Small Cap Value Report (Wed 13 July 2022) - ECEL, WINK

13th Jul '22 by Paul Scott

52 comments 6404 reads

Good morning! It's just Paul today, Graham's busy.

I'm running a bit late, sorry about that, the first section should be up by 10am.

Agenda -

Paul's Section:

Eurocell (LON:ECEL) - a surprisingly upbeat, in line with expectations update from this seller of building products. It looks a nice value share, with sound finances, a low PER, and lovely 6% dividend yield. Worth considering as a long-term investment, depending on your macro view of course.

M Winkworth (LON:WINK) - a micro cap estate agents. It's not clear why its shares are listed. Too small to interest me, and not good value either. Although H1 performance seems good, and is in line with expectations. No sign of a housing market downturn yet.

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.

Paul’s Section:

Eurocell (LON:ECEL)

175p (up 2% at 09:30)

Market cap £196m

Trading Update

Eurocell plc, the market leading, vertically integrated UK manufacturer, recycler and distributor of innovative window, door and roofline PVC products, provides the following update for the six months ended 30 June 2022.

Company’s summary -

Good First Half and Trading in Line with Expectations

A decent update today, the key bit says -

… we continue to trade in line with expectations.

Given that forecasts look quite ambitious, and have been going up, I’m pleasantly surprised that the company continues to trade well.

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Other points…

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mojomogoz

13th Jul '22

Getbusy (LON:GETB) -> 29% YoY rev growth at interim with fy22 guidance lifted by at least 8.5% (estimate about 1.25% USD +ve impact in half). Strategy is to invest excess op cash for growth (both client acq and R&D). Price down 25% this year and 50% from peak. 1.5x rev for niche saas highly developed product to target and retain its target customer base (accountants, insolvency, specialist finance) making defence against more generic solutions robust at c.£245 pa user cost. Doubled revenue in 5 years and targeting the same going forward.

Mr Mkt’s wisdom is acute…

Berksbee

Have to concur, re LON:JDW, I believe it is very defensive and in my experinece offers excellent value and adapts to the demographic of its surroundings. I was mulling it over only yesterday - the problem is there are so many great opportunities out there.

zipstuck

The new non exec appointment is interesting. Perhaps Vianet (LON:VNET) is looking for an exit route.

Hi Paul, agree LON:WINK is small but its a dividend king - and is prone to sharing excess profits as special dividends. (6.4p in the last year). I've held it for some time and have nearly tripled my money by reinvesting. It also has an excellent stocko score.

Markds28

I had a little look at TCAP yesterday, I came away thinking there is value there but they arent generating the profits their adjusted numbers indicate as they are making alot of exceptional charges and are forecast to continue to do so, I dont mind the amortisation of acquired intangibles but when they are including 'costs to achieve cost savings' and incurring these costs year on year I don't think you can seriously accept the adjusted numbers as representative of the true business performance.

See below for the forecast numbers for 2022 from their 2021 accounts:

The main significant items for 2022 are expected to be approximately:

§ c.£50m of amortisation of intangible assets from acquisitions with the increase due to a full-year impact of the Liquidnet acquisition.

§ c.£40m of costs to achieve the cost savings programs initiated in 2021 (see Incremental P&L savings and costs to achieve table in the previous section).

§ c.£20m of costs to achieve new savings initiatives currently being planned.

§ c.£10m relating to the unwind of the discount of deferred consideration relating to acquisitions.

§ c.£6m of Brexit related staff relocation costs following the EU stating it is unlikely to grant UK-based firms automatic market access equivalence.

We expect significant items to reduce further in 2023.

Rusty2

The issue with M Winkworth (LON:WINK) is the spread is very wide, around 11% and that when there is no bad news. It is a problem investing in uk small caps.

dulciemo

That’s a good decision. I hear of many people who order 2 of the same thing at different sizes and send one back.

TheFloatingInvestor

Agree J D Wetherspoon (LON:JDW) is a great business, the food is also excellent and great value!

I too have held this share for over 5 years and it pays a good quarterly dividend and the odd special dividend. It seems very reliable and will be staying in my sipp for the long term.

