Small Cap Value Report (Thurs 17 Mar 2022) - MPAC, FIPP

17th Mar '22 by Jack Brumby

47 comments 6995 reads

Good morning! It's Jack and Paul here with the SCVR for Thursday.

Agenda -

Jack's section:

Mpac (LON:MPAC) - strong FY results with a positive order book performance boding well for future. The group is targeting both organic and acquisitive growth, it is executing well against its strategy, and there is plenty of room to grow market share. Worth a look.

Frontier Ip (LON:FIPP) - Frontier invests in spin outs with intellectual property, which it then helps to commercialise. Its prospects are tied to the quality of the investments it makes, but it’s a potentially interesting way to gain exposure to early-stage companies. Trading at around NAV, so scope for multiple expansion if the portfolio businesses develop.

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 further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Jack's section

Mpac (LON:MPAC)

Share price: 509p (+8.99%)

Shares in issue: 19,894,138

Market cap: £101.3m

Full year results for the year to 31 December 2021

Mpac is a high-speed packaging and automation solutions provider. Previously more of a turnaround situation, the company is now firmly back on track with good operating momentum and further growth on the agenda.

Strong performance in FY21 with results exceeding market expectations and FY22 has started on track

Order intake up from £83.9m to £117.9m, and closing order book up from £55.5m to £78.4m,
Revenue +13% to £94.3m,
Underlying operating margin up from 7.8% to 9.3%,
Underlying earnings per share up from 31.4p to 39.7p,
Statutory profit before tax…

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davidjhill

17th Mar '22

The things that always gets levelled at Reach (LON:RCH) for not being a bigger valuation is the pension....not that I agree with that, but it is what it is.

For National World (LON:NWOR) it's a completely clean business. There is no pension complicating debate.

The other argument is that print is dead, long live digital....... which is complete claptrap. Print has decades worth of cashflows to come. Declining yes, but at nowhere near the rate some investors appear to believe. Newspaper buying is habitual and with demographics from 40-70 year olds there is a long way to go before it is replaced.

That said what I now like on both National World (LON:NWOR) and Reach (LON:RCH) is that any print decline is now more than offset by digital growth. In the case of National World (LON:NWOR) we are seeing 5%+ top line revenue growth and in Reach (LON:RCH) case it has just hit the inflection point of flat revenues YoY and should return to growth from next year.

I am long both

Cuddlesticks

Are these not related to long term management incentives schemes and conditional on meeting performance criteria

"The PSP Awards vest after three years with 50% linked to an operating profit target and 50% linked to a relative total shareholder return target"

Whether you think the targets were generous, easy to achieve or not, this has been out there for some time and issued when the share price was much lower. If you bought the shares when these were issued you'd have doubled your money even after the recent pull back.

https://www.stockopedia.com/sh...

planetx

Agreed , I was holding both reach and Nwor up until a month ago and was quite overweight in the sector .

Decided to sell Reach as Nwor is as you say “clean” and more upside for sure and no pension issues , plus 20 odd million quid in the bank is nice to have .

Nwor also own Sheffield star and the Yorkshire post so as a Yorkshireman that cemented the decision .

David Montgomery also has a proven track record and looks to be on a mission with National world .

Rusty2

That maybe so but completely misses the point, they paid 25p not the current share price.

But I do feel they are over generous, they had a load last year at 0p.

TamzinPiworld

Following Somero Enterprises Inc (LON:SOM) full year 21 results last week, here's their results presentation by CEO, Jack Cooney, President, John Yuncza & CFO, Enzo LiCausi, followed by Q&A. A superb set of results, revenue +51%, adjusted EBITDA +83%. America remains the main geography. Australia and Europe collectively grew 90%, with further growth anticipated. Video & podcast.

Some other results webinars coming up, register for any of them here:

Pebble (LON:PEBB) Full Year 2021 results: Thursday 24th March, 1pm

Personal Group (LON:PGH) Full Year 2021 results: Friday 1st April, 12 noon

Property Franchise (LON:TPFG) Full Year 2021 results: Wednesday 6th April, 12.30pm

Tracsis (LON:TRCS) Interim results: Friday 8th April, 1pm

Equity Development

A busy day ! Jack has already flagged up the ED review of MPAC results and outlook, plus two initiations also out on IPOs from last year. Links to notes are below if you are interested in:

Marks Electrical Group : https://www.equitydevelopment....

PensionBee : https://www.equitydevelopment....

Cheers

slopsjon

Yes you were correct portugull, this is from the RNS dated 15/02 15:19 Volex (LON:VLX) Just one of the awards for Nat.

Nature of the transaction

Exercise of awards under the Volex plc Performance Share Plan

Price(s) and volume(s)

Price(s)

25p per share

Volume(s)

340,000

"Volex plc (AIM:VLX) announces that it was notified on Monday 14 February 2022 that the following directors/persons discharging managerial responsibilities ('PDMRs') had exercised the following awards over (in aggregate) 1,080,000 ordinary shares in the capital of the Company granted to them under the Volex plc Performance Share Plan in FY2018 and FY2019 respectively (the 'PSP Awards'). The awards have an exercise price of 25p per share. Details of the exercised PSP Awards are summarised below:"

The exercise price was 25p which also happens to be the nominal price for the share.

sharw

P&O Announcement made sacking 800:

https://www.bbc.co.uk/news/bus...

Air Partner (LON:AIR) announcement made that cleared UK and Italian regulatory authorities so takeover will go ahead on timetable. Last day trading 31/3

https://www.londonstockexchang...

Roger Baron

Frontier looks interesting but personally when I look for early stage investment opportunities I prefer the tax advantages of EIS (specifically via Deepbridge who have some great opportunities.) Unlike Frontier of course you are locked in until an exit arises so no use at all if one might need to cash in! Bottom Draw money only.

