Small Cap Value Report (Thu 21 Oct 2021) - LUCE, SOLI, GMS, WATR, ALU | Paul Scott

21st Oct '21 by Paul Scott

41 comments 9210 reads

Good morning, it's Paul & Jack here, with the SCVR for Thursday.

Agenda -

Paul's Section:

Luceco (LON:LUCE) (I hold) - this electrical goods maker reassures on FY 12/2021, keeping guidance unchanged. Although cost inflation & freight costs/delays have reduced its gross margin, and expects that to continue into H1 2022. The share price has already dropped c.40% from the peak, so arguably these short term issues are priced-in. Valuation looks reasonable.

Gulf Marine Services (LON:GMS) (I hold) - a special situation - bombed out shares, due to excessive bank debt. As mentioned in last Friday's SCVR, there looks to be a promising turnaround underway here. Utilisation rates for its fleet of specialised support vessels (oil & renewables offshore sector) are rising, as are daily hire charges. 2 contracts are announced today. Good visibility & large cashflows should enable debt to be significantly reduced. Speculative, and risky, but good potential upside if positive newsflow continues.

Alumasc (LON:ALU) - an in line trading update, despite all sorts of sector-wide disruption (higher costs, logistics issues, etc). Looks reasonably priced, for a decent quality business. Remember the cash outflows into the pension scheme though, which is why the PER always looks low. Overall, a thumbs up from me - this looks a decent company, at a reasonable price. Good, and rising divis too.

Jack's Section:

Solid State (LON:SOLI) - good interim results with recent acquisitions exceeding expectations. Group confident of meeting FY forecasts but scope for outperformance depending on how supply chain challenges play out. A good, growing company, but the shares are more expensive now than they have been in the past.

Water Intelligence (LON:WATR) - momentum continues here, with the group achieving last year's total revenue, profit, and EBITDA by the end of the third quarter. The valuation is a concern and the company must continue to grow in order to justify this, but there's nothing to suggest here that won't happen.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover 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…

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andywillz94

21st Oct '21

Truth be told, customer service is lacking across the whole banking industry. most of them still advise you not to call if it isn't urgent because they have ' exceptionally high call volumes'. This has has been in place since the start of the pandemic and im not sure i believe them.

"you can't even do transfers between accounts online" - I dont have an account with STB but i find this very hard to believe. Do you mean between your own accounts or you cant do bank transfer's in general? Not saying you are wrong, i'd just be pretty amazed if its true haha.

Effortless Cool

Solid results to end-June from Croma Security Solutions (LON:CSSG) [I hold] today, with revenue up 4% and pre-tax profits up 26% (excluding impairment from prior year comparative). Given the nature of the business - security services, reception services, security systems and locksmiths - it has been heavily impacted by lockdowns but has come through the pandemic in surprisingly good shape, albeit with some help from furlough.

With EPS of 6.6p, DPS of 2.0p, net cash at £5.4m against a market cap of £13.3m, I continue to believe there is huge value on offer here. Growth has been the problem, with revenues going nowhere over the last four years. However, the have a solid base to build from, post-lockdown, and have reported a strong start to the new year. Additionally, bolt-on acquisitions are likely to be imminent.

Rusty2

Well I have contacted other banks and not had anything like the problems I had with £STB. Another one yesterday I was straight through to an agent who reset within minutes.

Yes its true, I tried but it was impossible, so I had to phone yet again and they said no you can't do transfers on that account, you would have to close it and send money to your bank and transfer from my bank to your new STB account. Or you have phone up and get them to do it. Each phone call is taking around 30 minutes. Most of the complaints are about customers services and waiting on the phone. It is not a 0800 number either.

It should be Tp (LON:TPG) not Tekcapital (LON:TEK)

Aluminium uses large amounts of energy in it's production, so I would expect costs to rise considerably, so much so that customers may switch to alternative products.

RCTurner

I have a business account with HSBC and I needed to get a new device working as the battery has run out on the old device. I was expecting an horrendous experience on the phone, but they have a call back system in place, the phoned me back about 15 minutes later and the lady on the phone took me through it all in a straightforward manner and I was able to switch to the new device once they had texted me a new code. I was pleasantly surprised.

Snowbum

Nice move this morning from Deepverge (LON:DVRG) (I hold) following RNS highlighting new orders worth >£2 mil

Joe Turner

I hold Gulf Marine Services (LON:GMS) & one of keys points for me is utilisation of their largest vessels - the E Class. Their mid size & smaller vessels (S & K class) have seen good, steady high utilisation for last few years but hire of their E Class vessels has been relatively poor in comparison. if they could get same utilisation & higher day rates for their E class vessels as they do for S & K class then revenues could really take off. Announcement of new contract for one of their four E class vessels is encouraging but it's a shame that they don't mention if the new contract for this E class vessel is the one at the higher rate as that would make quite a big difference to overall revenues. Higher utilisation is encouraging but higher day rates is more important imo. Their utilisation rate in 2020 was pretty good but they weren't able to charge higher day rates so revenues didn't increase.

jonno

Addendum to my earlier post on £HSP; Singer have upgraded EPS for £HSP by 6% and 7% respectively for FY22 and FY23 respectively , followed by 9% for FY24 with the first partial contribution from the mining services contract.

