Small Cap Value Report (Weds 20 July 2022) - VCP, NXR, FIF, PAY, COST, PDG, HSM, NET

20th Jul '22 by Paul Scott

63 comments 8073 reads

Good morning! Paul & Graham are here with you today. Today's report is now finished.

This is turning out to be a busy time, what with all the half year updates being issued. Busy, and confusing too, given how uncertain the macro picture (and hence company earnings & outlook) are.

Agenda -

Paul's Section:

Victoria (LON:VCP) - I looked at these results for FY 3/2022 last night. The share price has scrubbed off about £1bn in market cap, with its two-thirds decline this year. Results beat expectations and are strongly up on last year's numbers. The PER in single digits now does look attractive, although a big debt pile is equal to the market cap, so cannot be ignored for valuation purposes. I think it's starting to look interesting. EDIT: although on closer inspection of the notes, I'm not so sure. The preferred equity arrangements look costly & complicated.

Norcros (LON:NXR) - a reassuring trading update accompanied yesterday's AGM. No sign of a downturn in bathroom fittings. Or rather a small downturn in the UK has been more than offset by strong growth in S.Africa. Looks dirt cheap now, but that depends on how macro develops. Don't forget the big pension scheme!

Finsbury Food (LON:FIF) - a very reassuring trading update for FY 6/2022. The key issue, is that FIF is successfully passing on price rises to customers, and enjoying volume increases too, as its end markets recover. A huge new bank facility has been agreed for acquisitions. I check out the balance sheet too. This share looks very good value now, after the recent 30% fall, given that we now know it can cope with higher inflation, and supply chain problems, which are likely to get worse later this year for food manufacturers.

Costain (LON:COST) - H1 trading update provides a lot of reassurance, especially on its ability to pass on inflation to customers, which is apparently built into contracts. Trading in line with expectations. Plenty of cash. Looks very cheap, but beware the cash hungry pension scheme. Tiny margins, so profit/loss can swing wildly. Might be worth considering though, at a modest valuation.

Netcall (LON:NET) - another positive trading update, for FY 6/2022. This software company is on a roll, and FY 6/2023 forecasts have been rising significantly in the last year. I think it…

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sharw

20th Jul '22

Costain (LON:COST)

Following Paul's write-up and a number of comments, if anyone wants to follow up there was an excellent 12 minute summary of how Costain has been transformed over the last two years given by the CEO at the AGM on May 5th. You can access the recording here:

https://www.costain.com/invest...

He starts at 2m 45s in . Following yesterday's headlines on heat effects, his comments on working for Network Rail and resiliance of infrastructure are apposite even if it was floods that he gave as an example!

Tristan_Treacy

They have an investor call open to the public where you could ask about the underlying/ reported numbers if you wanted to.

I hold a small amount and think it is an interesting opportunity on value grounds - of course that the underlying numbers are an accurate presentation of the true position of the company.

shipoffrogs

You want companies with big margins (to better absorb cost increases) and low Capex spend (no constant reinvestment in capital at rising prices). An example would be £FEVR.

jdnthomas

Finsbury Food (LON:FIF) It's not obvious to me from the commentary that Finsbury Foods have been able to pass on cost increases to customers. The mitigation actions they mention seem to be more about operational efficiencies on the purchase side - perhaps shortening supply chains, bulk ordering? Well done to them for that, but there must be a limit to how much they can do on that front, and then they will need to raise prices. I am not saying they can't do it, but if they haven't actually tried it yet, maybe that's because they are not sure their customers will accept them? Supermarkets seem to be pushing back on their suppliers increasing prices, although I can't imagine most suppliers wanting the 30% increase Heinz were apparently asking of Tesco!

Paul Scott

Hi MJP,

Actually, I mystery shopped Tortilla Mexican Grill (LON:MEX) again yesterday, this time through Deliveroo.

The product was excellent again, but with some extras, ended up really expensive, at over £20.

But it arrived quite quickly, and well packed.

