Small Cap Value Report (Thurs 20 May 2021) - BEG, NEXS, MMH, BWNG

20th May '21 by Paul Scott

79 comments 11599 reads

Good morning, it's Paul and Roland here, with the SCVR for Thursday.

Timing - I've got 2 company zooms coming up from 12-1, and 1-2, so am going to be quite busy today. Am struggling to get my head around the complexity of BWNG too, so think I'm going to need to spend the whole day on this - hence estimated finish time 5pm. Update at 18:58 - what a nightmare! I've finally got through BWNG now, so declare today's report is finished.

Agenda -

Paul's section:

Begbies Traynor (LON:BEG) (I hold) - year end trading update for FY 04/2021 - comfortably ahead of expectations. Also strong cashflow, ending the year with net cash of £3.0m. 4 acquisitions in the last year have gone well. There's lots to like here - I see BEG as cheap, and executing well on acquisitive growth.

N Brown (LON:BWNG) (I hold) - very complicated accounts for FY 02/2021. Massive EBITDA of £86.3m turns into only £9.9m statutory profit. Strong balance sheet. Not a very good business, but it has interesting turnaround potential, I think.

Roland's section:

Nexus Infrastructure (LON:NEXS) - half-year results from this infrastructure group, which has its roots in civil engineering and utility services, but has a growing focus on electric car charging. Can this former AIM growth story get back on track?

Marshall Motor Holdings (LON:MMH) - A solid trading update from this car dealership group. Management expects to match 2019’s pre-pandemic profits in 2021, despite the spring lockdown. Is there still value here?

Paul’s section

Begbies Traynor (LON:BEG)

(I hold)

121p (pre market open) - mkt cap £182m

Year end trading update

Begbies Traynor Group plc (the 'company' or the 'group'), the business recovery, financial advisory and property services consultancy, announces an update on trading for its financial year ended 30 April 2021.

Begbies has been putting out decent trading updates for a while now, plus making a flurry of acquisitions. It now seems that it finished the year with a strong Q4 -

Results expected to be comfortably ahead of market expectations

As you can see below, forecasts (in particular for FY 04/2022) have been rising a lot, due to some quite decent sized acquisitions -

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GloucesterBob

20th May '21

To join in the sub thread (here is my Top Ten, actually I only have 10, love to have 10% in each, but I want to reduce my SLP, I don't want to sell SLP, I want to reduce my SLP etc

What I will say except for £BNGO (Bionano Genomics) everything was found either in the Jim Slater stock screen or from one of the excellent STOCKO writers, so from the bottom of my heart, I thank this wonderful site very much.

Stock, % of Portfolio, Gain/Loss

Sylvania Platinum (LON:SLP) ,28 210% Record (LON:REC) ,11, 58% Volex (LON:VLX), 11, 16% Boohoo (LON:BOO) ,10 ,11% Saga (LON:SAGA) ,10 ,53% Morgan Sindall (LON:MGNS) ,8 ,73% Rio Tinto (LON:RIO) ,6 ,7% £BGNO ,5 -5% Tissue Regenix (LON:TRX) ,4 ,-10% Revolution Bars (LON:RBG) ,3 ,52%

Cricketfan

N Brown (LON:BWNG)

Thanks for all your hard work on N Brown which I have been meaning to look at for a while. One question please. You say that there is a £500m facility secured on the customer receivables book. That doesn’t seem to equate with the annual revenue total and I recall that banks typically only finance maybe c20% of debtors given hammered value in event of a fire sale. Have I missed something please?

Best wishes to you, Jack and Roland

greensiax

The Top 10 idea is a great one, but 10 is quite a big number... I prefer Top 3's

Here's my Top 3 by Value:

Record (LON:REC) (27%)
Tyman (LON:TYMN) (16%)
Games Workshop (LON:GAW) (12%)

And by profit:

Games Workshop (LON:GAW) (+125%)
Record (LON:REC) (+23%)
Griffin Mining (LON:GFM) (+18%)

Paul Scott

Hi turbo,

I reviewed Mothercare (LON:MTC) (I hold) here in April 2021: https://www.stockopedia.com/co...

I'll look at it again when the next trading update/results come out.

Regards, Paul.

And in the spirit of full disclosure, Top 3 by loss (by which of course I mean ‘yet to be realised potential’):

International Consolidated Airlines Sa (LON:IAG) (-22%)
Kainos (LON:KNOS) (-15%)
Boohoo (LON:BOO) (-13%)

Logical David

Regarding the sub thread of investor's Top 10 holdings, all my holdings can be viewed on my Profile page. They are available to view all year round.

I believe Stockopedia is in the process of developing software which will enable investors to view other investors holdings, so long as investors opt into the feature.

