Small Cap Value Report (15 Apr 2015) - SDY, DIA, CTH

15th Apr '15 by Paul Scott

9 comments 20071 reads

Good morning!

Speedy Hire (LON:SDY)

Share price: 73p
No. shares: 521.9m
Market Cap: £381.0m

Trading update - for the year ended 31 Mar 2015, this all looks solidly on track;

Various other details are given, including comments that the losses from their Middle East division have been stopped, with nearly all loss-making operations sold or closed down.

Valuation - based on current broker forecasts, the shares look very expensive to me (a PER of about 12 is the level that I would consider to be a sensible valuation);

Of course broker forecasts are frequently wrong, so we shouldn't take them as gospel. However, to justify a PER of 20.4 for a business that has quite a bit of gearing, then you would have to assume quite a big out-performance against forecast is on the cards.

Maybe the turnaround measures have not yet been factored into broker forecasts? Although with a £381m market cap, one imagines the brokers have taken some time to make the numbers realistic.

My opinion - it looks over-priced to me. The dividend yield is lousy, at just over 1%, and a price to tangible book of nearly 2 also seems quite a stretch for an equipment hire business.

Note from the two year chart below the profit warning just over a year ago:

Dialight (LON:DIA)

Share price: 759p (down 3% today)
No. shares: 32.5m
Market Cap: £246.7m

Trading update - for Q1 of the calendar year to date. The update begins positively on trading for Q1;

However, it then goes on to introduce significant doubts on a number of fronts. Firstly, it sounds as if production is inefficient;

Comments of this nature usually mean site closures, redundancies, etc. So probably some restructuring provisions are in the pipeline. However, from a shareholder point of view, improving profitability is a good thing, providing the short term cash costs are not too onerous. There is also disruption to the business to take into account - restructuring doesn't always go smoothly.

Net debt at 31 Mar 2015 is reported at £8.9m, That's quite a bit worse than the net cash of £0.6m reported at 31 Dec 2014. Although the balance sheet overall is absolutely fine, no issues there, other than a small pension deficit.

H2 weighting…

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AnonymousUser37567

15th Apr '15

Paul, its interesting reading your SCVR compared to twitter posts. All i saw on my feed was DIA beating expectations and no one mentioning the points you raise. Good job!

Paul Scott

Hi Metier9,

Well, quite. In my experience 99% of people use Twitter & bulletin boards simply to ramp their own personal positions. So they only ever mention selectively points which support the bull case, and are mysteriously silent on bearish points! You hardly ever see intelligent/balanced views. There again, I suppose with Twitter there is the 140 character restriction, which limits points made to being very brief.

I just treat bulletin boards as being primarily for entertainment and amusement, but you do pick up the occasional useful snippet of info.

Regards, Paul.

bsharman

Hi Paul,

It's interesting that similar companies can have such big differences in their respective valuations. I agree with you that Speedy Hire (LON:SDY) look overvalued compared to their peers such as Lavendon (LON:LVD), which is a company I rate highly (and hold). Their current PE is just 9.5 and brokers have been upgrading their forecasts recently. The share price has come down somewhat having hit £2.46 in March 2014 and it now trading at £1.70. It has a stockrank of 82 and is aligned to a recovery in Europe (Revenue in France £23m, Belgium £13m, Germany £41m) and maybe a good way to access European QE? £50m of its revenue comes from the middle east and £120m from the UK. The CEO, Donald Kenny bought just short of £180k worth of shares in March. Although i'm not a chartist, the price does seem to have found support at around the current price and will hopefully start to form a bowl...
Cheers,

Ben

hayashi22

I believe there is a trading update from Lavendon tomorrow -so you may well be vindicated. I agree with most of what you have written (-though a bit off topic). Certainly a good way to play mainland Europe.

Aislabie

Among the other updates today there is one from Private and Commercial Finance (LON:PCF) that seems to suggest good progress, and the market seems to agree this morning. I was interested this company after seeing them present at a ShareSoc meeting and was pleased that they had survived (and appeared to have learnt from) the financial recession.
With cheaper funding from their expected banking licence, solid growth in their main business and lower loss provisions they would appear to have good support for a P/E still under 10
Paul, if you have looked at it, II would be interested to know your thoughts on it, as a holder I may not be giving proper weight to the downside case.

brucepackard

Hi Paul,
One of my pet hates is companies that grow the dividend at double digit rates, and then do placings and rights issues. This is not restricted to small cap, Standard Chartered was famous for paying out lots of dividends, then every 18 months coming back to investors and asking for more money "to fund growth".
Either a business is profitable enough to be self financing, in which case it pays dividends at a sustainable level. OR the business needs more capital to fund growth, in which case it shouldn't be growing the dividend at double digit growth rates. Hence I too will be avoiding Caretech.

Golspie

Paul,

standing your Caretech concerns do you think there is a "read across" risk in the context of PHP and AGR?

ACounsell

Paul,

Tracsis Interims out today and on the face of it results look reasonable with positive developments in USA, etc. and a solid balance sheet (despite significant intangibles relating to acquisitions as you have previously noted). Any thoughts on share price fall of c. 6% - profit taking after a good run perhaps or view that valuation is getting a bit rich?

WarrantStar

Hello ACounsell
I hold Tracsis. They fell because the results failed to meet very high expectations. The forecast EPS for the year to end July 2015 was an increase of 34%. (That forecast will now fall) The results for the first half of that financial year were a very respectable increase in EPS of 19%. But the market was expecting better, so the shares fell. I think that they would have fallen further, but the update on progress in USA looks quite promising.

Small Cap Value Report (15 Apr 2015) - SDY, DIA, CTH

Speedy Hire (LON:SDY)

Dialight (LON:DIA)

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Paul Scott

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