Small Cap Value Report (Thu 13 Aug 2020) - TPT, TRB, GDWN, CGS, PEN, DLAR, PVG

13th Aug '20 by Paul Scott

47 comments 9989 reads

Good morning, it's Paul here with Thursday's SCVR.

Estimated timings - there's lots to cover in detail today, so I'm carrying on until about 4:30 pm.
Edit at 15:58 - today's report is now finished.

Please see the header above, for the announcements today which have caught my eye, in the small caps space.

Topps Tiles (LON:TPT)

Share price: 50p (up 16% today, at 09:21)
No. shares: 195.0m
Market cap: £97.5m

Trading Update

Topps Tiles Plc (the "Group"), the UK's leading tile specialist, announces a trading update for the six week period ended 8 August 2020.

Checking my previous notes, I reported here on 1 July 2020, on a positive Q3 (Apr-Jun) update, plus a good performance in the first week of re-opening stores (LFL sales down only 5.4%).

Today's update has a summary at the start (becoming increasingly popular, probably dreamed up by the PRs!), saying;

Robust like-for-like growth; modest pre-tax profits now expected for FY20; well-positioned to strengthen market position...

Remember that these summaries will be cherry-picking the best bits usually, so need to be initially treated with scepticism. EDIT: having looked through the whole update, I'm happy to withdraw this general point - in this case, the summary is accurate. End of edit.

LFL sales in Q4 (July-Sept 2020) to date - this looks excellent;

Retail trading over the first six weeks of our final quarter has been robust, with like for like retail revenues growing by 15.5% year-on-year.

It's not clear whether the above includes online sales, or not. So I queried this with the company's advisers, who have just called me back to confirm that the above LFL figure does include both stores and online sales.

Online sales have moderated once the stores re-opened;

While online sales have moderated from the peaks seen in April and May they remain above previous levels, leveraging the Group's recent online investments.

A reduction in online sales is to be expected, once stores re-open, so that's not a problem.

Average weekly sales - excellent transparency here, I wish all companies would present current trading information in such a clear format. The trend looks very good here, from a severe downturn when lockdown began, to now trading ahead of prior year with stores re-opened. There must be pent-up demand now being satisfied, which is good to see;

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john652

13th Aug '20

Hi Santa,

Craneware (LON:CRW)

Write to them, its really annoying, see what they have to say & if they get back to you & let us know...

I hold and it does seem a bit odd, poor show that they are to raise equity & then the deal disappears and they give very little information. Maybe they dont know, but I'd have expected a 'PE bought it for £50m more than we'd pay, etc etc'

Paul Scott

Yes, I'm just building up to a little rant about brokers that disregard private investors!

Mark L.

I've been looking at Craneware though don't yet hold. Attractive ROCE but lofty forward PER over 37 according to Stockpedia. Maybe it's a rare situation where a rights issue is justified ahead of need? Also I wondered if the directors approved the (now abandonded) placing because even with a 9% discount, it represented a good deal to existing shareholders at the current share price rating.

Hi Paul,

Re Tribal (LON:TRB)

'NAV: £37.0m, less intangibles of £48.0m = NTAV is negative, at £(11.0)m. I don't usually invest in companies with negative NTAV, unless they're exceptionally cash generative'

Where do you see the NAV & Intangiables?

Manythanks John

Matthew Appleyard

Ok cool, thanks!! hehe

Hi Santa,

Having just read the RNS I think Craneware (LON:CRW) have something to explain here , the RNS from a few days ago highlights that they want cash for 'opportunities', one being a sale process where they want to gain access to due diligence, & a strong balance sheet for Hospital confidence.

Then they cancel if but the reasons for it are still valid ie 'acquisition opportunities' plural & balance sheet strength. So for me it is odd to cancel it given they started the process. Maybe the last point below was reason enough to cancel but they should have stated that.

Sharpen that pencil!

