Small Cap Value Report (Tue 4 April 2023) - RFX, SAGA, WAND, EPWN, ACSO, VLG, GHH

4th Apr '23 by Roland Head

39 comments 7542 reads

Good morning from Roland and Graham!

Today's report is now finished (10.20)

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Graham's section

Ramsdens Holdings (LON:RFX)

Share price: 230p (+6%)
Market cap: £73m

It’s an “ahead of expectations” update from Ramsdens at the end of H1 (the period ending in March)..

It has turned the production of good news for its shareholders into something of a habit:

t17FiP_JE48-9a3t1ynC1tSWHzTE3jBmyYF5p24JnBg9UCuHUpb4H8Pn-lqh4nK9q9fUmZFwLS6Ax0w8xuNG5o4FXhy5QF0B7GSP0WlnIBbnseWuQWULYcqpyCfEsbwSINU6sOXBhRZel6kFW3ccO1w

FY September 2023 PBT is now expected to be “not less than £9.5m (FY22: £8.3m)”.

Every Ramsdens service appears to have done well in H1:

Jewellery retail gross profits up 20% year-on-year
Foreign exchange service up 40% year-on-year (though still below pre-Covid levels) as international travel trends continue to improve.
Pawnbroking loan book up 13% in six months to £9.7m, a new record high.
Previous metal volumes purchased up 20%.

It can’t hurt that the price of gold has been very firm, especially since the start of 2023. That’s a tailwind not just for precious metal purchasing but also for the amounts that can safely be loaned through pawnbroking.

Ramsdens is expanding into the South-East and can now be found in places…

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jonno

4th Apr '23

Haven't looked at the details of the acquisition by Franchise Brands (LON:FRAN) but it does make you wonder about the value in Flowtech Fluidpower (LON:FLO), which I hold.

Flowtech Fluidpower (LON:FLO) shareholder register is a who's who of the great and the good of UK small cap investors, Harwood, Downing, Odyssean Capital, Gresham House.

planetx

Wynmstay

Heading for the 400p level by the looks of it.

If it pierces below that barrier and heads further south starting to look very interesting.

Great business Im happy to hold and add .

Harry Hindsight

Yes, and that was a few days after floating some 'professors' paper on their toothpaste protects against covid. Suckered me in duh!. Toothpaste ok though just a bit expensive.

truegent

Roland - your "Stock in Focus Portfolio" link on the right is broke - it returns 404 not found.

https://www.stockopedia.com/fa...

colin1862

err..TBC was the headline of the page. I now realise it meant To Be Confirmed....

Michael C

@davidjhill - my source of data about yields to maturity (YTM) of UK corporate bonds vanished a while back and I've only just started looking for a replacement. My platform is HL and their coverage of bonds is inadequate, also they don't quote YTM. Would you be willing to share your source of data?

Roger Baron

Have fun Paul. Gozo is lovely, just a shame that the Azure Window fell down just after we were there!

simoan

my source of data about yields to maturity (YTM) of UK corporate bonds vanished a while back and I've only just started looking for a replacement. My platform is HL and their coverage of bonds is inadequate, also they don't quote YTM. Would you be willing to share your source of data?

Personally, this is so fundamental to the investment case for a bond that I would not rely on third party data. It should be easy enough to calculate YTM in a spreadsheet.

All the best, Si

The Boon Fund

Nebraska1977, quoting your comment on Saga (LON:SAGA) :

"Their profitability is wafer thin"

"With the insurance biz under pressure from inflation"

"falling policy count and declining broking income per policy"

It depends on whether you view these negatives as transient, or permanent. In the insurance industry in structural decline? And even if it is, do you view Saga as an inferior player in the industry?

BnB

Franchise Brands (LON:FRAN) placing got away at 180p and price currently hovering near this level. Deal is hailed as earnings-enhancing and I calculate that the revised EV/EBITDA on the undisturbed share price is around 14.5x (from 16.5x) and around 12x on the new price, very close to that of Domino's Pizza (LON:DOM) coincidentally. Definitely a lot better value though it had risen a little too high in my view. The question is whether the acquisition target generates the cash flows to pay down the debt in under five years, as promised by management today.

