Small Cap Value Report (Fri 27 May 2022) - LSL, BLV, PMI

27th May '22 by Paul Scott

67 comments 7413 reads

Good morning! Friday's SCVR is being prepared for you today by Paul. All done, have a lovely weekend!

Agenda - very little news today, so I'll look at LSL, then do a ~~few~~ backlog items, so you'll still get a full report by (1) 3pm. As it's so quiet, I suggested Jack takes a well-earned day off from SCVR duties!

LSL Property Services (LON:LSL) - this reads like a slight profit warning, with potential for another one, reading between the lines. Scrutinising current market forecasts, I think they're too high, and need to come down by perhaps 30%? That takes the valuation on a PER basis from cheap, to not so cheap. Net cash has increased a lot. Overall, I'd want a bombed out valuation to attract me to buy an estate agent in current macro conditions. So it's not for me.

Belvoir (LON:BLV) - today's report is turning into an estate agency special! An in line update from this lettings-focused, acquisitive business, with an excellent track record. Thumbs up from me, again.

Premier Miton (LON:PMI) - sorry this took me so long, but I've had a good rummage through interim results from this fund management group. Good results in H1, but clouds on the horizon for H2, as AuM fall, due to maket volatility & redemptions. Excellent divi yield may not be fully sustainable at this level. Key risks are top staff leaving, but they get most of the spoils already. Overall, I think it looks good, with a nice yield, and potential upside on the share price once markets settle.

Chancellor's package of energy measures

Rishi Sunak sounds uncannily similar to Tony Blair doesn't he?! I had to double-check that it wasn't Blair giving the speech in Parliament yesterday lunchtime. Not just because they soundalike, but also because the policies of big state intervention are also alike. A windfall tax on oil & gas companies' excess profits is set to raise £5bn p.a., and doesn't seem to be a one-off, although Sunak says it will have a sunset clause. It's linked to increased investment allowances, which seems a neat idea. I'm not keen on retrospective taxes, but we're in a tight corner.

It would be interesting to know how other countries are dealing with high energy costs. Sunak's proposal to link electricity prices to the cost of production,…

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Paul Scott

27th May '22

Hi IanMac,

Sorry I'm fading fast now, and haven't got round to looking at De La Rue (LON:DLAR) (I hold) yet. Leave it with me, will try to revisit at some point.

Apologies, Paul.

IanMac

Thanks a lot Paul! No hurry of course; I'd appreciate your views whenever works for you.

Hi jimbob2

I used to cover Caffyns (LON:CFYN) years ago, but seem to recall there's something weird about the ownership structure. I can't see anything odd on the major shareholders page here.

Was it 2 classes of shares possibly, with the family having control through A & B shares? Just from memory. Can anyone else here remember?

The divis at CFYN look small too. Tiny market cap, so low liquidity. Pension deficit. big discount to NTAV, so could be a treasure trove of hidden property value. Are Directors plundering the company? Doesn't look like it - top 3 Directors (2 are Caffyns!) paid a total of £591k in 2021 - looks OK.

Thanks, Paul.

No politics here please girls!!! ;-) It's Friday afternoon, sunny, and I want to relax.

If anyone can spare anything for the genuinely starving in Zimbabwe, then please consider ZANE too, and thanks to the many supporters we already have for ZANE here. Attention has obviously been more on Ukraine, and Yemen, and many other crisis hit areas, so Zimbabwe can tend to slip off the radar, as it's just an ongoing humanitarian catastrophe.

I try not to go on about it too often, because I know everyone has their own favourite good causes, and in my experience most investors are very generous with charitable donations, often quietly & without fanfare, so I'm definitely not preaching here.

We're worried about inflation in the UK at 9%, but in Zimbabwe it reduced from 800%+ at the peak, to under 100%. It's now on the march again, up to 131% -

https://www.bnnbloomberg.ca/zi...

