Small Cap Value Report (Thursday 5 January 2023) - DTY, MTW, NXT, BME, GLV, GRG, AGL

5th Jan '23 by Paul Scott

39 comments 9497 reads

Good morning from Paul & Graham! All done for today, see you tomorrow!

Agenda

Paul's Section:

As usual for this time of year, I'm going to focus on the first retailer trading updates, which are mid caps - this is to test the water, and give us something to benchmark the smaller companies against, when they report. So today I'll be reporting here on -

Next (LON:NXT) - an excellent update, with strong sales over Christmas (helped by cold weather driving demand for outerwear). Profit guidance is raised, but higher corporation tax takes a hefty bite out of guidance for FY 1/2024. Inflationary pressures beginning to ease for H2 of calendar 2023 has positive read-across for many sectors. Lots of interesting stuff in here, so I go through it in a fair bit of detail below. Thumbs up for a great quality business, although forward PER of 13.2 is probably a fair valuation right now, given that it's a mature business.

Greggs (LON:GRG) - in line with expectations update for FY 12/2022. But within the detail, there's a lot of positive stuff. It's coping with inflationary pressures, and clearly gaining market share, with very strong LFL sales growth. I'll give it a thumbs up for the quality of the business, and good growth potential, although the valuation is looking stretched after a strong recent run. More detail below.

B&M European Value Retail SA (LON:BME) - a positive Q3 (Oct-Dec 2022) update, and FY 3/2023 EBITDA guidance is raised. I continue to like this share, which seems reasonably priced, and has a particularly strong 8.3% dividend yield, when you include special divis. Thumbs up from me. More detail below.

This is in addition to our reporting on small caps, not instead of!

Dignity (LON:DTY) - bid approach is announced, almost 3 months after discussions started, which is an outrage I think, and has resulted in a false market in the shares, causing losses to sellers who were not told that takeover talks were underway. The regulations on disclosures of takeover approaches are appalling, in my view - we need to press for regulatory changes. More detail below.

Angle (LON:AGL) - profit warning, shares down 31%. I run through the detail below, but whilst it sounds an interesting project, the timescales are now extended out even further, and the cash pile…

Unlock with Email

Unlock with Google

Already have an account?
Login here

mr_spock

5th Jan '23

Wandered through Primark recently and they have Gregg's branded clothing - t-shirts, etc.

Is Greggs's cool?

Wimbledonsprinter

I must play Devil’s Advocate on this.

More and more listed companies are going private because of the cost of listed company regulation. (Indeed Dignity might be a case in point.)

The proposed solution to many problems is more regulation - but should there be more regulation, rather than the enforcement of the current law against insider trading.?

As the Takeover Panel says listed companies do often get lowball, unserious, boat floating takeover approaches. If an approach is made it can be deeply unsettling to staff, suppliers and customers. To make all such approaches public would be a significant additional disruption (and so implicit cost) of being a listed company.

None of this is to condone or minimise the cost of insider trading. But it needs to be considered if the cost of the cure to UK plc would be greater than the cost of the disease.

eParo

Deep dive into SCS - worth reading imo

Sofa Carpet Specialist | Not another value trap

https://alaric.substack.com/p/sofa-carpet-specialist-not-another?utm_source=profile&utm_medium=reader2

JimMcLad

Angle (LON:AGL)

Well that’s a great start to my year.

I don’t disagree with Paul’s summary or ridavies’s comments. My initial reaction FWIW was:

We know the technology works. Plugging Parsortix into other existing offerings for downstream analysis may get the system into the field much quicker but at a significant dilution to the potential revenue stream. It also highlights that other companies and technologies are not standing still.

No doubt market (and general world) conditions have played a part but many of the potential collaborators have huge amounts of cash available. Does look like the ‘rapid expansion’ will be delayed until 2024 – when existing cash runs out – or a takeover happens (with help from the new NED).

The two labs providing Pharma Services may provide the income stream to keep the company going but I get the impression that full CLIA accreditation is a tad further away than anticipated.

Seems like a takeover is the most likely option.

Roger Baron

I'm at a loss to understand why buying anything using borrowed money cost somebody next to nothing!

Friday31

B&M European Value Retail SA (LON:BME) Mystery shop may be a good idea Paul, many empty shelves, dated interiors, untidy stores and in many cases prices higher than say privately owned "Home Bargains" and several others. A "Peter Lynch" type check-up ?

davidjhill

Interesting to see a divergence between US and UK indices with the former consistently off and the UK turning around a bit. To some degree it does make sense as UK was nowhere near the over-valuation we saw state side pre QT and rate rises, but unusual to see us going one way when the US is doing the opposite.

marigold

I had high hopes for this company as they produce antiviral clothing (contains silver thread).

djack

The kids love the Greggs clothing. When it was launched the clothes were snapped up. Go figure!

Supply side inflation - even when it comes to staff. I was in a small burger establishment recently and they had to turn people away due to lack of staff to serve/cook. Lack of staff appears to be the trend in most places, which affects their ability to take advantage of demand.

The Jayman

Thanks for posting this eParo, and perhaps its just me, but the link doesn't lead me to the article. Please could you kindly re-post? Much thanks

GrahamScott

Great news for holders of Doric Nimrod Air Three (LON:DNA3) and Doric Nimrod Air Two (LON:DNA2) today as reports suggest that delays in delivery from Boeing will mean that Emirates will have to continue with their fleet of A380s. 19% dividend yield and a 50% increase in stock price over the year have made these two my best performing stocks of 2022.

davidallen77

Greggs (LON:GRG) has a store in Tesco (LON:TSCO) Burseldon now might be the start of a join venture to use supermarket space up old food counters etc.

dahhad

Wynnstay (LON:WYN)unfortunately a further fall of almost 10% would indicate more than a few small trades; an adverse trading statement coming up perhaps, which would be a surprise given the last trading statement from the company.

Rusty2

I see on the local news Greggs (LON:GRG) are applying for permission for a drive through centre. They seem to be quite keen on expanding into new areas.

Some of the US stocks are even looking relatively cheap, such as Apple (NSQ:AAPL), Alphabet (NSQ:GOOG) and Microsoft (NSQ:MSFT, I have been buying some.

I have one near me, big shop but not many customers, I don't find it that cheap for many items and quite a few products I want, they never have in stock. I think Wilco's are far better. I agree dated and have not really changed in the last 5 years. The don't even have what's in stock on the website for each store, many other stores manage that now, even a similar local brand has that.

sharw

B&M European Value Retail SA (LON:BME)

Agree mystery shop would be a good idea but bear in mind they vary enormously in size - the one near me is small and just does food and household goods whereas the Bournemouth one is massive having taken over a previous Homebase and does eveything from a garden centre to this nice line in Teddies: