Small Cap Value Report (Wed 2 May 2018) - PDG, AXS, EMR, PLA, OTMP, AIEA

Wednesday, May 02 2018 by

Good morning, it's Paul here.

Firstly, my apologies for yesterday's (lack of) report. I've set aside all day today, with no meetings, to cover both yesterday & today's RNSs of interest. I'll do today's report first, then circle back to yesterday's report this afternoon.

The header shows the 5 company announcements that I'll be tackling first today.

Empresaria (LON:EMR)

Share price: 82p (unchanged, before market open)
No. shares: 49.0m
Market cap: £40.2m

AGM statement & change in CEO

Empresaria, the international specialist staffing group, will hold its Annual General Meeting today at 1.00pm ...

The most important bit is a brief trading update;

"The Group remains on course to meet market expectations for the full year. A trading update will be published on 25 July 2018 and interim results for the six months ending 30 June 2018 will be published on 22 August 2018."

The first thing I check is the graph on each company's StockReport, which shows the movements in consensus broker forecast EPS. In this case, as you can see below, broker expectations for earnings have fallen a fair bit recently;


This might possibly be related to forex movements. Empresaria has considerable overseas earnings. The relative strength of sterling against the dollar in the last year, means that the forex translation of some overseas earnings into sterling is now adverse on a year-on-year comparison. Whereas earnings at this group had previously benefited from weak sterling in 2016, and the first half of 2017.

Having said that, checking the figures, sterling has been relatively flat against the Euro in the last year. So currency movements are more an issue for sterling-dollar.

Change of CEO - Joost Kreulen is standing down as CEO today (not seeking re-election at the AGM), but will continue as a part-time consultant. This suggests no animosity, which is reassuring for investors (if it's true).

Spencer Wreford (currently COO, and formerly CFO) is taking over as CEO.

My opinion - I met these two Directors a year or two ago, and it struck me then that Wreford seemed to be a CEO-in-waiting. Kreulen didn't look in the best of health, so having a reduced role in the business, with less travel seems a sensible move.


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Empresaria Group plc is a United Kingdom-based international specialist staffing company. The Company's principal activity is the provision of staffing and recruitment services. The Company is organized across three regions: UK, Continental Europe and Rest of the World and operates across seven key sectors. The Company targets a balanced and diversified spread of operations across its regions and sectors. The Company also targets professional and specialist job levels where its brands can offer value added services to clients. The Company has three main service lines, temporary recruitment, permanent recruitment and offshore recruitment services. The Company’s offshore recruitment services represents a range of different recruitment services and provides training services in South East Asia. The Company's brands include Alternattiva, Ball and Hoolahan, Become, FastTrack and Greycoat. It has operations in 21 countries. more »

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Pendragon PLC is an automotive online retailer. The Company's principal market activities are the retailing of used and new vehicles and the service and repair of vehicles (aftersales). Its segments are Stratstone, which consists of its vehicles, truck and commercial vans brand, including the sale of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities; Evans Halshaw, which consists of its volume brand, including the sale of new and used motor vehicles and commercial vans; US Motor Group, which consists of its retail operations in California in the United States, including the sale of new and used motor cars; Pinewood, which consists of its activities as a dealer management systems provider; Leasing, which consists of its contract hire and leasing activities; Quickco, which consists of its wholesale parts distribution businesses, and Central, which represents its head office function and includes all central activities. more »

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Accsys Technologies PLC is a chemical technology company. The Company is focused on the development and commercialization of a range of transformational technologies based upon the acetylation of solid wood and wood elements (wood chips, fibers and particles) for use as construction materials. Its segments include Licensing, Management and Business Development; Manufacturing, and Research and Development. It is engaged in the production and sale of Accoya solid wood, and licensing of technology for the production and sale of Accoya wood and Tricoya wood elements through its subsidiaries. The Accoya solid wood and Tricoya wood elements technologies are manufactured through the Company's acetylation wood modification process. Accoya wood is used for windows, external doors, siding, decking, structural and civil engineering projects. Tricoya Wood Elements are used in Facade cladding/siding and other secondary exterior applications; window components, and door skins and wet interiors. more »

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  Is LON:EMR fundamentally strong or weak? Find out More »

28 Comments on this Article show/hide all

Paul Scott 2nd May '18 9 of 28

In reply to post #360183

Hi john652,

The debt position at Empresaria (LON:EMR) is all explained quite clearly in their last results statement.
It's more a question of how we assess & interpret the overall financial position, and then how we value the shares. I admit to finding that bit difficult with Empresaria. When I have such doubts, then I usually steer clear, just to be on the safe side.

