Small Cap Value Report (Weds 1 Feb 2023) - DX., RCDO, WIX, INS, CODE, BLV, RBGP, WYN, TND, GMR, MTEC

1st Feb '23 by Paul Scott

44 comments 8878 reads

Good morning from Paul & Graham!

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.

Thankfully a bit quieter for news today. This all looks a bit boring, and in-liney, so I might start with Porvair (LON:PRV) from the backlog -

Paul's Section:

First, some short sections left over from yesterday, which I did last night -

DX (Group) (LON:DX.) - Trading Update - £173m - Paul - GREEN - 29p (down 2%) - H1 trading in line with expectations. Confident in FY 6/2023 outlook. Net cash £36.4m. Good pipeline & new business. My view - looks a convincing turnaround, and valuation seems attractive value.

Ricardo (LON:RCDO) - Trading Update - £339m (in line) - Paul - AMBER - 517p (down 5%) - H1 to Dec 2022 traded in line with expectations. FY 6/2023 guidance unchanged. Strong order intake & closing order book. Net debt £31m. My view - shares have a had a great run, and now look sensibly valued (fwd PER 15x) instead of cheap.

Wickes (LON:WIX) - Trading Update - £395m - Paul - GREEN - 152p (down 4%) - FY 12/2022 in line with expectations (£72-76m adj PBT). Impressive 3-year LFL sales growth of +23%. Cost headwinds - bringing forward staff pay rise will cost extra £3.5m. Also energy will be £10m more in 2023 than 2022.…

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topvest

1st Feb '23

Interesting conversation on dividends. There are a few Stockopedia dividend screens but they seem to stop on 10 years. I hold about half my portfolio in investment trusts. The dividend achievers list on AIC is highly impressive www.theaic.co.uk/income-finder/dividend-heroes - 56 years and City of London Investment Trust plc City of London Investment Trust (LON:CTY) is the clear winner, I believe!

planetx

LDG Logistics Development Group .

Anyone following ? or invested .

They hold big chunks in Finsbury food and Alliance Pharma , are sat on mountains of cash and smart investor Richard Griffiths has jumped on.

Ill attempt a sum of the parts valuation tonight but they seem to be on big discount to NAV with a few major holdings having rerated .

I did jump in and out a month ago, only jumped out because it was all bit confusing with dbay and LDG .

Phil Mc

Perhaps we need a readers poll of what "cultural concerns" means and then if anything comes out in the wash later we can award the person closest with a prize. I feel this statement is the corporate equivalent of a "spot the ball" competition.

Rusty2

Yes have a small holding Logistics Development (LON:LDG), nearly sold out this week but will wait and see what happens. I don't know Richard Griffiths.

lemming1

Clarkson (LON:CKN) has increased theirs for 19 years also I think

Clarkson (LON:CKN)

Dont forget also the new incoming CEO will probably require a gazillion free shares with no deliverables .

RBG should actually be RBGT , Real Big Gravy Train,.

The red lights were flashing to anyone that cared to look when the FD was gifted I think a million shares at zero cost for reaching the stunning achievement of, err, turning up to work .

Its a bonkers investment gravy train, shareholder theft and blue collar crime right before your eyes .

Run for the hills like Nicola although no doubt her shares were probably free .

We as shareholders should be offended by companies like this.

timarr

RE: dividends

If you go outside AIM the obvious quality stocks pop up - Halma (LON:HLMA), Diploma (LON:DPLM), Rightmove (LON:RMV), Renishaw (LON:RSW), Spirax-Sarco Engineering (LON:SPX), Diageo (LON:DGE) ...

UK investors do like dividends, probably a cultural thing built on long experience of high inflation and financial repression. The problem is not the dividend record, it's that they're usually expensive, and buying expensive shares, even quality ones, is generally not a good investment approach.

The skier

Logistics Development (LON:LDG) I also have a small holding after Simon Cawkwell flagged it a while ago.

JCPr

You have to think of XLMedia as a bit of a gamble. They are basically completely re-inventing the company. The old business involved getting their websites (there were many) on the first page of Google searches and earning fees re-directing to gambling websites. Google stepped in and manually adjusted their algorithm to cast their sites into the pit of obscurity. XLMedia tried but only a very few were allowed back by Google. So they've been spending their money buying up sports betting sites in the US to create a new business. It relies on a relaxation of anti-gambling laws in the US which is happening on a state by state basis.

