Small Cap Value Report (Mon 30 July 2018) - BoE, LUCE, ARDN, CLG, XPP, FOXT

30th Jul '18 by Graham Neary

25 comments 11776 reads

Good morning!

Today I'm planning to take a look at:

Luceco (LON:LUCE) - trading statement
Arden Partners (LON:ARDN) - interim results
Clipper Logistics (LON:CLG) - preliminary results
XP Power (LON:XPP) - half year results

2:30pm: Edited this list in response to reader requests.

By the way, I stayed in my first ever AirBnb this weekend: a privately owned, 16th century castle deep in the Irish countryside. Admittedly, not much of the original is left standing from the 16th century. But it was a fun introduction to the world of AirBnb!

Bank of England

In economic news, we are on the cusp of seeing interest rates rise again at the Bank of England, for only the second time since 2008. There is a 90% chance of a rate hike on Thursday, from 0.5% to 0.75%.

Personally, I've been reducing my exposure to GBP-denominated assets in recent months, thanks to the tardiness at the BoE. I now have close to 20% of my portfolio invested in funds which own USD-denominated debt.

Leaving the economic arguments to one side, my viewpoint as an investor is straightforward: I want the biggest returns and yields possible! If the choice is to earn (say) 3% in the US or 1% in the UK, then I don't mind swapping the currency risk and moving funds to US instruments instead.

Long-term, I remain a bull on GBP relative to EUR and perhaps even relative to USD. If we saw several rate hikes along with clarification on trade rules after Brexit, then I still believe we could see a very strong pound Sterling - brilliant news for owners of GBP-denominated assets (like many readers of this report, I suspect), for importers, for British tourists, etc. Not so brilliant for others, of course.

Luceco (LON:LUCE)

Share price: 33.8p (-9%)
No. of shares: 161 million
Market cap: £54 million

Trading Statement

It's an H1 update for this LED lighting manufacturer.

I'm amazed to see that this share price has halved since I wrote about it last, in April.

Since then, there have been two interesting bits of news:

It admitted defeat in the US and announced the closure…

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Fishcake

30th Jul '18

Profit warning from Ibstock (LON:IBST), which at least they quantify:
"As a result Ibstock now expects that adjusted EBITDA for the year ended 31 December 2018 will be in the range of £121m to £125m with reported EBITDA in the range £130m to £134m."

Will have new factory coming on stream next year and demand apparently robust, so is this a "good" profit warning that provides a lower entry point?

Andrew L

Clipper Logistics (LON:CLG) results. Appears to be below £400m. A reasonable share price sell-off today. Just qualify under £400m after today's 20% share price fall. I can't seem to see the reason for the large share price fall at first glance but the rating was fairly high to start with.

Damian Cannon

I'd be interested in hearing your thoughts on Clipper Logistics (LON:CLG) as well Graham given the brutal 20% drop in share price this morning! This seems like an over-reaction to me but I think that people are reading this as a profit warning with the reported EPS of 14.2p being much lower than the forecast of 15.5p.

What's confusing is that no mention is made of this being a "miss" in the results and in the last update (in April) the board confirmed that they were trading in-line with management expectations. So are we seeing a big disconnect between market and management figures? Something has been mishandled here but I'm not clear what just yet.

Could be a buying opportunity?

JohnEustace

A classic indeed from Hon Hai Precision Industry Co (LON:HHPD). They are a major Apple supplier so my first thought is that someone is trying to push the Apple share price down ahead of their quarterly results announcement this week.

Rusty2

Clipper Logistics (LON:CLG) I see directors sold millions of shares earlier this year at 430p.

duplicate deleted.

Johnny2509

Clipper Logistics (LON:CLG)

Looking at the accounts from 2017 revenue was up 17.24% and PBT, 22.33%. In their interim statement from December 2017 the management suggested that H2 was the profitable period for the company due to the Xmas trading period.

“Trading continues to perform well in the second half of the year and there is a strong business development pipeline, some of which is at an advanced stage of discussion. Our peak trading period has seen significant year-on-year increases in activity in all sectors, enhanced by the impact of new contract wins coming on-line. Further, the seasonal nature of the Clicklink joint venture means that significant profits are generated in the November and December peak months, with losses typically resulting outside of the peak trading months, such that Clicklink profitability is skewed into the second half of Clipper's financial year.“

The 2018 accounts show a similar revenue increase of 17.65%, but a PBT of only 11.92%, which is down on 2017 and I’d imagine short of market expectations considering what was written in December.