Regards, Paul.

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dscollard 2nd May '18 10 of 28

RE Pendragon (LON:PDG) and Consumer Confidence

data on consumer confidence doesn't look great of late : the latest in April was -9 on an expected -7 while the overall trend is also downward from recent peak of around 8 in 2015 ..mind you the 2008 trough was -40 so I suppose it is all relative. Changing a car is often a hugely discretionary decision, unless there is a radical change in sentiment I'd suggest the data predicts otherwise . Car sales in March this year were off 13% from last year's peak (tho that was 10 year high). If interest rates are destined to rise then surely there is a headwind on credit and affordability since most car sales now are in effect cheaply financed leases?

Not sure I agree with the thesis that we have reached "peak car" but that may also be a consideration.

Finally, owing 2 diesel burning 4x4s, I can see that part of the markets is pretty knackered now: I am just going to suck up the (govt enforced) depreciation and not change for a good while

Just a few points for debate, Pendragon (LON:PDG) share price does mirror the below drop in consumer confidence but that may well be just co-incidence or apophenia on my part

Link to consumer date here


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john652 2nd May '18 11 of 28

In reply to post #360193

Hi Paul,

Yes, agree, and Mello principle of any doubt is move on I guess. I've held for quite a few years so I think I'll wait until the trading statement and see what happens.

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seadoc 2nd May '18 12 of 28

A heads up for Avon Rubber (LON:AVON) which I have held for 15 yrs with an annualised return of 22%. They sold the tyre business long before I got involved and then the bendy bits for cars and washing machines. Now 1/3 high end milking bits and (a bit over) 2/3 defence having the orders for many (inc USA) bio-protection masks inc aircrew. I see that after 5 yrs there is an increasing order for replacement filters. EPS up 30%, Divd up 30%. I am not asking Paul to review (probably still digesting his Lordly scone).

I bought originally when (?) Sarin was released in Japan but I think all productive capacity now goes to military round the world. One in my bottom drawer and now not cheap but the half year report comes across as very positive. Might be of interest to anyone looking for a 250 company earning mostly $ rather than £.



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dahokolomoki 2nd May '18 13 of 28

Everyone is getting excited about Innovaderma (LON:IDP) but don't forget that this isn't a prescription medical drug or medical device. I think it is likely to be an over the counter product and potentially not covered by medical insurance, so less margin as customers have to pay themselves.

Details are sparse but it might be an easy to copy product without IP?

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HornBlower 2nd May '18 14 of 28

Paul, it is interesting that all of the car dealers are reporting growth in used car sales and a strategic shift towards that part of the business. Makes sense when the new market is soft. BCA and Motorpoint seem to be doing ok so market consolidating, which again not surprising I suppose given impact of ability to look for cars online.

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sharw 2nd May '18 15 of 28

Paul - with regard to your comments about the AGM at Pendragon (LON:PDG) I looked at an old RNS and see that the now chair was chair of the remuneration committee at the time of last year's AGM and put forward a controversial "Value Creation Plan" which had a 47.45% vote against with the remuneration report having 44.66% against.

"We note that shareholders approved our new remuneration policy and value creation plan. The board believes that this new policy, and the VCP is fundamental in supporting the delivery of our strategy, rewarding both the executives and senior management group driving its successful delivery, on its maturity in four years' time," Chairman of the Remuneration Committee Chris Chambers said in a statement.

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Gromley 2nd May '18 16 of 28

Not sure of the best place for this as it is a left-field observation on one of tomorrow's small cap RNSes.

Worry not, this is not insider information in fact it is very much outsider information.

Tomorrow is  the AGM for Trinity Mirror (LON:TNI) (to be renamed "Reach" thereafter) and they will make a trading statement.

Over the last three years or so trading statements have been exceptionally predictable; market conditions are always 'challenging' or 'volatile' (or sometimes both), but performance has always been 'in line' with expectations (or in the case of Q4 updates slightly ahead).

However, I strongly suspect we may see a subtle shift in tone.

On the 17th April Johnston Press (LON:JPR), included the following in their announcement :

Across our regional portfolio of titles national print advertising tracked in line with prior year in the first quarter of 2018, with advertisers starting to increase spend in regional print. This trend is driven by a somewhat stronger overall advertising market, our ability to precisely target audiences using 'big data', and improving sentiment towards quality print publishers in the wake of the Fake News and social media trust concerns.

