Small Cap Value Report (Thu 30 Nov 2017) - LAM, LTHM, SIV, OTB, HMLH,

Thursday, Nov 30 2017 by

Good morning! It's Paul here - bright-eyed & bushy tailed!

I've added 5 companies in the article header above, which have been interesting companies before, and have issued either results or trading updates today. There might be time for 1 or 2 reader requests too.

Lamprell (LON:LAM)

Share price: 63.4p (down 9.5% today)
No. shares: 341.7m
Market cap: £216.6m

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

Project update (profit warning)

Lamprell plc is a United Kingdom-based provider of fabrication, engineering and contracting services to the offshore and onshore oil and gas, and renewable energy industries.

The company really should have entitled this announcement as a trading update. By giving it the apparently harmless title "project update", this announcement didn't appear in the "results & trading updates"  categorisation used by investegate. It's actually a profit warning;

... While we expect revenue for FY2017 to be in line with current guidance, we now expect earnings and EBITDA to be materially below current market expectations.

The problems seem to be relating to one particular project;

Lamprell provides an update in relation to the East Anglia One offshore windfarm project. As announced previously, there were start-up costs and inefficiencies in relation to the project and the learning curve has proven to be steeper than anticipated.

We remain confident of meeting our client's expectations in terms of schedule and quality but we will incur extra costs to achieve this.

As a result, we now expect the project to make a significant loss, which will be booked in 2017.

I hate to say it, but that sounds like management shortcomings. Should Lamprell really be undertaking projects where it has to learn on the job?

It sounds like the full financial impact is not fully known yet, which usually means it's likely to be more than expected;

... the Company will be in a position to make an announcement with respect to the financial impact in due course.

My opinion - we might expect this type of profit warning to trigger a 20-30% fall in share price. So why has Lamprell only dropped 9.5% today? It's still early days (I'm writing this at 09:15), so there could be delayed selling yet to happen. However, I think a…

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Lamprell Plc is an United Arab Emirates-based company, which provides fabrication, engineering and contracting services to the offshore and onshore oil & gas and renewable energy industries. The Company operates through five segments: New Build Jackup Rigs segment is engaged in the building of drilling rigs and jackup liftboats; Offshore Platforms cover variety of offshore construction projects including complex living quarters, wellhead decks, topsides, parts for floating production storage and offloading and other offshore fixed facilities; Modules segment includes fabrication of packaged, pre-assembled, modularized units and accommodation modules, and process modules for onshore Liquefied Natural Gas and downstream modular construction projects; Oil & Gas Contracting Services include land rig services, rig refurbishment, engineering and construction services, as well as sunbelt safety services, and Services segment contains business from Operations & Maintenance and safety services. more »

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James Latham plc is a timber and panel products distributor. The Company is engaged in timber importing and distribution, carried out in approximately 10 locations. The Company offers a range of wood-based panel products, natural acrylic stone, hardwoods, high grade softwoods, flooring, cladding, decking and plastics. The Company also supplies commodity and specialist products to timber and builders' merchants. The Company offers a range of product categories, such as panels, solid surface, door blanks, hardwoods, softwoods, engineered timber, flooring, decking, cladding, modified timber and panels, fire retardant panels and technical panels. The Company caters to door and kitchen manufacturers, shop fitters and other market sectors. The Company's subsidiaries include Lathams Limited and James Latham Trustee Limited. Lathams Limited is engaged in importing and distribution of timber and panel products. James Latham Trustee Limited is a corporate trustee company. more »

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Kin and Carta plc, formerly St Ives plc, provides digital transformation services internationally across United Kingdom, Europe, the United States of America, South America, and Asia. It helps clients invent, operate, and market digital products and services. Kin and Carta consists of strategic consultancies, such as Pragma, Hive, and Incite; digital innovation firms, such as TAB and Solstice; and communications agencies, such as Edit and AmazeRealise. The company helps organizations capitalize on technologies to develop products and services to market. It serves healthcare, financial services, transportation, industrial and agriculture, retail and distribution, and other sectors. more »

