Stock Picks | Small Cap Value Report (Fri 12 Aug 2022) - EMR, PTD, FCRM

12th Aug '22 by Paul Scott

37 comments 5872 reads

Good morning! It's Friday, so we just have Paul here with you today. I'll leave it there for today. See the comments for an interesting discussion on Director buying.

Agenda

Paul's Section:

Empresaria (LON:EMR) - interim figures were out yesterday. It's performing OK, and the outlook comments say FY 12/2022 should be in line with market expectations, with no sign of the tough macro conditions affecting labour markets. Balance sheet looks OK too. The main attraction is a low PER of 7.0. More detail below.

Pittards (LON:PTD) [no section below] - in a ground-breaking deal, this glove maker (based in the South West of the UK, and Ethiopia) has announced it has signed a sponsorship deal with Yeovil Town Football Club. No £figures disclosed. Yes, it’s Friday, and a particularly slow news day, so I’ll do some backlog items from earlier in the week throughout the morning today.

Fulcrum Utility Services (LON:FCRM) - my first detailed look at this interesting special situation. A lot has gone wrong, mainly bad contracts, which have generated big losses, hence the collapsed share price. But the new CEO from Jan 2022 is a turnaround specialist, and it refinanced in Dec 2021 at 12p, paying off all debt, and holds a decent cash pile of c.half the current market cap. We can now buy at just 5p. Plus it also owns significant energy assets generating recurring revenues (pipelines, meters, etc). Strong asset-backing, and growth opportunities could see this return to profits possibly? Although probably not much

Paul’s Section:

Empresaria (LON:EMR) (I hold)

61.25p (up 1% yesterday)

Market cap £33m

Interim Results

Empresaria Group plc (AIM: EMR), the global specialist staffing group, is pleased to announce its unaudited interim results for the six months ended 30 June 2022.

These numbers below look OK - adj PBT is flat at £4.0m in H1.

Although note that adj dil EPS is down 10% to £3.7p. This is due to an unusual factor, namely a large increase (£0.2m to £0.6m) in profit attributable to minority shareholders (this is where EMR owns less than 100% of some subsidiaries, an unusual ownership structure). This has to be taken into account when we value EMR shares, so it’s fine if we focus on the EPS number (which factors in minority interests), not the £4.0m adj PBT (which doesn’t adjust…

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yiannos1

12th Aug '22

Scs’s bought £150,000 at £2.08.

Unbound’s board bought at 45p.

I can go forever about directors buying shares at extremely higher prices than the current ones.

This is not a rule for an investment decision.

I have not insulted anyone and I not claiming anything. I am just registering true facts for everyone one to see and make their own investment decisions.

Mikex1

I agree it looks good, but - checked the recent big Synthomer (LON:SYNT) director buys on 4th Aug and they aren't in the list. So AJ Bell data appears not totally reliable.

KevinS1

Hi Rustbucket. I can only see £5k worth for the Chariman of Appreciate (LON:APP) yesterday. Am I missing something?

Rusty2

I was going by Bells figures looks like they have the decimal place wrong £28.40 not pence, so not very reliable, need to double check all this info.
some directors buys seem be by another company that the director is associated with rather than themselves buying, as Quarto (LON:QRT)

Paul Scott

Hi Patrick L,

I think it's becoming more obvious by the day, that the Govt will have to do something very big, and bold, over household utility bills this autumn. Maybe investors/traders are factoring that into our assumptions?

Also inflation in the US is apparently peaking, that's what markets seem to think anyway, for now, but who knows? I tend to read macro commentary from John Authurs, as he really knows his stuff. Plus Andrew Neil on Twitter is very good, and various other independent commentators. It's all semi-guesswork though isn't it?!

Regards, Paul.

That's nice, thanks The skier! :-) We all have to develop coping mechanisms to deal with bear markets, so I thought it would be helpful to others if I share my ways in my podcasts. Also it's therapeutic to unburden ourselves from the heavy weight of negative emotions, and draw out some positives! It's only a matter of time before our portfolios are rebuilt, and some good progress has been made in the last few weeks, it's only a start, but it feels like the bad news may be in small cap prices by now. Apart from all the profit warnings that are coming down the pipeline of course! ;-)

Best wishes, Paul.

It's a perfectly valid point to make, that Director buying can sometimes be a good indicator, and sometimes not. They buy for all sorts of reasons, including (off the top of my head) -

Genuinely thinking the shares are undervalued & excited by the prospects (good)

Pressured by shareholders to show support for the share price by making a purchase (bad)

Deluded, ignorant, or in denial about the true state of play & prospects for the company (very bad)

Token, orchestrated buys by several Directors at the same time, probably put up to it by the PR adviser! (bad)

The other thing to take into account, is the personal wealth of Directors. Some are loaded, especially if they cashed out multiple millions in the past, so putting a bit back in doesn't really mean a lot. With small caps especially, many Directors have families & not a lot of assets, and putting all their eggs in one basket by buying lots of shares in their employer is something that financial advisers might warn them not to do, possibly? Many Directors are not entrepreneurs, they're hired hands.

