Small Cap Value Report (Tue 22 Nov 2022) - FORT, VANL, AO., OSI, CARR, WINK, ALT

22nd Nov '22 by Paul Scott

46 comments 7383 reads

Good morning from Paul & Graham!

Agenda

Paul's Section:

Forterra (LON:FORT) - an in line with expectations update for FY 12/2022. There are some interesting dynamics here, which suggest FORT could be set up well for any forthcoming downturn in housebuilding. The finances look good too, with an almost ungeared balance sheet. I think this is starting to look interesting, after the big recent fall in share price.

Van Elle Holdings (LON:VANL) - a solid trading update today for its H1 to end Oct 2022. I like the strong, largely ungeared balance sheet here. Outlook for the rest of FY 4/2023 sounds encouraging, but I'm worried about the outlook beyond that, given macro negatives. Will larger building projects be quite so plentiful, now that interest rates are higher, and the economy going into recession? I suspect not. For that reason, risk:reward doesn't seem attractive enough to tempt me into this share right now.

Osirium Technologies (LON:OSI) [quick comment] - a tiny, speculative nanocap. We discussed it here on 1 Nov 2022, concluding that whilst it looked an interesting speculation, it clearly had a desperate need to raise fresh funding. Today it announces a small placing, raising £1.36m net of fees. Heavy dilution, and a 50% discount for the fresh money, coming in at 2.0p per share. Cost-savings being implemented. CEO moving to become part-time Chairman, and Sales Director becoming new CEO. The product looks intriguing, but super-speculative share. A bit better now it's raised some fresh cash though. [no section below]

Graham's Section:

AO World (LON:AO.) (345m) - H1 sales are down 17% at this online appliance retailer. However, it still manages to increase market share since the overall market has declined at an even faster pace. More importantly, the company has cut costs and is working on many more ways of cutting costs in the months ahead. This encompasses headcount reduction, products being pulled, and unprofitable sales channels being shut down. Even the operations in Germany have been closed in the name of improving the company’s bottom line. I’m impressed by the vigour with which it’s pursuing a reasonable EBITDA margin and so I’d no longer want to short this stock or give it the bargepole treatment: it’s now acting like a proper company, being run on behalf of its customers and its shareholders. I guess that’s what nearly…

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Paul Scott

22nd Nov '22

Hi Silver Moon,

Thought it was Tuesday today.....

I was wondering who would be the first to spot that! ;-)

Regards, Paul.

Camtab

In these woke times it could easily be Tuesday for Paul and Wednesday for the rest of us!?!

TheFloatingInvestor

AO World (LON:AO.) I'm not buying the SP increase and management waffle, they could hardly make money with the COVID boom and prior to that were loss making, and the next year or two is going to be very different in terms of a white goods squeeze (sounds a bit naughty :D).....I like the logo, but that's about it...(I'm short)

mevans6890

Thank you - very interesting. I consider Crestchic one of my absolute core holdings given its in a strong upgrade cycle, pretty cheap for the growth on offer in a structural growth industry.

I've never known what to make of CentralNic (LON:CNIC) - poor results for years, then suddenly enormous profits seem to have appeared out of thin air. Although taking all costs into account, including high tax charge, there's very little profit left at the bottom of the P&L.

Balance sheet looks awful, highly geared under new facilities, and dominated by intangible assets, big negative NTAV.

Lots of acquisitions.

Not sure I can add much by doing more digging on this one, it makes me nervous, so not something I would want to invest in personally. Also I don't understand the business model.

Michael C

Trifast (LON:TRI) Paul wrote about this a month ago, here. H1 figures published today, and as expected not good. Paul said starting to look cheap. Cheaper now. Operating profit% catches my eye. A pity, I like companies that make things (a weakness of mine).

	HY2023	change	HY2022	HY2021
GAAP measures
Operating profit	£3.7m	-34.40%	£5.7m	£3.2m
Operating profit %	3.10%	(240)bps	5.50%	3.90%
Profit before tax	£3.0m	-43.10%	£5.3m	£2.7m
Diluted earnings per share	1.85p	-42.50%	3.22p	1.48p

eParo

Mulberry (LON:MUL) could be in play. Had a big run-up recently.

BUSINESS

Burberry Taps Heritage to Become a British LVMH

https://www.washingtonpost.com/business/burberry-taps-heritage-to-become-a-british-lvmh/2022/11/17/9e25fb1c-666a-11ed-b08c-3ce222607059_story.html

jonno

Hi PlanetX

Sounds very positive. Thank you for the insight into the company's on-site operations. Such 'nuggets' are not usually available to the private investor. I made a reasonable investment recently and my impression from watching the company presentation on VOX markets and generally from the imperative of ensuring the integrity of back-up power supplies is that there is a reasonable prospect of a further upgrade, possibly in December.

I admit to a bias and try to temper this by acknowledging that things can go wrong, but I believe the balance is towards the upside. Time will tell.

Hi MichaelC,

That's strange, £TRI interims didn't come up on mine or Graham's newsfeed this morning.

I've just done a quick skim of the H1 numbers, as you say they're not great, but it's still profitable. Balance sheet & cashflow - I do have a concern here that inventories seem to be relentlessly growing and now seem excessive - with the balance sheet showing £102.8m inventories (at cost), which is more than 6 months cost of sales (£90.7m), a red flag I think that it might have problem levels of inventories, with possible write-offs being required at year end? It's only a risk, I don't know if that will happen or not.

