Small Cap Value Report (Weds 2 June 2021) - TND, BMY, DISH, BRCK, HSP

2nd Jun '21 by Paul Scott

33 comments 10518 reads

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

Timing - there's not much news today, and I have an investor lunch to attend, so we'll be finished by mid-morning today.

Agenda -

Paul's Section:

Tandem (LON:TND) - trading update for Jan-May 2021, says revenues up 24% vs LY, and profit "considerably ahead". No outlook guidance, and no broker coverage, so we're in the dark. Cost/margin pressures & supply chain problems mentioned, but nothing is quantified.

Insurance sector - FCA ruling on "price walking"

Bigdish (LON:DISH) - operational update on its new meat-free food startup. I've decided to drop coverage, as it's too small & speculative now.

Brickability (LON:BRCK) - big Director selling. Plus a primary placing to fund a significant sized acquisition.

Jack's Section:

Bloomsbury Publishing (LON:BMY) - third profit upgrade of the year, with momentum carrying on into the new year and expectations revised upwards.

Hargreaves Services (LON:HSP) - transformation continues here but a good run sees the shares priced at around net asset value

Paul's Section

Tandem (LON:TND)

665p (pre market open) - mkt cap £35m

Trading Update

This share has had a remarkable run since the covid low in March 2020, rising nearly 6-fold.

The current financial year is FY 12/2021.

Tandem Group plc (AIM: TND), designers, developers, distributors and retailers of sports, leisure and mobility equipment, announces a trading update, arrangements for the 2021 AGM and Board change.

Trading has “remained robust” -

… Group revenue to 31 May 2021 was approximately 24% ahead of the same period last year.

Profitability was also considerably ahead of the prior year augmented by our cost base not yet returning to pre-COVID levels.

Tougher prior year comparatives, from lockdown 1 (which boosted Tandem) - see update on 28 May 2020, which said bicycle sales were up 77% on 2019
Bicycle sales this year are up 21% on 2020 - impressive against tough comparatives
Ebike revenues up 112% - clearly a strong growth area
B2B division (which I think must be sales to UK retailers) revenues up 32% on last year, for Jan-May 2021 - impressive
Ben Sayers golf business doing very well - revenue more than doubled vs LY, and order book strong (“well ahead” of last year)

Supply chain problems -

One of…

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Eric Ford

2nd Jun '21

Intuitive Investments is a new recently floated investment company with interim figures today run by David Evans and Rob Naylor who have a great track record in the bio /pharma sector. In my opinion they have the potential to do very well compared to the market.I hold shares.Ken Ford

Andy Sav

I sold out in December last year. I couldn't determine how big Concurrent Technologies (LON:CNC) s market is. I was worried growth was limited as they are specialists. We have also been hit by a world wide chip shortage since, which might be impactin the current price? I also sold out of Sdi (LON:SDI) at 70p per share and they are now over 190p. Oh well :)

doublelutz

Marks And Spencer (LON:MKS) are the reason why I cancelled the Investors Chronicle after very many years. I know it is difficult for them to give a view on practically every share but it was obvious to me that the link up with Ocado, who we have used for years, would be hugely successful. The share was in a wide range last year between 80p and 120p. It was either a buy at the lower support or on a break of the upper resistance. I was getting ready to make a very large investment when the IC called it a sell at not much more than 80p. I let It put me off buying and I didn't join in on the break of 120p but I thought if they could be so wrong on something that was so obvious to me what was the point. It may well now have gone high enough for now but the Ocado link was always going to be a game changer.

The other daft forecast last year was when the Telegraph made Royal Mail a sell at around 200p when there were more parcels being delivered than newspapers! Fortunately, I hold that but I do despair.

vprt

Yes, I might pick them up if you give me a good deal... Steady-as-she-goes, good gross margin and very high return on tangible assets, so if growth were to pick up at some point, I'd expect nice leverage. Huge cash pile, relatively speaking - which I adjust for when looking at valuation multiples. New CEO is interesting - but too early to tell. Rock solid - not one to worry about.

Roger Baron

"The FCA ruling is designed to stop the process of “price walking” - where a cheap deal is offered to new customers (of e.g. car insurance), then the price goes up each year on renewal. "

Presumably this isn't good news for car insurance brokers and comparison sites.

ken mitchell

Re that Marks and Spencer (LON:MKS) Investors Chronicle sell advice.

Best not imo to take too much notice of the Investors Chronicle buy/sell advice unless it’s from one of their specialist writers like Simon Thompson. He is excellent as is the performance of his bargain portfolio year after year.

