Small Cap Value Report (Thurs 6 May 2021) - SOM, NXT, SDRY, JOUL, VINO, GTLY, RCH, BILB

6th May '21 by Paul Scott

74 comments 11477 reads

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

Timing - we'll aim to be finished by 1pm. Quite busy for company updates today. Today's report is now finished.

Agenda -

Paul:

Somero Enterprises Inc (LON:SOM) - a very good update, with forecasts for FY 12/2021 raised 16% by Finncap. Looks cheap, for a high quality company.

Next (LON:NXT) - Q1 update. No section below, this is just to flag up that I've created a separate article here for Next's Q1 update, as we're trying to keep the SCVR focused just on small caps.

Superdry (LON:SDRY) - FY 04/2021 trading update, which cherry-picks positives, and doesn't tell us anything at all about profitability (or losses, rather). I'm impressed with online growth, and wholesale has done better than I expected. So a mixed bag overall.

Joules (LON:JOUL) - an intriguing announcement, saying that borrowing facilities with Barclays have been extended in time, and have been linked to ESG targets, which if met would trigger a lower interest rate. It's new to me, so thought I'd have a ponder.

Virgin Wines Uk (LON:VINO) - a positive update from this recently-floated direct-to-consumer wine merchant. A nice business, and I like management. But how much of the growth is from lockdowns & is it sustainable? I don't know.

Jack:

Gateley Holdings (LON:GTLY) - great update, trading materially ahead of consensus expectations with a clear strategy for growth going forward and a resumption of dividend payments.

Reach (LON:RCH) - digital transformation progresses and operating profit for the year now expected to be slightly ahead of market expectations

Bilby (LON:BILB) - net debt is coming down and improving financial health frees Bilby up to pursue growth opportunities, although operational costs increased due to lockdowns.

Paul's Section

Somero Enterprises Inc (LON:SOM)

(I hold)

422p - mkt cap £237m

Trading Update

Strength in US market driving healthy trading ahead of previous guidance

This is a smashing update, from AIM-listed Somero, which is headquartered in the USA, selling laser-guided concrete levelling equipment. It is used to make perfectly flat floors mainly for warehouses. This share has long been a favourite of ours here at the SCVR, producing prodigious cashflows, divis (including…

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bryans1311

6th May '21

My broker require me to download the w-8ben, print it off, fill it out and post to them. Unfortunately it’s been an expensive bout of laziness on my part.

Sec Newgate Spa (LON:SECN) It looks like there’s an error in the PE calculation, by a factor of 100x(ish) . EPS IN cents looks wrong.

CliffW

Redde Northgate (LON:REDD)

Thanks for the link there abtan. It's been a long time since we have heard from Redde( i hold). Have just been on their website and they are due to report a pre-close trading update on May 19th.

Humphrey Lloyd

Sec Newgate Spa (LON:SECN) I think the 2020 and 2021 EPS is overstated by a factor of 100 on the StockReport which is why the PE and PEG appear so low. I was excited about its valuation too until I realised the error...

Norfolk'n'Good

Just a quick note on Somero Enterprises Inc (LON:SOM) (I Hold)

Dividend paid 30th April being 18 cents extra and 13 cents final. I was struggling to make the maths work on the UK £ I actually received into my ISA. My assumption was that, being an ISA, divis would be received gross, i.e. no tax deducted. Just shows one should never assume! Apparently US Dividend witholding tax is a heady 30% (!!) but if you hold shares in an ISA and have completed a W8-BEN form then you are entitled to the 'Treaty Rate of Tax' which is 'only' 15%.

If you already knew this please don't say so as I'll look like a lemon.

Rusty2

Aston Martin Lagonda Global Holdings (LON:AML) Hardly a small cap as it's over £2bn mcap.

StuL

Just wanted to say thanks for posting the links out to articles of interest for larger caps in the headlines, I find it really useful. It keeps the SCVR on point but helps flag other great commentary on mid and large cap shares that many have an interest in. It's a editorial style that really works for me so just wanted to call it out!

