Small Cap Value Report (Tues 10 Aug 2021) - SUS, ZTF, BKS
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Morning all, Jack here with Tuesday's SCVR.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to cover 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 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) - don't blame us if you buy something that doesn't work out. 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.
Agenda -
Jack's section:
S&u (LON:SUS) - positive outlook from this family-owned finance company that seems ably run for the long term.
Zotefoams (LON:ZTF) - the company has spent a lot of money building up its operations and the products, apparently, are world-leading so now is the time for management to execute and prove to the market that a growth multiple is deserved. Some cost pressures are set against a positive near term outlook.
Beeks Financial Cloud (LON:BKS) - brief in line update from this provider of low latency solutions for financial markets. The group is in investment mode, with negative free cash flows, so the question is whether this investment is being spent wisely to build a larger and more profitable business down the line.
Jack’s section
S&u (LON:SUS)
Share price: 2,820p (pre-open)
Shares in issue: 12,145,260
Market cap: £342.5m
(I hold)
S&U is a holding company for two subsidiaries: Advantage Finance and Aspen Bridging. The former is a non-prime used car finance established in 1999 and the latter focuses on loans for the short term residential and refurbishment markets. Aspen was only launched in 2017 and has yet to reach meaningful scale, but management is optimistic of its future contribution to the group.
Fittingly, the post that first brought this onto my radar is called ‘Credit Where Credit is Due’ (penned by Lewis Robinson, formerly Expecting Value, who you can find on Twitter here). The post is worth reading but notes a share price of £17.60 compared to today’s £28 or so.
Nevertheless, it is the long term merits of the investment case that stand out here and make this a useful ‘buy and hold’ candidate in my view, regardless of short term share price moves:
- Family ownership and management alignment with shareholders - run by the Coombs family since S&U Stores inception back in 1938 (see Major Shareholders)
- An underlying trend of steady revenue progression
- High margins and sensible returns on capital over time,
- A solid small cap dividend track record, with the current forecast yield at 3.7%,
- Habitual financial strength,
- Distinctive and characterful management commentary,
- And a low share count with no signs of dilution over the past five years.
Having been trading for the best part of a century, the group has emerged from lockdowns intact with no permanent damage to shareholder value. It seems like a company that protects its owners. And Advantage’s headquarters are in Grimsby, which shows a healthy independence from the London rush.
If you want to get a better sense of the management you can watch this recent investormeetcompany video, complete with reassuring references to Warren Buffett.
It’s also possible that, having navigated the lockdowns, S&U’s businesses might benefit from a reopening UK economy.
S&U continues to trade well, ahead of expectations in terms of profitability, collections and book debt quality… The result is a good half year's performance and a sound basis for further progress.
This has been reflected in strong Advantage motor finance applications and for Aspen in the strength of the residential property market. Both are constrained by a lack of supply but the group believes this will gradually correct as the economic recovery gathers pace.
Advantage continues to increase to nearer normal levels of new business but continued cautious underwriting and a lack of supply mean transaction numbers come in slightly under an ambitious budget. This has been more than offset by collections, with related bad debt attrition and impairment more benign than anticipated.
As a result, net receivables are stable versus the previous year-end, risk adjusted yield is ahead of budget, and operational cost is well within budget.
The result will be a significant increase in Advantage's half year profit, comfortably beating budget.
A number of initiatives are in train to drive further improvements including refinements to the scope and range of the customer offering; simpler online payments for customers; new arrangements to boost dealership capability, and social media marketing work.
Management also flags its work on ‘what will be a significant opportunity in the financing of hybrid and electric used cars’.
Aspen, the property bridging business, has continued the encouraging trends reported in May. Net receivables are now at just under £58m against £18.5m a year ago, and book quality and repayments continue to be good.
The net receivables growth has been due to Aspen's successful offer of Government backed CBILS loans to larger and more established developer customers. The original CBILS scheme is being wound down but Aspen hopes that the contacts it has made will lead to further business beyond this.
Financial health is robust, with an increase in funding facilities in the first quarter to £180m and current borrowings of £116m.
Anthony Coombs, S&U chairman, comments:
As Britain gradually emerges from the effects of Covid, S&U is demonstrating by its debt quality, collections performance, customer service and product improvements, the inherent strength and potential future profitability of the Group. The challenge now is to grasp these opportunities for new growth. I am confident that we will do so.
Conclusion
There’s not too much detail in this trading update, but the direction is positive.
At 14.7x forecast earnings, the group’s shares are not as cheap as they have been recently, but neither are they obviously expensive. Management commentary, a PEG of 0.6, and a positive broker consensus suggests plenty of scope to justify or exceed the current rating in time.
This strikes me as a company managed for the long term, with deep expertise at the top level and a team that is focused on generating sustainable capital appreciation and income for shareholders. I believe that’s what Stockopedia’s high Quality Rank is picking up from the financial data.