I think overall, I'm happy with the product at Tortilla, and would consider buying the shares, if they get into bargain basement valuation territory. Not there yet!

Regards, Paul.

rhomboid1

absolutely right…it’s a share that is almost impossible to buy ..NMS is 150…& only occasionally possible to sell..in the event of bad news it would be a painful company to get out of ..if it were possible at all…that is something to bear in mind at all times.

I like it for other reasons..not least the fact that it fits my ideal holding timeline of forever

Trident

Thanks to Graham for the PayPoint (LON:PAY) review. This is one I have held for quite a while, and have suffered a price hit like we all have. Its a good Company, I believe, though probably suffers from market perception of smaller retail shops, as not being sexy.

They could probably do with a bit more Financial PR.

I hold in my ISA and tend to reinvest the dividends, which is probably the nearest I come to averaging down at present.

Bouden54

Yes Questor and Midas (Mail) tips can both lead to spikes - as well as Simon Thompson tips in the IC. I suspect it's a case of the market makers moving up the price in anticipation of demand. They generally fall back after a few days as people get bored and take profits, so generally not a good idea to buy straight after the tip.

BnB

Pod Point group (LON:PODP) - what’s happened in the last month?

This is one unprofitable tech company that held up extremely well during the tech wreck - probably because it is one of only a few listed pure play EV charging names - and much cheaper than US-based BLINK or CHPT. Now that tech is just starting to consolidate in the last month, however, I see that Pod Point has fallen off a cliff with a near 60% tumble. Is this simply a case of catching up rather belatedly? Or does anyone know of any other reason?

EV/revenues at 1.3x FY22 is not expensive for a business growing revenues at 50% pa even if some profits wouldn’t do any harm. And this looks an attractive M&A target for the big energy firms looking to make a land grab.

Michael C

If the cash is needed for contract disputes and remedial work presumably those figures are in the creditors or provisions?

Zipmanpeter

Lenders have had an obligation to check the borrower's ability to pay for a long time. This from 2013 "The FCA’s guidance on a customer’s ability to pay and responsible lending, states a firm must be able to show that the customer’s ability to repay was taken into account"

MrContrarian, I agree with the above and re Morses Club (LON:MCL) believe they do so given the steps they are required to go through before lending now. I would argue that this is especially true now lending is driven by a centralised, online script (accepting there are always agents who dont follow trained practice). Will the alternatives people use be better? I doubt it.

So as an investor I knew I took a risk on regulation change the govt or FCA but I am not sure this is what has undone me. Rather it has been legal interpretation so you may be right but that is rather worrying why!

yiannos1

No they are not

Tommy H

Whilst not an expert on what jobs Costain (LON:COST) do or do not have on the books currently, as one bad project can wipe the whole company out for a year...

I would also add you need to add in that all materials are up, so anything not bid recently, e.g. those jobs bid and won last summer Costain are losing money on unless they are a "cost plus" or "reimbursable" project which are few and far between in construction. Or Costain have passed the risk to their supply chain and running the risk there that their suppliers go bust...as they are just managing rather than doing the direct work?

The other obvious note is that the use of Red diesel is being removed from site, so machines now cost more to operate than hire.

A lot of tenders are out there but contract awards being pushed back and deferred, and a lot of pressure being put on supply chains once more and trying to pass down all the risk back to the bad old days of paid when paid and who cares if your company exists tomorrow we will just work with someone else. (I work for a Tier 2 UK national company).

I would raise the question on inflationary pass through, the majority of projects have an indexation clause on a stated anniversary for multiple year jobs referenced to CPI or RPI, not material price indexation (with a previous company we were really hurt on a multiple year project when the steel price doubled), so unless Costain are in an incredibly powerful position and prepared to walk away (look at Bond Street Station on Crossrail, Skanksa Costain JV walked away rather than finish it not the proudest moment for "The Best of British Construction" but lets park that one!

https://www.constructionnews.c...

Tommy

ps. I do not hold any construction companies...

