Small Cap Value Report (3 Dec 2014) - CCT, API, WHI, TUNG

3rd Dec '14 by Paul Scott

14 comments 17084 reads

Good morning! A quick whizz through this morning's trading updates & results, as I have to dash off to Reading for an investor lunch.

Character (LON:CCT)

The share price of this toys company is up 9% to 245p this morning, so the market clearly likes their results for the unusual year end of 31 Aug 2014. So do I, the results look excellent. Turnover is up 46% to £97.9m, and profitability has risen dramatically from £0.2m last year to £7.1m.

Looking at the historic performance, Character seems to perform inconsistently, with the occasional poor trading result.

I flagged this share here on 8 Sep 2014, noting that its shares look cheap at 214p.

They still do actually, even after this morning's share price rise. The PER at 245p per share is only about 9, and there's a reasonable dividend yield too, of about 3%.

Current trading is also strong, with the key pre-Xmas period described as "building ahead of our expectations".

Balance Sheet - is just about OK, with c.£4.5m in net debt not looking a problem, but the current ratio is not as strong as I would like, at just under 1.1 - not dangerously stretched, but not comfortable either.

My opinion - the company seems to be on a roll, and is still good value. Therefore I feel optimistic about this share. On the downside, the shares are illiquid, and the company's results can fluctuate a lot based on whether its products catch waves of interest from kids or not. That said, on a PER of 9, I would say the shares look too cheap.

Note also that it has a very strong StockRank of 98.

API (LON:API)

Interim results from this specialist foils business have not particularly impressed. Operating profit is down from £3.5m last time to £2.8m (pre-exceptional) for the six months to 30 Sep 2014.

Pension deficit - has increased by £2.4m to £15.8m. It's interesting to note that pension deficits generally are not melting away, as many expected, because sustained low interest rates has the effect of increasing pension fund liabilities. So this is probably an area that investors should take more seriously.

Also, deficits are rising despite buoyant equities, and bond markets. So what happens if & when those asset values decline, as they do from time to time? We could suddenly be looking at much bigger deficits across…

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janebolacha

3rd Dec '14

CCT has excellent management, very experienced and with substantial stakes in the business. Imo, it's really the economic cycle which took their results down, that is that parents were spending less on toys or buying cheaper toys. CCT has a great range, including Peppa Pig. They've just acquired the Teletubbies. Outlook for 2015 seems very encouraging, from the chairman's remarks. A PER of 9 does seem very low, especially given that UK is forecasting sustained economic growth for at least the next two years, besides whatever comes from CCT's growing international ambitions.

Wol

Paul
Do you have any more thoughts on Avation (AVAP)? Trading news has sounded good and the reducing price of oil should benefit the airlines and therefore AVAP too. But the placing, announced a few days after the FD spoke at your Brighton dinner, seems to have knocked the share price dramatically (down nearly 20% in the last 2 weeks). Of course I can understand that a placing may be cheaper for the company than a rights issue. But it is also favours the insiders who are invited to buy shares at a discount at the expense of the retail shareholders.
Julian
P.s. I'm looking forward to joining you at a future dinner. Tuesdays and Wednesdays are impossible because I work late on those days. Hopefully other interesting talks will come soon

AnonymousUser37567

AVAP: I was wondering (not checked) that if oil is cheaper for a long time is it possible airlines may just buy the planes instead of leasing?

bsharman

Hi Paul. Hope you had a good break in Vegas! RE: Tungsten (LON:TUNG) - I think that there has been somebody selling into the market recently but I'm comfortable with my small holding because the board took £2.7m shares at £3.40 in the September placing AND at a recent presentation stated that they wanted more! Perhaps we will see some more director purchases at a lower price then?! Tungsten (LON:TUNG) will either be worth zero or many more times the current price in 3-5 years time. I like what they are doing - yes it's a large valuation - but they have some big name clients such as GSK, Kelloggs, Tesco, Apple, Unilever, GM, BP etc. These big corporations must have done their due diligence! I think the risk/reward is very favorable IF you back the management team to deliver.

rmillaree

Ref Tungsten
Had a quick look at the recent announcements and there doesn't seem to be much concrete info (I.e. numbers) , say compared to a company like Synety where the KPI's confirm the rapid growth.
Perhaps they are not at the point yet where they have meaningful enough turnover but it would nice if they simply confirmed - we are still on track to earn £20 mill in 2016. (Broker note 24/11)
I guess in the absence of concrete numbers the market may not be factoring their excellent exponential growth (if thats what they have)
Presumably the longer they stay on track and the more the numbers back up that fact the sooner i would expect the shareprice to re-rate if the growth story remains intact going forward.
Deffo worth more research as 2016 ins't that far away - it always fills me with dread though when i go to the other place and see 2000 + posts on a company. Give me a nice quiet board discussing actual numbers (or Greggs pasties) any day of the week.

