Small Cap Value Report (Thu 28 Nov 2019) - MLVN, MOTR, LTHM, VTC, CTO

28th Nov '19 by Paul Scott

29 comments 6526 reads

Good morning, it's Paul here with Thursday's article.

Estimated timings - early start, and needs to be finished by noon, because I have to head into the City for a 1 pm meeting with Intercede (LON:IGP) management (in which I have a long position). If there's anything interesting from the meeting, I'll let you know at a later date.

Update at 11:57 - today's report is now finished.

Malvern International (LON:MLVN)

(At the time of writing, I have a long position in this share)

Profit warning. At c. £2m mkt cap, it's too small & illiquid for a full section.

My reaction on reading the profit warning was that it's not too bad. A setback, for sure, but does that really justify a more than 90% fall in share price since the peak just over a year ago? I would say not.

Underlying trading is currently around breakeven, and there are good reasons to expect a return to profit in 2020 (e.g. disposal of loss-making Malaysian operation, and improved forward bookings). Therefore, I'm leaning towards buying some more of these, once I've double-checked all the figures. The way I approach situations like this, is to ignore the fact that I already hold shares in it. When assessing the profit warning, I look at it completely fresh, in terms of would I buy today, if I didn't hold it already? That's the crucial thing, as it takes the emotion out of it, and stops you throwing good money after bad.

Very small & illiquid, and so far the turnaround under new management is proving a struggle.

Motorpoint (LON:MOTR)

Share price: 262p (up 2% today, at 10:27)
No. shares: 90.8m
Market cap: £237.9m

Interim results

Motorpoint, the largest independent vehicle retailer in the UK, today announces its unaudited interim results for the six months ended 30 September 2019 (FY20 H1).

It's pleasing to see the share price up about 30% since I last reported on a possible buying opportunity here on 6 Sep 2019, relating to a spike down on the founder selling shares to fund a divorce settlement.

I like the business model, of selling nearly new cars at attractive prices, from large sites, known as car supermarkets.

It…

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ctoman

28th Nov '19

Hi Paul, be interested in your view on Xps Pensions (LON:XPS) - they had a (sort of) profits warning in the summer and tanked but seem to be coming back. They operate in pensions admin which feels like a growth area . A note for anyone searching for XPS - Stockopedia sometimes takes you to Expansys (same ticker) which was a Peter Jones disaster stock, now delisted. I hold XPS ( and sadly also held Expansys!)

FREng

Paul

Please will you look at the update from Vitec (LON:VTC) today? It's a John Lee favourite and the market has reacted badly to the update.

JohnEustace

Paul, Re Intercede (LON:IGP), reading their report makes me think that their new found focus on their people and the quality of their code is an acknowledgement that they have had motivation and perhaps people retention issues during their business turnaround. Could you probe them on this?

I suspect that they are dependant on a few key individuals who could easily find other employment. The prestige US Government contracts are great but their key resource walks out the door every evening - or perhaps these days logs off at home?

jonno

Profit warning from Vitec (LON:VTC), which given the comparative weakness in the share price of late and somewhat guarded outlook statement in the interims is perhaps not unsurprising. I have a small holding and am as yet undecided, whether to retain it.

Given today's time constraints I suspect Paul will be unable to comment. Vitec (LON:VTC) operates in an attractive market in my view and the causes of the profit warning are cited as being one off events. Also the volume of shares traded so far has been comparatively low helped I think by the impact of the warning being quantified. Adjusted profit before tax is expected in the range £47 to £50 million versus £51.2 million last year. I suspect that Lord Lee who is invested in the shares will sit on his hands and I am likely to follow suit, at least for the time being.

anothersaxman58

Hi Paul - If you've got time I'd apreciate comments on Vitec (LON:VTC) - though I suspect it comes down to whether we believe that the current problems are really one off events or symptomatic of more fundamental issues.

john652

Hi Paul & all, another for PayPoint (LON:PAY) if possible today.

I read from a decent fund manager, definitions vary of course, that PayPoint (LON:PAY) were reshaping with a lot of opportunity but the dividend of 8% (excluding i think, specials) was safe. Any reader views on this? A safe 8% or safe-ish 8%
Is enough for further consideration.

I avoided paypoint as they seemed to be applying new tech into a market that was making their new tech rapidly old tech. I didn’t do a lot of research but the update on strategy reads very positive on execution but is it expanding into a good market?

Brilliant Leader

Hi John, I own shares in PayPoint (LON:PAY) and have just had a first read of their interims (a late start for me today). As you say, they pay a quarterly dividend equivalent of around 8% per annum. The main problems being, is their core market declining (cash payments) and where will future growth come from? More specifically, they recently lost the British Gas pay-as-you-go contract (although have picked up a few new such contracts during the period) and the CEO is currently on a leave of absence (health reasons). It is also worth noting that Woodford was a large holder which might explain the price weakness in recent months.

The main growth driver that I can see is their Collect business (collection service for online shopping) but also, I note that banking/ATMs might also be an opportunity. A network of convenience retailers (over 15k of them now have the new terminal installed) must surely present opportunity in the changing retail landscape - decline of high street, bank branch closures, growth of online shopping etc.

My own view is that I don’t think they will ever set the world alight with astonishing growth but they are certainly not the basket case an 8% dividend often implies. I am happy to continue holding for the next reporting period and will verify my position again at that point.

