Small Cap Value Report (Wed 8 Sep 2021) - SOM, AUG, MEAL, WINK, ALT, ACSO, TRX

8th Sep '21 by Paul Scott

51 comments 9518 reads

Good morning, it's Paul & Jack here with the SCVR for Wednesday.

Today's report is now finished.

Agenda -

Paul's Section:

Somero Enterprises Inc (LON:SOM) (I hold) - sparkling interim results, and Finncap raises full year forecast by 21% (and still seems conservative to me). Terrific business, generating loads of cash, and still looks cheap. That assumes a continuing positive macro backdrop of course, as this is a cyclical business.

My notes from recent webinars from Parsley Box (LON:MEAL) and Altitude (LON:ALT) - which I thought might be useful for anyone who is time poor, and can't watch the recordings themselves. Key points only, and my personal interpretation, so not intended to be a comprehensive regurgitation of the webinars.

Accesso Technology (LON:ACSO) - trading update. A strong recovery in revenues back to pre-pandemic levels, guidance raised. EBITDA also "significantly ahead" of market expectations. Guides that costs will rise. I remain sceptical about this company, but I'm not a tech investor, where different rules apply.

Jack's Section:

Augean (LON:AUG) - Solid results from Augean, whose business is highly regulated and discourages competitors. There is an ongoing tax dispute which has previously put investors off but the direction of travel here is positive. Two bids for the company has been received but the share price remains above these levels, so there is some hope of further offers.

M Winkworth (LON:WINK) - franchised estate agency active in the London property market. Business has been booming ahead of the halting of stamp duty but the company is well positioned longer-term and is sensibly managed. It's very small though - prohibitively so for those hoping to buy in scale - but useful readacross for the market.

Tissue Regenix (LON:TRX) - has a history of equity dilution but new management brings a greater focus on product commercialisation and cost reduction. There is a backlog of elective surgeries and the group has expanded capacity just in time to meet potentially strong demand in the year ahead. Cash burn remains a concern though, making this a high risk investment.

Explanatory notes -

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Simon Rowan

8th Sep '21

Hi Rmallee. re BANGO. I think I mentioned Bango and BOKU as being a couple of interesting plays when I first joined Stokopedia 18 months ago. I said not to be confused with names of dogs in 101 Dalmatians. They both have nearly tripled in value since then. On the plus side neither have debt, but neither do they have much in the way of assets. I think the time for a punt was then at 85p not so much now with pe of 45 and 65 respectively. I don't think there was much ramping going on then, they just looked an interesting play at that time. Bango I remember did a very good deal with a big Korean telecom who bought a chunk as part of the partnership. They have both done extremely well. The question is where do they go from here? Bango have already touched these dizzy heights once a few years back. This sort of telecom technology is very much a here today gone tomorrow sector. I got out because I felt they have done the going places pretty well. May go further, but the the higher you go the bigger the fall, as they say. I wouldn't be tempted to buy back at these prices

Rusty2

Belvoir (LON:BLV), this does not look correct, might be worth reporting this to the helpdesk, as there is only 1 broker then it should tie up with Finncap's forecast? That is quite a fall, around 20%.

johnsmith68

Re. Frontier Developments (LON:FDEV) , I agree - it's unusual to get such forward visibility from a company, but the issue here (as with most companies in this space) is the valuation: Their forecast range for FY23 implies a P/E range of 27-30 if my back of a napkin calculation is correct. I do hold but think I'll wait for the next downturn before adding.

BnB

Thanks for taking the trouble to reply, Paul.

It's entirely logical, as you say, that poring through the reports of pre-profit growth companies - my field of interest - doesn't play to the well-honed skills and instincts of a value-focused analyst. It's more about assessing the market opportunity. Is the TAM expanding (Alphawave Ip (LON:AWE))? How good is the product and what need does it address? Is the service supported by regulation (Pci- Pal (LON:PCIP)) or unusually sticky (Darktrace (LON:DARK))? Can management execute?

It'd be great to have a regular thread as lively as the SCVR for the discussion of such names. "UK Growth Report" or some such, but it would need an analyst/moderator of your capabilities and energies and there's only so much time in the day and, presumably, money in the budget.

