Small Cap Value Report (Mon 9 Oct 2017) - ACRL, YOU, XPP, IPX, CPX

Monday, Oct 09 2017 by

Good morning folks!

Accrol Group (LON:ACRL)

  • Share price: 132p (pre-suspension)
  • No. of shares: 93 million
  • Market cap: £123 million (pre-suspension)

Update on suspension

Paul speculated last week that this tissue supplier would not be put into administration over its net debt, which was last reported at £19 million.

Today we have confirmation that directors think a solution will be found:

The Directors believe that the current challenges facing the Company relate largely to FY18 and are likely to have less of an impact on the Company's trading performance in FY19. The Board are therefore confident that, whilst there can be no guarantee, a solution will be found to the Company's short term funding requirements.

Certainly, this is comforting. What is the probability of a solution being found, then? 60-70%. perhaps?

If a solution can be found, it then becomes a question of how much dilution is needed to steady the ship.

The PE outfit which floated Accrol is still on the register. I'd strongly suspect they are more interested in continuing to divest rather than increasing their stake. So it will be up to the nearly half a dozen other institutions involved, in cooperation with the bank, to figure it out.

If we assume that earnings will return to an approximately "normal" level next year (PBT c. £8 million), but then apply a discount for loss of trust over this incident, and for the debt level, and for the potential HSE fine, then existing equity looks worth maybe 40% of the level it was at pre-suspension?

YouGov (LON:YOU)

  • Share price: 300p (+2.6%)
  • No. of shares: 105.1 million
  • Market cap: £315 million

Preliminary Results

Some nice results from this market research firm, suggesting that I've been too harsh on it in the past. Although valuation remains a concern.

Current trading is in line with expectations.

For the year ending July:

  • Group revenue increased by 21% (9% on a constant currency basis)
  • Data Products and Services revenue up by 37% to £47m (24% on a constant currency basis); now represents 44% of Group total (2016: 38%)
  • Cash generated from operations (before paying interest and tax) increased by 37% to £19m (2016: £14m)

Excluding the currency tailwind arising from US/international sales, the constant FX growth is stronger than the market…

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

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Accrol Group Holdings plc, formerly Accrol Group Holdings Limited, is an independent tissue converter manufacturing toilet rolls, kitchen rolls, facial tissues and away from home products (AFH). Its AFH products include Centrefeeds, Hand Towels, Hygiene Rolls, Toilet Tissue, Wiping Rolls, Standard Jumbo and Mini Jumbo. Its Consumer Paper Products include Envirosoft, Facial Tissues, Handy, Mega, Mighty, Sofcell, Softy, Thirsty Bubbles and Triple Softy. The Company supplies a range of Independents, Discounters and Multiples, as well as a range of AFH customers throughout the United Kingdom. It imports Parent Reels from around the world and converts them into finished goods at its manufacturing, storage and distribution facility in Blackburn, Lancashire. The Company has 15 converting lines in operation providing capacity of approximately 118,000 tons per annum. Its subsidiaries include Accrol UK Limited, Accrol Holdings Limited and Accrol Papers Limited. more »

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YouGov plc is a United Kingdom-based international data and analytics company. The Company’s suite of products and services is made up of syndicated data products including YouGov BrandIndex and YouGov Profiles and data services including YouGov Omnibus and YouGovCustom Research. YouGov BrandIndex is a daily brand perception tracker. YouGov Profiles is its planning and segmentation tool. YouGov Omnibus finds out people's opinions, attitudes and behaviors. YouGov Custom Research conducts quantitative and qualitative research. The company has 35 offices in 22 countries. The Company has operations in the United Kingdom, North America, Europe, the Nordics, the Middle East and North Africa and Asia. more »

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XP Power Limited is a United Kingdom-based developer and manufacturer of critical power control components for the electronics industry. The Company provides power solutions, including alternating current (AC)-direct current (DC) power supplies and DC-DC converters. The Company's segment include Europe, North America and Asia geographical. It designs-in power control solutions into the end products of blue chip original equipment manufacturers, with a focus on the industrial, healthcare and technology sectors. Its product categories include high efficiency/convection-cooled, chassis mount/open frame, configurable, external, encapsulated and printed circuit board (PCB) mount, DIN rail, baseplate-cooled, through hole mount, surface mount, light-emitting diode (LED) drivers and distributed power/hotswap. more »

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

38 Comments on this Article show/hide all

Graham Neary 9th Oct '17 19 of 38

In reply to post #226443

Hi Jesse, covered them both. Thanks for the request!


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paraic84 9th Oct '17 20 of 38

In reply to post #226423

The City of London Investment (LON:CLIG) update was encouraging this morning and it now has its highest ever funds under management in terms of US dollars if not British pounds. I think this is an excellent fund management company which is trading relatively cheaply at about 11-12 times last year earnings. Just to flag to readers it goes ex-dividend on the 12th October which equates to about 3.7% so this is quite a good time to get in. Although there is usually a bit of a drop on ex-divi day which may be preferable to wait for depending on how fussed you are by the income. The main risk with City of London Investment (LON:CLIG) is if you think the outlook for emerging markets looks poor. I am long.

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Effortless Cool 9th Oct '17 21 of 38

Interesting announcement from DX (Group) (LON:DX.) this morning. Significant new funding (albeit expensive)  and very experienced new management who will be putting substantial skin in the game (albeit on preferential terms).

Still very high risk, but enough to tempt me to take a punt.

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bobo 9th Oct '17 22 of 38

I'm a great supporter of XPP and wish it well. You do have to understand that the IP is not that valuable, basically they make power "bricks" and while they own the design, making new designs is not that difficult, their real "moat" is the Vietnamise very low cost factory they have built over the last 10 years or so.

