Small Cap Value Report (Fri 18 Mar 2022) - TED, ECEL, PMP, EMR

18th Mar '22 by Paul Scott

33 comments 7247 reads

Good morning, it's Paul & Jack here with Friday's SCVR.

Agenda -

Paul's Section:

Ted Baker (LON:TED) - possible takeover bid is announced by a USA-based private equity firm, Sycamore Partners. I suspect it might need a generous premium to persuade the 4 large shareholders to agree to any bid.

Portmeirion (LON:PMP) - 2021 results were out yesterday, and look very good - a decent turnaround is underway, with profits almost back up to pre-pandemic levels. Not the most exciting share, but it looks good value if 2022 forecasts are achieved. Key point is energy costs are hedged. I like it.

Empresaria (LON:EMR) - (I hold) - I review 2021 results, which look good in terms of profit, but not so good in cash generation or balance sheet strength. Overall, it looks OK, but I can't get excited about it.

Jack's section:

Eurocell (LON:ECEL) - Continuing positive trading momentum. It’s perhaps not a premium multiple kind of company, but Eurocell is taking market share and investing for further growth, plus the valuation is currently quite undemanding, so it’s a more attractive investment proposition now than it was even a few months ago.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Paul’s Section:

Ted Baker (LON:TED)

99p (up 9% y’day) - market cap £182m

Response to press speculation

Important to note that this 07:00 announcement has been issued by Sycamore Prtns…

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MiserableJacktPotato

18th Mar '22

One side effect of inflation…

My employer gave me a 5% pay rise recently. I saw virtually none of it as it tipped me past the point where I get my tax free pay clawed back and I end up on a 60% marginal rate of tax. First world problem I admit, worse problems to have, but I suspect the middle classes are going to be stung really hard in the next couple of years as any attempt to maintain their standard of living just gets eaten by HMRC..

TamzinPiworld

Litigation Capital Management (LON:LIT) H1 results presentation by CEO & CFO from earlier this week, with an extensive Q&A. Senior management now all based in London. They experienced considerable disruption with CV19 across their regions but the first two months of the year have started strongly with 89 applications v 196 for the last 6 months. Have completed US$200m first close of the second fund, with a targeted close of US$300 expected to completed in H2. Total invested capital A£31.5m. The 10.5 year performance gives a cumulative ROIC 162% (which includes lost cases) and IRR 79%. Video & podcast.

Eagle Eye Solutions (LON:EYE) interim results presentation to analysts by CEO & CFO from earlier this week. Revenue +40% with growth across all major geographical regions, and breaking into a maiden profit. They enter H2 in a strong position, as shown by the considerable increase in ARR. Q3 trading in line with expectations, and the new business pipeline continues to grow at record levels. Video & podcast.

Some other results webinars coming up, register for any of them here:

Pebble (LON:PEBB) Full Year 2021 results: Thursday 24th March, 1pm

Personal Group (LON:PGH) Full Year 2021 results: Friday 1st April, 12 noon

Property Franchise (LON:TPFG) Full Year 2021 results: Wednesday 6th April, 12.30pm

Tracsis (LON:TRCS) Interim results: Friday 8th April, 1pm

And, the Stockopedi/PIWORLD StockSlam: Wednesday 6th April, 6pm. Where private investors 'slam' their best stock idea in 3 minutes, followed by Q&A. We still have a couple of places left if you'd like to pitch your favourite stock. This may be your last chance since we'll be taking a break with these StockSlam events after this one. To take part contact me here. Or, register to attend live, here.

Watchdog

If you put the amount that is taxed at 60% into a personal pension I think I'm right in saying that you ought to be able to claim back the 60% tax paid from HMRC.

Revs8

Fabulous post from Bill Blain today. Meaning of life stuff. His market mantra is worth taking note of. Here is one excerpt:

Trade what the market believes. Invest on what you know.

https://morningporridge.com/bl...

Oh, ok, thanks :) I'll bump up my pension payments, but it remains elusive as disposable income until I am 55.

Zipmanpeter

Re Portmeirion (LON:PMP) - several good community posts on them when results came out yesterday. I was generally positive on their results (I hold) but two things to call out in respect of Paul's note above on dividends

1. Somewhat sneaky change in divi policy from x2 to x3 cover for medium term (ie less payout). Actually, it has been spoken of and I am happy for them to keep the cash in the business to grow it but they should have been more upfront.

2. The 13p divi is for 2021 and is likely to be paid out in only 2 months (end May in previous years) so in next 14 months we can expect 13.3 +18.8 = 32.1p or about 4.4% on a 'yearly basis. Not bad and definitely with room to grow.

I also wondered on the energy hedging through 2024 statement - they extended (reducing volatility and risk) but were not clear what price they hedged at compared to previous deals. I can fix my energy now but not at such a good price as 6 months ago!

