Small Cap Value Report (Wed 10 April 2019) - TND, SRT, NXR, W7L, ALT, INDV | Graham Neary

10th Apr '19 by Graham Neary

36 comments 12324 reads

Good morning!

Today I am looking at:

Tandem (LON:TND)
SRT Marine Systems (LON:SRT)
Norcros (LON:NXR)
Warpaint London (LON:W7L)
Altitude (LON:ALT)

Tandem (LON:TND)

Share price: 177.25p (+4.3%)
No. of shares: 5 million
Market cap: £9 million

Final Results

(Please note that at the time of publication, I have a long position in TND.)

I swore that I'd never touch this share again, and have been an outspoken critic of management at this company - they are paid far too much relative to the size of the business and relative to shareholder rewards, and they spent a lot of money on acquisitions which simply didn't work out very well.

See my comments in September, describing the entrenched board of directors. See my pained description of the company's positives and negatives in July.

In a presentation at the Manchestor Investor Show last year, I laid out in detail the unpleasant metrics: director pay being 33% of operating profit and four times larger than the dividend.

Despite all of the above, I couldn't resist buying a few shares in it today.

It's a trade designed to minimise pain: I wouldn't be able to stomach losing a lot of money twice on this share, but I think it would be even more painful to watch it rally to a decent earnings multiple. So now I'm back with a small stake.

So why am I back in?

Well, it looks as if the company just had an extraordinary H2. There have been false dawns before, of course. So I'm not going to assume that things are going to be rosy from now on.

About the company

Tandem is a designer, developer, distributor and retailer of sports, leisure and mobility products. It has a freehold property at its heaquarters in Castle Bromwich (Birmingham) and rents other premises.

It was already back on my radar as my friend Professor Glen Arnold has been blogging about it in recent days at the Deep Value Newsletter on ADVDN. He reckons there is value in it at the current level, and I agree, but with some heavy qualifications!

It used to be focused on bikes but is…

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Petards (PEG) – FY2019 results

The main news for me today is the Petards (PEG) results.

The good:

Revenue of £20.0m is above expectations of £18m

Normalised pre-tax profit up nearly 60>#/li###

Small contract win separately announced today (as I speculated), with work commencing immediately.

Order book up and further orders expected.

Net funds down only £0.3m despite £1.25m acquisition.

The bad:

Second half weighting for FY2019.

Warning of reduced defence business in FY2019.

Order book (at year end) is only modestly higher at £19m vs £18m of which the forthcoming year is up from £12m to £13m.

Gross margins down

Normalised EPS not reported and I cannot immediately compare to forecasts.

I would expect a modest rise in the share price this morning. However I already have a moderate position and due to the negatives highlighted above I will be holding off adding until there is an unjustified price fall or further positive news.

Norcros (NXR) – FY trading update

In-line update. This is reassuring giving that they carry some debt and pension liabilities.

I had reduced my position at a higher price over concerns whether FY results could be achieved and so will be looking to re-add this morning. Note that despite its relatively small size, this is not an AIM stock.

back2value

10th Apr '19

Jam today!

[quote]

SRT Marine Systems PLC (SRT), a global provider of maritime surveillance, monitoring and management systems, today announces a trading update for the year ended 31 March 2019.

The Company expects to report revenues of approximately £20.0 million and profit before tax of £3.0 million with gross cash as at 31 March 2019 of £3.9 million*.

[unquote]

Will be interesting to see how the SP reacts later. CEO Simon Tucker says that they have a pipeline of GBP 35M of contracts in progress and another GBP 212M of business that they hope to secure in the next 12 months.

B2V

Beginner

Despite being a recent IPO RA International (LON:RAI) may be of interest. The company offers support to industry and agencies in remote locations.
PER = 8.5
Revenue up 7%
Profit up 6%
Maiden divi at 1p
$27m (a third of the market cap) in the bank and no debt.

Interestingly "the credibility gained from the Admission to AIM has led to invitations to bid for opportunities which were previously unavailable to us, both from existing and new customers". (Not often you see "AIM" and "credibility" in the same sentence!!)

MrContrarian

My morning smallcap tweet: SRT holders toast sight of jam

Findel (LON:FDL), FIH (LON:FIH), SRT Marine Systems (LON:SRT), Seeing Machines (LON:SEE), Inland Homes (LON:INL)

Findel (FDL) only 1% of holders (excl. SPD) have voted to accept SPD's offer of 161p. Deadline extended to 24 Apr.
FIH Group (FIH) says FY pretax will exceed market expectations by a comfortable margin.
SRT Marine Systems (SRT) guides FY rev £20m and pretax £3m. F/C £20.5m and £2.7m. Are holders finally going to tase some jam? "MDA systems business which currently has contracts worth approximately £35m in progress and a significant pipeline of sales opportunities of which six, with a value of approximately £212m, we hope to formally contract during the course of the next 12 months." I hold.
Seeing Machines (SEE) wins US driver monitoring contact worth an initial estimated lifetime revenue of A$7m.
Inland Homes (INL) £78m land and build deal with UK's largest Housing Association

Mh101

Ergomed (LON:ERGO) please Graham if you have time (you have covered before)! Some accounting adjustments but revenue and EBITDA roughly in line, and they have grown their order book once again which gives good transparency on future revenues.