RNS from 11th Aug

Overview

· Whilst growth of the Company since IPO has been primarily organic, the directors of the Company (the "Directors" or the "Board") believe there are specific potential acquisitions that offer the opportunity to accelerate the progress of the Company.

· In accordance with the Company's strict acquisition criteria, the Board has identified a small number of acquisition opportunities which it believes provide the Company with compelling synergistic benefits through a combination of: extending the Company's customer coverage across US healthcare providers; adding proprietary technologies, expert knowledge and application extensions; and increasing the Company's scale.

The net proceeds of the Placing are intended to be used to take advantage of these opportunities, whilst preserving a prudent balance sheet which is important to the Company's US hospital clients given the multi-year commitments they enter into for software solutions.

These potential opportunities vary in size and complexity and the Board does not expect to complete all of them. The Board believes that executing the Placing would position the Company to best be able to take advantage of the acquisition opportunities. In particular, one of the possible acquisition targets is in a sale process and the Placing is an important step to potentially gaining exclusivity and undertaking due diligence in that process.

The Board are strong proponents of a long-term efficient balance sheet and are committed to returning the balance sheet to a more efficient position within 18 months, either through completing the identified acquisitions or returning capital to shareholders.·

Hi TechnoTrousers,

Eckoh (LON:ECK) you could be right its too early. I'm very interested in all the tech charting chat about volume etc etc but I also like the Peter Lynch comment that historically it took 4 years before the shares he held rerated because the market saw what he did. Asked why he didn't just buy them much later he said he was not that clever. I'm just hoping its not 4 years & the news flow does seem to have improved recently.

Yellowstone Advisory

The management team of Diversified Gas and Oil plc (Diversified Gas & Oil (LON:DGOC)) presented their HY results at one of our Yellowstone Advisory webinars on Wednesday and the more I hear them talk the more impressed I am.

There's a write up on the stockopedia discussion page and recording of the webinar can be found on the Yellowstone Advisory YouTube channel or by clicking here.

Gromley

"Where do you see the NAV & Intangiables?"

On the balance sheet in the Half Year results RNS,

You wont see those figures on Stockopedia until updated in a couple of days.

randerson19

Paul - be interested to talk to you on this specific point

Techno Trousers

Yes, I hope for you too that you are not waiting four years or more. I somehow think that won't be the case, as they do look interesting. However, until I see some confirmation, I am happy to keep these on the watchlist.

TT

Cockerhoop

Abtan,

Looking at previous years in 2018 Ra International (LON:RAI) rns'd $45m of $62m of total orders placed, in 2019 they rns'd $56.7m of $91m of total orders placed suggesting your calculations demonstrate a minimum revenue value for 2020 rather than an actual value. They do pick up ad-hoc orders.

Saying that they have already declared material effects from Covid in 2020 with projects moving from H1 to H2 and from H2 to 2021.

(It is possible I may have missed some declared orders, so happy to be corrected)

Santawani

Thank you John for both your replies.
Will get a letter in the post and if I get a reply will try and be efficient and file it under Craneware (LON:CRW).
But please don't hold your breath! (That I get a reply that is, not whether I will file it).
Santa

DarwenLad

Paul sums up the investment case for Goodwin perfectly. “Overall, I don't doubt that this share is likely to be usefully higher in 10 years time, with a dependable flow of divis along the way. But is that exciting enough for me? Probably not. Looking at the long-term chart, buy and hold forever isn't necessarily the right strategy. This chart is saying to me, sell the big moves up, then buy back cheaper at a later date.” As a long term shareholder that is the way to make money in this share.

What is less obvious is that Goodwin has recently undergone a complete rejuvenation of its top management team which adds both potential and an element of uncertainty. Richard and John Goodwin, who had run the business as chairman and managing director respectively for 27 years, handed over the management to the next generation of Goodwins in April 2019.

Timothy Goodwin, the new chairman, has just turned 30, and Matthew and Simon Goodwin, who have been promoted to managing directors of the mechanical engineering and refractory businesses, are in their late 30’s.

