Small Cap Value Report (Wed 30 Mar 2022) - BMY, SHEP, KETL

30th Mar '22 by Jack Brumby

53 comments 7749 reads

Good morning! It's Paul and Jack here, with Wednesday's SCVR.

Agenda -

Jack's section:

Bloomsbury Publishing (LON:BMY) - another material profit upgrade here, with frontlist consumer titles performing well in February. BDR remains small but has beaten its 2016 targets and improves the group’s growth potential in future. Probably worth spending more time on.

Shepherd Neame (OFEX:SHEP) - the UK’s oldest brewer is listed on Aquis and I’m not convinced of the growth prospects, but there is some useful readacross for other businesses with exposure to London footfall. As we move away from lockdowns inflation becomes more of a concern, but at least these businesses can now trade normally again.

Strix (LON:KETL) - mixed results. Adjusted profit is up, but margins are down due to cost headwinds. The company is pushing through price increases, so we will see how Strix fares in an inflationary environment. The FY25 target of doubling revenue remains intact and the valuation is becoming more attractive but, given the shorter term risks and challenges, I’m staying neutral for now.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Jack's section

Bloomsbury Publishing (LON:BMY)

Share price: 392p (+7.4%)

Shares in issue: 81,608,672

Market cap: £319.9m

Trading update for the 12 months ending 28 February 2022

Revenue is expected to be comfortably ahead and profit materially ahead of upgraded market expectations for the year ended 28 February 2022. This follows a similar…

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davidjhill

30th Mar '22

Did you not watch the presentation?

Their customers are telling them they are all engaged on long term projects and that warehouse is increasing, not decreasing. That was just a month ago.

Silver Moon

Wasn't the dividend baked into the price at point of sale? We shall see.

I don't hold Somero Enterprises Inc (LON:SOM) shares.

ridavies

Thanks for all your Somero Enterprises Inc (LON:SOM) comments. Makes me think!
Yes, Im not too concerned about Somero Enterprises Inc (LON:SOM) which will tend to yoyo about at the moment, especially since they did announce that this was going to be a fairly flat year in terms of profits etc because they were investing more heavily in new products.

Also a comment about price. The SP seems to be down to about 470p. I just checked with my holding, adding 2k shares would be 488.8, selling 2k 481. Pretty tight bid to offer ratio, and will look to add on the dip.

If anything - and I'm not really - I would tend to be a bit more concerned about European sales rather than US.

Simon Rowan

(IGP:LON) Receipt of $3.4m Order from the Fed of course. It seems on this little company in Lutterworth, wind speed 4mph, hangs the balance of global power and security. Its been a while....

rmillaree

Somero Enterprises Inc (LON:SOM)

I would tend to be a bit more concerned about European sales rather than US.

Presumably its the lack of materiality with regard to europe being less than 10% of sales - that makes us worry about us - rather than us not worring about europe - seems obviuos to me that europe is as much a worry as america ref lfl sales comparisons

JCPr

I hold £APF. I'm not so disappointed about the dividend. I'm assuming the boost from coking coal will not be that long-lived, especially as production is moving away from the land where they have their royalty rights, so I'm happy they're paying down debt and keeping cash they can use for new investments.

BIACS

Gulf Keystone Petroleum (LON:GKP) reassuring update today. Reconfirms much of what I said in my recent posts here on this one. The expected monster dividend is confirmed. the development plan is still on track, production levels continue to inch up and, of course, there is a potential enormous windfall if the oil price stays where it is a bit longer this year. On the results webinar today management even said the huge development plan which is penciled in at around $900m if it gets approved (which would double production levels) could potentially be self-funded if necessary which is incredible - although they also said the Norwegian bond market has worked well for them and is also an option given their current financial strength. Market likes the update - up 10% at the time of writing. Bound to go a lot further if the oil price stays robust.

sharw

The trading update from Bloomsbury Publishing (LON:BMY) is pleasing (I hold) but there is one worrying aspect. Directors are obliged to tell the market as soon as possible after they become aware of a material divergence from market expectations (up or down). That means it has taken at least four weeks for them to become aware of this situation which reflects very badly on internal reporting.

The new non-exec is CFO of a top 100 company so let's hope he can influence this.

shanklin100

sharw

I think it would be sensible to ask about the delay at the next IMC presentation.

