Small Cap Value Report (Thu 25 July 2019) - EMR, AML, ACSO, COB, LWB, VP., GOR

27th Jul '19 by Paul Scott

41 comments 9318 reads

Good morning, it's Paul here.

Thanks for the positive comments yesterday. Things work much better when I'm at home, on the south coast, and can properly devote my energies to these reports. It all goes haywire when I'm in London, so will keep away from the capital, for the time being, and certainly in this heatwave.

To catch up on a couple of things from yesterday;

Empresaria (LON:EMR)

Share price: 68.5p
No. shares: 49.0m
Market cap: £33.6m

I remember when some friends and I met management of this small, international staffing group, about 4 years ago. We came away with the idea that it was good value, and I bought some stock at about 56p. Anyway, it's largely done a Grand Old Duke of York since - as so many shares do actually. Perhaps we like to kid ourselves that we have great insights, but in reality, we often just get lucky in catching an upward surge in share price, that subsequently reverses.

One issues that bothers me with Empresaria, is the unexpected departure of the former CEO called Spencer Wreford. At company meetings (he was previously CFO) he seemed to be in control of the facts & figures. So why did he suddenly leave on 27 June 2019? That bothers me.

Today's update seems to mention numerous divisions, for such a tiny market cap company. Does that really make sense, to have all these different small subsidiaries, in different countries? I struggle to see the logic of such a business model.

Trading - the last sentence sounds reassuring;

As expected, adjusted profit before tax for the first half is anticipated to be approximately £3.7m (2018: £4.7m) excluding the costs associated with the previous CEO stepping down in June 2019 which have been treated as exceptional. This reflects the lower starting position of businesses in Germany and Japan along with the impact of Brexit uncertainty in the UK and a higher central cost base following the investments made in the second half of 2018.

The Board is positive about the prospects for the second half of the year and the Group remains on course to deliver adjusted profit before tax in line with market expectations.

Net debt - I've tried very hard, but have never really got my head around the various elements of this, and whether…

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rmillaree

25th Jul '19

Ref the doctors they have the added problem that their deemed pension contribution for the year isnt worked out like most bods. They have a notional calculation that depends on the increase in the value of their (projected ?) pension pot. i am guessing that a promotion recalculates the totals - i have known doctors have 50-70k increases in their pension pot in one year (total use for calcs) which would be a nice bonus if it were not for the fact that its mostly taxable at ones top whack if the restriction applies.
Hmmm i guess i would take that problem if it gives me a pension of a £1 million squidlies - no need to mess around with the stockmarket for them.

Hmmmmm should we really worry about bods with £1 milion pension pots paying extra tax?

shipoffrogs

"Hmmmmm should we really worry about bods with £1 milion pension pots paying extra tax?"

It's more worrying that the politicians have yet to resolve the problem.

Velse

We should worry, because they are all deciding (quite correctly) that 'not working' is the solution to the situation they have been put in.

Elliot King

Hi Paul, I know its not a small-cap but would love to hear your thoughts on on Burford Capital's results! Amazing results imho and down over 5%!

£BUR

John Gibson

Takeovers!
Re: accesso and Cobham takeover approaches.

Both companies have established international markets and parts of the business that could easily be moved elsewhere.

Brexit has lowered the pound and made them cheaper for international buyers.
They can then extract the value no matter what happens with Brexit.

Extracting the value from this country does not make this country stronger.

The British empire extracted the value from countries around the world.
That made Britain richer.

To say the ‘big players’ are not concerned about Brexit (with the implication that we shouldn’t be either) is to miss what is happening.

Paul Scott

Hi grout123,

Sorry off topic,

I don't recall the DB7 having a V12 engine.

Later ones did. There was originally a 3.8 litre engine I think, but mine (a 2003 model) had the 6.0 V12 engine, hand-built by Cosworth. Breath-taking acceleration, did 0-60 in about 4.9 seconds. But the chassis (old XJS base) really wasn't up to the job of handling so much power.

