Small Cap Value Report (Wed 13 June 2018) - MUL, NTBR, CNCT, CAY | Graham Neary

13th Jun '18 by Graham Neary

64 comments 24799 reads

Morning!

On the menu today we have:

Mulberry (LON:MUL) - preliminary results
Northern Bear (LON:NTBR) - trading update
Connect (LON:CNCT) - trading update
Charles Stanley (LON:CAY) - final results

5.30pm Edit: had to cut this short here, due to time constraints.

Last call for Mello South: I've been informed that the last 30 tickets for tomorrow's conference are being offered at £30.60, i.e. at a 66% discount to the full price.

Besides the speakers I've already mentioned who will be there, the event will have Leon Boros and David Stredder on a panel with two fund managers, each discussing the secrets of their own stock-picking success.

There will also be a Dragons Den event which will herald "the rebirth of Hofmeister Beer - follow the bear" (I am too young to appreciate what this is referring to).

The complete schedule can be viewed at this link. Ticket-holders will be able to view all the sessions that are filmed at their leisure afterwards and the tickets can be picked up, with the 66% discount, at this link.

CEO Interview - I'm about to do an interview with the CEO of PCF (LON:PCF) (in which I have a long position), so if you have any questions you'd like me to ask, there is some time to post them in the comments below.

11:30am: I've finished the interview with Scott Maybury at PCF. Very interesting and helpful - I should be able to publish a report on this in the next few days.

Mulberry (LON:MUL)

Share price: 745p (-4%)
No. of shares: 60 million
Market cap: £447 million

Preliminary results

I've been writing very positively in the last few days about the luxury brands Burberry (LON:BRBY) (which I hold) and Ted Baker (LON:TED) (which is on my watchlist).

Despite my belief in luxury goods as an investment space, I am still very sensitive to the valuation multiples attached to these shares. And I've failed to understand the valuation…

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lemonjar

13th Jun '18

Hi, I'd be interested in your thoughts on Eckoh (LON:ECK), on the face of it a fairly good lull year trading update I thought, US growth strong but some issues in the UK that are being corrected. Whether its enough to carry a fairly high PER I'm not sure, guess we're about to find out :)

gary3980

Morning all,

Nice trading update from Northern Bear (LON:NTBR) this morning. I think there were a lot of concerns on the impact of the weather this winter on the building services group - however trading still strong and ahead of management expectations despite this. Hopefully that eases these now and the sp will start to head in the right direction. Paul and Graham have both covered positively in the past year.

Any other holders/thoughts? I am long, having taken a small position this year.

Cheers

cig

It's one of the most brutal RNS I ever remember reading, I wonder how the market will react. Objectively it seems pretty positive to me, declining businesses using the legacy cash flow for mistaken transformation projects is a classic error, and they seem to be on the ball here. Couldn't help put a limit order (at 14p) in case of opening chaos.

Beginner

Dixons Carphone (LON:DC.) is reporting a data breach, so it may be worth putting in a low limit buy there too!

MrContrarian

My morning smallcap tweet: Bear bullish. Connect's Cashmore cashiered.

Norcros (LON:NXR), Haydale Graphene Industries (LON:HAYD), Crystal Amber Fund (LON:CRS), Connect (LON:CNCT), Northern Bear (LON:NTBR)

Norcros (NXR) Even makers of bog-standard stuff like showers, taps and tiles are promising to "leverage Group synergy opportunities." FY looks OK, bullish words but no current trading nos. I hold.
Haydale Graphene (HAYD) warns on FY, guides rev up 15 to 20%, pretax loss 'below expectations'. Or worse than expectations if you don't want to be ambiguous. "We remain confident, however, that this is primarily a timing issue and that many of these expected forecast sales should now be recognised in FY-2019." CEO steps down to a sales role or "business development in the UK and abroad" to spin it nicely.
Crystal Amber (CRS) will increase the performance fee paid to Crystal Amber Asset Management (Guernsey) Limited, a related party. Divs will now be included in total return. Why did the sharp chaps at Crystal Amber Asset Management not spot that in the contract in the first place? Or do they just fancy a pay rise?
Connect Group (CNCT) FY materially reduced profit expectation due to 'extremely disappointing' trading. They are able to use such a phrase because the CEO & CFO are sacked. Div will be slashed or passed. CEO was Mark Cashmore.
Northern Bear (NTBR) trading - continuing operations have continued to trade strongly and ahead of management expectations in H2 despite the severe winter weather. I hold.

