Small Cap Value Report (Thurs 2 Sept 2021) - MPAC, GYM, INSE, HEAD
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Good morning, it's Jack & Roland here with the SCVR for Thursday. Paul's currently at the airport, heading for some sun.
Agenda -
Jack's section:
Mpac (LON:MPAC) - robust half year statement, with acquisitions going well and trading recovering. Full year expectations are upgraded by the company and Equity Development has nudged up its forecasts. There's a fairly significant pension scheme here, and the valuation looks reasonably full, but momentum is good and the outlook suggests this is warranted.
Inspired (LON:INSE) - Improving figures from a company focusing on ESG solutions in the Energy sector. The opportunity could be big here, but the current market cap already suggests a degree of growth is priced in.
Roland’s section
Gym (LON:GYM) - this gym operator says demand has been strong since reopening, but it’s rebuilding from a lower membership base than one year ago. Is the valuation ahead of events?
Headlam (LON:HEAD) - a solid half-year has seen sales (and underlying profits) return to 2019 levels. Not the bargain it was, but still a good business at a fair price, I suspect.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to cover 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 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: 626.7p (+4.45%)
Shares in issue: 20,171,540
Market cap: £126.4m
MPAC is a specialist provider of automated packaging systems, an area very much in demand for operators looking to drive efficiencies. These products allow manufacturers across the food & beverage, healthcare, and pharmaceuticals sectors to meet regulatory requirements at high levels of volume output. MPAC expects these end markets to enjoy long term annual growth rates of between 4% and 5%.
Revenue has not gone up in a steady line though. MPAC has had to work hard to get itself into a promising position, but the company is now back in growth mode.
MPAC is using its end-to-end solution to help reduce single-use plastics, encourage ‘green’ packaging alternatives, and reduce unit sizes. The resulting offering appears to be quite high-tech and stretches from design concepts through to training programmes and system upgrades or full line modernisation.
Shares have had a fantastic run over the past few years and there are signs its strategy is a successful one, with rising revenue, profit, and cash flows.
We remain well placed, serving markets with strong underlying demand and are pleased to be upgrading expectations for the full year results given the strength of current trading and our outlook for the second half.
Financial highlights:
- 69% increase in order intake to £51.7m; closing order book grew 12% to £62.0m,
- Revenue +20.1% to £44.2m, with a 25% growth in Original Equipment revenue and continued progression in service revenues,
- Underlying profit before tax of £4.7m (2020: £2.5m),
- Underlying earnings per share of 18.3p (2020: 11.0p),
- Net cash of £10.3m (down from £14.6m on 31 December 2020).
MPAC notes strong momentum on order intake and an enlarged order book, with the Americas region driving performance. The outlook in EMEA is also improving.
Regarding the US, the newly acquired Mpac Switchback business is fully integrated and exceeding expectations. This business is relocating to a showcase facility which will also function as Mpac USA headquarters. The new site will allow the company to demonstrate to its US customers ‘the full suite of Mpac brands, solutions, and services in this critical market’.
Underlying results are stated before pension related charges of £0.5m (2020: £0.3m), amortisation of acquired intangible assets of £0.9m (2020: £0.8m), acquisition-related reorganisation expenses of £0.2m, and other non-underlying items of £0.3m.
Net cash outflow from operating activities in the first half of the year was £3.3m, after an increase in working capital levels of £7.2m, due mainly to the timing of project execution, and deficit recovery payments to the group's defined benefit pension schemes of £1.6m. So the cash charge on the pension fund was more than that reported in the P&L.
The IAS 19 valuation of the UK scheme as at 30 June 2021 shows a surplus of £26.8m (£17.4m net of deferred tax), compared with a surplus of £14.0m (£9.1m net of deferred tax) at 31 December 2020. You could write thousands of words on any one company’s pension fund situation so I won’t go into detail too much here but to summarise:
- UK scheme has £429.4m of assets and £402.6m of liabilities as of 30 June 2021, meaning a net surplus of £26.8m,
- The USA schemes are much smaller: £10m of assets and £12.3m of liabilities for a £2.3m net liability,
- Together it’s a £24.5m net surplus for the group on a combined basis.
So a large combined pension scheme for the size of the operating company, but one that is in surplus.
A formal valuation of the UK defined benefit pension scheme (by far the most significant) was carried out as at 30 June 2018. The terms below are effective until 31 July 2024 but subject to reassessment every 3 years:
- the Company will pay a sum of £1.9m per annum to the fund (increasing at 2.1% per annum) in deficit recovery payments,
- if underlying operating profit exceeds £5.5m, the company will pay to the fund 33% of the difference between the annual underlying operating profit and £5.5m, subject to a cap on underlying operating profit of £10.0m - this part of the agreement will fall away in 2021 if the funding deficit is below certain levels, and
- Dividends to shareholders will not exceed the value of payments being made to the fund in any one year.
These points are worth revisiting as it reminds shareholders that the pension schemes have a say on the company’s profits. That said the situation looks ok here and there’s every chance that MPAC can negotiate more favourable terms going forwards, with a reassessment due any time now.
One Mpac’s unified business processes strategy reached a milestone with the go-live of its global ERP (enterprise resource planning) systems. ERP systems implementation can be risky but, if executed well, can lead to much more streamlined operations.
The group also notes an uptick in sales of newly developed products and a continuation of customer developed options.
Contract with FREYR, a developer of clean, next-generation, battery cell production capacity - this sounds like a first step into a potentially large new vertical. There is clear global demand for electric vehicles and the associated establishment of battery Gigafactories and MPAC’s automation products look well suited to this growing market.
Conclusion
The price is back to all-time highs and that looks to be fully justified based on the company’s performance, its strategy, and the scope for organic and inorganic growth. Trading is ahead of expectations and in the longer term, there’s potential for growth rates of around 5% plus gains from acquisition synergies and any additional acquisitions in future.
The US market could drive organic growth, as could new product development.
Earnings per share are forecast to grow to 33.5p in FY21 and then 36.4p in FY22, which would mean a PER of 17.9x falling to 16.5x. I would say it’s getting back to around fair value at that level, but then again we have the current trading momentum hinting that these forecasts might need to be nudged upwards.
