Small Cap Value Report (Thu 11 May 2023) - ELCO, SDI, SFOR, CCT, JLH, RCH, ITV, COST

11th May '23 by Paul Scott

29 comments 8617 reads

Good morning from Paul & Graham!

Today's report is now finished at 13:16.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Summaries of main sections

(more detail below)

Eleco (LON:ELCO) - 80.5p (£67m) - Q1 Trading Update - Paul - AMBER

An in line with expectations Q1 update. SaaS model means good visibility. Although I question why it's on a high PER above 20, given no profit growth in the last 5 years?

SDI (LON:SDI) - down 21% to 138p (£144m) - TU (profit warning) - Graham - AMBER

Difficult news for SDI shareholders as it turns out that the company must eliminate all PCR revenues from FY 2024 forecasts. FY 2024 now estimated at 7.3p. Valuation may be fair.

S4 Capital (LON:SFOR) - down 1% to 138p (£790m) - Q1 Trading Update - Paul - RED

Sir Martin Sorrell's acquisitive digital marketing group. There's nothing wrong in this update per se, it's trading in line, and is "cautiously optimistic" for the rest of 2023. However, on rummaging through the 2022 accounts, I see a horrible geared balance sheet, and gigantic adjustments necessary to move statutory losses into profit. Not for me, but only the brave would bet against Sir Martin, given his track record!

Character (LON:CCT) - down 4% to 338p (£65m) - Interims -…

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bohenie

11th May '23

Thanks Rusty - Agree you always need to look behind the news - as you mention here the share sells may well be regular to pay tax - and Yes, Legal & General (LON:LGEN) another good example of price dropping so much more than the dividend - and still not recovered!

TheFly

Reach (LON:RCH) is ex a 4.46p dividend today.

Paul Scott

Thanks TheFly - I've given you a hat tip in the main report in an edit, for pointing out this ex-divi on RCH, which I missed!

MichaelFBS

Could Reach (LON:RCH) have reacted to the Prince Harry news on phone tapping against the Mirror?

Regards

Michael

Haggis58

Paul you queried the fall in SP of Reach (LON:RCH). It went ex-div (4.46p / 5%) today. Plus an extra 1-2% knee-jerk bonus as over-reaction to fall?

While I'm on, many thanks Paul for the 2 weekend podcasts, which I really enjoy. Not to mention the CEO/CFO interviews which are always informative. Please keep them coming!

jjis

On Reach there was a detailed note on the Pension Black Hole by an Investment Blogger who has been named in RNS annoucements in the past when they have caused big share price moves. Plus maybe the publicity around the latest in a long line of court cases about Phone hacking etc. kicked of again recently.

Paul - Re Costain (LON:COST) - agree it may well recover lost ground. Looking at the full stockreport - It shows a Dividend Yield of 3.8% - although the mini report window to the right shows zero. Any way this can be fixed please - it's frustrating. Last divi was paid in 2019 when SP was around 400p

ken mitchell

Unfortunately Stockopedia’s dividend figures are wrong far too often. Costain (LON:COST) is not a one off.

e.g Stockopedia show Ferrexpo (LON:FXPO) dividend yield as a juicy 12%. That’s nonsense. Ferrexpo (major Ukraine iron ore pellet Miner) stopped paying dividends last summer.

Ferrexpo is well worth keeping an eye on btw. They were paying 50p a year in dividends ahead of the War. The share price has inevitably tumbled to just £1.10. Large potential upside if this awful Ukraine War can end.

For reliable dividend information that is updated as soon as dividends are announced this is the one:-

https://www.dividenddata.co.uk...

It’s a superb site for dividends. Just key in the share code to bring up the next dividend amount and date if a dividend has been declared and the dividend history for that share too. All the headings there including obviously the dividend pay dates are worth checking too.

And here’s the link for Ferrexpo (LON:FXPO) dividends and dividend history.

sharw

Regarding the Costain (LON:COST) dividend both figures are correct. The figure to the right in this report is the TTM figure which is zero. The 3.8% figure in the SR that you refer to is the 12m Forecast Rolling figure based on consensus forecast of a 1.63p dividend this financial year. In the results presentation they said they were committed to a return to dividends. One analyst asked if the board had considered one for the year being reported on and the CFO said yes they had but considered investment in the business a priority for cash at that time. Pressed on a date for a return to a dividend she refused to say when but from a later remark it is in any case tied in with current talks with the pension board to review the latest actuarial figures. Those comments probably helped revise down the foecast for this year from 3.3p showing in February before the 22 results were announced

CamRaid

To me the market reaction to SDI (LON:SDI) seems harsh given they had always advised the ATIK camera orders from the OEM were one offs.

rhomboid1

Re SDI (LON:SDI) …I think it demonstrates how difficult it is for mgt/brokers to guide/model a business akin to a snake that’s swallowed a beach ball (the Atik China OEM PCR Covid orders) in a wider group context…& especially so when there’s a possibility of further beach balls at some indeterminate point in the future…today any second beach ball was taken off the table for this FY.

I hold & expect this to be a bump in the road rather than a permanent change of direction …apologies for the metaphor abuse btw

Camtab

That's really helpful Ken thankyou.

stockorocko

Anyone following ZOO? Wanted to buy in but seems to keep dropping..

Wolf of Small Street

SDI (LON:SDI) Once again remarkable luck by Mike Creedon to sell almost £1million quid at £1.65, 6 months ago.

I had a feeling something like this would be coming after that sale. Whether it makes any difference longer term is up for debate but it's not the type of earnings momentum that would attract me.

I see there was a tiny 6.5k share purchase today by the same director. If anything that puts me off even more than the warning.

BnB

I sold on this director disposal back then. Not because of the value - it was his whole holding I think, but because of his bullshit answer when asked about his sale: "Oh I don't watch the share price - I just needed some cash". Yeah, right.

I'd imagine a couple of reasons for ZOO fall.

Revenue growth was well down H on H and missed firecasts, main customer "reorganisation" after a management change hitting revenue in last quarter. The placing looked to me to be opportunistic, using high share price to get cash in the bank as an insurance policy. Don't think the directors took part in it? They didn't say what the cost of the acquisition was. No idea but I suspect it's a lot less than they raised. CEO said they were targeting potentially 5 acquisitions. These are red flags for me.

Disney growth doesn't look great. ZOO heavily reliant on one customer, so any slowdown or cancellations will hit forecasts.

If the "reorganisation" was only a temporary blip and normal activity resumes then the shares look good value. If revenue growth stalls or goes backwards then they look expensive to me.

Yes they seem remarkably keen to sell between 165-195p considering they don't watch the share price.

Agreed…I’d appreciate a less tokenistic buy today to give any weight whatsoever to it given the history

Lucky dip

legal and general is my bargain buy today.

never cut dividend even during the covid.

12th May '23

Thank you so much. Other than the placing, I did not find any of this info. So helpful thank you!

Small Cap Value Report (Thu 11 May 2023) - ELCO, SDI, SFOR, CCT, JLH, RCH, ITV, COST

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Paul Scott

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