Small Cap Value Report (Mon 8 Jan 2018) - HAT, SYS1, AVG, MTC, CRW, TST | Graham Neary

8th Jan '18 by Graham Neary

74 comments 26057 reads

Good morning!

Lots of trading updates today, so I will prioritise the companies I'm familiar with and which are most heavily requested in the comments.

I'm planning to start with:

H & T (LON:HAT)
SysGroup (LON:SYS)1
Avingtrans (LON:AVG)
Mothercare (LON:MTC)

Regards,

Graham

(Please note that I own shares in H&T)

H & T (LON:HAT)

Share price: 338p (+3.5%)
No. of shares: 37.4 million
Market cap: £126 million

Trading Update

Another positive update from this pawnbroking group which I have held in my portfolio since 2013.

Profit before tax for the full year will be ahead of current market expectations.

The Group has delivered another good performance in its lending operations. The pledge book increased 11.6% to £46.1m (31 December 2016: £41.3m) as a result of the higher gold price, the concession format and an increase in loans on quality watches. The Personal Loans book has increased by 94.7% to £18.3m (31 December 2016: £9.4m) as a result of the expansion in our longer term, lower interest rate loan product.

Like its smaller rival Ramsdens Holdings (LON:RFX), H&T realised there were major opportunities in products related to pawnbroking. As you can see, its personal loans offering has taken off very well. I'm hoping to see it keep growing in size and maybe even start to rival the pawnbroking pledge book in the years to come.

Jewellery retailing is reportedly also going well, including through the development of click-and-collect online sales.

Finally, the outlook statement is confident. CEO comment: "Demand for our products remains strong and we look forward to the future with confidence."

You can see for yourself the evolution of H&T's earnings forecasts over the past year:

The updated EPS forecast now is likely to be pushing 30p, based on increasing another 7-8% from here.

Checking some gold/GBP charts, the average price of gold in 2017 was indeed materially stronger compared to 2016.

H&T has a lot more going for it, though, than just the price of gold.

The personal loan product (see here) is very competitive for that segment…

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MrContrarian

8th Jan '18

My morning smallcap tweet:

Mothercare (LON:MTC), Malvern International (LON:MLVN), H & T (LON:HAT), SysGroup (LON:SYS)1, Angle (LON:AGL), Tungsten (LON:TUNG), Dialight (LON:DIA), Maistro (LON:MAIS)

Mothercare (MTC) 12 wk trading: UK: rev -11%, LFL -7.2% including online -7%. Even online is down! Group rev -2.4%. Guidance: "we are not anticipating any improvement in the short-term market conditions for the UK and on this basis the adjusted group profit for the year is likely to be in the range of £1 - 5m."
Malvern International (MLVN) FY trading. H2 rev up over 25%. Exp FY pretax -£0.6m (-£1.3m). No F/C.
H&T Group (HAT) guides FY beat.
System1 Group (SYS1) warns again. Q3 trading worse than anticipated. Guides FY 'Gross Profit' down 20%, pretax a little over breakeven.
Angle (AGL) University paper shows Parsortix-based ARV7 test "may provide a wider understanding of ARV7 than other techniques with the potential for improved patient outcomes...estimates that an ARV7 test could save, on average, at least $5,000 per patient tested."
Tungsten (TUNG) At 31 Dec, Tungsten Network Finance total originated invoice outstandings £54.5 million up 89% on previous reported peak of £28.8m in the period to 31 Oct.
Dialight (DIA) warns on FY & CEO resigns. GUides rev £181m. "Dialight's recent product delivery performance is a significant disappointment to the Board."
Maistro (MAIS) - the new name for blur Group.

Paul Scott

Morning all!

Even though it's not (yet) a listed company, nightclub operator Deltic has issued an RNS trumpeting strong Xmas trading;

8^th January 2018 - The Deltic Group, the UK's largest operator of premium late-night bars and clubs, has reported that like for like sales grew 8.2% in the four weeks to 31 December 2017, continuing its track record of materially outperforming the market.

The announcement does also mention refurbishments to their sites, so it looks like not a true like-for-like comparison. But, hey, everyone massages LFL figures, because there are no standardised rules.

There were press reports late last year that institutional shareholders in Revolution Bars (LON:RBG) (in which I hold a long position) rejected the Stonegate 203p cash bid, because they were warming to the idea of a merger between Deltic and RBG.

