Small Cap Value Report (Tue 14 Sep 2021) - SOM, TND, PMP, TPFG, ZYT, PRV, EKF, XAR

13th Sep '21 by Paul Scott

72 comments 11358 reads

Good morning, it's Paul & Jack here with the SCVR for Tuesday (I'm posting this early on Monday evening, to secure a lie-in on Tuesday!)

Agenda -

Paul's Section:

Somero Enterprises Inc (LON:SOM) (I hold) - my notes from the PIWorld-hosted interim results webinar yesterday afternoon. As always, I only jot down the key points, so don't rely on this being completely comprehensive. I hope it's useful for people who haven't got time to spend an hour watching the whole hour-long webinar.

Portmeirion (LON:PMP) (I hold) - interim results look solid (it's the seasonally slow half), with upbeat commentary. Outlook is in line with market expectations, but I reckon the company's probably heading for a beat, as the forecast is low. Strong balance sheet, dividends to resume. This share looks good value to me, and I'm happy to continue holding. Not the most exciting share you could chose, but it looks a decent, solid business, at a modest valuation.

Just added a new section at 11:40 - notes from my Q&A today with PMP's CEO.

Zytronic (LON:ZYT) - a more positive trading update, ahead of expectations. The £0.3m loss in H1 has been recouped in H2. Good to see the company recovering, but it's still a long way short of historic levels of revenue & profits, so I can't see much of an attraction at this stage.

Porvair (LON:PRV) - a Q3 trading update (slightly ahead of expectations), but doesn't comment on full year expectations. Some sectors seeing a recovery in orders. All a bit vague. Valuation looks stretched to me.

Xaar (LON:XAR) - interim results look poor - loss-making, but the company seems to think it's doing well - delusional? Strong balance sheet. It's impossible for me to value this share, because the £160m market cap rests entirely on future expectations, not existing performance.

Jack's Section:

Tandem (LON:TND) - after years in the doldrums, the Tandem share price has rerated on the back of lockdown-fuelled demand for its products. This narrative underweights the good work done by management though. Revenue and profits are up, and the company is building a warehouse that will cut costs and increase capacity.

Property Franchise (LON:TPFG) - strong trading continues for this property franchise group, which has recently completed an…

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ckidcurrie23

14th Sep '21

Many Thanks for the update Paul

Troymcclure1970

Maybe they wanted to buy a used Ford Fiesta ha ha, they still own nearly a million shares so it's not a big deal.

Great results and a nice dividend so of course they go down!

rmillaree

doublelutz

It is now $180 and my view is that I don’t need to know what is in their accounts to have the opinion it will still be around long into the future and that it is not a matter of whether the price will ever double from here but how many years it will take. Simply because their IP is beyond compare.

This is a hyper dangerous strategy not looking at accounts IMHO- take Easyjet for example a fine brand that will do well in a post covid world i am sure - they may be more a one trick pony than Disney but Disney have debt and expense of theme parks and shops etc hit by covid. One look at the accounts figures for the last 12 months for easyjet would say that selling up to preserve capital was probably the only sensible course of action or not buying in "now" in current climate - Fast forward 6 months and the price has all too predictably been decimated by discounted rights issue. Brands are great and may mostly come out on top but not looking below the lid to see how debt you are buying into seems somewhat crazy IMHO.

The new discovery warner streaming service IMHO will be a fantastic success when the merger completes - the varied brands they have will be much more impressive than netflix and possibly not far off Disney all for a dirt cheap valuation - the company will probably start with $50 bill plus of debt though - so fantastic to buy into on the IP but the huge debt could be a killer if they don't reasonably quickly find their niche in the streaming market (i do hold Discovery shares and and happy to take the gamble here)

rmillaree -

I obviously use common sense and in particular charts. When Covid started, Easyjet were in trouble. Had I held it I would have sold although plainly not at the very top as in general I didn't react to Covid quickly enough. Even without a pandemic I do generally use charts and quite often sell and then buy again part or all of a holding. For example, I have been in and out of Reach on half a dozen occasions from 90p.. Would I have made more had I held throughout. Yes, but the one thing charts can do (which I have been using since 1968 so I must have been one of the first people in the country using charts!) is prevent you from losing all of your money. Good as I think Disney is and I know they make a staggering amount of money from their theme parks and are even making money in recent months, I would not sit there and lose all my profit.