KevinS1

Ref £PODP I haven't done anything more than spend 5 minutes looking at its stock figures and a quick glance at its FY21 results, but that has enough red flags for me to turn my back and understand maybe why its SP has dropped

- It is a recent listing and the majority of those listed in the last 12mths have fallen significantly - they listed at the peak of the market and now things have turned co's not making any money are being hit hard

- They don't make a profit and looking at their top-level accounts they seem to have doubled sales, but their EBITDA has got worse

- I couldn't see any signs for "real" profit/loss figures and EBITDA is enough to turn me off - we all know Mungers view!

- Whilst they don't have any debt their cash balance is likely to be burnt pretty quickly and therefore a new raise might be required at some point - this might be a while away, but it seems to be burning through cash

- I don't see them as a tech company - flogging EV car chargers is hardly high-tech. I have no idea if they have any USP vs others and what their pricing looks like, but EV chargers are pretty much two-a-penny now in a highly competitive market

- they look like they have BMW on board, but I haven't seen if they have any other tie-ups which would always be useful. BMW does offer some good opportunities as they will push buyers towards their preferred partners, but people should be canny enough to check out prices first

- Q,V & M scores are all low with an overall SR of 36 - enough to turn many people off

- Forecasts look like they don't show a profit for a few more years (no specific date) so def a jam-tomorrow company

- +ve is that it has plenty of II's on board, but over 50% is owned by EDF - not sure why this is or what it means

Therefore, in my eyes, it has enough significant issues I wouldn't want to touch it, but I can understand others may have another view and who knows, it might re-rate if it can turn its financials around and prove to be a good investment.

All the Best. K

21st Jul '22

Thanks for taking the trouble to reply in detail. However, my point, perhaps not comprehensively conveyed, was that all of this was understood by the market during the waterfall crash of Nov-May suffered by unprofitable tech. Shares of equivalents Chargepoint, Blink and Alfen all collapsed while Pod Point group (LON:PODP) stayed relatively strong. Now the counterparts have somewhat recovered and it is PODP that has collapsed. The net effect is comparable but the timing perverse!

Funnymoney

I feel for you. I had £MCL and was well ahead at one stage. Due to the notional paper loss as it came down in price I sold whilst I was actually still in the money. I kept it in my monitor and was tempted to get back in but thankfully didn't. The fact that the bloke who joined from Sainsbury's Bank put £250k in appears to have lost the whole lot makes me feel less of a chump for getting involved in the first place. As other readers have commented, it looks like the loan sharks will now have an open field.

Little Prophet

Good write up Paul, thanks. I agree with this post. Finsbury Food (LON:FIF) Bit suspicious of a 4.8% cost increase only. As someone who works in the larger bakery industry, cost inflation over last year is running at c +20%. These factories run on the energy of a reasonable sized town and we all know what's happened to wheat pricing. Add in packaging, wage inflation and transport and these point to a margin dilution. Happy to be proved wrong, but I'm watching this one from the sidelines for the time being.

As far as I can make out Maas' sales are 12 million and JK 500 million.

timarr

RE: Bloomsbury Publishing (LON:BMY)

That's historical. The publisher only gets paid for current sales. So abtan is pointing out that her current sales are roughly equal to JKR's current sales.

abtan

Bloomsbury Publishing (LON:BMY)

Hi Funnymoney

As timarr pointed out re. Sarah J Mass:

I am indeed talking about book sales for FY22 only, not lifetime book sales. Harry Potter of course has sold more books.
The 12m lifetime book sales figure you quoted is a little out of date.
I believe it was correct around March 2021.

The Bloomsbury Publishing (LON:BMY) Annual Report for FY22 (which ended March 2022) said lifetime book sales were now 19m i.e. 7m Sarah J Mass books were sold in FY22 alone. Highly impressive and for me at least, completely surprising.

Cheers

Small Cap Value Report (Weds 20 July 2022) - VCP, NXR, FIF, PAY, COST, PDG, HSM, NET

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Paul Scott

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