We've now had positive updates from both Deltic and Stonegate (see links below), suggesting that the premium drinks market is buoyant. That should have positive read-across for Rev Bars too, providing management was not too distracted by the bid approaches to take their eyes off the ball on managing the business.

Deltic trading update today

Stonegate trading update 4 Jan 2018 (many thanks to reader here who flagged this last week)

Therefore I've been increasing my position size in RBG, and it's now my biggest long position again. So you'll hear me screaming from miles around if it issues a profit warning!!

Regards, Paul.

Ramridge

Talking of read-across, H & T (LON:HAT) issued a very strong trading update this morning ("we expect the full year profit before tax to be above current market expectations"..
Bodes well for Ramsdens Holdings (LON:RFX).
Please DYOR. No advice given.

Andrew L

Key ones to look at:
Bango - I don't really understand this company and it looks over promoted at first glance.
Craneware - Just outside the £400m limit so not sure on this?

Dialight is maybe worth looking at?

A few profit warnings but not sure it is worth spending time on those? Mothercare etc.

I have always liked Craneware (LON:CRW) , but with a forecast eps growth of only 8.6% and PE of 39, the valuation is too rich. I suspect even with today's bullish outlook, it will still remain too rich.

jonno

Good morning Graham

I would appreciate your views on Avingtrans (AVG) time permitting.

All the best

jesseowens

Avingtrans (LON:AVG) please Graham

GrahamF

Paul, it’s also worth noting that Be At One cocktail bars have experienced very good trading over the festive period. LFL sales +8.1%.

http://lunchbusiness.co.uk/be-one-reports-‘record-festive-trading-period’-sales-126

Hopefully that bodes well for holders of Revolution Bars (LON:RBG). I hold no position myself.

So, clearly tough market conditions cannot be a valid excuse if RBG do not report growth somewhere near that. The thing is, having low LFL growth earlier in the year how likely is it that this takes a big turn for the better over the festive period?

I see that McBride (LON:MCB) has warned on profits today. So its turnaround seems to have shuddered to a halt.
Interestingly, checking my previous notes on it here on 24 Oct 2017, the company stated then that it expected an H2 weighting for the year 06/2018. Here we are less than 3 months later, and the company has put out a profit warning. It looks to be about a 20-25% profit miss vs expectations.

I'm increasingly inclined to run for the hills when companies come out with the H2 weighting thing, as it quite often seems a precursor to a profit warning a few months later. It would be quite interesting to do a study analysing what happens next when companies mention that they expect an H2 weighting.

ogilvie12345

Revolution Bars Revolution Bars (LON:RBG)

So Revolution Bars may be in a sweet spot in the short term. Either a boost to the share price from a favourable trading environment.- if this has not materialised then perhaps a more vunerable take over target.

I hold a long position in REvolution

ppdrs

H & T (LON:HAT) please!

Damian Cannon

I like the look of Craneware (LON:CRW) too. It popped up on my quality/momentum screens last year and only really failed with the high P/E of 38 being out of line with 8% growth in FY18 and 15% in FY19. However it's a very bullish trading statement today with good trading momentum, contract wins and cash generation. The only odd thing is that they still expect to meet expectations rather than beat them. Maybe I'm missing something but the price has just broken through to an ATH this morning and I can see them going higher.

I'm also interested in H & T (LON:HAT) but I'm sure that Graham will cover them without prompting!

vik2001

I increased my holdings in Revolution Bars (LON:RBG) last week as it was looking like at value bargain at those prices, and still even today. Im long and awaiting for this to hit the 225p and above mark.

Another stock im trying to work out that I see could be a good investment is Stock Spirits (LON:STCK) as im sure their next results will be positive. But no position yet.

iwright7

Craneware (LON:CRW) sales and EPS growth is soo consistent and the ROCE and ROE% soo high, that Craneware shouldn't really be valued as a "normal" company. It clearly has a wide Moat and operates on 3-5year contracts. Using a PEG type calculation it does look poor value , but because it is churning out wonderful Buffet style operating performance its share price keeps going up. I hold and brought some more this morning. Ian

Small Cap Value Report (Mon 8 Jan 2018) - HAT, SYS1, AVG, MTC, CRW, TST

H & T (LON:HAT)

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Graham Neary

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