My old DB7 looked exactly like this one, same colour & wheels. Surely one of the all-time greats, in terms of beauty? I reckon this is a future classic, so could be a very good time to buy a near-mint example for say £30-40k. Would probably be worth £100k+ in say 10-15 years' time, if stored & maintained carefully, and used as a Sunday afternoon car.

People who spotted the E-type, and pre-1980s Aston Martins at the right time, would have cleaned up by now, as they're going for silly money, well into 6-figures. I'd say the DB7 is a prime candidate for similar long-term price appreciation.

I've recently bought a rebuilt XJS 4.0 convertible on the same basis - it's going up in value, and is much more fun to drive than a modern car (it hasn't broken down yet, but give it time LOL!)

Right, back to shares.

Regards, Paul.

Hi andrea34l,

Please can you cover Gordon Dadds (LON:GOR) Paul? The final results look REALLY good, pre-ex/adjusted profit £5.9m (£2.9m) with a confident sounding outlook

Sounds interesting, thanks, I'll take a look at it next.

Hi Michael,

I'll look at SimplyBiz (LON:SBIZ) a bit later - it's on my list!

jonesj

For a 60 year old couple, a £1million pension pot would buy a joint life annuity escalating at 3% per annum of about £25,800. This is not rich.
For anyone used to getting by on a doctors salary, they would probably want more than £1million.

However, if the tax regime prevents them building the pot up further, there is not much incentive to work on. Hence doctors retiring.
All government policy changes have unintended consequences and perhaps our MPs should think more carefully about that before introducing silly limits in future.

Incidentally, I believe MPs only need about 13 years to get a final salary pension of £25800. The limit for final salary schemes is obtained by multiplying the pension x 20. So the MPs could effectively get just over £50k a year in pension before reaching a limit. As far as I can tell.
Double standards.

Hi Elliot,

Sorry I don't cover Burford Capital - too large, and I don't really have any insights into it. There are plenty of other commentators who report on it elsewhere.

Regards, Paul.

Vsihv

That would be fantastic Paul - muchas thanks - interesting company with good long term potential.
Was trying to work out but stocko share count and net debt does not reflect the acquisition and my little brain started hurting!
I make it some 97m shares in issue - interestingly the market cap at the top right is correct, even though the stock report share count is incorrect.
Also - struggling to understand whether they are an operations management platform for financial advisors or digital financial advisors in their own right.
If providing a compliance / reporting platform, I would argue they are undervalued, given the multiples the likes of Ideagen (LON:IDEA) command.
Thanks again for covering Paul

Does that assume tax free 25%, so actually pot for purchase is 750k - 2.58% seems pretty low - even in the current rate environment.
If so - I would think going for a drawdown as opposed to annuity is more attractive considering you.

Tax benefits aside - personally I am not sure about SIPPs - locking your money for 20-40 years - 8 cycles of unintended policy consequences and incompetence to deal with!!

ACounsell

As you say the existing system has a serious negative impact. However, the pension tax rules can't be changed just for the benefit of the medical profession. If they are changed then it should apply to all taxpayers. Surprisingly a politician has voiced this view though I am not sure how much influence Liz Truss will have given her new role as International Trade Secretary!

Aislabie

Does anyone have view as to what todays news on Boku Inc (LON:BOKU) means? This is a supposedly high flying stock (p/e of 40) in the hot space of Direct Carrier Billing. And yet today it is announced that Khosla Ventures, who are no slouches in the high tech space, have completely sold out of their 6.81% and Benchmark Capital have sold down from 6.6% to 5.9%
There is no announced buyer for these stakes so it appears that, just as it is about to turn into a profitable company, two key backers are heading for the hills. Not a good feeling

pj8

On my calculations, if someone who earns £150,000 and pays £40,000 into their pension then does extra work worth £60,000, the extra tax they'll have to pay is £40,000 - because of the taper on their pension contributions (a reduction of £1 in the allowance for every £2 earned above £150,000). That's an effective tax rate of 67% for the additional work. If their pay then goes higher than £210,000, the income tax rate reverts to 45% + 2% NIC.
One way around this is to go part time and set up your own company for doing the extra work that takes your pay above £150,000 - but this only works if you work on a consultancy basis for a number of different employers. This should be possible for doctors if they split their time between the NHS and private patients. The NHS could probably manage this by employing more part-time consultants - easier said than done.

