Small Cap Value Report (23 Sep 2014) - KBC, PMR, MTC

Tuesday, Sep 23 2014 by

Good morning! A rather large backlog of emails has built up, so I apologise to anyone who is waiting for a response from me. Maybe people could hold fire on sending me any more emails for a few days, so I can catch up?!

KBC Advanced Technologies (LON:KBC)

Share price: 106p
No. shares: 81.8m
Market Cap: £86.7m

Interim results are out this morning covering the six months to 30 Jun 2014. The company is a consultancy and software supplier to the oil refinery sector, globally.

Balance Sheet - the strength of KBC's Bal Sheet is the first thing that jumps out at me from the figures. This has been helped by a relatively large Placing of £24m in May 2014, which was executed at 115p, just a 3p discount to the share price at the time - impressive. The share price is now 106p, so I like the fact that shares can now be bought at a lower price than the company was most recently financed at.

My only concern from the Bal Sheet is that Debtors looks too high at £30.1m. That's only a little less than the whole six month's turnover of £34.4m, and is £7m higher than the equivalent figures six and twelve months earlier. So the questions need to be asked - why is Debtors so high, and what it has been brought down to post year-end? Excessive debtors is my number one red flag for possible accounting problems, so this definitely needs looking into.

Acquisition - some of the Placing monies (£ 10m) was used to finance the acquisition of a UK competitor called FEESA in July 2014. So the 30 Jun 2014 Bal Sheet is flattered somewhat, but even when you strip out £ 10m in cash, it would still be very healthy, so a strong tick in the box for financial strength, which is always a great place to start.

Profitability - not particularly impressive, this has edged up a tiny bit from last year's H1, at £3.2m, on higher turnover. Note also the very high tax charge of £1.1m on £2.8m profit before tax - I recall there being a problem with this company whereby is generates profit in high tax countries, and losses in low tax countries, giving an unusually high blended tax rate. The FD was meant to be fixing this, but it doesn't seem to…

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Panmure Gordon & Co. plc is a United Kingdom-based investment banking and institutional stockbroking company. The Company offers a range of institutional stockbroking and corporate advisory services. Its segments include UK and Other. It offers various services, which include institutional equities, investment funds, initial public offerings, mergers and acquisitions, corporate access, and execution and prime services. It also provides research, sales and trading services to institutional investors. It provides extensive access and information to existing shareholders and institutional investors. It offers detailed shareholder analysis; access to institutional, hedge fund, private client and family office investors across the United Kingdom, the United States, European Union and Asia; logistical support and management of all non-deal, deal and reverse roadshows, corporate access events and sector conferences, and timely investor feedback to management from all corporate access events. more »

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Mothercare plc is a retailer for parents and young children. The principal activity of the Company is to operate as a specialist omni-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes the Company's franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear; home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the world in over 60 countries through its international network. more »

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

17 Comments on this Article show/hide all

Ramridge 23rd Sep '14 1 of 17

Hi Paul - HY1 EPS drop from 4.8p to 2.9p is near 40%. Management expectation to meet full year EPS forecast of 7.1p (and therefore PE between 14-15) looks stretched to me.
Regards, Ram

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mrwhits 23rd Sep '14 2 of 17

Hi Paul,

Any chance you might get to look at GLIF(GLI Finance) today, as they have announced interims?

Thanks in advance.


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bsharman 23rd Sep '14 3 of 17

I was very relieved when i saw the Panmure Gordon & Co (LON:PMR) statement today after a raft of bad statements from my other companies.... Tesco (LON:TSCO) and Xaar (LON:XAR) to name two. I think that Panmure Gordon & Co (LON:PMR) are a very good investment at these levels and once they start to pay a dividend I think the market will re-rate them higher. I see the short term price target of £1.75 and then back to 'normal' pre-crisis levels of between £2 and £4 after that. The risk reward here is exceptional IMO.

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bsharman 23rd Sep '14 4 of 17

Does anyone know if Begbies Traynor (LON:BEG) are involved in the 'Phones for You' administration?

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imranawan 23rd Sep '14 5 of 17

Hi Paul,

I know you're not a fan of ambulance chasing companies, but any chance you could have a look at the interims released by the NAHL (LON:NAH)

Best wishes,

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OsullivanB 23rd Sep '14 6 of 17

I would welcome your thoughts on the Regenersis finals.

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Sully8786 23rd Sep '14 7 of 17

Hi Paul,

Cenkos Securities (LON:CNKS) reported their interims last week and they looked good too. I wonder whether this is a sector thing and the brokers are just rated a little lower than other sectors?

Seems a bit bonkers to me but hey ho :|



Company: Dave Sullivan - Talking Stocks
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johnrosier 23rd Sep '14 8 of 17

The importance of keeping valuation on your side! Regenersis holders are suffering the double whammy of downgrades to earnings and a downward re-rating this morning. It looks to me that there are about 8% downgrades to June 2015 earnings and 18% to June 2016. At the current price, (245p), it looks like it is on about 13.4x June 2015, falling to 11.5x June 2016 and then 10.4x June 2017. So, IMO starting to look interesting but before taking the plunge I would need to feel confident that there were no more downgrades to come. 

