Small Cap Value Report (21 Apr 2016) - UCG, LAKE, CNS, TRK, MPM

21st Apr '16 by Paul Scott

20 comments 15394 reads

Good morning!

It's very quiet for results/updates today too.

Ed's webinar starts at 12:30 today. These are always very intereting, often pointing out useful features within Stockopedia that I didn't know were there! The focus today is on the thousands of new international shares that have just been added to the site.

United Carpets (LON:UCG)

Share price: 13.0p (up 16.9% today)
No. shares: 81.4m
Market cap: £10.6m

(at the time of writing, I hold a long position in this share)

Trading update - for the year ended 31 Mar 2016. This company describes itself as:

United Carpets Group plc, the second largest chain of specialist retail carpet and floor covering stores in the UK

As the map on its website shows, its shops are clustered mainly in the Midlands, and North of England. Apart from one shop which seems to have escaped to South Wales. Note that the areas recently hit by flooding seem to be reasonably near to UCG's stores, so perhaps it has received some benefit from customers having to replace flood-damaged carpets?

Trading has been good:

...pleased to announce that the improved trading performance seen in the first half of the financial year ending 31 March 2016 continued into the second half of the financial year. On a like for like basis, sales for the second half increased by 6.4% against the comparable period last year.

As a result, the Board now expect its final results for the year ended 31 March 2016 to be ahead of market expectations.

Excellent stuff.

Valuation - it looks cheap to me. The house broker has today upped its forecast for y/e 31 Mar 2016 to 1.43p. That values the company at a PER of 9.1 - which looks good value for a small, growing company, which is trading well.

Balance sheet - the house broker also notes that UCG has £1.5m in net cash, about 14% of the market cap.

Dividends - note that the business has been decently cash generative of late, and came storming back onto the dividend list in 2015, after a hiatus of not paying divis since 2011.

A special divi of 1p was paid in Jun 2015, then 0.75p paid in Oct 2015, and another 0.125p in Jan 2016. So shareholders have received 1.875p in divis in the last year - that's a yield of…

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Beginner

21st Apr '16

A lovely start to the day Paul. Thank you.
Your maps highlight something that has been nagging at me for a while with regard to your recent comments on the retail sector. I live in the Grim North. We are effectively still in recession. There has been no recovery here. Many quoted UK retailers are regionally confined. WM Morrison Supermarkets (LON:MRW) is probably the best example, but the same can be said of Fishing Republic (LON:FISH) and Crawshaw (LON:CRAW) , as well as United Carpets (LON:UCG) and Conviviality (LON:CVR) . All these seem to have had a decent run of late, but I can see a distinct opportunity for regression in the near future.
I think retail figures released today suggest something of a slowdown across the UK, perhaps giving a hint at what may be to come.

imranawan

I see the CEO of Lakehouse (LON:LAKE) has resigned. I think this was inevitable after the recent boardroom shenanigans. I guess his position become untenable to some extent.

grumpy5

Beginner, I think you will find that, after its ill-judged acquisition of Safeway, MRW is not more focused on the North than any of its main rivals.

davidallen77

Ucg divi was 0.25p in october 15 Paul, more to come our way though!

DVB99

UCG looks interesting, although as Paul points out director pay may be a bit high

But notice that one of the non-execs is a PA Cowgill, who was a director of MBL a while back, a company that tanked completely and lost me a lot, so its a no-no from me!

Graham Neary

MBL were reliant on a single large contract, was there much Cowgill could have done? On the other hand, he has been exec Chair at JD where he has made investors a ton of money. Can't win them all!!

andrea34

Seeing as JD just got a mention, what do people think of them? Last weeks results looked superb as far as I could tell, they seem to be trading really well... where as SPD, in a similar market, is currently dishing out poor trading news and controversial finance arrangements with childish spats in their announcements.

catalogue

Very useful that you singled out tiny free float, director's excessive remuneration and difficulty in trading, which qualify the high ranking and illustrates why good ranking can mask skeletons in the cupboard.

