Small Cap Value Report (Weds 31 May 2023) - CAR, TRMR, PMI, YU., IPX

31st May '23 by Paul Scott

42 comments 7039 reads

Good morning from Paul & Graham!

Incidentally, I was looking through the pages under "BROWSE" on the left menu here over the long weekend. It transpires that the FTSE 250 (mid caps) market caps run from £309m to up c.£5bn (with one outlier above that). As we are now covering shares up to £1bn here in the SCVRs, not all of them obviously, our market size remit now actually covers about 40% of mid caps, as well as most small caps! So maybe we should rename this the Small & Mid Caps Value Report? or SAMCVR?

We've covered 518 unique companies here since 1 July 2022, according to my summary spreadsheet. Not bad going for 2 people, I'd say! And certainly providing plenty of share ideas for readers to research further, if our initial reviews float your boat.

As I constantly have to remind people, we can't predict the future. So our views will only ever reflect the facts, figures, and forecasts on the day the reports are written. Then things begin to change literally with each day that passes, often in highly unpredictable ways. I think that's the exciting bit about stock-picking - trying to anticipate what might happen in future, and getting ahead of the curve.

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.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons,…

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Silver Moon

31st May '23

My mistake but hopefully the Petronas deal will complete. I hold.

Bouden54

Premier Miton (LON:PMI) agree that their funds lack any sort of differentiation - seem to have dozens of UK equity and multi asset funds. Compare with something like Polar Capital Holdings (LON:POLR) which has a much more specialist focus on areas such as technology and healthcare. Also agree that we need consolidation in the fund manager sector - if you search for UK equity funds on something like Trustnet, there are well over 300 funds from dozens of different managers - most of the funds look pretty similar and just don't see the point in it.

SundayTrader

I was struck by Graham's comment that the AUM ratio on Premier Miton (LON:PMI) is now around 80%. Similarly for Jupiter Fund Management (LON:JUP). That is surely cheap enough to be discounting a lot bad news. I don't hold either of these, in fact I don't know much about the sector, but I would have thought they do not have to cut costs, i.e. staff, much to keep on paying current dividends.

sharw

Yu (LON:YU.)

Paul - you comment on the umlaut. I suggest you forget your German - they probably came up with that while eating Gü desserts. The founder of those wanted to call his company Goût, the French word for taste, but people glancing at that in England might think of gout so Gu gave the right sound. The dots are not an umlaut, they are just a branding thing, supposed to represent a smiley face.

So the implication is that you will smile if you let Yü sort out your ütilities.

Cricketfan

Re Premier Miton (LON:PMI) , another fund manager maybe worth considering is Liontrust Asset Management (LON:LIO) where Graham recently gave a generally good rating but where they trade at a 3 yr low SP. Liontrust is however bidding for a Swiss business (GAM) and I would appreciate it if anyone has any info/view on that or the sector in general.

Equity Development

Impax Asset Management (LON:IPX) thanks to Graham for his earlier comments on a stock that many here remember as a genuine small cap. We now have a comprehensive research note out that you can access below. AUM growth and net inflows in H1 are well ahead of any peers, but short term profit estimates are lowered as they build infrastructure. The Group is still uniquely placed to keep winning major sustainable investing mandates globally - ED's fair value is now 900p/share.

Note is here: https://www.equitydevelopment....

mojomogoz

Agree with all that David H...tho I would say 'truth' is between EBTIDA and PBT given the past and potentially future acquisitiveness of group.

I'm cautious of acquirers...tho can be very good depending on how they do. I think Tremor International (LON:TRMR) does it very well. Acquire capability and customers and integrate thoroughly and rapidly. He's not a popular guy with punters due to his compensation but I like CEO Ofer Drucker and think he is probably a pretty good leader (some feels are lost in translation due to heavy Israeli accent tho).

TBC I don't recommend TRMR to anyone but the thick skinned and willing to do their own legwork. Its a tough invest/hold. I believe undervalued and misunderstood. But it does make me feel nervous and I do struggle to get my arms around business model at times....so I need some good value to compensate for the high growth potential (that has some opaqueness to me...partly as they are forging new product paths in CTV, CTV/linear fusion products and end to end platform that subverts 'walled gardens'/cookies demise...which they have been very successful at) ....and it gives it to me.

