Small Cap Value Report (Weds 29 March 2023) - MAB1, TM17, CARR, MBH, SUS, UPGS, AEO, KETL, RM., CDGP, SUN, TBLD

29th Mar '23 by Paul Scott

86 comments 10695 reads

Good morning from Paul & Graham.

Today's report is now finished.

My CEO interviews are resuming after a break. Today I'll be chatting to the CEO of Belvoir (LON:BLV) - that should be up on my website & podcast channels by about 14:30. EDIT: Belvoir interview is now live. Also on my podcast channel (Small Caps Podcast with Paul Scott)

Then tomorrow I'll be talking to the CEO of Portmeirion (LON:PMP) (I hold personally).

I'll put the links in here when the first one is live.

NB I only tend to interview companies that I think are good, and am considering buying some myself (or already hold). Other requirements are a sound balance sheet, decent recent trading update, and a reasonable or cheap valuation. I don't charge for these interviews, so you know I'm only selecting the things I think are best, from a value/GARP perspective. Never recommendations remember, and some will go wrong, that's inevitable.

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.

Main Sections -

(summaries here, main sections further down)

Mortgage Advice Bureau (Holdings) (LON:MAB1)

Finals - up 1% to 628.5p (market cap £360m) - Graham - GREEN

Adviser numbers are expected to stabilise in Q2, with the mortgage market relying heavily on refinancing deals for sustenance. I still rate this one highly but it’s less cheap now.

Team17 (LON:TM17)

Finals & CEO change…

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jdnthomas

29th Mar '23

They don't provide an analysis of general admin costs but it seems pretty clear that that does contain a corresponding impairment of $11m, since that $11m has been shown as an impairment in the intangibles note, and so must have gone thorough P&L/Income statement and general admin is the only expense figure big enough.

This is perhaps mostly clearly seen in the reconciliation of profit to adjusted EBITDA.

	Year ended 31 December 2022	Year ended 31 December 2021
	Unaudited	Audited
	$'000	$'000

Profit for the year	11,513	8,243
Income tax expense	4,417	4,281
Finance costs	73	8
Finance income	(80)	-
Share-based payment expenses	1,726	2,452
Amortisation of purchased intellectual property, brands and customer relationships	3,999	1,662
Depreciation of property, plant and equipment	747	117
Impairment of intangible assets	11,075
IPO related costs	-	4,588
Ukraine related costs	1,678
Acquisition costs	329	888
Other operating income	(11,122)	-

Adjusted EBITDA	24,355	22,239

Worth noting that they have capitalised a lot of development expenditure this year. Should mean a lot of growth to come - unless they have to write it all off!

The CEO's statement is worth a read, both to explain their decentralised approach, which is unconventional, and for bits like this:

"And I'm happy we said no to most "hyped" opportunities, such as going into social games a decade ago, all the crypto-esque scams, selling JPGs, and always stayed course."

A tech CEO who is sceptical of the crypto market gets my money!

I have a small position, as it is definitely speculative.

WarrantStar

I have just bought tinyBuild (LON:TBLD) at 50.8p. Investor's Chronicle made a buy recommendation on them on 30th Dec 2022 at 112p. I analysed them and found that the share price kept going down due to a big seller in the market. So I put them on my watchlist. I am hoping that today's results will mark the turning point at which the share price starts increasing again.

sharw

Strix (LON:KETL)

Graham - thanks for your report. Regarding the M&A 'spree' I think it is worth remembering that the most recent addition, Billi, which has not helped net debt, was opportunistic - seen as a bargain when competition authorities required it to be divested before a much bigger takeover could go through.

A reminder that if anyone wants to ask a question about that net debt or whatever the company is doing a presentation on Friday. Details and registration link here: https://www.londonstockexchang...

abtan

Michelmersh Brick Holdings (LON:MBH)

First, many thanks to both ar7268 and martinck1 for taking the time to share that information on Bricks.

It was very much appreciated.

---

The below is from the Forterra (LON:FORT) results a few weeks ago:

"Total UK brick consumption in 2022 is estimated at 2.5bn bricks of which a record 570m (representing 23% of total market demand) were satisfied by imports due to a continuing shortfall in domestic production capacity...

...in the near term, the ability to displace imported bricks will insulate ourselves and other UK brick manufacturers from some of the fall in demand as our customers switch from imports to domestically manufactured products which are expected to become more freely available.

