Small Cap Value Report (Fri 30 April 2021) - PCIP, CARD, FA., UPGS, SLP, ELCO

30th Apr '21 by Paul Scott

55 comments 12472 reads

Good morning, it's Paul & Jack here with the SCVR for Friday.

Timing - early today, as I have my first city lunch of the year, on a breezy terrace next to Tower Bridge. I'm so excited, I feel like a convict (I imagine) might feel on being released from prison heading straight for the nearest Harvester! Today's report is now finished.

Agenda -

Paul:

Pci- Pal (LON:PCIP) (I hold) - I review its small placing, to raise funds for expansion into new territories. I'm all for small caps strengthening their balance sheets, after big rises in share price - that's the ideal time to do it, not in a crisis. Under 10% dilution is fine by me, in return for a much stronger balance sheet. Although this does likely push out breakeven further into the future, which some may not like.

Card Factory (LON:CARD) - the usual end of month bank waiver is granted. However, the better news is that a longer-term bank refinancing looks to have been agreed, but not yet documented. The balance sheet is shot to bits, so a big equity fundraising is likely to follow, or be part of the bank refinancing. Re-opening of the shops is said to have been better than expected, but no numbers given. High risk, but so far, so good.

Fireangel Safety Technology (LON:FA.) - awful 2020 results are out. Another equity fundraising to raise £9.0m at 18p per share is announced, so at least the company's finances are now shored up. It's too accident-prone for me, but good luck to holders - who knows, it might be a turnaround in the making, if you're an optimist.

Jack:

Up Global Sourcing Holdings (LON:UPGS) - another upside surprise from this owner and manager of small domestic appliances.

Sylvania Platinum (LON:SLP) - a couple of operational issues in Q3 at the platinum group metals (PGM) producer, but strong basket prices are driving eye-catching quarter-on-quarter growth.

Eleco (LON:ELCO) - in line Q1 update from architectural SaaS business that, while pricey, looks deserving of its 99 Q Rank.

Paul’s Section

Pci- Pal (LON:PCIP)

(I hold)

104.5p - mkt cap £62m

Proposed Placing to raise £5.5m

I last reviewed PCIP here on 8 March 2021, on publication of…

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rajpalp123

30th Apr '21

Thanks for the update on Sylvania Platinum (LON:SLP) .Having done some more research on the EV boom, it's going to be at least 2040 and £££ of investment in the grid, to get to c 33% penetration in US and 38% in Europe (source: MS Research). It's going to take a LOT longer to get anywhere near those penetration levels in Asia.

So we're FAR FAR away from EVs taking over as the mainstream choice. This does not mean countries will forego their emissions target either, so they will have to ensure the 'dirty' diesels/petrols are replaced with cleaner variants, which again is a tailwind.

Despite palladium prices soaring, the price rise back in '19/20 was much steeper and the macro environment wasn't as conducive as it is today either IMO.

Personally, I cannot see a better 2-10 year period for the PGM basket - but I'm happy to be proven wrong.

Mike888

Hi Paul

It seems you hold a quite eclectic mix of stocks, predominantly in the small cap space, and we know you have a great deal of experience and interest in retail fashion. We also know you use a few investment/trading vehicles.

I would be fascinated to understand how you manage position sizes, risk and vehicle selection.

It's a big ask, with undoubtedly a lot of effort to produce, I'm sure many readers would find it a valuable and insightful read, if you ever find the time to put pen to paper.

Cheers

Mike

slopsjon

Sylvania Platinum (LON:SLP) Liberum note.

"Given the stellar performance of PGM prices, it is no surprise that Sylvania have achieved another record quarter with EBITDA of $58.7m and cash balance increasing 52% to $102.1m. Annualising this past quarter, the stock trades on a ridiculously cheap EV/EBITDA of 1.5x. Production of 17.4koz was inline with expectations and guidance of 70koz for the year remains in place. We remain very comfortable on rhodium on a five-year view (see here) and expect the abnormal cashflows to continue (30% FY22 FCF yield)......"

Target price still £2.00.

Boon

Interesting that the H & T (LON:HAT) CFO is leaving now. Just before the FCA investigation is due to conclude this summer! Albeit of course the investigation is focused on the sales & marketing of those loans, so he would not have been responsible for that in the organisation.