Indeed, Equity Development follows the company and has a new note out with revised forecasts: FY21 revenue raised from £95.0m to £97.5m (+16.4%YoY) and FY22 raised from £100.0m to £105.0m. Its fair value / share estimate has also been increased from 600p to 660p. That sounds like a reasonable interpretation: a previously fair to full valuation nudged upwards by 10% on strong trading and outlook.
MPAC’s services look to be well positioned to enable companies to automate their production lines, and the group has built up positions in verticals with solid long term growth prospects. The pension scheme is a bit of a question mark but is currently in good shape on an accounting basis.
All in all this looks like a good company exposed to growth markets that can continue to drive both organic and inorganic growth going forwards. The shares are up today and at these levels you would be hoping for strong ongoing growth in the years ahead, but MPAC continues to execute.
Inspired (LON:INSE)
Share price: 21.03 (+1.08%)
Shares in issue: 973,787,427
Market cap: £204.8m
Inspired is a leading technology enabled service provider supporting businesses in their drive to net zero. It controls energy costs and manages company responses to climate change.
In fact, it recently changed its name to Inspired from Inspired Energy in order to reflect this shift to a technology enabled ESG service provider. Operations are now structured across three divisions and four reporting segments, all underpinned by long term structural growth drivers:
- Inspired Energy - Energy Solutions (comprising two reporting segments, Energy Assurance Services and Energy Optimisation Services)
- Inspired Software - Software Solutions
- Inspired ESG - ESG Solutions
Financial highlights:
- Revenue +31% to £32.62m,
- Gross profit +19% to £24.09m,
- Adjusted profit before tax +18% to £6m,
- Statutory PBT -1% to £0.94m,
- Adjusted diluted EPS -20% to 0.53p; diluted EPS -50% to 0.07p,
- Net debt -10% to £30.17m,
- Order book +12% to £69m,
- Interim dividend per share +20% to 0.12p
Half year revenue growth of 31% against 2020 achieving organic growth of 19% as the group's customers, markets and economic activity continues to recover.
Industrial and commercial energy consumption levels in H1 were in line with expectations (down 13% on 2019 levels in Q1 and 9% below in Q2), with H2 consumption to date reflecting the continuing economic recovery from the pandemic.
Despite continued disruption, Optimisation Services has shown a strong rebound in performance with revenue growth of 59% in H1 2021. Group adjusted EBITDA increased 15%, to £8.8m (H1 2020: £7.6m).
Underlying cash generated from continuing operations (excluding the impact of deal fees, restructuring costs and repayment of Q2 2020 VAT deferrals) of £1.08m (H1 2020: £7.21m) includes:
- £5.3m increase in trade receivables in the period, the balance of which is expected to be recovered during H2 2021.
- Increase in accrued income on optimisation projects of £0.8m due to timing, with projects restarting and progressed during Q2 2021, with the relevant project invoices raised subsequent to the half-year period end.
- Management expects cash conversion ratios in FY2021 onwards to remain consistent with the levels seen in FY2020.
Inspired is a much-changed company - it completed the acquisitions of Businesswise Solutions and General Energy Management ("GEM") in March 2021.
The group made further strategic progress during the first half of the year, with a strengthened platform capable of generating long term growth as its markets continue to recover from the period of reduced energy consumption during the pandemic
Trading in the year to date in the core Energy Assurance Services business remains in line with management's expectations.
The group's Energy Optimisation Services business also performed in line, with a recovery in Q2 after lockdown disruption in Q1. Demand for optimisation services is continuing to recover in H2 2021 as clients' attention turns to the reopening of premises.
Software Solutions and the recently launched ESG Solutions divisions continue to gain traction.
Conclusion
Positioning business towards the secular trends of ESG and sustainable energy usage seems one of the better long term plays in the energy sector.
It’s hard to gauge where Inspired is on that path on account of Covid disruption and its own turnaround strategy, complete with recent disposal of the SME business. It raised £31.3m gross in a placing last July so has funds for acquisitions aligned to its green strategy. On the one hand that sounds promising, but on the other it makes it hard to anticipate where Inspired is heading and just what it might acquire.
The group is now moving to further differentiate its services, organising into three new divisions: Energy Assurance, Energy Optimisation and ESG Services & Software Solutions. It is also beginning to look to international opportunities to service its clients.
There’s been a rebound in the first half of the year for Inspired and it’s possible that this will be sustained assuming economies continue to open up. So a lot is changing here: acquisitions are being made, a green strategy is being established, and there’s scope for a more sustained rebound in trading assuming there is no more Covid disruption.
Brokers are forecasting FY21 EPS of 1.30p, rising to 1.50p in FY22 and then 1.59p in FY23. So that would be an FY23 PE ratio of 13.2x. Maybe with a fair wind it could beat those forecasts. It’s worth investigating to get a feel for the value of Inspired’s ESG solutions and the size of those markets. It’s certainly managed to grow revenue at a fair clip so far.
But then again, the same can be said for the shares in issue. 460m back in FY15, up to 974m today. So this top line growth has not translated so well into earnings per share growth.
With that many shares in issue, Inspired has a market cap north of £200m on annual revenue of £60m-£65m, so the size of the market opportunity is key here. It’s probably worth doing some more work into the exact nature of Inspired’s services but clearly there is some growth priced in at these levels. The balance sheet looks ok, although I would flag that goodwill and intangibles account for nearly 62.5% of total assets, up from about 58% at the previous balance sheet date.
Roland's section
Gym (LON:GYM)
Share price 283p (pre-open)
Shares in issue: 178m
Market cap: £502m
“Strong recovery since re-opening and opportunities for accelerated growth”
The Gym Group runs a chain of 190 low cost, 24/7, no contract gyms. The company says it has seen strong demand for memberships since Covid restrictions were lifted in England in July and is now looking forward to a period of sustained recovery.
Today’s half-year results were only ever likely to be a work-in-progress, as they cover trading for the six months to 30 June. Obviously much of this period was spent in lockdown and when gyms reopened in April, restrictions remained.
