Small Cap Value Report (Wed 16 Mar 2022) - RTN, EYE, SAG, ANP

16th Mar '22 by Paul Scott

75 comments 7871 reads

Good morning, it's Paul & Jack here with the SCVR for Wednesday.

Agenda -

Paul's Section:

Restaurant (LON:RTN) shares are up 10% on FY 12/2021 results. Current trading in 2022 looks strong. I'm not happy with the balance sheet, despite a big equity fundraise. Shares look to be a forecast PER of about 20 for 2022, which to my mind seems too high, given all the macro uncertainty & squeeze on household incomes.

Eagle Eye Solutions (LON:EYE) - decent interim results show a move into a small maiden profit. Despite correcting in value by about a third, it's still expensive. However, there's nothing wrong with the company, so I'm inclined to look at the sharp price drop as a potential long-term opportunity for growth investors.

Anpario (LON:ANP) - 2021 results are out today, and look reasonable. The way I see it, the share price has corrected from excessive, to just about reasonable now.

Jack's section:

Science (LON:SAG) - record FY results following multiple upgrades, with funds for organic and acquisitive growth. The valuation is not overly expensive, particularly when coupled with the positive trading momentum and underlying profit margins, so worth a closer look.

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:

Restaurant (LON:RTN)

70p (pre market open) - market cap £533m

Full Year Results

As at 2 January 2022, The Restaurant Group plc operated approximately 400 restaurants…

Unlock with Email

Unlock with Google

Already have an account?
Login here

ridavies

16th Mar '22

Hello Darren23, Hostmore (LON:MORE) can I believe though their recent sales have been sluggish. Products too expensive?

Hello Portugull, and Paul, I got caught on one of these some months ago when, without doing sufficient research, I noticed that the founder of Joules (LON:JOUL) had 'bought' 100,000 an extra shares. I was quite positive at the time and topped up my holding, then soon after they fell through the floor. The 'purchase' was in fact either at no cost or 1p or something similar!!! Caveat emptor!

RutlandRam

I own shares in both Luceco (LUCE) and Volex (VLX).
Both have been absolutely hammered by the market over the last six months - with share prices trading 40% worse than their market ( mid caps). Even at these levels the shares are very volatile - eg today have risen 10% and 7% respectively , presumably on positive ukraine peace talks ? To my knowledge, neither have issued profit warnings over that period and both appear to be well run businesses.
Can anyone shed any light on what is driving the harsh market sentiment ? Many thanks

Hello BnB, all very well re Inspired (LON:INSE) but where is it going? The SP pattern looks like a range of severe constipation to even more severe diarrhea and back again......and all for a measly 2.5% divi. Cant we all find better? Stick some money into a company like Somero Enterprises Inc (LON:SOM), or a thousand more (many of which I have missed over time!) and watch the divi and the SP gains pour in, then buy some more on the dip. Just an observation, having looked at Inspired (LON:INSE) many times and read their endless RNSs on reorganizations, changer of directions etc.

The skier

They sent me a similar message and wasted my time too

BnB

Hello BnB, all very well re Inspired (LON:INSE) but where is it going?

Inspired looks to me to be a stock that was seriously overvalued at times - thereby distorting the relationship between SP and earnings - but whose revenues and profits finally meet a depressed valuation just as they potentially start to get a shift on. Anticipated margins meanwhile suggest a business with a PER around 20x, nearly double its current level - provided execution builds confidence - and that's the big unknown.

As to what role it plays in my portfolio, I already hold Somero (and Volex and Luceco and Calnex and Halma, not to mention tons of high growth tech stuff) so I'm happy to have a steady plodder in the mix, particularly when, thematically, it fills a hole in my allocation.

Boon

On the topic of strong director buys, one of the interesting ones is Itv (LON:ITV) ...

Their share price tanked after they announced results. The results were good, but their guidance on their key focus over the next 1-2 years, to invest in launching a new streaming service (to compete against the likes of Netflix, Disney+, etc) completely tanked the share during the market turmoil.

However, as you can see, some widespread and strong director buying, at quite decent levels. Of course, ITV directors are paid well, given the size of the company, so their purchases are not big compared to their annual renumeration.... but some of the purchases are still quite sizeable, and collectively quite a decent sum.

(I hold)

Harry Hindsight

Spiders can detect danger coming their way with an early-warning system called eyes. But that's not all: their most important source of information about the world and its hazards comes from highly sensitive hairs that cover the bodies of most spiders.

I've not got much hair, so will rely on Stocko and the SCVR and the meat pies.

davidjhill

Where to start :) .......

I don't hold either stock but like both. If I recycle any money in the near future I will likely buy some of one, probably £VLX or maybe both.

Markets rallied today mainly because China have hinted at a big stimulus package. The market likes this. It also went up because whilst war in Ukraine is ongoing the signs are that a deal inches closer but I don't think that was the overriding factor today. Finally rates rose in the US by 25bps. As expected, signals FED believes they can get inflation under control with 6 progressive rises or another 1.5%.

Luceco (LON:LUCE) and Volex (LON:VLX) have been hammered for several reasons in my view.

Started with worries over supply chains and warnings that this was causing a few problems. Then came inflation and expectations rates would rise, thus discounting future profits particularly where they supply future markets like EVs. Then came war in Ukraine where the worries were around spill over to rest of Europe or WW3! Finally China started locking people down again on covid threatening supply chains/production.

