Small Cap Value Report (4 Jun) - NRR, SRT, VP.,

Tuesday, Jun 04 2013 by
13

Good morning. One hundred and thirty two minutes late, defective junction box at New Malden. I do apologise for being late, this was not due to faulty railway infrastructure, but rather due to over-indulgence at the Pub after another excellent meet the management function yesterday at FinnCap.

A large group of us met three companies, and I was highly impressed with management at Newriver Retail (LON:NRR) . As a former retailing FD, I know my way around property leases, and these guys really do know what they're doing. If one can take a long term approach, then in my opinion New River shares are as close as you can come to a sure fire winner. Management have been there & done it before, so you have a CEO with 30 years property experience, and for a relatively small portfolio of property assets they are working flat-out to add value to.

To be brutally honest, I despise many people in the Listed property sector - all too often they are greedy, arrogant people of dubious ability, who think they have some God-given right to enormous salaries & bonuses, when what they actually do is just float to the top in bull markets, adopt fake posh accents, and rip off their investors (more fool them!). Gravel-voiced b***-shitters, as a mate of mine describes that type - in fact they are not confined to the property sector, think of 50%+ of all Listed company Chairmen, and you'll be bang on the money. Dreadful.

In contrast, New River is a class act. You've got a CEO who's been there & done it before. More importantly, he can read the cycle, and his whole presentation yesterday was music to my ears - all based on Buffett principles of value. He sold his last property company at the top of the cycle, and set up New River at the bottom of the cycle - and he's in it for the right reason - because he loves doing it! They are buying retail properties on yields of about 9%, borrowing money at about 4%, so the economics of it are blindingly simple.

They've got every risk covered, and being a REIT are obliged to pay out 90% of earnings as dividends. That is a great way of capping management remuneration too. There is about 50p of unrealised property…

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NewRiver REIT plc is a real estate investment trust engaged in the real estate business in the United Kingdom. The Company specializes in buying, managing, developing and recycling community-focused retail and leisure assets. The Company’s operations are organized into two segments, being investment in retail property and in pubs. The retail investments comprise shopping centres, retail warehouses and high street stores. The pub investments consist of over 650 community public houses. The Company owns or manages a portfolio of approximately 34 shopping centers and 19 retail parks with retail and mixed-use development opportunities and a range of high street retail assets. The portfolio totals approximately nine million square feet. The Company is focused on convenience-led retail assets that cater for everyday household spending needs. The Company operates Grays Shopping Centre, Hollywood Retail & Leisure Park, Hawthorn Leisure, and Star Pubs & Bars. more »

LSE Price
166p
Change
3.1%
Mkt Cap (£m)
492.5
P/E (fwd)
7.9
Yield (fwd)
13.5

SRT Marine Systems plc, formerly Software Radio Technology plc, is engaged in the marine technology business. The Company's principal activity includes development and supply of automatic identification system (AIS)-based maritime domain awareness technologies, and derivative product and system solutions for use in a range of maritime applications from safety and security to fishery management and environment protection. AIS is a mesh network radio communications system technology specifically designed for the marine domain, and it uses a combination of global positioning system (GPS) and high frequency radio to enable real time, simultaneous data communication between multiple, independent entities providing information, such as identity, GPS position, speed and other customized data. It offers a range of AIS products and maritime domain monitoring system solutions, which also fuse other maritime sensor technologies, such as radar, closed-circuit television and communications. more »

LSE Price
41.8p
Change
0.1%
Mkt Cap (£m)
64.6
P/E (fwd)
n/a
Yield (fwd)
n/a

Vp plc is engaged in equipment rental and associated services. The Company is engaged in providing products and services to a range of end markets, including infrastructure, construction, house building, and oil and gas, both in the United Kingdom and overseas. Its segments include UK Forks, Groundforce, Airpac Bukom, Hire Station, Torrent Trackside, TPA and TR Corp. The UK Forks segment is a hirer of telescopic handlers and tracked access platforms. Its Airpac Bukom segment offers oilfield services and is engaged in provision of specialist compressed air and steam generation services. Its TPA segment provides equipment rental and installation of portable roadways, walkways and stairways. Its Hire Station segment is a provider of small tools, lifting, safety, survey, press fitting and low level access equipment. Groundforce is a rental provider of excavation support systems and specialist products.TR Group provides technology solutions to corporate, industrial and government clients. more »

LSE Price
768.72p
Change
0.9%
Mkt Cap (£m)
306
P/E (fwd)
7.5
Yield (fwd)
4.3



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


14 Comments on this Article show/hide all

bobdouglas 4th Jun '13 1 of 14

Ref. VP. - the company points out that the disposal of hire fleet is an important part of the business and it is encouraging to me that good profits are made from this (2.6M 2013 & 2.2M 2012). It gives me confidence in the quality and resale-ability of the companies plant and equipment which reassures me about the debt they require to run the business and invest 22.5M on capital expenditure for their rental fleet.

