Small Cap Value Report (Thu 16 Feb 2023) - IHC, CKT, HOME, CREO

16th Feb by Paul Scott

73 comments 7379 reads

Good morning from Paul and Roland!

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.

Roland’s Section:

Inspiration Healthcare (LON:IHC)

51p (pre-open)

Market cap £35m

FY trading update

This company provides medical technology for critical care, with a focus on neonatal intensive care. Inspiration Healthcare’s own-branded solutions include non-invasive respiratory management and thermoregulation, while its UK distribution business supplies solutions for surgical procedures and infusion therapies.

Graham covered November’s profit warning from this medical equipment manufacturer here. To recap, the company said that problems in China meant that a number of orders would slip back into the following financial year.

Results guidance: Today’s full-year trading update confirms results for the year ended 31 January should be in line with revised expectations from November.

“following the close of the financial year ended 31 January 2023, the Group is expecting to report revenues of approximately £41.2 million representing an increase of 0.4% compared to the prior financial year and in line with market expectations. Adjusted EBITDA* is also expected to be in line with market expectations.”

An updated broker note from Cenkos is available on Research Tree this morning. Cenkos analysts estimate EBITDA of £3.8m for the current year, valuing the business at around 10x EBITDA.

Cenkos forecasts are consistent with the consensus estimate on Stockopedia for adjusted earnings of 0.7p per share…

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rhomboid1

16th Feb

hi Jonno

‘There are to my knowledge no other UK companies accredited for this work’

..a small point but Goodwin (LON:GDWN) are also accredited for this work & share this contract with Maloney Metalcraft, they also do a wide range of other more complex contracts for Sellafield in part because they are a foundry as well as a machine shop with nuclear accreditation

I’ve held Avingtrans before but currently my largest position is Goodwin…incidentally Carr’s mentioned some lower margins in their engineering division which is also a Sellafield supplier but akin to Avingtrans has no casting capability in house, it’s my understanding that the 3m box contract design has evolved over time & might now be sporting a rather advanced cast lid designed/produced by Goodwin

Scoobydoit

Hi Roland, regarding Checkit (LON:CKT) their current cash is sufficient to get them to break even at the current and historical ARR growth levels (30%). There was a lot of supporting information given in the Investor Meet presentation.

£18m - £20m ARR needed for break even (expected FY25) - ARR currently at £11.5m
Projected cash at end FY24 £9.5m - Analyst estimate (£6m burn / 500k per month, down from £660k per month FY23, which was down from £800k per month HY23)
Projected Cash end FY25 £3.5m - My estimate (then break even)

Year end 31 Jan

So we have visibility on profitability, it's just 2 years away (at current growth rate).

AstonGirl

Sounds like you heard my question on todays Checkit (LON:CKT) webinar Scoobydoit ;-)

Cash burn is certainly key for them right now so let’s hope their forecasts are correct and no raise is required. I was impressed that they (as far as I could tell) answered ALL the questions they were asked. In my experience, companies using InvestorMeet are inclined to cherrypick those they prefer to answer over more tricky ones. So credit to Checkit

I believe the Edison note is also on the CKT website so that’s my next stop

jonno

Cheers Rhomboid,

I wasn't aware of Goodwin's association with Metalcraft. The more information the better as it helps my understanding of Avingtrans (LON:AVG) . There must be IP associated with the design of the nuclear waste containers? I assume that this resides with Metalcraft as they hold the contract with Sellarfield?

Certainly provides the basis of a few questions for Avingtrans (LON:AVG) management team who have to-date proved themselves to be adept and alert to opportunity.

Carr's appears to be in a state of flux at present in that their prelims have been delayed due to audit complexities. I have occasion whimsically thought that their engineering division with its remote handling capabilities would be a good fit for Avingtrans.

All the best

This is a link that describes some of the background

https://www.gamechangers.technology/static/u/GC%20Challenge%20Statement%20Magnox%20SL%20-%20Monitoring%20Waste%20Packages%20web.pdf

I believe the IP is likely held by the NDA but I’m not entirely certain…it has certainly been a long process getting into series production…reading between the lines I believe the 3m box contract is not terribly high margin compared to other products (eg the 30 tonne SSB’s or the can racks that Goodwin supply) but obviously it’s high volume long duration work & there’s plenty to go around .

Thanks Rhomboid

Have opened the link and will have a read to see what can be gleaned.

planetx

Well Im with you, even with a black Swan event it is pretty well diversified with the separate divisions.

The magnetica / adaptix is going to burn a bit of cash Im sure but thats a big win if/when it comes off .

I think there has been a few sellers moving funds out of Avingtans into some of the speculative dross that has had the strong "everything bounce".

Now my biggest holding too and just got to sit tight .

Very thin trading at the moment.

As Warren Buffet says "we like it when prices go down " so we can buy more and whilst Im not quite as comfortable in my skin as that I think we just need to chill out here .