Note re compensation: it makes mere mortal non master of the universe like me blush...but TRMR comp is inline with ad tech generally. We say we want cos to stay UK listed rather than chase US comp, valuation and operator/founder control. I don't have the answers for that conundrum,...just pointing it out

P Bryant

Impax Asset Management (LON:IPX) getting pummeled today (down 11% as I write this) on increased costs (mostly increased headcount over the last year or so). Graham's mentioned a bunch of good points above. But the quality of this franchise is very strong.

I've done quite a few comparisons to illustrate how its performing compared to other asset mangers in my Equity Development note published today. I've also gone into some detail on some of the changes happening in the ESG/sustainable investing market (big changes!). Here's the link. Hopefully a useful read. https://www.equitydevelopment....

Also, there is a presentation by management at 3pm this afternoon. Register here. https://www.equitydevelopment....

LON:IPX apologies, addendum - Impax have aways engaged with private investors and today at 3pm the CEO & Founder Ian Simm, plus the CFO, will present at a webinar, open to all. Registration is here: https://www.equitydevelopment....

topvest

I have a large position in Impax Asset Management (LON:IPX) luckily purchased a few years back at about 50p, so am a bit biased. It seems to me that today's interims look wore than they really are because of a £4.6m unrealised forex loss. Many companies would have adjusted this back. Anyway, a disappointing £1 drop today, with increased investment in the cost base. I suspect the short-medium term is challenging but the long-term still looks very bright. I will watch the video at 3pm. I still think they should have really scaled their private assets side of the business, which is dwarfed in size by their equities AUM. It's a bit of a missed opportunity in my view to diversify their AUM. Hopefully, they will find something to bolster the team in this area materially, maybe an acquisition.

proffittpar

W7L - They were down a chunk yesterday also and dropped as low as £2.35, assuming hitting a spell of profit taking, which appears to be the pattern (day traders?)with share price up circa 10% on good news and then down 10% on profit taking, very frustrating.

davidjhill

Yes - all fair comments.

Ofer is pretty switched on but UK investors don't seem to like him and hate US style pay, whilst at the same time wanting companies to be listed here. I'm not convinced he should be handsomely rewarded for poor performance though either but I'm happy enough for his pay to be linked to steady financial and share price increases. ie within reason I really don't care what he gets paid if the share price is £10.

I don't know when, or even if, the valuation gap will close. As a holder I'm clearly expecting that to happen at some stage though.

What I would say is that share buy backs are a waste of time - all that happened was people selling into strength, so whilst it helps EPS it depletes the bank balance and puts no cash into my pocket. I'd much rather they paid a good dividend, avoided share buy backs and then at least I can sit and wait for capital appreciation to follow.

rwh3ue

SRT Marine Systems (LON:SRT) I hold

Simon Tucker CEO gave a live web cast this morning. He observed that there were some new investors who had registered so gave a bit more background on the evolution of the company and its products/markets. It last about 30 minutes. Anyone interested in knowing more can find a recording here:

https://srt-marine.com/news-2/

PeopleSoft

Would management highlight lower gas prices as a risk to their full year forecast?

Rusty2

Yes I think profit taking, a lot of similar stocks have fallen back this week.
Warpaint London (LON:W7L) difficult to buy today, price is around 240p, but even HL saying unable to get a live quote.

PeterW

Card Factory (LON:CARD)

Hi Paul,

I was just looking at the results and can't understand the poor free cash flow (+£17m) when compared to the net profits (+£44m). I think a lot of it is down to lease payments (CASH) of £57m vs Depreciation and impairment charges for leases through the P&L of £39m. I don't understand why there would be such a big difference and if its likely to continue for the foreseeable future. If it does the shares are obviously not as cheap as they look. Given your retail background can you or our fellow investors shed any light on this. Thanks,

Peter

Haven't looked at this closely but the last report notes that - Lease payments were higher than normal, albeit broadly aligned with the prior year, reflecting the continued settlement of deferred payment plans agreed during the pandemic.

ridavies

Ah well, re Impax Asset Management (LON:IPX) in this case, it is often wise to discount ED;s valuations by a fair amount. I leave it up to each contributor to decide what is 'fair'!

yiannos1

Repayment of bank borrowings plus interest paid ( about £60m ).

I expect around £40m of free cash flow next year.

I do not hold at the moment!

1st Jun '23

Thanks Yainnos1 and Bouden54, very helpful.

Small Cap Value Report (Weds 31 May 2023) - CAR, TRMR, PMI, YU., IPX

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Paul Scott

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