Small Cap Value Report (Thu 30 July 2020) - NXR, SCS, IGP, VLX, AIEA, BLV

30th Jul '20 by Paul Scott

78 comments 10021 reads

Good morning, it's Paul here. Many thanks to Jack for giving me a day off yesterday, which was much appreciated.

In the usual way, this is a placeholder initially, i.e. a blank post, to enable readers to post comments from 7am, whilst I write up the article gradually throughout the morning & early afternoon, section by section. For newcomers, I report on the day's small cap trading updates & results statements, plus any other important news.

Please see the header for announcements I'll be reviewing today.

Today's report is now finished.

Stockopedia App

Just to flag up that I downloaded & used the Stockopedia app on my smartphone (a Samsung M31 - which is a fantastic phone for the relatively low price) last weekend, and I found it excellent. I'm a bit challenged with eyesight, hence prefer using a full-sized PC or laptop screen, as opposed to a mobile device. However, with the Stockopedia app, I could see everything clearly. It spaces out the usual StockReport into a longer, thinner version. Also, I found the news pages very easy to scroll through - better than the full webpage actually, because the left and right pane scroll independently, whereas they're locked together in the web version of Stockopedia.

Therefore, I shall be using the Stockopedia app in future when I'm out & about, to do a quick research job on a share that e.g. a friend might have recommended over lunch. Something that should hopefully be happening more often again, if restaurants remain open. I'm not sure how long that might be though, with all these second wave outbreaks popping up?

(NB. I have not been asked to post the above, it's my genuine personal opinion, and thought it might be useful to flag up to readers)

Norcros (LON:NXR)

Share price: 164p (up 9% today, at 08:12)
No. shares: 80.57m
Market cap: £132.1m

AGM Trading Statement

Norcros plc ("Norcros" or the "Group"), a market leading supplier of high quality and innovative bathroom and kitchen products, issues the following trading update for the 16 week period ended 26 July 2020 ahead of its Annual General Meeting which takes place at 11.00am today.

Note that, with a end March year end, the current financial year began shortly after lockdown restrictions were introduced in the UK, and were introduced earlier than that in some…

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GrahamF

30th Jul '20

There are a couple of other things to remember about Woodford. His Investment Trust also did badly and so that was nothing to do with having to sell the liquid winners to fund redemptions as was the case with the unit trust. He also took very large stakes in many of these small companies so he couldn’t realise those gains without hammering the share price even he wanted to. Perhaps this was because he was running too much money.

As regards the team behind him at Invesco, his protege there, Mark Barnett, has also come to grief so it looks to like the team there was not somehow the cause of the previous success rather than Woodford. I think that it’s probably more the case of Woodford and that team getting a few major calls right in the previous years but then having too much faith that their approach would work under all market conditions, rather than the team there continuing to be successful after the front guy has moved on.

So, a number of factors/mistakes but leaving a team that continued to be highly successful without him doesn’t look like one of them because they weren’t as far as I can see.

rizler007

Wonder if anyone has any thoughts on Gvc Holdings (LON:GVC)

They announced a tieup with MGM over in america that's doing well. But since headlines about a HMRC investigation it has dropped from 900+ down to 672 (currently).

Think theres an opportunity here?

kgb1953

Just musing on a bad day for the market - FTSE down below 6000 - and a scratchy month up / down in a range but overall losing 3%. I felt quite good about things at the beginning of the month. Lockdown eased, travel abroad on the cards, a nice whiff of optimism and confidence appeared to come back. But the government has played a shocker in July. lift the lockdown / impose local lockdowns, no need for masks / mandatory masks, 'air bridges' / quarantines etc.. . It is hardly creating an environment where things can get back to normal. And the signs are good - 'cases' may be up but that is largely to do with more testing - hospitalisations / ICU admissions (only 80 at present) / deaths well down. It seems to me that people like Matt Hancock have no regard to the economy and especially the small business sector when introducing these contradictory and unnecessary regulations.

With the end of furlough in sight government must now prioritise the economy. Otherwise I really worry where the market is headed to in August and September.

abtan

3 quick comments on Scs (LON:SCS) (I do not hold).

1 - Given the lead times I understand why the focus in today's update is on order intake, but I thought it might be worth highlighting that there will be a 38% drop in H2 revenues vs last year.

2 - I originally thought that the company needed £285m of revenue to break-even this year, but in retrospect this value might be lower given lower marketing and performance pay. Fingers crossed for all holders.

3 - At the end of May 2020, the company had £16m of actual cash ie excluding customer deposits and the RCF. Crucially all suppliers had been paid at this point, so this £16m is important in the sense that under normal trading conditions we can never work it out.

This figure will no doubt be lower now, but if you want to work out the company's true cash position this is probably a good starting point.

For reference:

the company's Fixed Store Costs last year were £36m per year (so £3m per month), and
semi-Variable Store Costs were £40m per year (£3.3m per month),
so actual cash by the end of June was probably closer to £12-£13m at the most.

