Small Cap Value Report (4 Jul) - SID, CAP, NRR, DEMG, JSG, IND, STAF

Good morning, well a very frustrating one anyway - I was running late to start with, then my internet went down & I lost what I had written. So starting again, and it will have to be brief this morning as I'm off to Reading shortly for an investment lunch.

Still no announcement from Silverdell (LON:SID). They need to pull their fingers out & let the market know what is going on. Shareholders have a right to be kept informed, even if it is only to give an outline of the current situation.

 

 

Good to see Clean Air Power (LON:CAP) pressing ahead with their US launch, due in early 2014, so not long now. They announce today that they have "received interest from a number of major fleet customers" at an exhibition where their diesel-gas hybrid power systems for HGVs were demonstrated. If the US launch goes well and orders come in in reasonable quantity, then that could fuel a dramatic re-rating here. It's speculative, so more than ever DYOR, but I like the possible multi-bagger potential here. The market cap is currently only about £15m (I own some shares in it).

 

 

 

My favourite property REIT, Newriver Retail (LON:NRR) issues an AGM statement today. I can't see anything new in the statement, it seems to be a recap of where they are now, but it all sounds positive, so I remain happy to hold long term. The dividend yield is very attractive here, as are high quality, dynamic management. Their business model couldn't be simpler - they buy retail property with value tenants (so not susceptible to competition from the internet, e.g. Primark, Poundland, food, etc) with a rental yield of 9%, and borrow money to part-finance it at 4%. They also actively develop their assets with improved tenants, and other innovations (e.g. installing wifi, Amazon collection lockers, etc). Very impressive management. the dividend yield of 7.2% is rather delightful too!

 

 

The positive newsflow continues from Deltex Medical (LON:DEMG), with them announcing today a positive study from St Thomas's teaching hospital in London. Gross margins on the consumable product are high, so if Deltex can ramp up sales volumes then profits could rise dramatically here. Although they've been trying to ramp up sales for an awful long time. So only time will tell. I made a nice turn on the shares recently, but no longer hold, as for me the £30m market cap is probably up with events for the time being.

Their shares have risen 6% to 18.4p today.

 

 

 Dry cleaners Johnson Service (LON:JSG) announce have today issued a trading statement for their H1 ending 30 Jun 2013. They say H1 was strong, and that full year results are expected to be in line with expectations. Stockopedia shows consensus forecast EPS at 5.12p for this year, so at 47.5p the shares are on a PER of only 9.3.

However net debt is a big issue here, and they say that this will have reduced to below £54m at 30 Jun 2013. That's about 21p per share, so it's pretty hefty taking the Enterprise Value up to 68.5p per share. Although it's not technically correct to work it out like this (as to be fully accurate one should reverse out interest charges, and adjust the tax), I find it's a good enough approximation to look at the PER based on the Enterprise Value, which in this case drops out at 13.4. That's probably about the right price for a mature business, in my opinion, so whilst shareholders have done well out of these shares in the last year, I'd probably be tempted to take profits if I held.

 

 

Several people have asked me why the share price of Indigovision (LON:IND) has fallen sharply in the last couple of weeks, but unfortunately I have no idea. Just more sellers than buyers. The trouble is, we're in the information vacuum between announcements. The next trading update is scheduled for 31 July, so if it's bad then the shares will go down & chartists will tell us that the chart was telling us that things were not going well. If it's good, the shares will go up, and the chartists won't say anything. That's what usually happens!

 

 

 Staffline (LON:STAF) announce their pre-close trading update. It all sounds fine, they've reiterated full year expectations for earnings. Broker consensus is 41.2p, so the shares are rated at just over 10 times, at 416p per share. That's hardly expensive, and just shows how a business that's doing well and increasing its earnings strongly, can still look good value even after the shares have almost doubled in the last six months, as is the case here.

I flagged up the value in these shares after meeting management on 4 Sep 2012 when they were only 226p, so people who bought then, and still hold, will have done extremely well. I sold far too early, as always.

 

 

 Sorry this is rather brief today, but I have to dash, so see you from 8 a.m. tomorrow morning as usual.

Regards, Paul.

(of the companies mentioned today, Paul has long positions in CAP, NRR, and IND. He has no short positions)