Small Cap Value Report (Fri 12 Jan 2018) - SOM, XPP, PEG, QTX, LGT, IPX

Friday, Jan 12 2018 by
73

Good morning!

Plenty of interesting little updates today.

I shall work through this list:

There have also been requests for me to cover some of the asset management companies which had trading updates this week. Duly noted!

Regards,

Graham



Somero Enterprises Inc (LON:SOM)

  • Share price: 370p (+8%)
  • No. of shares: 56 million
  • Market cap: £208 million

Trading Update

This is a US-based provider of concrete "screeding" machines - they allow for new concrete floors to be made perfectly flat.

We've covered this stock plenty of times here before. It's one of the few quality overseas stocks on AIM!

Today's update let us know that the company continues to perform well, and was ahead of expectations in H2.

As a result of the strong H2 performance, the Board now expects 2017 revenues will be slightly ahead of market expectations of $84.7m, EBITDA will be comfortably ahead of market expectations of $26.0m driven by the volume increase and effective operating cost management, while net cash at 31 December 2017 is expected to be not less than $18.5m, well ahead of market expectations of $16.5m.

It's helpful that the market expectations are given, so we don't have to guess what they are!

Most of the new revenue comes from geographic expansion, rather than from new products.

The company has many excellent characteristics, not the least of which is the apparent lack of competition in manufacturing these niche products.

The only criticism I've seen fit to make is that it hasn't made new product development a slightly bigger priority. It typically spends 2% of sales on product development, and introduces at least one new product per year. Could it be a little bit more ambitious than this, perhaps? Only $1 million of 2017's revenue growth has come from new products.

One of the benefits of being careful with its development spending is that the cash pile keeps growing. And the company has been quite generous in paying out surplus cash to shareholders in the past. However, it sounds like…

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Disclaimer:  

All my own views. I am not regulated by the FSA. No advice.

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Somero Enterprises, Inc. is a manufacturer of laser-guided equipment. The Company's equipment automates the process of spreading and leveling volumes of concrete for commercial flooring and other horizontal surfaces, such as paved parking lots in North America. The Company's products include S-22E, S-15R, S-15M, STS-11M, S-840, S-485, CopperHead XD 3.0, Mini Screed C, PowerRake 3.0, 3-D Profiler and SiteShape. Its Somero Floor Levelness System monitors Laser Screed performance, operator performance and reports alert percentages of issues. The Somero SiteShape System allows for grade shaping automatically using users' motor grader, dozer or other grading machine. The Somero 3-D Profiler System allows automatic paving of contoured sites using a Somero Laser Screed equipment. The CopperHead XD machine encounters applications, such as chaired rebar, low slump and poor subgrades. The Somero eXtreme Platform (SXP) allows users use their Laser Screed equipment. more »

LSE Price
355p
Change
-1.4%
Mkt Cap (£m)
202.5
P/E (fwd)
13.4
Yield (fwd)
2.4

XP Power Limited is a United Kingdom-based developer and manufacturer of critical power control components for the electronics industry. The Company provides power solutions, including alternating current (AC)-direct current (DC) power supplies and DC-DC converters. The Company's segment include Europe, North America and Asia geographical. It designs-in power control solutions into the end products of blue chip original equipment manufacturers, with a focus on the industrial, healthcare and technology sectors. Its product categories include high efficiency/convection-cooled, chassis mount/open frame, configurable, external, encapsulated and printed circuit board (PCB) mount, DIN rail, baseplate-cooled, through hole mount, surface mount, light-emitting diode (LED) drivers and distributed power/hotswap. more »

LSE Price
3660p
Change
 
Mkt Cap (£m)
704
P/E (fwd)
24.2
Yield (fwd)
2.2

Petards Group plc (Petards) supplies advanced security and surveillance systems. The Company operates in the development, supply and maintenance of technologies used in advanced security, surveillance and ruggedized electronic applications segment. It offers software driven on-board digital video and sensor systems for fitment to new build or retrofitted to existing rolling stock, and its applications include driver only operation, condition monitoring, saloon car closed circuit television (CCTV), drivers view cameras and automatic passenger counting systems. It offers electronic defensive countermeasure systems for fitment to rotary and fixed wing aircraft, threat simulation systems and mobile radios predominantly for the United Kingdom Ministry of Defense. It offers mobile speed enforcement and automatic number plate recognition (ANPR) systems to law enforcement agencies, and is sold under the Provida brand. It serves markets, including transport, defense and emergency services. more »