maillotàpoisrouges

Exactly. The net effect is that the difference between take home pay on gross PAYE earnings of 110k vs 165k is zero. Yep you can earn an extra 50k gross on paper but taxation wipes out any net pay. Most NHS consultants were in that bracket and therefore essentially doing the overtime for NOTHING!

ISAallowance

Both the personal allowance taper at 100k, and the pension taper are completely rediculous structures IMO, that simply result in bands of higher marginal taxation at arbitrary points on the spectrum, and huge confusion in the case of the pension allowance on what the tax liability on additional work might be. Some of my wife's colleagues are employing an accountant at some expense to work out what their pension tax liability might be - that just shouldn't be necessary in this day and age.

However, whilst we're hearing a lot of wailing about this from the doctors (and my wife is a doctor before the profession starts giving me the red thumbs!), it's worth sparing a thought for those much lower down the pay spectrum - withdrawal of benefits when starting low paid work has resulted in horrendous effective marginal tax rates for many much lower paid workers for many years. After adding the costs of work such as commuting, I know at least one person who is worse off working than she would be staying at home.

Agreed. Have long thought that pension tax relief should be a flat rate of (say) 25%, giving a perk lower rate tax payers, and giving higher rate taxpayers a choice of getting some (but not all) of their income tax back. I reckon with that you could probably then lift the £1m cap.

hawkipa

26th Jul '19

Hi Jwebster,

Re Newriver Reit (LON:NRR)

Enjoyed reading your thoughts on it, thanks. In response.

Assets are only valued twice a year with the next one being 30th Sept. They use two independent valuers but I presume they get a good steer throughout the year. I did wonder if selling below book value of the sales was an indicator of possible valuation move, but I am not sure as they have sold a lot above valuation level. So would probably be idle speculation to extrapolate.

I think Woodford has caused c35p impact to the share price. However, there were shorts against it before Woodford. Nevertheless, that is the impact I guess and the final amount of Woodford's holding looks to have been widely placed as only Invesco reported a notifiable increase upon the last big sale.

Regarding your specific points:
1, The co. responds to this that average basket spend has gone up and they cite the ratio of rent/sales as at c 7.5% which proves (they say) that they trade profitably from NRR sites. This leads them to state that in such case retailers won't leave a profitable site. This is challengable I'm sure.
2, Pub business as an asset class is attracting new money and wet led is now the most attractive part of the pub market. A 12% yield makes them believe it to remain a good asset class with scalable possibilities. They have undoubtedly traded into it well. I suspect the long term aim here is to sell it on or separately list the business. The EI takeover does support their view to an extent.
3, Depends what the M&S stores are as will be lower costing out of town sites most probably. They think diversity and lack of concentration provide the risk mitigation.
4, Yes. Fitch have said no downgrade til 45% but if they breach 40% mkt will take fright I'm sure.

British Land (LON:BLND) comparison really interesting thanks. However, without knowing BLND portfolio make up and specifically retail interests (if higher value shopping centres then less comparable) then comps difficult for me to appreciate. I don't follow your point about 40% NAV discount and retail assets for free? I think closest company to NRR is Peel Holdings, but is not listed for easy comp.

I think the dividend cover is an issue and the company should be pragmatic and not raise it until cover achieved. I believe its f/c to be covered in 2021.

I am a holder from much higher up and like the business model, but I'm on a MTM loss though not intending to sell and if anything I can see the Woodford discount diminishing so pondering adding. For that reason I may well be biased in my view.

Cheers
Paul

Small Cap Value Report (Thu 25 July 2019) - EMR, AML, ACSO, COB, LWB, VP., GOR

Empresaria (LON:EMR)

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Paul Scott

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