Small Cap Value Report (Mon 15 Apr 2019) - IGR, SND, SYS1, CARR, XPP, RCN, FLTA | Paul Scott

15th Apr '19 by Paul Scott

78 comments 15831 reads

Good morning subscribers! It's Paul here, I'm on duty this week.

Thanks to Graham for his interesting reports last week. I think he made a compelling case for Tandem (LON:TND) and I picked up a little stock myself after reading Graham's report. Although tiny, illiquid shares, can be problematic, especially in turbulent markets, as it can be very difficult to sell. The bid/offer spread was horrible.

The so-called Brexit cliff-edge seems to have receded until end Oct 2019 now (and likely to drag on well beyond that). So I think we could see buyers returning to oversold small caps. Or at least ones which report positive trading updates.

I'm experimenting with the format here, and have today trialled the idea of posting some earlier, briefer, comments each day. Then expanding on the more interesting announcements in more detail, as the day progresses, and when I've had time to do some more digging, got broker updates, etc. Let me know what you think!

IG Design

IG Design Group plc, one of the world's leading designers, innovators and manufacturers of Gift Packaging & Celebrations, Stationery & Creative Play, Giftware & related product categories announces its trading update in relation to the year ended 31 March 2019.

Strong final quarter, which was expected, as the result is in line with expectations (not above);

The Group's strong trading performance continued in the final quarter delivering revenue and profit growth across all regions in the year.

As a result, the Board anticipates the financial performance of the Group to be in line with market expectations and significantly up year on year.

Results helped by acquisition, called Impact
Net cash better than expected, and improved on last year
Dividend will be increased
Directorspeak emphasises international operations
Outlook - nothing specific, but management sound positive about further growth

My view - remains positive. This group has a superb track record to date.

Valuation of 19 times FY 3/2020 forecast earnings looks justified.

StockRank of 77 is good. Classified as a "High flyer".

(above written at 07:30)

UPDATE: The initial market reaction to IGR's update seems somewhat underwhelmed, with the share price down slightly - albeit with only 45k shares reported as having been traded so far. Of course it's only the small trades that are reported straight away. Larger trades could…

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JamesS

15th Apr '19

I see the idea behind less effort and time spent on the "less detail on the middling" companies is a reasonable idea, however I also have found great value in learning what companies what not to invest in, Patisserie Valerie being the latest example, and so personally would appreciate some of these being kept in.

simoan

2 (Different Topic). I presume the post by Aflash was sneaked in just before the subscriber deadline became effective. 11:45pm on Sunday. As it's a 100% disruptive post with nothing else to offer, I suggest it is deleted.
Hopefully he is not a subscriber & if that is the case, good riddance.

Oh. I thought the deadline was midnight on Friday. No wonder someone managed to take a cheap shot at me before they left! I think it's a shame we probably lost some good contributors for whom £225 was maybe too much given their small portfolio size, but I believe some of the others who could easily afford the subscription were not serious investors and so will not be missed too much. Personally, although it's good to hear others opinions I mainly want to here from others with serious skin in the game.

I believe some of the others will be back when they realise what they are missing out on, and that they have let their short term behavioural biases to the imposition of a charge effect their long term investment success. It's almost like some kind of reverse endowment effect with loss aversion thrown in (help me out here timarr!). I remember feeling the same when Sky first got the rights to live Premier League football in the early 90's and it was no longer on free to air TV. Nowadays (nearly) everyone acknowledges that you have to pay up for premium content whether that's live sport, films or quality internet forums.

All the best, Si

pippasfan

Whilst merely dreaming of disco dancing with Paul, I have to disagree with him slightly on Carr’s, where I hold a long position. Boring companies are excellent value. One of my biggest winners over the years produced ball bearings. Robbie Burns (I am a fan) writes in his books that boring companies are worthy of investing. Apologies Paul for arguing x

janebolacha

The new format being trialed today is very poor, imo, being simply what anyone can glean themselves from very cursilory scanning the day's RNS. Apart from that, the interminable squabbling on the board is becoming insufferable. Unless the mess is taken in hand, I can see more people simply giving up on Stockopedia.

