Small Cap Value Report (Weds 11 August 2021) - RST, GDWN, RPS, WBI, HSW

11th Aug '21 by Paul Scott

30 comments 8387 reads

Morning all, it's just Paul here today, with the SCVR for Wednesday.

Today's report is now finished.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover 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 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) - don't blame us if you buy something that doesn't work out. 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.

Agenda -

Paul's Sectioon:

Restore (LON:RST) - (from yesterday) - RST has successfully fought off a semi-hostile takeover approach from Marlowe (LON:MRL)

Goodwin (LON:GDWN) - results for FY 04/2021, look good. The valuation has come down to a more reasonable level. Sound balance sheet & cashflows. This share looks interesting to me on a quick review of the numbers, and could be worth readers doing your own more detailed research.

Rps (LON:RPS) - Interim results are nothing to write home about, with increased profits coming from cost-cutting rather than revenue growth. Balance sheet still quite flimsy, although helped by a placing last year which increased the share count by 20%. One for sector experts I think, as there's nothing much in the figures or outlook to excite me.

Woodbois (LON:WBI) - poor interim results from this AIM-listed African timber company.

Hostelworld (LON:HSW) - multiple issues with this share, so I'm steering clear.

Restore (LON:RST)

490p - mkt cap £669m

Bid talks off

Marlowe (LON:MRL) announced yesterday that it does not intend to make an offer for Restore, as acceptable financial terms could not be agreed. RST mounted a spirited defence of its independence, with most of…

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Silver Moon

11th Aug '21

Many thanks for your reply Paul, I see now why £RTC doesn't appear in your appraisals. I have held since 2016 and along with a holding in Petards (LON:PEG) have gotten nowhere. Still, diversification is the name of the game, always adding to the learning curve:)

Regards,

Silver

Chasbas

Paul, I could not believe your comments on RST. Yes its a quality stock but don't you think its growth prospects are relatively dull vs MRL? Share price performance suggests this over 1, 3 and 5 years: RST +38%, 2% and 41%. MRL: 59%, 65% and 380%.

Restore shareholders will regret this as a missed opportunity to return to being a great growth stock. As a MRL shareholder I'm impressed that the MRL decided not to overpay for a business whose best days are behind it!

TamzinPiworld

Renewables Infrastructure (LON:TRIG) H1 21 results presentation to analysts and investors, given last Friday. Interesting that it was less windy in January! Video & podcast.

The Vertu Motors (LON:VTU) investor webinar to be given next Tuesday 17th August at 4.30 seems really popular. Register here.

Paul Scott

Hi Chasbas,

If you read my comments again, perhaps more slowly & carefully, you would see that I think RST is fully priced, and suggested that the recent 20% pop on takeover talks could be seen as a good opportunity to sell! I don't have any particular view on the merits of MRL vs RST, but thank you for your opinions on that.

I do agree though that the core business at RST is "mature" as the CEO said recently. i.e. ex-growth, presumably why they're doing so many acquisitions.

Neither Marlowe (LON:MRL) not Restore (LON:RST) are shares that I would want to buy. Both look fully/fairly valued, so where's the upside?

Regards, Paul.

wildshot

Currently slightly over the SCVR limit is my long term holding in 4imprint (LON:FOUR) with half year results out today. I've held this for just over 10 years and it has > 10 bagged for me.

Results show improving order books particularly in the US which is the prime market and benefiting from a return to normality in the business world post Covid. Order levels and new customer acquisitions are getting close to pre-pandemic levels, especially running into the 2nd half of the year. The dividend has also been restored and they have paid special dividends in the past. The business is net cash and lending facilities in place have not been used.

The share price has recovered a fair bit from the lows of the last 12-18 months so clearly a recovery play. A disappointment for me is that the net margins are still very low compared to historic standards, I guess not helped by an uptick in marketing spend. However the marketing spend does seem effective as they have historically been increasing their market share each year in a massive market. If I remember correctly, up until Covid they were well on track to beat their deadline of reaching annual turnover of $1 billion. Covid was the black swan which scuppered that target but recovery is coming. After holding this for so long I know the management tend to deliver on their promises and seem very capable.

It might be of interest to some, but if I remember correctly (I don't have notes going back that far) but when I first invested > 10 years ago the share price was very lowly rated due to a pension deficit. They had a clear plan to reduce this, which in my view, along with the business growth has helped re-rate the share. The defined benefit pension plan (closed to new members) now only has a deficit of $2.24m, very manageable for a company with this great cashflow management. Kudos to the company for managing this.

