Small Cap Value Report (27 Jun) - LTHM, EKT, ANP

Thursday, Jun 27 2013 by
9

Good morning, and apologies for being a little late today. I had one too many after last night's Equity Development Investor Forum, where as usual three companies did a 20 min presentation then brief Q&A to a group of investors (Pure Circle, Vislink, and Cranswick).

I'm a huge fan of this type of meet the management event, and I try to get along to as many as I can. Thanks as always to Fasken Martineau for hosting the event in their Hanover Square offices, which are ideal for both travel and layout. It's good to see some companies beginning to take private investors seriously and offering us the same sort of contact as they routinely give to Institutions. After all, it's us private investors who create the liquidity, narrow the spread, and set the price. So in many ways we're actually more important than Institutions, yet bizarrely most of the City ignores us or treats us with haughty contempt. That needs to change.

Unfortunately, George Osborne's spending review seemed to have affected the canapes, as it was a drastically reduced spread. You would think a £550m market cap pork company would have laid on a bit of a spread, but nothing! I can be easily swayed with a bacon sandwich and some stevia-based carbonated soft drinks. #JustSaying.

But the wine was delicious and free-flowing, a bit too free flowing in my case, as my rucksack dived off my shoulder at one point when I was saying something particularly dramatic, and launched an entire glass of wine all over my good friend David Stredder. Luckily it was white, and exactly the same colour as his jacket, so a quick blow dry in the gents restored his jacket to its former glory.

 

 

Final results for the year ended 31 Mar 2013 from James Latham (LON:LTHM) look pretty solid. It's a timber products company.  Profit fell slightly, and EPS eased from 31.4p last year to 28.2p this year (diluted).  So at 310p the shares are on a PER of about 11, which seems reasonable value.

I like the 10.2p dividend, which is 2.8 times covered, so that'a a sustainable yield of 3.3%.

The fly in the ointment is their pension deficit, which at £16.8m balance sheet liability is quite hefty. Scheme assets rose by £5.3m in the year, but the deficit grew…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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James Latham plc is a timber and panel products distributor. The Company is engaged in timber importing and distribution, carried out in approximately 10 locations. The Company offers a range of wood-based panel products, natural acrylic stone, hardwoods, high grade softwoods, flooring, cladding, decking and plastics. The Company also supplies commodity and specialist products to timber and builders' merchants. The Company offers a range of product categories, such as panels, solid surface, door blanks, hardwoods, softwoods, engineered timber, flooring, decking, cladding, modified timber and panels, fire retardant panels and technical panels. The Company caters to door and kitchen manufacturers, shop fitters and other market sectors. The Company's subsidiaries include Lathams Limited and James Latham Trustee Limited. Lathams Limited is engaged in importing and distribution of timber and panel products. James Latham Trustee Limited is a corporate trustee company. more »

LSE Price
835p
Change
 
Mkt Cap (£m)
164.4
P/E (fwd)
n/a
Yield (fwd)
n/a

Elektron Technology plc is a holding company. The Company is engaged in designing, manufacturing and marketing products that connect, monitor and control. It operates in two segments: Connectivity, and Instrumentation, Monitoring and Control (IMC). Connectivity comprises two complementary product families: Bulgin and Arcolectric. The Company's products are helping its customers to quantify real-world environments, process this data and act on the results. Its products include sealed connectors, Switches, indicators, battery, fuseholders, ophthalmic instruments, nanopositioning and sensing equipment, and vehicle power management systems. The Company's Checkit offers a wireless solution providing work management software and automated monitoring. Its subsidiaries include Elektron Technology Corporation, Elektron Technology PTE Ltd, Elektron Technology UK Ltd and Elektron Technology (Shanghai) Trading Limited. more »

LSE Price
51p
Change
 
Mkt Cap (£m)
94.9
P/E (fwd)
16.1
Yield (fwd)
n/a

Anpario plc is a producer and distributor of natural feed additives for animal health, hygiene and nutrition. The Company operates through two segments: UK and Eire, and International. The Company is focused on the manufacture and sale of natural feed additive products to agricultural markets. Its products for the poultry, pig, ruminant and animal feed markets include acidifiers, enzymes, essential oils, pellet binders, antioxidants, mycotoxin binders, mold control products and a range of nutritional premixes and performance enhancers. It offers natural feed additive/flavor called Orego-Stim. It offers its customers a number of omega 3 & 6 supplements for use in feed. Its products in the aquaculture range include growth promoters, immune enhancers and pellet binders for both shrimp and fish. The Company's trading brands are Kiotechagil, Meriden and Optivite, which trade across approximately 70 countries around the world. more »

LSE Price
337p
Change
 
Mkt Cap (£m)
78.5
P/E (fwd)
18.0
Yield (fwd)
2.4



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


11 Comments on this Article show/hide all

Wilmo1979 27th Jun '13 1 of 11
1

Hi Paul

On your statement about the potential impact of rising bond yields on pension deficits - whereas rising yields are likely to reduce the liabilties, most pension funds are invested in a mix of bonds (whose value will have fallen in line with the the increase in yields) and equities (which as we know, have not had the best week). I'd actually expect most deficits to be pretty much exactly where they were at the end of Q1.

