Small Cap Value Report (Wed 21 Feb 2018) - BILB, HOTC

20th Feb '18 by Paul Scott

37 comments 12898 reads

Good morning, it's Paul here.

Please note that yesterday's completed report is here, which includes my reviews of the results/trading updates from Tristel (LON:TSTL) , Tracsis (LON:TRCS) , and Synectics (LON:SNX) .

I see that shares in AA (LON:AA.) are down 30% today, on a big cut in the dividend. I'm kicking myself for not shorting this actually, as it has one of the worst balance sheets I've ever seen. I must do a screen for companies with terrible balance sheets & excessively high dividend yields. That would probably be a good starting point for finding good short positions. It's not something I do a lot of, but having a smattering of large cap shorts can be a nice shock absorber for market downturns. Shorting is high risk of course, and best avoided altogether for most people, in my opinion.

Bilby (LON:BILB)

Share price: 107p (up 12% today, at 09:29)
No. shares: 40.3m
Market cap: £43.1m

Trading update

Bilby Plc (AIM: BILB.L) the holding company to P&R Installation Company Limited, Purdy Contracts Limited, Spokemead Maintenance Limited and DCB (Kent) Limited, a leading gas heating, electrical and building services provider...

The group's focus seems to be on providing housing-related maintenance services to Local Authorities and Housing Associations, in the South East.

Checking back through the archive, this group listed on AIM in March 2015. It's been a bit of a roller-coaster for shareholders, with a profit warning in 2016. The share bottomed out in April 2017 at 39p, and has since gone on to almost triple in price - an impressive turnaround.

The current financial year ends 31 March 2018.

We didn't cover its interim results to 30 September 2017, but looking through the figures here, they show a strong improvement in trading. Although I'm not keen on a rather weak balance sheet. NAV of £15.2m drops to only £0.3m NTAV once intangibles are stripped out. This is the problem with acquisitive groups - the balance sheets tend to become top-loaded with intangibles, relating to acquisitions, which can leave the financial structure weak & vulnerable to setbacks.

Today's update - key points;

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oscar247

21st Feb '18

Paul

"I must do a screen for companies with terrible balance sheets & excessively high dividend yields."

Please, please, Paul, when completed, do ensure Mr Woodford receives a copy? It just might deter him from making further incomprehensible investing decisions for the Income Growth Fund, aka - AA, Capita, Saga and suchlike!

timarr

Yeah, I know. It's varied in the past between £300 million and £600 million and whatever Paul and Graham fancy reporting on. And AA (LON:AA.) is a fascinating use case as a teaching aid if Paul should feel so inclined ...

timarr

ed_miller

Thanks. Sadly Veltyco (LON:VLTY) is another example of a company with lousy free-float (just 14.2% according to its Stock Report) - hardly looks like management taking their public quotation and commitment to outside investors seriously from my perspective. Anyhow, keep up the good work, Tamzin - your recorded interviews and presentations are a fantastic resource for private investors and much appreciated.

simoan

Paul/Imran,

With regard to checking the split between H1 and H2 for Hotel Chocolat (LON:HOTC) your methods sound like a lot of faffing about, if you don't mind me saying so! :-)

One of the things I always do when looking at a results RNS is comparing previous half years using the wonderful facility in Stockopedia itself i.e. select the Accounts tab in the SR, then select "Income Statement" and then hit the radio button for "Interim statements" and you get something that looks like this:

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

Hope the link works, but it is immediately obvious that there's a heavy waiting to H1. None of that buggering about with spreadsheets :-)

All the best, Si

seadoc

Paul,

AA (LON:AA.) Yes would have been a good short. Which well known (darling of daily fail) fund manger recently invested? I do not think it is in his IT in which I do hold a short position as it holds Purplebricks (LON:PURP). Any chance of putting your new screen....

I must do a screen for companies with terrible balance sheets & excessively high dividend yields.

..onto Stocko?

Regards,

Seadoc

Oscar,

Please, we (paying members SCVR) need to see this screen before NW, surely? AFAIK it is only ITs that can be shorted, Can you short the Income Growth Fund?

