Small Cap Value Report (Tue 20 Dec 2022) - GDWN, XPD, NANO

20th Dec '22 by Graham Neary

22 comments 5602 reads

Good morning! It's Roland here with today's report, I'm picking up the reins from Graham. Today's report is now finished (11.00).

In the last few days before Christmas, company announcements are thinning out as the City prepares to take some time off! However, there are a handful of stories in our small-cap universe that merit a look.

Agenda

Roland's Section:

Goodwin (LON:GDWN)(£246m) - today's half-year results from this family-controlled British engineering group impress me. The order book is significantly increased and profitability has also improved. Although this is too illiquid for traders, I think Goodwin is a class act, and could be attractive as a long-term compounder.

Xpediator (LON:XPD) (£53m)(+25% ) [no section below] - this fast-growing logistics group has received a possible offer of 42p per share from a private-equity consortium led by the firm's former chief executive, Stephen Blyth.

Mr Blyth remains the largest shareholder through his vehicle Cogels Investments, which I believe has a 26% stake. No firm proposal has been made yet, but this looks opportunistic to me after the stock's recent sell off -- XPD traded over 60p earlier this year and hit 80p in 2021.

The latest trading update was positive and confirmed full-year guidance. The shares still don't look expensive to me, so I would be minded to continue holding here if I was invested.

Nanoco (LON:NANO) (£128m)(-1%) [no section below] - AGM statement from this nanomaterials specialist. Financial performance during the four months since August is said to have been "comfortably in line with the Board's expectations".

Nanoco says it is continuing to deliver R&D services under a number of contracted programmes with customers in the sensing market. Management has "a high level of confidence" that the firm will receive production orders in calendar 2023, based on visibility of customer validation plans.

An ongoing patent infringement case against Samsung is also noted as a possible source of "potentially significant shareholder value".

However, for now Nanoco remains in the jam tomorrow camp, as far as I can see. Consensus forecasts show full-year revenue of just £2.9m, with a £3m loss. Although the firm appears to have enough cash to operate for the coming year, I wouldn't bet against a further fundraise here. Nanoco is too speculative to be of interest to…

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Harry Hindsight

20th Dec '22

£BMS buying a US broker of tanker vessels for an initial $7.25mn.

Southport Maritime specialises in brokering fuel tankers in the North American, Caribbean and Latin American markets. It employs 18 staff and made a pre-tax profit of $1.1mn last year. It has gross assets of around $6.4mn.

Brookeda

i was wondering who was going to cover when I saw Pauls twitter postings around 5am. Love the energy :-)

Paul Scott

Yes, I'm sorry about that. My usual routine was overcome by an urge to sample the Christmas products procured from Majestic Wines yesterday afternoon, and express myself at great length on Twitter (it's good to be back, Elon has granted me an amnesty).

Thanks to Roland for holding the fort this morning.

We're lucky that, this time of year, there's usually little of interest in the announcements. I've reviewed the RNS for results/trading updates, and the top % risers/fallers, and can't see anything additional to what Roland's already covered, so guilt is receding at this end.

Best wishes, Paul.

BnB

What? Not even a review of the various wines? ;-)

Its what makes you unique, never apologize for being you. No one should do that

Markds28

Hi Paul,

Delighted your enjoying your run up to Christmas.

Maybe worth a look at Velocity #VEL after its $100m 5 year composite kit order from GKN in the US. They have stumbled a number of times, both operationally and then covid meant they had to scale back their operations & costs as aircraft build numbers fell.

This deal is to set up a local operation to GKN, so reducing deliver time/expense whilst benefitting presumably from skilled labour in the area, with VEL becoming their exclusive supplier of composite for a plane(s) which they are commissioned to build (presmably), reading between the lines. VEL have made c.25% GP on this business historically.

Wouldn't be surprised to see a equity raise shortly, but pre-announcement they were only valued at c.£10m with alittle net cash.

Broker is now looking for £1.5m PAT or 3.8p EPS, for Oct 2024 after a heavy £1.1m depreciation charge, whilst Operating Cashflow is actually forecast to be £3.5m, much more healthy. Y/E October 2024 being first full year of the contract.

Based on past it still is a risky stock, but could easy trade nearer £1 + if it executes successfully. Certainly could be sitting at twice yesterdays SP today on this contract.

mojomogoz

Not a Nanoco (LON:NANO) expert but the sp revolves around an IP dispute with Samsung re use of their more environmental 'microdots' (?) in Samsung TVs. The two companies had a research collaboration in the earlier 2010s and then Samsung broke away c.2015/16. A few years later Nanoco took Samsung to court. The dispute is being heard in Texas in Jan 2023 and will be resolved over the course of the trial. Nanoco are suing over c.$250m US revenues. They could take the case elsewhere too (they've got off balance sheet legal funding). Some pre hearing papers seem to support the Nanoco case -> I think that is why this low revenue company has a high price. Compensation could extend to an ongoing cut of related Samsung revenues - sweet.