Damian, I'd agree with you here. Clipper's update didn't appear to be straight forward with regard to whether they were on track or not. Companies that spin things like this are not very helpful. The risks to me are that Clipper Logistics (LON:CLG) is working with larger companies that have a better negotiating position.

sbotting

Hello Graham,
Another vote for Clipper Logistics (LON:CLG) from me

Graham Neary

Hi sbotting... yes I'm looking at Clipper Logistics (LON:CLG) now. Half-way through writing about it. Cheers! G

Hi Damian,

As described in my report, the results from Clipper Logistics (LON:CLG) are indeed a miss and expectations for the future have been downgraded as a result.

It's a shame that these simple facts can be left out of an RNS, but that is the system we are working with!

Graham

doug2500

I hold XP Power (LON:XPP) too, and in fact topped up this morning.
In addition to Wildshot's summary I'd raise another couple of points:
1 It wouldn't need to rise much to be considered for FTSE250, would this give it another boost with forced buyers? In fact I think there's a strong chance it will end up there in time.
2 For a company it's size the daily volume is often tiny, sometimes only a couple of hundred shares. Does anyone know why?

sharw

Regarding XP Power (LON:XPP) there is an 8 minute talk by CEO and CFO here:

https://www.edisoninvestmentresearch.com/edison-tv/clip/xp-power-2018-interim-results

The only negative I can see is the shortage in component supply but they are very candid about this saying it has impacted working capital in H1 and will affect gross margin in H2.

I like the sensible attitude to pace of acquisitions that comes across.

kevfle

Graham

Although Stocko report forecast EPS under the "normalised" heading, very often these are in fact adjusted EPS figures quoted by brokers (ie excluding share based payments etc) rather than normalised using their criteria for that. It can sometimes be misleading therefore to compare the statutory EPS given in final results with the Stocko forecasts which are the adjusted figures because you are not comparing like with like. I'm not sure whether this is the case with Clipper Logistic or not but I have found in the past that something which looks on the face of it to be a profit miss is not when you compare EPS on a like with like basis.

Hi, thank you, I'm aware of that issue, and it's a very valid point. In the case of Clipper Logistics (LON:CLG) the normalised EPS forecast on Stocko was lower than the actual EPS forecast from a broker whose research I was able to access. If the actual EPS forecast that I could access had been less than 15.5p, then I would have phrased my remarks differently. Cheers, G

WDWombat

I was getting excited about Asian LED stocks around 20 years ago. They didn't do much then and they don't do anything now, especially as I imagine these UK tiddlers are competing against huge volume producers. LUCE looks like a potential basket case to me and the financials look quite awful - much higher debt and inventory. No thanks.

Wol

Graham
Is there any chance you could give the Stocko development team a nudge on fixing this issue - forecast EPS and normalised historical eps not being on the same basis? Sometimes it doesn’t cause a problem. But I have seen shares with a Stock Report forecast eps growth of 80%+ when the like for like growth was nearer 15%. This can be very misleading when reading the stock report, the Stock Ranks and the guru screens all of which use these numbers. It’s the one problem with an otherwise excellent and much loved service
I have reported this several times but so far nothing has changed
Thanks
Julian

Julian

I entirely agree with you on this point. I have also raised this point with Stocko. It can make the projected EPS growth figures very misleading and this then feeds across into all other figures which are based on EPS growth. I can understand that it might be difficult to work out normalised EPS from broker adjusted EPS forecasts. The alternative I suppose would be to include historical adjusted EPS figures as well so at least you can compare the broker forecasts with historical figures on a like for like basis.

Hi Julian,

The Stocko team reads the comments so I am sure you are being heard loud and clear. I agree that this is an issue and I hope there is a solution!

I wonder what can be done about it. Brokers have a habit of forecasting results on an adjusted basis. For many stocks, it might not be possible to find any forecasts on a reported or properly normalised basis. And the data provider probably doesn't know which forecasts are for statutory EPS vs. which are for adjusted EPS.

So I suspect that the only way to deal with this would be to remove the EPS forecasts from any calculations being used by the algorithms.

MiserableJacktPotato

31st Jul '18

Clipper Logistics (LON:CLG)

Hmmm, I hold CLG and Computacenter (LON:CCC) - is the new trend for companies to issue woolly forward statements to let the share price tank, then load up?
If CLG issue a statement saying that 2019 is going really well at the end of Q1 I'm going to be really mad - especially as the directors offloaded millions at £4.30 and have decided to reload at £3.18. I feel like I'm being taken for a ride.

Small Cap Value Report (Mon 30 July 2018) - BoE, LUCE, ARDN, CLG, XPP, FOXT

Bank of England

Luceco (LON:LUCE)

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Graham Neary

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