As a family controlled business, Goodwin has always done its own thing. It does not have a designated chief executive or finance director, and just one non-executive director, Jennifer Kelly, 40, a local solicitor with no obvious experience as a non-executive of other quoted PLCs..

Although Goodwin has never ticked all the right corporate governance boxes, nor gone out of its way to court city analysts, it has always seemed able to refresh its top management team from within the family for more than a century. There can be very few successful family-controlled companies with that record.

rhomboid1

Drat ..lost my 2 page post

- [Paul thanks for the coverage on Goodwin (LON:GDWN) Goodwin, this is my second largest holding so my bias is off the chart

- The key aspect of these results is alluded to within the text of the Chairman’s remarks on numerous occasions. It is that the company has gone through a transformational period during which it has significantly increased and broadened its capabilities in order to reduce its historic dependence on the oil and gas and petrochemical industries

- It has taken some five or six years to reach an inflection point where the new business sectors are contributing orders on an unprecedented scale that more than offset the challenging conditions in oil and gas and petrochemicals. The key technological change underlying this broadening of capabilities is the ability to cast components vastly larger than they they have historically been able to undertake, this means they cast weights of up to 35 tons compared to say Castings plc (who coincidentally also reported today..but in considerably more downbeat fashion ) who typically cast weights of between 10 and 40 kg.

- The advantage of larger components is simply that they are technically more challenging and require very high-level metallurgical expertise possessed by very few competitors worldwide. As a result margins are typically higher and the level of design input by Goodwin is far greater and the limited range of competition is perhaps only four or five companies globally.

- The key advantage that Goodwin have is that they are fully integrated, by which I mean they start from the design collaboration, then the production of the complex casting, in some cases using patented Goodwin alloys that have very specific in use characteristics, then x-ray in their own recently installed underground x-ray chamber, then validate using Lloyds register or similar who are represented on site, then they machine the castings of up to 35 tons at their sister company ..Goodwin engineering ..to the ultimate finished component that is then utilised in typically mission-critical environments.

- For Goodwin the growth in order book is taking place in nuclear&defence, major multi year programmes ..that is vastly improving the quality of their earnings and the visibility thereof, only a fraction of this 2% is in current workload figure quoted

- Finally I would add that refractory products are virtually half the business and do not feature in the order bank at all, this part of the business has benefited considerably in recent years after the global number one competitor went out of business 2 yrs ago, they have global leadership as a result & again are fully integrated including a patented new silica free offering

- I’d suggest 14% turnover growth..& a record order book in the year of a pandemic are pretty good signs that future performance will reflect the scale of the physical changes that the have taken place throughout the business

In short Goodwin (LON:GDWN) has been transformed..but the transformation has been all but obscured to an extent by the decline in O&G ..but that’s s definitely coming to an end

I like it a lot ..a truly remarkable business

Metatron

14th Aug '20

I hold DGOC and listened to the presentation and felt it sounded a little bit too good to be true.
Still holding for the forthcoming ex-dividend date to pass but then will sell as i believe the market is underrating just what strong favs Democrats are to win the Presidency and when the market realises then the USA Oil & Gas sector is likely to get marked down severly and then i will look to rebuy when i feel DGOC is oversold

thanks Gromly,

I see that so Net assets - (goodwill & other intangibles)

Hi Santa,

'letter in the post' in that you'll email IR - just checking you never know :)

fwyburd

A very helpful contribution about £gdwn Rhomboid, many thanks. I am very new to them having bought in a couple of months ago because it seemed a compelling investment case at £24. They have a moat, the conservative characteristics of a long standing family run business and a growing market opportunity.

cheers

Francis

Small Cap Value Report (Thu 13 Aug 2020) - TPT, TRB, GDWN, CGS, PEN, DLAR, PVG

Topps Tiles (LON:TPT)

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Paul Scott

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