Small Cap Value Report (30 Mar 2016) - LTHM, HRN, BON, TAST, IMO | Paul Scott

30th Mar '16 by Paul Scott

30 comments 20369 reads

Good morning!

New transcript - for anyone interested in my latest audio interview with renowned investor/trader Richard Crow, I published a transcript last night - which I know that several hard-of-hearing investors very much appreciate. Thank you to the kind readers who donated funds to enable me to pay a typist to produce it. Even then, it's time-consuming to edit, but worth it - and I usually sit down with a glass (or three) of fizz, to edit them in the evening, so the time flies!

James Latham (LON:LTHM)

Share price: 680p (up 0.4% today)
No. shares: 19.6m
Market cap: £133.3m

Trading update - for the year ending 31 Mar 2015. Short & sweet:

Revenue for the year ending 31 March 2016 is expected to be broadly in line with market expectations and profit before tax is likely to be higher than expected.

The Board anticipates releasing the Company's preliminary results on 23 June 2016.

It's unusual to see revenue a bit below expectations, but profit above. This suggests to me that either gross margins have improved, and/or that overheads have come in lower than expected.

Valuation - bear in mind that the company has a strong balance sheet with plenty of cash too, so it's actually better value than the PER suggests;

My opinion - I reported here on 26 Nov 2015 when Lathams released its interim results. My conclusion at the time was that the forecasts for 44p EPS this full year looked light, and that 47-50p EPS would be my personal estimate, based on strong interims & reasonable outlook statement back then.I'm sticking with that view, which is reinforced by today's update.

This is a well-run company, with very sound finances, that looks priced sensibly. It's cyclical, but I don't see housebuilding, on which it heavily relies, slowing down any time soon - do you? We clearly need so much more housing in the South, that I imagine production is probably going to be increasing, if anything.

So there could be another leg up in Latham's share price building up, perhaps? It looks quite tempting to me at the current price, but bear in mind that it's a tricky share to trade, as so tightly held. The 2% divi yield looks surprisingly mean - the company could easily afford to pay…

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Glaws2

30th Mar '16

Paul - thanks for the transcript of your interview with Richard. It's much appreciated.

underscored

There is no shortage of housing. Only excess speculative demand.

Rusty2

Paul, thanks for James Latham (LON:LTHM) review, re construction I'm not so sure, construction has already slowed down in the last year, maybe that was due to the election? Post election I would have thought it would have taken off but it has not. Prices in some areas, such as London are looking high, too high? There is a rush to best the BLT deadline but after next week not sure what will happen. Last recession housebuilders et al were badly hit, think we are near the top of the cycle.

Paul Scott

Hi Underscored,

I think it depends what areas your are talking about.

Certainly where I live (London, and Hove), there is a chronic lack of overall housing supply. People are being forced into tiny homes (often sub-divided flats, made into even smaller flats) because prices are so high. I'm talking here mainly about lettings actually. Private lettings happen almost same-day in Brighton/Hove. You have to agree to take the flat there & then, at the viewing, or it goes to the next person waiting outside to view.

Buy-to-let landlords are taking advantage of very high demand for rentals, and high rents, by hoovering up a lot of the supply of flats for sale.

That leaves privately-owned housing only for the elderly (who bought when prices were cheap, decades ago), people in highly paid jobs, and those who get assistance from family members to stump up a large deposit.

I agree though that ultra-low interest rates are driving up prices, as mortgages are so cheap now. However, I'm looking at overall housing supply/demand (including rentals), and in the South there are many places where there's a really chronic shortage.

Regards, Paul.

Buy to let (borrow) to let are causing increase in rentals by out bidding owner occupiers with poorly under written interest only loans. We know how that ended last time and if you take the time to read what the Bank of England published yesterday, moral hazard has come home to roast in British lenders. Between the chancellor and the boe btl has been killed stone dead. Will post data, numbers and links if I have any energy after work.

Math

Interesting what you say about slow moving stock on Hornby Paul. I have a son who loves scalextric but whenever they have offers on they never have any stock. Normal priced items are just way over priced. Shame for such a good brand name.

BlueFrew

Absolutely 100% on the button.

Clause 24. 3% Stamp Duty. Reduction in Capital Gains Tax for everything except residential property. Now the Prudential Regulation Authority are going to force banks to ensure the Borrow to Letters can actually afford what they want to borrow. The mood music is clear. Buy to let is in the sights of the Government and it's bank.

It's not the only problem of course. There is plenty of empty property in London where overseas investors are using London property as a laundromat or attempting to time the UK property bubble. Meanwhile workers in the UK pack themselves like sardines onto trains and travel for hours each day to and from London. Or worse we take money from those poor saps on the trains and give it to people via Landlord benefit so that others can live in London not working.

There are lots of problems with UK property, but a shortage of property isn't one of them.

Paul thanks for the Richard Crow transcript, my hearing is ok but I do find that looking at it on the page far easier than listening to it on audio. Its also far easier to find certain companies and see which companies are covered, this is especially useful if you want to find something months afterwards. Maybe those companies could be linked to the Stockopedia discussion search? It would make searches so much easier in the future.

grumpy5

Paul
re Bon, are you not a teeny weeny bit worried about that massive stock overhang? Is the Sun Cap 51% share not going to put a lid on performance until it is gone?

ericb

So there is no shortage of residential property in the UK ..? Fascinating !

Small Cap Value Report (30 Mar 2016) - LTHM, HRN, BON, TAST, IMO

James Latham (LON:LTHM)

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