This comes across more clearly when you look at the dividend track record, so I’m happy to hold here, hopefully for a long time.
Zotefoams (LON:ZTF)
Share price: 443.48p (-0.12%)
Shares in issue: 48,621,234
Market cap: £215.6m
Zotefoams is a popular small cap - a promising company with differentiated cellular materials products that have market-leading potential and a diverse range of use cases.
Key markets include footwear, where it has an exclusive agreement to supply Nike, product protection and transportation (aviation and aerospace), automotive, rail, and building and construction. These are the big ones, but ZTF’s products are also supplied to medical, industrial and other markets.
The group is headquartered in Croydon but has additional manufacturing sites in Kentucky, USA and Brzeg, Poland (foam manufacture), Oklahoma, USA (foam products manufacture and conversion), Massachusetts, USA (MuCell Extrusion) and Jiangsu Province, China (T-FIT). So it has built up a substantial operational base.
The hard work goes alongside rising revenue.
But this top line growth is being funded by high levels of capex. This should change soon with the completion of the Poland factory.
One point that has concerned me before is declining levels of returns on capital, although this metric can lag investment - so if everything goes very well with the capital expenditures, there could be a period of reducing costs, increasing profits, and improving ROCE.
The share price often commands a premium multiple, so you would invest based on the group’s growth prospects rather than a rerating.
Highlights:
- Revenue +39% to £48.2m (+14% on FY19); +46% at constant currency,
- Operational leverage offset by gross margin pressures,
- Profit before tax +49% to £4m; constant currency PBT +93% to £5.2m,
- Basic earnings per share +46% to 6.52p,
- Cash generated from operations down 6% to £5.6m,
- Period-end net debt/EBITDA down from 2.1x to 1.9x,
- Interim dividend of 2.1p, up from 2.03p ‘reflecting strong growth and positive outlook’
The growth rates do seem encouraging here. These are set against a disrupted 2020, but we do see evidence of revenue growth on 2019 figures as well.
High-Performance Products (HPP) sales were up 66% to £19.6m, Polyolefin foams sales rose 24% to £27.3m, and MuCell Extrusion LLC (MEL) sales increased 50% to £1.3m.
Meanwhile, the Poland plant has been commissioned albeit with ‘expected low utilisation’.
Then we have the gross margin pressures: ‘significant’ supply chain pressures particularly in polyolefin raw materials and freight, and the reversal of FY20 short-term cost savings. A bout of inflation could be a good test for the pricing power of these world-leading products.
So far, in the first half, gross margins have fallen from 34.8% to 28.9%. This has more than offset operational gearing.
On this point, the group comments:
Gross margin, benefitting from strong sales and better mix, is expected to remain steady despite cost inflation, predominantly in polyolefin raw materials, the price of which increased sharply during the first six months and is now, we believe, at its peak. We anticipate these raw material price levels and operational disruption to freight to persist for the remainder of this year before seeing a return towards more normal conditions early in 2022.
The footwear business has performed extremely well and accounted for 34% of group sales (HY 2020: 19%). Demand in most other markets also showed strong growth against the prior period, although aviation fell year-on-year from 12% of group sales to 3%.
Polyolefin Foams - represents 57% of group revenue (down from 64%). Volumes increased here but the average selling price fell and segment profit declined from £2m to £1.3m for a margin of just 5%. The Poland plant had some impact on margins but most of the damage was done by price inflation. The group combatted this with its own price increases from 1 May, along with freight and specialty materials surcharges. As conditions normalise, Zotefoams hopes to maintain the higher price points but remove the surcharges.
High-Performance Products ("HPP") - 41% of revenue with continued strong momentum in footwear. The use cases are quite broad: footwear, the aviation market, and cleanrooms in pharma, biotech, and semiconductor manufacturing. Zotefoams continues to invest in sales here so hopefully more growth is to come.
Segment profit margin in HPP was a much healthier 20% for £3.9m (HY 2020: £2.8m). Supply chain and logistics costs, including unplanned Brexit freight costs of £0.4m, negatively impacted margins. So there could be room for further margin expansion as it moves past that, and particularly as the group builds up T-FIT insulation ‘which has attractive underlying margin potential’.
MuCell Extrusion LLC ("MEL") - just 3% of revenue. Zotefoams is investing in ReZorce, a barrier materials product that should make cartons and pouches more easily recyclable. The opportunity is in ‘an industry currently worth multiple billions of pounds’. For now the segment reports a loss after amortisation of £0.1m (down from a £0.7m loss).
Capital expenditure in the period was £3.4m (HY 2020: £7.4m) and the group confirms the end its recent capacity expansion programme, with a return to more normalised levels of investment in future.
