Small Cap Value Report (Tue 1 August 2023) - IPF, NWF, BAG, JNEO

1st Aug by Graham Neary

44 comments 6150 reads

Good morning! Graham and Roland here. Another busy day for H1 updates and interim reports!

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £1bn. 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.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

The following companies issued announcements:

Summaries

International Personal Finance (LON:IPF) - up 3% to 119.4p (£270m) - Half-Year Report ("ahead of plan") - Graham - GREEN

I remain positive on IPF as the company has (in my view) impressively handled the high inflation in Eastern Europe and to a lesser extent in Mexico. Regulatory change has been met with confidence. A good cheap financial stock: high risk, high potential reward.

NWF (LON:NWF) -…

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MattH

1st Aug

They look good to me too, but they're "only" inline and it's on a pretty punchy rating so I guess there's some selling/profit taking.

portugull

Thank you Rusty2 for your post on National World (LON:NWOR)

Aberforth hold just under 39% and Mediaforce (Holdings) own 23% all bought this year.

73.37% in institutional hands. I am in a real quandary with this holding. I need to do more research.

yiannos1

You got the holdings percentages totally wrong.

Aberforth do not hold such a big stake.

Thanks

Rusty2

Aberforth hold about 19%.

abtan

ME International (LON:MEGP)

I must be misunderstanding how takeovers work for FTSE-listed companies.

I just looked at a few different sources and it looks like 50% is all that is needed for a takeover.

https://resourcehub.bakermcken...
https://www.burges-salmon.com/...

Presumably if an entity, or group of entities, owns >50% of the voting rights, it's only a matter of time before they force through changes that they want (e.g. increased salaries for directors) or a delisting if that's what they really want?

A bit less than the 39%!

Colin C

Thanks Matt. I agree with that.

But if the holding, goes over a certain %, does the holder not have to declare his intentions? Anyway I can't see any failed bid attempts, which was my point.

Yes, I think I can see what has happened. Stocko has 19.46% but below has the breakdown, 17.56% and 1.86%, in different funds. Seems these all were added together.

I don’t know how portugull came up with that figure but it makes complete sense what you are suggesting.

Hi Rusty

"But if the holding, goes over a certain %, does the holder not have to declare his intentions"

I assume this is referring to the scenario where an entity is forced to make a bid if their ownership is greater than 30%?

My point is slightly different and centres around a concern - perhaps incorrectly based on comments today - that if Serge (36% holding) acquires 4% more, and then cosies up with Montefiore Investment (11%) = 51% he/they could do whatever he wants.

It just seems like a risk...or maybe I'm being over cautious.

Lucky dip

Not a stock specific news but related to small caps companies. Brian Winterflood , who founded the Winterflood securities (small cap market maker) and Aims died age 86 yesterday.

He was very influential in making trading in small caps transparent and available.

Winterflood is now part of Close Brothers.

rhomboid1

He passed away at the end of June …but agreed re sentiment

AstonGirl

While I can appreciate your concerns over family owned businesses where there is a large or majority shareholder I don’t believe it’s a given that they’ll make a bid for it

Mike Ashley for example holds 87% of Frasers (LON:FRAS) . He likes having a FTSE100 company and has aligned (I hope) his interests with shareholders through his ‘Fearless 1000’ which rewards staff when the share price reaches £10

GTrader

The latest team replicated the LK-99 structure of Pb9Cu(PO4)6O as verified by XRD but did not observe room temperature diamagnetism i.e. not a superconductor at this temp....the story continues...

Hi AstonGirl

"While I can appreciate your concerns over family owned businesses where there is a large or majority shareholder I don’t believe it’s a given that they’ll make a bid for it"

I completely agree. But what if they did try to bid for it or play naughty? There isn't much any of us could do about it sadly.

Frasers (LON:FRAS)

Funnily enough I just checked my notes and saw that my #1 concern was Ashley's large holding :)

Another thing that put me off was the share buyback programme, which I imagine will be used for the Fearless 1000 reward scheme and other remuneration policies at the company (which probably explains why Ashley continues to keep the listing despite his large ownership.)

There were £193m of share buybacks in 2022.
None of these shares were cancelled and they were held in Treasury.
In fact 25% of all Fraser shares were held in treasury at the end of 2022.

That's a lot of share dilution to come when share awards are finally paid out.

Accordingly I see these shares held in Treasury as an operating expenditure that hasn't happened yet.

Indeed as far as I can make out, these material buybacks actually drove cash generation negative for 2022, even though the underlying business looked profitable.

Having said all the above, I feel that I must be missing something as Frasers is a very popular share to hold and has done well over the years. No doubt this is another one I'm probably overthinking.

Richard Goodwin

I think the CEO's bid was just a mandatory event because his stake went above 30%. He didn't actually want to buy the whole co so he bid the minimum allowed.

Yes think that is correct. In today's RNS it says "Assuming utilisation of the full buyback authority, the Company's largest shareholder, Tibergest PTE Ltd, and persons acting in concert with it, may own up to 40.60 per cent of the voting rights in the Company. Therefore, the Independent Shareholders will be asked to waive an obligation on the Concert Party to make a general offer for the entire issued, and to be issued, share capital of the Company which may arise under Rule 9 of the Takeover Code as a result of the Company purchasing its Ordinary Shares."

The market response has been muted, in fact the shares are down slightly on the day. Chemring (LON:CHG) which I also hold, are up 7% on a buyback announcement.

davidjhill

Journeo (LON:JNEO) broker expects over 20p EPS for next year (and 18p eps this) with over 60p of net cash on the balance sheet.

So trades on a 1 year forward cash adjusted PER of 6 and even ignoring cash just 9*. That just looks too cheap to me.

Numbers are relatively conservative too so given momentum in the business it wouldn't surprise me to see a beat.

JCPr

I remember when the Cold Fusion claims came out. There were quite a few universities able to replicate the results initially. So i'll wait and see.

Small Cap Value Report (Tue 1 August 2023) - IPF, NWF, BAG, JNEO

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Graham Neary

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