Six More Potential Neglected Bargains

22nd Aug by Mark Simpson

8 comments 4740 reads

Last week, I introduced the Neglected Firms screen. The idea was that growing companies with few broker forecasts would be slow to be priced by the market. If investors can find such stocks at relatively cheap multiples, they may be getting a bargain.

My adapted version of the screen contained 15 stocks:

In a previous screening article, I concluded that Capital (LON:CAPD) and B.P. Marsh & Partners (LON:BPM) may be worth investigating further. Last week, I added National World (LON:NWOR) Character (LON:CCT) and Nexteq (LON:NXQ) to the list (although it may be a long wait for Nexteq (LON:NXQ) to see a recovery in trading given the management changes there.)

This week, I am looking to see if any of the remaining six trading companies may be hidden gems:

Billington Holdings (LON:BILN)

Billington appeared on the list of small cap multi-baggers when the Stockopedia team analysed the traits of the highest-performing UK stocks over the last decade. For Billington, some of this is due to the timeframe that happened to be used. The share price was particularly low at the start period of the study:

However, much of that rise in share price appears to be justified. Revenue has trebled in that period:

EPS has risen around 6-fold in the same period:

It has not all been a continuous rise. The company faced a difficult time in the aftermath of COVID. However, in a typical year, the company has generated a good Return on Capital:

This means that the company has grown without issuing any shares apart from options exercise:

This isn't all an accounting exercise, either. The cash generation of the business has funded acquisitions, a reasonable dividend, and enabled it to save around a third of its market cap in cash:

Usually, at this point, I would point out that the market has recognised that this is a great business and bid the price up to a P/E of 30 and that looking…

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Cricketfan

22nd Aug

Many thanks Mark for this excellent piece of work. I will try to find a few hours to look deeper into these additionals as well as revisit some on your first list.

Nice to see a few names that I own on both lists. My problem as ever is impatience and my tendency to sell far too early just because nothing seems to be happening…….

Mark

tony axon

Thanks for excellent article.

I bought MTL on Ed's 'naps' at beginning of year, as felt world financial situation would be good for gold, and MTL looked a choice plum [3p ish] . On both counts I seem to have made the right choice [does'nt always go that way] .

Just to add a little more info. I did reduce the holding by a third after rapid rise to 5.5p,and fall to 4p [my sale price] it actually fell to about 3.6p ,this due to shenanigans with two large investors who had bailed MTL out a few years back ,when management wer'nt up to the job. The current CEO emerged and turned things round fantastically, as one can see from the current figs. Due to his influence he paid off all debt about april and tomorrow an EGM is called to buy out one of the creditors shares,and reduce the larger investor. Cash is flowing like a train currently due to steady production,and record gold price.

As you say the mine is running out ,but there are plans afoot to explore a nearby gold rich area ,again one hopes there will be some interesting news there tomorrow .

Thanks to ED and now yourself for bringing this little gem [so far ] to my attention. Tony

Sagie5

Great work , Mark. Thank you!!

WimborneMiser

Thanks Mark, another good read.

I like the look of Billington. Better to stay clear of Tribal as I work in the educational sector and have dealings with them through their SITS s/w and CRM rollouts. All I'll say is SITS (student records) is good and will finally be getting a much needed upgrade and moving to the cloud for all its customers. Their current s/w looks about 20 years out of date!

Mark Simpson

23rd Aug

Thanks for the background WM. I have heard one of the bull points for Tribal is that everyone who uses their products thinks they are crap, but they are the industry standard, so everyone still uses them. However, this isn't a strong enough argument for me, especially at the current rating. If it was on a P/E of 5 with a reasonably recurring revenue base but a crap product, I might take the risk!

Hi Mark,

I can understand why people complain about their s/w. The 1st time I was introduced to SITS about 8 years ago I was shocked, it was like going back in time to year 2000, it's so outdated. It is regarded as the industry standard.

You open a screen to login and then a few more clicks and screens to eventually get to where you need to be, so you can have 4 or 5 screens open at once. It does what it's supposed to do, but it can be a frustrating process and not intuitive.

The cloud rollout can't come quickly enough and provided they get it right and the rollout is seamless, then they will be onto a winner. It should be a good selling point to even more Uni's

There's 2 main elements to Tribal from what I can see - SITS and CRM rollouts. They are based in Swansea and a few years ago there was Tribal and another company nearby called Crimson which focussed on CRM for Uni's.

The directors and staff all knew one another and eventually Tribal bought out Crimson for the CRM rollouts. My Uni had dealings with both these companies prior to the takeover. SITS is probably the more mature of the product offerings, but the CRM rollouts and upgrades are still an absolute nightmare, it never runs smoothly, no end of problems and what should take a couple of weeks, ends up taking 2 months.

Thankfully I'll be taking voluntary redundancy and semi-retirement this year, so no more painful CRM rollouts for me :) It'll also mean I'll miss the big SITS upgrade next year as well which I was looking forward to.

Will Marsh

29th Aug

I bought Renold at the beginning of the year and have been delighted with the performance of the shares. I was about to double up when I saw the directors very significant troughing, which I thought was extreme. The share price took quite a knock and has not fully recovered. I worry more about that than I do about the pension deficit, which should be a diminishing issue over time.

31st Aug

Yes, there is a significant difference between Basic and Diluted figures, and it seems investors should certainly be using the Diluted figures here, given the scale of the options granted to management.

I am not worried about the pension deficit. Pension deficits are the best form of "debt" in that they can't be called. It will diminish over time, but only because the company are making cash recovery payments. So again, this is simply something that can be priced.

Both of these factors reinforce that the company is not as cheap as it appears at first glance and needs to beat expectations to look at reasonable value again, given the share price gains this year have been significantly in excess of any improvement in trading.

Six more potential neglected bargains

Billington Holdings (LON:BILN)

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Mark Simpson

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