Small Cap Value Report (8 Sep 2015) - SOM, CVR, PUB, CAMB, CCT, MCB | Paul Scott

8th Sep '15 by Paul Scott

33 comments 28384 reads

Good morning!

Absolutely loads of results & trading updates today, so I'll get through as many as I can, focusing on the ones that look the most interesting as potential investments. I tend to skim read nearly all announcements, but most can be ignored as there often seems little reason to get involved. It's smashing when you find something good, and overlooked though.

I shall be glued to CNBC later today, as Warren Buffett is appearing on the show at 15:30 UK time. The only drawback of watching CNBC is that you have to listen to their orchestral jingle about 285 times each day!

Interesting comments from Whitbread (LON:WTB) today, with healthy Q2 LFL sales increases at Premier Inns (up 4.3%) and Costa (up 4.0%). Those are very good businesses in my view, and even though this share is rated at 18 times forward earnings, arguably its consistently strong earnings growth justifies that.

The significant increases in Minimum Wage (now being called Living Wage) are very important for investors to consider. Businesses which currently make little to no profit, but have a large, low paid employee base, are clearly going to be worst affected (e.g. supermarkets, and other marginally profitable retailers, pubs groups, etc). Today Whitbread says;

We are developing plans to adopt the recently announced National Living Wage. We shall mitigate this substantial cost increase over time with a combination of productivity improvements, boosted by investment in systems and training, efficiency savings and some selective price increases. We shall announce more details of our plans with our Interim Results on 20 October 2015.

I think the big rise in wages for the lowest paid (which I very much welcome incidentally) will really sort the wheat from the chaff, and may well weed out some struggling businesses. That's life I'm afraid. If you can't afford to pay your staff enough to live on, then you shouldn't be in that business. Anyway, it's an important topic for investors to consider, as it's bound to be a drag on earnings for some companies.

Somero Enterprises Inc (LON:SOM)

Share price: 140p
No. shares: 56.1m
Market cap: £78.5m

(at the time of writing, I hold a long position in this company)

Interim results to 30 Jun 2015 - this is an American company, listed on AIM since 2006, which makes laser-guided concrete screeding machines,…

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Fegger

8th Sep '15

Really interesting article on Whitbread . http://www.bbc.co.uk/news/business-33649129 Shows how they have delayered expensive management to cut out costs and how they have reduced wages for management. End or article gives exampler: he now aspires to run his own Premier Inn - being responsible for the entire hotel operation and managing around 30 staff.
And the pay he now hopes to get for that? £18,000 a year.

imranawan

Hi Paul

I agree with your comments about Somero Enterprises Inc (LON:SOM) interims issued this morning. I note that the projected EPS for 2016 is $0.21c which is essentially flat on 2015 projections. This looks light to me, given the momentum in the underlying business. I note that whilst the Middle East and Europe are small in terms of contribution they have picked up over the past 6 months. If they can penetrate China further they have the potential to grow earnings in the coming years. Essentially the business is priced cheaply on current metrics, with an overseas territory with considerable potential ie. China that if they can sell into - revs and the bottom line should grow.

Regards,
Imran.

EJL

Paul-

(SQS)-Software Quality systems just came out with their half yearly report. Do you have any thoughts?
Thanks-EJL

monzo

I sold out of Somero Enterprises Inc (LON:SOM) at around 152p a few months back after a nice return on my original investment. I bought in when it was first covered on here so thanks for bringing it to my attention. It's still very much on the watch list and management do seem to be cautiously under promising and over delivering which is reassuring and a welcome change. China does seem key to a marked re-rating upwards if they can ramp up sales.

Crusty

Amused to see Green King's comment that "Excluding the continued impact of drink-driving regulations in Scotland, LFL sales were up 1.8% in the first 18 weeks, and up 2.4% in the last ten weeks".
Seems to mean that except where sales may or may not have fallen off a cliff we're doing OK.

Would be interested in Somero, but looking for IHT relief-eligible AIM shares at this stage. Thus more interested in Hydro International reporting today which I suspect is a bit micro for you but perennially shows potential without quite getting there. Ah well, next year!
Thank you and keep up the good work.
Crusty

Paul Scott

Hi Imran,

The distorting factor with Somero Enterprises Inc (LON:SOM) is the tax credit in last year's results. So that inflated last year's results, hence making the comparison apparently tougher against this year's results. The underlying profits are up a decent amount, as I flagged in the article above.

I am hoping that the market might decide to re-rate SOM as a growth stock, which could see is suddenly rise from a PER of 10 to say 15 or more. That would be tremendous, but it may not happen of course.

Re personal tax issues of holding a US share, I have most of mine on a Spread Bet, so no tax issues there, simplifying things.

Regards, Paul.

Ramridge

EJL - Re. SQS Software Quality Systems AG (LON:SQS). I had a quick look at this stock to see if the fall of 15% is overdone and hence a trading opportunity.
The key statement is " ... anticipate our profits for the full year to be slightly below the Board's previous expectations." IMO this means around 10% below current expectation of 50 cents, i.e. around 45 cents. The price at close yesterday was 570, so 90% of 570 = 513p. SP as I write is 480p.
To me the difference is not large enough to warrant the risks of non-execution. So I decided to pass.

Thegrimester

Hi,

Does anyone else strugle to trade Somero Enterprises Inc (LON:SOM) electronically? They supposedly have a big free float but through Barclays I can only use (expensive) phone dealing. I am wondering if this is a factor holding back the share price?

garbetklb

Somero

I bought a few this morning - initially couldn't get an electronic quote (via Share Centre), but one came through about half an hour later.

I believe it is IHT compliant as an investment - and would certainly appreciate any arguments as to why it might not be.

GavSmith01

Thegrimester,

I am seeing this too with Barclays - I had read somewhere that as Somero is classed as a US stock, I'd need to fill out a W-8BEN form to trade this at all (online or not), although I haven't called them to confirm this. This may not necessarily be the policy of other brokers.

RichardK

I bought some Somero without difficulty this morning, through my Beaufort Securities on-line account. No strange form needed.
Thank you for the write up, Paul.

janebolacha

Paul, one factor to bear in mind is that McBride will have benefitted hugely from the drop in the oil price since a key ingredient in their liquid detergent, shampoo and bath foam products will be surfactants (surface active foaming products) derived from petrochemicals. I once did some work for a producer of such products and remember that they had enjoyed a boost to profits in a similar situation of falling oil prices but that they ended up being squeezed both ways, by their raw material suppliers who did not want to pass on savings and their retailer customers who naturally were pushing for lower prices from them in a highly competitive market. While McBride may well have a turnaround strategy that is coming good, it would be interesting to know the effect on the results of the factor I mentioned.

1James1n1

Paul, agree with your comments on the living wage which is something I also welcome. I watched a few of your youtube videos recently in looking at some other shares and see the last one is back in July. I found them very interesting - will you produce more episodes in the future?

Small Cap Value Report (8 Sep 2015) - SOM, CVR, PUB, CAMB, CCT, MCB

Somero Enterprises Inc (LON:SOM)

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Paul Scott

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