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alterego 4th Jun '13 2 of 14
2

Think you've misread the SRT situation Paul. With respect, those who follow the company closely and have done so over the longer term think the opposite - that the RNS is playing down expectations rather than being "rampy". Yes, the CEO raised expectations a year or so ago and the orders were delayed. We've learnt that timings even for mandated segments are unpredictable which is why they are being conservative IMO. I believe the tone of today's RNS is designed to avoid the same mistake.

However, if you look at the market they are supplying, it is huge compared to current revenues. SRT have virtually no real competition because they have the most up to date, high performance products, a Global dealer network and keen prices. They have created a entirely new market by developing a low cost basic AIS device called the Identifier which will end up being sold in very high volumes to users who would not have bought the more expensive Class B device ( think small fishing boats in India). They have just launched a top quality AtoN device for marker buoys where the annual market is worth $200m. They recently announced a collaboration with Exact Earth, a satellite operator to provide a bundled service which is expected to provide significant recurring revenue. Small orders have already come in ahead of the implementation of a mandate in the USA which will generate large revenues. They have recently agreed to collaborate with a large US brand to develop customised products under the Hummingbird name. In fact there's hardly a significant land mass on the planet that isn't initiating or planning to require vessels to be fitted with AIS. There is also no rival technology to divert revenues away as AIS is heavily prescribed and products have to be certified as compliant.

It's true that investors today are looking ahead but this market is still in its infancy and SRT have made a land grab which puts it in pole position to reap the rewards. By all means sit on the sidelines but there are some highly significant events ahead which IMO will drive the SP much higher and anyone who does not keep a close eye on what's happening risks being left behind or simply missing part of the upside. I genuinely believe that forecasts are very conservative leaving room to over-deliver.

There's very well informed board on ADVFN for anyone who really wants to understand what SRT are capable of.

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JamesHolmes 4th Jun '13 3 of 14
1

Hi Paul,

Not the most exciting company in the world but i'd be interested to hear your thoughts on Tricorn Plc (TCN). Their final year results were released today and showed some good cost control and mid to long term growth potential. Their expansion into both America and China should pave the way for significant growth should investors be willing to sit it out for 2-3 years.

Cheers
James

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johnrosier 4th Jun '13 4 of 14
2

Totally agree on SRT. A friend of mine has been trying to persuade me to buy but I just did not like the valuation and the unpredictable outlook. It has flattered to deceive in the past.

Website: JohnsInvestmentChronicle
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bsharman 4th Jun '13 5 of 14
1

Hi Paul. Thanks for your daily reports - which I read with interest each morning! I have taken a look at New River Retail and generally like what I have found out about the company and the management. Looking at the numbers however - the dividend cover looks to be very low.. Am I misreading the situation or is this because of the REIT status. Your thoughts would be appreciated. Thanks!

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fek47 4th Jun '13 6 of 14
3

Hi,

REIT's are required to pay out at least 90% of their earnings as dividends each year, in order to maintain their tax privileged status. So you'd expect a REIT's dividend cover to be very low compared to other businesses.

regards, Francis

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Boros10 4th Jun '13 7 of 14
3

New River is a REIT and must pay out 90% of its net income (I believe this excludes realised and unrealised gains). What I like about the 90% rule is that it limits managements to try and massage profits. If profits don't convert into cash it becomes increasingly difficult to fund the "dividend".

We could do with software company REITS!

I was also at yesterday's meeting and was extremely impressed with the management team and agree with Paul's observations.

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Fangorn 4th Jun '13 8 of 14
2

Hi Paul,
Always read your daily with interest. Many thanks for your continued willingness to share your thoughts vis investment via your daily blog. Have been looking for something different to invest in and your New River Retail(NRR) looks to fit the bill..off to take a gander...

Cheers ears.

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kenobi 4th Jun '13 9 of 14
1

Hi Paul,
is there an easy way to navigate to your latest small cap value report ?

I usually pick it up from the main discussions page, but it's not always visible there, do you have a homepage, which links to the latest one ?

Cheers K

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corrsfan 5th Jun '13 10 of 14
1

In reply to post #73859

Its the second item under the homepage if you hover over the home button next to the search box above.

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kenobi 5th Jun '13 12 of 14
1

Thanks guys that's really helpful,

K

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Murakami 5th Jun '13 13 of 14
1

In reply to post #73874

You can also sign up for column-specific email updates here: http://stockopedia.us4.list-manage.com/subscribe?u=bd62eb752b5b6a832968161ea&id=dad84e4e73

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DAltman 5th Jun '13 14 of 14

Hi Paul,

I was surprised you didn't comment on the GDP update, as you've previously mentioned buying them.

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 Are LON:NRR's fundamentals sound as an investment? Find out More »



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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