Small Cap Value Report (24 Jul) - NXR, GTC, SID

Wednesday, Jul 24 2013 by

Good morning! Norcros (LON:NXR 16.5p) have issued an IMS covering their Q1 trading. They have a 31 March year end, so Q1 obviously covers Apr-Jun.

The first thing that stands out is that the constant currency figures are much better than the sterling figures. This is because about 40% of their business is in South Africa, and the Rand has depreciated significantly against sterling in the past year. Looking at the exchange rate chart, in Q1 of 2012 there were about 13 Rand to £1. In Q1 of this year, it had weakened to between 14-16 Rand to £1.

A range of factors are mentioned, which mainly create a mildly negative impression, however with trading statements I have found that the key things to focus on are: look through the detail and focus only on what the overall impact on profits against expectations is. Secondly, one needs to consider what the outlook is. Thirdly one needs to consider how the shares are currently rated - so cheap stocks tend to absorb negatives with barely a flinch, as expectations are low, whereas highly rated shares tend to get pole-axed by negative news.

Any factors which seem to be one-offs (e.g. the impact of de-stocking by UK customers in April - although I would like to know why they de-stocked) do not concern me, as that should not have any lasting impact on the business. It's more important to evaluate what's likely to happen in the future, and spot the key trends, rather than obsess over the detail of minor problems in the past. That's a general point, not just about Norcros.

The overall impression of this IMS is that H1 is not going to be great, but that cost cutting at Johnson Tiles will benefit H2. The most important sentence by far is the last one, where they say (with my bolding):


Even though the second half weighting of cost reduction benefits in Johnson Tiles UK will mean that profitability will be more heavily weighted to the second half than normal, the Board remains confident of the outcome for the full year.


Normally I don't like second-half weighting comments, as it usually means management are in denial about having a bad year, and are hoping that sales will improve in H2, which usually they don't. So it…

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Norcros Plc is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. The Company's segments include UK and South Africa. The Company has six United Kingdom businesses, including Triton Showers, Vado, Croydex, Abode, Johnson Tiles and Norcros Adhesives, and three businesses in South Africa, including Johnson Tiles South Africa, TAL and Tile Africa. The Company is focused on showers, taps, bathroom accessories, tiles and adhesives. In the United Kingdom, the Company offers a range of bathroom and kitchen products both for domestic and commercial applications. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. more »

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Getech Group Plc is a United Kingdom-based company, which provides geological services, reports and data to the petroleum and mining industries to assist in their exploration activities. The Company's segments include Multiclient products and services, Consultancy projects and All other segments. Its Multiclient products and services segment includes Globe, which is its live Geographic Information Systems (GIS) Earth platform; Gravity and magnetics, which offers global databases; Multiclient regional reports, which include reports on various exploration areas, and Multi-Satellite Altimeter Gravity Programme, which is a three-year study covering gravity data for the continental margins of the world. Its Consultancy projects include Consultancy and licensing rounds, under which the Company provides technical support and advice to the Mozambique government, and GIS software and services, under which, the Company, through Exprodat Consulting Limited, offers Exploration Analyst Online. more »

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

21 Comments on this Article show/hide all

shanklin100 24th Jul '13 2 of 21

Hi Paul

Re SID, its pretty clear that either through ineptitude or dishonesty, the company completely misled the market regarding its cash situation. Even if the company didn't like it and apparently ceased to employ them, Edison seem to have picked up on this albeit the company subsequently denied it.

I see no way the FD or CE can stay in post after what has happened.

I am very lucky not be holding having sold late on the afternoon before the suspension.

GLAH. Martin

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shanklin100 24th Jul '13 3 of 21

Hi Paul

*** Based on a post I did earlier on ADVFN ***

I think the thing that's missing in terms of GTC is any indication of how they will sustain and grow revenues in future years. Whilst the broker estimates for revenue and PBT keep increasing and GTC is delivering strong growth, GTC need to provide the missing link in terms of telling us how this will be achieved.

This may well be in WH Ireland broker reports but, consistent with a very unreasonable playing field, is not being advised to private investors.

A presentation would be very helpful in this regard and IMHO GTC should come and present at Mello so that PIs can be much better informed on all GTC is achieving. I mention Mello in the knowledge that GTC have been invited on a number of occasions but are yet to accept.