But some of their writers are very inexperienced and you are likely to be a better judge than they are. You can check out who wrote the tip comment when the writer isn’t named as they print their initials in bold capitals at the end of the article. Then go to the contents page to find their full name under the “specialist writers” heading and then check out them out.. They all have to start somewhere and sometimes their very first job is at Investors Chronicle.

I think the same about broker buy/sell advice. Research has shown that often the shares with the most broker buys do worse than those with the most sells, and often sells do better, NOT by going down, but UP! A couple of years ago BATS was the most popular FTSE100 share of all with brokers and it ended up being the worst FTSE100 performer that year! The broker and Investor Chronicle content is often much more useful than their buy/sell or equal weight (whatever that means!) conclusions.

The comment here from the likes of Paul, Jack, Roland etc is way superior to that available in some of the Investors Chronicle articles. I subscribe to I/C because there is enough there, especially online to justify it, but we need to be very selective with their investment advice.

TamzinPiworld

Here's the Cerillion (LON:CER) H1 presentation given last week. A super set of results delivered by Louis Hall, CEO and Oliver Gilchrist, CFO. Video & podcast.

Summary: Revenue is up 26% to £12.8m. Annualised recurring revenue is up 43% to £9m. Adj PTP is up 124% to £3.8m. EPS is up 105% to 11.5p. Back order book is up 74% to 42.1m. Net cash up 60% at 7.7m. H1 dividend is up 20% to 2.1p. Over the last three quarters CER have signed two of the largest contracts in the Company’s history. Not surprisingly management believes they are well-positioned to deliver their full year targets.

Other PIWORLD presentations forthcoming which you can attend:

Ig Design (LON:IGR) FY results webinar, on Tuesday 15th June, 12 noon, with Paul Fineman, CEO & Giles Willits, CFO, followed by Q&A. Register here.

Michelmersh Brick Holdings (LON:MBH) investor webinar, on Friday 18th June, 10am, with Frank Hanna, Joint CEO followed by Q&A. Register here.

And, we are back with another Stockopedia/piworld StockSlam on Wednesday 23rd June, 6-7.30pm! Damian Cannon will host another event where 10 investors 'Slam' their best stock idea live in 3 minutes. Register here.

abtan

Bloomsbury Publishing (LON:BMY) (I hold)

"64% of group sales...are from overseas."

I can't make sense of this.

The UK is actually 64% of group revenues, international is 36%.
Did the company make a typo?
Or am I misunderstanding something?

Tortoise investor

I agree that Marks And Spencer (LON:MKS) looks interesting . The company recently gave guidance of £300-350m pre-tax profit for FY22 which, with c.20% tax added, is a EPS of around 12-15p although this assumes no further lockdowns. There is excellent food growth here from the Ocado tie-up where Marks And Spencer (LON:MKS) are looking to expand their capacity by 50%. Plus the strong online clothing and home growth bodes well even if clothing and home has been in long-term decline. As a short-term (one to two year) play I can see this getting to 220p+ and potentially higher if the clothing and home turnaround works. The main 'bear' argument in my view is that a lot of their growth initiatives feel lower-margin - i.e. selling more lower margin everyday food products and lower margin clothing from third-party brands. But maybe customers visiting for those products might drive higher margin sales too?

It seems bonkers to me that travel companies are priced so highly right now but market is pricing Marks And Spencer (LON:MKS) people around 11x current year estimates in a bull market and seemingly not really factoring in the Ocado and online clothing and home growth. (I hold)

Without referring back to the report that looks like an error. International sales are not bad in any event. Not sure why India is down but my son uses programmers there and they have certainly had big problems due to Covid.

P.S. I see there is another RNS announcing a further acquisition on top of the one the other day. Bloomsbury Publishing (LON:BMY) certainly seem to be going there best to keep moving forward.

CONCLUSION

Very happy holder.

It's one of the few holdings that I've actually topped up this year and I am tempted to top up again.

Underlying cash generation of c.£15m looks great vs the current EV (£230m), which gives me a multiple of c. x15.

This is the lowest multiple I would personally assign to this business.

Some further observations that I found interesting:

DIGITAL GROWTH

Nice growth in digital sales of +56.1%.

---

Whilst I would prefer young readers to use physical books, I believe the +152.1% in Children Digital sales achieved this year helps to lay down the foundations for future digital sales.

The +57.2% in Academic Digital sales was also encouraging.

Note Digital sales in this segment were £19.0m vs the traditionally large print sales, which achieved £23.3m.

I believe the rapid rise in Digital here is being masked by a slowdown in off-line revenues (which in some ways reminds me of Best Of The Best (LON:BOTB) a few years ago), and that it's only a matter of time before sales in the former significantly exceed the latter.

