Small Cap Value Report (Thu 9 Dec 2021) - CALL, COG, VTU, DWF, MADE, PRV, SUS, VIC

9th Dec '21 by Paul Scott

52 comments 10704 reads

Good morning! Paul & Jack here with the SCVR. Today's report is now finished.

Agenda -

Paul's Section:

Cloudcall (LON:CALL) (I hold) - we're put out of our misery with a 81.5p cash recommended takeover bid, a 76% premium. What a relief!

Cambridge Cognition Holdings (LON:COG) (I hold) - £1m contract win is helpful.

Vertu Motors (LON:VTU) (I hold) - another profit upgrade! This is getting ridiculous!

Made.com (LON:MADE) - a profit warning, due to supply chain delays causing c.10% (£40m) of revenues to slip from FY 12/2021 into FY 12/2022. Does that really matter? I don't think so. The reason given is credible, as we know supply chain is problematic for everyone in the sector, and should sort itself out in time. A very interesting company, but personally I find the valuation too much of a leap of faith, as it's not yet reached profitability.

Victorian Plumbing (LON:VIC) - results for FY 9/2021 are excellent, but the sting in the tail comes with a negative outlook statement. Growth has stalled, and gross margins are falling hard, which I reckon could see profits fall 30-40%. That said, it looks good value now, at 99p. Tempting.

Jack's Section:

Dwf (LON:DWF) - legal and business services provider. Trading looks good, self-help initiatives have reduced the cost base and enhanced profitability, and the valuation appears modest. All in all, it looks interesting, although the financial health is borderline.

Porvair (LON:PRV) - looks like a sensible business in long term growth markets. The valuation is hard to justify right now, although the StockRank has recently improved (thanks to upgraded Quality and Momentum scores). For me, it’s one to watch in case the market ever presents a more attractive entry point.

S&u (LON:SUS) - I hold - confident update from family-run car and property lender. The valuation is reasonable, and the recent sell off does not tally with the group’s commentary. Long-term focused with a good dividend track record, and the stock is forecast to yield around 4.9%, so quite happy to hold.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for…

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timarr

9th Dec '21

RE: Victorian Plumbing (LON:VIC)

Would this really be cheap if pe is 15 at 90p and they are now ex growth with margin issues?

Well if Paul is right about the future profits then I think the forward eps is 7.2p which makes the PER about 13. Which would seem a little high. On the other hand if they can drive revenues then they could beat that.

Basically I don't think it looks cheap based on what we can see, but I haven't yet had time to do more than look at the headline numbers.

Of course, as Radcliffe and family still own over 50% of the stock there probably isn't a long term issue here, but who knows?

SundayTrader

re Victorian Plumbing (LON:VIC) - seems to be the topic of the day. I have recently spent rather more of my life than I would wish trying to buy things like taps and tiles. so I thought I should comment. Victorian Plumbing (LON:VIC) have one of the better websites in this market, and it is impossible to do a google search for any sort of bathroom fitting without ending up on it, so they seem to be well set up for the online world. Secondly I didn''t actually buy anything from them. Thirdly, bathroom fittings is obviously a fiercely competitive market, so they will have to fight for any growth. Personally, I could see a PER of say 14 being justified, but not 20.

planetx

Quiz getting hammered today ? Covid lockdown worries or some profit taking after good results .

Available to by 16.7p region - Couid be a decent dip to buy ?

Any thoughts

Bouden54

Like Paul I am getting up to speed on Victorian Plumbing (LON:VIC) having not looked at it before today. While it looks like earnings could take a bit of a hit in the short term due to lower margins and tough comparatives going forward, I do not think this is ex-growth. Plenty of charts in the presentation show long term track record of growth, in particular how they've grown market share from 3% to 14% since 2015, so with plenty more to go for. Sunny Trader is correct that this is a very competitive market, but I guess this is where scale advantages come in and as now one of the larger players they should be well placed to take market share and squeeze out smaller competitors. Definitely getting more interested at these levels.

rmillaree

Quiz (LON:QUIZ)

I think the lack of specific clear guidance ref year end was unhelpful - if they are now back into profit exepcted ye 31/3/22 and next year i would like the company to be shouting that fact from the rooftops either directly or publically available broker forecasts. I wasn't really that impressed by the numbers they released - although i wansn't really expecting to be impressed for the reasons outlined by paul - ie not clean 6 months of trading. To make clear further progress ref shareprice increase i would like to think tgey should be delivering clean profits of 2.5 mill to 3 mil soon (ideally now) - i am on the fence as to whether that is acheivable. If price does shoot up to 24p again on no news i think i would sell what i have (very modest holding) - on no news i am not really expecting shareprice to do anything but drift aimlessly.

Epsilon

The market share chart (slide 5) is interesting in that it reveals that the four largest plumbing have consolidated the market & control nearly 60% of market share (B&Q own Screwfix & Victorian Plumbing (LON:VIC) own VictoriaPlum.com).

This slide also reveals market maturity with anticipated growth of just 3% p.a.

Homebase is up for sale - it will be interesting to see if the purchaser disrupts this market.

Benson

Porvair (LON:PRV) This share seems to have been expensive for a long time I first bought just after the”Financial Crash and have held ever since. I have topped up on several occasions but have always felt that it was expensive. It’s a company that has a clear moat with strong customer bonds. It ticks most of my boxes and is on my permanent watch list for topping up but it is expensive at the moment

Helvellyn

Supreme (LON:SUP) ( I hold)

Apologies as not pertinent to today's news but i have just watched the Supreme (LON:SUP) investor webinar . I was very impressed with both CEO Sandy Chadha and CFO Suzanne Smith, both appear to be very smart and know the business inside out. I really like the business model, very simple and fairly easy to bolt on new products . I also liked the feeling that there was no Bulls##t and jargonese just a lot of common sense. I agree with some comments about preferring to see money reinvested rather than paid as dividends and Sandy's honest answer that this was possibly a mistake made at IPO with Income Funds showing interest. I only have a small holding but will look to increase now.