Lion Tamer

Ref Sports Direct International (SPD) and Findel (LON:FDL) Debenhams (LON:DEB) GAME Digital (LON:GMD) and others?

Given Mike Ashley's attempted opportunistic take over strategy with Debenhams (a failed strategy in this case), and today I see also Findel, I wonder if there is a read across to other companies in which Mike Ashley has a stake (I can think of GMD but there must be others?)

Disclosure; I don't hold any of the companies listed, but I have previously held GMD (up to soon after Mike Ashley got involved)

Snoo

Walker Greenbank (LON:WGB) may be of interest to a few on here (including me).

On first scan it seems good but on reading a bit more I have changed my mind. Profits seem to lag behind the analyst note of 26/2/19. The dividend is also cut, although perhaps this is foreseeable.

In the absence of everything else I do wonder if there is a profit warning built in for next year as licencing income is anticipated to drop to historic levels, the only explanation possible is that the H&M thing will not be renewed.

The pension deficit payments are quite significant, particularly if profits drop. The brands seem pretty decent, so I don't really know if they are in decline or whether the new CEO can reinvigorate them.

Albertos

Norcros (LON:NXR)

In-line TU today. Big reduction in debt - from £47m to £36m . Sales up @10%.

Phil

LeoInvestorUK

Posted on my blog (see profile) earlier:

Revenue of £20.0m is above expectations of £18m
Normalised pre-tax profit up nearly 60>#/li###
Small contract win separately announced today (as I speculated), with work commencing immediately.
Order book up and further orders expected.
Net funds down only £0.3m despite £1.25m acquisition.

Second half weighting for FY2019.
Warning of reduced defence business in FY2019.
Order book (at year end) is only modestly higher at £19m vs £18m of which the forthcoming year is up from £12m to £13m.
Gross margins down
Normalised EPS not reported and I cannot immediately compare to forecasts.

Disclosure

I hold shares in Petards and Norcros.

He has a fair old chunk of French Connection (LON:FCCN) .

TamzinPiworld

Arena Events (LON:ARE) FY18 results today, (another IPO from 2018.)

Following UK operational issues last year, reassuring results. Improvements in revenue and EBITDA. Small increase in dividend. Completed eight acquisitions. Great repeat revenue. Positive outlook with plenty of upcoming major events, including US Open. US Ryder Cup and the Tokyo Olympics. Expect a strong 2019 and very strong 2020.

A very helpful video by CEO & CFO: https://www.piworld.co.uk/2019/04/10/arena-group-plc-are-fy-results-to-31st-december-2018/

Howard Adams

Hi Beginner

If you or others are interested here is a Mello video presentation 2018 from RA International (LON:RAI).

I do not hold.

I will watch with interest though, based on the potential expressed in this video.
https://www.piworld.co.uk/2019/02/19/ra-international-group-rai-presentation-at-mello-london-november-2018/

Regards
Howard

rmillaree

RA International (LON:RAI)
Thanks for flagging this one up - is it correct that profits for 2019 are expected to be $18 mill? - i make that a pe of 4.5.

Ok i think the following probably explains the cheap rating - presumably anything could happen in the future with regard to their contracts.

Taken from random other site on the web with thanks

From the admission document, around 80% of personnel are in Somalia and over 80% of current revenues comes from Somalia. Very high risks when you consider the political and military risks that such countries present.

Despite the ridiculous risk profile i quite like the look of this business, they seem to be providing positive solutions in presumably tough areas that most other businesses probably wouldn't touch with a bargepole. And shareprice does look completely bombed out - although i would need more info with regard to their dependency on Somalia for profits going forward and how real the risks are that it could all go wrong in that country before taking a stake.

Hi Howard
Thanks for this. Much appreciated. I have a small holding here, based primarily on a friend's dealings with them. Not to go into too much detail, but he reckons they must have massive margins, and that the directors are extremely well connected, and that is how much of the business in this sector is drummed up. Contracts are likely to be 'lumpy', and the share price will act accordingly, but overall he is convinced there is a very decent business here, run by good people.

RA International (LON:RAI) are trying to diversify away from that core business, by both heading to other geographical areas, and by moving away from the UN/third sector base of their initial work. Recent RNSs were used to underline entry into "Central Africa", expansion in Mozambique, and the provision of services to mining and oil exploration companies. There is risk here, but perhaps also an opportunity.

laurie

Petards (LON:PEG)

I like the company, but be aware of this from today's results as it could affect how one perceives value:

investment totalled GBP1,608,000 (2017: GBP1,290,000) of which GBP1,444,000 was capitalised (2017: GBP1,043,000). The capitalised costs relate predominantly to the Group's next generation of eyeTrain software products

(in '000s):

Amortisation of intangibles (590)

Operating profit 1,156

Both Trade and other Payables and Inventories are high and increasing.

no current holding

cafcash49

Warpaint's( W7L) results are out today. I think they make very positive reading in terms of the future. (See RNS) They are also well presented and I don't think the Directors are being greedy. I am a holder and quite enthusiastic about them. The market has marked them down a bit at -2.4% as at 10.30am. I think they are a medium term bet but as always DYOR.

Small Cap Value Report (Wed 10 April 2019) - TND, SRT, NXR, W7L, ALT, INDV

Tandem (LON:TND)

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Graham Neary

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Petards (PEG) – FY2019 results

Norcros (NXR) – FY trading update

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