Commenting on the results and the outlook, David Stirling, Group CEO, said:
In the second six months of 2021 we expect further positive momentum in sales, with a strong order book underpinned by improving economic conditions. Product mix is anticipated to be slightly more favourable, with good growth in HPP products and recent sales price rises in polyolefin foams. FX headwinds are expected to continue.
Conclusion
There’s a lot going on at Zotefoams and many millions of pounds have been invested to facilitate the manufacture and distribution of what the group says are world class products. It’s now approaching the point where it will have to definitively prove the market demand for those products and justify its high multiples.
The group points to strong demand in Polyolefin Foams in the first half, which should continue. HPP has a strong order book for footwear in particular, while MEL is expected to remain at similar levels. And then we have today’s results, which certainly show impressive year-on-year growth: revenue and profits up 46% and 93% on a constant currency basis respectively.
The shares are not especially cheap but there’s no doubting management’s ambition here.
And with capex set to normalise, perhaps the next five years for Zotefoam will look very different from a cash generation and net debt perspective, assuming cash expenses fall, sales rise, and margins increase. That’s a possibility though, not a guarantee.
The scale and duration of negative free cash flows has put me off in the past, but what’s important is how the cash is being spent, ie. is this maintenance or growth capex? It sounds as though there has been a lot of the latter going on, which will not persist.
So perhaps the share price has moderated while the group has gone about laying the foundations for future growth. If you take that as the starting hypothesis, then it’s probably worth spending more time investigating the products as the upside potential could be significant.
It looks like a promising business that has worked hard to get itself into a position to grow, but the shares are fairly pricey, so you do need to buy into that vision. For now, I’m not familiar enough with the situation or the management.
Investormeetcompany strikes again with a presentation later today, so that could be a good opportunity to gauge the potential here.
Beeks Financial Cloud (LON:BKS)
Share price: 123.4p (+0.33%)
Shares in issue: 56,051,149
Market cap: £69.2m
Beeks has been a fairly volatile ride since listing in 2018 with various periods of buying and selling.
It’s a cloud computing and connectivity provider offering low latency solutions for financial markets.
There are certain superficial parallels with Zotefoams insofar as this is a growth company with upwards trending revenue but consistently negative free cash flow.
Again, the key question here is whether that capex per share is growth or maintenance capex. This is not something companies have to split out and it can be difficult for shareholders - the owners of the company, lest we forget - to determine.
In this instance, given where Beeks is in its lifecycle, I’m assuming that a good deal of this capex spend is for ramping up operations and that a mature Beeks will be free cash flow positive.
Beeks expects to announce results in line with market expectations, meaning year-on-year growth in both revenue and underlying EBITDA. There’s a growing pipeline of opportunities and the group continues to ‘successfully expand’ its relationships with existing Tier 1 customers.
It’s a pretty insubstantial ‘in-line’ update so no surprise that the share price has barely reacted.
Perhaps the main reason for the announcement to the market is the launch of Proximity Cloud, with multiple proof of concepts commencing. This is a high-performance, dedicated and client-owned trading environment, fully optimised for low latency trading conditions and built with security and compliance at the forefront.
Beeks raised cash back in April to fund the project. £5m gross through the issuance of 4,347,827 shares at 115p. Group founder and CEO Gordon McArthur also sold 434,783 shares, taking his holding in the enlarged group down to 48.2%. Paul covered it here.
Conclusion
It’s a brief update that’s unlikely to change views on Beeks one way or the other. And there’s no quoted figures re. what the market expectations are. The assumption should be that everybody is time poor so in the interests of clarity it would be a big help to attach concrete numbers as to what these expectations are.
Taking Progressive Equity’s figures, they’ve got FY21 forecasts of £12m of revenue, £3.83m of adjusted EBITDA, and 2.72p of adjusted earnings per share growing to 3.86p in FY22. That’s a PE ratio of 45.4x falling to 32x.
That’s too rich for my liking, but there is a growth story here so it’s an interesting company to keep tabs on. If the group is forgoing earnings now to build out a bigger company, then perhaps you can justify it.
Early stage expansion costs can mask profitability while paving the way for longer term value creation. Sometimes it’s better to just breakeven if the extra money is being spent in the right way and a materially larger company is being built. It seems as though a lot of upfront investment is required at Beeks - the group has spent a lot of money building out its datacentre infrastructure and it’s possible that more of this will be needed. Seven new datacentres were opened in FY20, all of which had reached operating cost breakeven by the end of December.
Back in April 2020 it also acquired loss-making Velocimetrics (revenue of £1.16m and LBITDA of £0.18m) for a total consideration capped at £4.55m. We’ll have to see if that acquisition proves astute.
The above might translate into an attractively profitable business further down the line but it makes these opportunities trickier to value. You need greater conviction in the opportunity and the management, as the historic profitability and cash generation just isn’t there to fall back on. Retaining the founder and major shareholder as group CEO does suggest that there could be a longer term vision though.