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  Is LON:LAM fundamentally strong or weak? Find out More »

56 Comments on this Article show/hide all

Sutherland 30th Nov '17 37 of 56

Interesting to see mention of Northern Bear's interims today. This is a share I have looked at more than once but never purchased on the weak rational that it was to good to be true. EG. Rank 99,PE7.45, F/Cast EPS Growth 44.1%, Dividend 2.98% My real reservation was the Intangible Assets at almost 50% of total assets. But it is still a cheap and seemingly growing company and I fear I may regret my decision not to invest.

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fwyburd 30th Nov '17 38 of 56

In reply to post #247618

Thanks Matylda, great suggestion. I have started a thread here:

So far 56 people have completed this today alone (thank you), so please join in.
Thank you


BTW: Lots of posters today not using the £sign before the ticker symbol. It helps everyone when you do, as it creates a hyperlink which highlights the stock you are discussing

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purpleski 30th Nov '17 39 of 56

In reply to post #247478

Hi Francis

Survey is a great idea. I have just completed it but note it does not allow multiple selections under do you pay for research.

Will interesting to see the results.


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dscollard 30th Nov '17 40 of 56

re Revolution Bars (LON:RBG), there was also a significant sell -down by Sandgrove who offloaded 5% on Tuesday: that said there has been a fair bit of accumulation by a few players over the past couple of months, I took a trading  position off the recent pullback following the no-deal as the upside does look good with Revolution Bars (LON:RBG)


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fwyburd 30th Nov '17 41 of 56

In reply to post #247768

thanks for pointing it out, michael. I didn't mean for that to happen and I can't change it now, so i'll have to live with that limitation. Francis

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ap8889again 30th Nov '17 42 of 56

In reply to post #247598

Hi Paul

Any chance of a paulypilot Shareholder Action Group to try to realise some of the NTAV trapped in Lamprell?

Count me in if you feel like getting your shareholder activist hat back on!

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ted1809 30th Nov '17 43 of 56

In reply to post #247773

Is Shareholder info available within Stockopedia? If not, it would be very handy, thanks.

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ragnar danneskjold 30th Nov '17 44 of 56

Re Revolution Bars (LON:RBG), To those of you who invest in this segment of the market, I recently read that every restaurant group quoted on the LSE had now issued a profits warning. If this is true it confirms what a rather wealthy friend of mine has told me. A couple of years ago he remarked that he had found this an unusual recession in that he had always found it difficult to get a good table at a restaurant. However since the middle of this year he had found it much easier and had recently dined where he was the only customer. The owner told him that business had declined markedly since August.

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Michael Mortphew 30th Nov '17 45 of 56

In reply to post #247758

Re £sign and ticker

I wonder whether there is any way of modifying the posting template to make it mandatory for 'posters' to either insert the ticker or select from a drop downbox with one or two other options like 'general discussion' 'request for coverage'?

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dgold 30th Nov '17 46 of 56

Somero Enterprises Inc (LON:SOM) has been weak recently. Possibly because the pound has strengthened against the dollar, thus its earnings in pounds are less. But surely if the US tax bill passes then its corporate tax rate will go down from 34% to 20% thus increasing eps and therefore fair value by 21% to about 25p/share. And there is net cash of about 18p per share. This doesn't seem to be factored into the price as once you reduce the price by net cash then it is about 250p and potentially on a pe of just 10. The company is cash rich so won't be affected by reductions in interest deductibility. I am long and have hedged currency risk by buying pound/dollar.

Does anyone have any counter-arguments?

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Hedgecutter 30th Nov '17 47 of 56

In reply to post #247828

I have never been able to make the £sign plus ticker work as described, either on my tablet or PC. Not sure what I'm doing wrong, or whether it's a website glitch.

