Video interview. Fund manager Richard Staveley of Harwood Capital highlights 8 smallcap stock ideas

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3rd Jul '24 by Paul Hill

6 comments 1526 reads

Timestamps

In this masterclass of smallcap investing, I was delighted again to speak to accomplished fund manager Richard Staveley of Harwood Capital Management Ltd – including:

00:00 His investment approach & how the Rockwood Strategic portfolio has fared.
03:51 Capita
10:22 Filtronic
17:32 Trifast plc
23:01 Pressure Technologies plc
29:46 RM plc
36:28 Funding Circle UK
42:13 Argentex Group PLC
50:14 Hostmore plc
58:57 Young & Co.'s Brewery

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About the Author

Paul Hill

Premium Member

Stocks owned : EQLS, AGFX, Pfizer, Bristol Myers, WATR, VCT, SPI, MBH, BIG, TET, IXI, ASTO, IOM, ESYS, ELCO, IHC, IXI, CML, TRB, TRCS & AOM Elsewhere, I'm also paid by Vox Markets (as a contractor) to interview interview fund managers, capital market experts & companies (re EQLS, VRCI, BELL, FIN, AVG, VLG, SUP, ELCO, MPAC, WATR & ONC). I believe all these stocks are clients of Vox.Lastly my 24 year HIT RATE is only 62.5%. Meaning 37.5% of the time I lose money (ie often wrong) - albeit my winners are (on average) 1.7x larger than my losers. Please Do Your Own Research. more »

6 comments

Paul Hill

3rd Jul '24

Valuation benchmarks wrt those stocks that were discussed.

NewInvestor1972

9th Jul '24

Great podcast Paul, I bought Capita (LON:CPI) yesterday as a long term recovery play, didn't expect a 25% gain in a day. Happy days

That was a lucky one.

Andy Howe

11th Jul '24

Great interview Paul. Always extra value listening to your interviews with Richard above and beyond the formal Rockwood financial presentations.

Paul Hill

11th Jul '24

Many thanks Andy & NewInvestor for the very kind words. Richard is definitely front row box office.

FYI, I also (hopefully) have Richard's boss at Harwood on the Oche in a couple of weeks' time. Watch this space.

Funnymoney

1st Aug '24

Hostmore (LON:MORE) Notes:

Hostmore is merging with the global TGI Fridays business in a reverse takeover deal.
They are buying the global business at 5.4x EBITDA, compared to other franchise businesses trading at around 14x EBITDA.
The combined business was doing about £30 million in free cash flow last year.
Hostmore shareholders will own 36% of the combined business after the deal.
At a 10% free cash flow yield, the combined business could be valued at £300 million, with Hostmore's 36% worth around £100 million. Current market cap is only about £28 million.
The deal is contingent on refinancing the combined company's debt, which they believe has better chances of happening with the larger combined entity.
Management is focused on creating equity value, likely through paying down debt and doing share buybacks rather than aggressive growth.
Richard sees it as risky but with high potential upside if they can execute. It's a small ~2% position in their portfolio.
The UK consumer environment is improving, which could help TGI Fridays' performance, though it has been struggling with declining like-for-like sales.
Overall, Richard sees significant upside potential if they can refinance and improve performance, but acknowledges it as their riskiest holding currently.

Funnymoney

9th Aug '24

Capita (LON:CPI) Notes:

Capita has been a very difficult stock for investors historically, often referred to as a "widow maker". It was previously a FTSE 100 company but ran into major problems after an aggressive acquisition strategy led to it becoming overleveraged and losing operational control.
However, Staveley believes Capita may now be "the biggest blind spot in the whole UK stock market" due to how badly burned investors have been previously.
Key points of the investment thesis:

New CEO targeting 6-8% operating margins, which peers achieve and is reasonable. At 6% margins on £2.7bn revenue, EBIT would be £215m vs current £225m market cap.
Debt has been reduced by selling off businesses. Now has £180m financial debt plus £500m in leases, which is decreasing as they exit excess office space post-COVID.
New CEO has increased targeted cost savings to £160m total.
If they can achieve just over 6% margins, Staveley estimates they could generate about £90m in free cash flow per year once debt is paid down and pension contributions stop in next 12 months.
Next 12 months will still see cash outflows as they stabilize, but Staveley expects inflection to begin within 12 months.
Valuation looks extremely low - £225m market cap for a £2.7bn revenue business that could potentially generate £90m FCF if turnaround succeeds.
Staveley believes government insourcing risk under Labour is low, as civil service lacks competencies and it likely wouldn't save money.
Capita has strong relationships with government departments and customers despite City perceptions.

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Video interview. Fund manager Richard Staveley of Harwood Capital highlights 8 smallcap stock ideas

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About the Author

Paul Hill

6 comments

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