Small Cap Value Report (Mon 11 Mar 2024) - HEAD, LIKE, SRAD, ITV, ELM, RWA, RFX, MWE, TST, HERC, VANQ, SPA, NANO, LOOP

11th Mar by Paul Scott

54 comments 9770 reads

Good morning from Paul & Graham!

Today's report is now finished. As it's a big report today, to jump to any company section, just press CTRL+F and the ticker.

The Week Ahead - editorial & reader comments on larger caps, is up here - click here to read it.

Mello Monday is tonight at 17:00 - highlights include fund manager Chris Boxall, whose insights are always fascinating and enjoyable. Chris is a walking encyclopedia on small to mid caps, and isn't known for holding back his opinions on the things that matter! Highly recommended. I'm also looking forward to hearing from Galliford Try Holdings (LON:GFRD) which I wanted to cover last week, but it slipped through the net, so this might save me a job. GFRD's StockReport shows forecast earnings in an uptrend, and a 5.4% dividend yield, so a nice once for value investors.

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 (usually) between £10m and £1bn. We usually 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, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced. OR it's such deep value that we see a…

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Aislabie

11th Mar

1Spatial (LON:SPA) (I hold)has taken a beating today although I a reminded that it only takes the price back to where we were a month ago. Valuing growing SAAS companies is always hard as the recognition of new sales is dribbled into the results. I feel that SPA has right direction to continue consolidating and growing, it would be good to see them free of the debt obligations, and if the market was working properly it would be no problem but in the tremulous state of the UK market it is hard to get enough money for this stage of development.

I believe they are soundly managed, have a very strong competitive offering and as they bed down into being part of the infrastructure I anticipate that eventually they will rerate substantially. However I fear that they are exactly the kind of investment that London will have taken off its hands at an opportunistically cheap price by an overseas investor.

turbo

Costain (LON:COST) Full Year 2023 Earnings Release tomorrow 12 March 2024 (I hold)

Paul did a quick summary on 10 Jan 2024:

"We gradually warmed to Costain in 2023, as the newsflow improved, turning green on 23/8/2023 due to cheap valuation, strong balance sheet, and improved forecasts. Although not a sector we like (low margin contracting).

Today it announces another “significant win” in the water sector.

Overall trading for FY 12/2023 is said to be in line. Net cash at year end is significantly above expectations, at £164m.

Paul’s opinion - looks quite interesting, PER only 5.4x. Note pension scheme (covered in our archive). Not my cup of tea, but providing they don’t screw up any big contracts, then it might be a share worth looking at. Small divis seem to be resuming this year."

Chart looks positive, hoping for some good news tomorrow.

stockorocko

I am doing the same. Even my 'solid" stocks - one step forward 2 (or 3) steps back every day.

Snazzytime

1Spatial (LON:SPA)

Can anyone please explain to me, in plain english, what this company actually does?

hi planetx

Sanderson Design (LON:SDG)

Then again I’m having a bad day and everything is annoying me today

Hope your week improves planetx - the only way is up?

&ab_channel=YazzVEVO

Snazzy

carmensfella

Join us for MelloMonday tonight, at 5pm. The programme for the evening is as follows:

5pm Fireside chat with Chris Boxall, Co-Founder and Director of Fundamental Asset Management
5:40pm Company presentation by Kinetiko Energy
6:10pm Company presentation by Galliford Try
6:40pm Introducing Clipper Automative and our Tax efficient investment show
7pm Company presentation by Taseko Mines
7:30pm BASH with Mark Simpson (PAY) and Kevin Taylor (RNO)

For more information, click here:MelloMonday 11th March 2024 – Mello Events

There are lots of interesting sessions and all annual pass holders and individual ticket holders will be sent a recording of the show within 48 hours of registering. For half price tickets, use code MMSTOCKO50. Buy Ticket for MelloMonday – MelloMonday, 11th March 2024 – Zoom, Mon 11 Mar 2024 5:00 PM - 9:00 PM (tickettailor.com)

ken mitchell

Hi yiannos

I wasn’t suggesting that the sort of value shares I covered in the post this morning were far better than growth shares. Some of the latter also look oversold (e.g Volex (LON:VLX) that I’ve held for around 2 years and has just flat lined overall since purchase. That PE of around 10 looks low for a growth share unless the market knows something I don’t yet.

I only hold a very few growth shares at present simply because there is usually little or no income and so dead money while waiting patiently for the upside, whereas for the shares I posted about this morning (and many similar examples) the dividend yields are providing big income while waiting and the dividends also fund new buys and top ups.

e.g current yields are good enough but at my buy prices TP Icap (LON:TCAP) is paying 13% a year even if no increase this year and Legal & General (LON:LGEN) (admittedly a “brave” as in Yes Minister buy) at what turned out to be the low at depth of the 2020 covid crash, is up 50% and unlike Volex (LON:VLX) has also returned nearly half my stake in dividends.

I try and go for a balanced portfolio with UK shares and also Investment Trusts to invest around the World and those Trusts also including some very big dividend payers. Charles Mitchell has started an excellent Investment Trust thread on Stockopedia that is now seeing increased interest and with a lot of Trusts covered by posters there.

You say there are far better opportunities. There could well be and it would be good if you could post on some of the ones you know about.