Dojosan

Hi CIC,

Paul says in his comments - "Another glaring omission, is that we're not given any figures on stretched creditors."

So the VAT deferred may spike up creditors and the corresponding amount of cash (that should have been paid and of which will eventually be paid) as output VAT is still in the bank. This puffs up the cash in the bank.

TamzinPiworld

Just published Ultra Electronics Holdings (LON:ULE) H1 20 analyst presentation from this morning. Ultra Electronics Holdings (LON:ULE) supply the defence and aerospace, security & cyber, transport & energy markets. They are undergoing a transformation with new management. They have a strong order book, limited CV19 impact, and are reinstating dividend in September. Major markets are solid, although commercial aviation challenged, but even so they have good order visibility going forward.

Here's the video, or podcast here.

Also, a reminder, Ig Design (LON:IGR) management will give a FY20 results webinar tomorrow 31.7.20 at 12.30, do join us. Register here.

shanklin100

Fair comment, I hadn't realise it had almost reached £3 prior to Covid-19.

On Woodford, if anyone is interested - excellent podcast with Mark Slater - he briefly mentions Woodford going awry + loads more

https://citywire.co.uk/funds-insider/news/mark-slater-real-market-panic-was-all-too-brief-in-this-crisis/a1384525

Paul Scott

Cracking analysis, thanks! I didn't have time to work out the figures myself, so it's really useful when readers post more detailed analysis like this (I'm assuming your figures are correct, because you sound like you know what you're doing!) ;-)

ckidcurrie23

Volex looks like it Posted Ok Paul before your laptop went wonky

rmillaree

cic
Cash would be higher by the amount of the unpaid VAT, but that VAT would increase liabilities by the same amount so net debt would be unchanged, surely. Or have I misunderstood something? Thanks.

You have missed the fact that most amounts owed out in taxes/trade payables/deferred consideration etc are excluded from the net debt calculations as they arent a "debt" when we are talking about "net debt". Historically only the liabilities that incurred interest tended to be included here when looking in very simplistic terms - although one should never presume anything is true when it comes to accounting standards as there tends to be an exception to any rule.

Note this fact is very important when it comes to looking at a companies solvency , last time scs went tinto insolvency they had very little debt and cash in the bank - it was the trade payables liability that brought the company down not an item that was ever flagged up as being included in the net debt.

Getting back to Norcros (LON:NXR)

at 31/3/2020 per note 7 they had

+47.2 mill net cash and current borrowings

-83 mill non current borrowings

leaving net debt of £36.4 mill

going to balance sheet we have

cash of £47.3 mill

current liabilities borrowings £0.1 mill

Non curent liabilities borrowings £83.6 mill

this matches the net debt above

they make the follwing note ref net debt

Net debt is the net of cash, capitalised costs of raising finance and total borrowings. IFRS16 lease commitments are not included in line with our banking covenants.

so although i may have expected lease liabilities to be include in debt they are not !

getting back to current liabilities and long term liabilities

in addition to the above items which are included in net debt we have the following items which are not debt debts they are non debt debts if you see what i mean.

trade and other payables £73 million

lease liabilities £25 mill

pension scheme liabilities £49 mill

tax liabilities 1 mill

provisions 3.2 mill

None of the directly above are included in debt.

In summary net debttaken in isolation normally tells you nothing useful about the solvency of a company.

Edinburgh Investor

Thanks, did you download it from the AppStore as it’s not come up in my search. Pretty sure I am missing something here though.

Nick Ray

Statistically, how many days does it usually take for the 50ma and 200ma to intercept? How long does a golden cross or death cross usually last for?

The 50MA is approximately the smoothed price 25 days ago and the 200MA is approximately the smoothed price 100 days ago.

So the 50MA will cross the 200MA if the price 25 days ago is the same as the price 100 days ago (after a bit of smoothing).

So your question is basically: how often is the price 25 days ago the same as the price 100 days ago - or equivalently how often is the price today the same as 75 days ago?

Now of course if the price is rising continuously apart from a few ripples (or falling continuously) then this does not happen. So the event only occurs after the price has changed direction. And with a bit of hand-waving the change of direction occurs somewhere near the middle, or about 75/2 = 37 days between the two points where it is the same.

So a golden cross indicates that the price changed direction (after smoothing) from falling to rising about 25+37 = 62 days ago (roughly 3 months) and a death cross indicates that the price changed direction (after smoothing) from rising to falling about 62 days ago.

But how often does a stock change direction? That is an interesting question. A stock with volatility=0 would never change direction. So clearly it increases with volatility. But what is the formula? Volatility is "noise" and I think there is an argument that the number of crossings depends on volatility but ignores any underlying trend ("drift"), with more crossings for stocks with higher volatility.

Oh brilliant, so it did, thanks for pointing it out!

I'll remove my last comment about it disappearing!

