Small Cap Value Report (Wed 13 March 2019) - THAL/LSR, BUR, SOM, FRAN | Graham Neary

13th Mar '19 by Graham Neary

61 comments 14150 reads

Good morning!

Today, after the introductory comment on Thalassa Holdings (LON:THAL) / Local Shopping REIT (LON:LSR), we have:

Burford Capital (LON:BUR)
Somero Enterprises Inc (LON:SOM)
Franchise Brands (LON:FRAN)

Thalassa Holdings (LON:THAL)

Share price: 81p (unch.)
No. of shares: 17.6 million
Market cap: £14 million

You could be forgiven for not knowing much about Thalassa. It's a small investment vehicle with a chequered history in terms of its track record and corporate governance.

I have written about it quite a bit, both here and elsewhere.

What's interesting about it at the moment is that it owns over 25% of Local Shopping REIT (LON:LSR), and has blocked, at least temporarily, that company's plans to liquidate. Almost all LSR shareholders, except for Thalassa, wanted to liquidate when it was put to a vote.

Instead, Thalassa wants to take over LSR and has offered its fellow LSR shareholders a mixture of cash and THAL shares.

Well, this has led to a war of words. The LSR Board has hit back at Thalassa's offer document, writing up a comprehensive analysis of Thalassa's corporate governance failings and explaining why LSR shareholders should reject the deal.

In my opinion, the LSR directors have done a good job of handling this situation so far. From an ethical point of view, I hope that that they succeed in fighting off Thalassa and finding a way to liquidate.

If you're interested to see what happens when Boards of Directors of small companies go to war, this is a fine case study.

Here are the links to the respective circulars:

Burford Capital (LON:BUR)

Share price: 1914p (+5%)
No. of shares: 219 million
Market cap: £4.2 billion

Full year results 2018

Not a small-cap but a well-followed share among readers. It has been a big winner so far - well done to holders.

It is a litigation finance house, financing lawsuits and owning parts of the claims. It also…

Unlock with Email

Unlock with Google

Already have an account?
Login here

otemple

13th Mar '19

Franchise Brands (LON:FRAN) results look excellent today and a positive outlook statement.

I like the business model and the highly experienced management team have once again shown their capabilities. They also have significant skin in the game with the board and senior management team owning close to 70%.

Not the cheapest share out there but think it will be a strong performer over the next 3-5 years.

Be great to have both your and others views Graham.

Thanks

Owen

I should disclose I hold (plus my daughter) and my wife is a barkingmad franchisee

TamzinPiworld

Empresaria (LON:EMR) FY results today, here's an overview by Spencer Wreford, CEO and Tim Anderson, Group Finance Director, discussing the results, their strategy and the outlook. Debt down. Dividend up 50%. Now on an historic multiple of 5.

https://www.piworld.co.uk/2019/03/13/empresaria-group-plc-emr-2018-results/

rbf

Thoughts on car dealers Graham?
Pendragon (FY yesterday) - looks like a dog (figures hard to follow)
Lookers - so so figures
Marshall - looks like continued outperformance with increased divi icing on the cake.

IMO Marshall very undervalued should be trading a lot higher (£2+)

LeoInvestorUK

Somero Enterprises Inc (LON:SOM) - Great results and outlook, special dividend details confirmed. However there is no avoiding the fact that EPS of $0.38 misses consensus forecasts of $0.40. While only a 5% miss, this also makes FY2019 forecasts of 0.42c harder to achieve (although still possible).

The share price has run up in the last few days and so may be under pressure this morning. In the medium term I am confident as I think they are cheap, have a good business niche and should be a late cycle performer due to their labour saving attributes and long project lead times. I will try to reduce on the open as a trade with a view to buying back later.

Edit: Brokers note says they were ahead of expectations - anybody know what's up with that?

runthejoules

I'm also interested to hear views on Burford Capital (LON:BUR) from all comers as 23% profit increase seems to be maintaining momentum well.

Also SafeCharge International (LON:SCH) though it may be a bit too big again, profit up 4% but dividend up 8% to about 5%. I hold moderate amounts of both.

Zac Hunter

Somero Enterprises Inc (LON:SOM) please

brucepackard

Charles Taylor (LON:CTR) Charles Taylor please. Grown a lot by acquisition. Statutory loss before tax of £3.3m and loss per share of 5p - of course management say that we should focus on the adjusted numbers!

I don't rate the Chief Exec (former McKinsey consultant) but think that it's a good business, as long as he hasn't done too much damage? I'm sitting on my hands for now.

I own Burford Capital (LON:BUR) and Somero Enterprises Inc (LON:SOM) so I'm interested in those too.

greyster

Hi Graham

I would be interested in your view on EKF Diagnostics Holdings (LON:EKF). Growth a little muted, but seems to have potential in US for its products after FDA clearance. I hold.

Greyster

Mark Tughan

I would like to add a second request for Charles Taylor (LON:CTR) and Somero Enterprises Inc (LON:SOM). The adjustments in Charles Taylor (LON:CTR) look incredibly vague and a bit catch all to me!

jonno

Marshall Motor Holdings (LON:MMH) looks interesting if one follows the maxim of buying something of value when nobody wants it. The conundrum of course is having the ability to recognise the value and the believe and confidence to act.

andrea34

Another vote for Franchise Brands (LON:FRAN) please Graham, they seem to have shifted into another gear on these results; the Stocko picture overall doesn't look marvellous, but maybe things will adjust on these numbers. ROCE is mediocre... but perhaps expected in this type of business?

p.s. Am lovin' the results from Burford Capital (LON:BUR) and glad I topped up after the big institutional fund-raise.

