Small Cap Value Report (24 May 2016) - TPT, ACSO, PTCM

Tuesday, May 24 2016 by
64

Good morning!


Topps Tiles (LON:TPT)

Share price: 136.4p (up 3.9% today)
No. shares: 193.1m
Market cap: £263.4m

Interim results, 26 wks to 2 Apr 2016 - the numbers look solid. Here are the KPIs, with my comments on the highlighted items below:


574412699c1f3TPT_KPIS.PNG


Note that total sales growth of 3.8% in H1 is actually lower than the LFL sales growth of 4.7%. This must mean that the number of stores actually declined. The narrative confirms this is due to the closure of their Topps Clearance format.

This looks to me like a company which is becoming mature. So it looks to have taken a bit of a breather from expanding the number of stores, and instead focussed on profitability. That makes a lot of sense, it's not a criticism.

Gross margin of 61.5% is outstanding. You can't really fail to make money with that kind of profit margin. Although it will of course attract competition.

Net debt of £28.4m isn't a problem, given the strong profitability, which should be in the £20m ballpark for the full year. The Naked Trader suggests a simple reasonableness check, that net debt shouldn't be more than 2-3 times profit. Something like that anyway. I think that's an excellent & very simple way to double-check that debt is not excessive.

I think you could tweak that idea, by looking at the volatility of historic profits, and thinking about how cyclical the company is. So you might tolerate more debt, if the company is not particularly cyclical, and has churned our reliable profits every year, even in recessions.

Also, I always offset freehold property against net debt, because banks are very relaxed about debt where they hold freeholds as security. Also, in the worst case scenario, freeholds can be sold to raise cash, in order to reduce bank debt. In this case, TPT says today:

The Group currently owns eight freehold or long leasehold sites (2015: eight), including one warehouse and distribution facility, with a total net book value of £16.3 million (2015: £16.6 million).

So that makes me even more relaxed about the £28.4m net debt.

Interest cost has reduced considerably on the P&L in H1, which is handy.

Dividends - the downside of companies with bank debt, is that the divis can sometimes be a bit constrained. That's certainly been the case with TPT in the past. The…

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Topps Tiles Plc is a United Kingdom-based retailer of tiles. The Company is engaged in the retail distribution of ceramic and porcelain tiles, natural stone, and related products. It operates in the Topps Tiles stores and online business segment. It supplies tiles and associated products to both trade and retail customer base, primarily for the refurbishment of the United Kingdom domestic housing. Its product categories include new products, bathroom wall tiles, kitchen wall tiles, mosaic tiles, kitchen floor tiles, bathroom floor tiles, ceramic tiles, porcelain tiles, underfloor heating, wet rooms, outdoor tiles, fireplace tiles and metro tiles. Its brands include Tile Adhesive, Tile Grout, Tile Preparations, Hardiebacker Board, Rubi Tools and Accessories, Warmup, and Homelux Tiles Trims. It offers tiles in various colors, such as beige tiles, black tiles, blue tiles, brown tiles, cream tiles and gold tiles. It has over 350 stores across the United Kingdom. more »

LSE Price
75p
Change
2.4%
Mkt Cap (£m)
142.8
P/E (fwd)
11.0
Yield (fwd)
4.6

accesso Technology Group plc is a United Kingdom-based company engaged in the development and application of ticketing, mobile and e-commerce technologies, and virtual queuing solutions for the attractions and leisure industry. The Company's solutions include accesso LoQueue, accesso Passport, accesso Siriusware and accesso ShoWare. accesso LoQueue is a queuing solution that includes Qsmart, Qbot and Qband. The accesso Passport ticketing suite is built where its customers shop. accesso Siriusware provides clients with ticketing and admission solutions, and includes various modules, such as OnSite Ticketing, OnLine eCommerce, Point-of-Sale and Guest Management. accesso ShoWare offers a range of ticketing software solutions for theaters, fairs, arenas and tours. The Company's products and services support attractions in the world, including a range of paid admission operations ranging from theme parks, water parks and zoos to cultural attractions and sporting events. more »

LSE Price
850p
Change
-1.2%
Mkt Cap (£m)
235
P/E (fwd)
12.1
Yield (fwd)
n/a

Porta Communications Plc is engaged in international communications and marketing business. The Company operates through three segments: Corporate Communications, Marketing & Advertising, and Head Office. Its Corporate Communications segment includes public relations, public affairs and other corporate communication services. The Marketing & Advertising segment includes media buying, advertising, marketing and corporate branding services. Its Head Office segment includes services provided by the Company's corporate function, including group treasury, and finance and management services. The Corporate Communications segment operates in Australia, Hong Kong and Singapore. The Company's subsidiaries include 13 Communications Limited, Clare Consultancy Limited, ICAS Limited, Newgate Communications Limited, Newgate Communications Pty Limited, Newgate Threadneedle Limited and PPS Group Limited. more »

LSE Price
0.95p
Change
 
Mkt Cap (£m)
4.8
P/E (fwd)
n/a
Yield (fwd)
n/a



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


29 Comments on this Article show/hide all

herbie47 24th May '16 10 of 29
2

Paul thanks for the Porta Communications (LON:PTCM), I used to hold glad I sold out, I quite agree about the presentation of the figures I never did like that. Yes has potential but will wait on the sidelines for now.