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LeoInvestorUK 30th Nov '17 48 of 56

In reply to post #247683

Re: Having more than one broker / IG.

These weren't really complaints about IG rather than reasons for having other brokers. When I said "IG Index" I was referring to their spreadbetting service - I should have made this clearer especially as they stopped using the name "IG Index" for spreadbetting (and "IG Markets" for CFDs) quite some time ago. I did try editing to clarify this when I saw your reply but it was already too late.

True market maker online quotes - I very much doubt anybody offers these on a spreadbetting service, so absolutely not a complaint, just a reason not to put all you eggs in one basket.

Looking through my emails I've had 4 temporary event margin changes in the last year (i.e. excluding the US election and Brexit), plus at least 4 others. Often these are with around 3 days notice even if the event was known about months/years in advance or the policy change had been planned for months. I know that if there was a big market correction they would increase margin at very short notice. My point really is that it is not only Barclays that change their T&Cs at quicker than you can move.

Replacing dealing system with a toy version: Every service I have used have completely changed their dealing system in the last few years. iDealing changed to an improved version without disruption (for me). Selftrade have changed twice with medium-large amounts of disruption. AJ Bell changed once with very minor disruption. IG Index have handled it better than all of these by running old and new together and offering a choice (there was some login flakiness for a while, but it could be worked around). However the new one is still missing features and I know that one day I'll log in and find it is the only option. Again, my point is that it is not only Barclays that remove features that most people don't use.

Finally, in case I gave the wrong impression, I should say that I've found IG (spreadbetting) by far the most reliable at executing trades. I can't remember ever having problems not even during the most extreme market conditions. But there is no guarantee they will keep this up and that alone is a reason to have a second account in place.

Blog: LeoInvestorUK
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Graham Ford 30th Nov '17 49 of 56

In reply to post #247818

Does depend a bit on what you call a restaurant. Are Revolution Bars (LON:RBG) a bar or a restaurant? J D Wetherspoon (LON:JDW) who do a lot of food are doing ok. Patisserie Holdings (LON:CAKE), who do more than just coffee and cake are doing ok. But it does seem to be a tougher market that is now exposed to stronger headwinds on costs and disposable incomes than it was a while ago so only the very strong or very special situations are investable.

Disclosure - I have a small long position in Patisserie Holdings (LON:CAKE)

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luckym 30th Nov '17 50 of 56

In reply to post #247768

Hi Michael,

I came across this too when completing one section (information sources?). I thought I'd done something wrong and so started over. The same thing happened again but I found I could scroll back up and complete more than one entry.



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laurie 30th Nov '17 51 of 56

In reply to post #247838

Re: Somero Enterprises Inc (LON:SOM) etc.
The US tax proposal is not just about tax rates:
In the Republican proposal, all overseas assets from US-owned companies would be considered repatriated and taxed at a one-time lower rate of 12%. Illiquid assets like real estate, meanwhile, will be taxed a lower rate of 5%. From
The 12% and 5% rates have been moving. The Senate plan has suggested 10% on cash assets and 5% on non-cash assets and the House suggestion was 14% and 7% respectively. I don’t know the current proposal. This can be thought of as a capital tax on overseas subsidiaries. I imagine that there will be bankruptcies, especially in capital intensive businesses. There will be covenant breaches. Working capital will need to be replaced. Assets will need to be sold, and bonds and shares issued to pay the tax. All this will make it difficult to fund growth.
Will the US tax proposals be ok in the long run for companies that do not have capital intensive overseas operations? Yes, if the companies involved can survive. The US worldwide tax system, where US companies/people/etc. have to pay taxes in the US AND in the country in which the profit is made, is … expensive/unworkable/difficult/traumatic.
KPMG explains: “Whilst this measure directly impacts US shareholders, there will clearly be wider repercussions and impacts on financing decisions for multinational groups.” (ibid.)
My translation: There may be some chaos.