Let’s start with a look at the financial highlights:
- Revenue: £29.3m (H1 2020: £37.3m, H1 2019: £74.0m)
- Adjusted EBITDA: £6.7m (H1 2020: £6.7m, H1 2019: £24.0m)
- Adjusted EBITDA less normalised rent: £(8.1m) (H1 2020: £(8.2m), H1 2019: £24.0m)
- Adjusted earnings: £(20.9)m (H1 2020: £(22.1m), H1 2019: £7.1m)
We can see that revenue is still less than half pre-pandemic levels. Additionally, Gym Group is still losing money when normal rental costs are factored in (excluding agreed deferments).
One challenge is that membership numbers have fallen sharply since March 2020. However, today’s numbers suggest to me that members are returning to the business at a reasonably strong pace:
- 18 March 2020: 870,000 members
- February 2021: 547,000 members
- 30 June 2021: 730,000 members
- 31 August 2021 721,000 members (company says this fall is due to university holidays)
Assuming no further Covid restrictions, I don’t see any reason why Gym Group won’t continue to recover its lost members and attract new customers over the remainder of this year.
Balance sheet: Gym Group has raised £70m through two equity placings since the start of the pandemic. The group has also secured new debt facilities. These have left the business with non-property net debt of £28m at the end of August and £73m of financing headroom.
The balance sheet looks comfortable to me. At the expense of some shareholder dilution, I think the group looks reasonably well funded.
Outlook: Chief executive Richard Darwin says the group has seen “a higher rate of visits per member and a rapid recovery in overall membership levels” since April. Mr Darwin says the company has identified a number of growth facilities and expects to open 40 new sites by the end of 2022.
This seems ambitious to me, but the market has proved supportive of this story and the company’s product offer seems well-pitched for mass-market consumers, in my view.
My reading of today’s results is that they are in line with expectations.
Valuation: Investors have been buying into this story ahead of the news. Gym Group shares are now trading close to their pre-pandemic highs.
Indeed, factoring in the dilution from two equity placings since March 2020, my sums suggest the shares are now effectively higher than they were before the pandemic.
This rapid rise has left Gym Group shares trading on 69 times 2022 forecast earnings. Stockopedia is now classifying the shares as a Momentum Trap.
My view: I think that Gym Group’s valuation may now be somewhat ahead of events, but this business did seem like a convincing growth story before the pandemic.
For me personally, the valuation is too rich at the moment. However, I can see the potential for medium-term gains, if the company can maintain its planned rate of growth.
Headlam (LON:HEAD)
Share price: 501p (-2.8% at 09:16)
Shares in issue: 85.3m
Market cap: £438m
“Strong recovery to 2019 levels”
One of the main things I’m looking for in company results at the moment is evidence that performance is returning to 2019 levels. As I don’t have a crystal ball, achieving pre-pandemic levels of trading seems to me like a good indicator of a company that’s performing well.
Floorcovering distributor Headlam is a company I’ve rated highly for a while. I know that Paul has commented favourably on the business in previous reports, too. Investors have been buying into the recovery - as with Gym Group, Headlam shares are now trading at or above pre-pandemic levels:
I’m interested to see how the group has performed during the first half of this year, which saw lockdowns in many of the company’s markets.
Half-year results: Today’s results cover the six months to 30 June 2021.
The commentary starts with the welcome news that revenue during the first half of 2021 was in line with 2019 levels. On an underlying basis, profits and margins are also comparable with the first half of 2019.
Here are the main financial highlights:
- Revenue: £329.9m (H1 2019: £335.0m)
- Gross margin: 32.7% (H1 2019: 32.4%)
- Underlying pre-tax profit: £16.7m (H1 2019: £16.8m)
- Statutory pre-tax profit: £14.0m (H1 2019: £15.8m)
- Net cash excluding leases: £53.9m
- Interim dividend of 5.8p per share (H1 2019: 7.55p per share)
I think these are a creditable set of figures. I’m not too concerned by the adjustments included in the underlying profit figures. According to the notes these relatively small amounts relate to the amortisation of acquired intangibles and various other factors, such as the profit on disposal of a freehold property.
I’m satisfied that the underlying profit figure provides a realistic view of Headlam’s current trading performance.
Balance sheet: Net cash was £53.9m at the end of the half year, excluding IFRS 16 lease liabilities.
Even when I include lease liabilities, my sums suggest a statutory net cash position of £15.5m.
In addition to this, Headlam has nearly £100m of headroom on its main revolving credit facility.
There’s no material pension deficit and - historically - cash generation has been strong, providing good cash dividend cover.
Headlam’s balance sheet looks very sound to me.
Trading overview: Headlam trades in continental Europe as well as the UK. However, more than 85% of sales (and profit) is generated in the UK, so market conditions here are likely to dominate the group’s trading results.
Unsurprisingly, the company says that strong residential demand drove sales through the half year, offsetting weakness in the commercial sector. Residential sales during the half year were 4.7% ahead of H1 2019, while commercial sales were 12.8% below H1 2019.
Commercial revenue is now said to be recovering and was only 3.2% below 2019 levels in June.
However, residential remains the standout performer, with sales 22% ahead of 2019 levels in June 2021.
Outlook: After such strong performance, I wonder if we can expect sales growth to soften as life returns to normal.
My reading of Headlam’s commentary on current trading (from 1 July onwards) suggests this might already be happening, albeit only slightly.
The company says that group trading in July and August 2021 was slightly below the same months in 2019. This is attributed to commercial demand remaining relatively subdued, compared to more normal times. Management believes a proportion of this lost activity relates to essential maintenance and so has been delayed, rather than lost altogether.
Residential performance over the summer is said to be “pleasing”, although no explicit comparison with 2019 is provided for July and August 2021.
Overall trading is said to be in line with market expectations, following an upgrade in July.
My view: I’m reassured by today’s results and continue to be impressed by this business. Although I think there’s some risk that residential demand will soften this autumn, I don’t see this as a serious concern.
Historically, Headlam has generated stable profit margins and attractive mid-teens returns on capital employed:
I don’t see any reason why the company can’t return to this level of performance in the future. Costs have been controlled well and management sees growth opportunities in areas such as ecommerce, larger retail chains, and trade counters. There’s also the potential for a return to bolt-on acquisitions when market conditions stabilise.
Headlam shares have doubled since the vaccine rally started at the beginning of November. But Stockopedia’s consensus forecasts suggest to me that the business could still be reasonably priced:
I remain a fan of this well-run business. Although I’d prefer to wait for the next market correction to buy, I would be comfortable buying the shares at current levels for a long-term holding.