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Glaws2 24th May '16 11 of 29

Hi Paul - are you going to comment on RNWH's results ?

Thanks
Glaws

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herbie47 24th May '16 12 of 29
3

In reply to post #132596

What do you think about the results?

I checked Paul's last review and he said "I won't go over all the detail again, but suffice it to say that (for me anyway) this share remains uninvestable, due to it having an extremely weak balance sheet."

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tomps3 24th May '16 13 of 29

Porta Communications, David Wright CEO, discussing FY results. Just a 3 minute clip.

http://www.piworld.co.uk/videos/2016/5/24/porta-communications-full-year-results-2015

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paraic84 24th May '16 14 of 29
4

Among the news today I'm not sure if many people opened the Boohoo.Com (LON:BOO) RNS this morning as it was entitled along the lines of 'Notice of AGM' but it looks like Boohoo.Com (LON:BOO) might be planning to use some of their excess cash to buy back shares.

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d40eq6 24th May '16 15 of 29

ACSO is the dream share! I bought in at £3, sold out half at £7 and have been running the profit ever since. Your comments have made me question the wisdom of continuing run the profit, however it' such a great company that I struggle to bow out. Every time I have sold one of my big winners, it has gone higher!

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Paul Scott 24th May '16 16 of 29
3

In reply to post #132596

Hi Glaws2,

Probably not. The trouble with Renew Holdings (LON:RNWH) is that I always say the same thing - P&L good, but awful balance sheet, needs to do an equity fundraising like Costain (LON:COST) did to repair its balance sheet.

So not much point in just repeating the same message.

Regards, Paul.

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Gostevie 24th May '16 17 of 29
3

Hi Paul,

Looking back, I held Porta Communications (LON:PTCM) for most of 2014, buying at c.14p and selling for c.7p. At the time I rather feared I had done the typical (for me, anyway!) thing of selling out for a loss at the bottom, so it is strangely comforting to see that 18 months later that they sit at c.5.5p. Or is that simply schadenfreude?

I do get the feeling that PTCM will turn out to be another serial disappointer, promising great things but never quite delivering. I suspect we have all been in a few of them in our time. All part of investing in small-caps I suppose.

Good luck to holders. I hope it comes good.

Steve

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Paul Scott 24th May '16 18 of 29
1

In reply to post #132608

Hi d40eq6,

accesso Technology (LON:ACSO) wasn't a continuous thing though. There was a game-changing announcement re Merlin on 30 Jul 2015, which I covered here - explaining the share had suddenly gone from being expensive, to being reasonably-priced, given the surge in growth.

So if the facts change, then we should change our mind! So I don't think it's right to say that the share at 300p was comparable to when it was 700p, for the sake of argument. I think it was actually better value at 700p than at 300p, because the facts had materially improved - massive contract wins.

As for when to sell? Nobody knows. It's just down to market sentiment really.

Regards, Paul.

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simoan 24th May '16 19 of 29
2

In reply to post #132605

paraic84,

FYI they had exactly the same resolution at the AGM last year (which got passed) if you rewind the clock 12 months and not a single share has been bought back to date, so this is not new news!

All the best, Si

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Paul Scott 24th May '16 20 of 29
6

In reply to post #132548

Hi Brackendale,

I don't have anything to add on Bonmarche Holdings (LON:BON) really. We're all in the dark. Clearly someone is selling, persistently, and there's a bit of a buyers' strike.

As someone else has said, with the retailing sector so out of favour, there are probably better bargains to be had with higher quality businesses such as Next (LON:NXT) (in which I have a holding). So when the best companies are cheap, the relatively weak ones (on measures such as operating margin) become even less attractive.

Add in profit warning(s), change of CEO, and a gap in newsflow, and BON seems to just dribble down a bit more each day.

I bought a tiny scrap more last week at 125p, but I don't have any conviction to buy more heavily.

BON is acting as if another profit warning is on the way, because if things were going well, then you would expect insiders to be buying. I mentioned a while back that Instis might want out, but with no buyers, what can they do? Just dribble out stock.

The divi yield appears to be over 5%, and twice covered, but is that sustainable? Who knows.

Overall, I'd rather work on facts, than guesswork, so for now I'm keeping my powder mostly dry on BON.