Gromley

Reach (LON:RCH) looks like it may be on the verge of breakout now.

There was probably an overhang holding back the stock earlier in the day following Richard Desmond disposing of 1% of the company yesterday. (Having disposed of another 1% a few weeks ago.)

Desmond got the shares as part of the deal to buy the Express, Star etc. and still has a 4% holding.

You might suspect that he'll be selling the rest of those in the near future.

Simon Cannell

I know CEO Jack Cooney talked about about patent protection in most recent results but previous he had inferred that the greatest asset they have was the support they can give the contractor after they have laid the concrete (bearing in mind as soon as its laid the contractor is up against the clock as its sets dry).

Paul Scott did an excellent interview with him some years ago (in 2016) and he outlines their position that its more about the after service rather than patents that give them their ‘USP’:

PS: Okay. Could you touch on the competitive position?

JC: Yes. We had our first competitor in 1989, he was a Somero customer out of Holland, and basically anybody can reverse engineer our equipment, any mechanical piece of equipment. And we still have competitors today, and we anticipate that we will always have competitors. The difference that we have seen is that when a competitor copies a piece of equipment, he thinks of himself as an equipment manufacturer. So he copies a piece of equipment, puts it in his product line, and sends it out in his brochure. For us we are much more than just an equipment company, because what we do is we provide a piece of equipment to our customer, but we also supply the education, the training, and the ongoing technical support to make his business highly successful. Because our customer only does concrete floors, that is his whole business, and that is our only business. So it is up to us to not only just sell him a piece of equipment, but to make sure he uses it so that he can meet the specifications, the flatness specifications, that building owners want, and to be a highly successful business. And that is what separates us from the other people who are just making machines. What also goes along with the technical support is that since we sell in 95 countries/93 countries around the world, we have 24/7 phone support. And in that period of time we will guarantee that you will get a certified engineer on the phone in ten minutes, and we have a translation system built into our phone system, so we can talk to people in 65 different languages. That is not something that any of our competitors have.

full transcript of the interview can be found at:

http://qualitysmallcaps.co.uk/wp-content/uploads/2016/03/2016-01-20-SOMERO-AUDIOCAST-TRANSCRIPT.pdf

For what it’s worth I sold out when the blamed bad weather on poor financial results and then bought back in a year ago when I realised they had been actually telling the truth!!

JohnEustace

Paul,

A quick google of "Barclays ESG loans" gets this backgound info about applying ESG to trade:

https://www.barclayscorporate....

Funnymoney

He did run Superdry for about 5 years and the share price was not a beneficiary. On the other hand, in between him starting and finishing he bought and sold shares doubling his money!

peterg

"if you use one of the four non-threaded versions then comments like this are lost." (sharw)

I find it pretty easy to pick up the thread if I'm using one of them, so it doesn't bother me much.

But you are not the only one reading these boards and lots of us don't use threading. In practice it means that I mostly ignore any comments that don't make clear what they are talking about, I don't have time to spend tracking things down. And since I'd imagine that most people posting here do so because they want people to read and take notice of what they say simple self interest should mean that people posting make clear what they are responding to, for the many who don't read threaded. It's not difficult.

grumpy5

And prior to Superdry (LON:SDRY) he was CEO at Kingfisher (LON:KGF) - he didn't produce a profit fountain for shareholders there either! But I agree, the purchase at Saga (LON:SAGA) is very encouraging (I hold).

ACounsell

Bacanora Lithium (LON:BCN) Quite a big disappointment I'm afraid as bought end of 2017 at 104.45p! Had hoped it would be a long term beneficiary from the development of electric vehicles and energy storage which are essential to have any chance of hitting the various government's Climate Change targets. It looks like the Chinese will now get the benefit of any long term growth in demand for the Lithium. To add to a bad day my other lithium play, Albemarle (NYSE:ALB), one of the top 3 lithium producers in the world, is down 9.5% despite reporting Q1 results well ahead of expectations.