I doubt Bloomsbury Publishing (LON:BMY) have poor internal controls so would like to think we will get an acceptable answer on this front. Does anybody know the timescale allowed on returns from bookshops? Would also be interesting to know if TSs need Board approval.

illiswilgig

Anglo Pacific (LON:APF) I Hold - and somewhat bemused to discover that the holding I bought partly for exposure to new materials and as a hedge for my portfolio has become my largest holding. Temporarily at least.

The other reason I bought APF is that its somewhat neglected and misunderstood. I am something of a contrarian by nature so it appealed. But its not the easiest ride and I don't expect it to change very quickly. I'm just ahead of the trend :-)

Today's results seem pretty much as expected and it looks fairly valued on these. But it's not really about 2021 - it's more about 2022 and 2023. There are 3 reasons to be cheerful that I can see.

One. Prodigious cashflow. Revenue grew from $9.5m in Q1 to $38m in Q4. As these figures are somewhat behind and some of the Q4 income arrived in January we can expect Q1 to be a new record. If prices stay anywhere near current levels H1 as well. That's the silver lining of the soon to be exhausted coking coal royalty. The company confirms that mined volumes from the APF owned land will average 50% of current levels across 2023-2025 (and fall to near zero soon afterwards). In the meantime I expect cashflow to pay the dividend, pay down the debt and move into net cash in 2022. Quite a last hurrah in comparison with expectations at the start of 2021. I don't think the market has grasped this.

Two. Cobalt. At the start of 2021 APF struck a $205m deal for a cobalt stream from the Canadian (high ESG) Voisey's Bay mine. With cobalt prices temporarily depressed and no income until Q2 the deal was slow to start and APF debt high. But with Cobalt now 2x the price that they struck the deal it starts to deliver sharply increasing cashflow - assisted by the ramp up in output from the mine in coming years. Still doesn't replace the hole left by the coking coal - not yet anywhay.

Three. Nickel. It's a difficult environment for doing great deals at the moment. They've got more expensive. Expecially if you really need one. The time to do them was a few years ago. Over the years APF have tried a few exploration and development deals. Most haven't worked out. Some have yet to do so. One of these is Piaui - a large prospective Nickel mine in Brazil - being constructed by Brazilian Nickel - APF hold a 1% gross? royalty over the mine which should come into initial production in 1-2 years time. The current price and supply of Nickel greatly improves the likelihood of this mine making it into production soon. APF also have the option to raise their royalty to 4.5%? gross? in return for staged payments totalling around $50m? (its some time since I checked the figures) It seems likely that cashflow from the coking coal royalty will fund this as well as it bows out.

In addition there is a small, but nicely developing portfolio of revenue generating Copper, Vanadian, Uranium, Gold and Iron Ore assets. And a development portfolio of uranium, iron-ore, copper, gold and calcium carbonate assets which may (or may not) generate revenue anytime soon.

The Cobalt and Nickel will pivot them to a much more forward looking portfolio within a couple of years. Cashflow will allow them to keep paying a gently progressive dividend in future years as well as fund these development assets and more deals - starting with the Nickel and Calcium Carbonate. In my view they are better off with these deals than chasing a new deal at today's prices - unless of course something better comes along. In which case they have the financial strength now.

I think the share price will be slow to recognise the progress [1] because London is not big on royalty and streaming models and [2] because the business is transitioning from one based upon fairly predictable royalties of basic minerals - and a fairly low multiple - to one based upon rising commodity prices caused by scarcity of (high quality) supply.

In the meantime 2022 has the potential to be a bumper year - broker forecasts are behind and have not been updated to account for Q4 revenue levels so show only a 10% rise on 2021. Understandable given the number of moving parts and volatility in supply and prices. My fairly simplistic spreadsheet based upon Cobalt and Coking coal (nb there is an escalator working in AuD on this royalty) above Q4 prices but below current prices and the rest at 2021 revenue levels predicts an eps of around 30p.

First opportunity to gauge will be the Q1 trading update for revenue - expected in late April. I expect this to set the share price moving upwards again.

btw - there is an excellent and knowledgable discussion board for apf in the other place (A%$FN). Well worth a look if you are so minded.

cheers and DYOR

Mark

Equity Development

Our view: the preliminary results for £KETL for FY21 were encouraging, with results modestly ahead of consensus expectations with record levels at the revenue and PAT level. Although headwinds continue, leading to pressure on gross margins, management actions have ameliorated the impact of rising input costs and the target of doubling revenues till by 2025 is still on course.

