Small Cap Value Report (Mon 25 June 2018) - PRV, AVG, CWD, MRL, Mind Gym

Monday, Jun 25 2018 by

Morning, folks. Today I'm planning to cover:

Porvair (LON:PRV)

  • Share price: 493.5p (+3%)
  • No. of shares: 45.6 million
  • Market cap: £225 million

Half Yearly Results

I like how promptly this has been reported. Other companies have only released their annual results for the period ending December in the last few days, while Porvair is already releasing interims to May.

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its half yearly results for the six months ended 31 May 2018.

I'd give the company a premium rating simply for keeping on top of its accounts so well, and keeping shareholders properly informed!

Financial highlights are good;

  • Revenue up 7% to £59.7 million (2017: £55.5 million), 12% on a constant currency basis*.
  • Profit before tax up 8% to £5.2 million (2017: £4.9 million).

See how the currency movements were a headwind to revenue. 12% is the measure I would use when thinking about underlying growth rates. Most of the company's revenue originates from the Americas.


Encouraging to see the company specifically mention its ROCE performance:

The Group's return on capital employed was 14% (2017: 14%).  Excluding the impact of goodwill, acquired intangible assets and the pension liability the return on operating capital employed was 42% (2017: 43%).

It has grown by acquisition and therefore the goodwill and other intangibles are a very significant portion of the balance sheet: £65 million (for context, balance sheet book value is £80 million).

This is why you have such a large discrepancy in the ROCE calculation, depending on whether or not goodwill etc. is included.

14% is the actual number enjoyed by Porvair shareholders (Stocko roughly agrees, estimating Return on Capital at 12.6%).

42% is the company's view of its return on tangible capital employed, also ignoring the effect of its pension deficit. What that says to me is that the underlying businesses must be very interesting in terms of their ability to generate a return for shareholders. Porvair management have had to pay up to acquire them and therefore the return…

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All my own views. I am not regulated by the FSA. No advice.

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Porvair plc is a specialist filtration and environmental technology company engaged in the development, design and manufacture of filtration and separation equipment. The Company's operating divisions include Metals Filtration and Microfiltration. The Metals Filtration Division designs and manufactures porous ceramic filters for the filtration of molten metals, principally aluminum. The Microfiltration Division designs and manufactures a range of filtration equipment for application in aerospace, energy, bioscience, water and industrial applications. It is developing a range of products, including the products for the manufacture of turbine blades, solar panel manufacture and energy storage. It operates Microfiltration division through its subsidiaries, Porvair Filtration Group, Seal Analytical and Porvair Sciences. It operates Metals Filtration Division through its subsidiary, Selee Corporation. It has plants located in the United States, the United Kingdom, Germany and China. more »

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Avingtrans plc is a United Kingdom-based company, which is principally engaged in the provision of engineered components, systems and services to the energy, medical and traffic management industries around the world. The Company operates in energy and medical segment. The energy and medical segment is engaged in the designing and manufacturing of machined and fabricated pressure and vacuum vessels and process plant and equipment for the power, oil and gas and medical markets. The energy and medical segment is also engaged in the designing and manufacturing of fabricated poles and cabinets for roadside safety cameras and rail track signaling. The Company's geographical locations include the United Kingdom, Europe, North America and Rest of World. The Company's subsidiaries include Crown UK Limited, Stainless Metalcraft (Chatteris) Limited, Composite Products Ltd, Hayward Tyler Ltd and Peter Brotherhood Ltd. more »

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Countrywide plc is an integrated, full service residential estate agency and property services company in the United Kingdom. The Company offers estate agency and lettings services, together with a range of complementary services, and has a presence in areas and property types which are promoted through locally respected brands. The Company operates through four segments: Retail, London, Financial Services and Business to Business (B2B). The Retail network combines estate agency and lettings operations. The London division revenue is earned from both estate agency commissions and lettings and management fees. The Financial Services division receives commission from the sale of insurance policies, mortgages and related products under contracts with financial service providers. Business to Business services comprise all lines of business, which are delivered to corporate clients, including Surveying Services, Conveyancing Services and revenue from Lambert Smith Hampton. more »

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  Is LON:PRV fundamentally strong or weak? Find out More »

21 Comments on this Article show/hide all

jonno 25th Jun '18 2 of 21

Good morning Graham

A positive update from niche engineer Avingtrans (LON:AVG). Integration of the recent acquisitions has gone well and it states that trading has remained strong with profit expectations for the year ending May 2019 anticipated to be ahead of expectations. It also announced a new £5m government contract with the opportunity to tender for further business.

