Small Cap Value Report (Tue 8 Mar 2022) - HEAD, NWF, MADE, RWA, TAST, HAT

8th Mar '22 by Paul Scott

27 comments 10270 reads

Good morning, it's Paul & Jack here with the SCVR for Tuesday.

Appalling market conditions continue, there's not really a lot we can add to all the commentary out there. Obviously the Ukraine situation is just terrible in human terms. In economic terms it's triggered a deepening fuel problem, and as has been widely reported there are other commodities which are also spiking in price due to possible curtailment in supply from Russia/Ukraine. Therefore the inflation problem is likely to get worse, and squeeze many companies' earnings (and household disposable incomes) probably. Hence there is logic to falling markets, although overlaid on that is clearly plenty of panic selling too.

Anyway, we'll keep plugging away here on trading updates/results, because even if you're not ready to buy yet, it pays to be prepared with a list of bargains when the turning point is reached. I wish we knew when that is likely to be, but your guess is probably better than ours.

Agenda -

Paul's section:

Headlam (LON:HEAD) - Management changes are announced, but of more interest is an "in line" current trading update. Looks a bargain to me.

Nwf (LON:NWF) - a positive trading update from this agricultural & fuel distributer. A key point is that it has been able to pass on cost inflation to customers. A very resilient share, in a sea of red, in recent months.

Tasty (LON:TAST) - a micro cap restaurant group. It's traded through covid, thanks to Govt support. It's not clear how the business is likely to perform in future, once Govt support measures have ended. Market cap = net cash (even after normalising for stretched creditors) which does look interesting in valuation terms.

Jack's section:

Made.com (LON:MADE) - revenue up 50% but freight costs hit gross margin and adjusted EBITDA, which has declined from -£5.1m to -£14.3m. The group has some bold FY25 targets but the near term risks have obviously increased. Consumer confidence is most likely poor right now, and the group no longer expects helpful market conditions in the year ahead. Shares have fallen a lot already, but that is understandable given the immediate outlook.

Robert Walters (LON:RWA) - record results and strong trading across all markets. This is an international recruitment specialist, with 81% of revenue coming from outside of the UK. Positive conditions might change at…

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MiserableJacktPotato

8th Mar '22

I was happy with the Bango (LON:BGO) results - slightly ahead of the market expectations, profitable and well set for future growth. Recent developments indicate that attracting US investors seems to be their priority now that they're well established worldwide and it makes sense to change reporting to $ even though that is annoying for a London listing. Shareprice stagnant for a long time though, bought these in May 2018 at £1.71. Whilst still priced for perfection, management have proved over years that they can execute in this space and create innovative products around the low revenue payments technologies, hopefully we can finally see some decent and sustained price appreciation from here.

Old Bear

Paul, are you planning on a look at Johnson Service today as I see they have a trading update out ? Thanks again for the hard work from you and Jack

gus111222

Who really knows but I have my spread bet account ready for shorting weak and expensive shares when they put in a bearish pullback near the daily 50EMA. Mcbride (LON:MCB) is on my radar.

BnB

Re Robert Walters (LON:RWA) - these look good value at today's price but Sthree (LON:STEM) is a screaming buy. SP has nearly halved since November and EV/EBITDA is at levels associated with an illiquid private sale price.

Yet every tech firm on the planet has put a rider in their latest earnings report that they can't find enough staff right now and wage inflation is through the roof. Obviously some caution will enter hiring practices in this quarter but the structural shortage of tech talent is so intense that any fall in demand will only put IT recruiters in a goldilocks scenario where demand, while down from peak levels, remains high and supply, or rather availability, of candidates actually improves owing to a drop in competition for skills. The shares look seriously undervalued.

rmillaree

Bango (LON:BGO)

"Whilst still priced for perfection"

hopefully we can finally see some decent and sustained price appreciation from here.

if its priced for perfection why are you expect price to show sustained rise on modest beat - when most other stocks are being decimated?

Note based on stocky figures which were for expectations for £17.7 mill GBP sales i am struggling to see how $20.7 mill is much of a beat if any - kinda looks the opposite to me.

Note the trending numbers ref eps on stocky have just been downgraded for year just finished and current year too. Is it posible beat is compared to recent downgrade - hmmmm.