On balance it’s not one I’m sufficiently familiar with so I'm happy to leave it, but recently Paul described it as a ‘coffee can’ stock so the bulls are out there.
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52 comments
Thank you, Jack, for the shoutout re: S&U!
I thought it was a solid update. Forecast earnings levels are still substantially too low for this year, in my view, and investors are better served looking at the 16% RoE they made historically. The business very much sounds like it is normalising, so that RoE figure should be a credible first blush yardstick for the level to which earnings might rebound in the next couple of years. If you buy that logic, it's on around 11x normalised earnings, which still strikes me as too cheap for a business of this quality.
It's gonna be tough buying decent amounts of illiquid H & T (LON:HAT) after the Simon Thompson tip update. Hence the big SP moves this week.
I'd wait a few weeks till the horde moves on and focuses on another ST tip. H & T (LON:HAT) rarely do many updates / announcements so you can always depend on the long quiet stretch between updates for some share price weakness to pick up a few.
Just make sure you don't pick up just before their FCA fine is announced!
Tips often cause a spike in the share price, existing holders may bag some profits and the price often falls back to around the tip price, buying after the tip often is at a higher price because market makers mark the prices up. ST tips come along all the time.
I'm surprised tipsters don't have to produce their performance figures.
Must say Simon Thompson - Investors' Chronicle positive write does wonders for the share price. Just hope we buy the stock before he writes about it.
BSV
Re TP (LON:TPG) - price was 8p end Jan 2020 and hit 8.25p in June 2020 so would think that Science (LON:SAG) will have to pay at least 7.5p to win this unless they have a cunning plan as they did with Frontier Smart Technologies (LON:FST). So plenty of potential upside. Unlike Frontier Smart Technologies (LON:FST) where incompetent management were desperate to cling onto their positions and if Science (LON:SAG) had walked away the share price would have collapsed, I think that is less likely here with new management at TP (LON:TPG) and the possibility of executing an in-house turnaround. So I would think that Science (LON:SAG) had better pay up because the threat of walking away is less persuasive for institutional holders.
Thanks mammyoko for your take on Tp (LON:TPG) which I have held since May 2019.
The Board of TPG are proving to be very unreceptive to the approach by Science (LON:SAG) but as far as Shareholders are concerned the Board have proved to be asleep at the wheel for some time before finally sacking their highly paid CEO.
I welcome the interest by Science (LON:SAG) and sincerely hope the Board at Tp (LON:TPG) will wake up and engage with Science Group soon.
Zotefoams (LON:ZTF)
I have held zoatfoam in the past - it looked like they had built up a nice head of steam back then in that they have great expansion plans and the rumours where thbey had great contracts with nike (alwasy a double edged sword).
For this company the prospects always seem fine but there are the different issues that seem to have prevented them from having that step stage increase in profits that i would have expected from the extra capacity investment they have made.
I know not if this company will come good - they made £8 mill in 2019 (post tax !!) so it really seems like they are going nowhere which really isn't good enough when the earnings multiple is high anyway. Perhaps i would revisit this company if the price became really weak - but i think that would have to be sub 350p at present based on where they are. I doubt if things do go decently that the price will get that low anytime soon. I would not be surprised though to see them going on a real tear at some stage in the future when they hit the sweet spot operationally speaking .
Any views on Jubilee Metals (Lon:JLP) down again today. First time I have been in the red on these, I am now down over 5%?
£JLP Jubilee Metals
Johnmhughes- Personally, I am not worried about this. £JLP like many small mining stocks, often drops a bit when the gold price drops, even though it has numerous other irons (sorry!) in the fire. One would expect a bit of volatility in this sector.
Ricardo
Many thanks for responding ricardow.
Sosandar Sosandar (LON:SOS) . Much beloved in these pages. Is dipping over the last few days. Any wise thoughts ? Given the long term story, i'm tempted to top up
It went up 50% in a couple of weeks, so I would imagine it's just a correction. The news flow is positive, but perhaps it got ahead of itself a touch, the RSI was into the 80's which would be a sell sign for some
Yeah, just a pull back at Sosandar (LON:SOS) as investors at 20p are sitting on 60%+ gains so I can see the temptation to take some profits.
Also small caps tend to drift in between updates on trading when there is no newsflow and buyers gets distracted by something else.
Personally I have a decent size holding here, and am thinking of topping up at these levels. I am running a conservative portfolio though with lots of cash as I think a wider market correction is on the cards, but Sosandar is a strong conviction holding for me, regardless of what the market does.