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dgold 30th Nov '17 52 of 56

In reply to post #247943

Laurie, I'm not sure why those aspects of the bill that you quote should be relevant to Somero Enterprises Inc (LON:SOM) - as far as I understand it they don't have overseas assets or subsidiaries, even though they export a lot. They seem to generally pay the full corporation tax of 34%. So I can't see why they should be impacted by the rules that you mention.

Please correct me if i am missing something.

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laurie 1st Dec '17 53 of 56

In reply to post #247948

Dear dgold,
I don't know if this will have much impact on Somero Enterprises Inc (LON:SOM) . (I am not a holder, although I appreciate the merits of the company.) The company might be one of the immediate beneficiaries of the changes.

Somero also maintains a Sales, Service and Training Facility that is home to the Somero Concrete College in Shanghai, China as well as sales and service offices located in Chesterfield, England and New Delhi, India.

If an office building is owned or leased abroad, if there is working capital abroad, perhaps even pensions for employees, etc. etc., this could be taxed if the bill passes in its current form. Much depends on what form the new rules take, and how the IRS implements the changes. There is uncertainty.

I spent quite a bit of time trying to estimate the potential damage to companies that I held, looking at websites and financial accounts, although carefully worded emails to the CFOs would probably have been a quicker and more accurate way to get the relevant information. I chose to sell every US holding, but that reflects what I held, rather than what I would do if I held Somero. 

30% of Somero's turnover is non-US, and there is a physical presence in at least three countries, so it is unlikely that there will be no extra tax bill for this 'deemed repatriation'. It might, however, not be a meaningful tax bill, and shareholders would continue to hold, happy in the knowledge that a lower tax rate would mean increased earnings in future years.

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BIACS 1st Dec '17 54 of 56

In reply to post #247803

I can't see that this would work for Lamprell? The assets are 'trapped' by the very nature of the business itself, rather than by decision of management? They can't release cash as they're going to need that to survive in the horrific market they currently find themselves in. Have not looked at the books but I would imagine the bulk of their NTAV is made up of their yard and fabrication facilities and if they start selling those off then they are literally selling their primary business itself (and worse still probably at a discount) and ruling out any chance of a recovery in trading if/when things pick up. Overall as I see it you can only hold this share if you believe the rig market will recover over the coming years in time to save them - in my view there is little chance of any form of asset release happening to give shareholders any return by that route.

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BIACS 1st Dec '17 55 of 56

In reply to post #247838

Re. your question on Somero Enterprises Inc (LON:SOM) - the main counter argument I would run would be that I think the majority of the effect of the US corporation tax cuts was likely built into share prices several months ago when the market got very excited about this particular Trump promise, and this has fuelled a lot of the gains we've seen before the actual bill has passed. That's not to say the effects won't still be beneficial long term of course and may as time passes filter into more gains, but I would contend that much of this may already in the prices we are seeing.  It's also worth bearing in mind that SOM has historically traded on a relatively low P/E reflecting its business type, but which has increased quite a bit over the past year or so - the hard part is working out how much of the gains are down to the good performance of the business and how much is down to the background and the well-publicised US tax reforms etc.  I suspect at least some of the gain is down to the latter and is priced in to some degree already so I'd be surprised if we get any sudden uptick on the tax reforms coming in.

I like SOM a lot and am a former holder - I sold out a few months back feeling things had got a little ahead of themselves and have not yet made a call on what level I might be wiling to go back in at, but I'm keeping a close watch.

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dgold 1st Dec '17 56 of 56

In reply to post #248003

Thanks for your reply and thanks to Laurie's reply too.

I accept that some of the run-up in price was probably to do with the tax reform, although I note that I personally didn't notice that the price changed continually in line with the prospects of the reform waxing and waning, as eg bonds and the dollar did. Maybe that's just because it's less liquid, so not a lot can be read into it.

I still think though that a pe of 10 is low, given its strong balance sheet, the present strength of the American market and its present (and potential for further) international diversification.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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