Small Cap Value Report (Wed 15 May 2019) - PMP, ZYT, MOSB, SDI, ZTF, SDY
Good morning, it's Paul here!
Mello London
A reminder that the Mello Trusts & Funds event is taking place today, at the Clayton Hotel in Chiswick. I had a quick chat with organiser David Stredder yesterday, and he's very pleased with the calibre of speakers, and some excellent panel discussions lined up. Should be another great Mello event!
Mello's "three-day investor-fest!" continues at the same venue, this Thursday & Friday, with the main Mello Investor Show. Here's a 2 minute video from our friends at PIWorld, of last year's event at the same venue.
I'm starting to panic about my small caps presentation at 14:00 at Mello London this Friday. I've got some ideas in my head, but no slides or script yet. Unfortunately, this clashes with one of the 2 presentations from Sosandar (my largest long position).
I also want to talk to Mello attendees (and Stockopedia subscribers) about my recent charity observer trip to Zimbabwe, with ZANE, which was a trip of a lifetime in some ways, although also very upsetting, seeing such desperate poverty, and the sheer scale of the problems there.
After discussing things with David Stredder, he's suggested I give a 5-minute snapshot of Zimbabwe in my 14:00 talk this Friday, then invite Mello delegates to a more detailed (and hopefully interesting) 30-min talk (with photos, and hopefully some audio clips too), starting c.17:15. Then it will be Peroni time, with great hilarity all round no doubt ensuing! Mello events are tremendously social, with a great community feel, I find them enormous fun, as well as being so interesting.
Incidentally, I've just had this email from ZANE about donating old spectacles. I wonder if any readers here could help too?
ZANE donors helps many people to see again and to see better in Zimbabwe. Cataract operations restore the sight of many pensioners and veterans.
Some cases are not suitable for cataract operations. In these cases the patients are provided with spectacles. However, there is a shortage of spectacles frames in Zimbabwe, making them very expensive.
If you have any old spectacles, would you consider donating them so that even more people in Zimbabwe can be helped? If you would like to donate an old pair of spectacles, with or without lenses, please send them to;
ZANE Spectacles, PO Box 451 Witney OX28 9FY
Portmeirion (LON:PMP)
Update to yesterday's report.
A subscriber kindly sent me some updated research overnight (many thanks for that!). This has enabled me to crunch the numbers more easily, and arrive at a more informed view on Portmeirion shares.
I haven't been able to copy it here without corrupting the text, so here is the link to yesterday's full report, where you can find my update on the company.
Also from yesterday;
Zytronic (LON:ZYT)
Share price: 267.5p (down 1% at close of play yesterday)
No. shares: 16.0m
Market cap: £42.8m
(at the time of writing, I hold a long position in this share)
Zytronic plc, a leading specialist manufacturer of touch sensors, announces its consolidated interim results for the six months ended 31 March 2019.
This came out yesterday. At first, I thought it was an administrative error, a duplicate announcement. That's because the headline numbers all looked familiar. Later on, I realised that the numbers had been previewed in the profit warning of 2 May.
I reviewed the latest interim results last night, and there are no surprises in the figures.
So it's really the outlook comments that interest me most;
"As stated in our recent trading update, whilst historically trading in the second half has shown an improvement over the first half, and there are several projects that should improve performance as they come to fruition, at this stage the Board is taking a cautious and conservative view on an increase in activity levels from the Gaming sector in the second half."
That sounds OK to me.
Cashflow - the only possible amber flag that I noticed when reviewing the interim results was that both inventories and receivables have risen, despite revenues having fallen. That's a little unusual, so something to keep an eye on.
The risk is that the company might be sitting on unsold inventories, and/or could be struggling to get customers to pay for deliveries which might not be satisfactory.
Zytronic has a track record of being straight with its accounting, so I don't see elevated risk here. This is just a reminder to myself to check that the working capital movements reverse back to normal when the final accounts come out.
My opinion - I mentioned in my report here on 2 May, that I was considering a purchase. I succumbed to temptation a few days later, so have picked up a small, starter size long position. That's mainly for the big divis, and the recovery potential, backed up by a very strong balance sheet with plenty of cash.
I'm not 100% confident on this one (well, we can never be 100% confident on anything), and think there's a possibility of another profit warning later this year. Hence why I've only dipped my toe in the water, with a small initial purchase. Generally speaking, I like to start small, then gradually increase positions if the newsflow improves.
7-8 am quick views
Moss Bros (LON:MOSB)
Trading update - says that it's on track to meet market expectations for the FY 01/2020. Forecast to make a small loss, so that's not very interesting.