Aaron Ramsey

Fourth vote for Somero Enterprises Inc (LON:SOM) please

MichaelFBS

On Somero Enterprises Inc (LON:SOM) this my fifth largest holding and fourth biggest gainer (I started buying in 2015). And personally missed a trick in not picking up some more in late December in the sell off but my process is not yet very good on picking up on this sort of thing.

There is a risk that I might have fallen in love with the stock and was wondering if anybody has a bear case on £SOM? I can see little not to like.

Is

“At December 31, 2018 and 2017, the Company had two customers which represented 23% and 15% of total accounts receivable, respectively”

In today’s accounts a risk? Does anybody know who the two customers might be?

Thx.

portugull

Burford is my biggest holding.
Safecharge my third biggest so I endorse the request by runthejoules.

GrahamF

I too hold Somero Enterprises Inc (LON:SOM) and am kicking myself a bit for not buying more on the dips. But I think the bear case is this.

1. No sign of success in China
2. New products for sky scrapers are in their infancy and growth may not be forthcoming here either
3. The large need for vast warehouses with high racking (I.e. those where high precision level flooring has most value) is a sweet spot right now as more and more retail moves from the high street to online but that will abate over time
4. The first three points mean future growth may not be as easy
5. Dividend in dollars so lose some on conversion to pounds
6. US stock so potentially some tax issues
7. Exchange rate risk if pound strengthening against dollar (big if)

For me, none of these are substantial risks or issues. I think the need for warehouses with very level floors has a long way to run yet. China would be great if they can crack it but it is more like icing on the cake if they do. Their initial comments about products for skyscrapers are encouraging.

doug2500

I have an interest in Somero Enterprises Inc (LON:SOM) Burford Capital (LON:BUR) and Advanced Medical Solutions (LON:AMS)

The first two are covered and I'm quite happy.

Good results from Advanced Medical Solutions (LON:AMS) and a good company, but possibly not enough to sustain the valuation? But then I've been thinking this for years!

iwright7

Graham,

....I too hold Somero Enterprises Inc (LON:SOM) and am kicking myself a bit for not buying more on the dips.

Its difficult in these dip situations because its tempting to think - What does the market know about Somero Enterprises Inc (LON:SOM) prospects that I don't?

But in their RNS today the outlook is as confident as we can hope for: ...Board believes the Company has numerous meaningful growth opportunities in 2019 across its broad portfolio of markets and products that is supported by positive non-residential construction market conditions and reinforced by customers reporting project backlogs that extend beyond 2019."

I hold the view that the market in small caps a lot less efficient than we could be lead to believe.

SundayTrader

Charles Taylor (LON:CTR) final results are curate's egg-ish. I hold, for my sins.

Good - revenue well up at 263M - I think this is about in line with previous guidance, and includes a large acquisition.
Good - trading described as improved across all three divisions
Bad - stonking amount of one-off charges, relating to corporate reorganisation, write-offs and amortisation of acquisition costs, merge three London offices into one, new product costs (? - isn't this sort of business always developing new products?). So the report features adjusted profits of 22.3M - about in-line - and a statutory loss of 3.3M.
Good - dividend up 5%.
Bad - sharp increase in debt, partly reflecting acquisitions, partly increase in working capital. However, in previous years cash generation has been good.

Anyone more successful than I am at figuring out from this how well they are really doing? The price has come down a fair bit over the past year, and rallied on these results. At this level they look cheap - I am considering adding.

davidjhill

Somero Enterprises Inc (LON:SOM) I am also a holder and this has trebled for me. I picked up some more as a trade when they spiked down on City Inv forced selling recently.

Results were pretty much where I expected them. Some good comments on here already so I won't regurgitate.

Key risk and market cynicism is around the cyclical nature of the business with a number of folk pointing out (all the way up from 150p I would add) that in a global recession this type of business doesn't do well. Ie people hang on to their existing equipment and don't buy new screeds or upgrade. Thus when looking at valuation this one year in x should be taken into account and blended/reduced accordingly.

I don't disagree with this but management appear adept at navigating these downturns. They say they see any reduction in demand almost immediately it start happening (minimal lag) and can react accordingly. They also hold a good cash buffer with no debt which appears most sensible in allowing them to ride out any storms and cut cloth accordingly.

I personally don't see China as a problem. It is true it has taken them a while to start growing there and there is Intellectual property risk operating directly in the region BUT, there is nothing in the price for China at present, and if they do start getting traction it will either act as an accelerator in good times or as a hedge to slowing markets in the event of any recession.

Taking everything into consideration I don't view them as expensive given current management outlook.

Anyone interested in Eagle Eye Solutions (LON:EYE), whose interims are out this morning.

Reasonably impressive growth numbers, losses almost eliminated. Has the feel of a story stock and long term disappointer finally coming good. But what valuation?

Used to hold but sold on the latest run up. Potentially interesting again as the SP moderates again.

Small Cap Value Report (Wed 13 March 2019) - THAL/LSR, BUR, SOM, FRAN

Thalassa Holdings (LON:THAL)

Burford Capital (LON:BUR)

Unlock the rest of this article with a 14 day trial

About the Author

Graham Neary

61 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...