Interesting comment. I top-sliced Boku Inc (LON:BOKU), having enjoyed the ride up from 80p, to buy Bango (LON:BGO) which I believe is relatively undervalued. I think the opportunity persists because of three factors. In the developed world telecom carriers are bundling services to enable platforms to expand their reach, eg O2 bundles Disney+ in the UK, in ways that fit those for whom the smartphone is the epicentre their life, ie the young, of whom there are rather a lot. Secondly, the developing world is bypassing the journey through banking and credit to a smartphone-centric financial identity - and there are a lot more consumers there than here! Thirdly, reports suggest that the data monetisation is proving more valuable than anticipated to Bango's partners, particularly as cookies are retired and Apple seals the vault on your data.

I could be wrong, and for that reason I'm not an all-in type of investor. I have more than 10 holdings just in payment processing.

gwilli68

Here's the reply I got from the helpdesk regarding Belvoir (LON:BLV) forecast changes -

"It can be a little confusing, but the number shown for Analyst Consensus is for the recommendation (ie buy/hold/sell). There can be more analysts providing forecasts that don't provide a recommendation. For Belvoir, it looks like there are two brokers providing estimates.Unfortunately, due to a change in our licensing, we no longer get the broker names from our data provider Refinitiv (something we used to be able to do). Otherwise, I might be able to tell you who the other broker was apart from Finncap."

davidjhill

Hi - I think the more relevant aspect to the data monetisation aspect for Bango (LON:BGO) is that they are anonymised and aggregated and do not rely on cookies. So in a post cookie world, which is where we will be in short order they should be a material winner.

The moat is pretty big though never insurmountable, it costs a lot and takes years to develop a platform that processes transactions reliably and quickly and able to rapidly scale. The fact that so many blue chips now use them tells you they are highly regarded and this in of itself make the moat bigger and deeper. They are still winning business at a clip.

I really like them and have owned since sub 100p. I still consider plenty of upside as I think they have now firmly moved into positive cash generation and very high operational gearing. Looks like brokers are penciling in 260p as 12 month target. Personally I am looking for closer to 300p.

I heavily suspect they will be on the end of a bid at some point, which I also suspect means I may not see the ultimate upside so I hope that doesn't come to fruition any time soon, but its probably a great fit for a US IT or data aggregator alas.

JohnEustace

I agree that Belvoir (LON:BLV) data looks off. The broker is forecasting a smaller drop but the CEO made the point in his Monday presentation on InvestorMeetCompany that the broker forecast assumed no further developments in acquisitions or partnerships which is very unlikely to be the case.

Thanks for that.

I can only find 1 broker covering Belvoir (LON:BLV). If the EPS has dropped to 16.6 is that the average for both or just the latest broker forecast? This information is less reliable now, as we don't know if the previous forecast has been downgraded or if it's just from another analyst.

Paul Scott

Thanks BnB, I appreciate your reply :-)

Best wishes, Paul.

shopping365

This might be of interest as it gives more background.

https://www.proactiveinvestors...

timkempster

The Stocko page has 1 broker so odd response from their helpdesk.

I think FWIW full year 2021 EPS is likely to be 21p. It's cheap here for a reliable growth business in the world of TINA

rmillaree

Bango (LON:BGO)

I think the time for a punt was then at 85p not so much now with pe of 45 and 65 respectively. I don't think there was much ramping going on then, they just looked an interesting play at that time.

I tend to avoid like the plague (NOW) companies at too early a stage in their development - i may well have missed the boat on this one in that regard with regard to the rise from 80p to 200p - but generally i am happy to pay a fuller price for a company that i know is likely to be at cashflow plus position + indication of real profits in the next 18 months - Bango appear to be well beyond that now.

Looking at the price over the last 2 .5 years they have mostly been trading at 130p plus on average - they may have spiked down once or twice (didnt everthing in covid) - but the 50% increase from the average level seems justified now the company has proved its on track for £14 mill of sales this year.

