Small Cap Value Report (Wed 21 Aug 2019) - COST, HSW, BRY, GMS, HSTN
Morning everyone, Ben here. Just stepping in to get today's SCVR rolling... bring on the comments and anything else that's on your mind this morning. Roland has joined in further down the report to help out, too.
(The last time I tried this, it did eventually crossover with Paul so forgive me if it's a bit of a bumpy ride).
I’m a bit late to the party with this news (what with holidays etc, *eyeroll*) but I do like the occasional updates from advisers like UHY Hacker Young, picking apart some of the trends on the Alternative Investment Market. Cutting to the chase, it looks like the very long and gradual trend towards better quality companies on AIM is continuing.
Perhaps a little unfairly, most of UHY’s comparisons look back to what was going on 10 years ago. Back then, of course, the financial crisis had sent AIM into a spin and things were only just starting to recover. But the figures are still quite interesting. A decade ago there were 275 delistings from AIM, as the market haemorrhaged firms that couldn’t justify the fees or raise new money. By comparison, in the last year, there were 66 delistings, which… I don’t know… still feels quite high.
Another interesting figure is that the average market cap of an AIM stock has risen nearly four-fold over the past 10 years to £98.9m in 2018, up from £24.3m in 2008. Those averages will be skewed by some of the very large groups that have emerged on the index over that time - Boohoo, Fevertree, Abcam, Hutchison China. But of course, big doesn’t necessarily mean safe. Until recently, Burford Capital was up there as one of the largest-cap stocks on AIM - before the recent ‘bear attack’, which slashed its share price.
As someone who used to interview the management teams of oil and gas companies back in the early/mid-2000s, I can vouch for how different things were pre-financial crisis. That makes me sound very old, but it is quite striking how the balance has changed. Back then, the oil price - and mining/ commodity prices generally - had quite an influence on the trajectory of the index. Obviously those sectors are still important, but far less so now.
So while the quality seems to be improving - size is up, delistings are down, trading…
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Costain Group PLC is a technology-based engineering solutions provider. The Company offers consulting, project delivery, and operations and maintenance services. The Company operates through two segments: Natural Resources and Infrastructure plus Alcaidesa in Spain. The Infrastructure segment operates in the highways, rail and nuclear markets. The Natural Resources segment includes the Company's activities in water, power, and oil & gas markets. The Company offers a range of services, including advisory and concept development, specialist design, program management, project delivery, technology integration, and asset optimization and support. The Company offers services across whole life cycle of its customers assets in energy, water and transportation business areas focused on the United Kingdom market. more »
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Brady plc is a United Kingdom-based provider of trading and risk management software to the global commodity and energy markets. The Company combines integrated and complete solutions supporting the commodity trading operation, from capture of financial and physical trading, through risk management, handling of physical operations, to back office financials and treasury settlement for energy, refined, unrefined and scrap metals, soft commodities and agriculture. The Company's business units are Commodities and Energy. Its clients include various financial institutions, trading companies, miners, refiners and producers, scrap processors, tier one banks, various London Metal Exchange (LME) Category 1, 2 clearing members, and other European energy generators, traders and consumers. It offers commodities solutions, energy solutions, credit risk, cloud services, and client services and support. more »
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7 Comments on this Article show/hide all
Look at this - welcome Ben - well done for stepping in! I look forward to today's SCVR :)
This thread is never the same without MrContrarian's post and since he is an early bird I have taken the liberty of copying his thoughts for today from matylda's thread:
My morning smallcap tweet: Titanic performance from GMS, not in a good way
Gulf Marine Services (LON:GMS), Brady (LON:BRY)
Gulf Marine Services (GMS) warns FY EBITDA $45-$48m, down YoY. Huge gap between EBITDA & profit -2018 adj EBITDA $58m yet lost $5.1m. Captain walks the plank.
Brady (BRY) warns FY rev ~£19m. F/C is £24.3m.
Well done Ben
Ben, Thanks for a good post. But the brilliant new style Stockopedia graph for EPS forecasts tells me all that I need to know about COSTAIN. To me it says "move on to something else"!
Ben - thanks for your thoughts on Costain (LON:COST) - as you say "...this is a stock that's having a hard time convincing the market that the payout is intact and its valuation is safe...", I think the message it wants to get across is that it is differentiated from others in the sector by moving more towards the technology end of things thereby having increasing operating margins and by having a strong balance sheet; In June Paul said "Costain's saving grace is that it had the good sense to strengthen its balance sheet a while back. As a result, it's one of the few in this sector with sound finances. Hence I don't see any insolvency risk here."
Set against that is the lumpy nature of contracts. One of the reasons for the June warning was that the Welsh Assembly scrapped the M4 relief around Newport leaving everyone to struggle to get through one of the motorway network's worst bottlenecks - the Brynglas tunnels.
Likewise we now have an announced review of HS2 in which Costain is heavily involved. The Transport Secretary refused to rule out scrapping it altogether saying "Just because you've spent a lot of money on something does not mean you should plough more and more money into it." That is now going to hang over the share price. See https://www.bbc.co.uk/news/uk-...
Great work Ben and Roland
Paul Scott is unwell, may become a new byline :-)
See Jeffrey Bernard is unwell