LSE Price
20.1p
Change
-0.5%
Mkt Cap (£m)
11.3
P/E (fwd)
9.8
Yield (fwd)
n/a



  Is Somero Enterprises Inc fundamentally strong or weak? Find out More »


40 Comments on this Article show/hide all

Paul Scott Fri 8:08am 1 of 40
13

Positive update from Somero Enterprises Inc (LON:SOM) today (disclosure: I have a long position)- a very nice, niche business, which makes the laser-guided machines used to lay perfectly flat concrete floors (very important for warehouses). Being based in USA, it should hopefully benefit from tax reductions.

Paul.

EDIT: I've just seen a broker note, upgrading 2017 EPS forecast by 7.7% to 29.5c, and 2018 by 7.0% to 36.8c. That translates into 21.8p and 27.2p, giving a 2017 PER (based on share price now of 360p) of 16.5 times, and a 2018 PER of 13.2.

Conclusion - it still looks cheap, based on 2018 forecasts. Also note that it has a strong balance sheet, and reports net cash today of $18.5m. Positive outlook comments too. Very nice.


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Damian Cannon Fri 8:14am 2 of 40
6

XP Power (LON:XPP): Strong trading update to end the year with momentum forecast to continue in 2018. Recent acquisition of Comdel appears to be performing well. Ability to generate cash should see net debt of £10.1m wiped out pretty quickly.

Blog: Ambling Randomly
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leoleo73 Fri 8:18am 3 of 40
7

Graham,

After you have covered today's news I wondered if you could look at Impax Asset Management (LON:IPX) again after the AUM update earlier this week and a large share price move.

My contribution is to have collated the last few years AUM reports into a spreadsheet with some details of the performance of their funds / strategies: https://docs.google.com/spreadsheets/d/1CE_VOXpMXunhnX0aDqeDFeTJY022X7HjUjWljZifxeY/edit#gid=0

To save time I only included “Listed Equity Funds” as they (currently) make up 94% of AUM.

The figures from 2013 are estimates as they did not do quarterly reporting back then. Also they closed a fund that year making the figures a bit messy. But from 2014 they are pretty clean.

On the right I have included performance and AUM figures from Impax’s website / factsheets. The colour coding compares to their cited benchmarks - red is poor relative performance, orange is about in line, green is good. Some of the funds are very small but I am assuming that performance of a fund is representative all the AUM they have in that strategy.

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MrContrarian Fri 8:23am 4 of 40
15

My morning smallcap tweet:

Petards (LON:PEG), Quartix Holdings (LON:QTX), Telit Communications (LON:TCM), Lighthouse (LON:LGT), Somero Enterprises Inc (LON:SOM), £7DIG

Petards Group (PEG) FY tading. Exp rev £15.6m. Pretax above market expectations due to exceptional items but pretax from trading operations will be lower than exp. due to delays in programmes to develop additional software functionality for eyeTrain. Confident.
Quartix Holdings (QTX) Guides FY revenue slightly ahead of market expectations with profit moderately ahead. Plans a special div.
Telit Communications (TCM) Italian tax authorities have submitted appeals to the Italian Supreme Court to overturn VAT rulings. We should know in around 4 years.
Lighthouse Group (LGT) guides revenue, EBITDA and pretax ahead of market expectations.
Somero Enterprises (SOM) FY trading. Guides rev slightly ahead of market expectations of $84.7m, EBITDA comfortably ahead of market expectations of $26.0m, net cash not less than $18.5m, well ahead of market expectations of $16.5m.
7Digital Group (7DIG) wins new contracts with MediaMarktSaturn (MMS), Europe's biggest electronics and entertainment retailer, and 8tracks, a popular digital music service based in the US. MMS contract includes a significant setup fee for work done in 2017 and ongoing monthly recurring revenues.

