Small Cap Value Report (Fri 28 June 2019) - AIEA, SDI, COST, CRW, CVSG, PVG | Paul Scott

28th Jun '19 by Paul Scott

45 comments 11938 reads

Good morning, it's Paul here.

Let's get started today with a look at the profit warning yesterday from floor-coverings business, Airea.

Airea (LON:AIEA)

Share price: 56.5p (down 26% yesterday, at market close)
No. shares: 41.4m
Market cap: £23.4m

Trading update (profit warning)

Airea plc (LSE: AIEA), the manufacturer, marketer and distributor of floor coverings, announces the following trading update for the six months ending 30 June 2019.

This is what the company said, in a brief update;

Despite a very strong order book and first quarter and with continued growth from our export markets we will announce revenue slightly down and a lower operating profit for the half year compared with the corresponding period in 2018. This is due to significantly tougher conditions during the second quarter.

Like many UK businesses the economic headwinds are against us and we are experiencing a high level of market uncertainty; however, the business is well positioned to continue to prosper despite this continued economic uncertainty.

How on earth do we interpret that?!

If H1 revenue is only "slightly down" on 2018, then I presume profit should also be down a relatively small amount, providing overheads have not grown.

Looking back at H1 2018, the company reported revenues of £9.1m, and operating profit of £1.5m.

rhomboid1 contacted the company to query things, and posted his thoughts in comment no.50 to yesterday's report here. I don't think the company should have disclosed that information, but it's in the public domain now.

There don't seem to be any broker forecasts on the company, so I'm struggling to quantify things, or to value the company.

Valuation - stripping out one-offs, and normalising the tax charge, I calculate that last year EPS was about 5.8p. If we assume that this year might be a bit less, say 5p, then the current year PER might be around 11 - which looks about right to me.

My opinion - this is a nice little company, which has restructured and is now decently profitable. Yesterday's profit warning was a setback, but not a disaster.

The balance sheet is strong, although note there is a pension deficit. But it also has freehold property, and a very strong working capital position, including net cash of £2.7m.

I think the share price has correctly adjusted,…

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LilliputTom

28th Jun '19

Morning Paul, might you have a chance to please look at the profit warning from Craneware (LON:CRW) this morning? I have held for a while and it looks like they have missed revenue expectations by about 11%....despite claiming strong visibility at mid-year. They cite poor sales execution the second half. It raises a doubt for me over the new release of their product and whether this is working for customers (hospital management, usually in the US).

Price is down nearly 40% this morning!

Tom

TamzinPiworld

As promised yesterday some light viewing for the weekend.

Here, an interview with Keith Ashworth-Lord, CIO of the UK Buffettology Fund.

The UK Buffettology fund has returned c 200% since it's launch in 2014.

Keith talks through how he came to have the Buffettology licence, his investing caveats and much more.

Full of wisdom, and a very engaging watch.

pete davidson

Hi could you look at £IPF please? Its fallen more than 10% after polands government altered consumer finance legislation.

£IPF

andrea34

SIF-rated stock PayPoint (LON:PAY) is off 4-5% after they have failed to negotiate a renewed contract with British Gas.

Arrow Global (LON:ARW) have replaced their CFO, the exitting one heading off to the Pru and new one from RSA; it sounds amicable enough.

sharw

Costain (LON:COST) warns on delayed contracts. "...underlying operating profit for the full year is expected to be in the range of £38.0 million to £42.0 million." (Last year £52.5m).

With other metrics such as "expects to report an average month-end net cash balance for H12019 of c£65 million" (12 months 2018 £77m) a market reaction of 39% down looks overdone to me or am I missing something?

Howard Marx

"Marks is keen to sell, he is 73 (IIRC) and suspect Mike Ashley who has a large holding is waiting on the sidelines with an opportunistic offer"

Mike Ashley was interviewed by Sky six months ago & suggested that he wouldn't be keen to have (higher) ownership of French Connection (LON:FCCN) unless Stephen Marks was still involved with the business.