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70 comments
Those of us nursing losses on Cmc Markets (LON:CMCX) are in good company. CEO Peter Cruddas dropped about £175 million today. Don’t feel quite so hard done by on reflection.
Gus.
Rbg Holdings (LON:RBGP) put out a bit of an unusual release under the guise of an update on the integration of Memery Crystal into the Legal Services Division. The main point seems to be that the M.D. of the division is going and Nicola Foulsdon is taking over his job for the next 6 months. Notable that no reason was given and he was not thanked.
HI Herbie
I use their online only platform, @x-o.co.uk . my dealing fees are £5.95 each transaction but it's a no frills service and their platform could do with an update. But it works. You can phone in with queries when u can't trade. But this is obviously not ideal when the market is super busy( usually when u need it to be spot on!)
hope that adds some value
Thanks for the write-up on £MPAC. I've been a past holder but sold out far too early.
I don't fully understand the dynamics of the sector it works in and, as you note in the report today, 'Revenue has not gone up in a steady line though'. Do readers know much about this sector and whether it is prone to lumpy contracts as companies invest in equipment and revenue or was it that Mpac (LON:MPAC) was just badly managed in the past? If the former the valuation today looks maybe a bit full but if the latter then maybe there is a lot of scope for further growth especially as margins seem to be improving?
On the note of lumpy revenues, I see America growth looks good but EMEA revenue has declined and the company's explanation of it being due to COVID looks a bit unconvincing to me given the restrictions faced in H1 2020.
There have been a lot of changes in MPAC (LON:MPAC) in the last few years, it used to be Molins which was a Instrumentation & Tobacco Machinery company which was sold off in 2017 I think. They have also brought back the manufacturing to the UK from China.
There have been some videos on PI world which feature MPAC (LON:MPAC), Casteford Tiger is very keen on it, here: https://www.youtube.com/watch?v=ahjMvSqDy-s&ab_channel=PIWORLD
COVID explanation for EMEA revenue makes absolute sense. Europe locked down heavily compared to the US and were more cautious in investment decisions as a result. For that to have credibility you should be seeing an EMEA recovery and that is exactly what management say they are seeing.
In my view this is now a superbly run company. The current management know it inside out both at a strategic macro level as well as the detail. They sold the tobacco business early for a good price and invested where there was multi-year growing demand of Food, Pharma etc. The acquisition of switchback was inspired and the fact that you have a strong native US management team there with a track record means the likelihood of them growing the US market share significantly is much greater than if they were trying to do it from the UK.
They have been quietly investing in industrial battery packaging technology over the last 3 or 4 years and this appears to be a great potential vertical for them to move into.
I have held from around 150p and not sold any yet. I'm now expecting close to 40p underlying eps this year and at 15-16* see it reasonably valued but not expensive. Over the next 2 or 3 years I can see them growing operating profits significantly though hence I remain a holder.
Club 18 - 30 open again then !
I am sorry for posting this and don't know where else to post, but can anyone recommend a decent online broker they have been with for at least 3 years? I had to write this letter today to my existing broker, A J Bell who have proved themselves spectacularly incompetent. I need access to TSX and TSX-V. Thank you.
"Dear Sirs
As you know you have taken 9 months to try and transfer the Fortuna shares which were stranded for some still inexplicable reason in my old stocks and shares ISA at IWeb Share Dealing.
After 4 weeks of phoning them (they appear to be as incompetent as you people) I have finally managed to sell them at a loss of over £800. I have to tell you I am less than pleased with the competency of both of you.
Here is what is going to happen now:
1] IWeb will transfer the proceeds to my ISA stocks and shares account with you to ensure the money remains within the ISA tax wrapper.
2] I will commence the search for a competent stockbroker and once I have located someone decent, I will instruct a transfer of my account with you to them. I am praying that you people do not make a complete dog's dinner of this second transfer ..... one lives in hope.
3] I reserve the right to commence proceedings against you and IWeb for the utterly disgraceful and incompetent way you have managed my affairs.
I cannot begin to tell you people how relieved I will be to finally see the back of you. I can at least take some comfort that I waited to evaluate your performance before transferring the shares content of our Family Trust.
Yours faithfully
AKendall
Copy: Crux Investor, Stockopedia, MP, Ombudsman"
You would be better off starting a new thread or searching for some similar threads on this subject, there have been a few over the last few years. From my experience transferring shares/funds to a different platform is usually not a good experience, I had a lot of problems with my cash transfer. This is something the authorities need to tighten up on. AJ Bell have been recommended by some members on here. Avoid HL.
Nice one! If more people told them what they really think of them we might get better service. I have used ii for more years than I can remember. Generally very good but.... as with all of these online brokers, they can glue up when the market gets busy during a crash or whatever. They also took an age to sort out an ISA transfer between my wife and I. I did receive some compensation and an apology. They are the quickest at crediting dividends, which always seem to be paid on time on the due date with no waiting. If they can do it, then why can 't the others?
One to avoid? Barclays. I ditched them a few years back and consolidated all my dealings with ii. They were once the gold standard and I was happy to use them without any complaint. Overnight they changed systems and promptly went from best to worse. Spectacularly useless.
Good luck.
i have been with HL. for ten years and found them very helpful
I use HSBC Invest Direct for ISA,s. I belive you need a Premier C/A to access. Never had any price issues even when v busy. Also management charges for ISA are only 10.50 a quarter which I think is reasonable.
How about Canadian stocks? Their fees look rather high for US shares.
Bad luck James. It is really frustrating. Why are online brokers so bad? I've had a few over the years including advisory: SP Angel, dreadful. Barclays, dreadful. Brown Shipley, iffy. Saga, I can't remember basically the same platform as Barclays and IWEB and no doubt Lloyds. Tried IG, don't like the platform. There was another one I cant name for legal reasons, but I think/hope they are out of business now. IWEB are my outright winners for a worse service and customer care than BT. I ended up not being able to sell any trusts, or Reits not even by placing an order. Never did get an explanation.
So why have so many accounts? Same reason as banks. Don't have all your eggs in one basket case.
