Small Cap Value Report (28 Sep 2015) - PEN, SDY

Monday, Sep 28 2015 by

Good morning!

I'm writing this from the 21st floor of the Hilton Hotel in Warsaw (a superb hotel by the way - highly recommended). Just a flying visit, to see extended family, and check out the branches of DP Poland (LON:DPP) (there's one over the road). This certainly seems like an up & coming city, with shiny new office buildings popping up all over the place. The old town is lovely, and looked authentic, even though I suppose most of it would have been destroyed during the war.

I have to check out fairly soon, so this report will unfortunately be somewhat abbreviated.

Pennant International (LON:PEN)

Share price: 64p (down 18%)
No. shares: 26.5m
Market cap: £17.0m

Contract win - news of a £7m "landmark contract" for this aerospace simulators company. So why has the share price gone down, not up? The company has put out results too:

Interim results to 30 Jun 2015 - the figures look bad. Turnover is down heavily, and the company has swung from a profit last year in H1 to a loss of £0.75m.

Outlook - the Directorspeak is unusual, but sets out the situation clearly;

"Pennant experienced challenging markets in the six months to 30 June 2015. The anticipated second half weighting, highlighted last March is now likely to be significant. Contract awards have been delayed by the weakness of the oil price, election uncertainty in the UK and the complexities of public sector procurement.The outturn for the full year will depend on the timing of anticipated contracts with an aggregate tender value in excess of £15m, which are expected shortly.  The exact timing of the awards will result in an outcome for the year as a whole which could either be in line or significantly below market expectations.  Notwithstanding the outturn for 2015, prospects for 2016 remain very positive and underpin the Directors' decision to increase the interim dividend payment."

It's difficult to know what to make of that! How can we value the company, if even they don't know what the results are going to be like? This just reinforces the inherent lumpiness, and hence unpredictability of this type of company.

Dividends - it's a surprising decision to increase the interim dividend from 0.9p to 1.0p, which the company says is due to their confidence in the prospects for 2016.


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Pennant International Group plc is a United Kingdom-based company engaged in the provision of management services. The Company operates through three segments: Training Systems, which provides and supports specialist training systems based on software emulation, hardware simulation, virtual reality and computer-based training in the defense sector; Data Services, which provides media, graphics, virtual reality software and technical documentation to the defense, rail, power and government sectors, and Software, which owns the rights to the Omega suite of software used by defense contractors and by defense authorities in Canada and Australia. It offers services that cover training equipment and related support, technical documentation, media development, software development and related consultancy. It markets in rail transportation, defense, aerospace, government, oil and gas, petro-chemical, power, retail, consumer goods, information technology and telecommunications industries. more »

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Speedy Hire Plc is a tools, equipment and plant hire services company. The Company's segments include UK & Ireland Asset Services and International Asset Services. UK & Ireland Asset Services delivers asset management and focuses on relationship management. International Asset Services delivers overseas projects and facilities management contracts by providing a managed site support service. Its geographical segments include UK, Ireland and Other countries. It operates across the construction, infrastructure and industrial markets. Its hire fleet comprises a range of small tools, specialist equipment, and large plant vehicles and machinery. It also retails a range of tools and equipment, as well as safety personal protective equipment (PPE) and site supplies. It also offers various services, such as on-site operative training, test and repair, fuel supply and management, industrial shutdown project management, on-site depots and hire desks. It also offers partnered services. more »

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

7 Comments on this Article show/hide all

PabloAguas 28th Sep '15 1 of 7

Hi Paul,
Thank you for the SDY brief. I was wondering about their turnaround potential. There was a time when I used hire companies regularly. I always chose Speedy over HSS. There were several reasons for this, they were much cheaper, seemed very well equiped, really good staff, very hands on managers, they had more of the air of an indepent outfit; as a customer I far preferred them to HSS. (Subjective I know) That being said I haven't used them for a few years and if management is failing and forced to make a lot of redundancies, a collapse in staff moral ( if it hasn't already happened) and a seeming inability to make a decent profit would make any decent prospects for growth seem unlikely. If they can't turn around might they be a prospect for a takeover?

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simoan 28th Sep '15 2 of 7

Hi Paul,

Re: Pennant. It has a good balance sheet but these are pretty awful results by any standards. I do not understand why management did not feel it necessary to issue a profit warning under these circumstances - does the lumpiness of new contract flow mean they can forever hold out hope of the next contract being signed in time and never issue a warning? I think this shows very poor shareholder communication.

I dodged a bullet here and count myself lucky to have sold my remaining holding into some strength in price last week due to nothing more than a feeling of unease about these results caused by the total lack of newsflow since the last results. It also falls below my own threshold for market cap. 

I like the company, it has a good balance sheet but probably needs it given the nature of it's business and the real trouble is it always looks good value on fundamentals but I have come to the conclusion it is something of a value trap. Management communication with shareholders is not good enough and the carrot of the new contract announced on the same day as these terrible results just sucks! BTW I feel sorry for the the very well known Fool who has a considerable holding - I had assumed he knew something I didn't, but these results have shown that was a pretty terrible assumption!

All the best, Si

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imranawan 28th Sep '15 3 of 7

In reply to post #107124

Hi Si

I've never really looked at Pennant International (LON:PEN) before, but wondered whether you could elaborate on the "very well known Fool who has a considerable holding". Is this related to Powell or Snook?

Best wishes,

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brucepackard 28th Sep '15 4 of 7

Hi Paul, definitely interested in your thoughts on DP Poland. This was floated by Seymour Pierce when I was there (but I wasn't involved). There was some "tension" because the research analyst thought it was not a great investment case - but the investment bankers wanted to get it done. If memory serves, the price went from 60p to 120p to 10p with some placings and capital raisings along the way.
NOW though, I think after 5-6 years it ought to have turned the corner? I mean - how hard can it be to run a few pizza restaurants? particularly when the format has proved itself in many different countries. So interested in your thoughts. I am long, and in the money (just).

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simoan 28th Sep '15 5 of 7

In reply to post #107125

Hi Imran

No, I wasn't referring to PEN management. There's a long-standing contributor to The Motley Fool website who will be well known to Paul and others hereabouts who has a significant holding. I came across this fact totally by accident by putting 2 & 2 together when doing research on the company. I value people's right to on-line privacy and so won't be providing any further detail. Sorry!


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Daniel Neale 28th Sep '15 6 of 7

Dear Paul,

Any chance of a comment on Brainjuicer (LON:BJU) recent results?

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jonesj 28th Sep '15 7 of 7

I was going to ask what you think of DPP, but after looking at their figures, I don't see the appeal.
Large losses.
Lethargic growth ~13% YOY, although they quote a like for like headline figure of 23%, excluding 3 closed stores. Presuming any closures would be for non-performing stores, well of course closing the duds would improve the like for like figures.
Then a market cap that dwarfs the turnover. So I suppose it's priced on the presumption this will grow like the UK version. Not much sign of that yet.

Presumably you were just there for a bite to eat?

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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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