Michael Tee

Anyone interested in 1Spatial (LON:SPA) should watch this presentation by Paul Dooley of UK Power Networks. He explains why he is excited his company chose 1Streetworks and the potential of it. Both 1 Streetworks in the UK and NG9-1-1 in the US are high margin SaaS products which are starting to gain traction in the UK and USA.

I hold

SDSW23 UK Power Networks traffic management | 1Spatial

Cricketfan

Stelrad (LON:SRAD)

I think there is a growing market for replacement radiators. Many 1960s/70s houses like mine have old inefficient units and upgrading to new does improve heating and aesthetics too. Same must go for lots of much older properties that got their first central heating about that same time: lots of upgrade candidates methinks. Should provide a good solid market for Stelrad.

yiannos1

I have posted many times and the reasoning behind my recent picks.

Kier (LON:KIE)

iShares Bitcoin Trust (NMQ:IBIT) (sold 50%).

Pimlico on Thames

Paul. I'm blown away by both the number of stocks you got through here today and on the weekend's podcast.

I thought of you walking across Bournemouth with your triple choc pastry as I watched Grace Dent delve into Greggs offerings on Channel 5 last night.

Keep up the great work (and the steps).

Lord Gnome

And I wouldn't be surprised if the new investors dilute current shareholders to oblivion. Lose - lose whichever way the dice fall.

Michael Tee has helpful pointers above but let me try this example.
If you wish to dig up a road and expect the work to last a few days, SPA software will in just a few minutes give you a traffic management plan, so, where to put signage, which lanes to close, how to manage the one way street that intersects the works area, where to place which kind of traffic lights and so on. This is presented in an approved format for submission to the necessary authorities, council, fire, police ambulance etc. If subsequently a gas leak closes off a lane then the software can reconfigure the plan in a couple of minutes and keep the process moving. The USP for SPA is the huge amount of data required to be able to meet this planning.

Paul Scott

How kind, thanks PoT! :-)

I missed that programme about Greggs last night, thanks for the reminder, I'll check it out on catchup.

Lincs

Hi Ken. Good post as ever - so good someone has copied it verbatim to the PHNX thread on ADVFN - at 16.35 by 'Apotheki'. If you weren't aware?

Zipmanpeter

Re Stelrad (LON:SRAD) - the opportunity is not just replacement but also premiumisation and cost reduction. The total number of radiators they've sold is barely up in the last 5 years at just over 5Mn but they have increased contribution/radiator from £11.16 to £18.09. This reflects both moving production to newly invested and lower cost sites in Italy and Turkey and getting people to trade up - to ones related to decarbonisation (heat pump related) but also tall radiators, towel racks etc etc. Much of Europe is in a construction hole at the moment, especially the UK which is 45% of Stelrad revenue. If we saw a 20% increase in units sales (which does seem impossible) AND premiumisation AND scale/cost reductions, you start to see how their profitability could really motor in 1-2 years. They seem to be beating or acquiring western competitors but I guess the risk is a flood of Asian imports.

2019 revenues 113.5M.

2026 estimated revenues 117M.

I personally cannot see any upside in this one (unless someone buys it-probably not).

All the best

12th Mar

Thanks for letting me know Lincs. I’ve just replied appropriately there.

Thanks Lincs. I’ve just responded to him appropriately.

rmillaree

Do you have profit estimates for 2026?

the upside is the clear trend in improving numbers since the lowpoint of 2019 - and if it continues the transition to licencing income being the main earner long term with hopefull;y ever increasing numbers in that regard (subject to natural variability - licence income can be lumpy) . Some have commentated on here that they think the brands alone (and with it the ability to generate licencing revenue) are worth more than the market cap , not sure if that is the case but one cant argue it could potentially be a lovely cash cow to an acquirer - or a bigger player who can leverage the brands better than Sanderson are doing (i am not knocking what the company is doing ref licence deals)

I feel they probably have mini headwinds this year - they had a real good year last year ref licence revenue and market conditions ref their customer base of wholesale aint brilliant at present (headwinds). So in some respects after real forward movement the last couple of years ref increaisng profits a year of flatness is no indication the company is going trending backwards even if they arent moving forward this year. I think any comparison to 2018 and previous is meaningless clearly the world has moved on from 2018.

On the flip side one can look at this company and perhaps argue they are still below 2018 ref profits - expectations for 2024 are pretty much flatline and heck they should be doing better than the p poor 2019 to 2022 period if they want to justify the market cap they have - never mind higher.

In some respects the proof of the pudding will be what they can acheive in 2024 2025 and 2026. Obviously it isnt really fair to expect them to exactly how well they will do now - one or two extra licences could easily add 10% or 20% to bottom line perhaps - if they deliver £10 mill 2025 and £11 mill 2026 (with further growth expected) * 15 p/e that would double the price = . So i think jury is out at present as no one knows what they will deliver going forward - but at pe of 8.2 with solid balance sheet and value of the brands its not expensive. Perhaps there is downside risk if the reality is licence sales has actually peaked and the market hasnt realised that yet - i havent seen any indication specifically that they arent confident ref licence income though.

Small Cap Value Report (Mon 11 Mar 2024) - HEAD, LIKE, SRAD, ITV, ELM, RWA, RFX, MWE, TST, HERC, VANQ, SPA, NANO, LOOP

Explanatory notes -

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Paul Scott

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