Small Cap Value Report (Wed 27 July 2022) - MOTR, NICL, PCIP, QTX, EMAN, XLM

27th Jul '22 by Paul Scott

34 comments 6467 reads

Good morning! Paul & Graham here for Wednesday.

Agenda -

Paul's Section:

Motorpoint (LON:MOTR) (I hold) (£178m) - a Q1 (Apr-Jun) trading update. Tough comps for Apr & May saw volumes down, but June & July have returned to normal. It's a bit vague about the outlook. Tough conditions in this sector, and forecasts have come down a lot. Expansion with new sites is underway. Tough short term, but I think this is a winner long-term, especially when the high spending internet-only startups have gone bust. Broker forecast (Shore) unchanged today.

PCI- PAL (LON:PCIP) (£42m) - a very interesting little niche software business, that is generating stunning organic growth internationally, low customer churn, and growing recurring revenues. Still loss-making and cash-burning though, and it is defending a patent infringement case, creating ongoing uncertainty & risk. Today's update for FY 6/2022 indicates trading has been ahead of market expectations, and there's more cash left than expected. I like this share a lot, but risk from legal case means I wouldn't want big exposure to it at this stage.

Skillcast (LON:SKL) - brief comments are in the comments section below main article.

Graham's Section:

Nichols (LON:NICL) (£481m) - An excellent recovery in “out-of-home” soft drink consumption is confirmed by these results, after normal socialising resumed in the UK. With 75% of its revenues generated in the UK, these results show an excellent recovery from the Covid blues. International revenue is more challenging, in particular with respect to shipping difficulties. Overall, this is another very clean and very impressive set of results from Nichols, as expected. The dividend is almost “back to normal”, too. Valuation is at the upper end of the spectrum because few companies can match the quality and safety characteristics of Nichols.

Quartix Technologies (LON:QTX) (£160m) (+0.6%) [no section below] - we covered the H1 trading update from Quartix in detail here. Today’s H1 results confirm what we were told then: the company is confident of meeting unchanged full-year market expectations for £27.4m of revenues, £5.7m of adjusted EBITDA, and £4.1m of free cash flow.

Annualised recurring revenues have reached £26m, as flagged previously. The new electric vehicle product has launched, and the vehicle checking product is coming in H2, creating some additional growth opportunities.

This appears to be a high quality company in many respects but price erosion…

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BnB

27th Jul '22

Another thumbs up for the extra coverage afforded by the additional short sections without lengthy analysis. And for the terrific in depth reviews of course. Keep up the great work. And thank you.

Threepeat

I very much like the in depth reviews. I know it must take a lot of time but it's worth it. I really don't mind if you circle back a day or so later to do it. It suits my style of buy and hold so nothing is that urgent!

Besides it often pulls out points that I have missed or ignored or not grasped the full significance of, especially towards the Macro point of view.

This not meant to denigrate the short comments you make, they are all appreciated.

My thanks to you, sir

illiswilgig

Paul and Graham - just to confirm that I very much appreciate the short summaries - [1] It helps me to decide whether to look at the deep detail right now or do it later - and some days I already have my plate full so [2] the short summary helps to fill out my breadth of knowledge in the sector and may point me to doing my own deep research when I otherwise might have missed it, Hopefully I occasionally get to return the favour in sharing some of my own research. So an important part of the spectrum for me. Very well worth it - thank you.

cheers

Mark

Trident

Looks on the face of the Trading Statement that EBITDA has recovered, and slightly exceeded 2019 figures for Everyman Media (LON:EMAN)

Generally seems a nice recovery.

Pritch

I'll add my appreciation of the short summaries to the growing chorus! For companies which I don't know or own they're possibly as much as I need to read, but on several occasions have piqued my interest sufficiently to warrant further investigation. Keep up the great work. It's always appreciated (Paul & Graham), but especially in these tiresome markets.

FREng

Interesting interview with the CEO of Lloyds Banking (LON:LLOY) on R4 this morning (approx 7.15 am), in which he commented on the changes in behaviour of his customers.

White goods purchases are down, travel and restaurant spending is up and saving is up ...

Banks and credit card companies have this data in real time and I guess that hedge funds and others buy it from them. If you see any of it published anywhere, please post a summary.

Your short summaries are really useful in my opinion. They stimulate discussion in the comments, often with deeper analysis, and fit in well with SCVR's DYOR philosophy.

coniston

Morning Paul.

Unfortunately can't share your optimism on MOTR for a number of reasons which i .would like to highlight.

