £21m. For a 150m market cap and a PE of 8, is it possible to get your thoughts on it?

Thank you

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danyou 19th Oct '15 5 of 15

Paul, Do you mind making a comment on Inland Home's statement today. As you have more experience that most on interpreting accounts etc, would this delay in accounts raise a red flag for you or do you consider their statement to be reasonable?

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Ramridge 19th Oct '15 6 of 15

In reply to post #108567

danyou -

Re. Inland Homes (LON:INL) FWIW Simon T of IC has commented that in his view, the delay has no bearing on the operational performance, and that he remains positive ahead of the announcement.

(Declaration: I am long)

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herbie47 19th Oct '15 7 of 15

In reply to post #108573

I'm long also. Seems there are trying to get a large development included to boost the figures. Don't think there is anything to worry about as they state the profits are ahead of market expectations.

Usually its not a good sign.

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danyou 19th Oct '15 8 of 15

Is this the same Simon T who endorsed Camkids? Would rather hear from Paul

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JASPERTHEDOG 19th Oct '15 9 of 15

In reply to post #108579

OUCH! These guys are only human, and that in itself means some degree of fallibility. In the interest of maintaining balance, would you be prepared to 'fess-up to your worst investing mistake, so we can all see how good your research can be?
There is a guy whining and moaning on ST's column today about not being able to buy the analysed share within two minutes of the report being published. It takes a speed reader with an IQ of 200 to take in all the information in the report in less than 2 minutes. What sort of his own research does that show?
As regards Camkids, there was plenty of warning that all was not well, finally it was shown to be a Chinese Norfolk.

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simoan 19th Oct '15 10 of 15

Re: Michelmersh,

Given yesterday's discussion, Can any of the momentum jockey's tell me how they would react to today's news? It's down 6.7% today. Say it falls another 5-7% tomorrow morning, do you follow the crowd and sell up or do you buy more? If the latter, how far would it have to fall before you'd sell? Or do you wait for the StockRank to deteriorate?

I'm genuinely interested because there's no way in the world I'd be holding something as cyclical as a brick company on a P/E north of 20, and if I did, like Paul, I would have sold on today's news.

All the best, Si

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danyou 19th Oct '15 11 of 15

In reply to post #108582

I have no gripe with ST. On the contrary, he writes great articles. It is just his weakness on believing what he reads with company accounts that bothers me. Reading his opinion vs Paul on Globo illustrates this as well IMHO. This is where I feel Paul is strongest and that is why I would love to hear his thoughts on this non update from Inland....

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PhilH 19th Oct '15 12 of 15

In reply to post #108585

For me, if you're purely looking at Momentum, I'd be using the Ichimoku chart to guide me see If you look at the chart for Michelmersh Brick Holdings (LON:MBH) you can see it bounced off the cloud at 90p. I'd be selling if it closed below that cloud support.

That said there might be other factors that might encourage me to sell, such as reducing EPS estimates/increasing PEG. That said with a PEG of 1.43 I wouldn't have bought this stock in the first place.

You have to work out what you are comfortable with.

Best of luck

Professional Services: Sunflower Counselling
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simoan 20th Oct '15 13 of 15

In reply to post #108603

Thanks Phil,

 You'll probably not be surprised to hear I'd not heard of Ichimoku charts! I see MBH is down another 5% as I write which is below the 90p level you suggest. Even with my amateur eyes that looks a level of support on the daily chart. It looks like the fundamentals went out the window with MBH a while ago and it has all the hallmarks of a classic momentum share i.e. the price has continued going up because it's in an upwards trend. Since that approach seems to be fairly mechanistic it would be good to hear from those that follow it. We've now dropped over 10% in a couple of days... what do you do?

 All the best, Si

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PhilH 20th Oct '15 14 of 15

In reply to post #108621

You follow your system and take action accordingly.

Professional Services: Sunflower Counselling
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Fangorn 20th Oct '15 15 of 15


These are useful sites for beginners...

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 Are LON:MBH's fundamentals sound as an investment? Find out More »

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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