Small Cap Value Report (Wed 15 May 2019) - PMP, ZYT, MOSB, SDI, ZTF, SDY

Thursday, May 16 2019 by

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…

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Portmeirion Group PLC is a United Kingdom-based company, which is engaged in providing ceramic tableware, cookware, giftware and tabletop accessories. The Company has five brands: Portmeirion, Spode, Royal Worcester, Pimpernel and Wax Lyrical. The Company's segments include UK and US operations. Portmeirion offers tableware and gifts with collections, such as Sophie Conran for Portmeirion and Ted Baker collection. Spode brand includes Blue Italian, Blue Room and Christmas Tree. Royal Worcester is engaged in providing porcelain tableware and cookware collections. Pimpernel provides placemats, coasters, trays and accessories. Pimpernel also includes Wrendale Designs collection, which includes placemats, coasters, trays, ceramic and melamine gift sets. Wax Lyrical offers fragranced candles and reed diffusers. The Company caters to markets, such as United States, the United Kingdom, South Korea, India, Taiwan and Thailand. more »

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Zytronic plc is involved in developing and manufacturing of touch sensor products. The Company is also engaged in the development and manufacture of customized optical filters. Its geographical segments include Americas (excluding USA), USA, EMEA (excluding UK and Hungary), Hungary, UK, APAC (excluding South Korea) and South Korea. Its products incorporate an embedded array of metallic micro-sensing electrodes. Its technologies include projected capacitive technology (PCT) and multi-touch mutual projected capacitive technology (MPCT). PCT touch sensors can be constructed from one, two or three layers of laminated, toughened glass. Its sensing products offer touchscreen solution for applications, such as leisure, digital signage, retail, surfaces, banking and industrial applications. Its touch sensors are used in video jukeboxes and slot machines. The PCT touch sensors are used in a range of workplace applications, from medical diagnostic equipment to oil field machinery controls. more »

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Moss Bros Group PLC is engaged in retailing and hiring formal wear for men. The Company operates through Moss Bros branded mainstream stores. The Company's segments include Retail and Hire. The Company offers various types of suits, skirts, jackets, trousers, coats, casualwear, ties, shoes and accessories. The Company offers clothing and accessories for various occasions, including weddings, prom, race day suit, tuxedo and black tie, interview attire and graduation. The Company also trades through Savoy Taylors Guild fascia. It has approximately 100 Moss Bros and Savoy Taylors Guild branded stores and over 20 Moss Bros outlet stores, which trade Moss Bros own brands and selected third-party brands, including Hugo Boss, Canali, Ted Baker, DKNY and French Connection. The Company has approximately 120 Moss Bros Hire outlets, which are contained within Moss Bros Retail and Savoy Taylors Guild Stores. The Company's sub brands consist of Moss London, Moss 1851 and Moss Esq. more »

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30 Comments on this Article show/hide all

Nursemaid 15th May 11 of 30

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.

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davidjhill 15th May 12 of 30

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,

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rmillaree 15th May 13 of 30

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.

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andrea34l 15th May 14 of 30

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.

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Gromley 15th May 15 of 30

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.

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Gromley 15th May 16 of 30

In reply to post #476591

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.

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bryaz 15th May 17 of 30

In reply to post #476601

also huge rise in divi

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bryaz 15th May 18 of 30

In reply to post #476626

sorry post 17 was for steppe cement

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andrewdb 15th May 19 of 30

In reply to post #476551

HL says they show live prices.
Depends what you are wanting to do

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sharw 15th May 20 of 30

In reply to post #476551


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.

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peterg 15th May 21 of 30

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!

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spantick 15th May 22 of 30

It would be great if Stockopedia did live share prices on our folios!

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Mnomis 15th May 23 of 30

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?

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Lord Gnome 15th May 24 of 30

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?

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Jamboreebop 15th May 25 of 30

In reply to post #476561


For live prices I use ( 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.

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andrewjames 15th May 26 of 30

In reply to post #476606

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.

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Gromley 15th May 27 of 30

In reply to post #476721

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.

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paraic84 15th May 28 of 30

In reply to post #476551

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.

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andrewjames 16th May 29 of 30

In reply to post #476736

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.

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Gromley 16th May 30 of 30

In reply to post #476876

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.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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