Small Cap Value Report (Tue 18 Jan 2022) - SDG, BOOT, ANX, GATC, BRCK, RFX, HOTC, BLTG

18th Jan '22 by Paul Scott

44 comments 10903 reads

Good morning, it's Paul & Jack here with Tuesday's SCVR.

I mystery shopped TGI Fridays again last night, and will be interviewing Hostmore (LON:MORE) (I hold) management late this afternoon, which should be interesting. So a busy day ahead.

EDIT: Here is my audio interview with Hostmore CEO & CFO.

Mello Trusts & Funds Show - free! Today at 2pm. More details here. Some interesting speakers, looks good.

Agenda -

Paul's Section:

Sanderson Design (LON:SDG) (I hold) - a positive trading update for FY 1/2022. Profit guidance is raised 13%. That makes the PER only 11.4, which is clearly too cheap. We should see a decent recovery in share price now. Nice strong balance sheet too. Benefiting from UK customers on-shoring production to SDG's UK factories, after Brexit & global supply chain problems. Licensing strong, and US sales good growth. Lots to like here, the turnaround under excellent CEO Lisa Montague continues.

Gattaca (LON:GATC) - a horrible profit warning, now saying FY 7/2022 will only be breakeven (similar to H1). The staffing group has taken on loads more sales staff, who have not yet delivered increased sales. I don't have any confidence in management or forecasts, so it's no longer of any interest to me.

Brickability (LON:BRCK) - a positive trading update, saying FY 3/2022 will be ahead of expectations. Cenkos helpfully publish updated forecasts. This looks a good, growing (lots of acquisitions) group, at a reasonable valuation. Bear in mind cyclicality though, and possible one-off boost from high timber selling prices.

Hotel Chocolat (LON:HOTC) - "marginally ahead" of expectations trading update for H1. The shares are expensive, on a punchy rating, but decent growth, internationally too, could justify the high price maybe?

Blancco Technology (LON:BLTG) - a positive trading update, ahead of expectations, but no figures provided. No broker research available. I don't like the aggressive accounting, and in the past, it's generated little genuine profits or cashflows.

Jack's Section:

Henry Boot (LON:BOOT) - ahead of expectations update for the financial year. Conservatively-run, with family shareholdings, and has been around for more than a century. So it has proven its resilience in what can be a turbulent construction and homebuilding sector. Growth initiatives are in place so if conditions remain favourable then perhaps…

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SEClay

18th Jan '22

Hi Mark,

yes, only a few days ago, IG credited me with a dividend and then yesterday credited me again and then reversed the payment,

I too have had an ongoing saga trying to get my money from my Vectura shares which were delisted. This took up to two months. I had numerous phone calls and online chats with them and each person either didn't know what they were talking about or gave me wrong information. Nightmare!

ISAallowance

Yes, I've just had a US dividend with 30% tax taken off in an ISA even though I have a completed W8BEN and they've always managed to take off 15% previously.

shipoffrogs

Or they need the cash for reasons you don't even want to think about.

tic_tac_toe

I guess its a bit like all the fake burberry you see. Their proper customer base want the real deal, and wouldn't kit out in reproductions from a market stall ..?

planetx

IP is strong enough for Next to write a cheque out so clearly they value it , but good point as to what level of value / protection can be guaranteed .

My friend is responsible for the IP of Conan Doyle estate and has sone interesting experiences, at the end of the day “the official “ license even if out of timeline and at risk of rip off is what appeals to a lot of top level licencees .

rmillaree

"Yes, I've just had a US dividend with 30% tax taken off in an ISA even though I have a completed W8BEN and they've always managed to take off 15% previously."

I am guessing you know but just flagging up that W8BEN 's dont last forever so will need renewing periodically.

Rusty2

But it lasts 3 years and your broker should warn you, if it's expiring.

Just checked and I don't know what IG are doing with Royal Mail (LON:RMG) dividend, looks like they paid it twice and then cancelled one of them.

Paul Scott

Hi gwilli68,

Good question re Sanderson Design (LON:SDG) (I hold) forecast low free cashflow. The latest note from Progressive doesn't provide the workings, but the previous note from Nov 2021 does give more explanation -

"In recent times, the group has run with a relatively capex-light model, partly due to Covid and cash conservation. Annual maintenance capex is estimated to run at around £2.5m-£3.0m per annum. However, as the group looks to move more on to the front foot to drive both brand and manufacturing sales over the medium term, capex is set to rise over the next two to three years. Projects driving this rise in capex include the new ERP system implementation at Standfast & Barracks and next year’s installation of a next generation digital printer at Anstey. FY24E will then see the relocation of the logistics warehouse in Milton Keynes, which will require fitting out expenditure. "

So higher capex is one use of cashflow. Which is fine by me, as capex should fuel profit growth (otherwise there's no point in doing it).

Another point is that inventories are assumed to rise with revenues, in the analyst's model:

"Going forward, we have modelled inventory on the basis of 20% of group turnover, with stock growing in line with revenues."

Remember not to take analyst forecasts as gospel, they're often wildly wrong.

SDG already has a fabulous balance sheet, last reported as:

Current assets: £58.2m (incl. £15.4m cash)

Current liabilities: £22.8m

Net current assets: £35.4m

Long-term liabilities: £8.2m (including £4.7m pension deficit)

Very healthy then, and I've completely ignored fixed assets, brand/design values, etc.

Regards, Paul.

simoan

I hope not because I'm a shareholder! I only have a very small part of my portfolio with them because they are rubbish and I don't trust them. I only use them to diversify holdings across brokers for risk mitigation. Their iOS app is rubbish too!

The problem is down to their share dealing service needing to use a custodian (Citigroup) because they have no back office for handling corporate actions. So it's all really very half-arsed compared to HL, AJB YouInvest, ii etc.

All the best, Si

JCPr

Thanks Paul & Jack for all the reviews. I'm impressed with the volume of updates you've covered today.

Here's what we covered, and didn't get round to, today. As you can see, we focused mainly on the ahead of expectations stocks, which I've coloured green below (with apologies to our colour-challenged readers):

BnB

As others have stated, an impressive haul of reports. Well done guys, and thank you.

Silver Moon

Nothing to do with WFH I presume?

I hold £IGG.

Silver

yiannos1

Yes they are!!

ken mitchell

Looking forward to reading your update after your interview with MORE Management Paul, but guessing that after you (and Jack) have done so many (superb as usual) updates already today that you won’t be publishing It for a day or so.

MrSmallCaps

I am having a similar problem with them, they don't have a clue what they are doing

Thanks rmillaree. I had checked that though and I'm good till 2023. So I think it's just IGG being useless. Whether they're being useless in telling me how long I've got on the W8BEN or useless in crediting the divi is open to question, but I'm fairly sure I remember doing a W8BEN with them fairly recently so suspect it's the divi.

smegster

Definite thumbs up for the summary tables (and last weeks podcast), these are especially useful when I'm busy with work and don't get a chance to fully read the main SCVR.

Here's my iunterview with MORE (I hold):

http://qualitysmallcaps.co.uk/...

7th Feb '22

Well, to give IGG credit, they've just fixed it back to 15% withholding tax before I got around to complaining, so clearly they know there's an issue.

Small Cap Value Report (Tue 18 Jan 2022) - SDG, BOOT, ANX, GATC, BRCK, RFX, HOTC, BLTG

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Paul Scott

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