Regards,

Seadoc

gsbmba99

Was reading through today's Herald Investment Trust (LON:HRI) results announcement. A few interesting comments from Katie Potts on impact of MIFID.

"HIML is now having to pay directly for research. Through portals, it has historically received research from hundreds of brokers, and received research on at least one of our holdings from amongst our 125 brokers. However, HIML has received research from only one broker (or none at all) on 62 of our holdings. This reflects how fragmented the smaller companies market is. It is tempting to be dismissive and say we do not need research, but I see it as irresponsible not to seek as much information as reasonably possible. Research is also needed to encourage a healthy secondary market in stocks. We are still finding our way under the new regime, but have currently agreed deals with over 70 brokers to receive various levels of research services."

"One outcome of the changes that I had not fully thought through is that salesmen and even sales traders can be considered part of research. Nobody would entertain paying a retainer to a car salesman for educating them as to whether they might at some stage want to buy a car, and in the smaller company world it seems that that is what we are being expected to do. We are eager to see how the marketplace evolves over the next year or two. Experience says that if stocks get overlooked by the market they will get taken over, which provides reassurance, but in the long run the primary capital raising market will disappear if the secondary market falters."

I don't know how many companies HIML funds are holding but 62 companies for which they have not received any research at all seems like a lot. I hope at least part of this is timing related because the underlying companies haven't reported anything themselves in the last 7 weeks. I would also venture to guess that the uncovered companies are more likely to be outside the UK where the retained corporate broker model is well established.

Blimey... red thumbs when you're only trying to help people use Stockopedia better? There were two "smileys" in my post as well. Seems saying anything negative at all to Paul, even when meant in good faith and with a twinkle in your eye brings out the bashers.

Don't know why I bother.

abtan

Si

I did not give you a thumbs down, nor do I hold Hotel Chocolat (LON:HOTC).
I also check out P&L, Balance Sheet and CF Statement using the method you mentioned, though I do prefer reading issued reports to sift through any funnies (eg cash position inflated if monies are held for clients.)

However, if the results came out for Hotel Chocolat (LON:HOTC) this morning and one wants to make a quick evaluation of the numbers, then Stocko numbers won't be updated, so surely the old spreadsheet method is the next best thing?

A

ps keep bothering

peterg

Good tip Si,

Shows it really clearly!

mrosbiston

try
https://www.stockopedia.com/screens/balance-sheet-destruction-387933/

div yield > 5
current ratio < 1

can also throw in Z score < 1

then it likely down to getting into the data to screen for negative NTAV, pension deficits, growing receivables

Hmmm,,

Thanks. But it has missed AA (LON:AA.) so might need refining. It also has many I hold as safe shares. Would that I were better at this!

Regards,

Seadoc

Sniggolb

great post as ever

alpha2

Well Simoan, you taught me something new.
Thanks

I'll visit the Covent Garden HOTC shortly. I pass it often and I have to say it has never occurred to me to choose it over Paul's Patisserie Valerie or several others as a venue. Tough market to break into when your brand name is Hotel Chocolat!

if you reduce back the rules to just dividend yield > 5% and current ratio < 1 , that would have captured £AA

should give a list of around 30-35 shares.
from this - shares with negative NTAV would include Debenhams (LON:DEB) £NAHL £CNCT

JohnEustace

The answer is Herald Investment Trust (LON:HRI) are holding 247 companies! The main reason I don't hold the trust is that I formed the impression they buy a bit of everything.

https://www.heralduk.com/portfolio-company/?fund=herald-investment-trust

jules2k6

Interesting that when you look at the quality / value graph for this selection 19 out of the 34 are in the green corner and none are in the red corner.
https://www.stockopedia.com/screens/balance-sheet-destruction-387933/

rhomboid1

In fairness they were up 30% last year which is an excellent performance given their diversification but some racy stocks held

nicktudor

22nd Feb '18

Thanks Simoan, always good to get a top tip

Small Cap Value Report (Wed 21 Feb 2018) - BILB, HOTC

Bilby (LON:BILB)

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Paul Scott

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