Comment 10 minutes into the interview: https://www.youtube.com/watch?v=THr7mUP04KA

Axiom European Financial Debt Fund (LON:AXI) presentation at Mello Trusts & Funds May 2019

A short version c 5 mins of the Axiom presentation at Mello. Rather an interesting overview of Subordinated debt, and banks since 2008.

https://www.piworld.co.uk/2019/06/28/axiom-european-financial-debt-fund-axi-presentation-at-mello-trusts-funds-may-2019/

(Almost) all of the recorded Mello company and Trusts & Funds presentations are here.

tony axon

Hi Paul, first time of writing,although I've followed your interesting observations daily, for a couple of years. SDI , Paul i would suggest the uplift in results,was very interesting in light of small time gap between two trading statements,especially at the rate at which this co. is growing ,both organically,and acquisitively. Hastings on ADFN board reports an upgrade for current year to £4.1M profit,by Finncap. Unfortunately I am not privi to the report,but it would be interesting if you can see if margin is held,which would suggest about 3.9p eps for current year?? The recent Mello presentation by the CEO suggested they had further acquisitions in view,as well as the different sections of the business also going well . I would add i am biased ,as this has become my biggest holding ,having bought BIG at an average of 23p,and added since. This is not meant to be a ramp in anyway just my observation. Sincerely Tony

simoan

Great interview, Tamzin. So much investment wisdom and common sense in 31 minutes I'd consider it pretty much essential viewing for all serious PI's. Having read Keith's book a couple of years ago, some of it wasn't new to me, but it's great to hear some detail about the investment process of a fund manager with such high conviction (all his own SIPP and ISA's in his own fund containing only 33 companies) as opposed to those who manage closet index trackers.

Looking forward to part 2.
All the best, Si

fwyburd

Hi Tony
Re: Scientific Digital Imaging (LON:SDI)
The report is freely available at Finncap - all you need to do is register (for free) and click here
https://researchlibrary.finncap.com/File/View?file=0d63f5a7-a391-473d-875e-5a85fb16df33

Hope that helps
cheers
Francis

Thanks for that link / site, Francis, I've not used it before; it'll be interesting to compare the numbers to their report. I'm also reading the reports for Avingtrans (LON:AVG) and £D4T4 on here.

Trident

Re PayPoint (LON:PAY) noticed that the price was falling unusually in the last week or so, and now the release of an RNS saying their contract with British Gas will not be renewed. Whether this news justifies the price fall can't be sure, but it is clear someone in the know was selling down prior to the announcement.

Thank you Tamzin for access to these interviews. Always very interesting.

I do wonder whether the long bull market has flattered some performance factors, and whether the 'over performance' may be due to certain key investments that may in a less benign market weigh more on the downside.

That being said, I was pleased to see they are in some stocks I am in, and hopefully their investment criteria will carry them through any future macro wobbles.

Or maybe it was just someone "not in the know"? Isn't PayPoint (LON:PAY) one of Woodfords holdings?

All the best, SI

jonesj

PayPoint (LON:PAY)
This looks like a zero-growth business facing almost certain disruption as more people shift from cash to paying on line with apps and so on. For such a business, a PE of 15 seems high to me.
Perhaps this is propped up by the dividend, but this looks unsustainable.

I did hear them present recently & was hoping they might have some cunning strategic plan to deal with the disruption risk. As far as I could tell, their plan is to run it to generate cash. Probably the correct decision. I just wouldn't buy it at any PE multiple above 10.

Yes PayPoint (LON:PAY) was one of Woodford's I think. I don't know whether he is selling chunks of it, but it is certainly one of the more saleable elements of his funds holding along with Card Factory (LON:CARD) etc.

I have bought some more.

Thanks Francis,most kind. Tony

cic

Paul, Regarding Airea you say:

"rhomboid1 contacted the company to query things, and posted his thoughts in comment no.50 to yesterday's report here. I don't think the company should have disclosed that information, but it's in the public domain now."

Are you saying that the information disclosed to rhomboid1 should not have been disclosed at all, or just that it should not have been disclosed in the way it was to rhomboid1. I suggest that this is just the sort of information that is helpful to be disclosed to everyone in an RNS, rather than the wishy-washy, guess what it means, offering that we so often get!

rhomboid1

Re Airea (LON:AIEA) I respectfully disagree with Paul

My understanding is the company NOMAD was heavily prescriptive in the wording of the RNS & given the period in question was still incomplete giving detailed numbers would be difficult

They took the sensible view that an early but necessarily vague RNS backed up by mgt being prepared to deal direct with shareholders was better than waiting for the absolute numbers

The RNS was quite obviously positive in certain aspects exports/order bank/future all of which I discussed with the company in more detail

In my view nothing price sensitive was disclosed that a careful reading of the RNS wouldn’t have led you to believe likely

I far prefer mgt to tell me the minute something slips...rather than sit there silently until they know the exact details

I like the company/ mgt own lots of shares so my bias is obvious

Small Cap Value Report (Fri 28 June 2019) - AIEA, SDI, COST, CRW, CVSG, PVG

Airea (LON:AIEA)

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Paul Scott

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