MichaelFBS

Hi aflash

Don’t agree with your comment about Paul’s profile and not sure what you were trying to achieve by the comment. Can you expand?

Also could you lead by example as at your profile

https://www.stockopedia.com/contributors/aflash/

you haven’t written anything about yourself. I think it would helped to give context to your comment.

BW
Michael

Lion Tamer

XP Power (LON:XPP)

This part of the update...

The book to bill ratio, which tracks the relationship between orders received and completed sales, and which is an indicator of future revenue growth, was 1.16 for the first quarter (2018: 1.10 times)

...suggested to me that the the reduction in first quarter like-for-like, constant-currency drop might be just noise that could well be corrected by the end of the FY, and to be expected given the size of the company.

(Disclosure modest position, worthwhile but not a full-on conviction holding).

-----

£ format of the SCVR

I'm happy for any format, but caution against asking Paul & Graham to report more or less on stocks based on size or investment potential. I'd rather continue to read about the good, bad and ugly so I improve my own investing skills. I'd be worried if anyone were to think of the column as being here to persuade investment or sell decisions. I don't expect Paul or Graham to get it right all the time (although clearly their track records are not that bad).

I can see more people simply giving up on Stockopedia.

Where would you go though? This is a genuine question. Free and open quality share discussion forums are pretty thin on the ground these days. I've never posted on, or bothered much reading ADVFn, for instance. And then of course there is the data, which is the main reason that I subscribe having not got on with a trial subscription to Sharepad. Lemonfool is very light on individual share discussion with most involving the High Yield Portfolio (HYP) approach.

SundayTrader

Rather agree with you - what's dull about any company that makes money and is paying a reasonable dividend?

I don't hold Carr's (LON:CARR), but it is on my "interesting" list, on the grounds that there are some green shoots after a rather poor past five years - engineering looks good, and feedstuffs are starting to turn round a bit. At some point there will be a rerating on this stock.

JohnEustace

I have to agree with Janebolacha on the format. For me there's little point Paul or Graham repeating what we can read more quickly for ourselves from a quick scan of the RNS's. It's spoon feeding rather than DYOR.

It's their judgement and insight into the things that I may not work out for myself that I value, along with the insightful contributions from other posters.

mammyoko

Re Sanderson (LON:SND) i was reading the latest set of accounts and came across the following comment in respect of the £10m of pension scheme assets - "None of the scheme’s assets have quoted prices in an active market.". Needless to say, this somewhat surprised me! Does anybody know why this could be? Should I be worried that their pension scheme assets appear to be entirely invested in illiquid assets?

Disclosure: I hold

Vsihv

New format:
I am a big fan of the format being run today.
Seems almost like a day in the life of, which is great from a learning perspective.
Investment leads are great, but I value the learning opportunity from the reports, since a number of the companies covered, would not fit my universe (and I expect this applies to others as well)
Ideally I would like to know upfront (on an entirely non-committal basis) which companies make the cut for further review / in depth research (either as a perspective investment long/short or because it is an interesting update).

Re Company coverage -
I think Paul and Graham stick to those they find most interesting - it is fair for both to realise the synergies to their own investing activities by doing this report daily, compensated or otherwise.
On a busy day, there is no way they will be able to cover everyone's requests / reports and it will leave some people dis-satisfied.

Perhaps the stocko team will consider a fortnightly / monthly editorial where the topics are crowd sourced or alternatively the Friday report on a quiet day could be used for this, with the placeholder put up at the start of the week.

PS - hope those that did take up the subscription are finding the data services useful.

cholertonandrew

It’s good to have a bit of personality.

Andrew

ken mitchell

To save a lot of further discussion which could end up irritating everyone, best if Paul and Graham do it however they want to?

Their daily reports are just a superb extra on top of the wealth of information on Stockopedia, so anything they choose to do is an added bonus.

I don't believe it is noise (I hold btw). Last year saw record sales of semiconductor equipment which are not going to be repeated this year, and in particular the fall in memory prices is not helping things. As of the last half year report, 26% of XP Power (LON:XPP) sales were into this sector, increasing due to the acquisitions of Comdel and Glassman. This had dropped to 24% at the end of the FY reported last month.