Putting all that lot together, and trying to work out what type of Director purchase it is, can be difficult!

My view is that >£100k Director buy is not messing about, and that very often is a good signal that something good might be happening under the surface, in my experience.

I would treat this as a possible bull signal, but only if it coincides with other positive factors.

Happy to have a discussion on this, you don't have to get defensive about putting forward an alternative view, it's interesting! :-)

P.S. Another interesting thing, is to look at previous significant sized Director buys/sells, and plot them on the share price chart. This reveals on an individual company level whether the Director is a shrewd judge of the share price, or not!

I remember looking at Matthew Peacock's companies in the past, and whenever he sold a big chunk of shares, you could almost guarantee that the share price would collapse about 6 months later! OK that's exaggerating, but a big sell from him was time to run for the hills. Same thing happened at Staffline with the former CEO. Banked £10m, then all the problems began to emerge. Hence I think big Director sells are a much stronger signal.

I think you have covered everything here perfectly.

I was just trying to explain that there are cases that prices went up as well as down , after directors buying. For me directors buying should not be treated as an investment decision and the only think that interests me is the financial accounts of the plc.

For example, the other day you have mentioned something about Purplebricks and directors buying. This company is burning about £150,000 on a daily basis and by the end of next year they will need a fundraise ( if they find investors of course ) , unless they increase drastically their market share ( no way ).

Thanks and have a nice weekend.

Dennis Ayling

Useful list, thanks. £1m sell of Investec by Fani Titi - is that for real ?

DWit199

...but only if it coincides with other positive factors.

I think this is the key message which Stockopedia highlighted in the Smart Money Playbook
This is why my own list is limited to companies that are of interest for other reasons, the director deals potentially representing the icing on the cake.

Unfortunately, the Smart Money module was never released by Stockopedia as it would have been good to get some reliable data to analyse.

TheFloatingInvestor

Hi Dennis

Yes that information is correct, I saw the RNS a couple of days ago.

Roger Baron

I can see Directors' buys here Rustbucket - or do you mean that it has stopped being updated for a couple of months?

Paul I think you are right here.

Its an additional tailwind (or headwind) along with many others.

Taken in isolation would be foolish, but an important part of research and building an investing case.

Decent sized Buys or Sells, and active shorting positions are all worth a look IMO.

Boon

YouInvest have a good page with a full list of director trades.

One could set up a spreadsheet to ingest, or manually copy+paste every week, and do a pivot?

On Fulcrum Utility Services (LON:FCRM) I am a suffering shareholder, having bought in around the 15p mark. Apart from the utility assets, what intrigued me was that back in 2020, Harwood Capital (Mills) and another party (Bayford) made a joint bid for the company. This was right after COVID, so they were being opportunistic in their bid. I think it was in the 25p-30p share price region.

Since then, they've managed to change management and board. Now presumably, doing their bidding.

I am invested because I still believe the end game is that there will be a bid, and since they own 50% collectively, likely to go through. But I am now wondering if there is a delisting risk - they only need to have the third largest shareholder, James & Co, to agree to it, and reach 65% of the voting shares.

In any case, this is the smallest position in my portfolio, as I knew it was a risky punt from the start, so I'm not losing sleep over my >60% loss so far.

I look forward to their next update, because my view is that they've managed to secure more work and have a nicely increasing revenue HYoHY, and the beginnings of a management turnaround story should be present. But lets see.

(I hold in the Boon Fund)

that's the same as Bell's which does not seem very reliable.

No recent ones, not since around mid June. I spoke to Ed about it.

Otemple1

There was a key motion from Samsung which went in Nano's favour on Wednesday night. Now that is out the way, not long to wait for the trial or a settlement. Broker note suggested just USA could be £200-£250m settlement and multiples if found to be wilful. Global settlement would be huge.

If they lose case it will fall quite a way from here but core business is gaining traction so not worthless. Multiple x upside Vs 50-75% downside makes it an interesting punt given every judgement has gone in their favour this far

£Nano mrk cap c.£140m. I have a small position

Cleeve

I think director selling is a real indicator of issues brewing. Accept the odd divorce etc but it’s rare for me to find cluster director selling and share price increasing - #BOTB was one I ignored to my cost

13th Aug '22

Generally I agree but does always work, I recall Cerillion (LON:CER) quite a bit of director selling around 255p, I sold out, shares went up to 900p in the next few months.

Small Cap Value Report (Fri 12 Aug 2022) - EMR, PTD, FCRM

Agenda

Paul’s Section:

Empresaria (LON:EMR) (I hold)

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Paul Scott

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