If you know little about 4imprint (LON:FOUR) they provide marketing products for companies; think of branded pens, mugs, umbrellas, notepads etc. They have minimal stock holdings and outsource the branding work. This has been a successful business model for them. With the return of exhibitions on the general business agenda I think the recovery in the trading for FOUR will continue.

Slowlearner

Any views on Atalaya Mining Atalaya Mining (LON:ATYM) interims out today? (Pitched by Jack recently). I bought a small holding, and am still thinking that copper is going to be increasingly in demand for EVs and more and more tech equipment.

willhampson

Re Atalaya Mining (LON:ATYM), I thought the results were impressive although they were well-flagged in advance. What troubles me is: (i) the permitting issues with Touro - the Spanish authorities have shown themselves not to be a pushover when they have environmental concerns and the lobbying powers that be are well entrenched and powerful in mothballing projects; and (ii) the rising All in Sustainable Costs (AISC). These are set to rise to US$2.50-2.65/lb, which is in the high quartile for copper producers. This may be fine now with elevated copper prices, but is a big issue if prices revert back to closer to US$3/lb. For those reasons, I don't own it and see better long term upside elsewhere but that is purely my view (which likely is wrong...). All the best, Will

gmtrader

Hi Paul,

I totally agree with you with £WBI.

The company has been listed for quite a few years with a few different names in that time and it was not always about timber either. IMO, this company is more of a shell company allowing money to be moved around and duping investors. Anyone interested in investing here you research back quite a few years to get a better picture of things.

rmillaree

Restore (LON:RST) and Marlowe (LON:MRL)

don't you think its growth prospects are relatively dull vs MRL? Share price performance suggests this over 1, 3 and 5 years: RST +38%, 2% and 41%. MRL: 59%, 65% and 380%.

This cherry picking of data reminds me of the famous quote

Lies, damned lies, and statistics

If we look at Marlowe it looks like it was a basket case that made no money prior to 2021 - obviously the shareprice is gonna rerate if they righted the ship and now make money when previously they didn't . To me the recent shareprice appreciation simply makes me wander what they were doing wrong previously rather what they are doing right now !

Ref the RST shareprice appreciation - doesnt look bad - but the trend in numbers ref profits looks better long teerm than MRL to me albeit they also had a dodgy spell.

Shares in issue has risen materially too ref Marlowe in last 4 years or so - up over 50% - makes me wander if they might have lucked out on an acquisition that actually was making some moeny rather than making their own business profitable.

Note i dont know much about either company so i may have also used cherry picked stats - but on an initial glance restorre looks like the more liablle operator of the two over the last 5-6 years. I know nothing about future prospects - in some respects the past doesnt really matter here.

welwichia

Atalaya Mining (LON:ATYM) is currently presenting their Q2 results on InvestorMeetCompany. Some highlights:

- considering re-domiciling the company from Cyprus to London

- hoping to move to main listing from AIM

- dividend being discussed and an announcement likely "sometime this year"

Lots of detailed information on the various projects and status of Touro etc - well worth listening to in my opinion (it is being recorded).

Jim Wall

Goodwin (LON:GDWN) - just a point on the dividend.. indeed it was a strategic decision in 2018 to increase the dividend - the formula is to pay 38% of (net income + depreciation + amortisation) which does build in a certain degree of payability with perhaps the downside of not necessarily smoothly increasing payouts..

rhomboid1

Hi Paul

Well remembered …I am indeed a big fan of Goodwin (LON:GDWN)

In my opinion this a snapshot of a business in transition…for instance new machine shop costs were incurred in these results (new property plant & equipment investment was £11.8m in the year) but turnover and profit from this factory will only start to materialise in the current financial year, the new facility is significant in size and capability and will generate a sizeable contribution to profits in the current financial year and into the future.

This facility is primarily utilised for a major nuclear submarine defence order for the US Navy this contract is very long-term in nature and has been years in gestation.

Goodwin steel castings has been loss-making, it lost £0.7 million last year & continued to be loss making in these results but going forward is likely to be significantly profitable with the all important baseload being provided by the Magnox nuclear storage box contract which will run for over a decade.

Easat Radar lost just under £1 million in financial year 2020 and probably lost a not dissimilar amount in the current year …however the commentary in this RNS suggests that in future this will become a significantly larger and more profitable business The reference to the system values being 10 times what they have historically been involved in gives a good indication of what the future holds in my opinion.