I can't see what is likely to change, to make MOSB profitable again - retail trends are very much against this type of legacy retailer. Hence the low market cap is fully justified, in my view.
There's a good review from Graham here on 22 Mar 2019, looking at its most recent annual results.
I won't be doing any more work on this one today.
Scientific Digital Imaging (LON:SDI)
An in line with expectations trading update, with some additional info.
This share has had a fantastic run up in 2019 - looking fully priced now, to me.
We might see some profit-taking today, I suspect.
Results for FY 04/2019 will be out in July, so I'll take a proper look then.
This company is attending Mello, and will be presenting tomorrow at 14:45
Zotefoams (LON:ZTF)
AGM trading update 4 months to 30 Apr 2019.
Constant currency revenue growth of 20% looks good (even better at 25% with currency benefit) - some benefit from Brexit-related stockpiling by customers.
Caution urged;
After this strong start to the year we anticipate a return to trendline growth rates, with a reversal of the inventory build in Polyolefin Foams and more demanding prior year comparatives in HPP.
Outlook sounds OK;
While it is still early in the year, and we are mindful of the less stable political and macroeconomic environment, we expect to meet market expectations for growth for the full year and remain confident about the long-term prospects of the business."
My opinion - looks expensive at a 2019 PER of 28.7, dropping to 23.2 in 2020.
However, there could be upside on that, if the new capacity being created delivers better than expected growth.
I think this is a potentially interesting company, which I would like to learn more about. They are presenting at Mello tomorrow, at 16:45.
Speedy Hire (LON:SDY)
Results for FY 03/2019 look good - at a very quick initial look, the adj. EPS of 4.9p looks a beat against consensus of 4.65p shown on Stockopedia (from Thomson Reuters, as always).
Balance sheet looks pretty strong to me.
At 62p per share, the PER looks reasonable.
I quite like the look of this - it looks a decent business, performing well, at a reasonable valuation.
I'm short of time today, so probably won't have time to dig any deeper.
Sanderson (LON:SND)
Interim results seem to be good;
"Further strong progress across the Group with trading results and cash ahead of management expectations...
I like this company, but do have reservations about its balance sheet, explained in detail here.
That may not matter today, as the positive update could see the share gain more ground.
It doesn't say anything specific about full year expectations though, so sounds like no increase in expectations there.
If I have time, I'll add some more detail later, as I see a broker update note has just hit my email box. Could be worth a closer look?
Apologies, I had to leave it there for the day.
Best wishes, Paul.
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30 comments
I am also still mourning the loss of Moneyam. It supplied my continuously streaming live market prices and Good value Level 2. How about it Stovkopedia? Surely you could provide these services quite easily. I would love to have one web site where I could find everything I need. Too much to ask?
Anyone watching Plus500 (LON:PLUS)?
I know that this was seens as a speculative dog by certain experts, but momentum seems to be turning, crypto is rallying, smart money is buying, and Stockopedia does say it is good value and quality (despite certain comments about being a bucket shop). Anyway, I topped up today (bought a small holding after previous sell-off). Any thoughts?
It would be great if Stockopedia did live share prices on our folios!
If you use the ADVFN app on an IOS device (and probably true too on an android one) when the prices contend out it doesn't blank the screen, as the web browser version does - so though the prices may freeze you do at lease have time to read them!
I am reminded that it is a doubly disappointing week for me.
Not only can I not make it to Mello but I am also not at the Zotefoams (LON:ZTF) AGM today (on of the few AGMs I was keen to get to)
As Paul mentions they are presenting at Mello tomorrow and if you do want to understand a bit more about what this business does I would highly recommend the session. Alternatively David Stirling's presentation to the previous Mello event is available at piworld. Also a year ago I put together a bit of pen picture of what they are about which I think is still broadly accurate (I may go back and update that for more recent events).
Anyway today's TU is actually quite muted I think. 25% revenue growth in the first 4 months is certainly good, but "we expect to meet market expectations for growth for the full year" which based on the Stocko numbers is only for 11% revenue growth.
In particular they indicate that the current period has benefited from customers inventory build, particularly for Olefins, which will unwind. This, I suspect, is a factor for many manufacturers, so we should perhaps be wary of reading too much into recent strong revenue performance.
Additionally the higher margin HPP segement will see "more demanding prior year comparatives in HPP" - unsurprising given that HPP revenues have nearly doubled.
Hopefully there is a degree of conservatism in this outlook and they are giving themselves room to over-perform.
"The major capital projects to increase capacity in the UK, USA and Poland remain on track for delivery as scheduled."
That's reassuring as these capacity build outs are key to further growth over the next few years.
