Small Cap Value Report (Tue 24 Sep 2019) - PARK, FA., IDP | Graham Neary

24th Sep '19 by Graham Neary

59 comments 9098 reads

Good morning folks,

As far as yesterday is concerned, extra sections were added late in the day by Paul to Monday’s report.

There's quite a lot that I might cover today.

Park (LON:PARK)
Fireangel Safety Technology (LON:FA.)
Innovaderma (LON:IDP)
Moss Bros (LON:MOSB)
Ten Entertainment (LON:TEG)
DP Poland (LON:DPP)
Versarien (LON:VRS)

Park (LON:PARK)

Share price: 54p (unch.)
No. of shares: 186 million
Market cap: £101 million

AGM Statement

(Please note that I have a long position in PARK.)

This is one of those stocks which makes me feel a little unlucky at the moment.

My entry price was 86p in November 2017, for something like 3% of my portfolio. It was just a small position in a company which I admired.

Using Stocko's look-back feature, I am able to go back in time and get a StockReport from that month, showing roughly what the share looked like when I bought it.

This is what I get:

As you can see, it had a fairly average valuation (ValueRank 62) and a super high Quality score (Quality Rank 86).

Now let's fast forward to today.

It's true that Park missed its earnings forecasts over the past two years, with a 2019 miss of over 20% compared to the forecast when I bought into the company.

That miss had a lot to do with the company moving to modern new offices in Liverpool city centre, which created a big (£1.2 million) impairment charge for FY March 2019. The new office, according to the company, will help it to attract staff and have positive benefits for its corporate culture.

In the absence of the impairment charge, Park's FY 2019 result would have been very similar to its FY 2018 result, which was only a tad short of original expectations.

So on the basis that moving offices was a one-off event with positive long-term effects, I don't think that the company has done very badly during the period in which I have held it. But the share…

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MrContrarian

24th Sep '19

My morning smallcap tweet: That *bleeping* FireAngel warns again.

Fireangel Safety Technology (LON:FA.), ValiRx (LON:VAL), Allied Minds (LON:ALM), Versarien (LON:VRS), Flowtech Fluidpower (LON:FLO)

FireAngel (FA.) H1 rev up 17%. Cuts FY U/L 'operating result' to -£1-1.5m (before increase in amortisation from more cautious accounting). Blames completion of certain strategically significant trials.
ValiRx (VAL) has now received its £0.43m tax credit. It "continues to carefully manage" its cash.
Allied Minds (ALM) sells HawkEye 360 stake for $65.6m, a 5.6x return. Will return half to shareholders.
Versarien (VRS) AGM stmt is a jack-in-the-box of trials, collaborations, Letters of Intent but no money coming in.
Flowtech Fluidpower (FLO) H1 rev up 6% but expects little or no sales growth in H2. Guides FY pretax £10.8-11.2m due to 'Brexit nervousness'. The Stockopedia F/C is £9.75m, so figs not comparable? Also expects current conditions to persist well into 2020.

greenhat2

Hi Graham

Can you look at £MMX Minds and Machines please ?

Looks to be swinging into regular and predictable income and profit generation.

Looks like a takeover target as well for bigger companies in the industry looking to consolidate.

Thanks

RJLZ

Hi Graham,

Can you review (LON:IDP) full year results out today please. They look to have turned the corner now and established a solid model with plenty of upside possible.

Many Thanks,

R

rmillaree

Ten Entertainment (LON:TEG)
Decent set of interims out, everything seems to be ticking over fine. It seems like they are just able to increase growth organically , increase sites , increase dividend , continue to invest in current estate without really materially increasing debt - Mina sweet even though that is how it should all work. Caveat debt is up but that’s due to large increase in machine leasing costs which I am guessing is kinda fake debt.
Outlook seems confident - note there are always material exceptional costs so numbers probably not as good as the adjusted numbers would suggest. The only outlier cost wise is the ridiculous 100k 6 monthly cost of administering the executive director share plan - material costs in this regard each year for the last 3 years. Must be easy money coming up with simple formula with complicated legal speak to basically pay out what could be done as an agreed salary bonus at nil external cost 100k down the potty.

Threepeat

Hi Graham
Another request to look at interims from Ten Entertainment (LON:TEG). Thanks

FoolishBen

Second vote for your thoughts on Innovaderma (LON:IDP) please Graham. Solid revenue and profit growth yet a very low rating due to past hiccups. My personal belief if that they have turned a corner and the shares will rerate accordingly given enough time.

jonno

Good morning Graham
I would be interested in your thoughts on Flowtech Fluidpower (LON:FLO). Already inexpensive and I suspect may get more so in the short term. I have seen revised broker forecasts of 15p adjusted EPS and closing net debt position of £16.5m versus current net debt of £18.8m, for the full year

Gross margins are impressive for a distributor and I am an admirer of Malcolm Diamond, the non Executive Chairman. A resolution of the current political mess would clearly help Flowtech Fluidpower (LON:FLO) and its peer group. I hold and will likely continue to do so.

doublelutz

XLMedia (LON:XLM) - for those interested yesterday in discussing XL Media there is a RNS this morning to say that Ory has bought another 324,000 shares at 61.4p. I think we have to assume he is optimistic about the future although I shall wait and see.

ken mitchell

Another request for INNOVADERMA please Graham.