I can't call the case nor any compensation. My guess is that its a lot in the price. An ongoing payment from Samsung could push sp up quite a bit higher.

For me this is only investable after the legal event.

Otemple1

From memory, the (company sponsored) broker note suggested c.$400m if found in NANO favour for the US, which if the judge decides is wilful (given their past relationship it's hard to see how not) this can be multiplied up to 3*

Separate proceedings have also commenced in Germany, so if USA is successful this could lead to an injunction on sales (which is why Germany was chosen second) which I suspect would force Samsung to the negotiating table. If not, they will continue to roll out the case to other jurisdictions.

Results so far e.g. PTAB have all gone in favour of NANO so plenty of reason to be optimistic, but as ever there are no guarantees!

Sorry, just double checked and broker indicated $200-300m range not the $400m I stated above

RDHOWARTH

Serica Energy (LON:SQZ) update....

Obviously the market doesn't like this today. The private investors esp. The headline price looks high relative to Serica Energy (LON:SQZ) on a reserves basis. Chatroom comments focus heavily on this. Gas prices are high and my buy some Serica Energy (LON:SQZ) for a trade for a couple of months over the winter where unhedged production should see upgrades and a buyback... has been kiboshed. I understand why some would say well that didn't work and move on.

However, I think its worth bearing in mind that Mercuria will retain a 25.2% holding, £270m. Could be tax reasons why they wanted equity... and not more cash... but still, its a lot of money to be tied up in an entity you have just dumped dodgy assets into. In fact no-one saying the assets are bad...just expensive. The thing is, the company can't really say, so no-one knows with certainty what they have paid. There are substantial tax losses in Tailwind to confuse the hell out of us. BUT maybe those with most confidence, Mercuria, have hinted what they think. So production returns could well improve.... obviously I don't know...

If you value the tax assets at 10p and deduct from consideration of $780m - $240 / 42 = price per 2P reserve = $12.8 .... doesn't sound horrific. To all those who seriously love gas ill just say you couldn't give it away two years ago. So things can change quickly....

They have used about £336m of their cash pile... £277m net debt plus £59m consideration. This should leave £85m ...so balance sheet remains healthy.

Net net Im going to stick with the idea. Serica Energy (LON:SQZ) will continue generating lots of cash over the winter and next year. More info will come out re the tax losses. I think the institutions will come round but as the story has now changed.... it could take a month or so to reorganise the register. 12 months ago before the gas price roofed it... everyone was desperate for them to do a deal like this. Now it looks dilutive because the market does not put much value on future gas production. The market also discounts cash. I think the rating will improve on Serica Energy (LON:SQZ) as Mercuria and their message gets out there.

The Phoenix

Hi would you happen to know by any chance if the figure of $200-$300 mil includes the maximum 3 x willful multiplier ?

Regards Andy

Roger Baron

Interesting suspension of Trackwise Designs (LON:TWD) by LSE. Wondering how that will pan out for short sellers who can't actually settle stock? Hope they get burnt.

davidjhill

Actually I think the calendar year end net cash balance will be over £200m (not £85m) if you read the presentation.

Mercuria have history of retaining equity stakes. They wouldn't do it if they thought they were getting something overvalued, they are smart. Certainly a direct relationship with them will help Serica Energy (LON:SQZ) too in hedging and trading.

Diversification to a 50/50 split of gas to oil seems sensible to me. As I understand it the tax assets can only be applied to the entity not the enlarged group (but I could be wrong). Nonetheless given how cash generative Tailwind is and the current UK tax regime the $2bn+ should be worth a lot to the financial metrics of the deal, certainly more than 10p in the £.

Not sure why the private investors took such a disliking to it, other than they all seem to want buybacks. Often buybacks don't actually work to push the share price up but pi's seem to overlook this in their clamour. Dividend is maintained so no major change there.

VegPatch

did you get resuspended already, Paul? Or have you got a new handle? The @paulypilot one says account suspended.

GloucesterBob

@sco15375772

Let Trustpilot (LON:TRST) do the reviewing with respect. Whilst energy/defence/shipping even are 'hot' wine is to be savoured in better times.

Just don't know enough about shipping. Ardmore Shipping Co (NYSE) looks very good. Clarkson, Taylor, Braemer, Ocean Wilson all on watch.

Stuff needs to go from A to B and currently fuel is hot.

Richard Goodwin

Merry Xmas vegpatch. I haven't seen you around for years!

No, that multiplier is applied to the award & will be decided by the judge (Gilstrap).

The trial begins on the 6th January (assuming no delay) and verdict expected on either the 12th or 13th Jan

ExpectingValue

21st Dec '22

Not a very generous point of view. It's not their fault that the company is doing poorly.

Small Cap Value Report (Tue 20 Dec 2022) - GDWN, XPD, NANO

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Graham Neary

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