Small Cap Value Report (Thu 28 Mar 2019) - VLX, SSY, FUL, PEB, TMO

28th Mar by Paul Scott

26 comments 10366 reads

Good morning, Paul here. Looks like a quiet day for results & trading updates. Actually, scrub that, as loads more have just come through!

Volex (LON:VLX)

Share price: 83.6p (pre market open)
No. shares: 147.4m
Market cap: £123.2m

Trading update

Volex plc, the global provider of cable assemblies, issues the following trading update ahead of the announcement on 13 June 2019 of its full-year results for the year ended 31 March 2019.

This reads positively;

Trading continues to be ahead of market expectations across the group, with the three acquisitions made during the year all performing to plan

Other points;

Generated $10m in net free cashflow in H2
Full year revenues to exceed $365m (which is c.$10m more than the broker consensus)
Dividends to resume in the new financial year 03/2020
Good results despite competitive, and cost inflation pressures

Outlook - sounds encouraging;

There remain substantial identifiable opportunities for both divisions to improve sales and margin performance through disciplined execution of our strategy, in both the short and longer term, and we expect to deliver a robust trading performance for the full year, ahead of the Board's expectations.

My opinion - this all sounds rather good! It looks worthy of a closer look.

The valuation metrics look cheap, so this share looks likely to rise in price today.

High StockRank too;

Volex has been trying to do a turnaround for years now, and it looks to be working out well now.

Fulham Shore (LON:FUL)

Share price: 11.25p (pre-market open)
No. shares: 571.4m
Market cap: £64.3m

(at the time of writing, I hold a long position in this share)

Year end trading update

The Board of The Fulham Shore PLC ("Fulham Shore" or the "Company") is pleased to provide an update on trading ahead of the publication of the Company's results for the year ending 31 March 2019, which are expected to be released in mid-July 2019.

This group runs 2 casual dining formats, Franco Manca (sourdough pizzas), and The Real Greek. Both are successful formats, being gradually rolled out, but mainly in London at the moment.

Today's update sounds encouraging. Maybe the…

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fredericktug

28th Mar

Fulcrum Utility Services (LON:FCRM). Yes the TA looks solid enough, having recently taken a snall bite at these beaten down levels.

I was immediately taken by the comment "Our success with these developments has resulted in a more cash consumptive profile across the period of these contracts".

Nod if not outright nomination for management-speak?

We have an adjusted ebitda number so one can have a stab - I think it's undervalued now but if we can get come better visibility on future growth, perhaps more so. It's yield appears safe and IMO provides support and maybe some further upside. I myself am investing partly for income.

doublelutz

Time Out (LON:TMO) - sorry my computer resolutely refuses to follow the instruction at the foot of the page for creating a name you can click on. I mainly hold Time Out through Oakley Capital Investments (LON:OCI) where I do have a large holding. I have successfully held Oakley for some time and if you look at the list of director purchases that is the reason. They also have a wide spread of investments to mitigate risk. As far as Time Out itself is concerned it depends whether you want to take a chance on what could be an exciting investment. I understand their market place in Lisbon is the most visited attraction in Portugal and as Paul mentions they have plans for rapid expansion in various US cities this year followed by London in subsequent years. No dividend, no sign of profits and nothing like my normal investments where dividend is crucial but I do like to have a bit of a gamble!

paraic84

A couple of points on Fulcrum Utility Services (LON:FCRM):
- H2 revenue growth is obviously not quite as big as H1 revenue growth but still respectable at around 10%.
- I think the market may also be spooked by "the capacity market suspension by the EU in November 2018, is delaying a significant number of customer investment decisions and this uncertainty is likely to continue into FY2020". I tried to have a look but I don't know what percentage of its revenue comes from these large projects so the impact may be material?
- I can't access the full note but I see its house broker Cenkos has downgraded its adjusted EPS targets for the company by -13% for FY19 and -25% for FY20. Based on Stocko's numbers that means adjusted EPS of around 4p for this year and maybe about 3.7p for next year? Someone can correct me if I am wrong.

Given it has quite diverse revenue streams, a decent dividend, and the sell-off looks overdone relative to the adjusted EPS figures, I think I will carry on holding this one for now and top up when the share price has settled a bit more over the coming weeks. However, it is a lesson in investing in things you don't quite understand and which are working in highly regulated industries!

p.s. Paul: fantastic work in producing the SCVR so quickly today. How can I replicate this work ethic??!

Effortless Cool

Full marks to Paul for the early start today - it is appreciated.

rmillaree

Fulcrum Utility Services (LON:FCRM)
paraic84
the sell-off looks overdone relative to the adjusted EPS figures,

Does the sell off look overdone with this company? - i am not so 100% convinced.

