Small Cap Value Report (Thu 12 Oct 2017) - EHG, NXR, RNO, RBG

Thursday, Oct 12 2017 by

Good morning! It's Paul here.

I read an astonishing article in the weekend press. It stated that the cost of tax relief for private pension contributions has now risen to a staggering £53bn p.a. - enough to wipe out the entire Govt spending deficit. Bear in mind that this is mostly going to the affluent, and I don't see how the present arrangements can possibly be justified, or continued. So I think we'll see another raid on private pensions by the Government fairly soon.

I have an ancient SIPP, however it's a system which makes me very nervous. The money is tied up for years, and in the meantime who knows what awful policies successive Governments might implement to raid my savings? ISAs seem much more attractive - at least you could grab that money & wire it abroad, if a hostile Government were to be elected.

Elegant Hotels (LON:EHG)

Share price: 84.8p (up 5.7% today)
No. shares: 88.8m
Market cap: £75.3m

(at the time of writing, I hold a long position in this share)

Trading update - for the year ended 30 Sep 2017.

This company owns & operates 7 freehold "upscale" hotels, plus a restaurant, in Barbados. Note that renowned entrepreneur Luke Johnson is a NED, and owns 12.5% of the company.

Rather surprisingly, things seem to be going well;

Trading since the interim results in June has remained in line with market expectations. Whilst the Group is only 12 days into its new financial year, it is pleased to report that bookings are currently tracking ahead of the same period last year.

I say surprisingly, because this company is heavily reliant on tourists from the UK - who make up something like 70% of its revenues. So my main worry was that the post-Brexit plunge in sterling might trigger a reduction in British tourists visiting. Apparently not!

Also, the refubishment of one of its hotels is going to plan, with re-opening scheduled for the start of the peak tourist season.

Valuation - this share looks strikingly cheap, which makes me worry that there might be something wrong?

Zeus are forecasting 8.1p EPS for the year just finished, 09/2017. That's a PER of 10.5 .

For y/e 09/2018, they are forecasting 10.4p EPS, for a PER of 8.2 . …

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Elegant Hotels Group plc is a holding company. The principal activity of the Company and its subsidiaries is the ownership and operation of hotels and restaurants on the island of Barbados. It owns and operates six freehold beachfront hotels and a beachfront restaurant in Barbados. Its hotels include Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach and Waves. It operates Daphne's restaurant, which is located on platinum West Coast in Paynes Bay, adjacent to The House and Tamarind in Barbados. Its Colony Club hotel is spread across six acres of tropical gardens with approximately 300 feet of beach frontage on the Caribbean Sea and lagoon style pools. Its Tamarind hotel is on the Platinum Coast. Its Crystal Cove hotel has three freshwater lagoon pools, two restaurants, two bars, two floodlit tennis courts and a fitness center. Its Turtle Beach property is on the south coast of Barbados. Its portfolio consists of over 550 rooms. more »

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Norcros Plc is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. The Company's segments include UK and South Africa. The Company has six United Kingdom businesses, including Triton Showers, Vado, Croydex, Abode, Johnson Tiles and Norcros Adhesives, and three businesses in South Africa, including Johnson Tiles South Africa, TAL and Tile Africa. The Company is focused on showers, taps, bathroom accessories, tiles and adhesives. In the United Kingdom, the Company offers a range of bathroom and kitchen products both for domestic and commercial applications. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. more »

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Renold plc is engaged in delivering engineered and power transmission products and solutions across the world. The Company's Chain segment manufactures and sells power transmission and conveyor chain and includes sales of torque transmission product through Chain National Sales Companies (NSCs). It has manufacturing sites in the United States, Germany, India, China, Malaysia and Australia. It also offers leaf chain used in the forklift trucks. Its Torque Transmission segment manufactures and sells torque transmission products, such as gearboxes and couplings. It is a manufacturer and developer of coupling and gearbox solutions, from fluid couplings to rubber-in-compression and rubber-in-shear couplings, and a range of worm gears, helical and bevel helical worm drives. It also manufactures gear spindles. The applications of conveyor chain include theme park rides, water treatment plants, cement mills, agricultural machinery, mining and sugar production. more »