I hold and would welcome your thoughts if you have time.

All the best


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Aislabie 25th Jun '18 3 of 21

Porvair (LON:PRV) reported another sound set of results for H1. I hold but and I am trying not to fall in love with a company that continually comments modestly and clearly,while showing steady improvement in its numbers. The outlook is hedged around with warnings about the short term lead of orders and potential unpredictability, but over the years the management has shown a n ability to justify the rather high p/e

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Graham Neary 25th Jun '18 4 of 21

In reply to post #377604

Hi Jonno, thanks for the tip - will take a look! G

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Camtab 25th Jun '18 5 of 21

Graham, a bit broader than normal but just interested to know if you have a view. We have touched on Somero and Water Intelligence both US businesses, somero is looking to business in China. I am of the view that given Trump's stance these are both very highly valued businesses which are fast looking shorts.

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Graham Neary 25th Jun '18 6 of 21

In reply to post #377634

Hi Camtab, off the top of my head I can't remember WI's position. As far as Somero goes, it has very little traction in China yet so US-China protectionism shouldn't affect its existing revenue streams very much.

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rhomboid1 25th Jun '18 7 of 21

Somero Enterprises Inc (LON:SOM) is c 5% of revenue in China...and c 72% in the USA so any trump trade barriers to cheap Chinese kit landing in the US is a net benefit to SOM?

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phoenixnight 25th Jun '18 8 of 21

In reply to post #377634

Hi Camtab

As a holder in WI, could you explain the rationale between Trump & shorting WI please? I've scratched my head and given it some thought but am struggling.



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leoleo73 25th Jun '18 9 of 21

In reply to post #377634

Camtab, it is interesting you say that because I've also been thinking about my US exposure in light of recent events. The issues in my mind are:
* Growth risk. Current policies are pro-cyclical expansionary and so in the short term are bullish, but are likely to deepen the next recession.
* Currency risk. By which I mean the risk to the translation of US earnings into pounds. The dollar has recently been driven by interest rate differentials and a weak pound / euro. There is some risk that the government will in future intervene to limit Fed interest rate rises for political reasons resulting in an inflationary and devaluationary spiral.
* Investor protection / climate. Foreign companies, or those with predominately foreign investors, or those mainly quoted from a foreign exchange always at higher risk of confiscatory policies. The climate has long been deteriorating in the US - witness how BP and arguably VW were treated, withholding tax policies etc. While it is nowhere near as bad as most developing countries, let alone China, they are undeniably moving in that direction. The current hierarchy of countries is of course highly debatable and controversial.
* Moral position. There are sectors and countries that I avoid investing in to various degrees. For those that consider this sort of thing (a minority, I think), it might get to the stage where this precludes you from investing in US companies. Again, the current hierarchy of countries would be highly controversial (= I won't discuss it here).

Somero Enterprises Inc (LON:SOM) - I would describe them as moderately rather than "highly" valued, and I don't think the price reflects any expectation of Chinese growth. In the short term, current policies should be very good for their US business. Foreign earnings would mitigate the impact of a potentially falling dollar. They are mostly owned by UK and Canadian institutions and so are at risk from adverse US government action but not so much from management action. (I have a moderate holding).

Water Intelligence (LON:WATR) - These could reasonably be described as "highly valued" in UK terms, but not for a US growth company. Current policies may adversely affect their business to the extent that leak detection is driven by regulation. Earnings are all in the US and so would be badly affected by a potentially falling dollar. Ownership is by a US institution, US management, some UK institutions and an unknown mixture of US and UK private investors. I would say the risk here is more of adverse management action, but frankly the most likely thing to happen is for the listing to be moved to the US which should result in a significant re-rating in the shares inline with higher US share valuations. (I sold out on valuation and management language concerns).

The bigger issue for me is probably exposure through the FTSE 100 trackers I own and the risk of a US market crash impacting general UK valuations. These I have hedged with S&P PUTS.

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ls2g08 25th Jun '18 10 of 21

Bioquell (LON:BQE) has shot up 15% over lunch, anyone aware of any reason why? I cant see any news.

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cholertonandrew 25th Jun '18 11 of 21

In reply to post #377684

Re Bioquell, I think Simon Thompson of Investors’ Chronicle put out a positive note on it. Might have played a part.


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sharw 25th Jun '18 12 of 21

If you look at Bioquell (LON:BQE) trades you will see two before noon and dozens after - this is typical of the ST effect. I believe his emails go out at noon to those who subscribe. Having suspected this the next step is to go here:


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fwyburd 25th Jun '18 13 of 21

Re Marlowe (LON:MRL)
Thanks Graham for your analysis.