TamzinPiworld

Charles Stanley (CAY) FY results 2018 out today, here's a video with the CEO & CFO. Good embellishment to the results RNS today. Also good insight to the sector.

http://www.piworld.co.uk/2018/06/13/charles-stanley-cay-full-year-results-2018/

Paul Abberley, CEO
Year achievements - 00:14

Ben Money-Coutts, CFO
Financial highlights – 01:16

Paul Abberley, CEO
On-going strategy – 04:32
Market outlook – 05:12
Investor outlook – 06:20

LeoInvestorUK

Norcros (LON:NXR) FY Results to 31st March 2018. This is one of my largest holdings. Here are my thoughts - I would very much welcome the opinions of Graham and other contributors.

Results generally look good for a stock with a forward PE of 6.5, with underlying diluted EPS up 6.1% (the adjustments being reasonable). The dividend has been raised by 8.3% which suggests confidence although the yield is not high probably due to the weak balance sheet.

In November they bought Merlyn, a shower tray / enclosure supplier funded by a mixture of new equity and cash. This has provided a significant boost to reported turnover, profit and EPS figures. We can look forward to a continued benefit in 2019 with a full year's contribution and in particular the next interims which will go from a zero to a full contribution. The current P/E is 199.5/29.5 = 6.8 vs forecast of 6.5 which suggests this may not be fully reflected in forecasts. Note that debt shown on the stock report hasn't been updated yet for the new borrowings.

Approximately 1/3 of their business is in South Africa and this continues to grow faster than the UK business. As it becomes a larger this has the potential to make an increasing contribution to overall growth. There are risks, but I see this exposure as a positive thing.

This is a company with a large pension scheme who's deficit that has been reducing in recent years. This has continued, however not to the extent that I think payments can be reduced yet. I think there is some realistic hope this may happen in 3 years time and announced in the HY 2023 results. This could realistically add 10-15% to EPS. The reducing deficit also provides a significant boost to their weak balance sheet. Conversely any worsening of the pension deficit is a significant risk to both the balance sheet and profitability.

Having apparently missed their strategic objective to grow revenue to £420m by 2018 (it is reported at £300m), they now plan to increase it to £600m by 2023. Regardless of whether the succeed, any serious attempt will require acquisitions and, given their existing debt, dilution. Perhaps their previous failure to meet their growth target suggests they are carteful to wait for the right opportunities, but personally I would prefer they paid off their existing debt and then bought back shares or raised their dividend.

Overall I am happy to hold, although as a large position I may trim exposure if the price rises significantly.

Connect (LON:CNCT) . I have the team from Conviviality (LON:CVR) to thank for avoiding that one - following the fiasco there I looked through my portfolio for similar shares and sold CNCT at 60p. Although I made a loss I'm going to chalk it up as a "win".

Albert Einstein

Northern Bear (LON:NTBR) please

RichardK

I suspect the north east based Northern Bear (LON:NTBR) slips under the radar of many southern based investors, and hence does not get the rating it deserves. Its track record is excellent and deserves a higher rating.
I hold,but would be interested in Graham's views.

Richard

Wol

Also important for anyone who uses Charles Stanley (LON:CAY) as a broker. The recent revelation (c.f. Beaufort Securities) that administrators can dip into ‘ring fenced’ investment accounts (climbing the fence to scrump the apples from the apple trees) makes it even more important to monitor the financial health of our brokers. And I wonder whether brokerage clients will start to move their accounts to larger (and therefore considered safer) brokers.
I will watch with interest. I don’t hold CAY but I do have a brokerage account with them.

mojomogoz

This comment has been moderated

ls2g08

Northern Bear (LON:NTBR) tends to release pretty good results have a great price gain on the day and then drift down over the next 3-6 months. It is still 9% below the opening price last time it released an RNS despite issuing nothing but good news.

