Small Cap Value Report (Tue 16 Apr 2019) - JD., CARD, FLO, KNOS, TCM, DSCV | Paul Scott

16th Apr '19 by Paul Scott

26 comments 12916 reads

Good morning subscribers! It's Paul here.

Many thanks to the silent majority, who gave yesterday's SCVR a robust seal of approval, reflecting my 6 hours' intense hard work, from 7am to 1pm, of a seasonally high 97 thumbs up! Thank you, it's much appreciated.

It really shouldn't matter, but like my friend who went to weight-watchers, being rewarded with a worthless gold star really pleased him, even though we laughed afterwards about how ridiculous it is.

Now that SCVRs are part of your subscriptions, I've realised that I should work harder & earlier, to hopefully find a format that everyone likes, or at least can cope with. Please bear with me, whilst I try out a few ideas.

Initial review of RNS

(please note I won't be updating this section. New sections will appear below, so nobody has to go back and re-read parts of the article)

JD Sports Fashion

Strong results, from this rare bright spot in retailing. Far too big for me to review in detail here, at £5bn mkt cap.

A big acquisition (Finish Line, USA) has helped boost revenues to £4.7bn for 52 weeks to 2 Feb 2019
Adj EPS of 28.44p is up 13% on last year, and is 2.7% ahead of broker consensus forecast of 27.7p
Share price has gone ballistic since recent 318p low on 20 Dec 2018. It's up 67% since then, to 532p. Well done holders! PER is 18.7 - looks about right, given strong performance
Strong balance sheet, with £125.2m net cash

My view - what a lovely business! No current trading stats, as company (rightly) says these would be meaningless due to change in timing of Easter.

... However, we are pleased with the continued underlying positive performance of the Group and are excited by the major developments ahead.

That's it from me on JD today, I won't be adding any more detail below, as it's a large cap. I just wanted to have a quick look, for comparative purposes.

Flowtech Fluidpower (LON:FLO)

2 announcements (results, and separate trading update) today.

Company says its 2018 results are in line with expectations. Debt increased on acquisitions.

There's a short video results presentation, a nice touch.

Q1 update says in line with expectations overall. Smallest division is struggling, but larger ones doing OK.

I quite like this group, so will write…

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HHR

16th Apr '19

Decent finals from Telit Communications (LON:TCM) today. Although only breakeven in cash terms, as has been pointed out in SCVR for similar situations, there is plenty of time in the years ahead for tcm to "turn on the taps of profitability".

Last month Telit Communications (LON:TCM) confirmed the sale of it's automotive division for $105m - an impressive 5 year compound gain of 62% on the $9m tcm paid for the business in December 2013.

The automotive division was sold on a 2017 price to sales ratio of 1.67 (suspiciously tcm hasn't revealed 2018 revenue for automotive). Applying the same multiple to the remaining non-automotive tcm business (with the net cash deducted) gives a price target of 346p. However automotive supply chain business is notoriously low margin, so arguably the remaining tcm business should enjoy a higher PSR multiple than the one paid by TUS for automotive.

Brookeda

Paul would love your thoughts on Flowtech Fluidpower (LON:FLO) after its final results and Q1 trading update today. The stock took a real pounding last year when expectations weren't met. Growth through acquisition continue to look good though with a lot of expected cost reductions in the next year or two as synergies in the support services bought in. The debt levels are increasing however and the amount of goodwill (through the acquisitions) continue to swell.
Personally I still think the sell off last year was overdone and this represents a good opportunity to increase significantly in the next year or two.
I am long on this share and have been for a couple of years

MrContrarian

My morning smallcap tweet:

CAP XX (LON:CPX), Batm Advanced Communications (LON:BVC)

CAP-XX (CPX) trading: sounds mostly in line but "some softening in demand from manufacturers of Wearable Technologies" and "sales to Spire have not been followed up with new orders, as Spire has been impacted by trade tariffs into the US".
BATM Advanced Communications (BVC) wins initial $2m military contract for cyber security and networking.

Paul Scott

Hi Brookeda,

That's a nice summary of Flowtech Fluidpower (LON:FLO) - many thanks!

Yes, I'll be reporting on FLO a bit later this morning, it's next on my list, after a quick trip out to get some breakfast.

Regards, Paul.

Snoo

Wondering if someone could explain about the Card Factory (LON:CARD) results with regard to leases.

IFRS16 comes into force for the next year, so they have charged £42.6m this year as an expense. From next year, it is that the lease is capitalised and a depreciation charge used instead. I would gather that EBITDA would be increase as they have mentioned by this amount, which seems to me to make that a less useful measure for retail.

For lease obligations, the current figure is £145m, which appears to be restated to £127m right-of use assets. What calculations give rise to the difference in these figures? Is it an interest expense, even though the company doesn't actually suffer it?

SundayTrader

Will be interested to see your thoughts on Telit Communications (LON:TCM) if you can find time today - I don't hold and don't intend to. This is a much touted short, based on the well-publicised doubts over the management's numbers, and we all want to avoid holding such stocks.

Small Cap Value Report (Tue 16 Apr 2019) - JD., CARD, FLO, KNOS, TCM, DSCV

Initial review of RNS

JD Sports Fashion

Flowtech Fluidpower (LON:FLO)

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Paul Scott

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