Indie

Hi peterg, thanks for taking the time to respond, and in a way that shows the benefit of what is being asked. I do see the point, and agree that it's easier, just saying that there are ways around it if people reply without context. I can see by the number of thumbs up that the feeling is behind what you and Laughton are saying rather than what I'm saying, so fair enough.

Now, back to reading about small caps!

gus 1065

Hi ACounsell.

Sorry to hear about your double bu**er on Bacanora Lithium (LON:BCN) and Albermarle. Given the strategic interest in lithium long term I think there was a lot of potential beyond the 50% bid premium in Bacanora Lithium (LON:BCN) at 45p a share but it’s no real surprise that Ganfeng wants the whole cake rather than just a „partnership“. A similar stream of logic makes me think that the principal condition of the bid (approval by the Chinese authorities) will be a formality. (Given nobody even sneezes without the blessing of the CCP these days I would be surprised if Ganfeng hadn’t already been given the nod).

With this in mind, it seems strange that the Bacanora Lithium (LON:BCN) share price finished at 56/58p today. By my simple numbers, if you bought at 58p a share and waited for the bid to complete at 67.5p (expected by calendar year end give or take) you would be up 16.4%. Not without completion risk but seems a relatively decent risk:reward for tying up a bit of capital for 8 months or so. (Talking my own book here as I topped up my holding this afternoon).

Gus.

sharw

Yes, eps for SEC Newgate SpA (LON:SECN) is shown in Euros, not Euro cents in the SR - I will try the green button.

For the record Arden is their Nomad and you can get free reports if you register with them. They currently forecast eps of 4.8c to 12/20 and 6.7c to 12/21

Tommy H

This is similar to Ferrexpo (LON:FXPO) which applies Swiss withholding tax, which you cannot get back in an ISA but can if it is just a plane share dealing...

So not a numpty, just a painful lesson

Tetsinvest

Hi Paul - been on the platform for a year, but this is my first post. Thanks for all your blogs - they are fantastic and I look forward to reading (and acting on) them every day. Please keep them up.

Just noticed your comments re Joules/Barclays/ESG. As someone from the debt financing industry, I wanted to say that these ESG linked loans (aka sustainability linked loans - SLL’s) are now becoming very common - particularly for PLC’s. - and most large corporates will have/be thinking about having them. The key difference between a SLL and a Green loan is that with the former, the purpose of the loan/RCF can be ‘general corporate purposes’, rather than a specific green project, which makes them accessible to more companies. The interest margin ratchets are actually relatively modest in amount (and any benefit received is often agreed to be ploughed into projects/charities - rather than benefitting the corporate - and failure to hit the targets is not usually an event of default (but it could mean a modest increase in the margin). As well as being the right thing to do for the corporate, it is a big area for Banks and Funds who are keen to show they are making themselves and their portfolios sustainable. Worth saying that Banks/funds have layers of governance before signing of on a SLL as they do not want to be accused of ‘greenwashing’. The targets agreed therefore have to be stretching/ambitious, rather than BAU to prove that by achieving them, a difference is really being made. Over time, I expect more and more financing agreements will be linked to ESG and medium/smaller companies will start to adopt. Down the line, you can see sustainability becoming a credit/selection factor for funders, with ‘unsustainable’ companies and those not ‘on the journey to sustainability’ finding it harder to access financing. Overall this is a relatively new area, but one that will only grow from here. Hope this helps. If you want to chat more, happy to speak.

proffittpar

Sec Newgate Spa (LON:SECN)

Many thanks Paul and also to other contributors with their input very much appreciated. I must admit the old adage if anything looks too good to be true and I did approach with a fair degree of caution having fallen foul of a similar experience with Naibu. Lessons learned always best to get second opinions. Kind regards all and in the main stats, fundamentals, ratinsgs provided both by Stockopedia and coverage by Paul etc are superb.

Small Cap Value Report (Thurs 6 May 2021) - SOM, NXT, SDRY, JOUL, VINO, GTLY, RCH, BILB

Paul's Section

Somero Enterprises Inc (LON:SOM)

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Paul Scott

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