...We increased the majority of our brick prices by a cumulative 50% during the year"

And this from Michelmersh Brick Holdings (LON:MBH) today:

"Despite the more cautious outlook in the UK and European economies, it is important to note that the production capacity of the UK and European brick manufacturing industry remains well balanced when set against wider demand and as an industry we still have record low inventory volumes of bricks. "

Martin, thank you for pointing out the 341m January-2022 brick inventory figure.

Because the last few years have been a bit crazy I went back and checked Brick volumes in January 2020 (it can be found in the January 2020 file: https://www.data.gov.uk/datase...) when volumes were 443m.

So maybe that 341m figure isn't that much of a worry, historically speaking? This assumption would certainly tie in the comment above from Michelmersh Brick Holdings (LON:MBH) highlighting low brick inventory levels.

I should add that I hold Michelmersh Brick Holdings (LON:MBH) and thought the results today were excellent.

still highly cash generative,
no debt,
more growth to come following an acquisition made in November 2022,
material asset-backing,
it looks like value is going to be imminently realised from the sale of a quarry...for housing apparently.

Happy holder

illiswilgig

Mojo - re Ecora Resources (LON:ECOR) - No I don't think you've said anything that needs correcting - hence the currently disappointing share price.

I bought at around 100p - around 2019 was that? I should have sold quite a lot at 180p in 2022 but failed abysmally. Learning lesson. In opportunity cost.

They bought some duds a few years ago. I think you're right. The jury is still out on the Voisey's Bay Cobalt stream, didn't look too clever to start with but its been better than baseline over the last 18months.

In amongst the duds they bought a 1.5% royalty on Brazil Nickel's Piaui mine together with the right to increase to 4.25% in exchange for $70m of construction funding - expected 2024. In view of forecast Nickel demand and current prices - that's quite a deal today.

New management (CEO) seems ok. Nothing special - but then I don't think management have to do anything special here. Just be competent and don't make mistakes.

Then its down to demand for Nickel and Copper? The nickel mine is the main reason I'm still holding. Though the deal with South32 on Copper looks like it will probably come good at around the same time. Whether I can hold on for that remains to be seen -I don't normally buy and sell much but a lot of other good deals around at the moment.........

cheers

Mark

Norfolk'n'Good

Strix (LON:KETL) Interestingly looking at both Equity Dev's and Zeus' forecasts there appears to be a possible revenue underestimate - unless I am missing something? Assuming the Strix' part of the business has a flat year and adding in Billi revenue you almost reach the projected revenue target for FY 2023 and yet these same forecasts talk of Strix in these terms

....evidence of pipelines starting to refill

....green shoots of recovery

We expect FY23 to represent an inflection point for the kettle control business

I'm also assuming the new factory is more productive and more efficient (reasonable?) thereby helping to balance out some of the increased finance charges. Let's wait and see but an earnings upgrade in the next 12 months is at least a possibility here?

davidjhill

Hi Raleigh4343 - yeah, I don't think retail investors understand Seeing Machines (LON:SEE) or actually how much of a moat it has built itself over the last few years. They only see a loss making, jam tomorrow share and as a long duration asset is under pressure. I get that - I felt much the same way until I listened much more carefully to what is going on.

The directors obviously understand it much better and they see where they are in the process and how much value will be created in the future. The broker thinks it is worth 21p which is about 4* current prices not that I pay much attention to broker targets.

They are debt free with lots of net cash and business plan is fully funded, so no real risk to the balance sheet or shareholder dilution. There is also an under appreciation by retail investors of the product which is heavily IP protected, will be mandated in most vehicles (cars, lorries, mining equipment, planes, trains) either now or in the coming few years and there are few credible competitors. Their main rival in the automobile space is winning about 30% of new RFPs by volume whereas Seeing Machines (LON:SEE) is winning 70%. I think that tells you which is better. Nonetheless even at a 50% market share the annual volumes will be enormous. The moat comes about because as we all know, to embed the tech into a new model of car is 7-10 years. Seeing Machines (LON:SEE) have been in this process for the last decade so whilst cars are now rolling off the production line with Seeing Machines (LON:SEE) technology embedded in the hundreds of thousands no-one is going to suddenly steal this business away. It's yours for the life of the model. In Europe to get a 4 or 5* NCAP rating you now have to have this driver tech included as standard so it is becoming regulatory mandated. They have years worth of data from their Guardian product (in mining machinery) to show it works, so from a car manufacturer perspective you will always buy this ahead of something newer or inferior for the simple reason of avoiding recalls or fines if it fails. The same will be true for the aviation industry where regulation will be even tighter. These are the reasons you will never have a cheap iPhone camera replacement as someone suggested.