Nevertheless, I think there are a lot of other pieces pointing in the right direction on both sales and margins.

NeilS

£EMP Paul said: It’s only a small, low conviction position in my portfolio, and I’m not minded to buy any more, nor to sell. So overall, I don’t have a strong opinion either way, but it’s cheap enough, so am happy to continue holding a small position. Note how resilient EMR has been in the recent small caps carnage sell-off.

I’m in a similar situation to you Paul, however I’m feeling quite a lot more positive after watching the IMC yesterday.
Rhona Driggs has really got a grip of this business and has transformed it from a rag bag of individual unconnected silos to a bit more of an international network where the operating companies are helping each other.
There’s a new management team leading and Rhona comes across as an intelligent fanatic with the medium term ambition of nearly quadrupling profits.
I also like that their offshore division is providing recruitment services to other staffing companies (so they are also selling shovels to the broader industry).

Mark B

however it, by default, gets you into thinking like a long term investor and not a trader. At least it does for me.

Paul Scott

Thanks neils,

I haven't watched the IMC recording for Empresaria (LON:EMR) (I hold) yet, so will make sure I do so.

The trouble is, I nearly always feel more positive about companies after watching these webinars!!!

Regards, Paul.

MrContrarian

I'm on holiday.

Harry Hindsight

Eurocell (LON:ECEL) - have been looking for a 'window' of opportunity.

KevinS1

I think you can still only claim back the 40% (20% on tax return & 20% from pension provider). Just watch out for the LTA if you are pumping in that much & have a fair way until retirement - this penal tax charge is hitting tens-of-thousands of people who it was never designed to hit.

As you say....first world problem.

BnB

Empresaria (LON:EMR) - a bit more of an international network where the operating companies are helping each other.

Sorry. You’re drinking the Kool-aid, as our American cousins would put it. Recruitment is a deeply siloed operation where dispersed profit centres can be of negligible benefit to each other. Sure they can pass leads across but anything meaty, they’ll keep to themselves. And who needs client leads today? It’s candidates that are scarce!

Empresaria (LON:EMR) - you’re correct, Paul, the share price has held up well. A perfect opportunity to switch out into much higher quality Sthree (LON:STEM) which has sold off to offer you a similar valuation - for superior market position and execution and with a quicker pay-off when the market understands this quarter has maintained the recent strong momentum.

My guess is that SThree’s significant European exposure is the reason for the pullback in the SP. I could be wrong but my expectation is that any drop in hiring intentions only puts IT staffing in a more Goldilocks scenario where jobseekers and hirers are more evenly matched.

Well that is a glib remark, whatever kool aid is? They won’t meet their ambition of quadrupling profits if they don’t increase their customer base will they? Of course they need client and candidate leads!

Management mentioned several examples of their operations working together so your comment about negligible benefit is untrue -maybe they were as surprised as you ;)

dulciemo

Oh well, have a great time, but haste ye back!

What is it about the more than a decade of virtually unimproved turnover and profit that makes you think that the figures will suddenly quadruple? Empresaria (LON:EMR) is little more than a highly cyclical conglomeration of haphazard acquisitions. Their acquisition strategy carries a lot of the blame as the deals they offer to entrepreneurs are so risible that only desperate sellers with weak businesses will entertain the terms. This does not make for a strong group!

I expect the shares will be good until the next downturn so I wish you well. But Sthree (LON:STEM), and to a lesser extent Robert Walters (LON:RWA), are cheap for a misapprehension, Empresaria (LON:EMR) for a reason.

Boon

20th Mar '22

Quiz (LON:QUIZ) I am worried about. As a small clothing retailer, it lacks the clout of much larger retailers to negotiate less increases in the clothes it buys and the shipping and logistics. Bigger is better when it comes to rising input prices due to bargaining power. Unless one believes that Quiz has a USP in sourcing and logistics.

Hi BnB,

I followed up on your ideas, which look interesting. We like Sthree (LON:STEM) and Robert Walters (LON:RWA) here at the SCVR (which means both Jack & I can see merit in them, from a value/GARP perspective).

STEM & RWA look great right now, and I think the PERs of about 11, for decent quality groups, look really attractive.

BUT, don't dismiss EMR quite so quickly. Which of these three is most likely to double earnings? Probably not the larger ones.

I know you're a sector expert, but I think you should listen to the IMC webinar from EMR last week. EMR is doing really well by joining up the USA healthcare & its Asian business, which has supplied the staff, which has been lucrative.

As a sector expert, I bet you won't listen to the webinar, because you think you already know best! (been there, done that!!!) ;-)

22nd Mar '22

Challenge duly accepted here.

Small Cap Value Report (Fri 18 Mar 2022) - TED, ECEL, PMP, EMR

Paul’s Section:

Ted Baker (LON:TED)

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Paul Scott

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