Small Cap Value Report (Thu 11 Nov 2021) - PMP, VLX, TED, BOTB, GMS

11th Nov '21 by Paul Scott

81 comments 13003 reads

Good morning! It's Paul & Jack here with the SCVR for Thursday.

Agenda -

Paul's Section:

Best Of The Best (LON:BOTB) (I hold) - after a chaotic year, with earnings estimates down by two thirds, this online supercar competition company seems to be stabilising. An in line update today, so it looks like we're over the worst. I conclude that the shares seem attractively priced now, but not everyone will agree, given the unpredictability of earnings, and new, well-funded competition.

Gulf Marine Services (LON:GMS) (I hold) - 2 contract extensions, at increased charge out rates (no figures provided, probably commercially sensitive). The problem is massive bank debt, but everything seems lined up now for debt to reduce quite fast, with its 13 vessels in high demand.

Jack's Section:

Portmeirion (LON:PMP) - good update, with full year revenue now expected to be 5% ahead of current expectations. More guidance on margins would be appreciated given the pressures. However, the shares continue to look reasonably valued, the turnaround is going in the right direction, and the group scores a consistently high Quality Rank.

Volex (LON:VLX) - strong revenue growth of around 44% as the company pushes through price increases to negate rising costs. In the long term, there is scope to continue growing both organically and acquisitively, but the current conditions are tricky and the group is moving fast with acquisitions, so the shorter term risks are worth bearing in mind.

Ted Baker (LON:TED) - some positives in this update but I'm still not convinced that the recovery is as entrenched as the share price suggests. There's a key trading period coming up, and I'd rather see how the company performs there before making a judgement on its ability to recapture its former glory.

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…

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JimMcLad

11th Nov '21

Don’t panic. Investor Meet Company had announced way before the session that a recording would be made available. During the gremlin attack they said they would edit the soundtrack appropriately.

gus 1065

Thanks for the write up on Gulf Marine Services (LON:GMS) , an interesting special situation. One further wrinkle investors need to get their heads around is the role of the two principal shareholders, Mazrui Investments and Seafox International who between them hold about 43% of the company.

The announcement made at the time of the June placement sets out a bit of background (as well as a lot of information on the business that is well worth a read) https://www.stockopedia.com/sh... but the sense is that there was something of a coup going on in the background leading up to the refinancing and other options (such as a complete take private) were considered.

Risk, as ever, with this sort of situation is that just when the upside begins to come into view it’s whipped away in a corporate action pushed through by a rump of executive shareholders and a few compliant institutions (think Cambria Automobiles (LON:CAMB) , Bacanora Lithium (LON:BCN) and others) to the detriment of the small PI. At the moment everyone’s interests seem to be aligned but that may not always be the case.

Gus.

robinleggate

not sure the technical problems were their's or the investor meet company

MichaelFBS

£BOTB

“Their trading updates are never the clearest and I think a lot of us were wanting a trading above guidance update today.”

They never are and that is why they are uninvestible for me. That said I am an ex unhappy holder who got badly by the profit warning.

Games Workshop (LON:GAW) are similar. Dreadful almost arrogant updates, which is why I offloaded a quarter of my holding at around £12. It should have been more.

Regards

Michael

Dennis Ayling

re: Volex (LON:VLX) i webinar the breakdown in sound was frustrating but down to the hosting co. not the presenters. I also found it reassuring; Nat, as usual was impressive, especially considering he was speaking from New York so must have been early hours there. I think all my concerns were answered during the presentation or Q&A session, including why the margin has dropped a little, price of copper etc. Future looks really promising to me so 2/3 year (at least) hold for me.

JCPr

I noticed a similar build up of inventories and poor cash generation in the Norcros (LON:NXR) (I hold) figures out today. I guess both companies are responding to supply chain issues, and perhap inflation prospects, by building up inventories.

sharw

For those who left the Volex (LON:VLX) presentation before the end you missed the best bit - in summing up (59:50 in) Nat said the technical problems showed the need to move from 100Gb/s to 400Gb/s cables which was very bullish for their Complex Assemblies trade!

rmillaree

Norcros (LON:NXR)

"I noticed a similar build up of inventories and poor cash generation in the Norcros (LON:NXR) (I hold) figures out today. I guess both companies are responding to supply chain issues, and perhap inflation prospects, by building up inventories."

Thats a harsh assessment that is pretty unfair to Norcros (hmmm i always sound like a fanboy whne i mention Norcros numbers so take my comments with a pinch of salt !!)

The inventories build up is more a return to the norm than anything else - their inventories have always ebbed and flowed anyway and they have not really ever had any w/off issues so i am 100% happy with working capital movements.