Henry Walpole

I agree with your comments re Tungsten (LON:TUNG). I think the directors are currently in a close period (within 2 months of half year results) if I've understood the AIM rules correctly so are unable to purchase at these levels.

rhomboid1

I'm sure this is grossly unfair but there is more than a whiff of the infobank saga * to me about Tungsten and that didn't end well..it's the endless PR that grates on my sensitive soul.

I've done no research so please don't regard this as definitive comment!

Cheers

* referred to here ; http://boards.fool.co.uk/off-topic-6661494.aspx?sort=username

Ramridge

Re. TUNG. This co. has been on my worry list for some weeks and I still can't make out what may be wrong. Let's look at some facts first.
- TUNG has been issuing a series of "good news" updates since at least 25/9. The full list is 25/9, 29/9, 22/10, 14/11, 18/11 and today 3/12. So there is no shortage of reasonably good news emanating from the company. However none of these updates gives any hard figures or even broad estimates we can hang our hats on.
- During this period, TUNG sp has fallen approx 34%, and relative to the AIM index, approx 25%. A big drop.
- Lastly, there has been some shorting activity in the past few weeks, but only totally less than 1.5%

So what to make of this? shorters at work? a large seller off loading his shares in drips? lack of financial substance in the updates spooking the market? or bad news that is not yet in the public domain?

Well as far as I can tell, any one or none of the above reasons could be true. Frustrating.

mikehunt

How can TUNG give numbers on their finance offering when it's only been running for a few months? They need roll it out gradually and adjust the charging model until people bite IMO. That could take 12 months. Maybe a SP of £4 was inflated. Shares Mag said sell at £4 as the price had got ahead of company progress/news.

Paul Scott

Hi Ramridge,

Ref. Tungsten (LON:TUNG) my view is that one has to just accept that it is a highly volatile share, because nobody really knows how to value it. The potential is remarkable, that's why a lot of us have bought the shares, but who knows what the share price will do in the short term? Or why?

My view is that position sizing is vital, so that the fluctuations in price can be absorbed without too much pain. So personally I sold some near the top, when the market wobbled in October, and have been buying back in more recently, at a much lower price.

The potential doesn't seem to have changed at all, and if/when good news is published, e.g. about a big line of credit having been signed up, then the price will probably just explode upwards in a vertical move, leaving behind anyone who's trying to be clever and time the exact low point before buying back in.

It's the type of speculative stock where in my view you just take your stake, and live with the price volatility. If it works then we could easily have a 10-20 bagger on our hands, and whether you paid 250p or 350p won't matter a jot! If it doesn't work, then we'll lose the lot, so personally I've sized my position so that it won't hurt too badly if it fails.

Management track record is so good, that I doubt whether failure will be an issue, but we'll see. I suspect it might need to raise more equity funding along the way.

Regards, Paul.

AnonymousUser39518

Charles Stanley bumped CCT 2015 earnings to 33p today. So now the PER is 7.4!

I dumped TUNG 2 weeks ago as I realised Canaccord had been downgrading future profits for a while now... compared to what they were early 2014

Hi Paul - Re. Tungsten. Thanks a lot for your comments which , having read twice, agree and accept. I have been a bit myopic in my approach to this share. I need to forget looking at the trees and just look at the wood. Trust ET and his management to deliver the goods. If you can't, just get out and move on.

Regards, Ram

christopherpalmer

4th Dec '14

Tungsten (LON:TUNG): Saw this this morning and thought it might be of interest. Frank McKay brought on to accelerate growth: http://www.investegate.co.uk/article.aspx?id=201412040700207773Y&fe=1

WarrantStar

3rd Jan '15

Re Character (LON:CCT) I have been researching this company and found the following:

1) 67.6% of shares currently not in public hands
2) Big share ownership by directors
3) Company purchased 10% of its own shares in year to Aug 2014
4) Company intends to continue buying its own shares.

Could someone please comment on:
a) Could this be a route for directors to take the company private?
b) What would happen to other shareholders as fewer & fewer shares become traded?

Regards,
Paul

Small Cap Value Report (3 Dec 2014) - CCT, API, WHI, TUNG

Character (LON:CCT)

API (LON:API)

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Paul Scott

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