Tracking in line with prior year is a sharp contrast to the significant declines that both Johnston Press (LON:JPR) and Trinity Mirror (LON:TNI) have seen in print advertising over the recent past.

The Johnston Press (LON:JPR) share price was unmoved by this announcement, mainly I think because the bigger question for Johnston Press (LON:JPR) shareholders is whether they will actually have any significant share in the equity once the bonds become due for renewal.

As a result I suspect that the "read across" to Trinity Mirror (LON:TNI) has been largely overlooked, the price is up slightly over the last couple of weeks, but nothing beyond the faint uptrend that has been in place all year.

The reasons cited by Johnston Press (LON:JPR) are very much industry factors rather than company specific, so I very much expect Trinity Mirror (LON:TNI) to report something similar.

So aside from already having a holding in Trinity Mirror (LON:TNI) on value grounds , I decided to take an additional small "coin-toss" position on tomorrow's announcement. I feel that the coin is weighted in my favour and I'm getting better that evens odds.

This could be a bit of false memory syndrome, but I can think of a small number of occasions in the past where I have felt that a company statement could be reasonably be predicted based on other recent information, but where the price has not moved, each of these produced good returns on the day.

This is not a scientific study by any means so I could be forgetting occasions where the statement did not come out as expected or where the price did not move as expected, so I'm just floating this as an idea for now, but it is something I will be looking to track going forwards for companies in my universe.

I wonder if others can think of instances like this that have either gone in the right or wrong direction?

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Luthrin 2nd May '18 17 of 28

Horizon Discovery (LON:HZD) has jumped 30% on an RNS re a possible offer by Abcam (LON:ABC) at 181p per share. Abcam's proposal has been rejected by Horizon's board.

I took an initial small position in Horizon in February despite its 'sucker stock' rating (everyone's allowed one in their portfolio, right?). The rationale for this was Horizon's lowly market cap compared to those of gene editing companies in the US, where current valuations are reminiscent of the dotcom era. It seemed plausible that Horizon could either become a bid target or undergo a rerating based on this valuation mismatch. I was also encouraged by a number of substantial director purchases in early Feb.

I bought more shares in April when the price went below 140p and there were more director purchases, most notably from non-exec Dr Jonathan Milner, who is a significant shareholder in Abcam and also its Deputy Chairman.

Personally, I'll be disappointed if Horizon is taken over. It's in a very high growth market, and after years of losses seems about to become profitable. With a relatively fixed cost base, those profits could be expected to rise very strongly if revenue projections pan out. However I'm not in the least surprised that Abcam has it in its sights - it would be a very good fit in my view.

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Fishcake 2nd May '18 18 of 28

In reply to post #360228

I've held Avon Rubber (LON:AVON) for quite a while too and always mean to sell but never get round to it. They seem to produce and hoard a LOT of cash - now up to £40 million with no stated plans as to what to do with it other than a vague "This strong cash position provides funding to support our organic growth strategy and value enhancing acquisitions.". At least they put the divi up 30% but it's still mean.

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sharmvr 2nd May '18 19 of 28

In reply to post #360158

Having spent nigh on 17 years in London the only tourist event I have done (other than London eye, paid for by employers) is the houses of parliament tour. Not quite as glamorous as yours Paul, but was fantastic experience.
Especially when the guides tell you about some of the idiosyncrasies of past ministers. Would strongly recommend it to anyone who has a spare few hours in London.
Full disclosure: I have no holding in the Houses of Parliament :)

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grb 2nd May '18 20 of 28

A fascinating report as ever - I'm flagging a couple of these for more research. You seem to have lost the header for the Onthemarket (LON:OTMP) section, though.

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Paul Scott 2nd May '18 21 of 28

In reply to post #360203

Hi dscollard,

I too looked at the recent consumer confidence data, and discovered something very interesting.

As you can see in the table below, people seem fairly comfortable with their personal situation, but there is a massive negative score on their view of the general economic outlook. I suspect this might be heavily influenced by unrelentingly negative news coverage of politics & economics. How else would people form such a view, given that few people are economic experts? (and such experts are useless at predicting anything!)

Therefore, looking at things in a contrarian way, I see scope for improvement in consumer confidence. I'd be a lot more worried if people were negative about their own personal circumstances, but they're not.