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jesseowens 9th Oct '17 23 of 38

In reply to post #226613

Thanks Graham and for making me aware of Impax in the first place . heard the CEO present recently and he did mention that Impax shouldn’t be expected to trade on the same rating of AUM as fund managers that have a higher percentage of funds directly from retail investors . A high percentage of impax AUM is from institutions on an average fee of around 0.5%

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peterthegreat 9th Oct '17 24 of 38

In reply to post #226533

Yes I would tend to agree Jasperthedog and I have a nasty feeling that some of Accrol's major customers may also want to eliminate exposure to the company, particularly if there is any suspicion of unethical behaviour over the H&S failure. I think there is still a chance the company may go down the pan.

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Wimbledonsprinter 9th Oct '17 25 of 38

In reply to post #226628

Effortless Cool

Did I get this right that if the £24 m loan notes in £DX are converted in 3 years, withthe PIk interest, there will be another 297 million shares issued?

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Effortless Cool 9th Oct '17 26 of 38

In reply to post #226668

That looks about right, which clearly restricts the upside, to an extent. But if the new directors want to make serious money out of this, they need to get the share price significantly above 10p.

My speculative investment is based on the belief that Gatemore has headhunted executives with strong records and relevant sector experience and the fact that those executives are willing to back themselves with material risk capital.

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Graham Neary 9th Oct '17 27 of 38

In reply to post #226498

Hi DH2, I've taken a look at it! Ta.

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purpleski 9th Oct '17 28 of 38

XP Power (LON:XPP) while I have done well out of this. I first bought 2012 and 4 times subsequently all below £17 and have received 16% of my investment back in dividends. That said I have been guilty, as Buffett would put it, of thumb sucking because I should have bought more of this stock, as I was convinced of its quality/prospects. But with the reason parabolic rise I find it difficult to buy some more at £31 or am I guilty of price anchoring!?

May well make a small purchase on a pull back from today's rise.

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AstonGirl 9th Oct '17 29 of 38

In reply to post #226558

XP Power (LON:XPP) Thank you Graham :-)
Like purpleski I felt I was price anchoring having been holding since 2015. Whilst I haven't had the phenomenal 15x gains of some respected investors who have held for longer, I did add a few more in August using the 'fresh eyes' investment case.
I also like to add on an ahead of expectations statement so I too shall be watching the price closely this week.
Well done to all holders.

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gus 1065 9th Oct '17 30 of 38

In reply to post #226673

Hopefully the new DX (Group) (LON:DX.) management team will be less accident prone than the old guard. I bought into the company after its catastrophic profit warning in 2015 took 80% of the share price and it has been downhill ever since with failed planning applications for a new distribution centre, the strategic asset combination with John Menzies hitting a brick wall and the underlying business falling off a cliff. Amazed that Gatemore still keep pumping in fresh capital.  The new deal will dilute the existing shareholders significantly but at least gives them/us one last roll of the dice. Today's 20% or so share price rise illustrates just how desperate things had become.

Picking up on an earlier comment, yet another high quality IPO from Zeus!


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Dieselhead2 9th Oct '17 31 of 38

In reply to post #226678

Hi Graham, much appreciated.

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doublelutz 9th Oct '17 32 of 38

In reply to post #226658

Accrol's major customers are only interested in getting their product at the lowest price possible. Anything they say to the contrary is totally divorced from reality.

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Howard Marx 9th Oct '17 33 of 38

In reply to post #226708

Re DX (Group) (LON:DX.) Gatemore appear to be exhibiting a classic case of 'escalation of committment' - faced with increasingly negative outcomes from a prior investment they are choosing to plow on rather than alter course.

There's a great ten-part BBC4 series 'The Vietnam War' currently being broadcast on Monday evenings. As early in the conflict as 1965 the Americans similarly displayed an escalation of commitment rather than walk away:


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dahokolomoki 9th Oct '17 34 of 38

Stonegate would have done the rounds of big shareholders and I think if they don't believe they have the votes at 203p, will of course be silly not to up their bid and secure some binding vote commitments ahead of the EGM.

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Paul Scott 10th Oct '17 35 of 38

I think Stonegate will have to up the bid price for RBG. It's too low. Artemis pulling out just confirms that. Deltic is a distraction - but confirms that Stonegate are taking the piss at 203p.


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smatthews1 10th Oct '17 36 of 38

Without repeating to much what others have already contributed regarding Accrol Group (LON:ACRL). This for me was a little bit out of the blue. This was on my watch list for a while as expansion plans looked promising, however carrying out my due diligence reading Pauls reviews, the cards seemed stacked against me and I never took a position.

So I would like to say thanks again Paul for your efforts, I dodged a bullet with this one.


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cig 10th Oct '17 37 of 38

In reply to post #226748

Possibly, but some successful turnarounds look like that too -- to keep the war metaphor, look at the behaviour of the British government in 1940 just after Dunkirk, why not choose to become a quiet and orderly German province, instead of that escalation of commitment policy they chose in the face of what was, at the time, a formidable opponent?

But I suspect your view will be widespread, among PIs in particular, in the short term, so that it seems highly likely the price will languish down for a year or two before the actual turnaround. Also the principals don't seem interested in convincing PIs -- the announcement seems intended to fulfil regulatory requirements rather than convince, as there's little details on plans and strategy, which will reinforce this effect. So far, it looks like one for the watchlist.

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spunkboy 11th Oct '17 38 of 38

If Accrol sell the Bentleys and Lambo's that would be a start back on the right road!

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 Are LON:ACRL's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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