If we go back to last pre covid period inventories at 30/9/2019 were £84 mill

This figure dropped to £70 mill last year during covid

the figure is now back up to £94 mill at 30/9/2021 - however sales are 10% higher last 6 months than same 6 months in 2019 - so add 10% to the £84 mil 2019 total and i would say inventories are within a rounding of historical norms. The poor cashflow this 6 months was always going to hapen after the ridiculously good cashflow the pripr 12 months. Going from £53 mill net debt sep 2018 to net cash 30/9/2021 is an insanely good 3 year outcome - so we should have nil worries ref the cashflow here. In some respects as you have mentioned with prices going upwards and uncertain supply issues the more the merrier ref inventories i would say at present (not often i would say that) - so i would not say its poor cashflow as such as to me it was expected that the prior unwinding would take place in the natural order of things.

Bonus cherry here today was further progress ref pension deficit - timing could not have been any better in that regard with the 3 yearly review taking place as we speak.

£Made

Hello abtan

Cheers for i am an interested watcher on the sidelines like you at present - as the company looks like it has the potential and ambition to go places (is the plan cunning or not is the question?)

As you have aluded to i think Made are also morphing over to holding more inventories with the associated extra costs too - which does appear to be a change in tack away from the just in time methods they were employing (i like a bit ot taguchi methadology mee buts thats another thing entirely) .

I see the bigger picture here in that as long as they are roughly on track ref sales i will let the other sins not put me off investing be that a dip in margins or cashflow - i am firmly on the sidelines here though with no spare money allocated at present and in no hurry to jump on board at levels above 150p - so if the shareprice ticks up much anytime soon i may miss the boat here. They do have lots of work to do though to keep scaling sales so quickly that this is a very risky play at present i would say.

Zipmanpeter

Re Norcros (LON:NXR) - I see it differently. Inventory is £10.9Mn higher (£94.8 vs 83.9Mn) than Sept 2019 to support a bigger, growing business. Product in hand seems to be a good place to be right now with supply chain problems and rising prices. Underlying EBITDA in H1 was 23.8 (+15% vs 2019), not stellar but no bad for a company with a market cap of 266Mn

Since Sept net debt has come down from £(41)Mn to +ve £1Mn.

I am hoping they can find a decent sized business to buy to do more of the consolidation and cross selling they call out (& further diluting the relative size of pension scheme). They've kept the £600mn by 2025 and 50% non-UK ambitions (plus already in place 15% ROCE.

The key risk now I think is their dependence on a mostly China supply source and ( as ever) political risk in South Africa.

I have been holding for years and they finally (famous last words) seem to be coming good with which Stockranks, with score of 98, concurs.

Dave787

Prophotonix Prophotonix (LON:PPIX) ( I hold) received a takeover / merger offer at 8.7p this morning however the stock opened and closed at 7.75p, up 37%. Does anyone know why there is such a discrepancy between the takeover and the market prices given that it appears a done deal and expected to complete next month?

Harry Hindsight

Winter beckons. Spring awaits - next year of course.

Tezula

The takeover price is being paid in dollars so I’m expecting to receive less than 8.7p due to the commission charge to convert dollars into sterling and that, together with the risk that the deal is only done when it’s done, makes up the difference. Just my opinion

ok thanks

Paul Scott

12th Nov '21

I appreciate Nat was in a hotel in New York, and his CFO was somewhere else with terrible internet, but it was bloody annoying to waste 30 minutes on a webinar with Volex (LON:VLX) (I hold) that was so awful in terms of sound quality today.

Paul.

barnakles

Tremor International (LON:TRMR) selling off a little today. It is a volatile share though. I was planning on a top-up but the persistent director selling is very off-putting. They seem to be slowly disposing of their stakes. (Incidentally the Stocko data is incorrect, it claims CEO Ofer Druker's stake is zero - but he retains 1.84% after today's sale. It looks cheap on the financials, but I find it difficult to invest with conviction when key directors continue to off-load.

I also fear a NASDAQ correction would hit Tremor International (LON:TRMR) quite hard. Any thoughts from fellow holders?

BnB

These don't look like large disposals to me. The sums look like typical lifestyle and tax bill quantities taking advantage of the post-earnings boost and end of pre-earnings lock-up, although I agree their regularity raises questions.

Rusty2

Tremor International (LON:TRMR) Had a quick look at directors sales, these seem to shares they got in September for nothing. That's not the same as buying the shares and then selling them. They may need to sell some for tax reasons and usually free shares are treated as bonuses.

Quite a fall today down 14%. I don't hold.

GloucesterBob

13th Nov '21

Volex (LON:VLX) gets the main headline tip in Small Company Share Watch, 2 page spread.

Good read and normally helps the companies involved the following monday.

simonj12

15th Nov '21

Have exactly the same question this morning - still trading at 7.75. Did you find out?

Small Cap Value Report (Thu 11 Nov 2021) - PMP, VLX, TED, BOTB, GMS

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Paul Scott

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