Small Cap Value Report (Fri 29 July 2022) - FOXT, MMAG, WIL, AML, ELCO

29th Jul '22 by Paul Scott

19 comments 6650 reads

Good morning! Just Paul here, as it's a Friday. Today's report is now finished. Have a fab weekend in the sun :-)

Graham and I shortly have a Zoom with Begbies Traynor (LON:BEG) to discuss the accounting treatment of deemed remuneration, we'll report back if any developments!

By the way, many thanks for the positive feedback earlier this week, re covering more companies here, with some smaller additional comments. We've taken that on board & will keep doing more of the same! (on top of our usual deeper dives on 3-5 companies reporting each day). We managed 12 companies yesterday, which I think is a new record.

Agenda -

Paul's Section:

Foxtons (LON:FOXT) - I've had a good rummage through its interim accounts, and like what I see. The shares look priced about right for now, but cost-savings have already been made, and lettings books are being acquired, so profits should be rising from here. Plus an experienced new CEO is joining in September, seemingly with a remit to focus the business more on profitability. This share could be quite good I reckon. FOXT shares are not obviously under-priced though, so upside depends on improved performance.

Aston Martin Lagonda Global Holdings (LON:AML) - This company's shares are paying us a fleeting visit, before they disappear into the sunset once the latest fundraising is done. Definitely not a value, share, with heavy losses in today's interim numbers. However, deep pocketed backers (Mercedes-Benz, and the Saudi sovereign wealth fund) are cornerstones for a big fundraise, to tackle excessive debt, and provide development capital. Once the fundraise has completed, I think there might be a speculative, long-term appeal to this share, if AML can scale up to become a profitable business, like Ferrari.

Musicmagpie (LON:MMAG) 44p (£48m) [No section below] - just a very quick look at its H1 (to May 2022) results. In a word - poor. An adj PBT of £4.0m in H1 LY, turned into a £(0.7)m loss this time. Costs were roughly flat, but a sharply lower gross margin caused the profit to vanish. I'm surprised that banks have agreed a new 3-year £30m RCF. Net debt is currently £3.3m. Outlook - adj EBITDA in line with its expectations (not stated). Balance sheet looks adequate. It’s a (very) low margin recycler of consumer electronics.

It’s yet another recent float…

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MrContrarian

29th Jul '22

My morning smallcap tweet: Applying the rack to straighten out the truth

MGC Pharmaceuticals (LON:MXC) Supply@Me Capital (LON:SYME) Tintra (LON:TNT) Saietta (LON:SED) Thinksmart (LON:TSL), Eneraqua Technologies (LON:ETP), Sigmaroc (LON:SRC)

◄MGC Pharmaceuticals (MXC)► $10m+ convertible loan facility. Is it a death spiral? Replaces the unused amount of the convertible facility announced in September 2020. [SP=1.16 Cap=52m]

◄Supply @ME Capital (SYME)► its first Inventory Monetisation transaction "is in the final stage of its completion". [SP=0.09 Cap=36m]

◄Tintra (TNT)► AGM stmt on progress in sorting out legacy mess. [SP=120 Cap=18m]

◄Saietta (SED)► audited FY(Mar) result delayed into early Aug. No reason. [SP=141 Cap=120m]

◄ThinkSmart (TSL)► holders to get value of US Block holding via a takeover. Holders would get c. 36p at current Block SP and $ rate. What about its other assets? "There is little or no value in ThinkSmart's business operations, comprising the legacy leasing business and provision of an outsourced call centre customer support service to support the Clearpay business." Co says scheme "compares favourably to the timing of any exit for shareholders if the Group were to be liquidated following conclusion of the wind down of ThinkSmart's business operations, noting there may also be significant costs involved in a liquidation scenario as well as the time taken to complete the liquidation process before a final distribution of any remaining cash could be made to shareholders". But co could just sell its Block shares itself. Why has it even hung onto them so long? Co had 3.7p/sh net cash at End Dec and said in Mar "Managed wind down of legacy operations continues to generate positive cash flow". Smells. [SP=23.75 Cap=25m]. I hold.