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wildshot Fri 8:34am 5 of 40
3

In light of comments above I'm interested in views on the trading statements of Somero Enterprises Inc (LON:SOM) XP Power (LON:XPP) and Quartix Holdings (LON:QTX). I hold all 3 and they are saying ahead of expectations results. Happy Friday.

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dewigo Fri 8:53am 6 of 40
3

Paul last commented on PETARDS in Dec 2016. I'm researching so would welcome comments.

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vik2001 Fri 8:54am 7 of 40
1

lovely update from Somero Enterprises Inc (LON:SOM) i further added to my holding. love to hear your views Graham.

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gsbmba99 Fri 9:34am 8 of 40
1

Liontrust Asset Management (LON:LIO) and Premier Asset Management (LON:PAM) had trading updates earlier in the week, if time available.

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vik2001 Fri 10:05am 9 of 40

Lighthouse (LON:LGT) also be good to cover. it has been rising steadily over the past year & results today were ahead of expectations.

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abtan Fri 10:35am 10 of 40
5

Re XP Power (LON:XPP)

The update this morning seemed quite upbeat, however, when I compare Q vs Q figures over the last 2 years I'm slightly disappointed.

Given the recent acquisition of Comdel (Sept 2017) I was expecting revenue to grow by at least £4m excluding core XPP organic growth / changes in FX rates over the last 3 months. 

Instead revenues seemed to have dropped.

Did anyone else come to the same conclusion? Or am I missing something?

5a588eb9106c9XPP.JPG



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oaktree Fri 11:36am 11 of 40

Would appreciate a comment on Petards.

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Graham N Fri 12:53pm 12 of 40

In reply to Damian Cannon, post #2

Hi Damian, agree with you re: £XPP's small net debt. Thanks for the input!

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Graham N Fri 12:54pm 13 of 40
1

In reply to dewigo, post #6

Hi dewigo. re: Petards (LON:PEG). I've had a look. I can see why you'd want to research it at these levels. Cheers.

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iwright7 Fri 1:15pm 14 of 40
1

Graham, One small point is that XP Power (LON:XPP) says it is, in line with the Board's expectations, which may or not be the same as market expectations.  Neither does it spell out profitability, but it has Earnings Surprised in the recent past so we might be in for another?    Ian

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Brian Hamilton Fri 2:05pm 15 of 40
4

Somero has everything you would want in a share: profitable, cash rich, patented products, very limited competition, international growth prospects and decent dividend policy. If you only want to buy into two shares for potential growth, I suggest Somero and Tristel.

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sptmjdr Fri 2:09pm 16 of 40
1

B&M European Value Retail SA (LON:BME) please!

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fwyburd Fri 2:13pm 17 of 40

Re Boohoo.Com (LON:BOO)
There's just been an RNS stating a change of holding by Jalal Kamani which suggests he just acquired 5.98% of the company. Is this a mistake by the Nomad, as some are suggesting, and if it is, is such a mistake negligent?
(I bought more on the back of this RNS)

Francis

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extrader Fri 2:24pm 18 of 40
1

Hi fwyburd,

It looks as though Alliance News has cocked up : Jalal previously held 6.66%, he's now dropped to 5.98%.

An unfortunate misreading, if that's what it is - in the current febrile atmosphere surrounding retail in general and BOO in particular.

ATB

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jonesj Fri 2:37pm 19 of 40
12

Hi fwyburd,

Well the wording of these forms states "Resulting situation on the date on which threshold was crossed or reached". A threshold may be crossed in both directions (ie adding or reducing a holding).
Even the tick box is for Acquisition or Disposal, so could be either.

I've long considered the wording on these director dealings to be unclear and is therefore highly unsatisfactory. Am I missing something ?

The form should ideally show the previous holding, the trade & the holding after the trade.

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fwyburd Fri 3:38pm 20 of 40
3

In reply to jonesj, post #19

I rang the broker Zeus today. They said they did not have to notify the previous level of holding. This is because that holding had never been declared before as it existed before the listing.  

So not clear but I live and learn albeit at some cost! I need to do better research...
Caveat emptor.
cheers
Francis

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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