Small Cap Value Report (24 Jan) - SAL, SDM, AVS, AKR, HRN, JDG, SSY

24th Jan '14 by Paul Scott

9 comments 25026 reads

Good morning!

Spaceandpeople (LON:SAL)

Regulars might recall that this was one of my favourite shares of 2013, and is a core holding in my long-term portfolio. I see this as a hold forever type of share, as it pays a decent dividend, is priced reasonably, and delivers reliable growth every year. It's a niche marketing company, which manages kiosks and advertising campaigns in open spaces, mainly the central parts of shopping malls, but also railway stations, garden centres, festivals, indeed anywhere there is a concentration of people and open space.

It's the market leader in this niche in both the UK and Germany, and also has smaller operations in India, Russia, and is likely to continue further overseas expansion. The company is based in Scotland, and has entrepreneurial management who are properly incentivised with relatively modest remuneration packages, but decent-sized shareholdings and share options - exactly the way it should be done - none of the disgustingly bloated pay packages that many London-based small cap Directors take.

So it ticks a lot of boxes for me as an attractive small cap niche growth company. The company has issued a positive trading update today, for calendar 2013, with the key part being this;

Gross revenue for the year increased to £36.8 million (2012: £30.1 million) and net revenue increased to £13.8 million (2012: £13.1 million) as the Company continued to expand its client base whilst delivering increased sales to its existing clients both in the UK and Germany.

Pre-tax profit for the year is anticipated to be in line with current market expectations.

Cash flow was again positive during 2013 with net cash being £1.9 million at the end of the year compared with £834k at the end of 2012.

So all looking good. What are profit expectations then? Stockopedia shows consensus forecast of 8.66p EPS - this is a fully diluted figure, as there are a lot of share options here. The basic EPS is around 10p I am told. Checking the most recent Annual Report (for 2012), note 27 (see excerpt below) states that there were 1,983,076 share options outstanding, with a weighted average exercise price of 81.1p.

There are currently 19.5m shares in issue, so…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Delpher

24th Jan '14

Thanks Paul for a clear and succinct analysis.

Damian Cannon

I also like SAL for exactly the reasons that you mention Paul. It's interesting that a NED, Maurice Helfgott, has sold two-thirds of his holdings in the company this morning. I can't say that I take this as an important sign one way or the other but do you have any thoughts on this transaction?

Sully8786

Yes, thanks Paul.

They've just released another RNS with a non-exec selling 80,000 shares - not sure what to make of that either way TBH.

hayashi22

Agree with your thoughts on Stadium. Key word is 'significantly' -think they gave that some thought before inserting. Forget 2013 it all points to a good recovery story for 2014. This has taken along time to sort out and hopefully we are back on the growth track. There is also a dividend which offers a decent yield.As you have pointed out there is not much value propositions left in the market so you may have come across one which offers good upside from depressed levels which reflect a whole heap of 'legacy' issues.

stpalm

I'd say on SAL it indicates the BOD think they're fully valued. I personally like SDM they've been around for years and used to make motorcycle accessories like the Rickman bros topboxes and fairings. I see their name on all sorts of plastic mouldings for the building trade but think they have moved into higher margin stuff. dipped my toe in when they were 35p sold half on the interims at 57 and got it right for once. been agonising about buying more when they dropped back to 47ish. wish i had now! Could do well in an upturn.

jashunter

Re SAL NED selling. Maurice Helfgott was a Director of Retail Profile Holdings Ltd which was acquired in 2010. Along with other main Directors of Retail Profile he sold the vast majority of SAL holding, as expected , in 2013. This is a small remaining holding. See RNS of 2nd May, 2013.

kevanp

Paul

Thanks for the comments on Stadium (LON:SDM). Looks like my sort of investment.

You write of their pension deficit. The 2012 annual report shows an increased liability after tax of c.£5.5m, up from £4.8m the year before. This seems like a lot, compared to their market cap of £13.8m, but I have no experience of such matters. What is your opinion?

Best,
Kevan

Beginner

I think Stadium Mouldings was a different company, based in the midlands. The Stadium name still appears on plastic products, but I think that company was taken over by a larger (now Chinese supplied) firm. Also Stadium figures may be flattered still by work they undertook for the Olympic developments and subsequent adaptions. Overall still a decent punt though

Camtab

Kevan

My personal view is a liability of £5.5m around 40% of the market cap is pretty significant. My understanding and I ask to be corrected if wrong, the liability is essentially a deficit. At current valuations liabilities i.e. pensions to be paid exceed the assets which pay them by £5.5m. If the company went bust then the liability would probably move to the Pensions Protection fund which was set up a few years to protect pensioners against underfunded schemes when the company goes bust. Which doesn't help the shareholder because they have probably lost their money anyway.The valuation can be misleading pension funds have suffered from poor equity returns and historically low interest rates. The liability is a pension and if interest rates rise this falls. Equally if equities rise the deficit falls as assets rise relative to liabilities. A pension deficit is given at that point in time, whereas the time line can be many years in the future. I think the key is to try and understand the time line each scheme is dealing with. Then feed in your view of long term interest rates. Then you can take a view.

Small Cap Value Report (24 Jan) - SAL, SDM, AVS, AKR, HRN, JDG, SSY

Spaceandpeople (LON:SAL)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

9 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...