On a quick glance it looks like they have quickly gone from a company delivering 10% plus growth pa each year to suddenly being 25% in retreat earnings wise (31/3/2020 expected) aligned with a very wishy washy outlook statement where they say they are confident long term - to me that doesnt sound like anytime soon.

challenges but the Board remains confident in the Company's longer term prospects

So i can see why the shareprice has halved in the last 6 months. For a business expecting 25% decline in earnings ye 31/3/2020 and wishy washy outlook pe of 8.5 seems fair at todays price but not oversold.

I always worry when at the start of the year the board show no confidence on how things will progress "this coming year" - aligned with recent downgrades - if they are expecting to struggle this year - will they front load all the bad news or give us part of the picture now and hope things go as well as possible later on and only give us the rest of the bad news at a later date when this turns out not to be the case. I don't know how frank and honest the board have been in the past. - some can go the opposite way saying things are tough then still a managing fine but that is a decent broker downgrade.

on the plus side EV charging market should be booming over the next 2-5 years - one would hope so if they have a piece of that pie .....

jonesj

Thank you Paul.

Fulham Shore (LON:FUL)
Here is the share price graph for yesterday and today. There is a flurry of trades from about 15:37 onwards.

The offer price gained about 1.5p yesterday. So about 15%. Quite considerable. [I would be quite happy if my portfolio averaged 15% ANNUAL gains compounded over the next 20 years].

In response to the RNS today, the offer price has increased by 0.5p, at present.

Would be very interesting to see who was making the purchases yesterday. I would hope the authorities have some software to check this kind of pattern and flag it up for investigation.

Edit: The FCA have a system called "CONNECT" for reporting of suspicious transactions. Registration for this appears to be directed at "responsible individuals" in companies.

5c9ca8e63fb51Share_price_2018-03_27_and_

sharmvr

Goldmans just got fined for failing to report transactions.

Both the broker/dealer and regulator have the data available to investigate (unless the buys were by individuals, still have data but need to check two sources).
Whether they will bother to investigate is a different matter - I expect not.

Personally, I thought people might want to see some actual numbers (which I understand are still 4 months away) before driving up the price, but each to their own I guess.
Ex holder - no position

EDIT: To be clear, GS fine was not in relation to suspicious transactions, just vanilla trade and transaction reporting

I would have preferred Fulcrum Utility Services (LON:FCRM) to be a bit more up front about why EPS targets are missed and why, in effect, they are producing a below expectations trading statement. I regard obfuscation by companies as a bad sign but I think at c.32p there's a bit of upside on this share because:

1) They have said the order book is up 23% as of end of February. Is that not confidence about the year ahead? The issue may be more to do with lower margins, perhaps because the larger electrical projects had higher margins.
2) We aren't yet in the new financial year. So I am not sure we can expect them to say very much about FY2020
3) Looking back at previous market updates they tend to use phrases like they look forward to adding 'incremental value' rather than getting shareholders' hopes up too much, so I don't think the language is out of sync with that previously used.

On the other hand, they do put emphasis on 'longer term' prospects rather than short term prospects and in the current market companies get hit quite badly if they disappoint on results.

I would have thought a P/E of 9-10 is fairer here given some of the other growth prospects, there's a bit of a moat, and the dividend. But I'm no major cheerleader after this update!

gbjbaanb

I wonder if a quick look at PV Crystalox Solar (LON:PVCS) is an idea - yesterday announced a capital return of 24p per share (price currently 25p) leaving them with about 12p per share cash on the books as they figure out changing their entire business from solar wafer production to other ceramic slicing operations.

tomps3

XLMedia (LON:XLM) have their FY results presentation to retail investors this afternoon (as per the RNS). Before this we managed to get a quick interview with Ory Weihs, CEO, here.

Covers off much in the webinar that we've already published, but a little more colour on personal finance, and the future focus.

Alexgedla

3 IPOs in London in Q1 19. Worst in a decade. With no respite likely from Brexit, Q2 unlikely to be much better. Any views ?

Does this give a chance to some of the overlooked small caps already on AIM?

DJCP

@alexgedla (#17)
"Does this give a chance to some of the overlooked small caps already on AIM?"

I was thinking, just this morning, how/if any of the possibly over-sold small caps will recover when the new ISA-season kicks in.

Whilst here, and as long as it's within Stockopedia rules to post external links, here's a summary of Mike Ashley / Sports Direct that some may find interesting :
https://www.proactiveinvestors.co.uk/companies/news/217344/does-sports-direct-s-mike-ashley-only-buy-crap-companies-217344.html

Completely ignoring Paul's comment re Debenhams (LON:DEB) yesterday :
"Why risk 3.5p, just for a possible 1.5p profit? That doesn't make sense to me."
I did have a small (senseless? lol) dabble, albeit less than 3.5p, and fully knowing it's a shoot-or-bust (polite version) punt.

