Small Cap Value Report (Thu 5 May 2022) - QXT, RCH, BUMP, TRI, LUCE, SNWS

5th May '22 by Jack Brumby

39 comments 9020 reads

Good morning, it's Paul & Jack with you today.

Agenda -

Paul's section:

Reach (LON:RCH) - A confusing trading update, showing the revenue mix shifting more towards lower margin print revenues, with advertising & circulation down. Nothing is said about profitability, but Singers has lowered forecast profit by 6%. Higher paper costs, and lower advertising revenues are the main negatives. Looks very cheap now, might be worth a nibble?

Seraphine (LON:BUMP) - A third profit warning from BUMP, in less than a year of being listed. Putting aside the negative emotional reaction, I think this share is starting to look interesting in valuation terms. The new CFO is experienced, and should be rectifying sloppy financial & operational controls. High risk (I think it needs a placing), but possible high reward longer term?

Luceco (LON:LUCE) - I take a look at yesterday's profit warning. Customer stockpiling last year, of high margin products, is unwinding this year. It surprises me that this has taken LUCE by surprise. FY 12/2022 forecast EPS is dropped considerably, by a third. Shares now look quite good value, on more realistic forecasts, assuming no further profit warnings occur, which is a big assumption right now!

Smiths News (LON:SNWS) - turnaround is proceeding as planned, at this cash generative, ultra low PER share. Highly attractive (and rising) divis of 8%+, covered over 3 times. What's the catch? it's in structural decline, like RCH, and cost-cutting can't go on forever. On balance though, I like it.

Jack's section:

Quixant (LON:QXT) - order intake is ‘significantly’ ahead of last year across both businesses and the group’s net cash position has allowed it to manage a difficult supply chain. There’s a 537bps spread, which is a bit of a shame as I think there are a few points here which flag the group up as an intriguing candidate.

Trifast (LON:TRI) - solid results, with Q4 revenue up by around 15%. The valuation has fallen and the shares are now back to their Covid lows, so there could now be more of an opportunity for patient investors. Challenges persist however and, while Trifast has so far been able to pass on costs, macro conditions are clearly weighing on the shares.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to…

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rmillaree

5th May '22

Cheers for that Kouremenous - that probably makes complete sense now it has been explained in sensible speak.

Gostevie

Seraphine (LON:BUMP) Another company with a gimmicky EPIC - like Patisserie Holdings (LON:CAKE) Parsley Box (LON:MEAL) and Snoozebox Holdings (LON:ZZZ) - that only seems to destroy shareholder value.

mjfgs

Planetx I wonder...Time Finance Time Finance (LON:TIME) does look like a bargain...

Arena Holdings now own 19.92% of £TIME

"Arena Holdings is a permanent capital investor in exceptional private and public companies at the forefront of technology-enabled innovation" - their own description...

Does anyone have any insight here please? Is Time Finance (LON:TIME) the bargain that it appears to be on the Stocko screen? Thanks

Snowbum

I missed a good RNS from Coral Products (LON:CRU) yesterday regarding a positive acquisition, (I hold). This company looks like it’s well set to grow with the structural move to re-shore supply chains. Would be great to see some analysis from the SCVR team.

cmpeckham

"The UK stock market is already pricing in a severe recession, one of the kind that we've never experienced before."

The Aim All Share fell by 70% as we headed in to the 2008/9 recession.

It is currently 70% higher than the recession lows of 2020.

Personally, I don't think it's currently pricing in a recession at all.

Equivalents for FTSE all share are approx a fall of 47% going in to 08/09 and currently 57% above 2020 recession lows.

thirty fifty twenty

Pebble Beach Systems (LON:PEB) i hold the same positive view as the comments above.

additionally i would like to add:

1 that the chart break out and long term growth pattern seems strong,

2 they have significant tax losses which is a benefit for CASH flows,

3 they are likely to make earnings enhancing acquisitions (note FD is ex Next Fifteen Communications (LON:NFC)),

and head office costs are £600k of £2.4m company profits so a take-over from 30% holder Kestrel could easily add value by removing a big chunk of those costs.

disc: I hold

davisj99

Did a little bird tell you so? Sorry couldn't resist!

