Small Cap Value Report (7 Nov) - DLC, PURI, ABDP, WIN

7th Nov '13 by Paul Scott

12 comments 15867 reads

Good morning. Big news today for shareholders in CAD/CAM software group Delcam (LON:DLC). There is an agreed cash takeover bid at £20.75 per Delcam share, from an American outfit called Autodesk Development. No doubt Delcam shareholders will be moaning that it's only a 21% premium to last night's market price of £17.15 per share. In reality however, the market price was already stretched, so to get a 21% premium on an already high valuation is not bad going. The undertakings to accept the offer do however leave the door open to a higher competing bid, so the company is now very much in play.

Looking at valuation, Delcam reported 55.6p EPS last year, so this offer is a generous PER of 37.3. Not bad! 2013 forecast EPS rises to 61.7p, for a still very high PER of 33.6. So it looks an excellent deal for Delcam shareholders, and separately Renishaw has announced their acceptance, relating to their 19% shareholding in Delcam. It sounds like they are keen to trigger a bidding war, as their acceptance will be suspended if any other party announces a firm intention to bid for Delcam at £22.30 per share or more. So this could get interesting! Therefore it seems to me that sitting tight is probably the best thing to do in this particular case, but obviously that's for each individual shareholder to decide. The trouble is that Institutions usually drive these deals through, because disposing of their large holdings is so difficult, that a takeover bid is the only realistic way to do it. Hence they will usually grab a premium-priced offer, whereas many private shareholders would probably prefer for the company to remain independent.

So far there is 44.5% acceptance of the offer, so not a done deal yet, but going that way. A 75% vote is required from shareholders at a General Meeting to approve the takeover deal (which meeting should be held within 28 days), which if passed makes it a done deal.

I've mentioned PuriCore (LON:PURI) here before - it seems just the type of growth company that should be rising substantially in this type of bull market, but so far the share price movement has been pretty pedestrian. This is the company where…

Unlock with Email

Unlock with Google

Already have an account?
Login here

HumourMe

7th Nov '13

You are probably right on the issues with PURI. The first thing I did was check the data and immediately discounted it on the historical numbers ... then I read the sentence but that has not yet fed through into screening systems, which use the old Bal Sheet data from last year . So now I'll have to look.
Interestingly when using screeners you get a subset of companies and then check their data and discard those that should not have got through the screen through data errors. This may be the opposite case. We always know they exist but it is generally impractical to check all the rejects to see if they should have got through. I suspect though that these 'sleepers' may offer great potential for people with the time to find them.

Paul Scott

Absolutely right! That's very much what I do - i.e. spend 4 hours reading RNSs every weekday, and finding stuff that won't come up on screens, through out-performing trading statements, refinancings, etc. There's good money to be made, if you have the time & inclination to cover 500+ companies! Or you could narrow it down to just a handful of sectors that you have an edge in.

Screening is better in bear markets I think - when there are numerous bargains, you're spoilt for choice! But in a bull market, one has to look a lot harder for good value/GARP, and also to a certain extent be flexible with your approach & recognise that investors will pay more for a stock with a good growth story. So it's also a question of running positions for longer than you would usually be comfortable with in my view. Then top-slicing into strength & recycling the money into the next thing. The compounded returns can be astonishing.

Cheers, Paul.

kenobi

Paul do you have a link to your thinking on puri ? the price chart from stockopedia shows a price of 51p and a forward pe of 23.4, I'm sure these figures aren't uptodate, can you provide a link ? (unless of course they don't tell the whole story ?)

kind regards,

G

Beginner

Sorry to go off subject, but I have done some superficial digging on Naibu Global International (LON:NBU) . A Chinese state report from 2008 (OK, a long time ago!) notes the company had a turnover of 'less than $1m'. The accompanying illustrations show a rather antiquated looking factory. The company website formerly noted it made shoes for the likes of Fubu and Diesel. I cannot find this connection confirmed elsewhere. Currently it says that most of its turnover is from 'Naibu branded' goods. I cannot buy any Naibu shoes or bags anywhere on the net. The Naibu logo looks remarkably like the Nike 'swoosh', and I would have expected Nike to take legal action if Naibu had established a large market. Many of the very positive postings on message boards are clearly and disproportionately written by people whose first language is not English. I am probaly wrong here, but I just cannot see the value.

As far as Wincanton (LON:WIN) goes, the company made some bad takeover and expansion decisions a while back and is paying the price, BUT the UK core business is exceptionally sound (and they are a lovely firm to work for!!). The banks may be hoping there is a turnaround here rather than closing in and getting less than nothing. It is massively overpriced at the mo mind, whether judging by figures or sentiment.

(Top report today, as always)

maillotàpoisrouges

Paul, can you or anyone else recommend a book on assessing the balance sheet, or if too dry a good book on value investing?
Thanks

bsharman

Hi hedley.

I'm currently reading Value Investing - tools and techniques for intelligent investment - by James Montier. I highly recommend it! Also another good book is: The FT guide to Value Investing - how to become a disciplined investor.

Hi Paul, I see that New Pistoia Income Limited now hold over 19% of Indigovision.....

ajrc00

'Accounts Demystified' by Anthony Rice, Prentice Hall , 4th ed 2003. Elementary but quite detailed for people without a financial background. I've found it very helpful but you have to work at it.

lightningtiger

Delcam looks good to me .I was only thinking yesterday ,when my broadband kept going down, what about 3 D printing. I am not sure whether Delcam uses this new tech or not?I know it can be utilised to manufacture things in engineering. 3D is in the news right now. My kind of share.
Cheers from Lightningtiger

cig

Re not arguing with big director buys, it probably doesn't apply with Puricore, but it may not always be a sure sign. For instance, for executive-controlled companies, you can argue it's just moving money from one pocket to the other and they could always do it for effect, and get their money back in compensation or through other tricks that cancel the ecomomic impact of the buy, while still getting the PR effect of a RNS-ed buy.

Thanks for that!
Hedz

snaj

Hi Paul

Thanks for all the write-ups, it's a terrific body of work - even when I might (rarely) disagree with you!

The second paragraph of your post that I'm replying to is a gem on strategy - if you ever have the time, I wonder if it's worth doing an article or two just on your strategy and where you flex it? A bit like Stephen's Value Investing articles over at TMF that were, I believe, inspirational to many investors.

Kind regards
Sanjeev

Small Cap Value Report (7 Nov) - DLC, PURI, ABDP, WIN

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

12 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...