Nigel Wray is obviously a canny operator but this is a bold step. And my existing franchise business holding Water Intelligence (LON:WATR), with similar growth forecast, is on only 8.5x EV/EBITDA. Who’s buying either?

Well, yes, but the Investors Chronicle used to publish the data and so far as I could see it was accurate. My only bond investment is a bond fund (which as you might expect has been a flop) but l do like to look at what the market thinks of a company's bonds before I buy the shares and I just don't have time to input data into a spreadsheet, I just want a quick way of seeing what the YTM is and I used to have that.

ACounsell

It is a straightforward calculation on excel with minimal data input. Courtesy of Chat GPT (and verified with Excel Help!) the formula is as follows:

The formula to calculate yield to maturity on a corporate bond in Excel is:

=YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis])

Where:

settlement: The date the bond was purchased or settled.
maturity: The date the bond will mature.
rate: The annual coupon rate of the bond.
pr: The price of the bond per $100 face value.
redemption: The redemption value of the bond per $100 face value.
frequency: The number of coupon payments per year.
[basis]: (Optional) The day count basis to use for the calculation. If omitted, the default value is 0 (which represents the US (NASD) 30/360 day count basis).

For example, if you wanted to calculate the yield to maturity on a corporate bond with a settlement date of January 1, 2022, a maturity date of December 31, 2030, an annual coupon rate of 5%, a price of $105.50, a redemption value of $100, and semi-annual coupon payments, the formula would be:

=YIELD("1/1/2022","12/31/2030",0.05,105.5,100,2)

Make sure to format the cell as a percentage to see the yield as a percentage value.

Hope that helps.

Hi planetX,

I am with you on Wynnstay (LON:WYN). I have a small holding, bought a little early I am afraid. Current NAV is around 680p if you included the land and property held on the books at cost, which equate to about £10M or 50p per share.

See full year results presentation on PI World on 10 February.

Thanks, genuinely, but it's not the same has having a list of all the issues updated daily which I can sort in different ways. Setting up a spreadsheet would not take long. Updating the data would take time I don't have.

Lochinver

Re Tandem . Im guessing you meant “would have been “ a perfect acquisition for Tandem “if circumstances had been different”. Suspect Tandem have got their hands full enough on the home front without getting involved in other distractions at this point !

bohenie

Very strong points here - and out of interest, I just looked up the list of major shareholders of both Direct Line Insurance (LON:DLG) and Sabre Insurance (LON:SBRE) - and should not have been surprised to see the list of major institutional holders - who you would hope know better.....that phrase used so much here - DYOR - so important!

Epitychia

5th Apr '23

13% seems very high given the base rate. Bonds are lower risk than shares, shares enjoy growth opportunities bonds don't. Indicates risk is high here.

I wasn’t convinced when you were heralding the value just below 600p but I can see the case clearly now. On a fag packet basis, relative to shareholder value, the price is approaching the lows of 2019, which was a low for the last decade. And it’s hitting support at two key technical levels - medium and long term moving averages - so this may be it for the drop. Or, as you suggest, it could go another 10% to breach 400p.

There’s a long term record of shareholder value creation but my business career taught me to shy away from customers who always plead poverty, because “marvellous margins make more money”. And agricultural suppliers are levered to commodity prices which have been tumbling. On the other hand, it’s selling under NTAV and the business is thrown in for free!

Snowbum

The technical support it just found is actually the 50% fib off the last move higher from the pandemic low, which would be considered normal price action imo, the 50% level is often in play for commodities and exposed stocks.

Yusuf Samad

6th Apr '23

I agree, Michael C. While the calculation of YTM is easy in Excel, it is useful to have a list when searching for or comparing bonds that gives the YTM, maturity and rating at least

Small Cap Value Report (Tue 4 April 2023) - RFX, SAGA, WAND, EPWN, ACSO, VLG, GHH

Graham's section

Ramsdens Holdings (LON:RFX)

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Roland Head

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