Small Cap Value Report (Thu 2 Feb 2023) - PRV, PCIP, SFE, SCS, SDRY, JHD

2nd Feb '23 by Paul Scott

24 comments 6968 reads

Good morning from Paul & Graham!

Today's report is now finished.

I've got to finish early today, so have started early, and will rattle out as many sections as possible! Anything missed today, I can always look at tomorrow.

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.

Paul’s Section:

Porvair (LON:PRV)

616p - mkt cap £285m

Porvair issued a positive trading update (“ahead of market forecasts”), which I briefly mentioned here on 9 Dec 2023. Key points were: revs up 18% (5% from forex), EPS ahead of forecasts, and net cash of £18.1m. That triggered a big vertical move up in the share price, some of which has since scrubbed off.

Here’s the latest news -

FY 11/2022 Results

Revenue up 18% (as expected) to £172.6m

Adj PBT £19.4m (up 31%) - impressive.

Adj basic and diluted EPS 23% higher at 33.2p (adjustments look only small)

Net cash £18.3m

Total divis for the year 5.7p - less than 1% yield, seems stingy, given plenty of cash, and this is only 17% of earnings. Why does the company need to hang on to the bulk of its earnings, I wonder? More acquisitions, possibly?

Outlook - comments a bit mixed, which is probably why the share price has moderated a little in recent days -

"As we move into 2023 the…

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Quilleron

2nd Feb '23

Kicking myself for having sold out of Immotion (LON:IMMO) with the view that they were exposed to a downturn in consumer spending and might need to fundraise. Lo and behold they've sold the VR attraction part of the business for $25m and plan a massive return of cash to shareholders. Just the sort of snapping up of businesses on low valuations that Paul has been talking about but how to spot them is the question. Up 65% as I write.

Hoping for a better outcome with Tekmar (LON:TGP) (I hold)

greyster

Paul, Thank you for swift response, appreciated.

Greyster

Rusty2

NCC (LON:NCC) half year update, not gone down well with the market, shares down 18%.

jmallin1972

Reading the RNS the size of the drop this morning has surprised me unless there is something I am overlooking.

drkelly1975

SCS (LON:SCS) trading update today - like-for-like order intake momentum improved significantly throughout the Period and the Group returned to growth of 2.6% in the last 10 weeks, which included the key winter sale.

Estate expansion by opening two new stores in Swindon and York, bringing the total UK store count to 100.

The balance sheet remains strong, with closing cash at 28 January 2023 of £76.9m and no debt.

The Group remains on track to meet full year market expectations.

This looked like an encouraging update today, balance sheet looks robust, on track to meet full year market expectations, dividend should be safe. No comment on margins over the winter sale period, so hopefully those have held up in line with expectations. A little uncertainty re Snugsofa costs / profitability in the short-term, but hopefully a lot of upside with that medium term. Views?

DAZZA64

£ncc its a long time since SCVR have looked at this, its £520m mkt cap now, looks oversold for a mostly cyber company? would be useful if you could review this.

Paul Scott

Hi Quilleron,

Yes I had Immotion (LON:IMMO) on my "vaguely watching, looks potentially interesting" watchlist.

I don't think anyone could have predicted a sale of the business for a premium price, so this one goes into the lucky tray, for a business that looked at risk of further dilution. A bit like my lucky break with Seraphine (LON:BUMP) - it's important not to congratulate ourselves too much when we get lucky from a risky share, as sooner or later the market will take the money back, when a future risky punt goes wrong, as lots of them tend to!

Regards, Paul.

P.S. Although well done to people who read the RNS early, and bought on the opening bell with IMMO, as that was skill not luck :-) Still worth considering now actually, given that it's intending to repay shareholders 3p, and you can buy only slightly above that right now.

Morning! I don't think we'll have time today for NCC (LON:NCC) , as I have to finish early to get to an investor lunch a long drive away. But it's on the list for possible attention tomorrow, when you'll have my full, undivided attention :-)

James Kerr1

Just looked at Immotion (LON:IMMO) and very tempted to take a (very small) nibble. Buy price currently 3.3p - of which I'll get about 3p back when the sales concludes, so I'm paying 0.3p for a company with a residual market value of about £1.5m that has some interesting products and £6.5m in cash? Superficially at least not expensive, if management make good use of that cash.

Yes NCC (LON:NCC) did look a bit too much, now recovered to -7.5%.

ridavies

Hello Paul and Greyster, Polarean Imaging (LON:POLX) is doing some excellent work and has passed the test of the FDA, both with the equipment and with the oral gas application.

However, as we saw with Angle (LON:AGL) that is only part of the story. Next, the clinicians and / or the pharmas in the case off Angle (LON:AGL) have to buy into it big time for the funds to flow in and the next stages of development to take place. That hasn't happened with Angle (LON:AGL) and it brings up the difference between research results and clinical confidence.

