Small Cap Value Report (Mon 23 Dec 2019) - CNKS, NICL, MMX, ZOE, FCRM, HW.

23rd Dec '19 by Graham Neary

31 comments 8108 reads

Good morning!

News releases are beginning to die down, as we head deeper into holiday season.

Indeed, those companies which issue things like their annual report on New Year's Eve, might be interpreted as not wishing very many people to read it! Or perhaps they are disorganised, and need six months to get their numbers ready (assuming their financial year ends in June).

Some things I've noticed today:

Cenkos Securities (LON:CNKS)
Nichols (LON:NICL)
Minds Machines (LON:MMX)
Zoetic International (LON:ZOE)
Fulcrum Utility Services (LON:FCRM)
Harwood Wealth Management (LON:HW.)

There is also a lot happening with NMC Health (LON:NMC), where the short-seller Carson Block ("Muddy Waters") launched a bear raid last week.

Timings: planning to wrap this up by 2pm. Finished at 2.30pm.

Cenkos Securities (LON:CNKS)

Share price: 47.5p (+7%)
No. of shares: 57 million
Market cap: £27 million

Major shareholding update

"You learn something new every day" - today I learned that Cenkos is named after Andrew Stewart's first horse.

Andrew Stewart is the man who is also responsible for the naming of the old stockbroker Collins Stewart (later bought out by Canaccord Genuity).

Stewart is one of the founder shareholders of Cenkos. He returns to the shareholder register today with a 7.4% stake (4.2 million shares).

Prior to this news, he did not have a notifiable stake.

I've mentioned a few times (e.g. in September) that Cenkos is "cheap", since it has net assets of £26 million (mostly consisting of cash and liquid financial assets) and the market cap has only been around this level.

It reported a small H1 loss, but this doesn't detract too much from the very long track record of profitability - it has traditionally been very good at linking pay to profitability, so that staff can share in the misery when business is quiet (conversely, they do extremely well when business is good).

Cenkos returned to its traditions with the reappointment this year of Jim Durkin as CEO. He is another founder shareholder…

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Lord Gnome

23rd Dec '19

Thanks Patrick. That pretty much sums up my own view. I’ve been in and out of Cenkos in the past but currently on the sidelines as they seemed to have lost their way. Not overly impressed with some of the companies with which they have been involved. I may have to hold my nose.

FREng

There's an 8% jump on low volume in Zytronic (LON:ZYT) this morning.

ken mitchell

A few further Cenkos pointers.

Cenkos Website is very useful for all new transactions. November (and Election uncertainty) was a barren month. 2 new transactions in December with M J Hudson a decent size too. (£29.3 Million).

The number of transactions since last results suggest next results could be uninspiring BUT key thing will be the outlook which post Election could well improve, albeit not as much as if Europe outcome this time next year was clearer. Business across the board surely were hoping for a bit more certainty. That disappointment reflected in fall in £ since the more hard line news from the PM. .

Edison note last month pointed out that over the last 10 years Cenkos average price to book ratio was 2.4 and peaked at 4. It is currently 1. So a lot of bad news looks priced in.

Sector has seen consolidation. That could just make 2020 very interesting.

Note that Numis recently issued far from inspiring results. Yet Numis share price has risen another 20% since them thanks perhaps partly to improved Outlook and with clear cut Election result. . And Numis price to book is more than double current Cenkos figure. OK Numis IS better quality but the Numis share price on a far higher rating than Cenkos reflects that.

Another very good write up from Graham on Cenkos today. It's also well worth checking Graham's Numis update too, after their results 3 weeks ago, for further comparisons:-

https://www.stockopedia.com/content/small-cap-value-report-wed-4-dec-2019-lgrs-quiz-pcf-saa-loop-num-ipx-cct-534771/

Didn't have time to check if this is still the case before posting this in haste, but in the past Director pay was relatively modest and they relied on the excellent dividends from their own large shareholdings to supplement it. I know Jim Durkin holds around 9% . In the past Cenkos have paid a large chunk of their profits/spare cash in dividends. That has lead to lumpy dividend payouts as profits waxed and waned but if profits are heading higher then potentially big dividend is another attraction.