Martin5760

Huge effort on N Brown (LON:BWNG) Paul - quite the longest and most impenetrable set of accounts I have seen for a while and some great analysis from Roland too. Thanks

simmsc

I have a large holding in BWNG (as well as SHOE). Both SHOE & BWNG are family run businesses which are at risk of being taken private by its main owners (the families). Hence i suspect the lacklustre trading updates from both companies. Why boost it up with strong trading updates? They would just it make it more expensive for themselves to take it off the market. On SHOE it looks like the family may have just bought 18% of the company today (we will find out tomorrow/Monday who it was). Similar things could happen to BWNG.

abtan

Purplebricks (LON:PURP)

Regarding the revenue decrease from H1 to H2 it's actually quite hard to work out what's going on as there's been lots of deferred revenue over the last few periods.

For my own models, I've assumed 53% of revenue for the year relates to instructions (so £19.4m), which gives me revenue per instruction for H2 in line with historical performance.

And if that's correct, then ancillary revenues should be c £25m in H2, which would be a record half for the company for this revenue stream.

That would make things appear much more exciting.

---

In any case it's the long term I'm interested in. If the company can grow market share, then operational leverage should kick in at some point making the company much more valuable.

According to the latest market research the hybrid property market grew c +9% in Q1 (Jan-Mar).
https://www.twentyci.co.uk/wp-...

Purplebricks (LON:PURP) instructions grew +19% in H2 (Nov-Apr).

So there's some positive signs there, but not enough to make me super confident until I see the full year report.

Cheers

An interesting sharing exercise, thank you to all who participated.

My top 10 by value (in alphabetical order)

888 Holdings (LON:888)
Air Partner (LON:AIR)
Best Of The Best (LON:BOTB)
Burford Capital (LON:BUR)
Everyman Media (LON:EMAN)
Hellofresh (German)
Ig Group (LON:IGG)
Purplebricks (LON:PURP)
Revolution Bars (LON:RBG)
West Wing (German)

For reference a few of these would not ordinarily be in my top 10, and have appeared after a year of share price appreciation. I don't plan to sell these even if valuations might look toppy now.

And a few are recovery plays, where I am hoping for significant upside, and which I imagine I will sell in the next 12-18 months.

timarr

Ah well, if we're playing this game ... top ten by value:

Aj Bell (LON:AJB), Alphabet, Apple, Cmc Markets (LON:CMCX), Ig Group (LON:IGG), Itv (LON:ITV), Paypal, Pearson (LON:PSON), Record (LON:REC), Scottish Mortgage Investment Trust (LON:SMT).

ITV and Pearson were both bought in the last year. The others have, at least partially, been held for periods of between 3 years and 12.

Although in principle my holding period is forever that's always dependent on the long-term investment case holding up. I would be surprised if the spreadbetters IGG and CMC would be able to exhibit consistent growth as lockdowns ease and, potentially, volatility subsides.

However, top ten by value is a bit misleading as it doesn't differentiate between stocks where we've seen growth and those that we've simply chucked a ton of cash at. If we were to consider those stocks that have grown the most (rather than the largest by value) then James Latham (LON:LTHM), Xp Power (LON:XPP), Cerillion (LON:CER), Croda International (LON:CRDA) and Treatt (LON:TET) would in my top ten, all ten would have been held for over three years and the minimum gain would be 250%.

In general my largest gains come from holding the longest time. It ain't rocket science.

timarr

I have a very big problem with Virgin Money. I have a tracker fund with them for over 15 years. Both initial sum and 10 years of monthly payments.

Although there are cases where companies are simply terrible it's an unfortunate fact that anti-money laundering laws are extremely prescriptive (and wlill get more so in the near future). If you're attempting to withdraw a large amount (defined by the regulations roughly as over £10,000) then that will trigger an automatic referral to a fraud team and will almost certainly require step up authentication, including address verification.

If there's any kind of mismatch then that will cause problems. If you want to withdraw significant amounts - especially if you have any kind of special circumstances, such as living in a country which is likely to be linked to money laundering concerns, then it's best to contact the company first to discuss the issue.

Once a money laundering risk case has been triggered I'm afraid it's a real problem. This is the major reason financial institutions lose their licenses or receive eye watering fines so they're paranoid about it. Not only that but the regulations don't allow them to tell you why they've triggered the case or what its status is (since this tells real money launderers how to avoid the triggers).

To be frank, it's unlikely to a problem specific to Virgin Money and you will almost certainly need to deal with them directly to resolve this.

DWit199

So that's OK then.

You think so? How peculiar.

gus 1065

21st May '21

I do like a good list .... here's my 10 largest individual shareholdings holdings by current market value in alphabetical order: Boohoo (LON:BOO) Bellway (LON:BWY) Judges Scientific (LON:JDG) Jersey Oil And Gas (LON:JOG) JPMorgan Lloyds Banking (LON:LLOY) Pantheon Resources (LON:PANR) Royal Dutch Shell (LON:RDSB) Rio Tinto (LON:RIO) Sylvania Platinum (LON:SLP) Samarkand (OFEX:SMK) and Volex (LON:VLX) . Some oddballs in there admittedly.