If its really a total basic online service you want I've gone back to Jarvis securities this year. By far my best experience should never have left. I didn't actually leave but I suppose they thought I had died as the account remained unused for 12 years! Don't tell them I recommended them though. They are sick to death of having to get shares transferred from some of these dimwit brokers.
Thanks, I had a look at Jarvis Securities (LON:JIM) but their fees on the amounts I trade are too high: "UK share trade commission - Flat Rate £14.95*
International share trade commission - Flat Rate of £50"
£50 on US shares compared to 0.5% with £IG is a lot on smaller trades, I could do £100,000 worth of trades with IG for 1 with Jarvis.
To a certain extent you may get what you pay for.
Hi Herbie. I only pay £9.50 with Jarvis share active. I tend to buy trusts for overseas investments. I agree it depends on size of trades and how much trading you do. My son's use Etoro to dabble with £100 trades, which are 'free.' I would imagine regular traders are looking for £5 trade deals. Not like the old days when brokers used to charge estate agent type fees , lunch and a two week holiday.
Jarvis have a smaller online broker X-O whose fees are much cheaper
OK thanks, I will look into that.
Funnily enough I was going to ring Jarvis today as I hold their shares.
Hi jamesalastair.
Re. Your enquiry about online brokers, I’ve been a happy user of Charles Stanley Direct for several years. I transferred in in specie my and my wife’s ISA accounts a few years back (from Fidelity) and also more recently a Joint Investment account. All of these transfers went through efficiently.
Day to day online trading service is good for a range of U.K. stocks, ETFs and funds although their dealing charge at £11.50 per shares trade is not the cheapest. I’m OK with this as I tend to buy to hold in decent sized amounts rather than trade shorter term. I don’t deal much in individual overseas stocks but I checked with them just now and they confirmed they can trade Toronto Stock and Toronto Venture Exchanges (and indeed any overseas HMRC recognised exchange) but that this has to be done via their (more expensive) telephone service rather than online. Here is a link to their charges for overseas shares.
https://www.charles-stanley-di...
One cautionary note, their parent company, Charles Stanley (LON:CAY) is in the process of being acquired by a US wealth management business so there may be some changes to the online execution only platform in due course. Hope not, I’m quite content with the current high levels of service.
Gus.
Thank you Gus .... I will investigate further.
Interactive Investors are by far the best for the Canadian stockmarket due to them once being TD Ameritrade a Canadian stockbroker.They were then taken over
Re MPAC. Would a surplus pension situation make it more attractive to takeover hunters?
Mpac (LON:MPAC)
psin
"Would a surplus pension situation make it more attractive to takeover hunters?"
I would presume not in itself no. Remember the surplus or deficit is only a snapshot at that moment in time -w hat is much more importnat is the "size of scheme liabilities"
Example If random company had assets of 2 billion and liabilities of 1.90 billion - they could be in a whole lot of future bother despite the fact they are showing a tidy surplus now.
Having a quick look at the last annual report scheme liabilities were £430 mill at that date - so i would guess they may still need to pay someone to take the pension off their hands as things stand? It looks like there and no new accruals to this scheme so hopefully there is a semi lid on this noose.
Note the last 3 yearly revaluation (one looks like it is past die now) showed deficit so it may be that accounts figures show surplus while official 3 yearly valuation could be negative.
On very quick look at face value i doubt pension would put of well capitalised "buyer" but i think the company would on ten balance of probabilities be more attracive without the pension "hassle"
Note i know nothing about how the mechanics of how deficits/surpluses work when it comes to what a potential buyer will be looking at nitty gritty wise ref what would affect getting a deal of the line - i am simply offering a UIV (uninfomed idiots viewpoint)
There is additional UK pension legislation coming into effect on October 1 which will give The Pensions Regulator new powers to intervene in company funded pension schemes. Whilst the effects are not yet fully clear, the likely pressure on boards will be to increase contributions to pension schmes to move them away from an assets v liabilities considerations, to one where they will increasingly want to have the ability to transfer the schemes to pension providers. The cost of such 'buy-outs' may well exceed the current assets of a scheme even if it appears, as reported in company accounts, to be in surplus. I don't pretend to be a pension expert but rather someone who takes a rather circumspect approach to companies who have large pension schemes relative to their market values.
Raiding pension funds in surplus was a regular occurrence in the 80's. Companies were taken over to unlock this "hidden value". Nowadays any surplus would belong to the members - for the security of their benefits. The scheme being in surplus means that the employer could dispose of it (a "bulk buyout") and remove the ongoing cost and future liabilities.
I remember being stunned when Aga Rangemaster was taken over in 2015. Purchased for £129m. It had a £1bn pension scheme with a £84m deficit. So anything can happen! Link here
Hi Jack, Good looking results from Integrated Diagnostics Holdings (LON:IDHC) this morning. Worth looking at following your recent stock pitch? Rob.
I piled into Integrated Diagnostics Holdings (LON:IDHC) after their stonking Q1 results which the market largely ignored. Q2 has even managed to improve 3% on Q1. SP is only trading at around pre-pandemic levels which is bonkers considering the enduring uplift to the company.
We held for a couple of years but sold recently for a solid profit when the auditor resigned in a huff. Not convinced there’s any skeletons in the cupboard as management appears very competent, but it’s an obvious red flag. We see long term, predictable growth for this name but the Egypt discount means that we do not expect shareholders to benefit from multiple expansion while there are plenty of other picks and shovels plays on life sciences growth in more familiar jurisdictions. In the UK we have Sdi (LON:SDI) which has been a great performer over many years, while Europe and the US are full of much safer options that have nearly doubled since the pre-pandemic peak. Thermo Fisher, pretty much the safest investment in life sciences, is up 70% since Jan ‘20, while Integrated Diagnostics Holdings (LON:IDHC) is up only 10%.
I increased my holding in Mpac (LON:MPAC) recently, on the £FREYER announcement. They were rather coy about the expected turnover from that contract but the potential seems very large for a £121M market cap company. With this announcement it has fulfilled my original objective of becoming an efficient, well run company, recognised as a quality provider in a large market. I now hold, hoping to benefit from a long period of steady growth as it capitalises on the hard work of the last few years.
