Small Cap Value Report (Thu 15 Oct 2020) - VLX, CER, MARS, BOWL, NCYT, FUL

15th Oct '20 by Jack Brumby

137 comments 16081 reads

Good morning, it's Jack here with the placeholder for Thursday's SCVR.

Many thanks for the >200 thumbs ups for Paul yesterday, and such an interesting & vigorous reader discussion. We shouldn't shy away from interesting discussions, everyone wants to express themselves, within reasonable bounds, good thing too!

A brief but eye-catching update from Volex today, so that's the first stop - as always, the early comments are greatly appreciated.

Volex (LON:VLX)

Share price: 209.4p (8.5%)

Shares in issue: 152,250,802

Market cap: £318.8m

(I hold)

Volex (LON:VLX) is a supplier of integrated manufacturing services and power products to companies around the world. These are wiring solutions of varying complexity that can be found in hospitals, data centres, and many other locations.

A few years ago the company was loss-making, focusing on cheap commodity-like products where others had the economic edge. Since then it has been revitalised by a renewed focus on higher margin activities. It’s an old, respected company with a lot of history so this is good to see.

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Helmed by CFO Darren Morris, COO John Molloy, and executive chairman and Nat Rothschild (who also owns 25% of the company’s stock), VLX is a few years into an established and increasingly successful turnaround.

Management is focusing on more vertical integration and higher margin markets and it looks to be working, with shares up nearly 8% so far on today’s brief ‘ahead of expectations’ update.

Thing is, even after recent share price strength the stock looks cheap on some measures, with a PEG of 0.5 and trading at less than 1x revenue. It also qualifies for the Charles Kirkpatrick Bargain Screen.

Trading update

VLX says that performance has continued to improve since the last update at the AGM on 30 July, and the board now expects revenue and profitability to be above current market expectations for both the half and full year.

Some detail:

H1 revenue is expected to be at least $200m, which represents a 2.2% increase on the same period last year,
Underlying operating profit is expected to be at least $20m, which is up 25.8% year-on-year, and
Net cash excluding lease liabilities is around $31m, and
The forward order book is strong.

Nat Rothschild, the 25% owner, comments:

Our geographic and customer diversification continues to provide the…

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Whitbourne

15th Oct '20

There was another old stockbroker fable that said: "Don't sell Shell". The implication being that it would just sit in your portfolio, paying dividends and gently improving its share price forever. Old certainties are no longer so certain...

Jeffvshepherd

Ever wonder why we never see Paul Scott and Richard Osman together?

Rusty2

It would be pointless.

ken mitchell

Hi Simon

I was interested in your comments on the new site because I also use it on an IPad and found similar difficulties to you. It’s slower and finding key things that are quick to do on the old site takes too long.Partly my fault for not persisting. It will not be a problem for me if Stockopedia continue to allow subscribers to use the old site, and then as long as key features are kept on it. Recently when clicking “Discuss” on the old site to find past small company reports on a share, some recent ones seem to have disappeared.

It seems many who only read and post on this thread don’t realise or use the wealth of information and figures elsewhere on Stockopedia, and subscribe just for this bit of the site. They are missing out imo and not making use of their subscription. The daily Small Company updates are a superb extra on top of everything else.

john2

Apparently one of the plus points of the Volex cables is that the plug will survive if you drop it on the floor and drive over it.

Andy Sav

Thank you Jack :) !

Wilbraham

Interesting comment this morning from John Authers, in the context of various ESG sub-topics:

"When looking at traditional exclusionary screens, where managers exclude particular kinds of companies as being unethical, one finding jumped out. Weapons and landmine manufacturers are the most widely excluded, largely because this is legally required in a number of European jurisdictions. Tobacco, again unsurprisingly, comes next. But fossil fuels come next, ahead of gambling and alcohol stocks. Twice as many institutions exclude fossil-fuel companies as nuclear power. That is a huge change over the last generation, and indicates the scope of the challenge ahead for traditional energy groups."

Brilliant Leader

“It will not be a problem for me if Stockopedia continue to allow subscribers to use the old site,”

Oh yes, absolutely Ken if Stockopedia commit to keeping the old site, I would happily renew my subscription. But alas, they have already signalled that it will be going soon. C’est la vie!

Cheers
Simon

Gromley

There was another old stockbroker fable that said: "Don't sell Shell".

I never actually heard that one, but I guess it sits alongside the old IT procurement mantra "Nobody ever got fired for buying IBM".

How times change. But that got me thinking are there any other companies living off a historical reputational monopoly?

kgb1953

Never sell Shell

Hello Gromley,

Great question. I was reflecting on this the other day, as I invest my daughter’s portfolio and was thinking what would be the best very long-term holdings for her. I realised that not many years ago, a sensible portfolio would certainly include Shell and/or BP, one or more of the big banks, M&S, perhaps Vodafone, British Gas, a water company, British Land (because you can’t lose money on land, right? They’re not making it any more...) and so on. None of those feel anything like as safe or secure as they once did. So my nomination for “companies living off a historical reputational monopoly” would basically be the whole of the FTSE100.

Even companies that are clearly well-run and that until recently you would have said were secure, turn out not to be. Whitbread. EasyJet. Go Ahead. I no longer hold any of these.

In the end I decided to go for investment trusts for my daughter. Allocate at the market level and let professional fund managers do the rest.

SaarfLondon

Love your contribution to this site ,many thanks

Only 28 of the companies in the FT100 in 1984 remain.

https://www.schroders.com/en/u...

andrewdb

V. true.

In the truly long term, the value of all stocks you can buy today will be = 0.

I think the oldest listed Co is Consolidated Edison, started 1824.

Perhaps it is me but change seems to be accelerating.

Chris1011

@andrea34 - probably the best summed up post on here today.

pka

16th Oct '20

Hi andewdb,

You wrote:

"In the truly long term, the value of all stocks you can buy today will be = 0."

I assume you wrote that because, in the truly long term, none of the stocks you can buy today will still be in existence. But that doesn't mean their value will be zero, because many companies are taken over and their shareholders receive cash which they can invest in the shares of other companies or they receive shares in the acquiring company. So the inheritors of their shareholders will still own possessions of value, but they will be in the form of shares in new companies that have not yet been created.

mark1308

Yes Never Sell Shell as i remember it was a firm fav of brokers back in the 80's

Give your money to Terry Smith , he stands more chance of success than most it seems !

Yusuf Samad

You can buy European companies on Hargreaves, AJ Bell and Interactive Investor. Latter allows investors to retain baances in non-Sterling currencies. I have bought Spanish and Dutch names in over £1bn cap. I agree the FX rates are not great vs other brokerage services like Interactive Brokers but this can be offset by currency diversification benefits.

I think the lack of coverage of European small and mid cap makes it very interesting and there are some fantastic growth companies in Europe.

Snowbum

Shell are such a massive enterprise, the downstream businesses are probably worth more than the oil business, which is where the value lies I suspect.

Looking like an interesting buying opportunity on the charts at the moment.... i'm in, s/l at 7% on the trade

Small Cap Value Report (Thu 15 Oct 2020) - VLX, CER, MARS, BOWL, NCYT, FUL

Volex (LON:VLX)

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Jack Brumby

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