I've excluded funds/IT's and ETFs from the list (I tend to hold these in larger amounts than individual shares as they are in themselves diversified) but included them in the deminator for calculating the portfolio concentrations. The largest individual holding is JP Morgan (shares held over from an ex-employer scheme since the mid-1990's) and is about 2.2% of my total portfolio. This top ten in total represents about 9.6% of the portfolio. I suspect I am at the extreme end of the concentration/diversification spectrum holding 233 individual company shares at the last count. The top ten list changes from time to time - after taking a 9 month sabbatical last year I found I had Itm Power (LON:ITM) , Novacyt Sa (LON:NCYT) , Renishaw (LON:RSW) , Gb (LON:GBG) and Cmc Markets (LON:CMCX) in the top 10 when I checked back in in January but have since pruned these back considerably.

Gus.

Irony. Like Boris referring to our "European friends".

"the minimum gain would be 250%"

Wa wa wee wa Timarr.
Fantastic returns and a sign of the power of longevity.

"In general my largest gains come from holding the longest time. It ain't rocket science."

Very true.

One thing I was doing (before last year when I sold and rebought a lot of my portfolio) was calculating my annualised return per holding. I thought this might be more meaningful. A +100% is great, but less so if it's over 20 years.

Maybe it's a bit late in the day, but if the Stocko team read this and are able to incorporate annualised returns per holding into the new Portfolio system currently being worked on, that would be most appreciated.

It's a bit tricky showing my largest by growth as there was a lot of chopping and changing last year.

So top 3 that have grown without selling and buying back (and including dividends) and that I still own:

Best Of The Best (LON:BOTB) (+400% to +1,000%)
888 Holdings (LON:888) (+400%)
West Wing (+700%)

Curiously it's the one I've held the longest - Best Of The Best (LON:BOTB) - which has grown the most, with my first purchase giving an annualised return of +400%.

And of course the success of West Wing, a German company, reminds me never to forget the gems that can be found on foreign shores.

Inever

I totally agree with you Zipmanpeter, The elephant in the room is the massive increase in the issued share capital to 460m at £BWNG. The statutory EPS of 2.63p calculated for last year used a weighted average share denominator of 315m. That increases to 460m for next year, so earning have to increase by 46% next year to achieve an EPS of 2.63p.

That isn't going to happen. The RNS announcement is typical of N Brown. They make statements that hope will distract you from the fundamentals. Here is one example:

"Improving product revenue trajectory throughout the year" when they should be saying the rate of decline in product sales has slowed.

They point out that product revenue sales fell 25.7% in Q1 and only by 4.3% in Q4. And then they state in their FY22 Guidance:

"Since the start of FY22 we have returned to product revenue growth and for the full year we currently expect product revenue growth of between 3% and 7%. Financial services revenue is expected to fall." Overall revenue will be up 1% to 4% compared to this year. "

This tells you earnings are not going to increase much, so I expect EPS will be under 2p next year. That is what management are telling you, but they fill the report with so much crap they hope you won't notice. All they talk about is their "Adjusted EBITDA" which is a useless indicator.

I bought into Brown last April and piled in again in June. I sold everything once the out-of-the-blue £100m fund raise was announced. The enlarged share base is going to cripple EPS for years to come. Yesterday's announcement was utterly predictable. The strategy isn't working. I'm surprised the Stockopedia analyst suggested this is a long term hold.

Sort of. It's also testimony to the power of diversification.

Buy 100 stocks and a few will do very well. Keep the good ones, sell those that do badly (i.e. can't grow earnings relative to the market) and reinvest in some more likely candidates. Keep on doing that for 20 years.

Eventually you're bound to have a few very big winners without needing to be very good at picking very big winners. The critical thing is not to trade them away because of short term problems.

I never cease to wonder at the "x has gone down 5%, what does it mean" type posts. If an investor needs to worry about that they either don't understand what they've invested in or they've invested too much in it.

Of course, I sold Best Of The Best (LON:BOTB) because I got bored of it at about £12. Just because can you can teach an old dog new tricks doesn't mean you should.

Rusty2

I don't think that will make much difference, all my folios have £ values in them, so I can compare the performance, some shares don't not have values though.

For example all the NAPs type folios all have values. My USA folio does have values also but I don't hold many of them, same for my Euro folio. So all my folios have values in £s but it does not mean I hold the shares.

Small Cap Value Report (Thurs 20 May 2021) - BEG, NEXS, MMH, BWNG

Paul’s section

Begbies Traynor (LON:BEG)

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Paul Scott

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