They’ve always had products that look to have such strong potential (e.g Hair restore product Roots, Sexual health product Prolong, which could achieve big sales, and Skinny Tan, a popular tanning product) but until today, with little evidence that they were implementing their strategy well.

Do their results today hint things are on the up?

Tortoise investor

The +21% revenue is all the more impressive given they had -7.5% revenue in H1 meaning that that H2 must have been stellar (I'm a little short of time today but would calculate this otherwise).

I agree that LON:IDP seems like it has turned a corner and the extra stocking of Skinny Tan is good. The company is still deriving most of its revenues from this one product so might not quite deserve to be on a very high multiple, but it should be higher than the level of now previous financial year p/e of 9-10.

Solid results from £TEN today with a predictable early reaction from the market.
However management seem to guiding for reasonable growth on the one hand but being slightly restrained on the other re summer weather related trading and development costs giving lower profit after tax for full year.
Agree with rmillaree about share option schemes
Questions - would like to know more about HMRC issues (min wage?) And why interest should be significantly higher when bank debt is 30% lower.

I hold

Steve

GloucesterBob

As a novice have two companies today releasing news which to me looks good. Any advice on why Ten Entertainment (LON:TEG) IS UP 7% and Serica Energy (LON:SQZ) is down 7%

Thanks in advance.

Richard Vasey

Graham.

If you can fit it in, I would appreciate your views on the interim results from £ELCO. The headline figures look good and there is an increase in the dividend but the market is not impressed (down 5% right now).

This seems to happen each time the company releases figures.. and then we see a slow clawback.

Thanks,

Richard.

FREng

Graham

Would you mind running your eye over the results from Elecosoft (ELCO) today? They must be the only software company that was incorporated 80 years ago and they are generating cash in a difficult market.

Equity Development's note today says: "Consequently, we’ve prudently trimmed our FY19 turnover and adjusted EBIT forecasts to £25.6m (from £26.4m before) and £4.35m
(£4.52m) respectively – alongside nudging down the valuation to 100p/share (vs 115p before), equivalent to c.3x FY20 EV/sales." (At 9.30am they were 74-76p, down 6%)

davidjhill

Innovaderma (LON:IDP) looks undervalued. Given where they finished the year a 10.3p EPS for the coming year looks more than achievable. I'd say there is some potential for upside surprise on that as the year progresses as it only assumes revenue growth of £2.9m. The Boots rollout for Skinnytan almost trebled the number of stores to over 2000 and this year will see the full impact of that. Cash at £2m with no debt shows no need for additional funding.
Trading on a 12 month forward PE of less than 8* feels overly harsh.

Ten Entertainment (LON:TEG)
. Any advice on why Ten Entertainment (LON:TEG) IS UP 7% and Serica Energy (LON:SQZ) is down 7%

I can't speak for Serica but with regard to Ten Entertainment (LON:TEG) everything was reasonably positive despite them only being on track. I was looking for negatives but had to make myself do with the excessive admin fees with regard to the share options.

Note price reaction is often more about the outlook that the numbers delivered - and their anticipation of lfl growth of 4.6% going forward seems a good number if they can hit projections bearing in mind at present main overhead costs are well under control.

Outlook:

The Company anticipates long term average growth in like-for-like of 4-6%

We continue to expand our estate and improve our customer experience through inward investment and product innovation

· Highly cash generative, self-financed growth, strong balance sheet with even better banking terms agreed to grow the business

Second from last there has been recent shareprice weakness possibly due to large holder exiting the company there is a decent logical argument to be made that the shareprice is slowly getting back to former levels now it is apparent there was no logical reason for the spike downward when Woodford was a seller.

Finally Ten Entertainment (LON:TEG) is a reasonably newly listed company having only listed in April 2017. I am somewhat dubious about the motives for companies like this being listed - i think £26 mill went out to previous shareholders at the time of the listing - its pretty obvious they want to maximise their returns and that can leads to business outlook being glass full and a bit more for luck - so if a company can prove into years 3-5 that the business outlook is as per promised that's one less thing to worry about. Its particularly an issue with a company like this where its easy to under invest for the long term and show good short term metrics that then bite back at later date.

Gromley

Probably of no consequence whatsoever, but I am puzzled by the name change for Park (LON:PARK) , to "Appreciate Group plc"

Are they going to brand themselves this way to their customers? It seems pretty weak to me (plus having the downside that half the population will probably be going is that one p or two?)

If not then what is the point?

I recalled (correctly for once) that Park recently changed their Ticker (November last year) from PKG to PARK, presumably they will change again.

It might not apply here, but I often think these Name/Ticker changes look like attempts by companies to disassociate themselves from their past. (A very pale amber flag if I am having a grumpy day)

Graham Neary

Hi Ben, I'm studying IDP now. Thanks for the suggestion. G

Re PARK (aka soon "Appreciate Group"). After 50 years in the software industry, I have an unshakeable rule to sell any company that announces the introduction of a new ERP system. Fortunately, I don't own any shares in PARK.

Small Cap Value Report (Tue 24 Sep 2019) - PARK, FA., IDP

Park (LON:PARK)

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Graham Neary

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