My one remaining bugbear is "Strong double-digit increase in revenue at MuCell Extrusion." I fear that this may translate to strong double-digit increase in losses from MuCell Extrusion that would continue to hold back the excellent results from the rest of the group.
I hope my scepticism on MuCell is disproven and if so there is at least a 20% uplift in group profits available if they can "fix" Mucell, and I am unconvinced that it is just scale that is needed here.
I'll continue to moan about MuCell for the foreseeable, but it is where it is and any improvement is an upside.
Still happy to hold on the basis of this update.
Hello Gromley.
I went to the Zotefoams (LON:ZTF) AGM this morning and it is worth the trip to deepest Mitcham, even if they do not do a formal presentation at the AGM. They are very PI friendly in giving detailed answers to questions raised. A couple of the questions I asked related to the MuCell business which has been, as you point out, a financial drag on the group, which is otherwise performing very well. Specifically, I asked what changes had been made following the disappointing performance of this division in FY 2018 and whether the financial model had been altered. The response was that the key changes were personnel related, as some of the initial hires had not worked out and that they felt that the team was now much improved. The basic model is unchanged, so building a licence and royalty stream of payments which will take time and further upfront investment, which they are continuing to make.
We don't have that much by way of specific numbers, although it is clearly very small at present compared to the polyolefin and HPP segments (see the breakdowns in the March 2019 preliminary results presentation which is on the company's website). I remember David Stirling saying at a previous event that similar scepticism had been aired in relation to the HPP business a few years back and that that business was now powering ahead. Whether the trick can be repeated for MuCell remains to be seen, but management seem convinced following what appears to have been an depth review after the poor results last year.
Thanks Andrew,
Much appreciate the Zotefoams (LON:ZTF) feedback. As I say I had hoped to be there, but just couldn't.
It's good that they addressed the Mucell question, but with my curmudgeonly cap firmly still in place, I would have to say that the explanation might be convincing had they owned Mucell for a couple of years rather than ten.
I do hope to be proven wrong here and that Mucell is the 'hidden gem', if that is the case then I do see substantial upside, but for the moment I remain sceptical on that point.
Remaining sceptical about the prospects for MuCell is pretty much where I am as well, although I think there is a decent chance that it will come good and it isn't a massive drain in investment terms, as far as I can tell.
I just wanted to sound a note of caution on relying solely on the Stockopedia figures for Zotefoams (LON:ZTF) EPS and projected growth in FY 2019. They show Normalised EPS of 18.3p and Reported EPS for that year of 16.7p. Forecast EPS for FY 2019 is 20.9p - and then up to 25.8p for FY 2020.
However, if you look at the CFO review in the AR, the FY 2018 before exceptionals is higher at 18.66p and after exceptionals is 16.96p (also higher than the Stockopedia figure. I think that is because of the way that Stockopedia work out dilution for company share option scheme and the like.
Turning to forecast EPS, the most recent broker note I have seen from the house broker, Arden (as at 11 April 2019) pencils in 20.6p for FY 2019 (only 10.4% growth) and 24.4p for FY 2020 18.5% growth). The Stockopedia figures may well factor in notes from other brokers that I do not have access to (e.g. N+1 Singer), but past Arden notes have been reasonably close to the mark.
It is obviously all a bit of a guessing game, because I am expecting significant new developments over the next few years. Apparently so is the market, given what is happening to the share price.
Thanks Andrew,
Actually I think Mucell is quite material - I haven't update my numbers , but from memory I think it is c. a 20% drain on profits as things stand. But for the investment case that's all upside - c. 20% increase in earnings if they can bring it to break-even (or close it) a somewhat more if they can generate the kind of profits from it that you might hope for.
Good call as well on the EPS numbers, this is not just an issue for Zotefoams (LON:ZTF) it is generically the case that "normalised" (as per stocko) is not the same thing as "adjusted" (as per the company). I don't know of any data provider that provides this information in a way that I would call consistent - hence I keep my own database of adjusted numbers for those companies of interest (of course one then needs to kick the tyres on whether to accept the adjustments claimed by the company).
Good point also on the forecasts - if I'm reading correctly the Stocko figures are based on 5 brokers (Investec, Canaccord, Arden , Peel Hunt & N+1 Singer). My main observation is that 11% revenue growth is hopefully a little conservative , but also given that the growth is mainly in the higher margin HPP then 14% earnings growth also looks a little soft.
Beyond the current year, there's an element of trust needed that the company hasn't embarked on the significant capacity upgrades in order to chase the relatively pedestrian forecasts we currently see.
