Small Cap Value Report (Monday 10 May 2021) - GRG, BEG, HOTC, MIDW, SMRT

10th May '21 by Paul Scott

53 comments 10795 reads

Good morning, it's Paul & Jack here with the SCVR for Monday.

Mello Monday

Starts at 17:30 this evening. Click here for more details.

There are some interesting companies giving presentations. Of particular interest to me tonight is Smiths News (LON:SNWS) (I hold) which is developing into a good turnaround, as recently reported here. With divis set to resume later this year, I reckon buying now could lock in a 5-10% future dividend yield. Management present very well (but you can be the judge of that!), and now have a very clean business that generates reliable cashflows, now that the problem division, Tuffnells, has gone. Also the pension scheme problems have been resolved, with the possibility of repayment to the company of a surplus in the scheme. Debt is set to reduce quite quickly from now on. The current PER of about 4.5 is obviously the wrong price, in my view, when you factor in that debt is set to reduce to 1x EBITDA in the coming 2 years, on top of divis.

Also presenting are Smartspace Software (LON:SMRT) which Jack has written about below, as well as Panoply Holdings (LON:TPX) and Vr Education Holdings (LON:VRE)

Timing - TBC

Agenda -

Paul:

Greggs (LON:GRG) - positive trading update - quick comment, as not a small cap, but could have interesting read-across to gauge the health of the High Street.

Begbies Traynor (LON:BEG) (I hold)- acquisition of a finance broker. Highly geared (to future profits) earn-out looks interesting.

Hotel Chocolat (LON:HOTC) - positive trading update.

Midwich (LON:MIDW) - another company reporting trading ahead of expectations.

Jack:

Smartspace Software (LON:SMRT)

Not a small cap but…

Greggs (LON:GRG) has issued a positive trading update this morning. Key points -

Strong recovery in sales levels following easing of restrictions

Delivery is now 8.2% of sales - quite significant

Considerable uncertainty remains but profits for the year could be around 2019 levels, materially higher than the Board's previous expectation

As the company points out, it doesn’t have a lot of competition at the moment, so it will be interesting to see how things fare once all the other cafes/restaurants open up in about a week.

It’s good to see Gregg’s using 2-year…

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Trident

10th May '21

Paul.

Hotel Chocolat (LON:HOTC)

Recommend you try one of their ice creams. Very nice

ls2g08

Anecdotal - I go through London Bridge train station on my way into work a couple days a week and occasionally get a Greggs breakfast. It always has a queue out of the door. My suspicion is that a lot of the clientele, builders etc. are still physically present at their workplaces everyday. The office crowd tends to go to Pret.

simoan

Even better, try their cocoa nib gin. It really is pretty good. Quite unusual but in a good way. Received it as a present but will buy some more.

All the best, Si

Paul Scott

Re Begbies Traynor (LON:BEG) forecasts, I went through a couple of recent broker notes, and how they build up their EPS forecast looks completely rational to me. There have been several quite important acquisitions which either kick in for the first time, or have a first full year, so not much of the increased EPS is from organic growth.

Hi RichardK,

Paul, maybe firms repay government Covid related funds to enable them to (continue) to pay dividends? It may not be entirely good citizenship.

I'd want to see some firm evidence that this is the case, or not, rather than speculation. Did the furlough scheme prohibit payment of dividends, or not? Does anyone know?

Regards, Paul.

Richard Goodwin

Equally Dekel Agri-vision (LON:DKL) didn't give any explanation beyond "lower oil content" for why CPO yield has plunged . Yield makes a big difference to profit so whether this is a one month aberration or longer term trend is very important.

gus 1065

This presentation from law firm Clifford Chance sets out possibly more than most want to know about restrictions on companies taking Covid related payments from the government.

https://www.cliffordchance.com...

(Found via a quick Internet search so presumably not privileged and intended to be in the public domain).

Gus.

mojomogoz

Dear Bee

I'm open for wealth enhancing recommendations...feel free to be liberal...

Your mojo

lol, it's from the Sunday Sport, it might not be completely true:)

Leebod

It tells you where to go in the post to find out how they work - it looks daunting but it's really not but you need to invest a bit of time reading.

GTrader

The other issue in this market is the CMCs/Call centre sweat shops, who now PPI reclaims are out have found another lucrative bore to exploit, namely "mis-selling" due to lack of affordability evidence from the lenders.

dtg46

The Red Wall is built on Greggs pasties.

timarr

Did the furlough scheme prohibit payment of dividends, or not? Does anyone know?

It did not.

There seem to be a mix of reasons why companies are repaying government funds, some of which is good citizenship / reputational management. However, it may not be entirely altruistic as it's also quite difficult to justify management bonuses if profits have been inflated by CV-19 relief funds.

For example Foxtons (LON:FOXT) management have copped a lot of flack for holding onto payments while rewarding the CEO. Both Glass Lewis and ISS have criticised them for doing so and recommended shareholders vote down the resolution.

Won't make any difference, but it's an indication of the way the wind is blowing. Other companies similarly criticised include Hollywood Bowl (LON:BOWL), Jd Sports Fashion (LON:JD.), Telecom Plus (LON:TEP), Wh Smith (LON:SMWH) and Cineworld (LON:CINE).

Momoko Miyamoto

When the palm oil price is low (as it was in 2020) producers tend to apply less fertiliser to reduce costs which leads to lower yield in future growing seasons.

Hi joshwood976,

I still hold Revolution Bars (LON:RBG) although not such a large position as during the severest part of the downturn.

None of us can predict the future with certainty, but my gut feel at the moment is that general retailers might see a short-term boost, but then settle back down to a possibly lower level than before covid. Why? Because it's so much easier to buy clothes & other stuff online, so I personally don't believe that High Street or shopping centre footfall would get back fully to pre-covid levels.

Whereas I'm more bullish on hospitality. You can't meet & socialise online. So people are super-keen to meet up with friends & family, and dine/drink out again.

Hence I'm more bullish on hospitality, than general retailers. But that's little more than a guess, I don't know with any certainty.

Regards, Paul,

greensiax

Thank You Leebod :)

Tonysaparito, and others, can you be a little more specific about what you are having trouble with? I'll try to address it in the heat map thread rather than clog up the SCVR.

Harry Hindsight

Greggs (LON:GRG) - its hard to find hot food when travelling around - can't eat McDonalds everyday - fed up with usual cold sandwiches - although they do nice bagettes a bit more sustenance - and of course value for money. The growth may be on A Roads to replace the burger vans.

Wimbledonsprinter

I am struggling to see a good risk-reward here.

Rusty2

11th May '21

Begbies Traynor (LON:BEG) Yes and so is CMC Markets (LON:CMCX) now, was in financials until recently, yet IG Group (LON:IGG) and Plus500 (LON:PLUS) are under financials. For NAPs etc I put them into which I think is correct sectors.

Conrad64

12th May '21

I bought into Hotel Chocolat because I like their product, they maintained their sales through the downturn and I heard they were opening in Japan and New York. I think they will do well in Japan.

Giving tax payers their money back is initially alarming. I would like to be right on but other investors don't seem to be bothered so I don't want to be the only one paying tax.

Small Cap Value Report (Monday 10 May 2021) - GRG, BEG, HOTC, MIDW, SMRT

Mello Monday

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Paul Scott

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