If the scenario with Frontier Smart Technologies (LON:FST) is any indication, Science (LON:SAG) will be hoovering up as many shares as they can in TP (LON:TPG) at 5p. The starting gun has been fired and they will now want to accumulate pretty swiftly. They won't want to be long-term investors without control. They managed to leverage the fact that Frontier Smart Technologies (LON:FST) wasn't UK registered to avoid paying the highest transacted price to all shareholders. Don't think they will be able to pull that stunt again with TP (LON:TPG) as its precursor, Corac Ltd, was registered in the UK. So 5p should set the floor for the TP (LON:TPG) share price.
re TP (LON:TPG), once again Science (LON:SAG) is going after an overly cheap business with a poor history, on the basis that the business is probably improving, and can be improved a lot more with fresh equity and sensible cost-cutting. Note to self, should have bought Science (LON:SAG), not TP (LON:TPG), as they will almost certainly win the prize at a price maybe a little over 5, and it is the Science (LON:SAG) shareholders, not TP (LON:TPG), who will get the benefit. Hard luck on the new CEO, who would have been taking the same actions that Science (LON:SAG) will take.
think it highly unlikely Science (LON:SAG) win this at a little over 5p. I would certainly vote against and I suspect many others will too. Board not interested in engaging currently suggests any suggested price is too low.
think it highly unlikely Science (LON:SAG) win this at a little over 5p. I would certainly vote against and I suspect many others will too
Well, it's definitely in play. For a small company Tp (LON:TPG) has a lot of big institutions on board. If they're supportive then that gives protection - but if they're not then this is a done deal.
Interestingly Canaccord and Ruffer, who between them hold 19% of TPG, are also major shareholders in Science (LON:SAG). As their stakes in SAG are worth way more than those in TPG they'll probably back any reasonable offer which would give SAG 30% to start with.
Much would then depend on M&G who hold 19% and this looks like a legacy stake - it's mainly held in the Recovery Fund which is worth £1.5 billion so the £6 million or so that TPG represents is irrelevant to them.
From here, I reckon if SAG play their cards right they'll have every chance of winning a bid without paying much of a premium whatever the board or private shareholders want.
timarr
In play, yes but just because Canaccord and Ruffer have a decent stake in Science (LON:SAG) doesn't mean they will back a bid at any price. Nor M&G who are obligated to get a best price for fundholders. The new CEO really only has to persuade one of them to remain supportive and the bid gets no traction at all or put the different components up for sale separately to create greater value. Plus Science (LON:SAG) isn't going to buy it unless it can achieve greater than 75% and that's no slam dunk either, irrespective of those 3 institutions.
Nor M&G who are obligated to get a best price for fundholders.
I didn't know that. Where does that rule come from?
timarr
Basically as an AM you have to achieve best execution and treat unit holders fairly. In the event of a takeover attempt you therefore have to be able to demonstrate due diligence that there was not a better alternative on the table else they could be liable to unit holders of the fund. Now, in this case that's unlikely as it is a small holding in context of the fund and isn't really going to create any meaningful move in the fund NAV, but nonetheless the mechanics of that DD should be embedded in the investment process and therefore get applied irrespective.
Again, none of that means they couldn't accept a low ball bid and create a rationale, but if there is a credible alternative I'd be surprised if they did that.
One thing we don't know is whether the replacement of the old CEO was institutional led. If it was and the new CEO was blessed by them then that would raise the price at which they would let it go.
I've certainly seen some companies get taken out far too cheaply from weak hands and poor board tactics on the part of the target company so I would never rule out that possibility, but my guess is if they are prepared to buy 10% in the open market at 5p they are probably mentally prepared to pay 6p+ for the whole thing. A price of 8p has got to be of interest to the board you'd imagine so somewhere in-between 6 & 8p might find an amicable deal, particularly if it is done in stock so Tp (LON:TPG) holders share some of the upside.
Yes, very good points re ownership of TP (LON:TPG) . I have always assumed that Canaccord hold on behalf of others so maybe their holding isn't as committed as Ruffers' might be? As you say, it's immaterial to M&G but they are highly material to the outcome. I would have thought a good strategy is to hold both Science (LON:SAG) and TP (LON:TPG) at around this 5p level on the basis that if it gets taken out at a lowball price then that ought to be good for the Science (LON:SAG) SP. They appear to have executed the turnaround at Frontier Smart Technologies (LON:FST) spectacularly with a similarly neglected basket case.
Hi timarr.
That is a good analysis of how the chips appear to stack up with the main shareholders of Tp (LON:TPG) . I agree these look to be pretty weakly held holdings so I can see them being readily available at a decent price - how else could they expect to shift large, illiquid holdings in a serially underperforming company?
Reading the Science (LON:SAG) release from this morning they don’t seem to be pulling any punches.
https://www.stockopedia.com/sh...
To paraphrase, „we’ve approached you several times of late and you’ve ignored us, your recent performance sucks, you’ve just sacked senior management who were incompetent and your latest accounts admit concerns about whether your company is a viable going concern. Meanwhile, we, at Science (LON:SAG) have been going great guns“. This isn’t a warm and fuzzy friendly overture it’s the first salvo of a potential hostile bid and Science (LON:SAG) has its tanks squarely on the Tp (LON:TPG) lawn. Whether they bid 6p or 8p, ultimately it’s small change given the relative size of the two companies.