Anyway - investors don't care at the moment, which is why the directors are loading up. They expect to make a lot of money over the next 5 years whereas retail is all about the next 5 minutes.

It is what it is....as Paul Hill says....."Patience equals profits"

Cowlid

This seems like good value - 2000 shares is only c£800, so you get discounts (all listed on the chapel down (Chapel Down (OFEX:CDGP) ) website here - https://www.chapeldown.com/pag... - along with any rise in share price.

Not long until the new ISA allowance year starts (can you hold aquis shares in an ISA?)

On a similar (but more expensive) note, hold 100 or more shares in Next (LON:NXT) and you get a 25% voucher once a year.

Dave

yiannos1

IG markets

planetx

Hostmore

Rockwood strategic building a stake

Always worth keeping an eye on Richard Staveley and Christopher MIlls .

Must think it’s a bargain basement turnaround opportunity.

I think a lot of readers caught such a cold probably everyone wants to run a mile .

The Boon Fund

Thanks for sharing the link to the CDGP shareholder perks! How did I not know this - going to take the offer of a free annual tour for 4 people, plus discounts on wines and dining there!

Albertos

Paul

Belvoir (LON:BLV)

Many thanks for the time you took to do the podcast. Impressed that you deliberately avoided repeating the IMC content and asked some more detailed and probing questions. Loved the one about Trustpilot reviews and was impressed by his reasoned reply.

Have to admit the CEO came across very well - down to earth and not in the least rampy - very knowledgeable about the business - had a lot of facts at his fingertips.

I'm going to do some further research.

Thanks again.

Phil

mojomogoz

Thanks

Paul Scott

Thanks Phil, I really appreciate the feedback re my Belvoir (LON:BLV) CEO interview. It does take a lot of background work to set them up, and not just repeat other presentations, so I'm really happy that you recognised that. There's always got to be one tough question, delivered directly!!

Re Christopher Mills & Hostmore. My main worry would be that he tries to do a deal with the banks, and dilute ordinary shareholders down to a negligible amount. So not necessarily a saviour for small shareholders. Look what happened at Fulcrum Utility Services (LON:FCRM)

Good point on Hostmore / Mills .

I looked at fulcrum in great detail a while ago even talking to Jonathon Bayford one of the main investors and the CEO.

Dodged a bullet there for sure and there was a tangible lack of asset backing and it was clear Bayford and Mills were very much looking after themselves only .

I guess your right that Hostmore is also loaded with debt and at risk .

I think going forward I need to apply “risk of dilution” sense check with the likes of Mills on board .

I’m in Titon too after Rockwood took there stake but that’s a 16 or 17 million asset value with cash for a 7 ish million valuation so safe from a smash and grab by those boots filling major shareholders who ultimately don’t care about us minorities .

ar7268

30th Mar '23

Loving the quality of the discussion here. I should have said "I'm a fan of MBH, but not the macro situation for brick demand.." because as pointed out above Forterras recent results have been excellent, my only preference for MBH vs Forterra / Ibstock is MBH (current) small size and larger room for growth imo.

MBH is on my watch list for all the reasons mentioned above, however (as you can see) I'm tracking the macro situation before buying. I'm uncertain how that declining trend translates into pricing power, so I'm waiting to hear a few more company updates/interims befores buying.

Caduceus

4th May '23

This post has Forterra (LON:FORT) tagged. Am I repeatedly missing the article location is or is it not included?

Rusty2

It is mentioned under the Michelmersh Brick Holdings (LON:MBH) report.

5th May '23

Ah yeah seen. Cheers rusty

Small Cap Value Report (Weds 29 March 2023) - MAB1, TM17, CARR, MBH, SUS, UPGS, AEO, KETL, RM., CDGP, SUN, TBLD

Main Sections -

Mortgage Advice Bureau (Holdings) (LON:MAB1)

Team17 (LON:TM17)

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Paul Scott

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