I hold.

sheeza

No, should be £TGP! But Tp (LON:TPG) is interesting - serial lossmaker. Recently dumped two poor directors, and replaced with two Science (LON:SAG) directors. Science (LON:SAG) now owns almost 30% of £TPG. Turnround anticipated?

Splode

RayStraw - FYI, aluminium products now make up only a very small part of the businesses of £ALU.

Silver Moon

I bought shares in Wolfe Minerals owner of Drakeland mine at the time. A lot of dodgy happenings have been going on and suspect mining never stopped, with ore being processed nearer Plymouth but I might have dreamt that. For sure, the UK does not like miners.

Alumasc (LON:ALU) ok, do you have a split?

Yes Tekmar (LON:TGP), typo on my part.

Paul Scott

Hi EC,

I know you like Croma Security Solutions (LON:CSSG) and when we discussed it recently I could see some merit in your points (mainly about the strong balance sheet, with £5.4m cash - and that's a solid cash pile, not due to reverse working capital).

I've had a quick look at the FY 6/2021 results out today. This is my view:

Profit before tax of £1.2m has come mainly from £0.8m taxpayer support (furlough & grants). So the track record of negligible real world profits continues. Why is this company listed on the stock market? Where's the growth?

2.0p divis, a poor yield given the 90p share price, and only slightly up.

Outlook comments sounds quite positive.

Lovely balance sheet, including £5.4m cash, which looks real to me, i.e. not offset by creditors.

£13.3m market cap.

My opinion - there's nothing to get excited about. It looks like a private company with a (pointless) listing.

I think it needs a new strategy, and more aggressive management, and needs to do something with the £5.4m cash pot.

I wouldn't want to buy any shares myself, because it's been poor historically, and the danger is that you end up in a lobster pot, if you can get a decent size position at all, where once you're in (having provided an exit for someone else) you can't get out, and then have to watch in frustration, as better & more liquid investments pass you by, as you hold something like this for many years.

You could get lucky though! Risk seems low, with that lovely balance sheet. Market cap is modest. So overall, it's not a bad punting idea. Have you got the patience to hold for maybe years though, with nothing much happening?

Good luck with it. I need more liquidity & more obvious upside personally.

Thanks for flagging. I enjoy looking at everything, especially when people put up logical & interesting comments, like yours.

Best wishes, Paul.

Hi hp01,

I was so certain that Best Of The Best (LON:BOTB) (no longer own) received an offer. But then I woke up! It was just a dream! I guess it doesn’t matter as I don’t own, but it was at £15. or £20. It’s all a bit hazy really.

You're making about as much sense as I do, after a skinful on a Friday night! ;-D

What's your excuse at 08:44?

Only teasing, please don't {{ shudders! }} take offence! Then we would have to stop everything for some humourless neurotic plonker or other!

On a more serious note, at £56m market cap, I think Best Of The Best (LON:BOTB) (I hold) could have overshot on the downside maybe? It's an extreme lesson from the market on how operational gearing works in reverse, which a lot of us have learned from. I got really complacent on this one, and have learned a lot from it.

That said, I'm happy buying back in at this level of £6. Some smart funds bought from management at £24 earlier this year. Ouch. So it's not just us PIs who drop clangers quite often. Even the brightest & the best do so also.

Regards, Paul .

I've had a quick look at the Admission Document for Umuthi Health (UHS)

It looks strange to me, in that these documents usually have the broker name(s) on the front page. There's nothing on this admission document. So who promoted this float?

The only advisor names listed are :

PR: Investor Focus Advisory (rings a bell), and

Lawyers: Memery Crystal LLP - also rings a bell, I think they might be part of Rbg Holdings (LON:RBGP) ? IF so, why are they involved in this this seemingly dubious float?

22nd Oct '21

Hi Paul,

Thanks for the feedback on Croma Security Solutions (LON:CSSG) . I don't necessarily disagree with anything you say, although I am confident that the furlough income can be replaced with profitable revenues now all their security centres and locksmiths are open properly again.

And, yes, I'm happy to be patient. This is part of a (currently) 13 share portfolio and I don't expect them all to move up at once. Indeed, I have been building a position in Croma Security Solutions (LON:CSSG) for two and a half years for a princely IRR of 2.4%, so far.

What I like about this investment is that I see it as a bet with the odds stacked in my favour. It has a rock solid balance sheet, is generating a reliable profit stream (even under the stresses of the last two years), sits on a very low multiple, pays a dividend and retains more cash each year. Downside, in my opinion, is very limited.

Upside, however, is very material. If they can start to generate some decent growth (and, based on the latest statement, I believe they are poised to do so). Not only would I benefit from the operational gearing but also from multiple expansion. So long as the story stays intact, I am comfortable waiting for years, if need be.

hp01

Hi Paul,
To clarify, I had woken up earlier but it took me until 08:44 to login and muster up some words. I don't know how you manage to write so much in the mornings. I've barely got one eye open before 7. Anyhow, no offence taken. My humour bones are fully in tact. :) Now, if I get another sleep-induced Best Of The Best (LON:BOTB) update, I shall be back. Same time, same place. Until then, thanks for your updates.

Unfortunately there were no further updates last night from deep sleep mode. But I will be back on here the moment I have more info. Stay tuned. It was rather strange as I haven't read/thought about BOTB for a while. Maybe it was one of their facebook/instagram adverts sending messages to my brain.

Small Cap Value Report (Thu 21 Oct 2021) - LUCE, SOLI, GMS, WATR, ALU

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Paul Scott

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