Richard

abtan

Made.com (LON:MADE) (no position)

Hi rmillaree

You said:

"Having said that the reasons for them being where they are at now seem genuine in that its circusmtances beyond their control that they could be forgiven for not having seen this coming 6 months ago. The story does also sem intact overall."

Whilst I agree that companies would have found it difficult to plan for the current issues 6 months ago, I certainly would expect companies updating in September to have provided more accurate guidance.

Made.com didn't really do a good job in this respect.

When I worked through their expectations at the time I couldn't understand how they were going to hit their revised targets. Or maybe I just got lucky with my workings, which I've included below for any interested.

Note the implied increase in returns/cancellation rates in H1.

H2 is of course just me guessing, though the £66m deferred revenue I'm now expecting for H2 does tie in with their updated guidance today.

In the long term, I'm sure they'll be fine - and I do have an intention to buy at some point - but I am put off by the poor communication from just a few months ago.

---

With regards to today's updated EBITDA guidance, there must be some serious cost increases in H2.

I imagine this is being driven by either even lower gross margins than the already depressed levels seen in Q2, or higher marketing spend.

Either way, I think there's going to be something unexpected when the market is updated in early January.

Cheers

Revs8

Agree that it’s hard to work out the impact of the accounting changes but they say that cash will not be affected. I assume that it just changes when they pay tax. I’m sure the accountants could give us chapter and verse.

£RM should be ideally placed to capitalise on increased spending in schools and the move towards using technology to enable teachers to do more with their time. However I agree with comments below that the share price seems stuck in a range and waiting for a change might represent a lost opportunity.
I’ll probably hold for now but sell if I feel the cash can be better deployed elsewhere.

sharw

re Supreme (LON:SUP) - Paul said on Tuesday "The CEO Sandy Chadha comes across particularly well on webinars, in my view - an energetic, proven entrepreneur - which is what I look for".

I agree with him and you - excellent presentation void of 'management speak'. If only one or two of the initiatives talked about come off I think we could have what is known as 'surprises to the upside'. The recording is available here:

https://www.equitydevelopment....

mojomogoz

Nice. Victorian Plumbing (LON:VIC) is only potentially good return-risk position once its had a period of fundamental (not just price) puke. Until that point its hard to know what you are buy in terms of future financial characteristics

Threepeat

Excellent FY results from Renew Holdings (LON:RNWH) this morning with all the important metrics well in advance. Braced by high public spending and accretive acquisitions this company could fly over the next 3-5 years. Not a sexy growth company but with a sound balance sheet and ROCE over 25% what's not to like.

I hold

FREng

The market wants to offer us a better entry price for Revolution Bars (LON:RBG) .

I hold and I'll top up when I feel the selling has slowed

Made.com (LON:MADE)

Cheers abtan - (for once) i pretty much agree with everything you say here - love your tables they really do put the companies that report waffle to shame - how hard would it be for them to knock up something with good bad and indifferent forecasts when they update shareholders.

I think thats highly likely i was speaking to someone who had delayed getting a mini extension after going to the touble of getting a quote and when they went back recently the original quote was revised up 50% higher so if they are keeping any semblance of margins that arent beyond awful short term that ensures sales are maxed out from cashflow they have available then i would expect them to make grim reading but be necessary evil.

I think you predictions about things getting tougher near term may prove to be spot on. -just look whats happened to victoria plumb today.

Great interview Tamzin. Very informative. I was pleased to hear Andy’s comments on Indivior (LON:INDV) (I hold). I have a similar belief that their products could become more widely used to try to stop addicts leaving prison and going back to drug fuelled crime.

Harry Hindsight

Supreme (LON:SUP) - Shares magazine today:

The UK could soon be the first country in the world to licence e-cigarettes or vapes as a medicinal product available on prescription in an effort to help people stop smoking.

To get a licence, products would need to meet the MHRA (Medicines and Healthcare Products Regulatory Authority) standards of safety, quality and efficacy for medicinal products, following which doctors could decide on a case-by-case basis whether prescribing an e-cigarette to NHS patients would help them to quit smoking.

May be useful in delivering CBD products as well.

Robert W

I have to say that I felt Sandy came across as a little bit flaky this time. The CFO comes across as really smart - you wouldn't be able to get anything past her! Perhaps the combination of a slightly dreamy (albeit full of good ideas) CEO and hard-nosed CFO is a good one! One thing I did notice was that without the acquisition, there would have been very little profit growth. I continue to hold but am slightly more sceptical than I was.

Paul Scott

10th Dec '21

Hi Steves cups,

I've got to pick you up on this bit about £RNWH -

... with a sound balance sheet...

RNWH actually has a weak balance sheet, with net tangible asset value (NTAV) negative at £(44.1)m

It might be that the group can function fine with a weak balance sheet, due to negative working capital. But that's not the same as having a "sound" balance sheet!

Impressive company though, and a major multibagging share over the long-term. I've done a short section on RNWH in tomorrow's report.

Regards, Paul.

Hi Clementwether,

Sorry there were too many companies reporting today for me to cover all of them, so we picked the most interesting ones.

Small Cap Value Report (Thu 9 Dec 2021) - CALL, COG, VTU, DWF, MADE, PRV, SUS, VIC

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Paul Scott

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