ACADEMIC GROSS PROFIT MARGINS

What is perhaps less obvious from the results is the lower gross margins achieved in the Academic Segment.

67.9% to 59.7% in less than 2 years is quite a drop, no doubt driven by the higher digital sales (which oddly appear to generate lower gross margins - from memory I believe someone here mentioned that this might have something to do with royalties).

However, it's worth noting that a lot of this is likely from highly recurring revenues - the company mentioned a very high 90% customer retention rate in this segment - so a drop in gross margin, whilst not desirable, is perhaps a price worth paying for more reliable, long term revenues.

ACADEMIC OPERATING PROFIT

If there was one concern, it was the higher Marketing + Distribution spend which at 11.3% of Academic Revenues is the highest it's been in the last 2 years.

Hopefully those gross margins level off soon, and the Marketing/Distribution costs don't rise too much.

FUTURE

For 2021/22 there will be a £6m in-year boost from the latest acquisition so I personally am expecting revenues to rise, though I remain more cautious on operating profit, primarily due to the concerns noted above.

Looking further ahead the company has a fast growing, high revenue-recurring segment and generates so much cash that growing by acquisition should help alleviate any downside risk for the foreseeable future.

As someone else here mentioned I'm surprised that the share price is not higher, but then as holders we would say that.

sharw

abtan - Bloomsbury Publishing (LON:BMY) I was also puzzled by those figures so asked Hudson Sandler and received the following reply:

"They are slightly different metrics.

The 64% overseas revenues referenced in the CEO statement refers to revenue measured by destination, whereas in Note 2, this shows revenue by source. So, for example, a sale from the UK company to Europe would show in note 2 as UK, as the source is UK, but is an overseas sale by destination".

Whereas note 2 gives last year to compare the statement "increased overseas revenues to 64% of Group revenue" does not. We have to go back to last year's prelims to read under 'Strategy': "Accelerating the growth of Bloomsbury's sales in the USA, Australia and India: International sales 63% of revenue".

63% to 64% is hardly significant but, never mind, the results overall and outlook are good so I'm happy to hold for as long as the streak of delivering more than promised continues.

[Edit - it is 17 30 and this is post 25 - record low?]

Boon

Indeed, probably bad news for Moneysupermarket.com (LON:MONY)

I'm still on the fence whether this is beneficial or bad for Saga (LON:SAGA)

In the past, their 3 year fixed price policy attracted customers that loathed other insurers for raising premiums every year. But if all insurers need to now treat renewals better, than is the 3-year-fixed prop going to be as powerful as before in pulling in new customers?

Also, Saga's customer base is one that has been unused to "online price comparison" for 20-40 years of their prior adult lives. Not about to start when they hit theirs 50s, 60s. So were going to be loyal, despite any price rises. Will they be less of a cash cow now for Saga?

Bloomsbury Publishing (LON:BMY)

Thanks Sharw

If you or anyone else can help me understand why the "source" of the revenue is important it would be much appreciated.

It seems a bit pointless.

Cheers

InvestorD

This saved me an awful lot of work! A big thanks for the post - from one happy holder to another!

So basically have third party brand concessions in their department stores?

Not quite sure that would be a winning strategy... seeing how Debenhams did it but still went to the wall...

Bloomsbury Publishing (LON:BMY)

abtan - I suspect it is one of those things done that way because it always has been! Most companies have a geographic split as a note to the a/cs. Taking a random sample of three of mine -

Amino Technologies (LON:AMO) "For this disclosure revenue is determined by the location of the customer".
Spectris (LON:SXS) "The following is an analysis of revenue by geographical destination".
Venture Life (LON:VLG) "The Group's revenue from external customers by geographical location of customer is detailed below"

So by this admittedly small sample their way is not the norm.

WDWombat

3rd Jun '21

I made the decision not to invest in this fantasy despite urgent recommendations from a friend. I simply couldn't understand why anyone would throw their money down the drain here except as a straight high odds against bet.

BouncingBack

4th Jun '21

My Tandem shares were up 10% and lost that following Paul's comments. Obviously a man with influence! But I'm holding my shares and we'll see how they perform. I'm positive.

7th Oct '21

For any holders, here is some Bloomsbury Publishing (LON:BMY) news.

It will be interesting to see if the Nobel Prize win makes any material positive impact on sales..

http://email.bloomsburynews.co...

Small Cap Value Report (Weds 2 June 2021) - TND, BMY, DISH, BRCK, HSP

Paul's Section

Tandem (LON:TND)

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Paul Scott

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