I have a holding, but because of the risks it is a small one.

The Jayman

Anyone ever cast their eye over Pollen Street Pollen Street (LON:POLN)? After their restructuring quite a SP decline and significant discount to net assets which have held up.

TamzinPiworld

Thanks Paul! We could never keep up with your content, I don't know how you do it. Love the CEO interviews, they get to the nub of the business model, extracting the vital information. Keep up the good work. Big thanks.

Raleigh4343

Sorry if this is a too small micro. Technology Minerals (LON:TM1) has been trading over 20 times the usual volumes today. I hold as a high risk battery recycling and Lithium play. No news for such volumes. Any other holders?

Tristan_Treacy

I have spent a few hours researching Pollen Street (LON:POLN) and opened a position today. It is a little complicated. They have merged (via a reverse takeover) a credit portfolio (previously the Honeycomb Trust) and an asset manager - Pollen Street - which manages private equity and credit funds. So you have a credit portfolio which is quite short duration and cash generative and an asset manager which earns both management fees and performance fees. So pretty similar, but much smaller than, Intermediate Capital (LON:ICP) which I also own.

Under the reverse takeover they issued new shares to the Pollen Street shareholders. Half of those shares are ineligible for dividends until 2024 so the dividend per share calculation is more complex than usual but on my workings it yields 10.8% today, moving down to 9.5% in 2024.

It currently trades at close to NAV for the credit portfolio - so if you believe the valuation of the portfolio you are effectively getting the asset manager for free. Assets under management have grown fairly quickly over the last few years so if this is sustained then it could be a very attractive entry point. I would like to do some more work on the investments made by the fund management business to understand the business model better but their track record in the presentations relating to the restructure looks impressive.

My summary buy note for my records was:

Thesis

Co trades at NAV of credit book, i.e. no value attributable to asset manager

Asset manager good track record and guidance of growth

c.10% div yield attractive and above peers

Risks

Portfolio overvalued

Small, less diversified than comps

Why hold

Yield

Potential for re-rating

Potential for LT growth in income

Conviction

Mid, need to see further track record with regards to funds business and ongoing performance of portfolio

As always - DYOR.

Bouden54

I had a look at this a while ago and from what I could see the Honeycomb shareholders got a very poor deal as part of the merger with Pollen Street - from memory they effectively gave up half their company for a stake in a fund manager (Pollen St) which I suspect has very little value (I don't think it's making a profit but might be wrong). I suspect it may take a while to regain the trust of markets so I decided not to get involved, but good luck if you decide to take a position. I generally don't like these hybrid investment company-fund managers as there could be obvious conflicts of interest in my view (Intermediate Capital which I do hold is slightly different as most of the value of company is in the asset management side - the investment company is really just a vehicle to help launch new funds).

xerxes

Thanks Tristan, I am hoping your analysis holds good to recoup some of my losses in the Honeycomb Trust (now Pollen Street (LON:POLN) ) which I had bought for the dividends.

andrewdb

I find this topic v. interesting too.

For me, the interesting part is the assumption that because a Co. has increased its dividends for n years looking back, it is more likely to be a reliable dividend payer in the future than another Co that has no such track record.

Looking at humans you see there is increased mortality amongst the young and the old.

From the performance of recent IPOs I think there is evidence of the unreliability of newly listed Cos.

I am not sure if there is data to suggest that older Cos are less reliable divi payers,
but it feels sensible to me.

FREng

2nd Feb '23

I interpreted the RNS to mean "Nicola proposed a change of strategy that the Board vetoed and she called us a load of ******s".

There must be the slim chance that she has the motivation, contacts and firepower to mount a hostile takeover of RBG Holdings (LON:RBGP).

(disc: no position)

Thanks for sharing your thoughts Tristan. I share some of those, and the valuation/discount essentially swings on the value of the investments, with all PE-related assets being discounted down across the market. In terms of re-rating this might revert to a "normal" level of discount but may take time but there is the dividend to pay compensate for patience. I also hold ICP.

DaveK94

3rd Feb '23

LON:BLV fundamentals look very interesting. The chart isn't looking positive so I'll hold of a little - one to keep an eye on for the long term!

Small Cap Value Report (Weds 1 Feb 2023) - DX., RCDO, WIX, INS, CODE, BLV, RBGP, WYN, TND, GMR, MTEC

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Paul Scott

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