Roger Baron

Anyone know what's happening with Augean (LON:AUG) ? I hold. According to both Google and Interactive Investor the share price jumped up 100p after trading. Would be nice, but as no RNS I suspect it might have been a case of fat finger.

chelsea

Tthanks, I guess that explains the negative price reaction to todays positive update

Boon

Why is Zytronic (LON:ZYT) trading updates so frustrating? FY21 ends Sep21 and so fair enough, they're giving a pre-year end trading update.

But can't they also give some guidance on how order books are shaping up for HY22?

In any case, what worries me about Zytronic (LON:ZYT) is that they get lumpy orders that are at risk of delays, outside their control. Because they only supply the touch screens, they are at risk of their clients not being able to get other parts of the "computer" (ie chips). If your chips are delayed, you're also going to delay ordering your touchscreens to go with the terminal.

I do see this as potentially interesting at some point in the future. Casinos will roar back to good health and need to do capex replacements, which they have deferred for 1.5 years plus. On a macro-level, the use of large touch screens will only increase; but the key risk is whether Zytronic (LON:ZYT) has the latest touchscreen technologies or will get disrupted by new competitors.

Harry Hindsight

2020 for me but agree the share price tells the story - the market can take time to catch up (good news slow, bad news faster) but gets there at some point. Easy to smooth out the short/medium noise with a weekly chart on stocko and amazingly lines right across to some long ago high/low - I blame the algos.

Somero Enterprises Inc (LON:SOM) - if you can finish a concrete floor from 'Bob the Builder' to lazer level tolerances +/- 1mm (guess) over some length then a huge cost/time benefit. Concrete floors are not 'level' and take time to dry (months) so if can finish them to near machine tolerances then saves huge follow on time, cost and risk in laying overlaying screeds and other level/dust/epoxy wearing course layers ie. several operations with risks of failure in their own. Who knows of tiles that have fallen off walls or cracked on floors.

A standard concrete floor would need to be level surveyed, mechanically ground down the high spots then levelled, high quality vacuum cleaned and levelled with a chemically enhanced 'liquid levelling membrane'. All hard and costly work.

The 'robot wars' in Oakdene Homes Ord (LON:OKD) warehouse is probably not the current catalyst but maybe a consideration for companies that need to de-risk increasingly labour intensive operations with no labour to do it or do it right.

Defective building is unfortunately an issue so the big scale players can afford to de-risk by going for a more modern methods.

I've not seen this stuff on a site or what it does in reality - which is where you need to be to assess properly - but I will let the Share Price do the talking.

Apologies I need two screens Ocado (LON:OCDO)

Paul Scott

Hi Cleeve,

There were so many companies reporting today, we managed to cover 8 of them, but both Jack & I worked flat out for about 6-7 hours, and that was the most we could manage,

If you think MADE is good, then by all means tell me why, and if it gets my attention, I might look at it in future.

I did review the IPO documents here, and thought it's too jam tomorrow at this stage. Could do well, but you're paying up-front, for something that doesn't currently make any money. That's not really the focus of these value/GARP reports, as it's a different skill set.

Regards, Paul.

Thanks Steve, my cheque is in the post! ;-)

Hi,

I'm just having a quick rummage through the interim results for Made.com (LON:MADE) and it's growing on me. If the rapid growth can continue, and costs reduce as a percentage of revenue, then it's not fanciful to imagine a decently profitable business could emerge in future.