Laughton

https://www.piworld.co.uk/2021/04/30/piworld-andy-broughs-3-minute-stockslam-other-gems

Many thanks Tamzin for yet another excellent offering. Andy Brough on top form and definitely worth 40 minutes of anyone's time.

Roger Baron

Don't know if anyone is interested in Trackwise Designs (LON:TWD) but there's a company presentation on a Shares webinar 11th May 6 pm (trackwise scheduled for 6.30). You can register here
https://www.sharesmagazine.co.uk/events/event/shares-investor-evening--webinar-110521 This is one of my largest holdings and I don't expect to be selling it any time soon.

WDWombat

You make a very good point about the SaaS model. Eleco ELCO was a family business that suffered badly in the past and was taken over and transformed by what looks like an innovative team. It bears further study though I am unsure if there is much coverage available to the private investor. At just below £100mn market cap this could be an inflection point if progress can be maintained. (I do not hold!).

illiswilgig

Eleco (LON:ELCO) (I Hold) Thank you Jack for your excellent summary of Eleco.

The company was under the radar and cheap for quite a while. Not so cheap now - but also not expensive in respect of its products and rate the construction and building maintenance industry is digitising.

The company appears to have held together well during the pandemic - despite a lot of its major clients being severely disrupted during the first wave. The company did well to switch to remote working swiftly and efficiently and move quickly to provide its clients with on-line training, launch cloud based updates just in the nick of time and provide for remote working licences and freebies aimed specifically at furloughed staff. Which I think will stand the company in good stead as the recovery progresses.

There is always a however. As the old Eleco left behind is own construction heritage to focus upon its fledging software business - it has been very acquisitive. There is criticism that organic growth has been low, and cross-selling has not delivered, particularly in markets like the US and that most of the growth has been by acquisition. Moving to a Software-as-a-service model often exacerbates this as we see at other companies moving in the same direction eg Vianet (LON:VNET) (I hold) and D4t4 Solutions (LON:D4T4) (I hold).

It may be that ELCO is now in a position to deliver on the organic growth - I will be delighted - and the Q1 statement does look like terrific profit growth (21%) in comparison to good, if not exciting Saas revenue growth of 9% and impressive cash balance, demonstating the reality of the profits.

But, Is this growth expected to continue?

And. Something is afoot with the board. Two large shareholders have just submitted a requisition for a GM at which the executive chair and the NED chair of the remuneration committee are to be 're-elected' and the remuneration policy 'approved'. Or not perhaps?

This should be seen in the context of the longterm visionary executive chairman of the company retiring (I think he was in his mid-70's) in the middle of the pandemic and without, apparently a proper succession plan in place to appoint a CEO. The NED recently installed as deputy chair and as chair of the remuneration committee then stepped up to executive chairman temporarily whilst the process of appointing a CEO commenced. There having been no CEO previously - but the internal candidate, the COO has now appointed as the CEO, whilst the executive chair has yet to step back to non-executive.

That's probably not the way I would have gone about it -but it has to remembered that this was in the midst of the pandemic. And may have been necessitated for health reasons?

It does appear that some large shareholders - with whom there may be history? - are seriously irate? It does look as if the board has been slow to buy a sizeable shareholding (the previous Chairman still owns a large chunk of the co) and the remuneration policy does look tied to 'trivial' targets and healthy dollops of share options in comparison to what the shareholders may be looking for? Current board not well aligned to shareholders?

The board has been very quick to rush to the defensives with the NED under threat stepping up immediately to buy 90,000 for around 100k - and spout his defence of the board. Followed almost immediately by the gushingly positive Q1 statement.

Provided this does not affect the operations of the company I don't have a problem with this - and I do intensely dislike the entitled attitude of many board members in comparison with their treatment of the teams that actually deliver the riches they like to guzzle.

At the moment I don't think it does interfere - provided it works out quickly one way or the other - and at the moment it seems to have the effect of popping the shareprice as the board rushes to justify its self-enrichment.

I do hope it does not get out of hand - ideally these two characters will reach a deal with the shareholders and disappear of their own accord in time ? These kinds of companies producing software selling well in markets that are huge and rapidly moving towards digitisation are hard enough to find as it is!!

cheers

Mark

Kaboom

Tesla has lowered the price of many models by c 15% this year

Really? I don't follow these things but perhaps this has something to do with lower duty rates in the UK, now we are out of Brexit and the recent strength of GB£ against the US$...