Re £HEAD
Overall, solid results as usual with 2 key take outs from one of my top 2 LT holdings:
1. Re-states "On-track to achieve ambition of 7.5% UK operating margin run-rate during 2023. This is key as revenue looks very solid long term
As commercial sector recovers (still -ve and the main drag reported) and (my view) residential spend remains high with WFH, cash savings from no overseas holidays etc and competitors disadvantaged (see below) by Headlam's scale, I see revenue rising which combined with a growing margin bodes well for the medium term. I think analysts are too conservative if we look out a couple of years (725Mn *0.075= 54Mn Op profit - 20% higher than 2019. This would deliver +/-50p EPS x 12 = 600p plus divis along the way.
2. "Price increases across product categories ranging from 3% to 14% passed directly through into the marketplace"
Wow from 2 points. First, it shows its power in its own markets. Second, as a big importer (claims x6 its nearest competitor) it celebrates being able to manage to "maintain its inventory" and presumably getting better than average deals. This suggests to me the scale of pain for others from freight importation.
BTW - I'm happy that interim dividends are resuming with 5.6p planned in Nov., conservatively back to roughly 2/3rds of 2019 level for this year but looking good for later. In short, very happy to continue to hold as one of my 'getting rich slowly' shares.
Hello Zipmanpeter and others commenting on Headlam (LON:HEAD) reporting today. Just a comment that since August in the stock market, there is a new boy in town in the sense that they have come to market - Likewise (LON:LIKE) - which is stocked full of ex management from Headlam (LON:HEAD) and I havent done the research as to what happened at Headlam (LON:HEAD) back then. They are comparative tiddlers at the moment, but since they came on the scene several years ago they have been acquiring smaller distributors in various areas. Wont make it any easier for Headlam (LON:HEAD) to achieve their ambitious operating margin targets?
Re Headlam (LON:HEAD) & Likewise (Likewise (LON:LIKE)) - which IPO’d on AIM in Aug 21 , "raising £10 million, achieving a market capitalisation of £48.1 million." with Directors putting in another £1mn.
Thanks for highlighting this - when I first read it I worried this was going to be the new Carpetright. The Board of LIKE and indeed even the Mgt team is filled with Headlam people who presumably have recruited by offering salary upgrades/better opportunities to jump ship. However, market cap of Headlam is £438Mn ie >8 times bigger so its claim to be >6times bigger than nearest competitor remains intact.
Whilst obviously a potential threat, with the Board/Mgt no doubt reaching out to old contacts, I can't see it brings anything new to the flooring market - so Headlam's moat (scale, relationships etc )remains intact. At most some net churn losses at the bottom. However, Headlam's new strategy is much more fixed on growing chain and internet volumes (whilst leveraging its scale in costs). In the detail of the results it was uncannily similar to 2019 in sales but on costs Distribution was down 3Mn and Admin up by about the same.
My bet is that the former is the newly more efficient logistics and the latter reflects investment in new headcount.systems to drive the next phase of Headlam growth. (It also highlights that these IMHO positive changes came AFTER the key Board members were retired/let go.
I think Headlam was a good business based on scale built up on many small acquisitions (which LIKE will try to repeat - but this is old generals fighting the last war. Going forward I think Headlam will be a much better business (targetting 7.5% op margin by 2023 vs historic 5%).
Net, Likewise (LON:LIKE) may prove good for its managers but I am happy to stick on Headlam (LON:HEAD) as my investment.
Will Headlam (LON:HEAD) suffer from Likewise (LON:LIKE) growing and their inside knowledge of the Headlam business/contacts? Not sure. I suspect there is room for both as they service a highly fragmented, independent-led set of retailers. The big sheds are a different ballgame, but with commensurately lower margins on offer.
On a buying visit to a local carpet specialist a couple of years ago they advised that they have several different Headlam reps calling on them (from various acquired businesses) but limit the share of their business they put through what is effectively one supplier. So Likewise and other specialists could still get decent distribution if this is repeated across the market.
The Annual Reports from Headlam have banged on about introducing efficiencies and enhancing margins for the last few years. Would that be because the old management were averse to change? Certainly, I get the perspective that they were no loss and possibly were a drag on the business.
On the other hand they know the trade... didn't end well for Safestyle!
Jack thank you for the excellent write up on Mpac (LON:MPAC) (I hold 7% position).
Regards
Michael
Really good review on Mpac (LON:MPAC) Jack, thanks for that. It seems to me that if the pension scheme is in surplus that the company might dispose of it, to the benefit of investors.
It is in surplus on the accounting basis but not on the technical basis. That is why, deficit recovery contributions have been agreed with the Trustees of the pension fund.
Headlam (LON:HEAD) results not as good as I was expecting (slightly below 2019) given the boom in the housing market and home working that has been driving the home improvements sector.
Cmc Markets (LON:CMCX) guided lower due to reduced trading activity, although important to note that markets have been very subdued over July and August - I would expect volatility to pick up over next few months which is normally good for the spread betters. Falls seems overdone IMO as share price should surely reflect a company's long term earning prospects, rather than react to what appears to be a short term lull due to quiet market conditions.
I'm trying to work out whether to add this morning on the fall. Feels overdone, as you say, the summer has been less volatile.
However, the trading update on July 29th covering Q1 was quite positive, did the Management not realise the summer would be less volatile? I've not been trading that long and I know the summer is generally quieter.
CMC fall is due to the huge uturn on management expectations of trading volumes, not the fact that summer is seasonally slow. It seems like this Jul and Aug has been even slower than usual, which raises the risk that the big increase in trading activity since COVID might be coming to an end.
They make clear that reduced guidance is on the basis that market conditions remain as they are for the rest of the year. Perhaps they have to provide guidance using these very conservative assumptions, but I think it extremely unlikely that markets will stay as calm as they currently are for the next 7 months. At the very least CMC should provide a good hedge against increased market volatility later in the year.
Having been burned hard by BOTB, i reviewed my portfolio and decided to heavily topslice my position in CMCX. However, I am still a bit annoyed that only 5 weeks ago CMCX put out a trading update stating:
"the Board remains confident in achieving net operating income in excess of GBP330 million for FY 2022."
and now today they've told us "2022 net operating income to settle in a range between GBP250-280million" should current market conditions prevail.