Gus.
This isn’t a warm and fuzzy friendly overture it’s the first salvo of a potential hostile bid and Science (LON:SAG) has its tanks squarely on the Tp (LON:TPG) lawn. Whether they bid 6p or 8p, ultimately it’s small change given the relative size of the two companies.
I was just looking at how SAG's bid for Frontier Development panned out. Vicious is what comes to mind.
They started by taking a low ball stake, then bought more in the market at a far higher price to take them over 25% of the equity. They then went hostile to take just 50% + 1 share at the takeover price and following the bid going unconditional orchestrated a buyback at a lower price before folding Frontier into the main business.
I would be very surprised if TPG escape with their independence, they should probably negotiate for the best price. But I also wouldn't be surprised if SAG are buying in the market now. Once they're over 25% they can effectively block a counter bidder.
Fascinating.
timarr
yep - it will be a fascinating M&A situation
Actually one thing we forgot about is who they bought their 10% from. You don't buy that in the open market as there isn't enough liquidity and they haven't built it steadily so we need to see which institution reveals they have sold down in next few days. If it was one of the 3 large institutions that makes their job harder.
They are aggressive bidders though by the looks of things so Tp (LON:TPG) will have to be equally aggressive to remove the tanks from the lawn.
If I were to place a bet blind now - it would be a 7p recommended bid but in shares to placate those who wish to hold. Definitely going to be an interesting situation to watch.
Actually one thing we forgot about is who they bought their 10% from. You don't buy that in the open market as there isn't enough liquidity and they haven't built it steadily so we need to see which institution reveals they have sold down in next few days. If it was one of the 3 large institutions that makes their job harder.
And now we know ...
On the 9th August 2021, Close Brothers Asset Management sold 79,308,596 shares in TP GROUP PLC ORD GBP0.10. This brought our shareholding to 0.37% of the shares in issue. This is based on the shares in issue figure of 779,178,719 as at 6th August 2021.
https://www.investegate.co.uk/...
timarr
Science (LON:SAG) / Tp (LON:TPG) seems reminiscent (albeit on a much smaller scale) of the Melrose Industries (LON:MRO) approach and ultimately successful hostile takeover of Gkn (LON:GKN) in 2018, even down to the target being a long term under achiever with (from memory) a recently appointed CEO/Chairman (can’t exactly remember which) who probably thought they were taking a final sinecure posting before the pension kicked in and ending up in a bidding war. Revisiting the old Melrose Industries (LON:MRO) thread maps out one possible set of dance moves for the way this one might go …. history may not repeat itself, but sometimes it rhymes.
https://www.stockopedia.com/co...
Gus.
For those of you who are interested in H&T (H & T (LON:HAT)) which I hold, Simon Thomson of the Investors Chronicle has today written an update on the company following publication of its annual figures yesterday. Although there is an ongoing FCA review into the high cost, short-term loans business, he does not believe the eventual redress will hold back the company’s longer-term growth prospects. In addition, he includes forecasts of profits, earnings and dividend estimates from Numis and N+1 Singer over the next two years. He has a target price of 400p.
Kind regards
Phillip
Thanks for that - been patiently holding a loss that was topped up during the pandemic and was beginning to think that was a mistake until recently.
Yes this one really did require some patience but seems to be finally picking up now.
Sanderson Design (LON:SDG) first major licensing agreement in the USA . It is for its Morris & Co brand., which is to develop a kitchenware brand in collaboration with Williams Sonoma, a multi channel retailer of high quality domestic products.. Need to research the latter.
Significant potential for Sanderson Design (LON:SDG) and its licensing strategy one would think. I hold.
re: Sanderson Design (LON:SDG) (I hold) - Having a look at this now, good to see positive news flow on a high margin section of the business. From last AR. - "Licensing income is a dynamic and high margin revenue stream for the Company with further potential for growth." I believe Paul holds this so would be great to get a comment on this area of the business if time permits.
Georgia Capital (LON:CGEO) not an oft talked about stock but have you seen the NAV discount in todays half year results!
Basically they have a NAV of £12.50 and trade at £6.30, surely that's bonkers?
Much of the NAV is in their holding of Bank Of Georgia (LON:BGEO) ( Georgia Cap was a spin off) which is listed here in UK and also looks well undervalued in my view but also a really strong private healthcare business and other utilities.
No idea when the gap narrows but I see they are resuming share buy backs of £10m
Well, if you think 0.5x NAV is a bonkers valuation, wait till you check out Metro Bank (LON:MTRO) .