Based on these numbers this company seems to be doing fairly well to keep sharepirce where it is compared to simialr us listed companies many of which have tanked recent,y.

Note i don't doubt the prospects here - the growth is not to be sniffed at and its clear they are investing for the future so nubers probably don't reflect underlying profitability and they have some top notch relationships in place with the big boys.

truegent

Bought some Headlam (LON:HEAD) - results tomorrow I think will be fantastic with loads of net cash on the balance sheet. I smell a special div or share buyback, which I would be happy with at this price.

Doug2b

I think that there is a peril in relying on these screens, tends to create a false sense of security, stops a more thorough research. Take H & T - hard to asess HAT without mentioning the 11% dilution over the past 5 years, but hey, it comes out well on the Guru screen, so who is looking!

Roger Baron

I'm tempted by Headlam (LON:HEAD) too, after reading comments above, thanks Paul. but I don't understand the bit about brave buyers locking in a divi of 5.5%. It looks to be about half that to me. (ii says 2.36%) Am I missing something?

willhampson

Stockopedia is showing estimates of 14.4p for 21FY and 18.4 for 22FY; i.e. circa 4.3% and 5.5% yield. As someone mentions below, they are due to announce tomorrow what they will do with the surplus capital they flagged in the January trading update. I suspect it'll be a special dividend so you can increase the potential yield for this year as well. Headlam (LON:HEAD)

this years is around 2.5% but next years div and for 2023 is forecast to be circa 5%....i guess we'll know tomorrow !

Nice to see a few shares rising for a change today. In particular Harvest Minerals (LON:HMI) continues its exponential rise. I hold - small but getting more significant each day and to be honest I haven't made a note of when I bought it (3.6p) or what first brought it to my attention (possibly a Gervais Williams comment). I'm certainly interested if anyone cleverer than me has a view on where this is going?

Tommy H

Hi Roger

It was 7.8p for 2021, but is forecast to go to 14. 4p and 18.4p over the next two years, so returning towards the historical dividends, but still down from 2019 and with a cover of >2 so that is a good thing.

Tommy

ps. I hold Headlam (LON:HEAD)

Hi Goronwy

It is probably everything that I have sold over the last few days weeks rocketing upwards :( on my buy high, sell low, buy higher, sell even lower...

Good luck!

TheFloatingInvestor

The CEO leaving STEM, I think spooked a lot of investors, but from what I have read the new one seems good...waiting on his first set of results.

They came out on 31st Jan already. The next set of results won't shed much light on Timo's capabilities. That's not really how recruitment works - each consultant is a business unto him/herself after all. You'll have to wait for strategic moves like M&A, new territories or new sectors to see where he hopes to take the business.

Camtab

Good day for your Gulf Marine Paul. Wish I had given that one more thought!!

Bouden54

I like Headlam (LON:HEAD) and also took opportunity to buy some after recent fall. Compared to others in the home improvement sector, they should be less exposed to rising costs and margin pressures - as a distributor I would except price rises to be automatically passed on. They are also very much the dominant player in their particular space, and the scale should give them a competitive advantage. Growth has always been a bit pedestrian, but if the new management team are successful in their turnaround plans then things should hopefully pick up.

JASVFS

Thank you Paul for covering Tasty, it's not so Tasty at all. I followed my friend Maynard P (who you may know) into this a few years ago, he'd had great success with the founders in an earlier venture. Some go wrong. I still hold in fading hope.

Leebod

9th Mar '22

My concern around all leisure/retail stocks is the energy crisis will mean spending once destined here will instead be spent on electricity and petrol. Average income families will not be able to pay for a trebling of their electricity and go out for a meal.

Paul Scott

11th Mar '22

Hi Camtab,

What can I say? Hardly claiming victory, in a sea of destruction.

Jesus wept, my SIPP must be down about 30% YTD, that's a heavy kick in the bollocks, it really is. Seriously painful. BUT, I decline the price the market is offering me. They're long term holdings, so mark to market is irrelevant.

Lucky I dont need the money now. Probably time to reduce to house wine, and boiled cabbage.

Small Cap Value Report (Tue 8 Mar 2022) - HEAD, NWF, MADE, RWA, TAST, HAT

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Paul Scott

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