(I highlighted the wrong year below, it's the first column (April 2018) that I should have highlighted)


So an overall score of -9 actually masks a positive "Personal Financial Situation" of +4

As regards new car sales, the whole market has changed. People are getting used to leasing new cars, often for very low costs, relative to their earnings. E.g. an average person takes home about £1.5 - £2k per month. Yet they can lease a smallish new car, say a Corsa, for about £150 per month. There would be little to no maintenance or repair costs, so it's a no-brainer, compared with buying some unreliable, thirsty, clapped-out heap secondhand.

This suggests to me a change in the market dynamics, and a sustainable level of higher new car sales. Once the Govt pulls its finger out on diesels (good/bad?), then there could even be pent-up demand to be unleashed for new cars?

Plus, note that car manufacturers are steering people towards the multimedia attractions of the car being a big extension of your mobile phone. This is interesting to me, as in our increasingly congested & slow roads, perhaps more people just want a pleasant personal space, and ability to use their phone/music/apps, in a voice-activated way, as being more important than fast 0-60 times, top speed, etc?

I don't buy top-end cars any more, as they're pointless. You can't use 300+ bhp anyway, so why have it? It's just a temptation, and would probably end up in either a driving ban, and/or a horrific accident. Maybe that's just me getting older?!!!  ;-) 

Best wishes, Paul.

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Paul Scott 2nd May '18 22 of 28

In reply to post #360393

Hi grb,

Thanks, I've fixed that now.
OTMP seems to be one of the few tickers that upsets the user interface.


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JohnEustace 2nd May '18 23 of 28

In reply to post #360398

"It is a peculiar empirical phenomenon that while people tend to be optimistic about their own future, they can at the same time be deeply pessimistic about the future of their nation or the world. Tali Sharot, associate professor of psychology at UCL, has popularised the idea of an innate optimism bias built into the human brain. That is, we tend to be optimistic rather than realistic when considering our individual future. If you were to ask newlywed couples to estimate the probability they will divorce in the future, they would likely reject the possibility outright. Yet today roughly 40% of marriages in the UK end in divorce. Another example is asking smokers to estimate their chances of getting cancer and again, most would underestimate their risk. This optimism persists even when people are presented with the relevant statistics."

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dscollard 2nd May '18 24 of 28

In reply to post #360398

@Paul, more granularity in those data you have: what is the source?
Sound interpretation , the consolidation in grocery could also be net positive to disposable income .

I live in the country these days: single lane roads play havoc with paint jobs so I am much more pragmatic these days too 

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Edward John Canham 2nd May '18 25 of 28

In reply to post #360298

Trinity Mirror (LON:TNI) Johnston Press (LON:JPR)

Noticed this myself (infact I think someone posted it here on one of the threads) but didnt have the courage in my convictions to add to my holdings in Trinity Mirror (LON:TNI) . Hope you are right and wish you well.

If nothing else it might detract from discussions over gov't getting involved in the merger - does anyone really care about plurality in newspapers apart from politicians? The newsprint arena must surely now be an insignificant part of general media news. The name Facebook springs to mind for some reason.

Anyway good luck!


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Paul Scott 3rd May '18 26 of 28

In reply to post #360433

@Paul, more granularity in those data you have: what is the source?

I just downloaded the data from the usual GFK source of consumer confidence stuff, here;

Then I think if you click on "download press release", you can get a bit more detailed info.

Yes, retracing my steps, here it is;

I must stress that I have no expertise whatsoever in interpreting this data. Just think it's interesting, so good to drill into & think about.

I don't agree at all that people are over-confident about their own personal financial outlook. Quite the opposite actually. People tend to have a very good idea about their own personal outlook, and a very bad idea of the general economy.

Regards, Paul.

P.S. I have a diary note to review this kind of monthly data. The reason being that it is often misinterpreted by the press - who for example mix up retail sales volumes, prices, and overall value. Journalists often get basic stuff wrong, because they're young, inexperienced, and have little to no real world business experience. Hence why it's dawned on me, that I can get good insights from checking the data myself.

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dscollard 3rd May '18 27 of 28

In reply to post #360448

great thanks, much appreciated. I tend to agree that people are more prone to catastrophizing, especially now we have so many social media channels to enable and share it

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jonno 22nd May '18 28 of 28

James Halstead (LON:JHD) has decided not to bid for Airea (LON:AIEA), for now anyway. It will be interesting to see where the price settles at the open tomorrow. It was around 43p prior to the announcement of a possible offer, so presumably this or thereabouts is where it will drop to?

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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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