I remember discussing the latest new currency (called bonds) in 2019, with various people I met from all backgrounds in Zimbabwe. It had been introduced at parity with the dollar, so 1:1. Experts told me that this was a fresh start, and they had stopped money-printing. Foolishly, I believed it!

The ordinary locals all told me they didn't trust the new bonds, and were trying to get rid of them as soon as possible by, e.g. having home improvements done, if they still had any savings left, or buying physical assets. The rate had already dropped to between 4-5 to the dollar when I was there, shortly after issue.

The rate is now 400 to the US dollar, on the black market. The Govt tries to peg at lower exchange rates, to no avail.

This is now, I think, at least the 4th time the currency has collapsed due to hyper-inflation, in about 40 years since independence. It's just so unbelievably sad, that serious economic mismanagement can do this much damage - it's totally destroyed a beautiful, and previously prosperous country, populated by calm & peaceful people with a lovely culture, who are now forced into petty crime and begging, in many cases, plus of course vital external help from family & friends overseas.

Best wishes, Paul.

sharw

re: Caffyns (LON:CFYN)

Good memory Paul - a complex share structure with 3 sets of prefs coming above the ordinaries for payout and one of them having voting rights (2m votes cf 2.88m ord. votes)

planetx

What a really strange thing to say, how bizarre to think that a “poor person”would be any less able to look our economy and make strategic decisions.

Wealth (especially inherited wealth” does not give intelligence or ability .

I am pretty sure there have been some incredible economists that were poor.

“Surely it would be pretty pointless asking or expecting ' one of the poorest people in the country' to help the poor ?”

Lord Gnome

Well I certainly don’t feel like donating my £700 anywhere. Thanks to Sunak I now have a five figure hole in my portfolio value after his very ill-judged windfall tax. Angry? I’m Mr Furious.

Reacher

Impax Asset Management (LON:IPX) is another alternative and focuses on sustainable and responsible investing. What I like about IPX is the growth in AUM has come from cash flows. Quarterly net cash flows have been positive since 30/9/2016 where it has grown AUM from £2.8bn to £38.0bn at 31/3/2022.

Admittedly Q/E 31/3/22 was heavily impacted by market performance where AUM decline by market was -9%.

IPX offers a decent dividend yield. FY22 dividend is forecast (per Stocko) as 26.9p and EPS of 42.6p which provides 1.6x coverage.

The majority of their client base is institutional investors which have a "stickier" relationship and lasts longer than retail clients.

I also think it could be snapped up by a larger asset manager based on its area of speciality. I don't believe there are any "star" investment managers within the team. The 2021 Annual Report highlights the importance of a collaborate approach.

BnB

Without the levers of European dependence on oil and gas, Putin would not have invaded Ukraine. Nor would the US have invaded Iraq if it weren’t for the world’s dependence on Arabian oil. Anyone investing in oil and gas today is profiteering from the war and complicit in the climate crisis.

The sooner we are leaving the filthy stuff in the ground the better for world peace and the better for the planet.

jamesalastair

That was pretty needless.

Db47

yes seems crazy the financial help isn't means tested, annoyed me a little seeing Sunak saying he didn't want to exclude anyone - whereas he didn't mind excluding many from Covid support.

Boon

I really do think Saga (LON:SAGA) next update will show amazing occupancy rates for their cruises this summer.

Looking at their website, for a random selection of cruises this summer, almost every sailing is at 90%+, some at 95%+.

Recently, I think Royal Caribbean CEO stated that normally, profitability is above 80% occupancy. But in their case, because of high debt, they need 90% this year; but are confident of hitting that this summer, and even having cruises with >100% capacity (not sure how that works.... but maybe someone in the industry knows more).

In addition, there was a good article from Travel Weekly with quotes from a recent industry conference, showing that forward bookings for 2023 are already well ahead of 2019 comparatives.

