Small Cap Value Report (Fri 28 May 2021) - WJG, FUL, PMI

28th May '21 by Paul Scott

46 comments 9786 reads

Good morning. Thanks to Roland for all his support this week, keeping me sane. what a star! I'm so lucky to have such smashing support here.

Timing - I have to be finished by noon, in order to meet a SCVR reader for lunch at TGIs, for research porpoises.

Agenda -

Fulham Shore (LON:FUL) - an encouraging trading update from this restaurant chain, with trade close to pre-pandemic levels despite space restrictions. Is the valuation up with events, though?

Premier Miton (LON:PMI) - half-year results from this fund manager and a welcome return to fund inflows but uncertainty remains over the merger.

Watkin Jones (LON:WJG) (I hold)

I'm sorry to see the founding family selling down again, a substantial amount (20.58m shares) at a discount, sold at 210p, 8% of the company. That messes up the upside case for me, so might have to top slice my own position. They cannot talk up the price, whilst selling, sorry call me old fashioned. Peel Hunt seem to be losing their touch. A poor price achieved here, and my city sources tell me that PH weren't really interested in the Revolution Bars (LON:RBG) (I hold) placing recently. Time to bring in more enthusiastic brokers maybe? Or is the market just suffering deal fatigue? Answers on a postcard to broadcasting house please.

Roland’s section

Fulham Shore (LON:FUL)

16.5p (+4.6%) - market cap £98m

Trading update

Restaurant group Fulham Shore (LON:FUL), which runs the Franco Manca and The Real Greek chains, has issued a post-reopening trading update today. The numbers look encouraging to me and suggest there’s plenty of pent-up demand. Unsurprisingly, perhaps.

For some more background on this business, it’s worth looking at Paul’s last update in April.

Fulham Shore says that 71 out of its 73 restaurants have now reopened for indoor dining, while continuing to offer takeaway.

Revenues for the first full week of indoor dining (17-23 May) were 103% of the equivalent week in calendar 2019, when the company had 61 restaurants.

On a more meaningful like-for-like basis, revenue was 92% of 2019 levels.

I agree with the company’s view that this is “very encouraging”, given ongoing social distancing restrictions.

Interestingly, the company says that membership of its loyalty scheme has…

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RDHOWARTH

28th May '21

Morning, re Volvere (LON:VLE)(I Own) there is no new information today other than some upgrades to property valuations... +£1.3m. Overall the food business is ticking along, Indulgence certainly 12 months behind as a result of COVID and the fact it is more service industry dependent. Mr Lander keeps his cards close to his chest and hasn't said much about current trading but I wouldn't take that badly. Im sure most investors are a little disappointed that no acquisitions have been made in the last 6 months despite raising new money. However 6 months is nothing in the grand scheme of things. The addition of Cannacord as broker at the time of the new fund raise and bringing on board new shareholders hinted at a deal flow yet to materialise, never the less the statement today continues to suggest they will come.

My personal view is that there exists an opportunity to build a business of more significant revenue and the food area is interesting at the moment. So niche growth revenues could be £100m on a multi year view and valuation may rise to a multiple of revenue rather than the current fraction. The stock trades at asset value which is fair enough but not expensive. I think the food business is worth between £15m and £20m adjusting for the minority. JL has been a fantastic custodian of shareholder capital and all one has to be is patient.

Jeffvshepherd

Huge thanks to Roland for helping out on the SCVR, hopefully we will see you here again one day.

Welcome back Jack!

JSLDUK

what annoys me on the Revs rights issue, is that they did their last huge issue + CVA in June 2020 at which point fair enough few people could have known we would be in a further national lockdown in Q1 2020 and Xmas / NYE was a write off, however given their cost base has been substantially reduced with furlough / turnover rents / buiness rates holidays through the CVA the only big cost to service was the debt which we were told would be substantially reduced by the last rights issue, which clearly it was not.