The last time I checked, it was maybe circa 0.2x P/B?
yeah but Metro Bank (LON:MTRO) bank I get. This is an investment company where a big chunk of the asset value is in a listed stock and the unlisted stuff is in good growth utility type businesses. 0.5 NAV is unusual even in listed PE vehicles investing in much riskier early stage businesses.
£orph
Interesting nuggets in Open Orphan’s £orph presentation yesterday on Investor Meet Company:
1. The recent share price weakness was due to a large legacy shareholder who sold his entire holding. That overhang is now cleared.
2. They are planning to spin out 3 more non-core businesses as separate quoted companies.
3. The presenter was emphatic that £orph is profitable - no £££ until the results next month.
I bought a few more mainly because the end of the stock overhang clears the way for some upward price movement.
Ricardo
£orph, I hold. Useful presentation. Friel indicated that they had held back on newsflow while there was a seller in the market. But what a dreadful presenter he - he rambled, repeated himself and garbled answers. If he wants to run a billion dollar company he needs to learn to present like the boss of one. He says that sometimes he is in too big a hurry - I hope he manages more coherently than he comes across public. Take a breath, and get some media training.
I agree with you that it was a useful presentation but I disagree with your opinion of his presentation style. Considering the technical problems during his presentation, I think that he performed well. My hope is that he delivers on his objectives.
Yes was good to get an update in Investor Meet Company on Open Orphan (LON:ORPH) (I hold) last night. He does talk rather quickly, sometimes hard to follow. Significant points for me were:-
Someone on LSE has made some excellent notes from the presentation here: - https://www.lse.co.uk/profiles... - I've linked to their profile. Avoid the BB lol!
I've held Open Orphan for a while and listened to very many of Cathal's presentations. I think he needs to find a new reason soon for the share price languishing apart from a 'seller in the market'. This must be at least the third time he has used that. If there really are so many sellers of Open Orphan shares in the market, one might need to start asking why...
He is playing to an audience - the reality is that Open Orphan (LON:ORPH) is currently complicated and has been for the last 12 months. They try and simplify it but investors hear what they want to hear. Like most of these plays they have ridden the wave of investor euphoria and are now battling the trolls who spot an opportunity. Best to cut out the noise in my opinion.
I hold and continue to do so....why?
So the reality is who cares what happens in the immediate term. I expect them to create me 70p+ worth of value over a 12-18 month window as results and crystallisation events come through. At current levels of trading it doesn't strike me that my risk level is particularly high either with the shares in the low 20's.
The core promotional problem is that too many investors want a get rich quick event. Cathal is naturally quite promotional and optimistic, himself in a hurry to get things done. Share prices moving south gives him a problem as investors clamour for news and salivate over every minute detail. Each missed day is apparently something to worry inordinately about!! Businesses just don't work like that. In the last 18 months they've amalgamated 2 loss making businesses and turned them profitable, spun out one of the non core units and are now dealing with legacy stale shareholders selling down and creating overhangs. All of that will pass in short order.
Much better in my view to understand the business components and where the creation of value is likely come from and then take a view on whether you believe management are capable of executing. At which point patience as an investor becomes a virtue.
@davidjhill
You do a better job defending Open Orphan (LON:ORPH) than the CEO did yesterday. Pity you weren't doing the presentation!
It was one of the poorer that I have seen from a CEO. Yes there were technical issues but he has to own them too. Get a proper conference room with a wired connection as opposed to sitting in a corner somewhere hoping the wi-fi works.
He has previously committed the cardinal sin of talking up the share price and encouraging just the shareholders that wanted the get rich quick event. So no point blaming them now.
I cut my holding a while back to a level I am prepared to let run but it's not great that the sellers in the market driving the share price down seem to be former insiders who presumably know the business.
lol - thanks John
Yesterdays was one of the poorer I've seen from Cathal I agree and I'm not really sure of the point to it other than to assuage pi's insatiable appetite for snippets of news. There were a ton of questions but most were pretty inane and had been well covered elsewhere if people had bothered to listen. Hence what we got was a lot of waffle really. I learnt absolutely nothing new.
Re : The seller. Was one large legacy holder who was in one of the old businesses so I don't read much into that. We've all done it. Entered into trade we haven't exited swiftly enough that tanked then got lucky that someone else has picked up the reigns and brought us back to flat or profit after a few years of hurt. We cut the trade with a sigh of relief but it has nothing to do with fundamentals, it's just psychological.
Spot on, have followed this for ages, I don't post a great deal, but understanding the business, I am happy to be a LTH the rest is noise, and I have to say CF looked tired last night, maybe working too hard with so much going on, and if you look at his shareholding, why wouldn't I want to be aligned with the company and spin off's.
Will just put my tin hat on and wait for the negatives! this is what makes markets fascinating
Interesting purchase of 10% of TP (LON:TPG) by Science (LON:SAG) . Looks like a replay of the Frontier Smart Technologies (LON:FST) bid - overpaid management presiding over long-term shareholder value destruction at TP (LON:TPG) and Ratcliffe thinks he can step in and turn it round as he did at FSG. Wouldn't bet against that. Would think that 5p he paid for the stake yesterday would now set a floor for the SP.