Solid State (LON:SOLI) Been close to pulling the trigger, but its still a pretty punchy P.E. for the current market conditions I.M.O, backed up by Paul's excellent recent coverage, I'm on the fence.

Clearly plenty of good RNS news coming out from them, with contract wins etc. Just the P.E. puts me off for now, even after the fall.

Boon

Who will now go elsewhere to order two sizes and send one back. IMO Boohoo (LON:BOO) products aren't special, and their customer base are poor and count the pennies.

Think about this; their customer base are willing to buy Shein, where delivery takes far longer. Just to save a few pounds here and there. That's the type of customer they are dealing with.

Breakout Trader

Inflation data worse than expected

sevenccc

M Winkworth (LON:WINK) ownership heavily in the Agace family (c50% in total) and the dividends not inconsequential as an income stream for them therefore. They don't trade them so we start with half the stock 'in play' effectively £11m of the market cap only for the rest of the world.

This outfit are more sales and London orientated than Belvoir (LON:BLV) and £TPFG. I know Paul favours Belvoir (LON:BLV) but I've always thought Property Franchise (LON:TPFG) was the best play in this sector and the acquisition of Hunters last year reinforced their leading franchise position. Will be interested to see the updates from both over the coming weeks. They usually report fairly close together.

Belvoir (LON:BLV) have dropped from 320p last August to 211p now. Property Franchise (LON:TPFG) from 365p in April to 272p today. Both look good value at current prices but market sentiment not supportive. With rental inflation running at 8% nationally, I think this was in their last commentaries, I'll be watching for that number in the half year updates.

A pal currently renting a property out recently checked the market and apparently could increase his rental by 20%, according to local agents and tenants expectations. He's doing the decent thing though as he wants them to be long term residents.

Let's see.

rmillaree

J D Wetherspoon (LON:JDW)

I believe it is very defensive

In theory that makes sense but reality at present is that they expect to lose £30 mill this year and have chunky debt (they have been buying back freeholds) - so its not so defensive short term if they needs to go back cap in hand to the market "again". I am in for the long haul though as like "greggs" they have a nice simple busines model that should work well in "normal" times

Michael C

If anyone wants to hear Christopher Mills' comments which Bouden54 referred to, I think the relevant podcast is here, at 37:45

When I was listening to this I got a little irritated that whenever he discussed valuations of anything his only interest was in EBITDA, and I couldn't make up my mind whether I was listening to pearls of wisdom or someone talking their book. And when I looked at his funds there seemed to be some cross-holdings which I abhor. But I noted he said that his fund bought TP Icap (LON:TCAP) recently at about £7 and there are signs of an activist investor getting involved.

Thanks to Paul for taking an interest. I do not know how you fit it all in.

Fair comment on debt and like you I had drawn the Gags parallel. What they do not need is another lockdown (-which I can not see happening*) *Says the person that said even Putin wasn't stupid enough to invade the Ukraine!

eParo

Volex (LON:VLX) crossed 50D MA recently, PEG=0.6, £ weakness against $ should also help fcst numbers. valuation looks cheap to me.

simoan

Reminds me of that pearl of wisdom from Charlie Munger that whenever you hear or read EBITDA replace it with "Bullshit earnings". I have no idea why anyone would use it to value a company, it makes no sense. Is that maybe what Private Equity do?

All the best, Si

Harry Hindsight

Volex (LON:VLX) - support at 250p since 02/2022. 300p upside but with 150p a risk - I like round numbers (prove me wrong?).

Underwater but holding as the mercurial fundamentals still hold out long.

But patience has a price :)

J D Wetherspoon (LON:JDW) has some of the greatest pubs in the UK, irreplaceable, conservation area etc, a long hold.

But real ale aficionados CAMRA are niche.

Plenty of hipster lager brews with fruit etc have gained the traction maybe with Treatt (LON:TET) flavourings etc or their American big brother and other moat destroyers.

In my day new entrants were 'wine bars' - but accept with our cultural changes going on the old pub is like an old castle - a part of history. Discuss.

Small Cap Value Report (Wed 13 July 2022) - ECEL, WINK

Paul’s Section:

Eurocell (LON:ECEL)

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Paul Scott

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