Small Cap Value Report (Fri 29 June 2018) - SUH, MMC, RCH, CWD

29th Jun '18 by Graham Neary

20 comments 7690 reads

Good morning, all. Hoping for some positive RNS announcements from some quality companies today!

Today we have:

Sutton Harbour Holding (LON:SUH) - final results
Management Consulting (LON:MMC) - proposed placing and open offer
Reach (LON:RCH) - trading update
Countrywide (LON:CWD) - share price sliding

Graham

Sutton Harbour Holding (LON:SUH)

Share price: 33p (unch.)
No. of shares: 105.6 million
Market cap: £35 million

Preliminary Results

Sutton Harbour Holdings plc ("Sutton Harbour", "the Company"), the AIM listed waterfront regeneration and destination specialist, announces preliminary results for the year ended 31 March 2018.

This stock has always been a bit unusual. It's primarily a property play, with the potential for some additional income on top.

It now has a majority owner with 73% of shares, which it purchased at 29.5p.

The free float excluding that investor is only worth about £10 million. There are a couple of other large holders, too. So it's not too liquid.

Official net assets are £39.3 million or 37.2p per share, so the market cap offers you a small discount to that figure.

The property values are up-to-date but are falling, according to the latest valuations. Maybe a discount in the market cap makes sense, under the assumption that property values still have further to fall?

Worth noting that it is leveraged, using £24 million of bank loans on today's balance sheet.

Plymouth Airport

Some "hidden value" could be released from the company's lease on Plymouth Airport (now closed).

The Airport has been closed since 2011, and nothing has been done with the site yet. Various government bodies have been deciding what is to be done with it:

The Company currently awaits the outcome of the hearing and specifically whether the Government Inspectors will uphold Local Planning Authority's proposal to safeguard the Former Airport Site for 5 years for potential general aviation use (which includes private aircraft and other non-commercial passenger services), following which, the local planning authority proposes a review of the policy. The Company maintains that far greater social and economic benefit for the city will result from the development of the site for an appropriate mixture of residential and other uses which can…

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InvestedGeordie

29th Jun '18

Good Morning Graham,

I wonder, if you have time, if you'd like to cover off Inland Homes (LON:INL) as they have released a couple of RNS, this week and perhaphs Diversified Gas & Oil (LON:DGOC) ?

Thanks,

IG

MrContrarian

My morning smallcap tweet: Farcejet avoids crash with rescue placing.

Action Hotels (LON:AHCG), Management Consulting (LON:MMC), Akers Biosciences Inc (LON:AKR), Tau Capital (LON:TAU), Appscatter (LON:APPS), Fastjet (LON:FJET), LXB Retail Properties (LON:LXB)

Action Hotels (AHCG) Possible offer of 24p, a 50% premium.
Management Consulting Group (MMC) Placing and Open Offer at 1p to raise £10m to avert cash crisis., tripling shares in issue. 68% discount.
Akers Biosciences (AKR) will be suspended on Monday since they haven't published the AR within 6 months "due to the work ongoing to review and make appropriate adjustments to certain previously filed financial statements".
Tau Capital (TAU) will be suspended on Monday since they haven't published the annual audited accounts within 6 months.
Oneview Group (ONEV) another 90 day shareholder loan and previous ones extended.
Appscatter Group (APPS) FD scarpers on day of re-election at AGM. He is thanked and 'continues to be a supportive shareholder'.
Farcejet (FJET) to raise at least $10m in placing and subscription at 8p. Also £1.6m open offer. 146% premium! Expected to be sufficient working capital for the remainder of 2018.
LXB Retail Properties (LXB) cuts the expected realisation again to 26-28p/sh from 30-35p in Feb due to retail and leisure markets becoming even more challenging over the last three months. Will return 7.5p/sh soon. I hold.

Lloyd Garvey

Anyone any thoughts on Shoby investments selling 10 million Motorpoint (LON:MOTR) shares at 225.
Shares down 11% this morning.
Perhaps a buy opportunity?

Lloyd

Camtab

Surely Fastjet have to be kidding!!!