Cheers, Martin

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bobdouglas 24th Jul '13 4 of 21

Ref. Getech - noticed the Directors Dealings announcement on 22 July that following the exercise of share options 794,681 ordinary shares are to be admitted to trading on AIM, and dealings are expected to commence on 26 July. To be honest that put me off a little bit - maybe unnecessarily.

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Paul Scott 24th Jul '13 5 of 21

In reply to post #75483

Hi Mark,
Well we don't know the full facts yet. However, the way I look at it is this. Kitson's went into Administration (for reasons unknown), but the Bank are now supporting it's previous owner (the Silverdell Group) buying it back & moving all its activities into another Silverdell subsidiary.

There is surely no logical reason for this to happen, unless some huge liability arose at Kitson's which had to be jettisoned by making the whole company insolvent.

So I remain of the view (with admittedly incomplete information) that Kitson's seems to have gone into Administration unexpectedly & by mistake. There is now a tortuous process of reversing that, which is being fully supported by the Bank - which suggests that this is not in any way a normal insolvency, which are nearly always triggered by the Bank withdrawing support, and therefore forcing the appointment of Administrators.

Furthermore, pre-pack Administrations tend to be almost instant, whereas this has taken some time to put together, which reinforces the likelihood that it was not planned.

This sentence at the end of the article you linked to seems to support my view:

“But some serious questions need to be asked about why this happened and how the management make sure it never happens again.”

Looks like shareholders will salvage something, and if they participate in the likely equity refinancing, then should be OK. Very important that private shareholders are offered room in the equity fundraising, if & when it happens.

Regards, Paul.

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myrtle1 24th Jul '13 6 of 21

Hi Paul,

Just responding to your request re GTC. Some years ago (around 2 plus years ago), I met with Raymond Wolfson, CEO of GTC and wrote an article for Aimzine (Which is now defunct in its old format). Anyway, the link to the article on GTC is here:

The link may / may not work. You will need to register with Aimzine and not sure if you can now. I might be able to dig out my final Word version if you like....

Raymond Wolfson was a very likeable man and the company is run on very conservative lines.

I believe there was an important catalyst back in April 2011 on the appointment of Stuart Paton (Former CEO of Dana Petroleum) as non-exec Chairman. The business hasn't looked back since.

The article took me back down memory lane and I was shocked to see the price at 16p at the time of the article and I remember thinking at the time that the company was overvalued!

Anyway, I am minded to write another update article in the coming months, so watch this space.


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thekingsgambit 24th Jul '13 7 of 21

Hi Paul,

Investing in Getech (LON:GTC) is a risk because there is no clarity on future earnings. That was why this RNS, while not financially significant, may have given more information on their future direction. Is this the start of Globe II? Companies have commited to Globe and that seems to run for 3 years. What happens after that? Does the Globe revenue just stop? It is not really clear. Without any kind of presentation on their website, there is no real strategic insight on how they will develop as a company. All we know if at the moment is they keep announcing contract wins and their products seem to be in demand. They are also sitting on a £5 million cash pile. Strip that out and they are on an undemanding P/E ratio of about 10.

I am happy to wait to see how it plays out, but I will need to see something in their year end statement to convince me their earning are sustainable after the globe project finishes. Still a bit a milage before then however.

I have asked the company (not for the first time) if they have the intention of putting a presentation on their website. I think that would really help the general perception of the company. They are not an investor friendly, but that doesn't make them a bad investment. Year end results should be out next week. Maybe things will be clearer then.



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shanklin100 24th Jul '13 8 of 21


Next week? Last year the results were issued on 31-Oct.

Cheers, Martin

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kevanp 24th Jul '13 9 of 21

Paul: a gentle reminder that you asked me to give you: don't forget the current price after the company ticker.


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Funnymoney 24th Jul '13 10 of 21


I know there is a mountain of debt, but the effect of the following statement from this morning on Findel in the medium term should be quite large, so a comment would be useful please:

"At the full-year results in June, the Group set a goal of achieving 7 - 9% Group operating margin in the medium term. The strong performances of Express Gifts and Education Supplies (which account for approximately three-quarters of Group sales) support the Board's ambition to enter this range in the financial year commencing April 2014. "

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thekingsgambit 24th Jul '13 11 of 21


Indeed. Apologies.