Matt

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Paul Scott 27th Jun '13 2 of 11
1

In reply to post #74621

Hi Matt,

Indeed, it will be interesting to see how things pan out re pension deficits.
On the one hand, rising bond yields will reduce deficits because a higher discount rate will reduce the present value of scheme liabilities. On the other hand, as you say, higher bond yields reduce the value of the bond itself, the impact of which is also dependent on how long dated the bond is. So quite a few moving parts.

My (perhaps naive) view is that falling bond yields seemed to have a disproportionately large impact in increasing pension deficits, therefore one would expect that effect to reverse somewhat now bond yields are rising.

Also bear in mind that the impact on scheme liabilities from the discount rate applies to 100% of the liabilities, whereas depending on how the fund is invested, the asset effect only applies to that part of the fund which is invested in bonds, which might only be say 30-40%.

Cheers, Paul.

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khalidf 27th Jun '13 3 of 11
1

Hi Paul,

Great webinar yesterday.

What's your view on IQE?

Cheers, Khalid

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Paul Scott 27th Jun '13 4 of 11
1

In reply to post #74624

Hello Khalid,

Thanks, glad you liked the Webinar!

I looked briefly at IQE very recently, and it looks potentially interesting. The shares have halved in recent months, so there must be negative sentiment over the company's outlook.

It looks cheap on forecasts, so one wonders if the forecasts are achievable?

The conclusion I came to is that I don't understand enough about the company or its products to make an informed judgement about the shares. Would be good to get the management along to an investor forum so we can dig a bit deeper.

What's your view on IQE?

Cheers, Paul.

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jashunter 27th Jun '13 5 of 11
1

Hi Paul,
Was there nothing of interest to report on the 3 companies presenting at the Equity Development Investors Forum? I would be keen to hear about Vislink, which I hold.
I look forward to catching up with the Webinar tomorrow.
Really appreciate your posts. Many thanks.
Cheers, Jas

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khalidf 27th Jun '13 6 of 11
1

I read in Shares magazine a couple of weeks ago about them. Paraphrasing.. Primed to milk a cash flow burst as capital expenditure slides and revenues crank up. They work at the high-specification end of tomorrow's technologies such as RF, solar, wireless and LEDs etc. Analysts see capital expenditure levelling out around 10m a year in the long-term, hiking cash generation massively as revenues crank up. It goes on, but Canaccord placed a price target of 65p. Sounds like a couple of years away potentially for that type of increase.

I'm very new to this and learning a lot from your daily blog, thanks again.

Cheers, Khalid

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khalidf 27th Jun '13 7 of 11
1

Sorry, one last question regarding IQE! Can you explain what the RNS for IQE yesterday means please? Does it mean IQE themselves have bought or sold 64m shares? Or something else completely?!

Cheers, Khalid

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SevenPillars 27th Jun '13 8 of 11
1

I've been looking at IQE recently, their share price having been in a slump since a report that US giant Qualcomm was going to enter part of their market. Many seem to think this threat is overdone, but since then the share price has effectively been down all the way.

http://www.guardian.co.uk/business/marketforceslive/2013/feb/22/iqe-semiconductors-competition-qualcomm

Apparently, Blackrock have been shorting it for most of the last 3 months or so, which has got many of the smaller investors in the company pointing fingers at them as to why the share price has been going down.

Assuming the Qualcomm threat is overstated, this looks cheap to me as I can't really see what else is wrong with it, other than it is a little blue sky and there is the potential longer term threat from Chinese companies suppose. They report mid July apparently and if they come up good following on from their last results, then it's possible the shorts will end up running for cover as this has been brought down a long way on largely speculative rumour it would seem.

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khalidf 27th Jun '13 9 of 11
1

In reply to post #74630

Cheers for the info bud

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cig 27th Jun '13 10 of 11
1

In reply to post #74629

Nobody bought 64M shares. It's a statement of change, AXA Investment Managers moved from holding 64471k shares ("Situation previous to the triggering transaction") to 64821k ("Resulting situation") so they bough 350k shares net. A bit of a non event really, but any change above notification thresholds is notifiable.

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khalidf 27th Jun '13 11 of 11
1

In reply to post #74653

Thanks for clearing that up, think I read it a bit to quickly!

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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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