Small Cap Value Report (Thu 7 July 2022) - KMK, IPX, PEEL, REDD, QUIZ

7th Jul '22 by Paul Scott

44 comments 7705 reads

Good morning! Paul & Graham are here with you today.

In a sign of the times, both my computers seem to have gone on strike this morning. So I am currently negotiating with them, and waiting to hear what their inflation-busting pay rise demands are. We might have to bring in ACAS! Hopefully a hard reboot might resolve their attitude problems.

Agenda -

Paul's Section:

Kromek (LON:KMK) (£40m) - announces a distribution deal with Smiths (LON:SMIN) . I also look at KMK's last trading update. There seem to be signs of life here, after years of disappointment & fundraises. Looks worth putting on the watch list.

Peel Hunt (LON:PEEL) (£137m) - a trading update that hardly says anything about trading! I have a long ramble below about the city, brokers, fund managers, etc. I'm adding PEEL to my watchlist, but need to do more work on the unusual way profits & ownership seem to be split.

Quiz (LON:QUIZ) (I hold) - decent results, it's back in profit now. Strong balance sheet. Current trading is good. I think this looks a decent recovery situation, and it's cheap.

Graham's Section:

Impax Asset Management (LON:IPX) (£770m) - This environmental asset manager reports a large negative return at its funds, and investors now on balance taking their money out. Analyst forecasts rely on AuM rebounding quickly by the end of September, the financial year-end, and this is unlikely. As such, I expect that Impax will miss its forecasts. But Impax shares have already fallen by 60% and now offer a respectable P/E multiple for anyone happy to take a chance on the company’s long-term prospects.

Redde Northgate (LON:REDD) (£800m) - FY April 2022 results are excellent from this vehicle rental group which also offers a wide range of related services. The big questions are to do with the sustainability of profits, as vehicle rentals costs and resale values have been artificially high (due to the well-documented supply chain issues). The good news for shareholders at the current share price is that the company offers a yield of over 6%, that is very well covered by EPS. As this is a value share where, in my opinion, the dividend yield should be the main attraction, it may have reached a fair price at current levels.

Explanatory notes -

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Caper4

7th Jul '22

you would not think there was any shortage of funds if you lived in York. Amazing number of people in the retail outlets yesterday lugging many shopping bags each . Suspect part of this drama re lack of money, is media hype.

ridavies

Morning Graham. Thank you for your in depth review of Impax Asset Management (LON:IPX) which is a sore poit with me. They had a terrific year in Calendar 2021 with the build up in hindsight to the Glasgow Climate Conference in the autumn. I was swept along with a late buy in and then the pack of cards collapsed. It cost me but it would have been rather worse had I stayed in!

I recently heard the CEO talking to a Mello event and he is very impressive, as is the whole company....but the wind has gone out of the sails on actions and promises on climate change I'm sad to say with more recent pressing considerations, not least the post Covid 19 fall out and coupled with the fall out from the Russian invasion of Ukraine. Unfortunately, another factor not helping the overall performance of the group is that in anticipation of forward momentum being maintained after 2021 and Glasgow, they expanded their team, which must have been an expensive process.

I'm convinced that these pressures will continue for some time (years rather than months), and was impressed to hear about the unprecedented joint event at MI5 HQ in the last few days where both the head of MI5 and the head of the FBI were presenting on the threat posed by China where they were taking about the threat of a Chinese takeover of Taiwan would lead to a cataclysmic effect on the world economy as we know it. One reference I found was this one, though it was widely reported in the press.

https://www.mi5.gov.uk/news/speech-by-mi5-and-fbi

Your comment about one fo the individual companies within the Impax Asset Management (LON:IPX) portfolio is rather more interesting I think, that of Impax Environmental Markets (LON:IEM) which has performed rather better than the overall company. I think that your comments about the portfolio will stand the test of time better than the group as a whole.

As far as comparative groups, I am more interested in Foresight group (LON:FSG) and especially the individual component Foresight Solar Fund (LON:FSFL) which fits well with the total supply and demand for power generation.

Redice

NB Global Monthly Income NB Global Monthly Income Fund (LON:NBMI) look to be similar to Twentyfour Select Monthly Income Fund (LON:SMIF) although the monthly div is not quite so good.

Morning Rustbucket, and others. Re oil prices, why have they fallen? Reduced demand, because surely not increased supply?