Furthermore, why do it now, when the share price and trading levels were so low, why not hold out and do this in say June with positive trade updates to show the buiness was / is on the right track, feel they have done this at the wrong time when they shoudl have been able to put this off for a few months at which point they could have done this at a higher price than 20p.

gus 1065

If Volvere (LON:VLE) are getting bored doing not much at the moment, they might like to have a look under the bonnet of London Finance & Investment (LON:LFI) . It’s a very small investment/ corporate services company (market cap c. £11.2m) with a portfolio of tradeable market securities in the food and beverage sector and a couple of strategic holdings/directorate roles in Finsbury Food (LON:FIF) (arguably itself a value play in this sector that’s possibly due a bid) and Western Selection (OFEX:WESP) another micro cap investment company that takes minority stakes in companies at the incubator stage of development. NAV as of Dec 2020 was about 55p a share compared to the current share price of 36p (about a 35% discount) so with their £16m or so of cash Volvere (LON:VLE) could probably pick them up for maybe £14m (25% bid premium), ship out the liquid securities and then combine Finsbury Food (LON:FIF) and some of the other bits with their own food service sector holdings and still have funds left over to grow out the resulting entity.

Gus.
(Bored long term London Finance & Investment (LON:LFI) holder looking for a way out of a remarkably dull investment!)

timarr

Furthermore, why do it now, when the share price and trading levels were so low, why not hold out and do this in say June with positive trade updates to show the buiness was / is on the right track

RE: Revolution Bars (LON:RBG)

Or the government delays reopening due to spread of the Indian variant and they have to raise money in a worse environment?

dcon85

Would have done the same if I had any cash, its a new position for me so I could have improved my avg. price - oh well!

bohenie

Find it difficult to comprehend why Belluscura (LON:BELL), an American company, has chosen to float in London - yet British companies choose USA... but agree - looks exciting

SundayTrader

Anyone got any views on the announcement of an acquisition and placing from £GHT? Revenues of the acquired company are about a third of those of Gresham Technologies (LON:GHT) so it is pretty material. It looks positive to me, despite my slight distaste for acquisitive companies.
I see they have refused to consider either a rights issue or underwriting of the placing, because of the pointless costs that would be incurred. As Paul has been pointing out, surely regulation is no longer fit for purpose in this area.

Roger Baron

Interesting update thanks Paul for Premier Miton (LON:PMI) which I hold as part of my "lower risk pot". Agree that it is not a good idea to just compare performance of FuM with the index given the very low risk nature of some of the funds. Gervais Williams' UK Smaller Comps fund certainly seems to have had an impressive performance over various periods. I hope investors in the fund didn't listen to Tom Winifrith's warnings a year or so ago that the fund was about to do a "Woodford" as the price has more than doubled since.

OldSchool05

I echo your view of the Lander's being fantastic custodian's of shareholder capital. They are careful, risk averse but focussed investors. You only have to look at the 5 year share graph to see a great performance over the longer time frame.

I like being a shareholder here as I feel confident that they will "do the right thing" with my money and will patiently build a bigger business, acquiring at the right time, and then spinning-out at the right time too.

The vegan focussed product range is a good example of looking at longer term trends, and the integration of products from Shire (savoury) and Indulgence (sweet) will win-out in the end.

Bouden54

Thanks Roland for your reports this week and comprehensive look at £PMI. I agree with some of your points, but feel perhaps a little harsh on their investment performance which has been excellent recently across their funds.

As you say, their equity funds returned 18.9% and while this is only a few per cent ahead of the FTSE, it is actually very difficult for funds to consistently beat the index - this is due to of a variety of reasons such as impact of fees and in particular a lack of nimbleness compared to say private investors - so to beat index by a few per cent is fairly impressive in my view. Perhaps a more useful measure is to look at how their funds rank in their sectors, as this tends to drive flows - on this measure they look strong with a large part of their AUM in the top quartile.

My rationale for holding is their strong bias towards UK equities. I sense we could see a major shift back into the UK and Miton should be very well placed to capture new flows in this space.

fwyburd

Sounds like an interesting idea Gus. Jonathan Lander is very approachable - why not contact him?