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

94 Comments on this Article show/hide all

cafcash49 13th Oct '17 75 of 94

In reply to post #228238

Thank you for taking the time to respond. Very helpful advice. My thoughts are the growth I hope to continue to produce will be better in the ISA as 100% is tax free whereas only 25% is tax free in the SIPP. I take your point on ensuring my transfer doesn't put me in a higher tax bracket but as I have no earned income I should be able to manage the amount. Great help, thanks. Charles

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cafcash49 13th Oct '17 76 of 94

In reply to post #228208

Thank you for taking the time to help, useful advice. Charles

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cafcash49 13th Oct '17 77 of 94

In reply to post #228163

Thanks for responding, all useful information. Charles

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cafcash49 13th Oct '17 78 of 94

In reply to post #228153

Thanks for taking the time to respond and help. All useful information. Not in the Millionaire bracket I'm afraid but managing to produce good returns in both the ISA and the SIPP. Just moved the ISA from Barclays, who have totally ruined their stockbroking platform, to AJ Bell. Thanks, Charles

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Mrken 13th Oct '17 79 of 94

In reply to post #228003

Paul - Hawkipa

I would also like to know and also Somero. Although can not always be 100vsure a calculated judgement would be OK.


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CliveBorg 13th Oct '17 80 of 94

In reply to post #228083

Hi sharw,JonBirdy and Apadappa,

I contacted iweb via their live chat facility and they registered my vote, no charge incurred. Thanks again for your helpful replies.

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hawkipa 13th Oct '17 81 of 94

In reply to post #228473

Hi Ken, Somero definitely qualifies as I confirmed it with their IR dept. They always caveat that can't ensure it will always be so, but that's to be expected.

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gus 1065 13th Oct '17 82 of 94

Probably already last week's news, but a couple of novelty RNS from Stonegate today on Revolution Bars (LON:RBG) The first, presumably either prompted by the Takeover Panel or Deltic, required them to retract some of the slightly more racy claims about the merits of the Stonegate offer compared to the alternatives. The second is a retraction of a comment attributed to the Stonegate Chairman about Revolution Bars (LON:RBG) 's prospects if the bid does not go through. Sounds like a foot in mouth moment after a liquid lunch ...

For what it's worth, the wife and I have just posted our votes to reject the offer. Fed up with Stonegate's arrogance. Short term, it might cost me a few bob, but a rejection will cost Stonegate a fair bit more.



immediate release

13 October 2017

Stonegate Pub Company Limited ("Stonegate"): Retraction Statement

The Chairman of Stonegate, Ian Payne, was today quoted on Twitter by Dominic Walsh of The Times as saying "The alternative is not palatable. If it doesn't go through they'll have a broken company" when referring to the Scheme vote for Stonegate's offer for Revolution Bars Group plc.

Mr. Payne requests that this statement is disregarded as there is no basis for it.

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pka 13th Oct '17 83 of 94

In reply to post #228423

Hi Cashcaf69, you wrote: "My thoughts are the growth I hope to continue to produce will be better in the ISA as 100% is tax free whereas only 25% is tax free in the SIPP. I take your point on ensuring my transfer doesn't put me in a higher tax bracket but as I have no earned income I should be able to manage the amount."

When I first read this, I thought your plan is based on a fallacy, because your investments will grow within your SIPP tax free just as they will in your ISA. Once you've taken out the 25% tax-free lump sum from your SIPP, any further money you take out now from your SIPP would be liable to, say, 20% tax, so you would have 20% less to put in yout ISA, and whatever that grows to you would have 20% less than if that money had stayed in your SIPP, but when you eventually take that money out of the SIPP that would be subject to 20% tax, so it all evens out.

However, on further reflection, I now think your plan does have some merit, if you're not concerned about losing the IHT benefits of having more money in your SIPP, because if you do get good capital growth of your investments, if that money stayed in your SIPP you might be pushed into a higher tax band and therefore have to pay, say, 40% on some of that money when you eventually take it out of your SIPP, whereas if you gradually transfer modest amounts of money each year from your SIPP to your ISA (being careful to stay in the lower tax band) then that issue would not arise.

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clarea 13th Oct '17 84 of 94

Re pensions have a feeling the only people not subject to the million pound lifetime allowance cap are mp's and judges who wouldn't pass the act unless they were exempt also.
The other issue is final salary schemes are 20 x income for lifetime allowance purposes where as a money purchase pot with current annuity rates would need closer to 35 x income to generate same income level completely unfair.