For companies morphing into profit the high notional p/e doesnt put me off in the slightest if i think the EPS can grow quickly - we have seen plenty of companies that have been well rewarded for churning out reasonably positive momentum in the last 18 months - don't know what forecasts are for 2023 but if its EPS in the 7.5p - 10p range then 400p shareprice wouldn't seem unreasonable to me if sales growth is well in double digits and margins are good. It seems like they have enough partnerships going on that there is plenty of potential in that regard .

So on a punt basis while the news is good i am now in it to win it (or lose it as the case could be) . But i may not hang around long if they don't show evidence of continued good progress - lets hope there is no brick walls soon in that regard.

GloucesterBob

Many thanks Jack for the write up on Tissue Regenix (LON:TRX) totally agree it's going to be an all or nothing investment but as you allude to the new management seem to have a good hand on cost.

If they ever get to the 68p you quote I'll buy you a beer, in fact at that price probably buy you the pub

Harry Hindsight

Somero Enterprises Inc (LON:SOM) - a growth note is they are increasing capacity at their Houghton facility by 50% at a cost of $9.5 million, which should expand the group’s revenue capacity to around $175 million.

simoan

Talking of which, I had an exchange with the helpdesk yesterday about the P/B value showing for Urban Logistics Reit (LON:SHED) that I think is worth sharing, since it is another anomaly caused by how the StockReport numbers are updated.

The Urban Logistics Reit (LON:SHED) P/B shown in the SR is much higher than it is in reality. BTW This could potentially affect any company that has recently done a share placing to raise cash. I was told the number of shares used to calculate the Book Value per share is based on the current number of shares in issue, not the number of shares at the last report date, as shown in the Financial Summary section. Fair enough.

However, for Urban Logistics Reit (LON:SHED) the StockReport shows the current P/B as 1.51 when it should really be approx. 1.18. This is because the current number of shares in issue increased (from 219m to 325m) through a placing since the FY21 results, which raised £108m in cash. The SR calculation ignores the £108m increase in Book Value (it uses the last reported value) but it does use the new increased number of shares (325m) to calculate the Book Value per share. This means the BVPS is lower than it really is, which means the P/B calculated is higher than it really is, and this situation will only be corrected when the enlarged Book Value is updated at next interim results which are not until November.

I hope this makes sense and is useful.

All the best, Si

gus 1065

Morgan Stanley have upped their offer for Augean (LON:AUG) to 340p per share just before today’s close. Recommended all cash - no 20p contingent stub as per their initial offer.

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

Over to you Eleia.

Gus.

Sharewallah

I am not too happy with the way that the Board and Rothschilds have handled this. When you look at the Board's reason for recommending the original MSIP offer they seemed to me to be saying what a great purchase Augean would be for MSIP. Yes, we know that. What I am looking to be told is why I, as an Augean shareholder, would be better off selling out now rather than remaining independent.

Boon

Private label manufacturing? No thanks!

Raw material inflation and wage cost inflation will hit their margins hard. They're not big enough to have clout over their raw ingredient suppliers. Not like the huge branded food companies. Nor do they have clout over their customers, which are large chains / supermarkets.

Similar to Mcbride (LON:MCB) but doing food instead of toiletries, but both private label and IMO likely to get very badly squeezed in the middle.

tim boddington

Previously described as having a "solid balance sheet and steady growth"(Simply Wall St) in 12/2020I have long held LON: SOM Somero Enterprises. This company has a very strong economic moat with hundreds of patents. The product is better than traditional concrete screed floors, more level, and takes less time to install, therefore a cost advantage. I watch the huge number of mainly internet commerce warehouses being constructed and it is these which require the laser levelling which Somero supplies. A 1 cm imbalance at the floor will topple a pallet at a 6 metres height. It seems to me that this is a strongly protected business in a growth market! And I particularly like the ROCE and ROE, the P/E ratio is higher than I would like at 19.2 but is forecasted at 14 for 2022. A class act with a strong future. Definitely good value for the longer term. methinks..

Small Cap Value Report (Wed 8 Sep 2021) - SOM, AUG, MEAL, WINK, ALT, ACSO, TRX

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Paul Scott

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