(I hold Volvere (LON:VLE))

cheers

Francis

I disagree Brookeda.

I think Jonathan Lander is more committed to building a food manufacturing and service business than ever before and, as RD Howarth points out, there's a superb opportunity to build great shareholder value in the process.

Now that he's seen the margin potential for turning flour + other cheap ingredients into premium branded products, I think Volvere (LON:VLE) is on a roll (lol) and won't be handing any money back to us for several years.

Certainly for the patient but I'm convinced this will be a 5-10 bagger in less than 5 years IMO.

(I hold)

I bet they will have a whale of a time!

FREng

gus

... and Western Selection (OFEX:WESP) owns 12% of Bilby (LON:BILB) and also trades at a significant discount to NAV. So London Finance & Investment (LON:LFI) looks like a good way to hold superstock £BILB. How many shares do you want to sell?

Hi FREng.

That’s why I bought London Finance & Investment (LON:LFI) about 5 years ago but the wide discount to NAV has barely moved. Maybe we can have a whip round and do a Stockopedia club deal - I reckon about £14m should be sufficient! In the meantime, I took on fywburd’s suggestion and sent the idea through to Volvere (LON:VLE) . Well it is a Bank Holiday Friday afternoon ......

Gus.

gari en desti

There is another point to bear in mind on the Revolution Bars (LON:RBG) rights issue: the timing of the recent update on how the reopening sales were going. The timing of this now appears to be a pump for the rights issue. Absolutely shocking behaviour towards existing shareholder. Def didn’t expect a pump and dump from this company.

While posting this, can I also apologise if I offended anyone with my post yesterday, which contained language unbefitting for this site. But it was quite cathartic.

Good point, if there is another national lockdown all bets are off on hospitality / tourism stocks and their current lofty valuations (not Revs) will be toast. Although the market isn’t currently pricing in another lockdown yet, so doing a heavily discounted raise again now, when all their sites are open and trading and doing well just feels plain wrong. But given I hold Revs shares, my view is a bit irrelevant as I’m the scorned.

IncredibleMosesLeroy

29th May '21

Two points on Eqtec:

1) My brother-in-law is an engineer who used to work on a previous gasification project on Teesside and he says that the technology works- albeit at tremendous pressures which require almost everything to be made of near-flawless stainless steel. This is not some futureguff, this tech can be built now. However, It is very capital intensive to begin these plants and 20m does not go far.

2) Eqtec now has 7.25 billion shares in issue. Lets be very generous indeed and say Eqtec makes 5m in earnings in 2022, which is more than twice what they have ever made in a single year. 5m into 7.25bn is 0.069p per share, which even at today's price is a p/e of 22.6, pretty high for a company with no record of growth and a lot of execution risk (probably more capital raises in my opinion).

Companies with proven histories and runways to growth like Spectra Systems are sitting on similar p/e without us having to imagine them doubling revenue.

In summary; I like the tech, I think it will be more widespread in the years to come, but this stock is too expensive for the risks involved.

Hi IncredibleML.

Good points about Eqtec (LON:EQT) .

Not sure if you looked at the Paul Jourdan interview I tagged below but he makes a similar point to your brother-in-law, i.e. that Eqteq do appear to have the technology working on a size and scale that is commercially viable albeit with the drag of a huge sunk cost in historic R&D. My sense of their business model is not so much to build and own these plants but use their intellectual property to build/refurbish and potentially operate for third parties, usually state/Quangos that have capital, biomass raw materials and often the stranded and inefficient CHP plant coupled with the need for clean energy. They knit the bits together (and appear to be uniquely qualified to do this at the moment) and take fees and ongoing service/royalty income which in time becomes an annuity income stream. In these terms, the £15m they raised yesterday should give them sufficient capital to get them towards critical mass. Whether and for how long they can maintain their leading position and beyond that make decent money for shareholders remains to be seen. I fully accept it’s in the speculative investment bucket.

Small Cap Value Report (Fri 28 May 2021) - WJG, FUL, PMI

Roland’s section

Fulham Shore (LON:FUL)

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Paul Scott

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