In line: ETP, SRC

jonno

Very pleasantly surprised by the confident trading update from Sigmaroc (LON:SRC) which I hold. I have to admit to fearing that the senseless conflict in Ukraine would upset the apple cart, but on the basis of this morning's announcement #SRC appears to be in fine fettle. albeit one needs to see the interims scheduled for 12 September.

#BREE interims earlier in the week suggested that #SRC may be coping better than my expectations, but today's update far exceeded them.

"Strong first half of 2022, demonstrating the effectiveness of the Group's diversified model;

- H1 revenue of £248m, up 18% over 2021 on an adjusted like-for-like basis;

- H1 underlying EBITDA of £48m, up 6% over 2021;

- Underlying EPS over 3.6p, up approximately 35% over the prior period;

- Continued good cash generation, with leverage within the Group's target range;

- Diversified market profile and good demand leave the Group well placed to deliver the Board's expectations"

Max Vermorken, CEO of SigmaRoc, commented:

"To state the obvious this was a first half unlike any other, yet the Group performed extremely well. Input cost increases were managed and further cost reduction initiatives were implemented. We closed H1 2022 with a strong performance and remain encouraged by the demand outlook in all segments for the months ahead. Our focus remains squarely on developing our Group in terms of products and geography and we remain very confident in delivering good financial and strategic progress both in the current year and over the medium term."

A cynic might think the Thinksmart (LON:TSL) board may be in line for jolly wind-up bonuses that would have soared if Block had kept rising instead of halving from its March level.

Stocks123456

So they had the opportunity to sell shares in Block earlier this year but waited until they halved in price to sell. Fantastic. £TSL

dunns_river_falls

Shearwater (LON:SWG) results look good. Decent profit, cash rich and winning customers alongside high retention rates.

Brookeda

The company seems to start to be getting some momentum now. Happy with the results and happy to keep holding

rmillaree

Shearwater (LON:SWG)

Got to laugh at this company - net loss for year of £0.3 miliion and the company board thinks they are going great guns - not sure what planet the board reside on. Last year they at least managed to sneak into profit. Worst of all is there no mention in the headlines that they have lost money this year - first appearance of "loss" is the text if the text confiming there is a loss for the year on the profit and loss .

abtan

Foxtons (LON:FOXT) (I hold)

For anyone following the story, here is the company's response to my question on why rental profitability has increased so much year on year.

And my comment from yesterday for completeness:
https://www.stockopedia.com/co...

"The recent rise in interest has had a negligible impact on higher lettings revenue.

Key drivers there about rental prices were:

longer tenancies with resulting longer period to break clauses - we recognise revenue up to the break clause
Growth in property management
Growth in Build to Rent - which typically has higher rental prices vs. the local market
Doubled revenue from Asia Pacific, who typically skew upwards on pricing
Finally we saw doubling of revenues in short lets (rentals <90 days)

On deposits we need to match to tenancy lengths whilst making an allowance for a % that will activate their break clause and terminate tenancies early. For that reason, deposits are cascaded across various term lengths – from overnight upwards. Having a portion of money on very low duration terms skews the interest % downwards."

---

There is £113m of client monies on the books, where all interest accrues to the company. I'm not sure I understand how this only has a negligible impact. Even an average interest rate of 1% on the current balance would result in c£1m of relatively risk-free income flowing straight into pre-tax profits.

Paul Scott

Hi abtan,

Yes I spotted note 14 too, with FOXT receiving interest on client monies of over £100m. Potentially interesting, especially if interest rates keep rising. Probably best to see it as a cherry on top, rather than a core reason to invest.

Regards, Paul.

Roger Baron

Shoe Zone (LON:SHOE) spending up to £1mil at a max price of £2. (I hold)

Viz

This is good news - luckily I've doubled up on (LON:SHOE) and was wondering whether to take some profits, or indeed move the money elsewhere given that the valuation is looking fairly full. This will help make my decision - whilst the initial buy back appears to be small, I can see this accelerating. I note some big buys from directors last year, which locked in a circa 6.5% div, more share buy backs will certainly be beneficial to them.

