Small Cap Value Report (Wed 29 Nov 2017) - IPX, MOTR, CINE, VRS

29th Nov '17 by Graham Neary

78 comments 19608 reads

Morning Everyone,

Thank for the requests - as usual, I prioritise stocks which appear in the comments, while also keeping an eye out myself for new ideas! Paul will be back tomorrow.

Cheers,

Graham

Impax Asset Management (LON:IPX)

Share price: 161.5p (-3%)
No. of shares: 128 million
Market cap: £206 million

Final Results

This is an environmentally-focused asset manager which I've written about several times this year.

Unfortunately, I didn't have the spare funds to invest in it earlier this year, when it seemed quite cheap against its earnings and prospects.

The value proposition is different now that the share price has trebled in a year:

So today's slight dip in the share price is in the context of a company where great things have arguably already been priced in.

The results are excellent, as expected. In the year to September, AuM increased by over 60% (we already knew this thanks to the Q4 update:

Assets under management and advice ("AUM") increased 61% to a new peak of £7.3 billion (2016: £4.5 billion), rising further to £7.6 billion by 31 October 2017

Record net inflows of £2.1 billion across several strategies and geographies

So inflows were responsible for three-quarters of the AuM, with market movements responsible for the rest.

Note also that the $52.5 million acquisition of similar US outfit Pax World is set to complete in Q1 2018. This is a debt-funded acquisition which will increase the company's risk profile in the short-term, but could super-charge earnings per share in future years.

The financial highlights below show the effect of operational leverage, as op. earnings rises at a much faster rate than revenue.

It's worth bearing in mind, naturally, that inflows during the year will not have generated fees for the entire year. You only generate fees on average AuM, not on closing AuM.

Revenue: £32.7 million (2016: £21.1 million)

Operating Earnings: £7.9 million (2016: £4.2 million)

Profit before tax: £5.9 million (2016: £5.2 million)

What may be disappointing investors a little bit is the rather muted PBT figure.

£1 million was spent on advice related to the Pax acquisition. £0.6 million has also been lost in FX translation of the value of foreign currency in advance of that deal. There are some more costs…

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Mid Herts

29th Nov '17

Re LON:CINE I agree with your analysis Graham. From my point of view most of the drop had occurred before I started to think and now the price looks very low against the previous valuation of the present business. It is interesting that the present management came in on a similar but much smaller deal but it is hard to see how the present one could be structured especially now. I guess there will be some head scratching going on.

MH

Julianh

Thanks Santa
I really appreciate your response to my question and all the other responses I have had. This really is a mutually supportive community. I also have an account with YouInvest and so far have had very much the same experience so they are definitely on my list of options to take over the portfolios currently being held with Barclays.
All the best
Julian

Howard Adams

Hi all

For anyone interested there seems to be a rather big sell off in US stocks occurring as I type. I have about 30 in a US watch list. Virtually all a down over 7% some as much as 17%. A lot of my list are Tech and thus NASDAQ listed, but I think this could read across to UK stocks in the morning in areas such as IQE (LON:IQE). Obviously purely my interpretation.

Regards
Howard

Thanks
Congratulations on getting out well. I haven't heard of Share Deal Active so will definitely have a look at it.

Thanks Keith
I may have to follow your advice, sell everything, transfer the cash and take whatever loss there is as a result.
Hope you enjoy IG
Julian

Thanks
It is good to hear that you are almost out now. Hope you can get the last the last statements soon.
Julian

Ramridge

Yes, interesting developments. It looks like the NASDAQ tech stocks have been tumbling. The other indices Dow, S&P and Russell look OK within the usual daily range. No sign of the tech shakedown spreading.

Metatron

I would take any day a decent dividend from a company than watch it do `share buybacks`.
The first is that nobody can predict the long term share price of a company and it could easily fall and stay for years below the share buyback price
In my experience a lot of company boards like share buybacks because the executives have lucrative options linked to short term share price performance whilst stockbrokers linked to the company like the commission action and there are probably hidden quid pro deals going on between executives and their stockbroker.
The one stockbroker I know well made his money from inside information

AlanJenkins2

I agree,but do Motorpoint not have rather a lot of debt ? You referred to their 'strong net cash position'.

herbie47

Yes I saw that but that was before our close, Euro tech shares are down also but UK ones seem to have escaped today.