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ISAallowance 13th Oct '17 85 of 94

In reply to post #228673

I simply don't understand why the lifetime allowance isn't based on benefit for DB schemes and contributions for DC schemes. Your total "pot" being the sum of your DB benefits + your DC contributions. Surely that would be simpler, easier to understand and fairer than the current system.

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clarea 14th Oct '17 86 of 94

In reply to post #228683

Essentially if you have both it already is ie you have a defined benefit pension built up so far of say £10k , this times 20 is £200k of your allowance gone, if you then have dc pot of 300k the two added together is 500k of the mil.

As I mentioned before the big issue is using the above example to get the 10k income under dc scheme you would need nearer 350k on current annuity rates so someone could have a 50k income under defined benefit scheme using 20 to 1 and be up against the mil lifetime allowance but a mil dc pot would buy nowhere near that income prob nearer 30-35k so essentially if income is the main driver anyone in db scheme is way better off.

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Mrken 14th Oct '17 87 of 94

In reply to post #228578

Hello Paul

Thanks for that info. Every little helps. On the odd occasion I have contacted companies ref. BPR they have usually been very non committal.
Personally trying to build a AIM IHT portfolio with stocks that I can buy and forget. Questor in Daily Telegraph has just started one (yesterday) and tipped Youngs Brewery . I am considering Wynnstay Group whose price has been subject to negative momentum recently.

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tony mchale 14th Oct '17 88 of 94

In reply to post #227833

Dave are we talking US Dollars or Barbadian Dollars? Sometimes leads to confusion.

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daveinthelakes 15th Oct '17 89 of 94

In reply to post #228843


The company reports in US dollars as per the fuller extract from the interim accounts below. Never seen any reference to Barbadian dollars in any releases.

"Net Debt and Net Asset Value

The Group's property, excluding Waves, was valued at $235 million by CBRE as at 15 April 2015 and Waves Hotel & Spa was valued by Terra Caribbean at $22 million as at 3 June 2016.

Using these valuations, the Group's properties excluding Treasure Beach, would be valued at $257 million. Based on net debt of $62 million as at 31 March 2017, this would equate to an implied net asset value (NAV) of approximately $195 million (219 cents per share or 175 pence share, based on an exchange rate of 1 : $1.25).

The Group has third party debt with the Bank of Nova Scotia in the form of a loan facility of $62 million. In addition, the Group has an overdraft facility of $10 million, of which $1 million was drawn down at 31 March 2017, and an undrawn revolving credit facility of $5 million. The Group also has a vendor loan in relation to the Waves acquisition of $2 million. "


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Andrew niven 16th Oct '17 90 of 94

Hi paul,
Couple of points regarding elegant hotels. The refurb at treasure beach highly unlikely to be ready for the new season, secondly property prices have almost halved here since 2008 . However they paid top dollar for waves hotel last year without including the renovation .
The coming season will not be affected because most people already booked, it is next season I worry about.
The government has placed a 10% tax levy on everything increasing prices that are already expensive especially with the poor exchange rate.
All that being said they are a well run hotel group with good management .

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hawkipa 16th Oct '17 91 of 94

In reply to post #228828

Hi Ken,
Likewise, thanks for those two names and the info about The Daily Telegraph Questor IHT.
I am in the process of scouting for names that qualify for my father to buy.
I have spoken to APH and they have confirmed they currently qualify for BPR.
I may start a separate thread to see if we can get a forum going for sharing names, as I would certainly find it useful to share names. I'm not sure how many people care, but I guess we'll see.

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Joseph12 16th Oct '17 92 of 94

Can't make any useful comment but notice that previously you have mentioned shorting shares. Could I ask how this is done? There doesn't seem to be an obvious UK options market to buy puts. Do you short via spread betting?
Sorry to be a nuisance


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Mrken 16th Oct '17 93 of 94

In reply to post #228988

Hello Paul

Thanks for that.
It would be great if you could get a thread going for any of us who are interested. There must be quite a number for the Daily Telegraph to start a IHT AIM portfolio.
However I don't understand the process for setting up a thread !!! If need be I am willing to state my mobile number .

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tony mchale 17th Oct '17 94 of 94

In reply to post #228918


Thank you for your helpful reply.


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

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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