Small Cap Value Report (2 Oct 2015) - UNG, TET, VLX

Friday, Oct 02 2015 by

Good morning!

Very quiet for results and trading updates again today, so another short report.

Universe (LON:UNG)

Share price: 9.5p (up 1.3% today)
No. shares: 220.3m
Market cap: £20.9m

Major contract win - I don't normally comment on contract win announcements, unless they look material to the business. Universe has won a contract to supply an EPoS system to the entire estate of 650 off-licence and convenience stores run (or franchised) by Conviviality Retail (LON:CVR) .

Revenue is expected to be £4.3m spread over 3 years, which isn't huge in the context of Universe already having forecast turnover of about £21.6m this year. However, I'm impressed that Universe has managed to win such a fairly big client, in a competitive tender, suggesting that its software is good. This deal should also act as a reference for further sales to other new customers.

The StockRank here is very good, at 96, also the trend of performance over the last few years seems to be encouraging, so Universe might be worth a fresh look. The shares look priced about right for now (forecast PER of 12.1), but if there's good growth in the pipeline then perhaps earnings forecasts might rise in future?

The only caveat is that these shares have always historically been very cheap, so could easily revert to being on a PER of 6-8 again, if the future numbers disappoint. Also there are no divis, and the spread can be wide. So it's probably not for me.


Treatt (LON:TET)

Share price: 165p (up 2% today)
No. shares: 51.7m
Market cap: £85.3m

Trading update - a reassuring update, with the key bit saying;

The Board is pleased to confirm that the Group has performed well in the second half of the financial year and expects to report revenue and profit before tax for the year ended 30 September 2015 in line with its expectations.  

Debt and forex are mentioned positively;

The cash performance of the Group has been encouraging, with net debt ending the year at its lowest level since 2006.  The Board is also pleased to report that the FX strategy in place has prevented movements in FX rates during the year having a material impact on results for the year.

Valuation - Stockopedia shows broker consensus…

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Universe Group plc is a United Kingdom-based company, which designs, develops and supports point of sale, payment and online loyalty solutions and systems for the United Kingdom petrol forecourt and convenience store markets. The Company's solutions are delivered through the cloud into real-time environments. The Company's trading segment is HTEC Solutions (Solutions). Solutions provide hardware, software and service solutions into the United Kingdom petrol and retail markets. The Company provides services, such as deployment, including site surveys, and communications infrastructure design and installation, and equipment refurbishment and disposal; field maintenance, including a range of on-site maintenance options; in-house services, including bench repair facility and help desk services, and outsourcing, such as project management, installation engineers and infrastructure consultants. The Company's subsidiaries include HTEC Group Ltd, HTEC Ltd and Indigo Retail Holdings Ltd. more »

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Treatt PLC is a United Kingdom-based ingredients manufacturer and solutions provider to the flavor, fragrance and consumer goods markets. The Company's geographical segments include United Kingdom, Rest of Europe, The Americas and Rest of the World. The Company's products include Essential oils, Citrus, Treattarome, Functional ingredients, Chemicals, Organic essential oils, Vegetable oils and Treatt brew solutions. Its Essential oils include Amyris Oil, Angelica Oil and Aniseed Oil. Treattarome products include Pineapple Treattarome, Honey Treattarome and Cucumber Treattarome. Its Citrus products include citrus oils, CitrustT, TreattZest and Citrus add-back range. Its Functional ingredients include beverage specialties, fragrance ingredients and sugar reduction products. Its chemicals include aroma chemicals, natural chemicals and Treatt Flavour Wheel. Its Vegetable oils include Borage Oil and Baobab oil. Its organic essential oils include Organic Aniseed Oil and Organic Lime Oil. more »

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Volex plc is a supplier of power cords and cable assembly solutions servicing a range of markets, including consumer electronics, telecommunications, data centers, medical equipment and the automotive industry. The Company's segments include Power Cords, Cable Assemblies and Central. The Power Cords segment is engaged in the sale and manufacture of electrical power products to manufacturers of electrical/electronic devices and appliances. These include laptop/desktop computers, printers, televisions, power tools and floor cleaning equipment. The Cable Assemblies segment is engaged in the sale and manufacture of cables permitting the transfer of electronic, radio frequency and optical data. These cables range from universal serial bus (USB) cables to high-speed cable assemblies, and are used in a range of devices, including medical equipment, data centers, telecoms networks and the automotive industry. It is also engaged in contract manufacturing service and product development. more »

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

5 Comments on this Article show/hide all

Leven 2nd Oct '15 1 of 5

I think Universe (LON:UNG) have historically been cheap because of the concentration risk of clients - 3 customers accounted for 59% of turnover in 2014. As they win new clients this risk should diminish - exciting potential for earnings growth and PE expansion. Disclosure - I'm long the shares.

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Splode 2nd Oct '15 2 of 5

In reply to post #107406

True, but their three biggest customers (Asda, Morrisons and ExxonMobil) are large and Universe is well entrenched - they have served two of them for >10 years. The nature of their business is that they get thoroughly integrated into their customers' operations so contracts are 'sticky' and they can 'invade' other areas of large customers businesses. The downside is that it can be difficult to break into new customers - so the news with Conviviality Retail today is very good.

I'm long and hope to be for a while.

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JDW72 2nd Oct '15 3 of 5

The previous p/e would have reflected the weakness in the balance sheet which has been improved by paying down the debt and also the concentration of business with just three clients (was 85%).

The balance sheet is much better now, the reliance on key clients much improved. That's why the P/E ratio is improving.

Additionally, the products are much better and they are able to offer a level of integration that their competitors can't.

I think good growth will come from them exploiting further uk opportunities (pharmacies, butchers(!), etc.) but the paradigm shift will come when they bite the bullet and trial in the USA. I suspect at that point (if not before) US firms might start taking an interest in UNG as a firm.

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Daniel Neale 2nd Oct '15 4 of 5

In reply to post #107408

I am hopeful about the USA opportunities. I'm sure the management are looking across the pond... I was half expecting something to be announced regarding US today but shall have to wait and see.

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JDW72 2nd Oct '15 5 of 5

The CEO is heading across to a couple of "Convenience Store Conferences" (the mind boggles) but I'm not sure there are firm plans yet with regards the USA.

The model relies on a "field force" of engineers who can get to clients and resolve issues quickly and with the USA being such a vast country that is a harder thing to make work. They'll need to find a densely populated local area to trial in and / or hook up with an American company who have a field force already in place.

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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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