Certainly the semiconductor industry has reached a stop off point in terms of new process technologies being developed and coming on-line for the time being (Intel would call this a "tick" period, not a major "tock"). It is after all a very cyclical industry. This is likely to mean subdued demand for new equipment for a while but the long-term fundamentals for the semiconductor industry are very good, and what's more, it's a very large market of which XP Power (LON:XPP) has a very small market share, so there are opportunities to grow sales into the sector longer term.

Paul Scott

Hi Pippasfan,

I agree with you that boring companies can be very lucractive.

However, that has not been the case with Carr's (LON:CARR) . As I pointed out in the article above, the share price has has gone sideways for the last 5 years. Hence predominantly why I find it boring - poor shareholder returns, in a bull market, when hundreds of other shares would have given far superior returns.

If you could point out something interesting about the company, which is likely to produce higher earnings, and hence a better shareholder return, then I'd be happy to modify my opinion.

No need to apologise for disagreeing with my take on any company - that's the whole idea, that we can discuss companies, and come to better informed decisions by swapping ideas here :-)

Best wishes, Paul.

abtan

Hi Paul

Interesting comments on a holding of mine, Sanderson (LON:SND) , in particularly your concerns of their £3.8m pension deficit. I actually didn't see this as an issue. My rationale is as follows:

Operating cash flow for 2017 & 2018 (after pension contributions of £0.4m and £0.6m respectively in each year) was still £4.5m & £5.3m respectively.

Operating cash flow, excluding changes in working capital, has also been strong over the last few years:
2015 - £3.6m
2016 - £4.3m
2017 - £4.0m
2018 - £5.7m

I compare the above figures with the the pension deficit at the end of FY18 of £3.8m

Even accounting for the 3 recurring biggies further down the cash flow statement:

capitalisation costs,
dividend payments(>3% dividend at the moment),
loan repayments,

this is a pretty cash rich company with sticky recurring revenues.

So the pension of £3.8m, incidentally down from £6.2m in the prior year, doesn't seem to be overly concerning, at least to me.

Cheers

Hi Jane,

I'm very disappointed in your comment above.

I see that you posted it at 10:49. I've now finished the report (at 12:46) and I've added loads of extra detail, on the companies which initially interested me the most.

So I'd ask you to re-read the complete report, and see that the idea is this;

Get some earlier comments up (which are much more than just copy pasting), and

Expand on the most interesting updates with more detailed reporting, which is the same as the old reports.

But I've got it all done before 1pm today, by working flat out for 6 hours from 7am. So very dispiriting for you to tell me it's rubbish (when you haven't read the whole report!).

Paul.

Hi abtan,

I didn't say that the pension deficit at Sanderson (LON:SND) is particularly concerning, because it's not.

However, as a £586k cash outflow, it needs to be taken into account when valuing the company's shares. Remember that the PER will not reflect that cash outflow.

Hope that clarifies.

Regards, Paul.

Laughton

Re new format:- OK, so it's the first day so hopefully will be developing but have to say that I'm not a big fan of the new format so far.

For me, at least, it now involves reading the whole report twice (so far). First read, your initial comments then having come back again I find I have to scroll down from the top to find UPDATE but then have to read the original comments again to put the updated comments into perspective. Possibly I'll have to come back later and if there are further updates I'll have to read again.

Afraid I was one of those disappointed when reports didn't make it until late in the day but so far I preferred that to this.

I guess I could just leave it until the end of the day and read the whole thing in one go but then you might as well go back to the "old" way of doing it. Besides, then I don't get my early(ish) morning fix with my coffee.

Sorry.

Paul,

Please carry on doing whatever you feel best. I am happy to read it in any format you so choose. I really despair sometimes that people are so critical without good cause and it is exacerbated by those silly blue thumbs so it is easy to understand your disappointment, not only in the rather harsh comment from Jane, but the fact that so many subscribers have given it a thumbs up. The silly thumbs have no effect on me these days (please give this post as many red thumbs as you like) but I wish Stocko would remove them from the comments section only.

Small Cap Value Report (Mon 15 Apr 2019) - IGR, SND, SYS1, CARR, XPP, RCN, FLTA

IG Design

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Paul Scott

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