However, we think sanctions on the Russian economy are likely to result in up to a c.£3m hit to revenues in both FY22 and FY23, resulting in a 2% reduction in adj. EPS in both periods. Although Strix does not sell directly into Russia, the Chinese OEMs supplied with kettle controls do. We therefore reduce our fair value / share to 293p, still representing a 22% premium to the current share price.

https://www.equitydevelopment.co.uk/research/exciting-product-pipeline

And presentation tomorrow https://www.equitydevelopment....

Howard Adams

Anyone in S4 Capital (LON:SFOR) .... down -36%. Reacting to an RNS at 2:30pm

https://www.investegate.co.uk/...

Postponement S ⁴ Capital Preliminary Results 2021 Announcement

S4 Capital plc (SFOR.L) announces that at 2:30pm today (30 March 2022) our auditors, PwC informed us that they were unable to complete the work necessary for S ⁴ Capital to release the Preliminary Statement tomorrow morning.

As a result, the Company will release its Preliminary Results for 2021 as soon as PwC have completed their work. The Company believes that the results for 2021 remain within the range of market expectations and continued to trade strongly in the first two months of 2022.

This is second PwC based postponement.

Market obviously not happy. Accounting issues or PwC blunder, who can tell?

One to keep an eye on. If it gets sorted satisfactorily likely to be a bounce I suspect..

I hold.

Regards

Howard

BnB

Original postponement on 1st March cited:

"because of the impact of Covid and Omicron on travel and resource allocation, particularly in the Netherlands, PricewaterhouseCoopers has requested a further period to complete its audit work."

If this is all it turns out to be, then today's closing action will turn out to have been an excellent buying opportunity. I would not be surprised by a much higher open in the morning.

shanklin100 - thanks for reminding me that £bmy have done IMC presentations - 14th Jun last year 12 days after prelims. The time lag I mentioned seems a repeat of last year! -

24/3/21: Bloomsbury announces that revenue is expected to be ahead and profit significantly ahead of upgraded market expectations* for the year ending 28 February 2021. This surpasses the guidance provided in our statement on 29 January 2021.

30/3/22: Revenue is expected to be comfortably ahead and profit materially ahead
of upgraded market expectations for the year ended 28 February 2022,
surpassing the guidance provided in our statement on 26 January 2022*.

Perhaps we should ask for % definitions of "ahead" "comfortably ahead" "significantly ahead" and "materially ahead "!

gmtrader

A late RNS out for £SOM. ii reduced their holding. Chart wise it looks like the bearish pattern of a head and shoulders is forming.

JohnEustace

House of Sky and Breath was only published in mid February so I think you're being a bit harsh on Bloomsbury Publishing (LON:BMY) management there.

Snowbum

I don’t hold but agree a pull back looks likely, I have a different channel on the monthly tf that suggests a test of lower channel support around the 300p level.

Lochinver

Just my reading of the situation.

The audit will have been going on in full earnest from early Feb at the latest. It will have been worked on for weeks if not months before that.
It is inconceivable that it took within less than 24 hours of the revised results announcement date to realise that there wasn't enough time to complete the work.

Again, just my opinion, but it is also inconceivable that Pwc left it until the last possible moment to again request a further period to complete its audit

In other words, in my opinion, the delay in announcing results is not because Pwc needed more time to complete its audit work. ie there is some other reason for the hold up. This is the reason for the huge share price collapse, in my view.

Good luck to anyone who sees this as “an excellent buying opportunity”

KevinS1

31st Mar '22

What signals the pull-back. Asking to try and help my understanding of charts?

Imo, there is an evening star formation across the Dec-Feb monthly candles and price divergence with RSI from the peaks in Sep & Jan showing momentum is fading. There is also an ascending channel on the monthly tf with lower boundary support around the 300p level. It did bounce off mid channel support at 400p area but to continue upwards in the short to medium term this needs to hold…

Of course, this may just be some astrology for men and the sp does continue on its merry way higher ;-)

Small Cap Value Report (Wed 30 Mar 2022) - BMY, SHEP, KETL

Jack's section

Bloomsbury Publishing (LON:BMY)

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Jack Brumby

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