Bouden54

Agree Osb (LON:OSB) looks very good value (although I don't think it's on a discount to book value as you say - mind you, given very high ROE of 24% it would be unusual not to be on a premium). Worth also considering Secure Trust Bank (LON:STB) another specialist lender, and this one is at a discount to book value.

TheFloatingInvestor

Cheers Bouden54...Like the look of STB, as does stocko.

Sharewallah

An excellent presentation thanks Tamzin. Is it possible to see the guys presenting? It would add a little more feel to the presentation.

Albertos

Shocking.

They should be totally ashamed of themselves.

I understand economic need, but the way this was dealt with is just disgusting.

Phil

The skier

£FIPP I hold too. They are very investor friendly and respond to emails. About 9 months ago they did a presentation with video presentations from several of their investee companies. I have bought more as a result. They say that they will have more news from these companies this year.

gringo

Big volume in Ted Baker (LON:TED) today. Bought in this afternoon as it looked like institutional buying.

There was vague talk of potential bid interest, up to £300m , in the FT last week. This is confirmed by Sky news tonight-

https://news.sky.com/story/ame...

Toscafund have been buying recently. Up to 27% I think, probably higher after today.

Will be interesting to see if this comes to anything, not just for Ted Baker (LON:TED) but the sector in general which has been absolutely savaged. I'd imagine there's lots of potential vultures circling many companies.

Just a hint supply chains/costs are starting to ease now (tho Chinese lockdowns may reverse this, who knows?)

Monty9

18th Mar '22

Frontier Ip (LON:FIPP) looks a potentially exciting opportunity, albeit quite speculative at this stage. It certainly is not insanely priced. I had never heard of it, so thank you SCVR for bringing it to our attention. I will spend some time reading up on it over the next few days.

I originally bought Mpac (LON:MPAC) a while back as a recovery play, because I thought their strategy should give them a competitive edge in a large market. I added on news of the FREYR battery contract. It is showing all the hallmarks of a very well run company and I hope to be in for a long ride.

illiswilgig

Portmeirion (LON:PMP) (I hold)

Peter - thank you for your writeup yesterday and today (and Paul as well). I seem to be falling behind at the moment - by the time I've taken a look at the figures its history.

I have the same view on prospects and the work being undertaken to improve sales margins, production margins and drive sales forward. I also rate the management very highly so far. Very positive.

Shame about the restructuring costs, which were larger than I had anticipated and left a slight sense of disappointment overall. Probably unjustified, I am wary of buying the story. It's a weakness of mine, far too gullible sometimes. But It think there might be reasons to be cheerful here.

UK Growth - what happened? The sales figures for the US are spectacular, partly through getting Nambe into top gear. S Korea is good and also RoW. I have a slight concern that UK sales growth was actually quite low - around 3% in H2. The wording around Wax Lyrical - 'returning to growth in 2022' makes me think that this might be a large part of the story - as I think its basically a UK business and was affected for a large part of the year. Hopefully this means that there is plenty of growth to come with the revamped website and increased capacity at the 'dropship' warehouse.

Talking of 'dropship' I had to look that one up as I was not entirely sure what it means. As I understand it - the warehouse will provide picking, packing and dispatch associated services for third-party websites as well as for PMP's direct sales. Interesting. Should help to drive sales as well as being higher margin.

Dividend - a pleasant surprise. The previous policy was around 1/2 post tax profits - the present payout is around 1/3 of pre-tax profits? Not that big a shift once the tax rise coming down the tracks arrives and has the advantage of smoothing any lumpy tax payments? I agree it should have been better worded. I do think that if the company had been a little less generous with dividends in the past, the recent dilution could have been avoided and am happy for them to keep accumulating some cash in the business at the moment.

Energy costs - this from the November trading update

We note the widespread press in recent weeks on energy intensive industries. We have made significant progress in recent years in reducing our energy usage and will continue to invest in 'green' initiatives as a core part of our strategy. As a central part of our business, our ceramics factory in Stoke-on-Trent buys energy under long term contracts. In the first half of 2021 we extended those contracts until early 2024. As a result, we do not expect to be materially
impacted by the latest rising energy prices.

Looks quite clear to me. No material impact - unlike the freight costs.

Shipping costs. Looking at my forecasts for H2 operating profits and adjusting for the increase in sales above my expectations - there is 1.5m missing. Which is probably directly attributable to freight costs. And looks like your assessment was about right. Well done. I don't expect freight costs to fall to 2019 prices, not any time soon at least, but even a good part of that would be a useful tailwind over the next year or two.

Forecasts. The only thing I got anywhere near right for FY21 was the revenue - I estimated around 104m based upon the H1 sales weighting. I am feeling a little less optimistic for 2022 - and who isn't right now . At the moment I am also estimating around 115m for FY22 - and eps around 52p (post tax) . Though a lot does depend upon if and when the freight costs unwind - I've not assumed much for 2022. I take the brokers current figures with a large pinch of salt as both revenue and profits look to have not been updated in the last 6 months. I guess they won't do so until they get a steer from management?

I'm satisfied that the future growth story is still intact here. The impact of restructuring and freight costs don't impact the long term prospects and the prestige of the brands should allow them to continue to set prices and accommodate inflation. I'd be looking to add more at or below current prices - but I don't have any funds spare right now, and there is plenty of choice on offer today :-)

cheers

Mark

RutlandRam

Not relevant whether Jack or Paul

Also not relevant if a Director or PDMR - you may have noticed that they are linked together on RNS announcements

Small Cap Value Report (Thurs 17 Mar 2022) - MPAC, FIPP

Jack's section

Mpac (LON:MPAC)

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Jack Brumby

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