FREng

How can it cost Management Consulting (LON:MMC) £1.5m to raise £10m when they have irrevocable commitments from existing shareholders to buy the shares? If there isn't a cheaper way to raise the money, is it worth remaining listed? (No position - just boggled!)

I wondered whether there was a quick profit to be made from the fall in Motorpoint (LON:MOTR) but I'm put off by Jon Baird (one of the PDMRs) selling half his shares (some 377,500) ten days ago.

HornBlower

anyone watching Countrywide (LON:CWD) implode? Down 50% this week on big volumes after warning. Wants to raise £100-125m new equity. market cap now below £90m and debt probably £200m. Not sure they can wait to 26 July to update on recovery plan, might be over by then. Short

peterg

Plymouth Airport is, sadly, not a viable site, and cannot be expanded. Long term I suspect SUH will get their wish and make some profit from housing value. But there is a lot of resistance to change of use, and I wouldn't be surprised to see it run and run before that happened.

Graham Neary

Hi IG, the market didn't seem terribly impressed by those Inland Homes (LON:INL) announcements, did it? (disclosure: I currently own INL shares.)

The deals announced weren't game-changing news for me, but were still positive. CEO:

"These are significant transactions that demonstrate both the market-leading expertise of our planning team, as well as the appeal and variety of schemes that sit within the Inland Homes portfolio."

Same with the NED announcements. Positive, not game-changing.

What did you think?

re: Diversified Gas & Oil (LON:DGOC). it's not my sector, apologies :)

Best,

Thanks HB, I've added an additional comment on Countrywide (LON:CWD). Cheers

TamzinPiworld

Short 3 mins with Warwick Brady, CEO of Stobart (LON:STOB) talking ahead of AGM on July 6th 2018

http://www.piworld.co.uk/2018/06/29/stobart-group-stob-ceo-interview-june-2018/

Vision for the future – 00:20
Current situation - 01:45
The Chairman, Iain Ferguson, CBE – 02:13

davidjhill

Reach (LON:RCH) is massively cash generative even in a declining market. I can see net debt eliminated again within 2 years and I think that ultimately the pensions deficit will be eroded significantly over the next 5 years from contributions + rising interest rates.

Revenues down 7% are relatively good news as cost cuts and synergies over the next 2-3 years should exceed that revenue decline without too much of a problem.

I am long. Happy to take 8% a year in dividends as I think when we come back in 5 years time profits will not be dramatically different to today but I suspect pension deficit will be 25% lower, and net cash will be circa £100m.

I'd expect the share price to be double in that scenario, so along with the 8% dividend thats in the region of a 20-25% annualised compounding return and I'm happy with that!

xcity

The outlook for interest rates suggests that investing in high pension deficit companies could be a reasonable strategy while the market worries about the deficits. Reach (LON:RCH) is one of the most attractive of these on a cash flow basis. Other side of coin is that pensions regulator might become more draconian.
I'm not really sure it can be valued on a profits multiple though. Everything suggests decline is terminal. It's about how much cash it will produce before it falls off the cliff.

With regard to Reach I agree it has a lot of interesting facets, but as an investor you have to have a view on Goodwill and Intangibles and if you strip these out of the balance sheet you have negative assets. I like much of the story but cannot bring myself to buy on that basis.

Reacher

Hi All

Earlier on this week there was some interest in the sale of shares by the directors at Ramsdens Holdings (LON:RFX) which also resulted in the share price falling. I contacted their investor relations department to get some clarity on the reasons behind the share sales and whether it was related to the underlying business. I got a response earlier today from Lucy Wollam from Hudson Sandler:

"The sale of shares by Peter, Mike and Jason were undertaken for personal finance reasons, and were their first sales since the IPO in 2017. They all retain a significant holding. In respect of Peter, his sale is fully in accordance with the lock up given on Admission to AIM in February 2017 and he still holds more than 1m shares."

There's no mention of deterioration in trading so wonder if it's a buying / top-up opportunity.

Gromley

That's a valid point Camtab from the last accounts we can see that TNAV is negative £235m (NAV of £666m)

Also potential investors running the numbers need to bear in mind that the latest published numbers we have give the position before the acquisition of the Northern & Shell business.

From the pro-forma balance sheet associated with the acquisition (page 79 HERE ) it looks like TNAV of the enlarged group would have been -£350m.