Outlook comments sound reasonable - expecting an improvement in recovery of cost increases, so better H2 margins. Oct & Nov 2022 trading said to be in line. Short term uncertainty.

Could be getting decent value in a long-term view, but who knows where the short-term bottom is likely to be? Same with lots of shares right now.

The Boon Fund

Intercede (LON:IGP) released HY results today. In-line with market expectations, and already flagged in an earlier trading update.

However, there is an interesting FX play here. Intercede's cost base (mainly headcount) is in GBP. But 86% of its revenues are from the USA (assumption is they charge in USD?)

If they do the same revenues in H2 as in H1 (£6.1m) but get a 7% FX benefit that falls straight to PBT, that is an extra £367k PBT. H1 reported PBT was only £620k, so an extra 59% PBT growth, HYoHY!

However, my quick skim of the HY results, my initial impressions is that they haven't made much progress in securing many new contracts, and it looks like organic growth in H2 is likely to be muted. Management are busy/distracted with the new Authlogic acquisition, and they seem to see that as the magic bullet for growth, and not pushing organic growth of their existing products. So am skeptical of the growth prospects. But the pricing at the moment still seems fair, given the highly recurring nature of their revenues, the FX benefit to come, and the solid balance sheet backing it, as well as a potential growth engine in the Authlogic acquisition.

But those are just initial thoughts based on a skim.

(I hold in the Boon Fund)

Neil Fabricant

I also like the logo, and their customer experience from website to delivery to aftercare, having shopped with them several times now. By far the best online retail experience I've had. Long term I can see them continuing to take market share and becoming number one in electricals plus appliances.

If they hit their target of 5% EBIDTA at current revenue levels and £300m market cap they're trading at a 20% EBIDTA yield. I suspect revenue will be much higher by that point too. Looks very promising to me if they can execute, and if so, it's onwards and upwards from that point.

Equity Development

Whatever AO World (LON:AO.) are achieving, wouldn't you rather Marks Electrical (LON:MRK) with nearly double the margin and free delivery built into that margin (a nice customer incentive) and a market share which is growing even faster?

Sorry its a little late Guys....I caught this Director buy a little late in the day but thought I would flag it in as its the million pound mark.

Knights group (LON:KGH) I was on the fence about the turnaround happening with Knights when reading the RNS his morning, but that's some serious skin in the game from the CEO, so that's tipped me in to this one. If only other CEO's would but there hands in there pockets and get behind the shareholders, instead of all these bloody handouts!

Debt a bit high for me (£35.6m) but if the predicted profits flow through then its much less of a worry. Forward P/E of 4ish with an EPS growth predicted 45.4%, looks excellent. It would appear that the EPS got hacked earlier in the year which sparked a big sell off, but I can see a good bit of upside from here.

Alliance news reports

'Knights Group Holdings PLC - Newcastle-under-Lyme, Staffordshire-based legal and professional services - Chief Executive David Beech buys 1.2 million shares at 83.9 pence, worth £995,024, on Tuesday.

Knights Group earlier Tuesday said profit and revenue increased in the first half of financial 2022, as its prior year acquisitions are ‘performing well’. Pretax profit was £https://www.stockopedia.com/#9.0 million in the six months that ended October 31, up 18% from £7.6 million a year before. Revenue increased to £71 million, up 18% from £60 million.

Current stock price: 81.00 pence, up 0.3% on Tuesday'

12-month change: down 80%

EDIT

The share price has already quiet rightly responded to this News.

(I now Hold)

ACounsell

I appreciate Digital 9 Infrastructure (LON:DGI9) the digital infrastructure Investment Trust is a bit large for the SCVR but as it is an interesting area for the future I wondered if anyone had any views on today's 10% fall in share price. It seems to be related to the postponement of a Capital markets day following the departure of two members of the digital infrastructure team within the investment manager Triple Point. The people involved have only been with Triple Point for less than a year and just over a year so this could be an over-reaction unless something lurking in the background. May be an opportunity to buy more shares at decent discount to NAV?

Hi Floating Investor - well done, that's a good spot! I'm taking a closer look as we speak, re £1m purchase by Knights group (LON:KGH) CEO

Gnome2

23rd Nov '22

Floating Investor, Thanks for flagging this one up. It does show a significant vote of confidence from the CEO and I'm tempted to follow him in. It's worth pointing out though that the same director cashed in shares to the value of £61m last year. Now that is a lot of money!

iwright7

Planetx - £LOAD - Interesting site visit update with a number of positives. Also curious to hear that Crestchic could issue a trading update in December, because last year this was in mid-January.

There is research to suggest that companies beating analysts expectations, like to get news/results out earlier than the previous year, (and conversely later with bad news). Its human nature I suppose. I hold.

TheRaven

Stocko shows him buying a £million worth back in May too

Hi Gnome2,

Yes I've just spotted that too, about the previous £61m CEO share sale. Looks like he's a shrewd judge of whether the share price at Knights group (LON:KGH) is priced to buy or sell!

I'e mentioned this briefly in tomorrow's (i.e. Weds) SCVR.

No because of the red flag from their employee reviews

Small Cap Value Report (Tue 22 Nov 2022) - FORT, VANL, AO., OSI, CARR, WINK, ALT

Agenda

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Paul Scott

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