Aislabie

I hold Ebiquity (LON:EBQ) as one of my two "punts" for 2018 but today's RNS does not look good. Despite an optimistic twist from Ebiquity's RNS, the stark fact is that the Competition authority (CMA) has given Ebiquity and Nielsen until just June 20th to show how a monopoly is not created in the sale of EBQ's media division.
This sale is key to EBQ's development and cash position and a failure to sell would seem to be unpleasant. The share price has spotted this

Really? No fun in my comment? Gallows humour and all that?

I'm being abusive?...which by implication means to someone or group. The context of the comment does not abuse individuals or a group.

Perhaps there are just some very sore holders of the C word?

rbf

I think we already know that Graham (also Paul) is not a fan of low margin building contractors so unlikely to be very positive on NTBR.....But I like (and hold) it......very undervalued IMHO!!

EssexPete

For some reason I keep thing Dewhurst $DWHT is a Butchers.

Must be having a senior moment.

Luthrin

Re Northern Bear (LON:NTBR)

My previous comment on Northern Bear, which I made after February's trading update, is here.

Northern Bear exhibits much the same characteristics as Triad (LON:TRD) , both in terms of valuation and share price action (my comment on Triad in Monday's SCVR is here). Yesterday both stocks were classified by Stockopedia as speculative contrarian micro-caps, but Triad's full year numbers have today been incorporated into its StockReport and it's been reclassified as a 'super stock'.

February's trading update allayed fears that Northern Bear had been caught up in the Carillion collapse and the share price jumped as a consequence, but in March it slumped again, most likely on fears that operations had been affected by the 'Beast from the East'. Bad winter weather will always be a concern with this company (it's the reason it doesn't pay an interim dividend), but it's worth bearing in mind that it's high winds that are the primary issue due to the curtailment of roofing work. Also, this is a double-edged sword - wind storms disrupt operations but at the same time they can cause a lot of roof damage which is good for future business.

Even though I didn't think the hit to trading from March's weather would be as bad as 2015/16 when there were periods of persistent high winds, it was nevertheless a surprise this morning to read such a positive statement from the company. The Feb trading update said that adjusted profit before tax (i.e. not including transaction costs and amortisation of acquired intangibles associated with the H Peel acquisition) was running ahead of last year, but now they're saying that PBT will be ahead even with these exceptional costs included.

It's clear that the dividend will be raised, but I don't think they should up it by much. Northern Bear's balance sheet isn't great, and I'd prefer the company to strengthen it by building up a working capital buffer. This is something that has become more important in the aftermath of Carillion, with public bodies in particular now scrutinising the financial strength of contractors a lot more closely (one of the reasons why Morgan Sindall (LON:MGNS) is looking so strong).

As for news flow, there's never been much out there for Northern Bear, but I note that at the end of March the company released a statement (not as an RNS though) saying that CEO Graham Jennings was stepping down as MD of subsidiary Jennings Roofing so that he could concentrate on his primary role "due to the expansion and further development of Northern Bear". Also, a few days ago there was this news piece which shows the almost-complete High Point View building which has replaced the derelict High Point Hotel on Whitley Bay's promenade. NTBR's subsidiary Northern Bear Building Services handled this contract.

I continue to hold.

Michael Mortphew

Trakm8 Holdings (LON:TRAK) - TRAKM8

Up 10% on no news?

TMFMayn

"Last call for Mello South: I've been informed that the last 30 tickets for tomorrow's conference are being offered at £30.60, i.e. at a 66% discount to the full price."

Never understood the Mello pricing and subsequent discounts. If the tickets were offered at a reasonable price in the first place, there would be no need for late-comer discounts, ShareSoc discounts, BOGOF offers, Twitter giveaways etc.

I had thought some well-known fund managers were presenting:

http://melloevents.com/latest-...
"The theme is Meet the Fund Managers and Andy Brough, Mark Slater, Ralph Baber and others who will be sharing their thoughts with you in the idyllic Kent countryside."

But Andy, Mark and Ralph are not mentioned on the latest schedule.

Small Cap Value Report (Wed 13 June 2018) - MUL, NTBR, CNCT, CAY

Mulberry (LON:MUL)

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Graham Neary

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