Supplying radar systems to secondary airports in the Middle East and Africa during a pandemic and the associated shutdowns on the aviation sector will have been a thankless task, however the commentary here is reassuring in my view.

the refractory engineering results were notably strong ..especially as the silica free product has yet to roll out, this enables them to supply the US market for the first time so is both margin accretive in non US markets & incremental in respect of the US market.

Soluform
https://www.soluform.co.uk
https://youtu.be/GFcDj7en2fw

and LithEx
https://www.avdfire.com
https://youtu.be/DBKbXOExydk

are both attractive niche products that have very large potential end markets, these markets will increasingly be regulation driven and specifier driven which creates a decent tailwind for the future

In summary Goodwin are mid way through a transformation from being a predominantly O&G industry supplier to a much broader based higher margin business with leading positions in some very attractive end markets.

I hold rather a lot of shares here because I like the culture & the ambition of this extraordinary business…so apologies for my bias

tightfist

I agree…. Today’s Atalaya Mining presentation was rather insightful, and definitely worth visiting - if you are convinced on Copper (which I am)

Hi Rhomboid,

Fantastic post on Goodwin (LON:GDWN) very much appreciated!

FREng

Sosandar (LON:SOS) jumped 9% this morning. Anyone know why?

gus 1065

Re. Sosandar (LON:SOS) price spike today, maybe because it fell 14% from 36p to 31p last Friday? Seems to be the silly season for a lot of small caps at the moment with big moves up and down (and back again) for no apparent reason. Bored brokers playing silly bu**ers?

Gus.

ridavies

Re Angle (LON:AGL) JimMcLad. Just thought would bring to your attention the small but significant study RNS from yesterday from a research centre in Slovenia. I may be accused of cherry picking - I regularly am - but the figures that jump out at me are as follows:

*What specific area of application are the FDA considering the Parsortix process for right now? Yes, breast cancer. Angle (LON:AGL) point out breast cancer is the leading cause of cancer in women worldwide. The National Cancer Institute estimates that 282,000 women
will be diagnosed with breast cancer in the US in 2021. A further 3.7 million US women are living with breast cancer. Despite a 5-year relative survival rate of 90%, up to 30% of women will develop metastatic disease. MBC patients where a tissue biopsy is not feasible. The figures are huge, the key word is metastatic, which means that the cancer has spread. It is desperately sad.

*Results from this study showed that the Parsortix system was able to harvest CTCs in a greater proportion of MBC patients (64%), compared to the antibody-based system (57%), not significantly different. What is hugely different is that 99% of the
cancer cells recovered by the Parsortix system had preserved morphology,
allowing morphological analysis, whereas less than 1% of the cells recovered by the antibody-based system had preserved morphology.

*CTCs were identified by their morphology (as opposed to biomarkers) using light microscopy which is universally available in pathology departments. This method of CTC identification is the standard laboratory practice for cytopathological and histological examination of tumour cells from tissue biopsy. Yes, the system can be used in virtually any standard laboratory.

*This is a small sample, but this follows on from a large series of similar results from many different institutes across Europe, UK and the US. Perhaps this had something to do with the 8% rise in the SP today/yesterday combined. Lets hope for the sake of many 000s of patients that the FDA give approval sooner rather than later. There’s much more to life than Covid 19.

Boon

On Petards (LON:PEG) it is on my watchlist. My big worry is the escalation of war in Ethiopia. Do you have a view on that?

garbetklb

Dahokolomoki - I think you mean Pittards (LON:PTD) not £PEG........

DarwenLad

12th Aug '21

Re:Goodwin (Goodwin (LON:GDWN)). Agree with all of the commentary by Paul and Rhomboid1. Goodwin is one of the hidden jewels of the UK engineering industry. It has been going since 1883 and still remains a family controlled business employing over 1100 staff and generating 70% of its revenues overseas.

True, its level of disclosure does not match that of many of its rivals, it does not cultivate media attention, and it does not take much notice of fashionable corporate governance rules. However, unlike other family controlled businesses it does not seem to have run out of well qualified family members to head the business, although there was some uncertainty when the next generation of the family took over a couple of years ago. Judging by the latest results, Goodwin’s new young top management team is performing well, with margins returning to more normal levels on lower revenues, promise of good growth ahead, and a hefty dividend increase.

At a time when the media loves highlighting the problems facing business as a result of Brexit, it was encouraging to read Goodwin’s latest comment that “ Brexit has not been seen as a significant issue to the Group, the previously identified risks have been managed or mitigated and the Board no longer consider this as a significant uncertainty”.

Small Cap Value Report (Weds 11 August 2021) - RST, GDWN, RPS, WBI, HSW

Restore (LON:RST)

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Paul Scott

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