Small Cap Value Report (Wed 24 May 2023) - MAB1, CRU, PCIP, CCR, ZTF

24th May by Roland Head

57 comments 5898 reads

Good morning! It's Roland and Graham here with today's small-cap report.

Today's report is now finished (10.00).

Explanatory notes -

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What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

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Red - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

Summaries of main sections below:

Mortgage Advice Bureau (Holdings) (LON:MAB1) - 796p (pre-market) (£454m) - AGM TU, in line - Roland - GREEN

This mortgage broking business reports in line trading against a backdrop of more stable market conditions. MAB gained market share in a declining market in Q1, despite reducing headcount. I remain positive about this business, although it’s starting to look fully priced on a near-term view.

Coral Products (LON:CRU) -…

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abtan

24th May

Watkin Jones (LON:WJG)

I looked at this company earlier this year and couldn't get comfortable with it.

For example, I couldn't quite match schemes in development with those forward sold and delivered:

At the end of FY21 there were 10 forward sold BTR schemes
During FY22 1 BTR scheme was delivered (-1)
During FY22 5 BTR additional schemes were forward sold (+5)
So there should be 14 forward sold schemes at the end of FY22
However there were only 11 schemes forward sold on the books in the FY22 results...so 3 schemes were cancelled during the year?

A few points here:

I don't recall seeing any reference to cancellations in the FY22 results.
That looks like quite a high cancellation rate.
Aren't forward sold schemes funded by institutions?
I was under the impression that once a project was forward sold, someone somewhere would be paying for it, so there shouldn't really be any cancellations...or maybe I've misunderstood something?
What happens to any revenue that's already been recognised when a scheme is cancelled? Presumably it's reversed? But obviously we can't see this easily in the numbers (or at least I don't think we can.)

---

I also couldn't quite get my head around whether the gross profits, where the margin seems to fluctuate quite a lot (between 10.4% and 23.3% looking over the last few years), would be enough to fund the administration costs.

Looking at the recent interim results, gross profits were £16m, barely enough to cover Corporate Admin (£11.7m), Accommodation Management Admin (£2.5m) and the Finance Costs (£1.7m).

I have a feeling that I'm overthinking things again, so any insight into my concerns above would be most appreciated.

Funnymoney

XP Factory (LON:XPF) Would you be kind enough to expand on the share count change please Yiannos?

Cuddlesticks

Hi yiannos1

1. Can you share your calculation for the share count increasing by at least 40% please? (I have 150m currently outstanding, 23.5m related to the Boom acquisition contingent settlement, plus 16.7m employee/management share options, so closer to 25% if options are exercised).

2. Operating cash flow is very positive. I think the key question is how much they spend on Capex and other investments.

Thanks

yiannos1

Operating cash flow is just part of the cash flow analysis ( and they do not generate any cash ).

As for the at least 40% increase in the share count , I am adding a further 20% increase in a fresh fundraise.

I prefer Ten Entertainment plc , no debt , a 5% dividend yield and real cash flows , about £27m at least this year. For its market cap this is indeed an undervalued growth company and a definite takeover target.

DYOR

About 25m deferred for a recent acquisition, add to that about 20m for the well paid management, and finally they will need a new fundraise to expand further (supposedly).

XP Factory (LON:XPF)

Hi Cuddlesticks

I don't know too much about the share count, but coincidentally I just looked at the recently released cash flow statement and it looked like they were burning through cash quite quickly.

Operating Cash Flow before working capital movements was £684k.
This wasn't enough to cover the lease outflow of £1,185k.
On top of this there was c£2m non-lease PPE expenditure (vs c £1.6m in 2021)

2021 cash generation was slightly better, but it looks like this was driven by rent free periods on new leases.

So overall it looks like the company is losing money right now and will probably look at expansion as an attempt to change this.

kevin101

Yes got a short term target for selling. I reckon the sp will evaporate completely when it goes xd

coniston

Can anyone give me the ticker symbol of the 2yr uk treasury bond.

They will look at expansion for an excuse to raise more money as they are loss making ( they have already mentioned this yesterday, in a rather hidden statement ).

rpannell.

Do you have the ticker symbols for index linked gilts.

This is FY22. The key point being many of their large premises did not open until Q4. Their operating cash flow should be very positive now. You can see this from both broker forecasts and also how the net cash balance has stabilised /increased between 31/12 and 31/3. So I dont agree they necessarily need to raise.
For me the question is how much is available for further growth capex ie there is possibly tension between management looking to invest (which may require a raise) and investors who’d prefer focussing on the existing estate.

ACounsell

They are on the London Stock Exchange web site.

https://www.londonstockexchang...

TG25 for the June 2025 maturity according to London Stock exchange website.

Acounsell.

much appreciated.

Good CEO interview now available on Q1 FY23 and FY22

https://www.directorstalkinter...

Increase in payables , a decrease in receivables an a one off landlord incentive does not make a company profitable in the long term.

Good luck to all holders

JohnDoe2378

In agreement regarding Ten Entertainment (LON:TEG), way undervalued.

Andy2205

Thanks for posting the link. Really helpful, ta.

JACXX

£4m cash at Apr 2023 vs £3.2m Dec 2022 suggests fundraise isn't imminent. I hope payables and receivables have unwound since then. Landlord incentives supported the significant growth in 2022. Of course their expansion is restricted by the amount of capital they have. Doesn't mean they'll do a 20m share placing.

£4m cash at April 2023 means nothing to me ( probably payables have increased more ). And yes , this company will need a new fundraise and this is crystal clear for me.
However, I haven’t said that this is imminent ( not tomorrow anyway ).

As I said before , good luck to all holders.

Small Cap Value Report (Wed 24 May 2023) - MAB1, CRU, PCIP, CCR, ZTF

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Roland Head

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