Small Cap Value Report (Tue 9 May 2023) - PURP, RNO, TTG, MACF, MCON, MSLH, HSW, CSH, BOO, MIDW, CTG

9th May '23 by Paul Scott

50 comments 8707 reads

Good morning, it's Paul & Graham here today.

Today's report is now finished, at 13:02

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.

Summaries of main sections below

Mincon (LON:MCON) - 90.75p (unchanged) (£213m) - AGM TU - Graham - AMBER

Broker estimates are unchanged this morning (pencilling in 7% growth) despite news that Mincon’s mining-related revenues are suffering from an exploration slowdown. I want to give this stock the thumbs up but news flow remains very mixed. It stays on the watchlist for now..

Marshalls (LON:MSLH) - down 15% to 252p (£641m) - Profit warning - Paul - AMBER

Lowers expectations, but declines to give any specific guidance, and no broker updates available. So we're in the dark. Blames macro factors, slowdown in housebuilding, and slower discretionary house repair/maintenance. I'm struggling to reconcile this with upbeat recent comments from brick sellers. Maybe best to avoid the whole building supplies sector for now? Or anticipate a recovery later? Debt is also a concern at MSLH after a major, ill-timed acquisition of Marley in April 2022.

Hostelworld (LON:HSW) - 140p (+8%) (£170m) - AGM statement - Graham - AMBER

Profitability is ahead of expectations at this hostel-focused online travel agent. Bookings continue to recover and bed price inflation is also significant, leading to record revenues. The company has refinanced…

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Martin VT

9th May '23

Wow, just got in to see that my largest holding Civitas Social Housing (LON:CSH) has gone up 40%+ on a recommended takeover.

I will now review my other holdings on large discounts to NAV such as Triple Point Energy Transition (LON:TENT which I think was on a 40% discount, last time I looked. That said, I see that CSH is being bought for 80p, but today’s updated NAV is over 109p. So the HK property developer is getting a quality portfolio, with very few vacancies, 20+ years leases, and Government backed rent at a 26.6% discount.
The market is certainly being very generous to overseas purchasers at present!

wolfspirit

I just hope that iEnergizer (LON:IBPO) bombs - the ESG procurement criteria score by their customers may suddenly look a lot worse. Plus the pressure to onshore now. I hope iBPO crashes and burns and his acquired 100% can have the sort of devaluation he created for us.

AIM should also look at why there aren't going to be many listings in UK - eg. all the inflated IPOs just to give PE liquidity events and then bomb out, showing it has just been an insider gravy train.

If they lose the IHT advantage then suddenly the goose is cooked rather than allowed to lay eggs.

FREng

Thanks, Paul.

I'm convinced by the longer-term view on Cambridge Cognition Holdings (LON:COG) expressed by the anonymous person who commented on your podcast. The order book is growing, as Michael Tee also noted, and the directors have topped up their holdings in recent weeks at more than the current SP. I have just today added to my own holding.

Regards

Martyn (FREng)

ar7268

I posted this last month, but now including the latest version. UK government data on delivery of bricks in the UK. Last data in this chart is March 2023.

Quite a dramatic decline, so i might be inclined to believe Marshall's blaming the macro environment. Imports of bricks may have suffered the most, but i can imagine domestic brick manufacturers and distributors are still affected.

Mark Penney

Paul, noticed the below on The Times Business Brief:

DELOITTE: The Financial Reporting Council has started an investigation into the accountancy firm’s audit of the fashion retailer Joules for the year ended May 20, 2021. Joules collapsed into administration in November after failing to secure rescue financing. It was bought out of administration by Next and its founder, Tom Joule.

Best
Mark

Neil P

Civitas Social Housing (LON:CSH) (no position) was targeted by a short seller in 2021 and has never really recovered. Also, there's been a lot regulatory examination of social housing which read across to Triple Point Social Housing REIT (LON:SOHO) (I hold) - specifically some of their property managers have been identified as needing improvement. Worth a read of the RNS announcements if you are considering.

Tommy H

Just a quick question, has anyone had the dividend for @Somero Enterprises (LON:SOM) hit their account yet?

I appreciate that IWeb are not particularly the fastest snail in the race so might just be somewhere in the system.

Thanks

Tommy

illiswilgig

Macfarlane (LON:MACF)

One thing that concerns me a bit is that one of their largest customers is Parsely Box as I understand it

Ah. Thank you David - that's a fascinating question.

And its allowed me to look a bit at Macfarlanes customer concentration, stock write-offs, trade receivables and credit control. Lucky me. I got caught out a bit by the Zytronic warning last week over two large customers, so credit control turns out to be something I ought to be paying more attention to in future?

Well you did ask!