Burnt Onions

Nice post, has encouraged me to research further, thanks

Looking forward to the interims and post results videocast on VOX Markets that Paul Hill has indicated he will try to make happen.

Hopefully I have read the runes correctly. Based on the know facts and looking forward to the rest of 2023, I am of the opinion the risk reward is very much on the upside.

As an afterthought I wandered whether an equity raise might be in the offing to fund an opportunistic acquisition, hence the share price weakness, but have dismissed that idea as it tends not to fit with the Avingtrans (LON:AVG) approach, which is to avoid overpaying by acquiring businesses that have potential but are in a mess.

Good luck with your investment.

Boon

Are you preferring the board of Boohoo (LON:BOO) to fire management en-masse instead and start with a completely new clean slate?

Compensation needs to be market competitive. Which at the senior exec level includes a share based incentive plan.

Pick your poison.

Roland Head

Hi Scoobydoit,

Thanks for the clarification and extra info re. Checkit (LON:CKT). I wasn't able to make the IMC presentation.

Hopefully the company will be able to meet its forecasts and avoid the need for a further raise. Good luck to holders!

Regards,

Roland

17th Feb

Hi Jonno

Further reading suggests I may be mistaken & Goodwin perhaps don’t share this contract ..at least currently https://www.gov.uk/government/...

I think the confusion on my part is around discussion I’ve had with them about various waste recycling containers they are involved in supplying…sorry for adding additional confusion

cheers

Morning Rhomboid

Thanks for the update regarding Goodwin and the earlier information on "Monitoring of waste packages". Happy to hear that Avingtrans (LON:AVG) subsidiary Metalcraft are likely to be the only UK company involved in the supply of the 3M nuclear waste containers to Sellarfield.

They certainly have have plenty to go at.

I know of Goodwin, a successful family owned niche engineering company, but know little about them. Shall have to do some homework.

Best wishes

Cockerhoop

Avingtrans (LON:AVG)
Interesting discussion. I've held for a number of years and did venture down to Birmingham for the agm just after they acquired Hayward Tyler.
The nature of the business (PIE strategy) means material events arrive out of the blue (acquisitions, sales etc).
I believe Booths is close to being ready for sale, it's been re-incorporated as a standalone unit and has an attractive orderbook.
Magnetica is being targeted for a float in 2024. Be interesting to see how the product is received later this year on launch.
Regards the 3m3 boxes Metalcraft are the only current provider (after Darchem dropped out/were dropped) but management expect future contracts to be shared due to their size. Hopefully Goodwin (LON:GDWN) will pick up some business as I also own them :-)

peterg

Agree the issue of incentive plans is not straightforward, but if, as with Boohoo (LON:BOO), they have massively underpformed the requirements of existing plans, then to simply create a new, rebased and potentially very generous, one, does tend to undermine the "incentive" argument

khmkii

20th Feb

I want to say on Creo that surgical endoscopy is not an emerging field. Developing perhaps as yes the number and scope of procedures are increasing, but broadly, snaring polyps is surgical endoscopy and that's been happening for decades. The company is guilty of some fairly questionable promotional material which has hoodwinked a lot of people for example this chap: https://www.fool.co.uk/2022/11... who championed the company twice and seemed to be convinced that endoscopy was only diagnostic before Creo.

24th Feb

Except, H2 growth rate at Checkit (LON:CKT) was weaker than H1, and if that continues, they'll fall short of the 30% growth rate. Not far off though.

However, what if the softer H2 growth rate in ARR, is symptomatic of further growth slowdown? And then we start to see like 15%-20% annual growth rate in ARR, and suddenly the break-even horizon slips too far into the future.

Up for everyone on their own to judge the cash runway, and the growth momentum with Checkit...

Funnymoney

12th Jun

Creo Medical (LON:CREO) From other comments you appear to have some insight into things medical. I am quite swayed by the £2m of director investment at the raise. This is much higher than they have previously put in. The sales have gone from £13k to £27m in 3 years. I See the issue about profitability, but maybe the directors know what's coming? The issue about training people during the pandemic would appear from the outside to be genuine. What is it you see in this that makes the claims questionable? Not attached to this and very keen to learn about the negatives from a functional and potential sales perspective.

bss

31st Jul

BnB,

Thanks, that's useful.

What's the name of the software company that provides your Refinitiv Eikon feed ?

BnB

The company is Metastock and the product is XENITH. Interested in what you make of it.

I certainly don’t feel a Bloomberg terminal at 15x the price would be any more valuable. On the other hand, for a pure buy and hold approach, who needs all that live-ish data?

However, I write a A LOT of options, so having options prices with minimum delay is a plus, and comparing them instantly to the latest analyst views - in order to set optimal strike levels - definitely helps.

Small Cap Value Report (Thu 16 Feb 2023) - IHC, CKT, HOME, CREO

Roland’s Section:

Inspiration Healthcare (LON:IHC)

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Paul Scott

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