Small Cap Value Report (Thu 26 Aug 2021) - VLX, WJG, BMS, D4T4, MACF, LTHM

26th Aug '21 by Paul Scott

49 comments 10024 reads

Good morning, it's just Paul here today, with the SCVR for Thursday. Jack's off galivanting, and I'm dog sitting today, just to keep you in the loop! Today's report is now finished.

Agenda -

Paul's section:

Volex (LON:VLX) (I hold) - brief comment on another acquisition, looks an excellent deal.

Watkin Jones (LON:WJG) (I hold) - diary date for a Capital Markets Day (CMD) - 2 Nov 2021.

Braemar Shipping Services (LON:BMS) - a vague, but reassuring trading update. Looks potentially interesting, still modestly rated, in an interesting sector.

D4t4 Solutions (LON:D4T4) (I hold) - an in line AGM trading update. 2.0p final divi to be paid on 17 Sept. A difficult share to value, but I like the story.

Macfarlane (LON:MACF) (I hold) - very good interim results. The usual uncertainties & headwinds are mentioned, but despite that FY 12/2021 earnings expectations are raised. Broker upgrade. Looks good value to me.

James Latham (LON:LTHM) - a stunning trading update, with 4 months current year trading making the same profit as the whole of last year! Boom times won't last forever though. I crunch the numbers, and conclude that it looks priced reasonably.

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 will take & nobody can predict the future with certainty.

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

Volex (LON:VLX) (I hold)

Another acquisition, of Irvine Electronics, in the USA, for $16.4m. Looks a cracking deal - low multiple of EBITDA (current run rate $3-4m pa). Good…

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IncredibleMosesLeroy

26th Aug '21

The price of palm oil is up 73% yoy, averaging $1,122/mt for the first six months to 30 June 2021, compared to same period in 2020 of $648/mt.

This looks to be behind today's stonking H1 results out from Anglo-eastern Plantations (LON:AEP) which reported H1 revenue of £200m compared to total 2019 revenue (ignore COVID year) of £219m.

Could be worth a punt on M P Evans (LON:MPE) with the expectation that their H1 results in two weeks show a similar jump.

Commodities getting hotter.

Richard Goodwin

My understanding is that palm is the most productive oil in terms of tonnes per hectare. So if it were banned tomorrow far more land would need to be cultivated than is currently utilised. The bad press partly comes from the fact that overall oil usage is growing and palm oil is increasing market share.

SCI20

I’m no strident environmentalist but having flown across the island of Borneo the scale of deforestation is truly shocking. From the air you can grasp the horror of what is happening to one of the most important tropical rainforests on the planet.

ridavies

Hello Herbie and other subsequent contributors commenting on M P Evans (LON:MPE) related to palm oil.

The ever increasing production of palm oil has been responsible for the deforestation of huge swathes of rain forest over a period of far far longer than 16 years so M P Evans (LON:MPE) cant easily cop out on that one,......and where did a figure as precise as 16 years come from?

If we are to take climate change seriously, then massive reforestation in such areas, plus off-the scale forestation / reforestation elsewhere on the planet has to be on the cards, and now.

I remember a recent example where Iceland replaced palm oil in all their products by a sustainable alternative but I must confess I don't know what that was. From the comments from others here, it seems that demand for palm oil is growing fast, and Iceland was clearly one small example with a positive approach.

We have to stop saying why we cannot do this and do that, and playing around the edges. On the other hand we can continue to say that our human society will find a last minute solution, as if it were as simple as a C19 vaccine !

This is not a criticism of contributors which is not appropriate for this site, just a statement of facts........ and personal opinions of course.

All the best to all the great contributors here which I read on a daily basis, and from time to time contribute to on a share by share basis as well as on general subjects of the day.

Spookyone

Paul, how can you say something looks cheap, in this case BMS, by looking at a single metric such as EPS?

rogerh

Looking into that, in their June trading update (below) it mentions an Indonesian export levy, so the price increase is a more modest 30%, still appreciable.

The average price of CPO (cif Rotterdam) for the first five months of the year was US$1,127 per tonne, substantially higher than the US$659 per tonne during the equivalent period in 2020. However, the introduction of an Indonesian export levy in December 2020 meant that this increase was only reflected to a limited extent in the price actually received by the Group at mill gate. Nonetheless, in the period to the end of May 2021, the Group realised an average price at mill gate of US$715 per tonne compared with US$550 per tonne in 2020, an increase of 30%. Prices for palm kernels have also strengthened, averaging US$487 per tonne (mill gate), 57% higher than the US$310 per tonne in 2020.