Cheers
Simon

Paul Scott

I'm very short of time today, due to a 1pm meeting with Intercede (LON:IGP)

Paypoint is a little large for the SCVRs now. But looking quickly at the results, it seems to be all about the greatly increased divis, on what looks a mature (declining?) business. The yield certainly looks very attractive, so might be worth a closer look.

Vitec - as several of you have requested this, I'll look at it next.

Regards, Paul.

Ben1

Interesting thoughts on T Clarke (LON:CTO) I have also had some mishaps on low margin contractors in the past. T Clarke (LON:CTO) might have further to go, and I am not expecting an imminent recession, but I have doubled my money on my modest investment in it. So time to take the profit I think. There are better prospects to put that cash in to I think.

Currently thinking about Intercede (LON:IGP) so would be interested in your thoughts on that after your meeting with them.

intuitive6191

Interesting to see Accsys Technologies mentioned as having a significant fund raising. It is a company that on a macro basis should be doing well – but has taken an age to get any traction in the market.

The product ticks a lot of boxes being environmentally friendly and must provide a useful moat for the company with patents etc.

I am not a holder but would be interested in any experience or feedback from using the product.

In the past lack of market adoption has apparently been down to production constraints, however, there is a nagging doubt that either the product is too expensive, not as good as it claims or possibly poorly marketed?

AnonymousUser678596

I am already overweight with these and have never failed to be impressed, the Mello videos are brilliant, still couldn't help myself taking out a short term spreadbet this morning, keep my main holdings for the dividend and capital growth as they also target Europe and datacenters, agree they do look cheap

Paul
Thank you for covering Vitec (LON:VTC) despite the time constraints. Very much appreciated. I hope the meeting with Intercede's management goes well.

jwebster

Vitec (LON:VTC)

I used to hold but sold recently when the price started dropping in a consistent waterfall pattern (I've noticed before it's sometimes a herald of doom)

Bought back today as 1000p seems relatively cheap for a company with a decent product niche and international earnings. Net debt is a bit on the high side. Good history of increasing EPS and dividends. Some insider buying before at 1123p - 1118p level - lol.

Let's see.

Ups1de

I have to agree very undervalued. Love Paul’s commentary but think he might be missing something here. The balance sheet is strong with decent cash & no debt. I’ve also carried out a dcf & see no reason to be put off by sub 3% margin because it suggests they will throw off excellent free cashflow : they have an excellent professional reputation with 2020 pipeline already in the bag. Differing opinions makes for interesting times & I like that it’s not covered well by brokers. A little spadework has worked well for me so far & Im going to have to positively upgrade my model after today’s good news.

Camtab

I think Paul should meet them more often. IGP up 8.8% !!

Michael C

Accsys Technologies (LON:AXS) have a proprietary process for treating timber to make it resistant to rot and more stable than in its untreated form. A local joinery company which I have known for years uses it for manufacturing windows and doors and says it's the best material available apart from genuine tropical hardwoods which are almost unavailable now (legally). I also know an industrial user who thinks it is a very good product. Conventional treatments are now useless because traditional biocides (heavy metals and arsenic) are now banned, so there ought to be huge demand.

There are some patents but the years are ticking past and I don't know low much longer they will last. I have looked at the shares several times but have never been able to understand the lack of profitability and I never buy anything which I can't at least pretend to understand. If someone could explain to me (a) why they haven't make any money and (b) when and why they will start doing so I would be eager to consider the shares again.

Michael C

Many thanks for the response. It is much appreciated. Your view pretty much mirrors my own. Yes - everything should be moving positively for Accsys - but its progress has been painfully slow.

I have monitored the company for a number of years and first saw a practical example of the product in use at a flower show where a manufacturer of traditional domestic greenhouses used it for the wooden frame. He was also quite positive and used it as a selling point for the greenhouse. His view was that it was very long lasting and dimensionally very stable. Upon close inspection it looked good.

If I was to guess, I would say that it is difficult to produce for some reason. Hence reaching critical mass is so slow. There are some very large chemical companies in the world who would jump at the chance to enter in to a JV for such a transformational product if it was scalable.

To addition your list of benefits there will at some stage be a widespread review of UPVC as a product. Some systems hardly last 10 years and then have to be replaced. Environmentally, I doubt that this will be allowed to continue.

Maybe this cash raising and a new CEO is the opportunity for a speculative punt?

cholertonandrew

Hi Paul, can I ask who you met at the Intercede meet. Was it just Klaas or any of the FD and Chairman also? I’ve held Intercede shares for a long time.

Thanks

Andrew

ps it looks like you were moving the market after your meeting with Intercede!

Regards,

29th Nov '19

Hi Andrew,

City meetings always tend to be CEO + CFO.

I didn't move the market. IGP is a long-term position for me. I'm not interested in that kind of thing. Bear in mind that companies come into the City, and have numerous meetings with Institutions, shareholders, journalists, etc. They had to run to a tight schedule, and dash off for another meeting elsewhere. That's quite normal. I'm small fry when it comes to this stuff, but it's good to get access to companies.

Paul.

Small Cap Value Report (Thu 28 Nov 2019) - MLVN, MOTR, LTHM, VTC, CTO

Malvern International (LON:MLVN)

Motorpoint (LON:MOTR)

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Paul Scott

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