It is worth bearing in mind though that the pension deficits drive more than all of this negative TNAV - again from the proforma the pension deficit was £402m.

That's not suggest to that one should therefore ignore it, but one does just need to bear in mind that the deficit is a very volatile number (being the difference between two very much larger numbers calculated on questionable assumptions) - many believe the deficits will reduce in the near to medium term.

Actually though I would argue that there is some 'real' value in the intangibles, most of this is not actually 'goodwill' but 'publishing rights and titles' (£544m for the nationals and £254m for the regional titles - these being the figures before the N&S acquisition.)

These represent the "moat" (albeit one that is gradually evaporating), they are the differentiator that allows them to make money. I'm not suggesting that their titles are superior to those of the competition, simply that people are quite loyal to their choice of newspaper.

In some respects I would argue that the value of the titles is more tangible than the value of a grotty old printing press that has not yet being fully written down.

Anyway Reach (LON:RCH) will present their half year results at the end of July (I'm impressed that they are committing to the same time as ever, despite the integration) and this will give us the first proper opportunity to see the shape of the new group. I would expect to see the balance sheet somewhat better than the proforma numbers I reference above.

Anyone concerned about the balance sheet, therefore, probably should wait for a few weeks and review.

I continue to hold, largely because it is monstrously cash generative and whilst the acquisition disrupts that somewhat in the very short term it extends the longevity more than sufficiently to compensate - even if 'digital' never fully takes off.

Hi Reacher,

re your comment on Ramsdens Holdings (LON:RFX) .

And particularly your reaction to the fact that the directors sold for "personal finance reasons"

There's no mention of deterioration in trading so wonder if it's a buying / top-up opportunity.

Even if it were the case, would you really expect to get a response for IR along the lines of "well yeah, things aren't going great at the moment, so they thought it was a good time to sell"?

No offence intended, but I don't think the response you got provides any real clues as to the investment merits.

I wouldn't really like to guess, a factor in the timing and that they all sold together might simply be that a few days after publishing their full results would be seen as the time when it was most clear that they held no un-published price sensitive information.

30th Jun '18

Hi Gromley, no offence taken and it’s always good to get another perspective. I believe under the listing rules a company would need to officially disclose whether there was a deterioration in the business that would lead to results being below expectations. Whilst I wouldn’t expect a PR company to disclose that, I do think the explanation about the lock-in period made some sense.

I just wanted to share the information I received. I do consider Ramsdens operating a diverse business which is why I though it was an opportunity.

Have a great weekend!!

Thanks Reacher,

totally agree that if there were any deterioration in trading they would need to inform the market and the directors would be in a closed period and unable to sell until after that announcement was made.

On the other hand if they generally just felt that the market say 12 months looked less rosy they might consider there be no need to inform the market but that it would be a good time to sell and cite 'personal financial circumstances'.

I'm not for one moment suggesting this is the case here; in fact from what little I know of Ramsdens Holdings (LON:RFX) I would have thought the short/medium economy should be beneficial. I just thought though that the PR "would say that wouldn't they".

Interesting though that you refer to the lock up; I think you are inferring that this was the first time they were allowed to sell since IPO, which would make sense of the whole thing; but I didn't read that from the response you quoted.

Anyway as you say different perspectives on things are always a benefit.

ridavies

2nd Jul '18

Thanks for the dialogue on Ramsdens Holdings (LON:RFX). As one of you says, dialogue brings out good and different thinking. I would like to throw another thought into the equation. They all achieved the same price of 180p, a relatively small discount from the 187p at the time? I guess the 1m shares all went to the same place, and we might see an institutional investor or two having increased their holding in the near future. It seems to be a very successful company, with good prospects. I am a holder and it has done me well. I intend to hold, and thought about adding, but the good opportunity has now passed when it fell to 165p or so, on the rather flimsy grounds of director selling. Anyway, the remuneration committee will soon build those shareholdings back up again, wont they, or am I being too cynical?

Small Cap Value Report (Fri 29 June 2018) - SUH, MMC, RCH, CWD

Sutton Harbour Holding (LON:SUH)

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Graham Neary

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