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

30th Nov '17 by Paul Scott

56 comments 21034 reads

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…

Unlock with Email

Unlock with Google

Already have an account?
Login here

LeoInvestorUK

30th Nov '17

Regarding brokers, I would say almost everyone likely to be reading this should have more than one broker as even the best of them will have occasional problems. Here are a list of problems / disadvantages I have encountered over the last month:
* iDealing - unable to quote a price when Selftrade could. Slightly worse prices than Selftrade on some shares.
* Selftrade - account inaccessible for a week following a poorly tested revamp. Short outage more recently. Not able to quote so put in a limit order at market maker quoted level. A couple of trades then went though at this level before the price moved against me 10 minutes later. Limit order disappeared without explanation leaving me unsure whether executed or not (it wasn't).
* AJ Bell / You Invest - deals I'm sure I made not being confirmed immediately - usually 10 seconds to 1 minute but currently waiting for a trade I did 30 minutes ago. Very aggressive automatic logout necessitates use of browser extension to keep logged in.
* IG Index - spreads based of market maker quoted prices effectively preventing online dealing where these are fake. Frequent changes to margin requirements, e.g. if there is any kind of election or market volatility. Threatening to replace powerful online dealing system with a toy version.

matylda

Maybe you can create a new thread for this - Then we could all find the relevant thread for your subject (assuming you use a sensible subject) and then this thread can be used for company discussion - Just a thought - Note, I filled the form in earlier this morning.

Hedgecutter

Good morning Paul,
Could you take a look at Northern Bear (£NTBR), a specialist builder in the north of England. Positive results, but a few questions about profit margins reducing and winter working, but a well managed company. It would be great if you could run your eye over the numbers.
Many thanks,
Nick

andrea34

I think winter-weather has always been a factor for NTBR; I'd say that the price fall today is all around the reduced margin. I looked back through several years of results and I find it a bid odd that they are very selective in their mention of margins.

Howard Marx

CVS (LON:CVSG) sales growth (LFL) has shrunk to 1.5%

In the past I've compared the p/e ratings of Pets at Home (LON:PETS) & CVS (LON:CVSG) (12x v 25x) & wondered whether the former could get re-rated.

Now it looks as though parity will be more likely achieved via a de-rating of CVS (LON:CVSG).

Deegee Eff

Perhaps Lamprell will copy what their ex competitor Thalassa has done and give up the underwater business,sell up and buy in their own shares at a large discount to cash.

Amanda Heron

CVS (LON:CVSG)

Interesting to see the comparison to Pets At Home.

Positives from their RNS statement today:
CVS Total sales over the last 4 months up 20.6%
LFL sales up 4.3%
However, take out Animed Direct, and the LFL sales are 1.5%
Stocko graphs look v. positive (haven't worked out how to put them on here!)
5 year chart also looks positive with a steady increase in share price

Negatives:
Gross Gearing 121%
Net Gearing 113.6%
Potential higher costs of staff

I have held CVSG for a few years. Human nature will always pay out for medical treatment for their pets, either at the Vets or Veterinary medicine because none of us like to see our favourite pooches suffer.

However, Animalcare (ANCR) also falling. Is this a trend in Pet healthcare or are they totally overpriced?

runthejoules

Paul, I was wondering what your thoughts on
The placing for Cloudcall (LON:CALL) were, as I believe you still have it on your bmus? Ta!

Andrew L

Paul - It would be interesting to know why OTB doesn't qualify for any screens. The stockopedia thing says the value is 9 out of 100. That just seems wrong to me. Before the share price rally today the forward P/E was about 18X. For me that doesn't really merit only a 9 out of 100 value rating. Will have to research how stockopedia assesses this. But this could be one area where the computer was wrong.

JohnEustace

@matylda
I guess you meant to reply to fwyburd?

I'm not sure of the logic comparing these two groups. One is a chain of vet practices and the other is retailer of pet related products. Just because dogs and cats come in through the door of both companies doesn't mean they have the same dynamics. Pets at Home faces the online threat and general retail competition. CVS Group has more of a competitive moat with people having a relationship with their vet.

Nick Ray

Put On The Beach (LON:OTB) into a portfolio; click on the "ranks" tab; click on the "Value Rank" circle for On The Beach (LON:OTB), and a pop-up will show you how the Value Rank was calculated.

dgold

I'm a client of IG and trying to understand your complaints against IG.

About the market maker quotes - note that if you are doing share dealing then you will request a specific quote and will get one which will often be inside the spread. With CFD trading too, you can use their L2 platform and get market maker quotes. With spreadbetting admittedly you need to call to get a better price.

Margin changes - I think that's fairly understandable and regarding CFDs/spreadbetting with shares they rarely change their margins (exception was before Brexit vote when I think all they did was to make a minimum margin of 10% - this only affected the stocks on 5%).

Threatening a "toy version" - I have no idea what you mean, please explain.

RMundy

Lamprell (LON:LAM) is a tricky one. I used to cover them when I was an analyst. A lot of their asset value is tied up in its quayside yards and fabrication works in Sharjah and Hamriyah (ie the Emirates). Also the high levels of working capital is a feature of their main products, ie delivering big lumpy items like jack-up drilling rigs and wind turbine installation vessels.

The lumpy nature of its order book means the delays that are always a feature of these kinds of businesses are that much more painful as they relate to a small number of big contracts.

Lamprell (LON:LAM) investors took a big hit about 5 years ago as operational issues led to Working Capital shrinking pretty drastically, covenant issues with the banks and about 5 profit warnings if I remember correctly. The drivers of this were because:
1) The supply market tightened for key vendor equipment on its jackups,
2) A slow-down in new project awards, and
3) Their costs overran on building turbine installation vessels.

The real kick in the proverbials came when it emerged that some of the key Management (eg the Head of Operations at one of the yards) sold all their shares a couple of weeks before the first profit warning. This did not go down well with investors...

Anyway, since those volatile days, the business restructured and brought it new, well-respected Management. I don't want to cast aspersions on them but just wanted to highlight that when things go wrong with contracts in these sorts of companies they can go wrong very quickly and painfully.

ratioinvestor

The Value rank is based on 6 ratios, all historic:
https://help.stockopedia.com/product-guide/stockranks/basics/the-value-rank

On The Beach (LON:OTB) scores poorly on all, although after todays results the historic p/e will drop from 40x to 27x so the Value rank should move higher

Thanks for replying Andrea and I take your point. Given the quality of the management and not being a trader, I will continue to hold for the long term.

ratioinvestor

You might be suprised to learn that Pets at Home (LON:PETS) operate around 400 vet practices, a similar number to CVS (LON:CVSG) (!)

Basically PETS = CVSG + a retail operation

I don't disagree. But the relative importance of vet practices to both is markedly different. In terms of profit generation it remains the case that CVSG is vet practice group and Pets at Home is a retailer. Or at least this was the case when I last looked at it.

Dunco

RE: RBG
Deltic Group (The) Notification of Major Holdings - 3% crossed on 28th Nov

gl196

RE: RBG

I'm surprised at the muted market reaction as this puts RBG back in play?

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

Lamprell (LON:LAM)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

56 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...