If the insurance side of the business holds up, and there's a surprise upside to cruise, its not difficult to imagine:

10% EPS upgrade from 36p to 40p
Re-rating to 9x PE at the minimum
360p share price, which is 60% higher than currently

And this is purely a re-rating based on short term prospects, let alone the longer 1-2 year potential earnings from a robust full year of cruising in FY23-24.

However, I have decided not to top up just yet. AGM is on the 14th June, with likely a trading update on the day. So there is some time; and I expect in the next few weeks that the UK Consumer stats and news will be bad... very bad. Which will hammer all discretionary share prices, so I wouldn't be surprised if Saga drifts to sub 200p. What is irrationally cheap could always get cheaper, until the financials come out...

(I hold in the Boon Fund)

jimbob2

Hi Paul & Sharw, thanks for your feedback. Yes, they are family controlled. That might stop a unsolicited takeover but in my mind often means they take great care of the “family silver” rather than splashing out on big risky acquisitions.

The dividend yield is now 3.7% so not too shabby and the pension deficit down to £2.8 million from £9.4 million.

Looks decent value to me but not expecting fireworks !

bullhead

28th May '22

While I understand people like to moan and some people are facing real difficulties with high energy prices what ever the response from poor old Sunak was never going to be good enough funny how people loved him when he was acting like farther Christmas handing out money like confetti

People love free money

No one has really got any serious better ideas rather than to let it play out in the modern world it’s always down to “why doesn’t the government do something “this is the most sensible response I have heard

https://www.cnbc.com/video/202...

At the end of the day governments will take the easier way out when it comes to inflation brought about by money printing due to covid lock downs and the inevitable spike in inflation after made worse by the situation in Ukraine

The following book tells us where we are going how long it takes us to get there is anyones guess one thing is for sure the £ in your pocket is going to be worth less and less

https://www.amazon.co.uk/Chang...

Only thing I can see making it worse is Labour getting in in a couple of years

ken mitchell

Agree that £SAGA looks interesting again after the big share price fall, and I’m also waiting for their next trading update.

One annoying and wasteful negative is the way they bombard potential customers by sending the same brochures by expensive post time and time again. That’s a waste of money and all but one of the cruise and river cruise brochures go straight to our recycling bin. If that’s happening on a wide scale it’s inefficient, bad Management and costly.

GrahamF

As this isn’t a political discussion board it wasn’t needless. Perhaps I should have used a different tone and perhaps the word diatribe was provocative but bearing in mind the content of the post that’s how it came across. I won’t detail why because that just gets us further into politics.

However, I see that someone has taken it upon themselves to report my post. Ho hum.

If you don’t find it political it says a lot about your own political views

turbo

29th May '22

Hope people are having a good weekend. Given my sometimes limited timescale and attention span, I hope people will excuse me if I skip over posts that appear to be focused on disagreements of a 'political' nature between a limited number of contributers :)

Zipmanpeter

"( £SAGA ) bombard potential customers by sending the same brochures by expensive post time and time again. That’s a waste of money..."

Maybe - I'm involved in politics and to close the deal, the people in the upcoming by-elections may get 10-12 pieces of literature from the leading players in the next 4 weeks. Saga Cruises bring in so much cash (>£300 per day captive revenue) that you can spend an awful lot on Direct Marketing at say £1 per mailshot - especially the elderly who are still print orientated.

After receiving 5, finally some people will read out of curiousity or because they have some time that day or because the other member of the household is unusually the one to pick up the post or because they had a conversation the day before with Cheryl who told them about the cruise she went on or because but this time with a lead picture of a river boat rathger than a sea going vessel. You get the point, I 'm sure.

I am glad to hear you are bombarded and I hope that is linked to you being within Saga's core target market (over 55 and loaded!) and its cruises being reported as close to maximum occupancy.

I hold and only fit into half of Saga audience criteria!

Small Cap Value Report (Fri 27 May 2022) - LSL, BLV, PMI

Chancellor's package of energy measures

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Paul Scott

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