Unfortunately I cannot take part in the webinar at 1:00pm tomorrow but definitely one to keep an eye on.

Also time to check through the JIC portfolio for any over valued stories!

For interest this is what I blogged on 19th May when I sold; it was the valuation that spooked me.

Regenersis (Market capitalisation; £280m, 360p and 2.9% of JIC Portfolio); I have this morning sold my holding in Regenersis, realising a nice profit. It has held up relatively well this year against the wider fall in the AIM market. Sixteen months ago, when I bought the holding, the shares looked extremely cheap; this is what I wrote in January 2013 at purchase; “The shares are valued at 11.2x June 2013 falling to just 9.2x June 2014 and in my view upgrades to these figures are likely”. I cannot say that anymore with the June 2014 valuation of 22.3x consensus forecasts falling to 17.9x June 2015. I do think Regenersis is extremely well managed and will keep a lookout for an opportunity to re-enter at a more attractive valuation in the future. I have used the proceeds to acquire a holding in Renew Holdings where I think the valuation is far more attractive from both a PE ratio, PEG and price to cash flow. (See Transactions)


Website: JohnsInvestmentChronicle
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woakesd 23rd Sep '14 9 of 17

In reply to post #86359

PricewaterhouseCoopers are the administrators

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Cisk 23rd Sep '14 10 of 17

Paul, Panmure Gordon & Co (LON:PMR) may have reported a good H1 but I suspect that H2 won't be as rosy. I used to own Charles Stanley (LON:CAY) but sold shortly after the share price rout set in. Assets under management up, but fee income down and shares hammered accordingly. I suspect that this message will be repeated across the sector for H2 as I believe trading volumes are down across the sector (although Panmure Gordon & Co (LON:PMR) are definitely more corporate facing than £CAY).

I'm sure there is a time to buy these financial stocks, personally I think they will go lower still...

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cyberbub 23rd Sep '14 11 of 17

If PMR is not at 250p in the coming weeks then I would think the company might be on the end of a 250-300p bid. The admin costs are high, and a bidder in the same sector may think that they could consolidate/reduce admin functions and drive greater profits. It's a win-win anyway from the current SP, on a p/e of 7, *ignoring* the massive working capital position!

No advice intended of course...

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jonesj 23rd Sep '14 12 of 17

Hi Paul,

I agree that journalist buy/sell recommendations are often a waste of time.
I don't think they should be banned though, as it's up to the investor to allocate his own capital. He should look for a logical argument to accompany the recommendation and evaluate it himself.
After a while, it should be obvious time is much better spent reading the kind of quality writing we get here, or (for example) from John Lee.


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loudenr 23rd Sep '14 13 of 17

Thanks Paul that is a very valuable explanation of Mothercare. I was perplexed all day why the share price had not gone sub 200 and now I know why. Presumably the rights sell at a discount to market price?

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Paul Scott 23rd Sep '14 14 of 17

In reply to post #86382

Hi loudenr,

Yes, if you're a Mothercare shareholder, then you will be able to sell your Rights in the market if you wish - it usually takes a day or two for them to be set up, and then the Rights have a market value of the difference between the 125p exercise price, and the theoretical price of the shares after they go ex-Rights. I think. It went like that with Johnston Press (LON:JPR) when they did a very deeply discounted Rights Issue a little while ago - I was actually short of JPR on a spread bet. My short showed a huge loss, but my short Rights entitlement showed a huge profit. Or the other way around, I can't remember exactly, but it all comes out in the wash anyway.

Regards, Paul.

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Beginner 24th Sep '14 15 of 17

In reply to post #86384

Hi Paul
I realise this is totally off topic in more ways than one, but with your experience and knowledge I, and I suspect many others, would love to know what you think of the current accounting crisis at Tesco (LON:TSCO), and also the ways it has impacted elsewhere, notably J Sainsbury (LON:SBRY) .Any comment would be greatly appreciated and read with enthusiasm.
Thank you. B.

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GavinT 24th Sep '14 16 of 17

On Panmure Gordon & Co (LON:PMR), the FT ran a report yesterday on how the proposed EU regulation forcing brokers and investments bankers to separate broker research costs from share dealing commission will disproportionately hit small and medium sized brokers.

A report from Bank of America Merrill Lynch appears to mention paying for research will add costs amounting to 30-40% of current profit margin. Another Cassandra heralded the end of small to mid sized brokers within 3 years. Maybe this could explain the current uninspiring share price of Panmure Gordon?

Article link as follows:

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valuehunter 24th Sep '14 17 of 17

Hello Paul, hope that you are well. A few weeks a go you put up a link for a conference where one of the speaker was from Wellcome trust, can you please put that link up again. The conference is is November if i remember correctly.
Mommin Malik

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 Are LON:KBC'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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