I wouldn't pay £600m for it though, at this stage. So still too expensive.

Worth considering though, if you think furniture retail can be disrupted online (not convinced personally)

Staffline (LON:STAF) - I've had a quick rummage through the latest accounts after hours, and it's very much something I would still avoid. The price has overshot on the upside in my view.

In particular - the balance sheet is still weak - NTAV is still negative, at about -£11m.

The net cash is a complete red herring, because of the stretched creditors, especially VAT -

The Group took advantage of the UK Government scheme for the deferral of VAT payments between March and June 2020. The total deferral under the scheme amounted to £42.4m after offset of a Corporation Tax refund due from 2018. Repayment of the balance is due to be paid over instalments commencing from June 2021. As at 30 June 2021 £40.7m (31 December 2020: £42.9m) is outstanding.

Let's be blunt - it's a rubbish, low margin business, with poor finances, and a terrible track record. I wouldn't touch it with your bargepole, let alone my own. There are much better options available, if you want to play the recovery in recruitment, although I think that sector's ship sailed some time ago.

Staffline (LON:STAF) won't have net cash when they pay the massive backed up VAT arrears. Be careful with this one, it's a crock.

PLS1nve5t

15th Sep '21

Agreed - my son has just bought a new sofa, and following this thread I suggested made.com, but he said he needed to try it out before buying just to make sure it was comfortable.

Made.com (LON:MADE)

for fun i have done back of the envelope calcs here to see the possibilities

Say they get to £1 bilion "revenue" reasonably soon (mid term)

say gross profit % after distribution costs as per interims ( interims 28.8% used)

= 280 million bgross profit before admin expenses and the rest

admin costs are tricky and is probably the key number - the latest interims had 34% and prior year was 40% - of sales.

Lets have full glass here and say they can hit 20% by the time they ramp up to 1 billion.

There is hope here in that marketing is very high - thats doing great job if its ramping up revenue and brand name - hopefully when mature % of sales spent on marketing can materially drop.

That would give us £80 mill of profit - deduct 20% tax (to generous lets preume tax cut on the way in time for the next election) thats 64 mill net profit - say pe of 25 = £1.6 billion.

current market cap = £565 million

That seems very promising IF they admin costs can trend down to 20%.

So the follow up/key question is what % of sales can they get admin costs (and the rest) down to when they hit £1 billion turnover - are they of the boohoo variety where stuff startd to nicely drop through to bottom line or more along the AO world (just noticed they actually now make profits) where all the extra sales will get eaten up in costs.

Certainly has also piqued my interest to do some further research here. Looking at price to sales Made.com does seem to be similar to boohoo (slightly more value) so if they can get a lid on admin costs and keep growth at 25-30% plus rates this one could be interesting depsite looking "expensive" on todays numbers. Lets just hope the majority of their followers on social media are real people and not bots or dopplegangers!!

ken mitchell

Many thanks Paul.

I sold STAF yesterday after further checking of the results and a reminder about the VAT repayment in the Liberum update yesterday on Research Tree. Your replies strongly suggest it was the right decision.

qvg

16th Sep '21

I am just looking at it. Initial view - both Paul and the market are being too harsh. The drop is in the EPS business, which is not the key to their future. The Printhead business Gross Margin % has risen from 27% to 35%, and if H1 result is repeated in H2, actual gross margin will be up around 50% - to me that indicates that Printhead growth is well on track.

Cleeve

17th Sep '21

Paul. Apologies had days of meetings and now in Toronto and I note that a lot of the points I was to raise have been raised here and on wednesdays readers comments, so probably not too much to add. I have used the site and bought furniture, design is good, quality mid range, most of it will not last for long however it looks trendy and is different. Thanks for all your efforts

Small Cap Value Report (Tue 14 Sep 2021) - SOM, TND, PMP, TPFG, ZYT, PRV, EKF, XAR

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Paul Scott

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