A CEO announcement for Steppe Cement (LON:STCM) today highlights FY 2018 turnover in USD up 25% and profit before tax of $10.9m vs only $1.9m the year before, boosted by rising cement prices. Profit per share is just a tad higher than forecast at 4.1c per share; they don't seem to be very expensive even at 34.5p mid price after today's rise. Director purchases recently also bode well.
also huge rise in divi
sorry post 17 was for steppe cement
Ref Pension deficits
Marston's (LON:MARS) update today - 6 months to 30/3/19
The deficit on our final salary scheme was £23.0 million at 30 March 2019 which compares to the £15.6 million surplus at last year end. The principal driver of the move to a deficit is the lower discount rate as a consequence of falling corporate bond yields in the period. In addition, an allowance of £4.6 million has been recognised in respect of Guaranteed Minimum Pension equalisation following the conclusion of a recent court ruling in respect of this matter.
Just to flag up something that may have relevance to other similar companies with old final salary schemes or similar - Marstons has has has an increase in their final salary pension deficit of £38.6 mill in the last 6 months alone which is fairly chunky - so it looks like the nice run that lots of companies have had news wise recently with regard to reducing deficits may start to go the other way again sigh. Note i don't know if Mars pension is typical or not so it could be its a company specific issue i guess.
Re pensions.
I am still waiting to be 'proven right' that some of these pension deficits are overstated and will fall away in the fullness of time. It has been quite a long wait so far :-(
Whilst as you say other schemes could be different there is a useful read across here from the Marston's (LON:MARS) scheme
Of the deterioration of £38.6m (c. 8% of the scheme liabilities) , £4.6m relates to Guarantee Minimum Pension equalisation which is effectively a one-off which is similarly being borne by most (if not all) other schemes.
In the previous period the net position had improved by c. £20m to the previous surplus, so I think it it reasonable to assume a volatility of at least +/-10% (vs scheme liabilities) for these schemes.
These are pretty long term liabilities and for the me the key test is not so much the deficit (or surplus) but rather impact on cash-flows of any payments the company is making into the schemes (effectively stuffing cash into the balance sheet) and whether they interfere with the company's ability to operate.
If I am understanding the Marston's (LON:MARS) figures correctly they are currently pumping £8m pa into the pension scheme (at least until 2021 and potentially until 2031) which compares, just for example, with dividends in the last year of £47.5m.
So it is a not insignificant number, but not hugely troublesome imho.
Elektron Technology (LON:EKT) appears materially undervalued to me.
The Bulgin business in its own right should be worth 60p+ in my view compared to where peer groups trade. Also explains why they had a bid for this business last year at a significant premium to the total value of the group. Margins are strong (at circa 30% from memory) and the reason for this is the specialist nature of the product and absolute requirement for unrelenting quality. That's not easy to replicate at either a product or reputational level and acts as a decent moat, so one wonders why they trade at a discount to more generic peers.
The Checkit and Next businesses are genuinely disruptive tech and as a combined entity should quickly move into profit, so I like the acquisition and see the rationale. What I find interesting is that this business is effectively in the price for free but as a standalone would probably trade as a high growth stock.
There are a couple of analyst notes on Research Tree that also highlight the value,
Hi Paul, that's a great shout-out for Zane, I've been meaning to donate our old spectacles for some time but never got around to it. Just dug out 7 pairs which i will be posting off to Zane.
Cheers
NM
Hi Paul
No sooner said than done. My wife and I have dug out 3 pairs of spectacles and I will post them today. I am glad to see though that some people are benefitting from cataract operations which I can say from personal experience are really helpful.
It looks like you are feeling better and I hope the conference goes well.
Best wishes
MH
Google Finance provides up-to-date price indication and Hargreaves Lansdowne shows trades, but from experience does not pick up all of them, both show delayed graphs. Nothing is as perfect as the price you will be offered when you actually trade but then they are free to view and probably good enough for keeping a watchful eye out.
Hope this helps
RDHOWARTH Google Finance provides live UK prices and allows you to build a watchlist.
www.google.com/finance
RDHOWARTH
For live prices I use Investing.com. (https://uk.investing.com). It's free to register and you can set up a portfolio for live prices in UK and many world markets...and it never 'times out' unlike ADVFN.
Can I ask if anyone has found a good live prices service either online or preferably an app. Everything I find incl stockopedia, II, Saxo, Stocks are all delayed. Shares site best so far but having problems building stock watchlists following a tech upgrade they are wrestling with - can anyone point me in the right direction?
HI RD Howarth,
If you don't want to pay, Google finance has live prices. That being said, their new system (revamped beginning 2018) for tracking portfolios is not nearly as good as the old one was but I manage to muddle through with it ok.