RayStraw

Paul, I see Gama Aviation (LON:GMAA) final results are out today, on the face of it they do look good, Rev up 15%, G. Profit up 27.6%, Profit Margin +11%, but there are one of costs due to the merger last year, a lot of EBITDA and adjustments. Strip out the one off costs then the figures look very good unless I'm missing something? It is rather complicated, I don't think the presentation has helped. Shares are only up slightly.

They have expanded in the south, I know they took over some Somerfield stores when the Co-op took them over. In fact my nearest town has 2 Morrisons but no Sainsburys.

Regarding GMAA I wonder whether the following comments are a worry made relative to their strong US operations?

...in Europe the outlook is very different. We expect the gradual softening of the market which has been evident over the past twelve months to continue well into 2016. With a cautious economic outlook and the various political uncertainties, the trading environment remains challenging and consequently organic growth within our European operations will be at a premium, particularly in our Air operations....

Our Middle East operations continue to make steady but slow progress.

gaustin

Lakehouse - I would not be surprised if the FD were to move on as well, although hopefully not imminently. Hopefully we will not see the scenario where the incoming CEO puts through a few p&l write offs / provisions as part of a tidying up exercise. Not an uncommon practice especially if you are also in discussions about the strike price for any share options.

Waterman - any thoughts on this given that the share price is moving solidly sideways / more down than up?

Paul Scott

Hi Gaustin,

That was my thought too on Lakehouse (LON:LAKE) - new CEO coming in, so probably some kitchen-sinking to be done with the accounts, to discredit old management, and give himself a nice springboard to produce better figures later on, aided by releasing provisions made in the kitchen-sinking. Or are we being too cynical?!

Waterman (LON:WTM) - there hasn't been any material news since the interims on 29 Feb 2016. So there's nothing for me to report on. I generally try not to get into chatter about share price movements, as it's a waste of time really. Prices just go up & down in the normal course of things.

Regards, Paul.

jonesj

Ref: Torotrak
If their KERS system cannot work on a bus, then where can it possibly work ? With all the stop-start & a plenty of space to package the system, service buses must be ideal.
Now of course, they were trying to combine the Flybrid flywheel energy storage system with their Torotrak CVT.
Generally, when there are competing electrical and mechanical solutions, the cost of the electrical one falls and it becomes the dominant technology. Battery hybrids already have a big lead in the market. Then if someone makes a big step forward with batteries, Flybrid would be even less competitive. That is a risk.

Does this mean their Flybrind acquisition in 2014 may not earn a return either ?

Bezhe

Although I am not a fan of verbing (making a verb out of a noun or two), I do make an exception for "kitchen-sinking" which Gaustin took a whole sentence to describe.

Kitchen-sinking. We all know it now. Should be worth a chapter in that book on accounting that Paul is going to write.

Whitbyview

Today's price rise in UCG takes them above £10M market cap so that might put them on the radar more for some investors, large and small. Interesting that both UCG and SCS should report good market conditions ... this fits with my feeling that with a lack of property for sale, people are spending money doing up their existing properties.

22nd Apr '16

You are probably right and its just my bias from losing most of my investment
although I seem to recall the MBL Board were also on considerable remuneration for a smaller company?

Lakehouse - downside protection may come from the fact that the Slater fund will probably be quite instrumental in who is appointed protecting their investment position. These may have an impact on how much, if any, kitchen sinking is done. Disclosures of any buying or selling by Slater will say a lot.

xcity

Slater and Rawlings both have a long term view. Kitchen sinking likely to be better for that than a risk of further disappointments.

garkum01

24th Apr '16

The whopping director's swill-trough would make united carpets uninvestable for me. What, running off with nearly 50% of the profits!! well-pointed-out, Paul.

Small Cap Value Report (21 Apr 2016) - UCG, LAKE, CNS, TRK, MPM

United Carpets (LON:UCG)

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Paul Scott

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