I follow MAshley's dealings with interest, but never delved into him/his companies. Without any knowledge, I do wonder where the funds for all these buy-outs/rescues comes from - is he that much of a 'wizard' that they can immediately turn-around loss making companies to throw off excess cash and make a profit ?

David Cohen

Where are the missing company reports?

-4

gus 1065

I noted that Jack Cooney, CEO of Somero Enterprises Inc (LON:SOM) sold 800,000 shares today at 340p via an institutional placement.

https://www.investegate.co.uk/somero-enterprises--som-/rns/proposed-secondary-placing-of-existing-shares/201903281515323736U/

This represents about 1.4% of Somero’s shares and over half of his personal holding. RNS suggests this is part of personal tax/pension planning although I’m naturally wary of board members making such substantial disposals. He’s agreed to not make further disposals for 24 months. Share price dipped although still above the placement level. May see a further dip tomorrow on profit taking (by placees).

Gus.

Somero Enterprises Inc (LON:SOM)

I will give Mr Cooney a complete free pass with regard to his share sale :)

The reason being twofold - first up it looks a reasonable reason for sale on the face of it being the only assets in that pension fund.

The US tax legislation obliges Mr. Cooney to make withdrawals from his current pension plans during 2019, the assets of which consist solely of Somero shares.

Secondly and probably more importantly Jack was born in 1946 - so at 72 and a bit years of age he should damn well be cashing in his pension/shares if he so chooses and doing what the heck he wants with the money :) even if thats as boring as diversifying his worth for his future plans.

herbie47

What do you mean?

Paul Scott

29th Mar

Hi gus,

Jack Cooney at Somero Enterprises Inc (LON:SOM) is one of my favourite interviewees. Here's the link to my interview with him in 2016.

He came across as an absolute gent, and he's delivered excellent shareholder value. The share price then was 132p. Since then, there have been generous divis, and roughly a tripling of share price.

Jack deserves a long, and happy retirement. I wish him well, as I'm sure do the many shareholders who have done so well from their investments in Somero, and Jack's outstanding stewardship.

Regards, Paul.

Hi rmillarree/Paul.

No problems at all with Jack selling a chunk of his holdings to realise cash after a long and successful career. As corporate largesse goes this is small beer in the scheme of things (especially compared to many US companies where the company cheque account is often seen as a personal asset). Simply pointing out it’s quite a big sale (about 8x normal daily volume went through yesterday) which probably explains the dip that in share price, potential for a bit more softness today if the placees are “loose” holders and who knows, maybe a buying opportunity to top up on a quality share that has done well in recent years and has a solid dividend currently well over 5%.

Gus.

wilkonz

5th Apr

Many thanks Paul. Simon Thompson rates Scisys (LON:SSY) a buy with a target price of 230 pence. The shares are somewhat illiquid with a spread of 172-176 currently. I've put in a fill-or-kill for 174.

jonno

2nd Jul

Hi Doublelutz

The recent RNS announcements from Time Out (LON:TMO) regarding the opening of markets in Miami, Boston and New York have certainly invigorated the share price. I don't hold Time Out (LON:TMO) but like you have a significant holding in Oakley Capital Investments (LON:OCI), which is one of my few funds. The share price of Time Out (LON:TMO) declined from 131p to 71p for the year to 31 December 2018. The latter being the date of the most recent Oakley Capital Investments (LON:OCI) annual report. The Time Out (LON:TMO) share price has since increased about 70% to around 127p..

According to the Kepler Trust Intelligence report on Oakley Capital Investments (LON:OCI) of which it is admittedly a client. The share price decline of Time Out (LON:TMO) to 31 December 2018 was responsible for an 18p reduction in NAV of Oakley Capital Investments (LON:OCI). Therefore on a very crude assessment the recent share increase to 127p, if maintained should add back close to 18p to NAV. All very crude and theoretical but we should get a clearer view when Oakley Capital Investments (LON:OCI) announces its trading update on 31 July.

Given the recent positive news flow and director buying by Peter Dubens and David Till together with the increased holding of Asset Value Investors and new shareholder, Barwon Investments I have added.

Just my thoughts, but hopefully I am not misinterpreting the tea leaves, 31 July will I hope tell!

Small Cap Value Report (Thu 28 Mar 2019) - VLX, SSY, FUL, PEB, TMO

Volex (LON:VLX)

Fulham Shore (LON:FUL)

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Paul Scott

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