And it looks a vote of confidence (or another reason in a consolidating sector) that Andy Stewart is back in with that new 7% stake.

There was a trading update this time last year, but that one was a profits upgrade .... that expected improvement unfortunately didn't last long. Next year perhaps much better. I've checked and there is no immediate trading update planned.

I hold Numis and Cenkos. Numis has done well, Cenkos bought too soon. Added a few more Cenkos today as risk reward (as long as no new shocks) looking good.

Seasons greetings to all, and another big thank you to Graham and Paul for their superb updates day after day.

Snoo

Anyone have any thoughts on £WRKS? Doesn't seem to have been covered here (no discussions that I can find).

Profit warning in November but since has fallen another 40%. Last year's profit was £1.12m but many exceptional costs in that including £4.4m IPO costs and £1m interest costs (loan cleared with IPO proceeds).

Seems to me that the margins are wafer-thin here, on average £10,000 profit per store? Thus, it does seem likely to me that they will be carrying a large number of stores that are not profitable at all.

In two minds whether they will be beneficiaries of a retail downturn (cheaper rents in future), or be the casualties of one. The shares are priced as if something bad is lying ahead.

DarwenLad

Carclo (Carclo (LON:CAR)) are up over 40% this morning following Friday's Wipac sale announcement after the close of business.

GibboP

Bit strange that in the Minds and Machines 'Pleasure' section they don't own the .shares or .investing domains... seems they've missed a gap in the market!

mammyoko

Graham and Paul - thanks for the fantastic coverage this year. It really has been consistently excellent throughout the year and has both made and saved me money in roughly equal measure. You have also done this in an often humorous (intentionally!) and engaging way. You are able to see through most of the pomposity and dangerous spin that directors try and put on their communications which frequently makes me laugh out loud!

john2

Indeed. So far this year I have bought Creighton's (currently up 45%), Games Workshop (+8%), Judges Scientific (+18%), Reach (+38%), SDI (+23%)and Sylvania Platinum (+10%) as a result of reading the SCVP and other content on Stockopedia. That's a pretty successful year.

fwyburd

Good afternoon Graham, well done for another good report today.

I'm incensed by Malvern International (LON:MLVN) today (Malvern). The sp was up 125% or so first thing this morning in advance of any news. And then an RNS at 12.39 appeared relating to the disposal of their loss making Malaysian operation. Blatant insider trading or a firm which can't manage sensitive information?

Have a great christmas and here's looking forward to 2020

Cheers

Francis

Brookeda

Thats some record, I am hoping you picked a couple of bad ones also or I might get a tad jealous :-)

Graham Neary

Great stuff, thanks Mammyoko.

No real stinkers this year. More luck than judgement in that, I'm sure. I was feeling a bit despondent after last year's October and December falls, so a good year this year has renewed my faith in what I'm doing.

Traderdiary

Looks a long shot, new Michigan law will translate across 888 gain personally. All about opinions. Cheers

Pennyledges

Have a Happy Christmas and please can you then and try to organise us a Prosperous New Year .
Health and Happiness you you all

SundayTrader

Good update from Gresham Technologies (LON:GHT) this morning, will beat earnings expectations for this year, and has improved expectations for next year. At a PER of around 50 it has to. Still, it is continuing to make steady progress. I have held for some time.

Mark Carter

Anecdote time ... I held Nichols (LON:NICL) sometime in the late 90's and early 00's., or thereabouts. I bailed out when it had quite a low PE (single digits, for sure), and growth was expected to be about 5%, but I think got downgraded.

If only I had held this fine purveyor of fizzy cough medicine. That's what it tasted like to me, anyway. I don't know what my return would have been, but it would have been "a lot".

It also reminded me of what Anthony Bolton said in his book "Investing Against the Tide". I don't think there were many practical takeaways from the book, but I do remember him saying that he was not a fan of the PEG ratio, as popularised by Peter Lynch. Bolton said that he would bet on a company with a PE of 5 with an expected growth in income of 5% every time compared to the analogue of a company on a PEG of 20. No doubt there would be caveats like reasonable debt levels, etc..

Just something to think about.