Regards, Paul.

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d40eq6 24th May '16 21 of 29
1

In reply to post #132623

Paul- quite agree with your points. I actually sold out half at £7 in November 2014- a good 7 months before the game-changer. The shares had drifted lower before that and I was considering chucking out the rest. It was your commentary in part that helped restore my confidence in the share and it has been well rewarded.

I suppose the old adage is that it is never wrong to take a profit....

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Trident 24th May '16 22 of 29
1

Paul

I note that a non-exec at Tracsis has resigned with immediate effect. Could be due to any number of reasons.
With the sale of a % of shares by the CEO this year, and one of the largest holders selling down their stake are they having a few of those wobbles that business and life sometimes throw at you?


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smallcapman 24th May '16 23 of 29
1

In reply to post #132596

Now he's taking over as CEO he can strengthen the balance sheet...


Scm

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Brackendale 24th May '16 24 of 29

In reply to post #132629

Thanks to all of you for your insights, certainly makes a lot more sense as to why it has declined.

I am not sure why the institutions have taken such a negative (short term?) view on it, but that is probably why I don't earn big money in the City!

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ISAallowance 24th May '16 25 of 29
1

In reply to post #132614

Is it really that bad (Renew's balance sheet)? From a quick reading of the interim results, current assets approx 111m, total liabilities (current + non-current) approx 172m. So about 61m total debt in my book, about 3x annual profit from H1 figure. I would have said not good, but not uninvestable. Am I missing something here?

Disclosure: I have no position in RNWH.

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Beginner 24th May '16 26 of 29
1

In reply to post #132578

Thanks.

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Paul Scott 24th May '16 27 of 29
16

Small request - pls could people try to remember to put the Ticker or company name in every comment posted, so that people know which company you're talking about! That way other readers don't have to look back at previous comments, to try to work out what you're on about! ;-)

Many thanks, Paul.

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Gotrader 25th May '16 28 of 29

Paul,

Re PTCM (A share i follow)
Been a pleasure reading your reviews on here. It was quite a balanced view on Porta.

My view.
Firstly not shocked to see a 1M buy trade show up at end of today. (Actually from yesterday.) Director or fund? Are directors still locked out here?? What did they say at briefing? Find out tomorrow? Be canny for a director to wait for all the sells and then buy in.

I think Management have used these results to dump all the bad financial news. Sure TTVM was bad and the European offices never quite worked out. Are they shaking the tree here for stock to buy?

Look at numbers here. 3.5-4M loss. Of which 2.7M was D and A. (Non cash.) 1.53M was exceptionals. Plus they talked about 1M cost savings for 2016 figures at previous AGM. To me this is a firm on the edge of being profitable, as long as they can reduce exceptional and D and A costs in future. They hopefully won't be closing divisions if all parts of business are now doing well. Note also the cash in the bank has barely changed since 2014. So lots of large figure but cash is very stable. Albeit the balance sheet very weak and they have 8m debt in loans.

If you compare these figures to the half year figures.
1st half: 1.53M loss. with 1.377 D and A and 548k exceptionals.
2nd half 1.9m loss with 1.34M D and A. 1M Exceptionals.
Add back in the apparent 1M savings for 2016.

So in the 1st half of 2016 I see opportunities for 0-300k profit if the costs and D and A fall away and savings are realised. We know the first 3 months are ahead of budget. Alas brexit looms.

The new acquisitions are all doing well and there has been a stream of new contracts. Glencore and Samonite extra business. Of course we don't know how many contracts they have lost. PR companies don't announce this

I am impressed by their Australian business. On a video yesterday David Wright talks about doubling the size of the Australian business. I can't believe this would just be on organic growth?? Did he mention how he intended to do this at the briefing?? Or news on any acquisitions?? 10-15% growth won't double a business size.

I agree with the debt worries and the weakness of the balance sheet. These new loans at 12% seem a bit OTT to me.Why they can't borrow money from a bank instead is a big mystery to me. Also other loans are due to be repaid at end of 2016. (I did read the explanation in your post above.)

I think a business is starting to shape up here. It is frustrating the way they have gone about things. Especially the results. I hope they do manage to start shaping a profitable busines here. I can understand why you have sold here and your frustrations.

I plan to hold this share for now as I think 5-6P undervalues a business turning over 34m. I do hope you will keep following this share. Were there many at the analyst presentation yesterday??



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Paul Burkitt 1st Jun '16 29 of 29
1

Paul - your comment (below) re ASCO 24th May is spot on!!

There again, niche technology companies like this, with a big moat, can carry on going up & up, far higher than anyone believed possible. So it wouldn't surprise me at all to be kicking myself later at having sold too early. The trouble is, when you can't really justify a valuation on fundamentals any more, then it's really passing from investing into speculating, which makes me uneasy.

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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