Reach (LON:RCH)

"and eliminates the pension deficit."

Surely as important here is the "size of the pension scheme" unless its known that everything is hedged to the extent they say "virtually no risk in that regard " - ie i would rather have a smaller scheme with a "managed" large deficit rather than huge "scheme" currently in surplus but be subject to material adverse future adjusts. This would be on the basis that its the future adjustments to numbers that are the most material and in that regard a Huuuuuuuuuuge scheme can still have masive inherent risk whereas a smaller scheme is less likely to be an issue. I would guess their schem is Huuuuuuuuuuuuuuuuuuge - what i don't know is how "hedged" they are ref future unkowns ref life expectancy and "investment returns" being better or worse than expected.

Ultimately though with this company i am still presuming thne pension scheme could wipe out shareholders quite easily if they short term hit the buffers ref profits partly drying up ? Perhaps they are more hedged than i would be guessing here so it could perhaps be a non issue!!!

Zipmanpeter

Urgent Question: Today is dividend day for £HEAD. I already hold but there is both a special divi and a regular divi payable worth 25p (worth 7.6% of today's share price). If I buy more today will I get the 25p in divis ie is it those on share register at the start or end of day.

(I know in an efficient market the price should drop 25p but at the moment, I very much doubt it is - and I am willing to hold Headlam for several years.

TheFloatingInvestor

If today is Ex day then no.

1James1n1

Good results indeed from £PEB and with recurring revenue also up 15% to £4.6m to represent 43% of total revenues, there is a solid base of recurrent business and known cashflow.

Roger Baron

Seraphine (LON:BUMP) I don't hold yet. The history of director dealings and institution purchases makes interesting reading.

Bouden54

Many thanks for the piece on £LUCE. In terms of assessing fair value I would go off next year's broker estimates of 16.6p - I think this year is artificially depressed for the reasons stated in the udpate. Using next year's seems fairer and putting this on 12-15x multiple would give 200-250p which I think looks about right.

Also worth noting that LUCE have a very strong long term record of delivering growth (there is a slide in their investor presentation showing profits increased about tenfold over past decade). So if you think this growth could resume at some point (even at a slower pace) then shares would look very cheap.

john2

Today is the ex-dividend day for Headlam (LON:HEAD) . This means that today is the first day on which you will not receive the dividend if you buy shares.

smig78

Maybe ?LUCE directors were not taken by surprise given that they have been selling

Luceco (LON:LUCE)

RutlandRam

Absolutely right. Luceco (LON:LUCE)
And none of them buying even at these prices !

WDWombat

LUCE (I own) - the cost of transport must be a big factor. Exporting from China is increasingly expensive. Overstocking at big distributors like Screwfix may be temporary or are we in for a more prolonged weakness in end demand? That seems highly likely to me. I also can't help feeling that massively higher electricity prices are not helpful on that score. I replaced some of my garden lights a few months ago and it was with excellent Luceco products. But my use of lghts at night has been sharply curtailed after April 1st. A serious earnings shortfall also happened in 2018 under the same management - I know this has been a very exceptional period but it is only three or four years ago. I was thinking of averaging down but for the time being - time being a really important factor in all investments now - I prefer to hold a bit of cash.

Boon

The bullish trading update on Quixant (LON:QXT) bodes well for Zytronic (LON:ZYT) who are also a hardware (screens) supplier to the gaming industry.

Plus Zytronic are doing a massive buyback programme at the moment, which is behind the recent share price momentum. Really looking forward to their next trading update.

(I Hold)

Small Cap Value Report (Thu 5 May 2022) - QXT, RCH, BUMP, TRI, LUCE, SNWS

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Jack Brumby

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