My other dumb sells from about that era that ring a bell are industrials company Halma (LON:HLMA) and greasy sausage roll company Greggs (LON:GRG). Hey ho.

bryans1311

Hi Mark, purely for the purposes of research, can you advise what you’ve sold more recently? :)

Beginner

Some years ago A.g.barr (LON:BAG) management all but agreed a merger with Nichols (LON:NICL) , but the end came when the Nichols family interest urged the hiving off of the Middle East interests. Vimto is a big seller there around Ramadan, and this was seen as the greatest area of potential growth. Since then the family interest has declined, and now the Middle East is apparently becoming much less important to Nichols (LON:NICL) . This might suggest that A.g.barr (LON:BAG) will come knocking again. Their approach to Britvic (LON:BVIC) was stumped by the authorities, and A.g.barr (LON:BAG) have weathered the UK sugar tax comparatively quite well.

abtan

24th Dec '19

Works Co Uk (LON:WRKS)

Hi Snoo

Interesting that you should mention Works Co Uk (LON:WRKS) . I took a quick look at them a few days ago. The cash flow looked too good to be true and I was drawn by the 1 year payback period of its new stores. It is opening 50 new stores per year at the moment.

Based on last year's figures:

Operating cash flow before working capital = c£11m

CAPEX last year was £8m, of which £5m was expansionary Capex.

So assuming expansion stops we could be looking at a company generating c £8m in free cash flow per year.

The EV is only £15m. This is super cheap.

Now onto the bad news.

Capex is increasing for this year as the company invests in its IT systems.

Like-for-Like revenue decreased by 3.6% so far this year, and from my calculations it would only take 2-3 years for this trend to result in full year negative operating cash flow.

There are a lot of assumptions baked into my model, so it will be interesting to see how the company performs over Christmas before coming to a firmer conclusion.

Watching on the sidelines for now.

@bryans1311

I sold Vitec (LON:VTC) late Nov at 995p, and replaced it by Reach (LON:RCH) at 91p. Vitec (LON:VTC) is now at 1065p (up 7% since sale), and Reach (LON:RCH) is at 134p (up nearly 10%). All prices are inclusive of transaction costs.

I sold because Vitec (LON:VTC) reacted poorly on the trading update. I tend to sell out when a price drops 10% or more on a trading statement. Also, its stock rank was about 74, didn't pass any screens, so I felt it was a little weak.

As it happens, Vitec (LON:VTC) has recovered well so far, By pure chance I bought Reach (LON:RCH) just as it was poised to rocket. It's all pure luck, though, and although my holding in RCH is ahead of VTC, it's too early to tell if that means anything. RCH is the kind of purchase that feels risky. You know going in that you might not like what transpires. It was Anthony Bolton who once said that a good purchase is one that feels slightly risky.

Still, it's early days yet, and I've no grounds to celebrate just yet. A profit isn't a profit until it's banked. The thing that attracted me to RCH is that it passed the Cornerstone Growth Screen, which has a good track record, it has a stock rank of 99, and a yield of 7%.

So I decided to bite the bullet.

I had bought Vitec (LON:VTC) is late Feb 2016, so quite a long holding period actually, for a gain of about 81%. Alas, I hasten to add that it was a good'un, and my performance is not consistently that high. I again emphasise that I really only aim to beat the market by a few percent a year over the long term. I am no Paul Scott or chum, Wheelydealer, Robbie Burns, GrinderTrader, or any number of the excellent real investors out there, too numerous to mention.

Vitec (LON:VTC) still doesn't look a "bad" share. PE is 11 and it has a good divvie. I could imagine plenty of worse choices.

Also remember that Santa has been especially generous this year (oh my!), so I shouldn't crow too much.

My dumbest move was probably selling Dart (LON:DTG) awhile back. I did OK out of it, but a lot of money was left on the table for the next guy. Sigh.

Hope you found that interesting.

Update: Oops: a little correction. RCH is up 48% since I purchased it, not 10% as I stated above. So, well ahead of VTC, then. RCH is well ahead of its 50dMA and in the overbought end of the RSI. So a pullback wouldn't surprise me.

Small Cap Value Report (Mon 23 Dec 2019) - CNKS, NICL, MMX, ZOE, FCRM, HW.

Cenkos Securities (LON:CNKS)

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Graham Neary

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