Angle (LON:AGL) had a massive fund of support from researchers from Europe and the US but if the clinicians / pharmas don't buy in quickly enough.....well, we have seen with Angle (LON:AGL) what has happened.

It also reminds me some time ago of a company called Creo Medical Creo Medical (LON:CREO) which had developed a procedure which was likely to be the next best thing since sliced bread in the field of surgical endoscopy. I bought into it, mentioned it here and took a small holding. I then read comments here soon after from a retired surgeon who made the point that clinicians were very loath to change their behavior, and recommended I think again. I sold out for a tiny loss, and they have since joined the Minus 90% Club.

I wish I had thought about that when the SP of Angle (LON:AGL) were basking in the glory of FDA acceptance, but didn't until much later, to my cost.

Of course, Polarean Imaging (LON:POLX) may be of greater interest to companies like Medica (LON:MGP) who always seem to be complaining about shortage f staff etc and this may be a fillip to take both companies to the next level. Who knows?

davidjhill

Activeops (LON:AOM) hmmm interesting goings on here. Looks like 1.7m shares changed hands at around 85p in 3 tranches. That's a big volume for this share. Unclear when the trades occurred (I presume delayed reporting given size) but price has been moving up in last 2 days so looks like an institution has purchased the holding from someone.

Rick.Omera

Sorry if this sounds nonesense, i don't comment a lot on here. Just thinking aloud playing with a calculator.

When valuing a company should we be adding the expected earnings yields investors expect in low interest rate times to todays Interest rate of 4%

Random Company:Barratt Developments (LON:BDEV) todays price 471p.

In low interest rate times shareholders were happy with an earnings yield of c.7%

Adding the 4% interest rates today, should a shareholder now want c.11%?

With Est EPS FY23 of 68p this would give a (f)PE of around 6.1. Giving a price of 408p

Not Calculating the 4% interest rate hike into expected returns. A shareholder still aiming for historical earnings yield of 7% would be chasing a price target of 646p.

But, should shareholders accept times are different and lower their earnings yield expectations. What would that 11% come down to?

At todays price of 471 and est EPS of 68p giving a f(PE) of 6.92. Shareholders are expecting an Earnings Yield of 9.8%. Could that be the new norm?

you should adjust expected returns for changes in the risk free rate. ie RFR + stock specific risk premium tells you what you expect a company to return to compensate you from moving out of risk free assets into risky assets. On a like for like basis the latter doesn't change but in practice it does of course as a company becomes more or less risky over time.

But the RFR isn't todays 4% - the 10Y is a better proxy which is currently 3.2%. The 10Y wasn't zero either before this - it was hanging around the 1% level, so your change is actually more like 2% rather than 4%.

Mark L.

I've held SCS (LON:SCS) for around 18 months. Like the Grand Old Duke of York, the shares marched to the top of the hill then down again. (Or rather the reverse.)

Anyway, the useful point is just how valuable a rock solid balance sheet can be to investors. Rather than having to sell at a loss, I was (and am) happy to hold, meanwhile watching consistent share buy-backs.

A very similar scenario applies to Vertu Motors (LON:VTU) (I hold), and no doubt several other car retailers.

If I had held say DFS Furniture (LON:DFS) with its weak balance sheet, I'd have capitulated into selling in the face of falling sales and a falling share price.

As they (don't) say in Germany: Balance Sheet Uber Alles!

sharw

NCC (LON:NCC)

As Paul says in his review of Porvair (LON:PRV) it is good if companies webcast their presentation to analysts. NCC did that this mornng and it was particularly good in that it started with the new CEO (from 1/8/22) giving his impressions from the first 6 months in the job. You can see it here (registration needed).

Viewing "NCC Group Interim Results 2023" (investis-live.com)

....and it hasn't done the SP any harm:

peterthegreat

Re: NCC share price fall today. I would note that Odyssean Investment Trust has a relatively large holding in NCC and is engaging with the new CEO to implement a strategic review. Perhaps the market was a bit disappointed as there are plenty of initiatives mentioned in the results but not sure that this is really a strategic review. As regards the recent Porvair results, I would suggest that the company may not wish to increase its dividend as acquisitions play an important part of its strategy and it may want to retain cash for this purpose, particularly taking account of the company's management which I would describe as encouragingly conservative.

Gerard88

Dianomi (LON:DNM) A review tomorrow? Yes please, especially with the SP increasing 32%

US markets are up strongly today, Meta Platforms (NSQ:META) up over 20%.

slopsjon

I had a new all-time high today, wonder how long that will last. Took a year to beat the last high.

Small Cap Value Report (Thu 2 Feb 2023) - PRV, PCIP, SFE, SCS, SDRY, JHD

Paul’s Section:

Porvair (LON:PRV)

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Paul Scott

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