Small Cap Value Report (Tue 27 Nov 2018) - PRSM, ALT, CHH, QUIZ, IGR, VCP, GRG

(Graham is on SCVR duties, but Paul has left us the following note. - GN)


Hi, it's Paul here!

I'm not entirely sure whether it's me or Graham meant to be writing Tuesday's SCVR? So I thought it might be best to just put up a placeholder, and then see what happens tomorrow!

We're both a bit pre-occupied with Mello London, and making sure that this investor show has the highest ever recorded per capita consumption of Guinness! 

There were literally no taxis around, and Uber wasn't working either. So when we were all thrown out of the hotel bar at Mello c.1 am, after a very jolly time with Gromley & Bestace in particular, I had little choice but to mount a Mobike, and cycle 11 miles back to my Islington pad.

Only to be told by my flatmates to (1) not make any noise, definitely no singing to Queen or Chaka Khan, (2) microwave some macaroni cheese, as that's all we have left, oh and some broccoli, and (3) go to bed please.


I'm due to be released from Twitter prison in a few hours - apparently hurling abuse at our democratically elected Prime Minister, is not de rigueur these days. Sorry, I didn't get that memo, I foolishly thought we still have some semblance of civil liberties, and freedom of speech. Clearly not. Now we are all snowflakes.  I'm offended!!

Thank goodness we live in a relatively civilised country, where you just get banned from Twitter for 7 days, for pouring scorn on the useless ruling class. As opposed to recent examples abroad which show just how primitive & uncivilised humans can be.

Actually, the history of mankind is appalling. It's full of violence and hatred. We are so lucky to be living in a brief interlude, of peace. Let's make the most of it. We'll all be dead in 100 years anyway.



Morning, Graham here.

I only have about an hour/90 minutes to look at company updates before I have to leave for the conference venue and present this blog. So this is going to be a turbocharged (i.e. short but very fast) SCVR.



Blue Prism (LON:PRSM)

Trading update - year-end update from this robotics group.

Key points:

  • strong sales momentum has continued, particularly in Q4.
  • customer base more than doubled compared to a year ago
  • revenue slightly ahead of expectations, loss also ahead of expectations
  • similar outlook for 2019. Revenues to be ahead of expectations, EBITDA losses increasing too.

My view - not something I've ever considered investing in, due to the valuation and the fact that I don't feel like I have any understanding of robotics!

Coincidentally, this share was mentioned yesterday by Volvere (LON:VLE) CEO Jonathan Lander (I currently hold VLE shares).

As a value investor and contrarian, he was pointing out that you must always bear in mind the competition. Blue Prism (LON:PRSM) is growing very fast, and may have certain competitive characteristics which justify a premium valuation.  However, its price/sales ratio is approximately double the ratio compared to private robotics companies which have been raising money.

I suppose it goes back to the point that publicly-traded assets can be pretty expensive, compared to similar private businesses.

Stockopedia gives Blue Prism a Value Rank of 1. This is the Small Cap Value Report, so I feel it's appropriate to point out the lack of obvious value!



Altitude (LON:ALT)

Trading update

Nice to see Mello mentioned:

Altitude Group plc (AIM: ALT), the operator of a leading marketplace for personalised products, is pleased to provide an operational update for the 9-week period since the Interim Results announcement on 25 September 2018, ahead of the Group's CEO, Nicole Stella, presenting at a Mello investor event at Clayton Hotel, Chiswick, London later today.

Trading is in line with management expectations.

Metrics currently look poor and it is rated as a Sucker Stock. However, it is forecast to make strong profits two years from now, so it could be worth looking into in more detail.



Churchill China (LON:CHH)

Transaction in own shares and total voting rights

That old controversy about buybacks - I feel compelled to mention it again.

Regular readers will know that I love a buyback.

Yesterday, I attended a packed talk by Lord Lee. His topic was The Importance of Dividends!

During the Q&A, he said that he actually quite fond of buybacks in certain circumstances. There was a particular share he held where the NAV had quadrupled or quintupled thanks to buybacks. So he said that it was quite worth doing!

Indeed, he said that he only really liked a buyback if it was so big that it took out a large portion of shares.

I've realised that my own portfolio is getting rather full with companies doing buybacks. My two most recent additions - Rightmove (LON:RMV) and B.P. Marsh & Partners (LON:BPM) - are happy to buy back their own shares.

Churchill China (LON:CHH) is a company and share I've had a positive impression of for a while, and I note that it has bought back some of its own shares during the past week. This should be a trigger for me to look at it again in more detail, when I get a chance. Its current valuation in P/E terms looks like it could be modest relative to its history, for this company.



QUIZ (LON:QUIZ)

Interim results

It's still shocking to me how far this has fallen from its IPO valuation.

Key points from these results:

  • revenue +19%, EBITDA +11%
  • underlying PBT minus 11% to £4.2 million
  • actual PBT +4% to £3.8 million
  • online sales 30% of total (vs. 25%)

Underlying PBT excludes a bad debt in relation to House of Fraser. It seems ok to exclude this. The previous year underlying PBT excluded IPO and reorganisation costs. Again, that seems ok to me.

Net cash is £12.5 million.

My view - the shares look unfairly bombed out to me, given that underlying PBT hasn't suffered that badly. That said, I'm not going to buy shares in this as I am happy owning Next (LON:NXT) and don't want to own any other retail. But I do believe that this is worth looking at in more detail, if you have interest in the retail sector.

Stockopedia thinks the forecast EV/EBITDA ratio is less than 4x.



IG Design (LON:IGR)

IG Design Group plc, one of the world's leading designers, innovators and manufacturers of celebrations, gifting, stationery and creative play products, is pleased to announce its results for the six months ended 30 September 2018.

You may recall this did a large US acquisition. Organic growth is pretty small (4%). With the acquisition, total revenue growth is 23%.

Underlying operating profit is up 35% organically, or 71% in total.

Outlook - ahead of expectations.

I haven't got much to add except that this seems like a nice company that is performing well. Rating is a bit expensive as you'd expect but the StockRank comes out at a very respectable 84.



Victoria (LON:VCP)

Victoria PLC (LSE: VCP) the international designers, manufacturers and distributors of innovative floorcoverings, is pleased to announce its interim results for the 26 weeks ended 29 September 2018.

I bring my usual scepticism  to these results.

Underlying operating profit is +87% to £34 million. Actual operating profit is +5% to a much lower £13.6 million!

Cash generated by operations is £34.8 million - not bad.

Net debt - £343 million, up from £99 million a year ago.

Net debt / EBITDA 3.1x, versus 1.8x a year ago.

Outlook - Chairman comments:

"In conclusion I, the Board and management are confident in the outlook for the Group, and believe that Victoria is on track to meet its objectives for the current financial year.

"Material market share gains in the UK will secure long-term earnings growth...

"Finally, I am acutely aware that Victoria's share price is not where I believe it should be given our current trading and prospects. As one of the largest shareholders, you can be assured that I, and the other directors and management, are focused on building the confidence of investors and delivering the financial results expected of Victoria."

My view

I'm not sure I agree with the Chairman. It looks to me as if the company share price is trading much closer to where it should now. After all, this PLC is a financial creation which sells flooring products. Why should it trade at an above-average P/E ratio, or at a significant premium to book value? I suspect it is close to fair value now.



Greggs (LON:GRG) - shares up 13% after a positive trading update. It's not all doom and gloom out there!



Out of time, that's it for today! Cheers.

Graham



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