It was a bit of a perfect storm. Small caps get hammered with uncertainties like this and that's what has happened to many stocks irrespective of earnings. It is primarily retail investors selling into very little buying so prices just keep going down. Particularly as the MMs have turned from liquidity providers to matched brokers, ie holding no stock. Any hot money was buying oil and commodity stocks so others were unloved.

Hope that helps.

SaarfLondon

Are you on a wind -up ? 25p is PAR value

Paul Scott

Hi portugull,

Paul Messrs Molloy and Rothschild bought 740k and 340k of Shares in Volex (LON:VLX) on 14 Feb but did you see what they paid? 25 pence per share!!!

I think the 25 pence refers to the nominal value of the shares.

We need to read RNSs quite carefully. The one I was referring to was this - where 25p nominal value shares were bought recently by a Director in the market at 261.98p per share.

I do check things before posting anything about it, you know!

https://www.stockopedia.com/sh...

Paul.

Thank you DH, I really appreciate you time and thoughts

A couple of comments :

Im confused at how chinas announcement would be seen as a stimulus, at the same time as new covid lockdowns being reported in the nation which i would presume could hit Lucecos Chinese factory in due course
I understand the market sentiment hitting smaller caps but these two have underperformed their own market by 40%

Helvellyn

David,

I agree with your comments but would add that SP’s had definitely got ahead of themselves in a lot of Small Caps , priced for perfection and not inflation.

Richsrd

planetx,

If that is the case is indeed as we say in Yorkshire “a right royal piss take”

Re Volex (LON:VLX) - would you mind checking the facts before you spout incorrect nonsense like this please in future. That's what I do. Always check the facts first. Then form an informed view. Then have a think about it. Only then publish your view. Oh, and admit it & withdraw it, when you've got it wrong.

Thanks, Paul.

P.S. Invoking Yorkshire doesn't help either, apart from if you're making me a cup of tea ;-) (GOLD, if you can stretch to it, but Red label is fine for a less formal occasion)

Well read the RNSs more carefully then, ridavies! You've been around for long enough here to avoid daft mistakes, surely?

Hi sady,

Dear Mr Scott,

What does PER mean?I know it's not a intelligent question.Do you feel we should invest in energy as recommended by some.I feel this is one variable in the entire equation that needs to come down as inflation can be controlled by it.Low energy cost plays an important role in controlling inflation along with interest rate.

Thank you

I always worry when anyone calls me "Mr Scott" - often a sign of trouble ahead ;-)

As regards abbreviations, several readers have asked me to avoid or reduce using them, but it's so difficult to get the balance right. Please do feel free to ask - or just google the abbreviation (which I have to do frequently in RNSs) - a good example today was Hostmore (LON:MORE) (I hold) referring to "QSRs" - industry jargon for "quick service restaurants". But I didn't know what it meant, as I have to look at dozens of sectors, so find it really thoughtless when people in any industry use abbreviations which generalists like me don't necessarily know.

As regards the other part of your question, about investing in energy, that's beyond my remit here. It's up to you to decide what sectors to invest in, etc. All we do at the SCVR is try to dissect company trading updates & results. I've got no idea what sectors might do best in the next year or two, I don't possess a time-travelling space capsule, and hence can't report back from the future!

Regards, Paul.

Hi EC,

I know you like to be quite sweeping with your statements, but please bear in mind that a lot of brokers actively hide their forecasts, and try to stop their forecasts getting into consensus numbers.

There's a lot more behind the broker consensus numbers than might meet the eye.

It'a a very frustrating area, one which I frequently chase up with Stocko HQ, but perhaps you could have a discussion with the green blob, to ask why figures might look wrong (often because a broker is withholding info) before blasting the team who are trying their best here.

Bottom line is this - the smaller the company, the more difficult it can be to find broker forecasts. Even then, they're often wildly wrong. So don't shoot the messenger maybe, who are trying their best, and rely on third party data sources which are not perfect, due to many key brokers concealing their forecasts and only giving them to paying clients.

This issue drives me mad. Maybe we should just ignore broker forecasts, and do our own, which is sometimes what we have to. But if profit is (say) 5% of revenues, and revenues drop significantly, or costs go up significantly, then profit could go all over the place. It could even turn into a loss, when operational gearing is taken into account. Very difficult to forecast numbers without knowing the ins & outs of a business.

Rusty2

17th Mar '22

No they got them for 25p, in February 2022.

Effortless Cool

Hi Paul,

I'm not sure why you think I am "blasting the team"; I don't think that my posts do that at all. I do actually use the green blob to follow up on specific issues that I know about and have found the guys to be responsive in getting them fixed. However, I only know about issues in cases where I own (or am considering owning) shares and have managed to source the broker forecasts myself. That is a tiny proportion of the whole. Since errors in this small population have been quite frequent, I worry about the wider accuracy. Incidentally, none of the issues I have reported have been due to brokers withholding info - if I can get hold of their research, Refinitiv certainly can!

More generally, however, I have been disappointed with Ed's contributions to discussions in this issue, which I interpret as blaming the service provider. I do not believe this is appropriate.

You suggest that "maybe we should just ignore broker forecasts and do our own". That is broadly my approach. However, I value the broker forecasts for two reasons:

They can give a good indication of expected revenue, since this will generally be guided by management.
They are the basis on which the wider market is valuing the share, so provide an important comparator for my own analysis.

All the best.

Small Cap Value Report (Wed 16 Mar 2022) - RTN, EYE, SAG, ANP

Paul’s Section:

Restaurant (LON:RTN)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

75 comments

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

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