JESSE LIVERMORE

Re M P Evans (LON:MPE) , the group in June reported that the Indonesian government had capped their upside to rising Palm Oil prices:

"The average price of CPO (cif Rotterdam) for the first five months of the year was US$1,127 per tonne, substantially higher than the US$659 per tonne during the equivalent period in 2020. However, the introduction of an Indonesian export levy in December 2020 meant that this increase was only reflected to a limited extent in the price actually received by the Group at mill gate."

Richard Vasey

The problem relates to the type of land which is used for palm oil plantations. One of the very worst culprits in the destruction of rainforests.

Norfolk'n'Good

Thanks for the comprehensive write up on £MACF and I am happy to say I came to the same conclusion - continue to hold.

(Certainly no need to apologise - I'm still wondering how you manage to cram in as much as you do on a daily basis!)

Paul Scott

Hi Discodave4,

Thanks for flagging up James Latham (LON:LTHM) from yesterday, it looks a very interesting update.

I'll write up a section of it, hopefully up by 15:30 today.

Regards, Paul.

The other thing to point out is that many of the companies behind industrial scale palm oil farming are based in tax havens such as the Cayman Islands with licenses approved by high ranking Indonesian officials. Ordinary Indonesians see little of the wealth created.

As the article explained, I just had a quick look at the StockReport, and thought there was enough of interest there to make it possibly worth a closer look. But yes, I agree with you that I wouldn't make a low PER the single decision-making factor!

This was my full conclusion, which is a bit more nuanced than your version!

My opinion - I’ve not properly looked at this share for a while. It could be worthy of further research, because the valuation looks cheap, and of course shipping is a very lucrative sector at the moment, due to sky high freight rates from the Far East. Hence it seems logical to expect BMS to be grabbing a slice of the action in its sector.

Today’s non-specific, but positive-sounding update, probably makes it more likely that the company would meet/beat profit expectations.

Overall then, this one looks quite interesting.

Discodave4

Thanks Paul for your analysis of £LTHM.

Agree it’s potentially a “bumper” start to the year, 75p eps is already in the bank so do think it’s worth more than a 20% uplift, but time will tell I guess.

Thanks again and all the best.

peterthegreat

I would agree with Paul's description of the update from James Latham as "stunning". The "one-off" COVID recovery effect is confirmed by the company in this update but I am also interested that the update mentions the global increase in the demand for timber (and this easily confirmed by a quick search on the internet). My impression is that sustainability has become more important during the period of the pandemic and the increased use of wood in building is one long term trend resulting from this. Technologies such as glue-laminated timber and acetlyated timber are also coming of age, making more engineered timber products possible. When the COVID fog disappears, I am hoping that it will become apparent that the growth prospects of James Latham are also more sustainable as a result of these trends as it was always a good company, but in the past has been a bit of a slow grower.

Tommy H

There was an article by David Stevenson under his Adventurous Investor emails a short while back on shipping and the various options and what the thought

http://www.adventurousinvestor...

Harry Hindsight

Macfarlane (LON:MACF) - if only had spotted the volume rise a few days before results - duh.

Boon

Speaking of acetylated timber, if this floats your boat, you might want to check out Accsys Technologies (LON:AXS)

I don't hold because I think the valuation is nuts and I don't know enough about the product, and I don't trust management to execute well (see how many delays they've had in construction of their plants over the years....)

Leebod

27th Aug '21

I stopped knowingly buying anything with palm oil in about three years ago whilst shopping in Tesco with my daughter around the time of the orangutan advert from Iceland to see if we could do it. It meant reading the ingredients of more things than I care to remember but you quickly realise that it pretty much meant all processed food went out of the window apart from a 'bounty bar'! It does seem however that the tide is changing slightly and food producers are starting to move away from palm oil - baby steps now but there are a few more products becoming available by switching to rape/sunflower or coconut. Shampoo containing the surfactant sodium lauryl sulfate is usually palm oil (which is 95%). It's bloody everywhere but you can now quite easily get 'SLS' free shampoo too. Horrible bloody stuff and sustainable palm oil is a myth.

nicktudor

Worth catching up on their news in the last 12 months. A new Chair and CEO are in place and there has been quite a significant shift in the Co's strategy & debt as a result. Worth reviewing imo.

sharw

Nicktudor - please tell us which company you're talking about - see Explanatory notes at head.

Small Cap Value Report (Thu 26 Aug 2021) - VLX, WJG, BMS, D4T4, MACF, LTHM

Paul's Section

Volex (LON:VLX) (I hold)

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Paul Scott

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