1, Tiny margins being eaten away by competitors,( no barriers to entry).

2, worry on issues with HMRC.

3,Debt levels seem extremely high.

4, Since listing have lost investors money.

5, Momentum is awful, is the market telling you something?.

truegent

One of the first books I read when I became an investor was a book called "Buffetology" about how Warren Buffet chooses his stocks, and the first stock that I came across that fitted with this method was Nichols (LON:NICL) ...so I bought and have held ever since and have even bought more on the way up and they've been a great investment...

Hydrus

Paul would you mind looking at Skillcast (LON:SKL) please? Completely off anyone's radar it seems but as a corporate compliance software growing recurring revenues at 32% with a large net cash position worth looking at. I believe they are likely to be ahead of revenue expectations for this year. Thank you.

planetx

Hargreaves Services out with some great results.

I think market is overlooking a huge upside opportunity here .

Not only is Hargreaves a great value share based on current fundamentals and “what we already know”

It has a very serious upside currently not built into share price .

Hargreaves is sat on a massive land bank Doncaster to Hull way , this is prime windfarm territory .

Land that is currently on the books at maybe 3k a hectare (ballpark guess put probably lower) , on 200 hectares on a 5 year timescale (the time to get a windfarm deveoopper through planning) might get at leat 10 turbines and this would give a yearly income circa 750k and the 200 hectares with wind farm valued circa 7 million .

So my very crude fag packet is that a successful wind farm development gives a 12 times multiply to the land value .

Now there is no disputing further wind farm development is coming to that region and no disputing Hargreaves have a massive land bank in that region .

So it’s a “shot to nothing to quote” Steve Davis as Hargreaves as it stands is a solid cash backed value share but the wind farm prospects are not priced in.

Caper4

Agree Hargreaves Services (LON:HSP) is a share worth holding for the long term. Very limited downside risk and, as you state, massive potential upside

Paul Scott

Hi Hydrus,

Thanks for flagging Skillcast (LON:SKL) - I've had a quick look.

Recent float, has halved in price since.

Looks an interesting small business, still heavily owned by founders, hardly any free float.

Raised £3.5m in float, balance sheet now strong, with £7.5m net cash (a third of market cap).

Investing for growth, so making a small loss.

Good recurring revenues, from subscription revenue, costing from £80 pa, for access to compliance software, looks quite an interesting niche.

I can't see any immediate or obvious attraction to the shares, but it's a decent enough little company, and I can't see any obvious negatives either! So it might be worth a closer look.

I can't see any strong reason why they would have listed - it already had enough cash before listing. Any ideas? The investor video on its website seems to suggest share options, and prestige from being listed, were the main reasons.

Founder has a controlling, over 50% shareholding.

I'll look at it in more detail when the next results are published. Thanks for getting it onto my radar!

Regards, Paul.

Gostevie

I too very much like the current format, with brief comments on several companies and in-depth analysis of any that are of particular interest.

Great thanks Paul.

Not much more information in reasons for listing but the admission document does focus on investing:

‘The proceeds of the Placing receivable by the Company, together with the Company’s existing cash resources, will be invested in technology development to scale up the Skillcast Portal, implement client self-service, streamline the buyer journey, position its subscriptions on cloud marketplaces and in content marketing to increase market penetration.’

They do also mention potential for acquisitions if the right opportunity arises but I suspect that’s less of a priority.

I note they made £1m net profit in 2020 hence I think this is a profitable business if they were not investing for growth and puts the EV of c£12.5m in a favourable light.

yiannos1

Zinc prices , however, have lost about 30% from their recent highs. This will have a negative impact on the German division.

mabie41

I agree Hargreaves Services seem to deliver .Could Paul give a look over.

muzmano

£BMS Braemar Shipping Services (LON:BMS) The notice of annual meeting RNS is a bland title but it seems to cover some sticky corporate governance issues. Audit for the year ending 28 Feb still not complete. Now an issue about not properly preparing and filing interim accounts with Companies house before paying and declaring dividends.

I have a small holding and thought the company had potential but incidents like this make you question the management of the business.

Greedo

I don't understand appeal of Hargreaves Services (LON:HSP) it has only made a profit once in last 5 years.

Op Margins are low, negative if average of last 5 years.

ROCE is negative.

What am I missing ?

Westway001

Stocko seems to think £HSP has been largely profitable and gives it a stock rank of 94:

Small Cap Value Report (Wed 27 July 2022) - MOTR, NICL, PCIP, QTX, EMAN, XLM

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Paul Scott

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