Small Cap Value Report (Wed 1 Mar 2017 - Part 2) - EMR, COST, IPF

1st Mar '17 by Graham Neary

13 comments 12162 reads

Hi there!

Today's Part 1 by Paul includes:

Revolution Bars (LON:RBG)
Elegant Hotels (LON:EHG)
MySale (LON:MYSL)
Vertu Motors (LON:VTU)
DX (Group) (LON:DX.)

In this report, I am planning to cover:

Empresaria (LON:EMR)
Costain (LON:COST)
International Personal Finance (LON:IPF)

Cheers,

Graham

Empresaria (LON:EMR)

Share price: 148p (+4%)
No. shares: 49m
Market cap: £72m

Final Results

Really solid results here:

I covered this at the year-end trading statement (see 24/1 SCVR) and the 23% gain in adjusted profit before tax which was forecast then has indeed materialised.

Temporary recruitment reaches 60% of net fee income, up from 55%, in line with strategy to emphasis this more predictable source of income. Good news.

Ex-UK income also increases as a percentage of total net fee income, up to 68% (from 63%). As has been mentioned before about this stock, it offers plenty of international diversification.

Final Dividend increases to 1.15p from 1p.

Outlook

Reasonable outlook statement:

We are confident that 2017 will be another year of profit growth with the Group benefiting from the potential within its existing brands and also the investments made in 2016 contributing for a full year.

,My opinion

I still like this share, I think it's at a reasonable price and it's hard to find much fault with the company.

The StockRank remains at a very healthy level:

Arguably, recruitment companies should always trade at a discount to the market as a whole.

On peer comparison, a simple forward PE test shows that Empresaria at 10x is ranking mid-way between smaller player Harvey Nash (LON:HVN) at 7x and the much larger rival SThree (LON:STHR) at 14x. Given the scale of SThree, it would be reasonable to expect Empresaria to trade at a relative discount.

The other thing I'd note is that the constant-currency results were quite muted without the impact of a weaker pound sterling, so it's hard to think of this as a growth…

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herbie47

1st Mar '17

Thanks Graham, re Empresaria (LON:EMR) the only thing I did notice was Profit before tax was the same if you disregard currency change. Of course currency could go the other way in the future. The good thing is they now have 68% income from overseas so even if the UK does have problems it should not affect them that much. My only issue is they are small, £8m profit spread over 20 countries does seem a bit thin to me. Revenues are up a lot but profits not nearly so much, does this mean their fees are being reduced?

pgs501

Hi Herbie,

Could be wrong here but I think with recruiters when fees rise the commission paid to staff rises too. I remember from my time at Hays about 3 years ago the scales were (based on each month of fees billed):
£0 - £5k: 0%
£5k - £10k: 8%
£10k - £15k: 10%
£15k - £20k: 15%
£20k - £30k: 20%
£30k+: 30%

If EMR (or their various subsids) do something similar top line revenue could be misleading, of course their fees could be being reduced as well.

Pete

simoan

Graham,

I'd be interested to hear yours (and anyone else's thoughts for that matter) on the shenanigans at Pennant International (LON:PEN) over the past week? A week ago the CEO steps down with immediate effect and today the interim CEO (previously CFO) takes up the role with a new management structure that doesn't seem to include any other executive directors. Also no sign of a new CFO being appointed, just a Head of Finance.

Very strange corporate governance to say the least for a listed company. I did hold but dumped last week on the CEO departure as I don't like a long time CEO stepping down "with immediate effect".

All the best, Si

whitmad

Re: COST - another negative point is the risk of further significant costs associated with an energy from waste contract::

https://www.constructionnews.co.uk/companies/contractors/concerns-raised-over-costain-pfi-repair-works/10017417.article

https://www.research-tree.com/companies/uk/construction-contractors/costain-group/research/liberum/liberum-costain-in-line-pre-close-cash-better-and-no-news-on-manchester/02a8e422-92d5-4478-b90b-62e5b2deb274

rhomboid1

I'd say it's usually the case that an instant departure is most often because of a personal transgression or major fall out with a major holder. The only occasion I sold on such news was Headlam (LON:HEAD), that was a wrong move in retrospect and the shares are a lot higher just a few months later. I know nothing of what's occurring here so I'm not sure how helpful my post is but heh I've typed it now..

I agree there's probably been some form of misconduct or falling out with the major shareholder here, but the RNS have been pretty terse and I'm not sure I'm comfortable with the new management structure. I presume trading is probably OK and unaffected by the departure but I'd rather shoot first and ask questions later in these situations. If the share price rises, so be it, I've already recycled the money into good companies that haven't just lost their CEO of 10 years... there are plenty more fish in the sea!

dahokolomoki

I think most of Costain (LON:COST) contracts are costplus, which means that they can pass on any rising costs and complications.

But there is a risk they screw up a project and have to make good.

Splode

Si, re Pennant International (LON:PEN) -
The CEO quitting suddenly suggests a board-room coup but the new CEO (old CFO) may turn out well. Mr Market has risen on the news with moderate volume (but he has had a good day all around today). Full year results are due next week when more may be revealed. Perhaps contrary to the FY trading update in January, the results may not be that good so I have sold half my holding).

financeguru2000

So happy with Empresaria (EMR) Up 75% in my portfolio. No reason to sell up.

Can anyone give advice on Centamin (LON:CEY)please.

Thanks

2nd Mar '17

The CEO quitting suddenly suggests a board-room coup but the new CEO (old CFO) may turn out well. Mr Market has risen on the news with moderate volume (but he has had a good day all around today). Full year results are due next week when more may be revealed. Perhaps contrary to the FY trading update in January, the results may not be that good so I have sold half my holding).

The trouble I have is that the change of management structure all just seems a bit too cosy. To swap your CEO for the CFO and not appoint a new CFO all within the space of a week means there was absolutely no attempt to look outside the company for either role. And now we have the new CEO being helped by an employee committee. Unfortunately, I'm of the school of thought that believes nothing any good has ever come about as a result of decisions made by a committee!!

catalogue

9th Mar '17

Graham, thank you for your work on Empressaria. It took quite a dive after the results and its StockRank has dropped to 79 - any ideas? For next year it is all down to whether the new acquisitions meet expectations I suppose?

20th Mar '17

Empresaria (LON:EMR). It is down again today, 8% any ideas why?

Herbie, it seems that Close Bros bought 137,210 shares on Friday taking their cumulative holding over 5% and leading to an RNS. I don't understand this stuff and would have expected a rise in price. In fact the fall is 5.8%. Still I would be very happy with a rise of 5% so it is a bit disappointing but seems par for the course with Empresaria.

Small Cap Value Report (Wed 1 Mar 2017 - Part 2) - EMR, COST, IPF

Empresaria (LON:EMR)

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Graham Neary

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