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Paul Scott 24th Jul '13 12 of 21

In reply to post #75484

Hi Shanklin,

You said;
"Re SID, its pretty clear that either through ineptitude or dishonesty, the company completely misled the market regarding its cash situation."

I don't think that is necessarily true. Since their Bank are supporting them in retrieving the problem subsidiary, then their cash position does not look to be the reason Kitson's went into Administration. I still think this looks like a huge admin cock-up, and an accidental Administration, but we'll have to wait & see when we get the full facts.

It looks as if it's being salvaged though, and the shares won't be a complete write-off, although are bound to open a long way down. No point in lifting the suspension until an equity refinancing is done, but they MUST give PIs access to that fundraising.

Cheers, Paul.

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bobdouglas 24th Jul '13 13 of 21

In reply to post #75497

Yes it is quite interesting when you consider the operating margin for the last two years has been running around 4%.

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Paul Scott 24th Jul '13 14 of 21

In reply to post #75495

Hi Kevan,

Drat, I forgot! Very sorry. I shall insert the prices when I get home tonight.
I'll have to put a checklist of things to do each day on my wall!
Thanks for the reminder.

Regards, Paul.

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Aislabie 24th Jul '13 15 of 21

In mentioning the possibility of a SID refunding you make a very valid plea that this should include an offer to current shareholders. This sentiment I fully endorse and I know you have echoed it on a number of previous blogs.
I recall back in the '80s the very influential American management consultant Bennett Stewart (of Stern Stewart) was making impassioned pleas that US companies should follow the, then common, UK usage of rights issues as the only fair way to treat shareholders. As we know they didn't, and instead the UK now predominantly follows the US in using private placings.
A frequently cited reason is the cost of a rights issue as a public offering so surely now is a good time to concentrate on getting the cost down. I would propose that the amount of data required to be released and the due diligence costs that preceed it are drastically reduced. As current shareholders the potential rights holders should be assumed to have acquainted themselves with the company and should not need a full offering style document. The process could be online only. The whole rights issue being much closer to Kickstarter than a full listing.
It is time to try this, as it will I believe make the market much more attractive if it can be seen to be fairer to its investors who should be assumed to be competent, adult and at least savvy enough to conduct their affairs online.
Perhps someone with first hand knowledge of the comparative costs can offer their thoughts?

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Cisk 24th Jul '13 16 of 21

In reply to post #75508

Aislabie, Unfortunately I don't have a handle on the costs involved, but, like yourself, think there's a gap here.

Quite a few of my smaller holdings have had placings, and they have been shut out to PIs like us. Almost universally, when questioned, they don't offer to PIs due to the cost and delays in doing so.

I remember meeting someone from one of the smaller securities firms a while back, and they specialised in private investor access to institutional placings - but not really the same thing, and you would have to rely on that firm taking part in the placing to be able to participate.

If anyone is interested in researching this further - don't be afraid to join the discussion...

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Beginner 24th Jul '13 17 of 21

In reply to post #75492

I know nothing about Getech (LON:GTC) but have some experience of university spin-out companies. They tend to have a good idea, run with it, spend money, make money, then the idea goes stale and the company goes fins up. The best outcome might be a takeover.

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fredahad 24th Jul '13 18 of 21

The Globe program is rolling. It will be renewed (hopefully with new entrants) when the initial 3-yr term elapses. This was confirmed to me a few months ago by Raymond Wolfson

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thekingsgambit 24th Jul '13 19 of 21

Hi Beginner,

That certainly doesn't seem to be the path for Getech (LON:GTC). I think a takeover would be the worst thing that could happen here. There seems to be no shortage of new customers using their products as the latest string of RNS's show.

Hi Fred,

That is good to know. Would be nice if they could have explained that in a presentation :( If globe is a reoccurring revenue stream I can see GTC going from strenght to strenght.

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cig 24th Jul '13 20 of 21

In reply to post #75505

You should ask the Stockopedia guys to add the "prices when posted next to symbols" feature to the site, it's really not something you should do by hand!

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Paul Scott 24th Jul '13 21 of 21

In reply to post #75535

Great point cig. I've raised a green ticket (help & feedback) to suggest this to the development team at Stockopedia. Let's see what they say. Would be great if they could include the live price in with the ticker & company name when you put £ XYZ (without the space, and where XYZ is any company ticker)

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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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