Herbie

This might have some bearing on the falls.

http://www.nasdaq.com/article/chip-stocks-tank-on-morgan-stanleys-soft-nand-price-outlook-cm883634

This might also explain the read over to European chip maker stocks. This is why I sense IQE (LON:IQE) might get hit a bit (I hold).

Regards
Howard

Hi I just did a reply to Herbie with this piece which adds insight into the chip makers sell offs

http://www.nasdaq.com/article/chip-stocks-tank-on-morgan-stanleys-soft-nand-price-outlook-cm883634

Regards
Howard

Thanks, yes I saw that yesterday. I hear investors are switching out of tech. Into banks and builders. I sold my IQE (LON:IQE) but do have some us tech shares. Will see what happens tomorrow.

Gromley

LOL - So Cheeky - I saw what you did!

Andrew L

Cineworld (LON:CINE) - Just a few pointers. It is an all cash deal so Cineworld would remain in control. It may be legally a reverse takeover but Cineworld would be buying Regal for cash. That is what Cineworld's announcement states. Interestingly Regal refer to it as a "merger."

US box office - The link you shared shows US cinema spending falling in 2017 to date on a year ago not increasing. This is why Regal's share price has been weak. US cinema attendance has been weak from what I have read this year.

Finally it is worth noting that Cineworld investors can vote the deal down. Given the share price reaction they may be likely to do so. Global City, the vehicle of the management, have 28% so they can't get the deal through. I would imagine the deal needs majority approval.

I agree with your general thesis that on face value it looks like a strange deal. The question is how attractive the US market is. I would imagine it is fairly mature. I would also of thought there would be few synergies given the different geographies. The only real argument for the deal is that Cineworld is buying into US cinema at a good time and buying a good operator. I can't seem to get figures for US cinema attendance but attendance in North America has weakened recently: http://www.the-numbers.com/market/

Shares in AMC and Regal (the two large US operators have been weak). The trouble for me is that if investors wanted US cinema exposure they could buy these companies directly. Why do investors want to fund a takeover through Cineworld at a takeover premium if there are few synergies? Cineworld's existing markets are also less mature than the US and so appear to have better prospects.

I would have to say that this is one of the most bizzare proposed transactions I have seen. Cineworld's combination with Cinema City a few years ago had some investors scratching their heads. The current proposed deal has investors banging their heads against a brick wall.

millen

30th Nov '17

Re Barclays - disheartening to hear of the continuing transfer delays. I decided to largely 'sit it out' for the time being but will it become clear when delays have reduced? I really don't like the idea of being unable to sell holdings for 10+ weeks! Not even by phone if a sell-off hits? As others have said, it may be an idea to realise low-conviction holds before starting the transfer process.

For my ISA I opted to partially transfer £35k in cash to another ISA provider but even that simple transfer took them 7 weeks.

Another Barclays whinge. I was completing my CGT tax return last week and discovered Barclays has no trades data on my MarketMaster account prior to Sept 2012! Under the old system you could click on a share and see your full trading history. "Progress" no doubt!

Graham Neary

4th Dec '17

Two important corrections there - thank you very much.

apjacko

6th Dec '17

Hi Graham, just wondering if you still believe Rightmove is a Short, particularly whilst its in the middle of purchasing its own shares, which obviously keeps propping up its share price.

acdoug

8th Dec '17

Cineworld (LON:CINE) I think that the Greidingers EACH have 76m shares held in Global City Holdings - a total of 56%, and a simple majority, although the takeover may need 75% approval. I suspect they'll get it

acdoug - The RNS said that Global City Holdings has 28%. It was pretty clear on that. Global City is the family vehicle. We could check in the annual report but I am pretty sure that is the case. See page 63 which makes it clear:
http://www.cineworldplc.com/~/media/Files/C/Cineworld-PLC/reports-and-presentations/cineworld-ar16.pdf

Small Cap Value Report (Wed 29 Nov 2017) - IPX, MOTR, CINE, VRS

Impax Asset Management (LON:IPX)

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Graham Neary

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