Hope that helps
cheers
Francis
HL says they show live prices.
Depends what you are wanting to do
RDHOWARTH -
Others on here mention Google finance but I have only managed to get mid prices on there.
Following the very sad demise of MoneyAM, which was brilliant for my needs, I am using Shares for trades and ADVFN for portfolio prices. The problem with the latter is that, for free users, it is so highly contended that you can often get only a few seconds. I do a screen shot of that and paste it on Paint where I can view it at my leisure. Since I am a buy-and-hold type and not an active trader I usually only look at all portfolio prices only 3 or 4 times a day so that is OK for my needs.
There is a great app I use on my Android phone called Webull which has real-time data and prices update live too (no need for refresh). It's really good with some useful chart features too, and being updated with new features all the time. I highly recommend it.
Looking forward to Mello today and Friday.
A slightly different take on SDI today.
My conclusion this morning:
"Conclusion: A reassuring trading update and given the recent performance of the shares, I think enough to maintain momentum. I think it sounds a measured trading update with it sensibly mentioning investment to support future growth. Looking to forecasts for the current year, which I anticipate will be upgraded after results in July and following further enhancing acquisitions, suggests to me, that it looks good value. On current forecasts, the shares are valued at 17.4x April 2020 earnings for 32% growth. Not surprisingly it passes the Jim Slater ZULU Principle screen on Stockopedia. It is presenting at Mello London tomorrow, and I’m sure it will win some new supporters. Very Happy Holder! "
I do of course have a reasonably sized position!
Elektron Technology
Here is a link to Equity development's report today:
https://www.equitydevelopment.co.uk/edreader/?ltkn=31d58e2437089aafca18daecb756d514IHYVTtju&d=%3D%3DQM4UjM
Morning Paul,
Hoping you can add Elektron Technology to your list today.
Trading update: 'Group sales for the quarter ending 30 April 2019 increased by 17% to £8.9m (2018: £7.6m)'
Also buys Next Control Systems for 10.5m which is expected to be 'immediately earnings accretive'.
(I hold)
Michael
Be interested in your views on Sanderson Paul. Good set of results this morning. I am not a holder. I keep looking at them and finding reasons not to buy, and then regretting when their numbers come out. I copy their op highlights from rns below
High level of sales order intake at £8.34 million (2018: £7.71 million) with 15 new customers gained during period (2018: 7 new customers).
Strong performances from both Digital Retail and Enterprise Divisions.
Digital Retail produced double digit revenue and operating profit growth with revenue of £5.98 million (£5.91 million pre IFRS 15 and £5.37 million in 2018) and operating profit* of £1.22 million (£1.10 million pre IFRS 15 and £0.94 million in 2018) respectively.
Enterprise Division included a full contribution from the November 2017 acquisition, recording increases in revenue and operating profit* of more than 20% to £11.20 million (pre IFRS 15 revenue of £11.00 million) and £1.57 million (£1.44 million pre IFRS 15 and £1.14 million in 2018) respectively.
Large sales orders gained from several existing customers including Richer Sounds, Office Holdings Limited, NHS Blood and Transplant and Centrica plc; new customers gained during period include Hawes & Curtis Limited and Rhodes Freight Services Limited.
Launch of new "Lean Retailer" initiative aimed at continually improving operational efficiency generating good level of early interest.
Post period end acquisition of Gould Hall for a maximum consideration of £4 million in cash and s
My morning smallcap tweet: PURE placing premium - sweet
Elektron Technology (LON:EKT), Purecircle (LON:PURE), Scientific Digital Imaging (LON:SDI), Cenkos Securities (LON:CNKS), Yu (LON:YU.)
Elektron Technology (EKT) buys Next Control Systems for £10.5m - 6.6X 2018 EBITDA and expected to be immediately earnings accretive. "This is a transformational deal for Checkit, immediately adding scale and one which the Board believes will significantly accelerate the path to profitability at Checkit."
PureCircle (PURE) placing 5.4% shares at 280p, an 8% premium. Also Q3 (last night) - rev up 11% however FY "may reflect some cannibalisation of base business as PureCircle continues to drive sales of new generation products."
Scientific Digital Imaging (SDI) FY trading: rev over £17m, moderately ahead of expectations but pretax only in line due to moderate additional investment.
Cenkos Securities (CNKS) rev in first 4 months down but "working on several transactions and our potential pipeline gives us optimism for the rest of the year."
Yu Group (YU.) FY contains a collector's item: CEO apologises for the mistakes made in accounts previously disclosed.