The team behind Marlowe (Lord Ashcroft - major shareholder; Charlie Skinner - is a NED but also CEO of Restore (LON:RST); Alex Dacre - CEO but used to be at Restore and Impellam (LON:IPEL) ) have a great track record of buy and build.

Restore (LON:RST) is a good reference point for how fragmented businesses - in their case box storage, shredding and removals - can be acquired and create shareholder value. If you look at Restore's PE you'll see it's also highly rated and it wouldn't surprise me if Marlowe (LON:MRL) ended up on a similar or even better rating as it's strategy is similar but it's also in a more regulated space.

I'm a happy holder


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Graham Neary 25th Jun '18 14 of 21

In reply to post #377714

re: Marlowe (LON:MRL)

Hi Francis- great insights, thank you. Will bear that in mind in future reporting on this stock!

Best wishes


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Carey Blunt 25th Jun '18 15 of 21

Wouldn’t mind gym be more like Learning Technologies (LON:LTG) or at least the net dimensions business before Learning Technologies (LON:LTG) bought them. They seem like a learning and development company than a b2b media company?
I’ve been aware of mind gym for a while but will look more deeply into them now they plan to list.

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Trident 25th Jun '18 16 of 21

If most of Mind Gym's trainers etc are self-employed, I wondered if there will be future possible headwinds that have buffeted Deliveroo, Uber, and Pimlico Plumbers in respect of self-employed staff being treated as staff, or subject to certain employment protections?

The Govt effectively caused most public bodies using service companies 'staff' to reverse their policies (see BBC etc), and are currently in 'consultation' mode with the private sector. Whilst that's hanging over their heads, and if Mind Gym are using a significant number of self-employed staff this may be a continuing risk, which I am sure is marked up in the risks section of the Public flotation documents.

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beatingmrindex 25th Jun '18 17 of 21

There is no way mind gym are worth £145m Well done to the founders for a fantastic result though

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Gostevie 25th Jun '18 18 of 21
Mind Gym is a behavioural science business that uses scalable proprietary products to deliver human capital and business improvement solutions to large corporations.

Erm... If anybody more hip, cool and groovy than me who understands this sort of guff stuff could translate it into understandable English for old farts like me, I'd be very grateful. :-)


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timarr 26th Jun '18 19 of 21

In reply to post #377774

Erm... If anybody more hip, cool and groovy than me who understands this sort of guff stuff could translate it into understandable English for old farts like me, I'd be very grateful. :-)

"We have some software that builds on psychological research to profile peoples' behaviour, and we then use the results to tell companies how to do things better. And they pay us for it, although not nearly enough to justify our valuation, but we don't care because we're all rich now".

Sass that hoopy frood.


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crazycoops 26th Jun '18 20 of 21

I haven’t looked at their IPO but I have worked alongside MindGym in the past and seen them at trade conferences a few times. Basically, they are a training company. Their initial product was 90 minute “brain friendly” workshops (their edge was to condense a 2/3 day course into 90 minutes). They subsequently developed online/remote offerings (eLearning/webinars).

I haven’t looked at them for the past couple of years, so the above might be a little dated.

Regarding blue chip clients - be careful. Even as an independent practitioner I had several FT100/S&P500 clients. And later, as training director for a Nasdaq mid-cap I bought from them a couple of times to fill a tactical need. But that sort of business isn’t sticky and needs constant sales/marketing effort. This said, the first time I encountered them was when they and I were 2/3 co-vendors fulfilling a 2 year rolling programme for a FT100 company (this is good quality business). Another area that could be interesting is their online offering - this will provide a form of SaaS type income perhaps (but I would be careful about the renewal percentage in this sector - some of this biz will stick long-term and some will be quite flaky).

I’m not really interested in this type of business as an investment, so haven’t researched further. I agree with Graham that there will probably be some profit warnings along the way at which point MindGym might become interesting as an investment. They do have a decent brand reputation. I hope my industry view gives some indication why I am cautious about the quality of earnings in this sector (same bucket as recruiters, consultants in my book). They also tend to be pretty cyclical of course.


Blog: Share Knowledge
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schober 26th Jun '18 21 of 21

Unfortunately about half of the revenue is from the UK; if we end up falling out of the EEA then Prv (and many others) will be hit very hard

An alternative to PRV is Donaldson DCI, which has little uk exposure
However both are highly priced

Buy either on weakness?

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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