I'll start with Macfarlane. Turns over about £300m with around £20m in pre-tax profits and according to the website it has 20,000 customers and 'low customer concentration'. Whatever that means? Certainly no list of top customers in the risk register, where customer concentration doesn't get a mention, but credit control, trade receivables (60m) and loss allowance (0.795m ), inventories (£22.6m) and stock provisions (0.633m) and stock write-offs ( 0.384m) do get mentioned.

Parsley-Box. I know its a case study on the Marfarlane web-site, mainly because it's a temperature controlled design thats fully recyclable? There are plenty of other household names alongside like Lakeland, Curry's, Peak, ACER but I don't know if that says anything about how important they are as customers? Seems more to be promoting their design ability for well-known names? Obviously it's going to be a little more important than 1/20,000 the average customer. I'll try to put it into a ball-park.

I'm afraid that I know very little about Parsley box, other than its another of the class of 21/22 IPO's that bombed? Been taken private after haemorraging cash and with sales falling quickly. So to get a handle on it I downloaded the 2021 report filed at companies house (The last filed report). Which tells me

Revenue 20m (approx)

No of orders: 488k

Av order value: £43

Av meal value: around £5 (looking at website)

Number of meals about 1m annually (and going down fast .....?)

The macf box is for 4 meals according to the case study - so that 250k boxes annually.

Price per box? Hmmm. I'll put a finger in the air at 50p (it's actually a small box inside a larger one with a couple of sachets to accept the coolant) at 250k annual quantities?

Or £125k a year?

That's assuming that Parsley box order levels are still anything near 500k a year (its no secret that they aren't?) and that all the meals are supplied in macfarlane temp controlled packaging (they might not be) and that Marfarlane are the only supplier (they might not be)? So its probably an over-estimate? Even if you double it - it's still insignificant <0.1% - assuming of course that my rough estimates are in the right ball-park?

Even if they wrote off a year's worth its well within their current provisions? That's never going to happen as they monitor credit risk and require pre-payments for bespoke order cover. Macfarlane stock turn is really quite colossal?

Interesting exercise. I'm satisfied ( though you might not be on the basis of my finger in the air )- that something like Parsley box does not represent a risk to Macfarlane? More than likely it's rapidly declining figures are already contained within the e-commerce volume declines that Macfarlane have commented on in the last year?

Does that sound about right?

cheers

Mark

mortimer

HL gave me mine last friday

eParo

PROCOOK (LON:PROC) - CEO bought 510k @27p on 5th May. Fackelmann GmbH declare a rise in holdings to 12.084% - RNS earlier. StockRank has gradually started creeping up. Something cooking?

Silver Moon

Last month I looked at both Civitas Social Housing (LON:CSH) and Triple Point Social Housing REIT (LON:SOHO) , buying CSH as a Stocko comparison said it was the better of the two. I note that CSH is classified as a Neglected Company while SOHO is seen as Philip Fisher Growth. Being a Reit I have my doubts about SOHO as I held Picton Property Income (LON:PCTN) from 2013 till 2018, selling out at 92 pence and today its price is 74 pence. I might just prefer your Triple Point Energy Transition (LON:TENT) Martin when I get the CSH compensation.

jamesalastair

Nice bit of work.

truegent

not yet for me, im with halifax.

Smudge

Came in today AJ Bell.

garbetklb

Truegent - Iweb is a trading name of Halifax. But no frills and v cheap (no annual charge and £5 per deal) - well worth a look. However, and it's a real bugbear for me), they refuse to reclaim the US tax using a W8BEN form for Somero - won't clearly explain why, but simply state that it's because Somero are a US company listed in the UK - ie not listed in the US. Can you confirm what the position is for your holding via a Halifax branded platform?

I'd be v interested in how many Somero holders there are who use Iweb / Halifax.

i didnt know any of the above but ive had somero shares with halifax for a few years and never had any problems with dividends. i do recall filling out the W8BEN form though at some point...

GloucesterBob

The O'Neil clan hold nearly 69% of the company, that may set the timer off

Macfarlane (LON:MACF) and my box calculations - Whooops!

1 was losing the plot. Lost a factor on the back of the envelope - it was something like 4m meals and 1m boxes annually. Maximum. Or it was before sales started to fall off a cliff.

So that makes it £500k revenue. Less than 0.2% revenue. In any event - these are not accurate figures, just intended to be ball-park,

apologies,

10th May '23

Truegent - could you check what level of tax you're paying on Somero dividends? I'm guessing it will be 30%, but would be v interested if it's 15%!

davidjhill

Thanks Mark - that's helpful. I think I might write to management and ask them what their maximum exposure to any single client is. At least that would allow us to compare and might be a good exercise anyway.

I agree that Macfarlane (LON:MACF) have carved out a really good niche position in a very large commoditised industry and seem to be well trusted.

Will take another look

Small Cap Value Report (Tue 9 May 2023) - PURP, RNO, TTG, MACF, MCON, MSLH, HSW, CSH, BOO, MIDW, CTG

Summaries of main sections below

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Paul Scott

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