I guess this is the main thing we as investors need to figure out. should we expect higher trading activity in the remaining 7 months? historically, how well do these platfroms trade across this time of year? I guess this is the job for this evening because the drop in SP could *potentially* be overdone and an opportunity could present itself? Or we could discover the complete opposite.
Beware, i smell more profit warnings in the air.
There is a nasty smell accompanying todays profit warning from Cmc Markets (LON:CMCX) . To blame a sudden c20% cut in annual net income expectations on what is a seasonally quiet July/August trading period lacks credibility.
To locate the source of the profit shortfall I believe we need to go back to the Interim Report issued in November 2019.
Cmc Markets (LON:CMCX) had historically hedged all net client exposures (risk). But in 1H19 they decided to leave some exposures unhedged so as to improve profitability:
"... led us to re-assess the way in which we manage our net client exposure as returns were deteriorating. The internal adjustments we have been able to make to our risk management approach, where we now internalise a greater proportion of our net client exposure over a longer period of time, have resulted in both improving client transaction cost capture and also reducing hedge transaction costs."
So the profit progress has ever since been reliant on a piece of software correctly guessing which risks to internalise, and which to hedge. Plus500 (LON:PLUS) similarly internalise some client risks & consequently have a volatile profit stream.
£IGG remain the only leveraged broker to hedge all net client exposures. As such I am confident that their June-August trading update will be absent a major profit warning when released in two weeks time.
Ig Group (LON:IGG) do hedge their positions but it is very inefficient and costly and essentially wipes out a large share of their profits. I much prefer the more flexible, partial-hedging approach of Plus500 (LON:PLUS) - while this does involve some month to month volatility, it should lead to much higher profits overall.
I just can't see how this could make enough difference to their FY22 outcome as outlined in the trading update. In space of 2 months FY22 forecast net operating income has reduced by approx 20% (say GBP 65m) yet in FY21 only 8.5% of net operating income (GBP 34.5m) was generated by "revenue or losses from management of client positions that the Group inherits. This consists of gains or losses which accrue to the Group through client positions and, secondly, the gains or losses which accrue to the Group through the hedge positions entered into by the Group". I think they have been surprised by the speed at which trading has tailed off this summer (low market volatility, end of lockdowns, less online engagement, etc) and have had to more aggressively reduce forecasts into H2 to have confidence they can deliver a revised FY number.
The acute sensitivity of the profitability of Cmc Markets (LON:CMCX) to the success of their TARDIS risk management can be seen on the back of an envelope:
July's conservative guidance of £330m would have likely comprised:
* CFD/spread bet net trading revenue £270m
* Stockbroking net trading revenue £55m
* Interest income/other £5m
* NET OPERATING INCOME £330m
For y/e Mar 2021, client income retention was 104%. If this drops to 80% this year then CFD/spread bet revenue will fall to:
£270m * 80% / 104% = £208m.
Net Operating Income consequently drops to £268m, in the middle of yesterday's forecast range.
Looks like Ig Group (LON:IGG) has followed Cmc Markets (LON:CMCX) down on worries about slowdown in trading. You have to ask what sort of trading visibility management at Cmc Markets (LON:CMCX) have when a trading update just over a month ago forecast operating income in excess of £330m . To reduce this to £250-280m in the space of a month on the basis of a quiet August suggests a degree of complacency and poor financial forecasting. Even allowing for the ‘boom’ in trading stocks, derivatives, etc. due to Covid enforced boredom surely they should’ve have known that August would be a quieter month with people on holiday,. Perhaps the end of Furlough at the end of this month will have a bigger impact than many are expecting?
Ig Group (LON:IGG) seems to be paying for the sins of Cmc Markets (LON:CMCX) (profit warning) today. I'm not sure the read across holds as well as it might have last year as IGG is a much improved business from one year ago. Personally I think Ig Group (LON:IGG) is at a discount today as they have a stickier client base. With a trading update later this month we shall see.
Ig Group (LON:IGG)
if we look at the read across IG are only down 6% and CMC are down 25% - so in some respcts they have definately got away lighly compared to CMC if we take the viewpoint they MAY be similarly affected by the issues CMC are reporting!
Having said that i am a big IG fan (despite not curently holding ) and IG are always very careful to downplay future prospects - i also suspect the US acquisition may deliver better than some bods expect. Up to today i was thinking i may have missed the boat here ref baragin price for re entry but who knows. The one issue is always the same here lack of visibility - something that does not concern me now as much as it did when i previously held and made the mistake of selling up when profits took a short term dive a couple of years back.
We are hosting a presentation for Mpac (LON:MPAC) today at 11am if anyone would like to join. https://www.equitydevelopment....
Missed it- Will this be available to view later ? Incidentally, Just looked on DigitalLook and they show two sales by directors 31st March which do not show up here on Stocko ? Bit disappointing that the directors don't have much of a holding...
MPAC (LON:MPAC) director sales. The only one I can find is this: https://www.stockopedia.com/share-prices/mpac-LON:MPAC/news/mpac-group-plc-directorspdmrs-dealing-urn:newsml:reuters.com:2021
Seems the sale is to cover tax from the transfer of shares to the directors. A lot of these type of transactions don't seem to be shown on Stockopedia.
Litigation Capital Management (LON:LIT) (I hold)
Good morning all,
I'm hoping for some direction and perhaps one of you kind folk can assist.
A few days ago Litigation Capital Management (LON:LIT) released the following laughable statement
"A webinar presentation for analysts will take place at 9.00 a.m. on [Tuesday 21 September 2021]...
As part of its commitment to engaging equally with all investors, LCM will also be hosting a webinar for retail investors at 9.00am on Wednesday 22 September 2021."
Is there any practical reason to have separate events for analysts and PI's?
Is there any reason why PI's should not be allowed to at least listen in on the 1st call?
I previously asked the PR firm (Alma) to combine the events, but clearly my request has fallen on deaf ears.
Any suggestions on how to elevate this?
To be honest, I find it scandalous that analysts/funds get any sort of priority access to listed companies and would hope that in the long run that all communication is simply made public.
And of course if I'm being ignorant about how these things work, any educating would also be appreciated.
A
abtan,
I fully agree. Selective disclosure is illegal in the USA since 2000 under the Fair Disclosure regulation and should be illegal here also.