Are we talking spot prices or futures, presumably the former? Given the threat on electricity prices come the autumn, will this continue and have any positive medium term effect or is it just the summer, warm weather, effect?

By the way, I was looking at reserves by country throughout the world, and No 1 was Venezuela. Is the short to medium term potential of bringing them on board totally out of the - US - question?

As you can see from my questions, to all - Paul, Graham and everyone - I am in dream session this morning!

Rusty2

Believe the fall is due to global recession fears. Spot prices I think, Brent crude is down to around $100 from $130 back in February when Russia invaded Ukraine. The issue for UK is the weakness of the £, hopefully this may recover if the govt. can sort out a new prime minister quickly. Gas prices are probably more relevant to electric than oil as over 40% of electric is generated from gas.

Camtab

Thankyou Paul re Quiz. Sorry to be badgering you. Pretty much my take as well. The one thing that bothers me is the size but then that's also an opportunity. I think they would be an interesting addition to the Boohoo setup.

eParo

Is Retail bashing over? Retailers' charts are starting to turn.

TheFloatingInvestor

Still waiting for

A) Boris Bounce

B) My England under 21 cap to arrive in the post.

I'm 51.

Tommy H

Thank you Redice

I notice that it has just bought back 10% of shares for about 6p more than current value, though like many things seems to be heading rapidly downwards.

I have put on the watchlist to research over the weekend.

Cheers

Tommy

I think that we are a divided country, there are those with and hence the lots of bags, there are those without, who may also have lots of bags but taking one last splurge on BNPH (Buy Now, Pay Hmmmm...)

Graham Neary

Thanks for the comment, ridavies. I'm sorry to hear that you lost money on IPX.

JimMcLad

Thanks for the heads up – I definitely won’t be investing in Royal Mail (LON:RMG)

;-)

Bronstein

Redde Northgate (LON:REDD) a bit harsh on the conclusion I'd say, what's not to like here? With growth in e-commerce, last mile delivery is a growth area, fleet provisioning and management is integral. These guys appear best of breed in this respect. (I hold)

Bouden54

Agree think Redde Northgate (LON:REDD) looks very appealing. I'd also say that their scale does give them some competitive advantages - for instance, high density of depots and repair workshops. They also have their own van sale business so a degree of vertical integration.

Paul Scott

I should add that a big name city investment bank has reached out, and asked to have a meeting with me, to discuss the issues raised in today's SCVR. It's not Peel Hunt. So I've happily agreed, and look forward to reporting back to you, here.

Regards, Paul.

jamesalastair

I have had many similar problems with iWeb . One of many examples was attempting to buy Franco Nevada. Despite the fact I already own Wheaton, another royalty business, through iWeb , I was informed, somewhat imperiously, that "We no longer permit investment in this security". This is one of perhaps a dozen examples over the past 12 months and enough is enough. I am moving which is an absolute pain as they take 3 months to sort out a transfer and you cannot trade in that time. iWeb are a really second rate outfit and really not fit for purpose. in my view.

mojomogoz

Good news Paul. There’s a lot of bs and grandstanding around access and info - calls for analysts only or tiny stocks with PIs given little to no access.
The latter is a legitimate but silly choice. At sub c£250m it’s madness not to try woo PIs.
The former shouldn’t be allowed. I’ve tried to moan to FCA about it in the past. Obvs nothing from them (…and have had two businesses regulated by them and done hoop jumping with them I have little hope in them being sensible/competent!). It’s clearly differential access and has price moving implications. US has had Reg FD for 22 years!

8th Jul '22

Re oil and gas and electricity, thank you Rustbucket

Well Graham, that is in the past and I was more interested in discussing your thoughts for the future.

As I say, I think it is going to be a challenging time for years rather than months in the areas Impax Asset Management (LON:IPX) covers as a group, though investors may be more successful in selective choice of individually quoted elements of their porfolio, like £IEM. I also was interested in the unfortunate timing fr Impax Asset Management (LON:IPX) to increase their headcount significantly and the impact that will have on £IPX's figures over the next 2 years, if they do keep and can keep those extra staff members in difficult markets. If they do and can, then they may be well placed for well selected investments in a future recovery.

Meanwhile it is Foresight group (LON:FSG) and particularly Foresight Solar Fund (LON:FSFL) on my Watch list in this area.

Small Cap Value Report (Thu 7 July 2022) - KMK, IPX, PEEL, REDD, QUIZ

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Paul Scott

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