Wilbraham

One of Paul's remarks has prompted a couple of questions from me on how Stocko presents earnings etc forecasts in the light of Covid:

1. Does the list of 'Analysts' include 'paid-for' research, eg from the likes of Edison, as well as independent houses? (I suspect some SmallCaps have only the paid-for option.)

2. I assume there's no way we can tell the effective date of analysts' forecasts included in the Consensus figures? With LargeCaps I'd guess most analysts will update their forecasts quite promptly after new info comes to light while for SmallCaps there may be quite a delay (couple of weeks?), depending how busy the research house is. So at any point in time, the consensus may represent a blend of updated and historic forecasts?

3. If a company itself withdraws guidance, as many have done in recent months, do analysts still review/update their forecasts or do they tend to leave them unchanged until the company gives some guidance? Or do some analysts also withdraw their earnings forecasts - in which case do they drop out of the Stocko consensus figure?

Apologies if these questions are too dumb!

Gromley

Not dumb at all wilbraham, in fact it is very petinent at this time.

1. I don't know the answer to your question 1 , but I would have presumed that the consensus includes all available forecasts (paid and unpaid).

2. You can certainly see when forecasts change from the graphic on the StockReport.

But not (from stocko) which analyst changed their forecast when.

3. This one is very pertinent.

Some analysts might actively say that they have withdrawn their forecasts (I haven't actually seen this), but I suspect the way that Stocko (and all other sites) capture the data would not reflect that, as they just capture the latest forecast from the brokers in their sample. (Presumably with some form of date cutoff)

The forecasts I have shown above are for £WGB and basically you can see that neither broker updated their forecasts as the crisis developed (the April, May, June figures 8.8,8.6,8.8 I'm pretty sure must be just a statistical blip).

My characterisation of that is that the forecasts were obviously downgraded on lockdown, but the analysts had no idea how bad to make them, so they said nothing.

WGB's statement at the end of June gave more clarity and one of the brokers updated their forecast. Paul report that they were forecasting a loss

So the average now shown of 4.92p I presume to be made up of one unchanged forecast and one updated forecast.

This is quite important for two reasons -

1. The "concensus" make no senseus until the 2nd broker updates their view.

2. It looks like the forecasts were cut in July - which directly feeds through to the Momentum Rank. As per my characterisation above, I would argue that given that the most negative thing I think you could say about WGB's June statement is that it wasn't as bad as it could have been. So if the analysts had been brave enough to guess a number back in March then the June statement would have resulted in an upgrade.

(As an aside, WGB's more recent statement this week demonstrates that the Broker forecasting a significant loss was overly pessimistic, but the apparent "consensus" is still overstated as a result of the forecast that has not been updated.)

It's a bit of a minefield at the moment for the StockRanks - not only is the Momentum Rank hugely dependent on whether the post-covid forecasts have been produced; but even more so the QR & VR will be heavily skewed by whether or not a company has reported actually results that include part or all of the lockdown period.

Scs (LON:SCS)

Hi Paul

The company's suppliers are paid by the end of the month following delivery.

Given that deliveries were paused by March 24th, I think it's fair to assume that there were no supplier payments due by the end of May.

So I would hope that the £16m "true" cash position I noted at the end of May is accurate.

---

All the figures in my post, including the £16m, are pulled from the published company reports so one would hope they are correct.

Fingers crossed I know what I'm doing :)

Thanks for the marathon effort today by the way.

Cheers

UK_Investor_8888

Well said above!

I made a cautious 1% using £SUK2 as taught on Stockopedia in a recent article. Had I kept my bottle this 2X short moved by more than 5% today.

Using this Short ETF is quite tricky with the leverage. If it moves against you, you either need to Stop out or else hang on for FTSE100 to deteriorate further.

Anyway, that's my gym membership paid for plus a bike service, thank you.

Where's The FTSE100 going next now its fallen to 5989?

The Government is creating a drama out of this crisis. Business does not have the assurance that this will not happen again.

Monty9

31st Jul '20

Apologies if others have made the same suggestion, but using the mobile app on an Android (matching your phone) or Apple tablet might be the best of both worlds for Stockopedia on-the-go.

Tortoise investor

2nd Aug '20

One thing to note with the Volex (LON:VLX) update is they say "Unaudited revenue for the three months ended June 2020 was $96 million, which was flat on the same period a year earlier" whereas at the time of their FY20 results they said revenue was up 4% to the four months ended May 2020. So either they didn't have a great June or they had a good Feb & March.

It's still a good performance given the turbulence, but this latest update points to revenues creeping lower at the moment.

I'm interested to hear the bull case. I'm currently sitting on the fence, waiting for more of a fall, as the weak like for like revenue growth makes me feel like the potential upside is limited.

Small Cap Value Report (Thu 30 July 2020) - NXR, SCS, IGP, VLX, AIEA, BLV

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Norcros (LON:NXR)

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Paul Scott

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