Interesting presentation on Meet the Company just now from Trackwise Designs (LON:TWD) (I hold). Graham wrote yesterday that it's uninvestable and Paul changed his mind about it being a speculative punt.

New CFO did say he's intending to buy more shares now not in a closed period. They say they don't expect to have to do another fund raise and feel that share price has fallen more than it should have. Not for widow's and orphans but possibly a great recovery situation for the brave or foolish. Not sure which of those 2 I am. Probably both.

Foxtons (LON:FOXT)

The interest income certainly is a nice additional earner.

More of my enthusiasm actually comes from the growing rental revenue.
The below shows how revenue/let (£) has evolved over the last few years (+ what I hope is a conservative estimate for H2.)

I'd certainly be interested in seeing a more granular breakdown here, for example, what proportion of this increase came from short term lets.

eParo

Sigmaroc (LON:SRC) - Why are Stocko's metrics so awful for a company that seems to be doing well. Muted market reaction today.

Thanks Roger, I'll take a look at the webinar from £TWD over the weekend.

Just so people don't go on a wild goose chase, the correct name is: Investor Meet Company, not "meet the company".

KevinS1

I think Sigmaroc (LON:SRC) is a perfect example of risk vs reward and when to buy-in.

I was a previous holder and was looking forward to their developing buy & build strategy continuing and ongoing excellent results..................BUT

The market and sentiment moved against them and as everything sold off no matter how good the story was they started to move downwards - probably because a general fear of a recession being particularly painful for construction companies and also therefore raw material suppliers.

That sentiment has continued and their SP is not far off being 50% down. I got out a while back, but nor before taking a bit of a bath.

The positive is that so far they have continued to deliver and have managed the inflation issues well. But I suspect that IF we do have a looming recession they may again drop further. For me the question is about WHEN might be a good time to get back in - I am currently trying to protect some capital and I believe we could have a further sharp decline after the summer, so whilst I see them as being at a good price today, I am hopeful that I may get them at a better price in the autumn. If not I won't chase as there are bound to be other equally good stories/opportunities out there.

If people can shut themselves off from short/medium term noise and can sleep comfortably with prices dropping 50% knowing that they will come back then holding on is fine. I have done this in a few holdings, but it is painful. Others I have bailed out on - not quite worked out what makes me choose option A vs B, but might need to work on this.

I took a small trading position in Foxtons (LON:FOXT) recently and sold for a modest profit yesterday. I don't have Paul or Graham's analytical skills but I generally found the results a little underwhelming. This together with its somewhat chequered history, alluded to by Paul prompted the sale.

My preferred company in this space, which I hold is Belvoir (LON:BLV) where I very much like the management team lead by Dorian Gonsalves.

portugull

As a holder of Unbound (LON:UBG) I had an example of their total incompetence this week when I received a Marketing Email from them which related to a Special Offer valid for 2 days only.

The dates were Tuesday and Wednesday 24th and 25th July BUT the correct dates in the Calendar are 26th and 27th July. No doubt this caused much confusion but when they cannot get the simple things right it gives me as a Shareholder little confidence that they know what they are doing. A right royal shambles.

Hi jonno,

We really like Belvoir (LON:BLV) here too! There's loads of stuff about it in our archive - "Discussion" tab on any company's StockReport brings up what we & others have written about it.

I like the fact that FOXT is now skewing more towards lettings. I was really impressed with how BLV sailed through the pandemic, riding a stream of recurring revenues that were not impacted much by the lockdowns, etc.

Also, I think lettings businesses probably have good inflation protection (with a lag maybe) as rents rise.

I wonder if Foxtons culture is as well suited to the hard graft of managing rental properties though? That's very different to a sell, sell, sell type of culture!

Small Cap Value Report (Fri 29 July 2022) - FOXT, MMAG, WIL, AML, ELCO

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Paul Scott

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