Small Cap Value Report (Fri 19 Oct 2018) - REC, SFE, PDG, SSON

Friday, Oct 19 2018 by

Good morning! 

There's a lot of Brexit-related news at the moment but it's unlikely to help us find the next great small-cap opportunity, so I'm going to pretend it's not happening.

Today we have:

Record (LON:REC)

  • Share price: 31p (-12%)
  • No. of shares: 199 million
  • Market cap: £62 million

Second Quarter Trading Update

(Please note that I currently hold REC shares.)

Not a great update from Record.

This is a specialist fund manager providing currency services. I own shares in it because of my positive impression of management (conservative and well-aligned), excellent cash generation characteristics, and my belief, at the time I invested at least, that it served an important financial niche.

Unfortunately, it hasn't achieved much in terms of growth in the last few years - but then, this has been reflected in the valuation.

Its share price has also been a victim of the recent general market correction, and then when you add in the effect of today's trading update, it's dropping deeper into what I hope will eventually prove to be "cheap" territory.

When it comes to valuation, we should bear in mind that the company had equity (as or March 2018) of £26.5 million, almost entirely tangible and liquid, including cash and money market instruments worth £22.5 million.

The Stocko valuation chart shows what I'm talking about: forecast dividend yield of 7% and EV/EBITDA ratio of 6.4x (prior to today's sell-off, so it's cheaper now).


Today's update is not too encouraging, sadly. Assets under Management Equivalent (AUME) are up by 1.1% when expressed in GBP, but this was driven by market movements, not by client inflows. There was a small client outflow during the period.

Additionally, 7 clients (out of 66) are leaving, taking $2.5 billion of AUME with them (out of $61.8 billion). They use the Passive Hedging product, which is the cheapest one, so the total loss in terms of fees will probably not be huge. But it's hardly good news.

Fees - "Fee rates for most products were broadly unchanged". Again, this doesn't sound great. The…

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

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Record plc (Record) is a United Kingdom-based company, which is engaged in the provision of currency management services. The Company's suite of products is divided in two categories: Currency Hedging and Currency for Return products. It also offers solutions to individual client requirements. Its Currency Hedging mandates are primarily risk reducing in nature. Its suite of Hedging products includes Passive Hedging and Dynamic Hedging. Its Currency for Return mandates are return seeking in nature. The range includes five Currency for Return strategies being Active Forward Rate Bias (FRB), FRB Index, Emerging Market, Momentum and Value, and these strategies can be offered in either a segregated or pooled fund structure. The Company's clients are institutions, including pension funds, charities, foundations, endowments, and family offices, as well as other fund managers and corporate clients. It operates in the United Kingdom, North America and Continental Europe, including Switzerland. more »

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Pendragon PLC is an automotive online retailer. The Company's principal market activities are the retailing of used and new vehicles and the service and repair of vehicles (aftersales). Its segments are Stratstone, which consists of its vehicles, truck and commercial vans brand, including the sale of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities; Evans Halshaw, which consists of its volume brand, including the sale of new and used motor vehicles and commercial vans; US Motor Group, which consists of its retail operations in California in the United States, including the sale of new and used motor cars; Pinewood, which consists of its activities as a dealer management systems provider; Leasing, which consists of its contract hire and leasing activities; Quickco, which consists of its wholesale parts distribution businesses, and Central, which represents its head office function and includes all central activities. more »

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Safestyle UK plc is a United Kingdom-based company engaged in the sale, manufacture and installation of replacement un-plasticized poly vinyl chloride (PVCu) windows and doors for the United Kingdom homeowner market. The Company's segment includes the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors. The Company has over 30 sales branches and approximately 10 distribution depots located throughout the United Kingdom. Its product range includes EcoDiamond WINDOWS, EcoDiamond UPVC DOORS, EcoDiamond BI-FOLD DOORS, EcoDiamond REPLACEMENT CONSERVATORIES, GuardDoor, Pavilion and Inspire. It has manufactured over 279,000 frames and carried out approximately 60,000 installations. The Company's subsidiaries include Style Group Holdings Limited, Style Group Limited and HPAS Limited. more »

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  Is LON:REC fundamentally strong or weak? Find out More »

21 Comment on this Article show/hide all

MrContrarian 19th Oct '18 1 of 21

My morning smallcap tweet: Yet another CYAN shareholder shakedown.

Cyanconnode Holdings (LON:CYAN), PCI- PAL (LON:PCIP), Webis Holding (LON:WEB), Akers Biosciences Inc (LON:AKR), Futura Medical (LON:FUM)

CyanConnode (CYAN) Yet another big discount placing. £5.1m for instos, £0.5m for hoipolloi. 18% disc at 10p, 99.8% below 2005's IPO.
PCI-PAL (PCIP) wins five-year contract from new Canadian client, worth an initial CAD$280k.
Webis Holdings (WEB) blow as a commercial dispute with US syndicate forces end of service. Guides reduction in gross margin for FY19 $0.8m.
Akers Biosciences (AKR) another skittle falls as interim Non-Executive Chairman scarpers.
Futura Medical (FUM) raised £5.6m via PrimaryBid at 27.5% discount. Open offer at 7p.

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About Graham Neary

Graham Neary

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, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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