I suggest you write to the Chairman and say that if they are honest about "engaging equally with all investors" but still feel the need for separate webinars, then when the next webinars are held, they hold the open invitation webinar the day before the analyst's one. Why would they not, at least, do that if they claim to be engaging equally? If they are not prepared to do that, then they should remove the claim from all future communications because people find it insulting to be lied to.
Litigation Capital Management (LON:LIT)
I did cc the CEO the last time I emailed the PR company, clearly to no avail.
To be honest, I was referring more to a regulatory authority that I could contact, which could hopefully drive future positive change.
A
Hi Abtan,
I was waiting for you to post again in order to thank you for your very useful reply to me regarding European shares. I picked up your reply a couple of days afterwards.
You're in hacked-off mode today re LIT separate presentations. In the fairly short time I have been on this board, I have noticed a remarkable increase in company presentations accessible to the private investor, through platforms such as Investor Meet Company. The Zoom revolution has facilitated this and long may it continue. Presumably analysts/funds still get priority as they generally have larger holdings in companies shares. It's the way of the world.
It is the 'equally' bit in their statement which is the irritant. Clearly they are not engaging equally, so they should consign this to the bin.
Hi abtan,
Regarding companies engaging in communication with all share holders equally, you are probably best off contacting Lord John Lee as well as ShareSoc to try to coordinate lobbying efforts. Individuals without a high profile in parliament contacting AIM Regulation or the FCA appears to be a waste of time - their lack of interest shows they simply don't care about private investors.
Good Morning Roland & Jack
Any chance of a look at another set of excellent results from Wentworth Resources (LON:WEN) (I Hold) this morning please?
Hi Norfolk.
Share price has been pretty depressing over the last 6 months or so. Let's hope that things will improve after todays results. (I hold)
Hi John
Makes no sense - here is a progressive dividend paying (c7% yield!!) ESG driven gas producer with long term fixed price sales agreements and considerable untapped reserves/resources, net cash and share price still at Jan 2020 levels.....
My morning smallcap tweet: Squaring the circle of the Pentagon of news
Surface Transforms (LON:SCE) Innovaderma (LON:IDP) Headlam (LON:HEAD) Supply@Me Capital (LON:SYME) Tiziana Life Sciences (LON:TILS) Redx Pharma (LON:REDX) Active Energy (LON:AEG) Novatek PAO (LON:NVTK) Mobile Streams (LON:MOS) Carclo (LON:CAR) MPAC (LON:MPAC), Bidstack (LON:BIDS)
Surface Transforms (SCE) $5m order over 5 years - included in expectations. New manufacturing strategy: will no longer build separate production cells in the new factory but approach the project as a plant-wide "single production line" project. Saves c. £10m on whole factory. Ups 2023 sales capacity from £35m PA. to £50m. [SP=65 Cap=127m]. I hold.
InnovaDerma (IDP) now selling its two core brands, Skinny Tan and Charles + Lee directly to consumers via Amazon UK & US. Previously only 3rd party sales on Amazon. Also will 'work with' (pay surely?) Neon Management to ensure its products are promoted by influencers and celebrities. [SP=32 Cap=9m]
Headlam (HEAD) H1(june) rev only 1% down on 2019. Underlying operating margin in-line with 2019 at 5.3%. However July and Aug has below 2019, although not materially. "These two months typically have a higher level of commercial sector activity due to summer refurbishment of educational and other establishments, and the commercial sector has continued to be subdued albeit with regional variations." [SP=514 Cap=438m]. I hold.
Supply@ME Capital (SYME) £7m 12 month loan facility at 10% (+warrants) to replace Subscription Agreement aka Death Spiral with Negma. CO will further explore a dual listing on NASDAQ. [SP=0.29 Cap=104m]. I'm short.
Tiziana Life Sciences (TILS) Precision BioSciences licences Anti-CD3 Antibody, Foralumab, to Evaluate as a Lymphodepletion Agent with its Allogeneic CAR T Portfolio. [SP=62 Cap=161m]
Redx Pharma (REDX) gets $3m milestone payment from Jazz Pharma due to initiation of IND-enabling studies of JZP815. [SP=59.25 Cap=163m]
Active Energy (AEG) University of New Brunswick analysis of CoalSwitch pellets produced at the Ashland facility says they have "superior qualities to white pellets as well as its suitability as a sustainable substitute for carbon emitting fuels." [SP=0.41 Cap=16m]
PAO Novatek (NVTK) signs a Memorandum of Cooperation on ammonia, hydrogen and carbon capture, utilization and storage with Japanese gov't. [SP=NA Cap=NA]
Mobile Streams (MOS) over 3,500 subscribers signed up in first month in Mexico, 250% above target. [SP=0.23 Cap=5m]
Carclo (CAR) trading was ahead of mgmt expectations for the first four months of FY22. Cash generation has also continued to be good. [SP=39.8 Cap=29m]
Mpac (MPAC) H1(June). Guides FY ahead of market expectations. [SP=600 Cap=121m]
In line: Bidstack (LON:BIDS)
LON:INSE. Another restructured company showing much improved half year results. Features some good interviews in PI world earlier this year about ambition and direction. LON: CNIC also had much improved results end of last last week which the market seems finally to be acknowledging.
Jack thanks for your views and analysis of INSE this morning. They say they have helped 3,500 corporates in UK to source cheaper greener energy and talked about expansion both through acquisition with and an eye on international markets at some point. Appears to have been some very heavy buying over the summer without moving the sp that far from the 15p placing last summer. I agree dilution is a concern, but I thought the figures today would have been better received by the market and probably would have been in a more active market. Ken Wooton is very positive on the stock and holds in top five in the Gresham House UK micro cap trust.
microcap but hopefully worthy of comment is 600 (LON:SIXH) who released results for the year ended 31st March. Showing a profit now with ''we now have a healthy order book and a strong pipeline of opportunities across the business. Most pleasingly, the order book for our higher margin laser division, an area we are actively seeking to grow, is especially strong.''
Mpac (LON:MPAC) interims report that full year results will be above current market expectations. Services now account for 23% of revenues despite COVID restricting site visits.
Will there be an update on Headlam's interim results today?
Hi Daniel,
Yes Roland is going to take a look at Headlam (LON:HEAD) . I know this is also one that Paul has been interested in recently, so plenty of preceding coverage as well.