Small Cap Value Report (26 Mar 2015) -SAA, SFE, POS, TMMG

Thursday, Mar 26 2015 by

Good afternoon. Lots of results today, so I'll get through as many as I can.

M&C Saatchi (LON:SAA)

Share price: 349p (down 3.8% today)
No. shares: 70.7m
Market Cap: £246.7m

Final results - for calendar 2014 are out today, for this well known PR group.

Profit & loss account - doesn't look too good at first glance, but I see from the cashflow statement that there were about £7m in non-cash charges for impairment of goodwill, and amortisation of intangible assets. So there's a big difference between statutory profit before tax of £6.2m, and headline profit before tax of £17.1m.

Note 3 to today's accounts gives the reconcilation from statutory profit on the left, working through the various adjustments to adjusted or "headline" profit on the right. These seem reasonable adjustments to me, to arrive at the underlying performance of the business in the far right hand column below.


Growth - having established that I am happy with the company's definition of headline profits, there is impressive growth in headline profitability - EPS rose 28% to 15.88p (slightly ahead of broker consensus of 15.5p)

Valuation - at 349p per share the PER is too high for me, at 22 times. Although it depends what future growth is going to be like. If the company can carry on growing EPS at 28% p.a., then a PER of 22 would be justified.

The narrative today talks about a lot of impressive, big name client wins, such as Land Rover, John Lewis, Foot Locker, BMW, and Douwe Egberts.  From what I can gather, the growth in profits seems to be mainly organic, rather than by acquisition - one acquisition is mentioned, Lean Mean Fighting Machine Ltd (good name!)

Balance sheet - here's another one where the company says it has a strong balance sheet, but actually doesn't. Its net assets of £35.9m reduces to only £6.8m once intangibles are removed. The current ratio is 1.01 - only a whisker above my cut-off of 1.0 for companies which don't carry inventories (I use 1.2 for companies that do use inventories).

Year end net cash was £5m, but I reckon that's probably window-dressed for the year end, as the balance sheet shows cash of £23.4m, and financial liabilities of £18.2m, so if you had that as a permanent position, you would pay off the financial liabilities using the cash. The…

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M&C Saatchi Plc is a United Kingdom-based holding company. The Company is engaged in the provision of advertising and marketing services. The Company operates through segments, which include UK, Europe, Middle East and Africa, Asia and Australasia, and Americas. The Company operates through a network of over 20 offices in approximately 20 countries. The Company's brands include Clear, Inside Mobile, Direct One, Bang, ST&P, Merlin Elite, Lean Mean Fighting Machine, Mademoiselle Scarlett, Heavenspot, Ben Natan Golan and Creative Spark. The Company's subsidiaries include M&C Saatchi (UK) Ltd, LIDA Ltd, Talk PR Ltd, M&C Saatchi Sport & Entertainment Ltd, Clear Ideas Ltd and M&C Saatchi Mobile Ltd, which are located in the United Kingdom; M&C Saatchi Agency Pty Ltd, which is located in Australia; M&C Saatchi GAD SAS, which is located in France, M&C Saatchi Berlin GmbH, which is located in Germany. more »

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Safestyle UK plc is a United Kingdom-based company engaged in the sale, manufacture and installation of replacement un-plasticized poly vinyl chloride (PVCu) windows and doors for the United Kingdom homeowner market. The Company's segment includes the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors. The Company has over 30 sales branches and approximately 10 distribution depots located throughout the United Kingdom. Its product range includes EcoDiamond WINDOWS, EcoDiamond UPVC DOORS, EcoDiamond BI-FOLD DOORS, EcoDiamond REPLACEMENT CONSERVATORIES, GuardDoor, Pavilion and Inspire. It has manufactured over 279,000 frames and carried out approximately 60,000 installations. The Company's subsidiaries include Style Group Holdings Limited, Style Group Limited and HPAS Limited. more »

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Plexus Holdings plc is a United Kingdom-based company, which provides oil and gas engineering services. The Company is engaged in marketing a friction grip method of engineering for oil and gas field wellheads and connectors, named POS-GRIP. The Company is involved in the sale of its POS-GRIP technology and associated products; the rental of wellheads utilizing the POS-GRIP technology, and service, including assisting with the commissioning and on-going service requirements of its equipment. The Company's POS-GRIP is involved in deforming one tubular member against another within the elastic range to effect gripping and sealing. Its method of engineering for wellheads offers a range of advantages to operators, particularly for high pressure high temperature (HPHT) applications. POS-GRIP technology can also be applied for surface land, and platform production and subsea wellheads. more »

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

8 Comments on this Article show/hide all

grout123 26th Mar '15 1 of 8

Paul. Ref Plexus and your previous comments on Chinese companies being on your barge pole list etc etc are you not a little concerned at the tie up?

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Paul Scott 26th Mar '15 2 of 8

In reply to post #95566

Hi grout123,

My main issue is with Chinese companies that list on AIM.
After all, why would you go to the other side of the world, to list a small company, on an essentially unregulated market? There's one main reason, which I don't need to spell out.

However, more substantial Chinese companies, that are not seeking an overseas listing, would not necessarily be a problem as a partner, providing they are reputable. After all, much of the consumer items we buy are manufactured in China, e.g. iPhones, etc.

My understanding is that the main risk from outsourcing production to China (or anywhere really) is that the producer makes a lot more of the product than they tell you, and they sell the excess product on the quiet, thus by-passing agreements for royalties, revenue sharing, etc. So Plexus will need proper safeguards in place to ensure the arrangement works correctly. So if the Chinese co plays fairly, then presumably this could be a lucrative arrangement. That they are taking an equity stake in Plexus is surely also a sign of good intent?

There have been widely reported problems with getting Chinese companies to respect intellectual property rights. So that's certainly the biggest risk here.

Regards, Paul.

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grout123 26th Mar '15 3 of 8

thanks Paul.

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DLG12 26th Mar '15 4 of 8

Hi Paul. Just wondering if you are commenting on results of SCISYS (LON:SSY). Thanks.

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ACounsell 26th Mar '15 5 of 8

Hi Paul, re-iterating DLG12 question - any thoughts on £Scisys results?

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Paul Scott 26th Mar '15 6 of 8

I'm just watching Coach Trip, then it's dinner time. So I'll add some comments on Scisys later this evening. Will Tweet when article is complete, as usual.


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imranawan 26th Mar '15 7 of 8

Hi Paul

The link to the M&C M&C Saatchi (LON:SAA) Final Results doesn't work. Don't know whether this is a browser issue specific to me (I'm using Chrome) or whether this was a deliberate to check whether Stocko readers actually click on links.

Best wishes,

Ignore my last msg, as I think they issued a replacement RNS early this afternoon, and this was the reason the link didn't work. The revised RNS link is:

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valueman 22nd May '15 8 of 8

I was the only PI at the AGM yesterday .I like it -a tortoise not a hare !
Good solid management ,CEO has £5m invested so aligned with us ,long term thinking ,increasing market share and potential for either small acquisitions or extra divis .

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 Are LON:SAA'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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