JohnEustace

Re Sylvania Platinum (LON:SLP) there is a new market opening up for PGM catalysts in hydrogen fuel cells.

samanddee

Paul and Jack - many thanks for all your hard work as always it’s most appreciated. Did I read a week or two back that there was a plan to put out a post just on coffee can ideas? Sorry if I picked it up wrong but if there was a post would you mind pointing me in the direction in case I missed it! Always good for research these! Many thanks. Sam

Dojosan

PGM metals still relevant for EV revolution - for hydrogen fuelled cell batteries vehicles - https://www.miningreview.com/e...

Alistair Lindsay

Andy Brough is always great value, but today's interview with Tamzin was especially good.

KTF67

1st May '21

Eleco (LON:ELCO) is far cheaper than Swedish large cap Hexagon although they have similar FCF margins eg FCF/EV = Eleco 6%, Hexagon 3%. If you re-gear both companies ND/Ebitda to 0.5*, the PE is 22* vs 29*. Using similar future growth (+5% for a few years then fade to +3%) but higher WACC for Eleco (8% vs 6%), Eleco's upside is 29% vs Hexagon +7%.

rmillaree

UK_Investor-8888

Tesla's corrode if you live near the sea. Battery packs are not designed or engineered for repair. A couple of bad cells can ruin a battery pack and the repair bills are $$$$s.
It is a very depressing picture from the environmental and owner's point of view.

I don't think any technology is perfect and we have alot to learn when it comes to finding the sweet spot ref the "full cycle" for these batery components. Having said that most of the comments i have seen ref Tesla battery performance have been encouraging and if you buy a Model 3 you get the following warranty in the uk.

Model 3 Standard Range - 8 years or 100,000 miles, whichever comes first, with minimum 70% retention of Battery capacity over the warranty period.

So if it was me i wouldn't be worrying my flapjacks about what what could possibly happen safe in the knowledge that practicably speaking you are sorted for 100k miles or 8 years ? is that not enough of acomforty blanket ? - particularly if you have your own limited company the government is paying a very decent wad of the price you would pay to make the swap.

I have not seen any evidence that Tesla's depreciate in value faster than other cars either - if there were major issues i would expect to see this fact reflected in lower resale values than the average new car. We certainly have plenty of peeps living near the sea in the UK :)

With regard to the environmental point of view ref end of life - i would be 100% confident that the infrastructure will be in place come the time to dismantle the uk/eu end of life batteries in a fashion that is acceptable to the environment and hopefully all done on "our patch too". I for one am impressed with how far we have come from 5 years ago when i think they had the first leaf that probably struggled to do 75 miles on a damp sodden day.

UK_Investor_8888

rmillaree

You make some excellent points. I must acknowledge that I was referring to Tesla vehicles, particularly the oldest vehicles, outside of service/warranty.

It has not sunk in to me yet that I'm rich. I still spend and think like I'm on £10K a year and never pay over-the-top. Fix and Upgrade rather than buy "new".

I really hope we will see all manufacturers committing to full lifecycle and full component recycling.

CabinPressure

The real question is: will it be Tesla or the traditional car companies that solve all the problems with EVs first?

I can see the big German car cos setting up a road block for Tesla.

And the Japanese will set up another.

In the meantime, we watch ... this is a spectator sport.

Cash at end of 2020 was only £1m.

R&D in 2020 was £3m (2019: £11m).

Did it raise a further £1.5m in April 2021?

A business with no turnover make me nervous.

What does it make you?

timarr

The real question is: will it be Tesla or the traditional car companies that solve all the problems with EVs first? I can see the big German car cos setting up a road block for Tesla. And the Japanese will set up another.

They'd better hurry up. Share price movements in the last ten years:

BMW: up 49%
VW: up 87%
Nissan: down 20%
Toyoto: up 211%
Honda: up 32%

While that's been going on:

Tesla: up 12324%

I think, as an investor, I'd rather have been wrong with Tesla than right with the rest of them.

Richard Goodwin

2nd May '21

Nokia's history dates from 1865, when Finnish-Swede mining engineer Fredrik Idestam established a pulp mill near the town of Tampere, Finland (then in the Russian Empire).

Small Cap Value Report (Fri 30 April 2021) - PCIP, CARD, FA., UPGS, SLP, ELCO

Paul’s Section

Pci- Pal (LON:PCIP)

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Paul Scott

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