I hold Science (LON:SAG) and bought into TP (LON:TPG) this morning.
well Tp (LON:TPG) announced they have had an approach this morning too. Not sure where they'd sell it. Remember the CEO is brand new and just in the job so unlikely he is going to want to cede control too cheaply either.
Equally being a new CEO, he probably took on a package with a hefty slug of share options which will vest immediately at a nice premium if a bid for £TPG goes through. As a newbie he’s probably not especially invested emotionally in the company so perhaps quite happy to take the money and run (and sit in the garden for six months pending his next appointment).
Gus.
it doesn't look like it. That would have been disclosed in the initial directors statement, as indeed his 2.6m share purchase at 3.77p was. He is also 65 years old so probably unlikely to want to be sitting in the garden waiting for his next appointment given he clearly didn't want to retire!
agree he will be less emotionally invested but also refused the sale of the Maritime business when it didn't meet the boards valuation just recently.
My guess is that a bid around 7p probably succeeds but not sure whether Science (LON:SAG) will pay that.
My morning smallcap tweet: Boiling up the bones of briefings
Sensyne Health (LON:SENS) Marlowe (LON:MRL) River and Mercantile (LON:RIV) Fletcher King (LON:FLK) Purplebricks (LON:PURP) Beeks Financial Cloud (LON:BKS) Barkby (OFEX:BARK) OptiBiotix Health (LON:OPTI) Dekel Agri-Vision (LON:DKL) S&U (LON:SUS) Zotefoams (LON:ZTF)
Sensyne Health (SENS) to conduct its first multi-omics AI drug discovery project in partnership with Oxford University. "The three-year project will focus on identifying novel drug targets for patients with severe forms of asthma that do not respond to the current standard of care." [SP=151 Cap=249m]
Marlowe (MRL) end offer approach for Restore. TRading in H1 ahead of mgmt expectations. [SP=757 Cap=584m]
River and Mercantile (RIV) confirms press reporst that it has received approaches for its Solutions business. [SP=210 Cap=179m]
Fletcher King (FLK) confirms it expects overall losses for H2 broadly similar to H1. Sarted this FY "with a more optimistic outlook." Still in talks for share subscription by Elliott Bernerd. [SP=49.5 Cap=4m]
Purplebricks (PURP) another change to its model, following move to 'no sale no fee'. Will employ its agents. Will cost c. £3-4m in FY22, with ongoing administration costs expected to be c. £1m higher. Was this forced on the co by employment/tax law? [SP=71.1 Cap=218m]
Beeks Financial Cloud (BKS) launches Proximity Cloud, "a high-performance, dedicated and client-owned trading environment, fully optimised for low latency trading conditions...addresses a significant part of the market that was previously unavailable to the Company." Trading in line, [SP=123 Cap=69m]
Barkby (BARK) guides FY(June) rev up 28% and EBITDA loss £1.6m, before Cambridge Sleep Science startup costs of £0.9m. July LFL up 10% on 2019. [SP=22.22 Cap=31m]
OptiBiotix Health (OPTI) has extended the territories of agreement with Seed Health for the production, promotion, marketing and commercialisation of products containing OptiBiotix's Lactobacillus plantarum from USA to Europe, Australia, New Zealand and Asia (excluding India). [SP=54.24 Cap=48m]
Dekel Agri-Vision (DKL) palm oil CPO sales in July up 68% and price up 89%. Commissioning of the Cashew project delayed to Sept. [SP=4.63 Cap=25m]
S&U (SUS) trading ahead of expectations in terms of profitability, collections and book debt quality. [SP=2820 Cap=342m]
Zotefoams (ZTF) H1(June) rev up 29% and 19% on 2019. Pretax up 49%. "In H2 we expect further positive momentum in sales, with a strong order book underpinned by improving economic conditions. Product mix is anticipated to be slightly more favourable, with good growth in HPP products and recent sales price rises in polyolefin foams. FX headwinds are expected to continue. Gross margin, benefitting from strong sales and better mix, is expected to remain steady." [SP=444 Cap=216m]
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I have read the S&u (LON:SUS) update. Positive but a bit vague.
Jack can we get your thoughts on Zotefoams (LON:ZTF) ? They half their interim numbers today which look ok on turnover and profits but warning of cost pressures tempering optimism . It is a quality business but on a 26 turn rolling multiple and 1.9 turns leverage and I am interested in how you think of valuation
Portmeirion (LON:PMP) I wrote this yesterday night if anyone owns https://www.stockopedia.com/content/a-cheap-uk-super-stock-with-earnings-upgrade-potential-portmeirion-plc-851964