Small cap round up: featuring Eddie Stobart, STV, Avon Rubber and more…

In this weekly summary, Mark Watson-Mitchell updates his readers on previous company profiles and other news of interest from the exciting world of small cap stocks…

Eddie Stobart Logistics (LON:ESL)

Firstly, I apologise to my readers for ever having selected this transport group as one of my profiled companies. I was looking for good recovery prospects and its board’s ability to manage ‘accounting errors – deliberate or otherwise’.

But it was not to be. In fact, it has been a total fiasco.

In late July I featured the company, whose lorries everyone sees on Britain’s roads, with its shares at 75p, looking for a lift-up to 130p.

However, within weeks the shares were suspended when the errors appeared larger than first thought.

Since then the accountants seem to have been struggling with actually drawing up and finalising the interim figures to end-May this year. That means that some very large write-offs could be in store for the company’s hapless shareholders.

When it was falling to the ground, a number of potential bidders for the group threw their hats in the ring – with one of my favourite logistic companies Wincanton (LON:WIN) suggesting that they were already looking at the company’s books and considering just what they could do with ESL.

Andrew Tinkler, former ESL boss, stated that he was interested, while others were silent as to their involvement. He later backed out.

One of the companies behind the ESL float was the Isle of Man based DBAY Capital – they have just updated their offer for the company and proposed a £55m injection of new financing, but they will leave existing shareholders with just 49% of the restructured company’s equity.

If ever we see the shares back on the market, it is inevitable that they will collapse in price – 25p could be an opener, but who knows? Certainly not the accountants who audited the company’s books and didn’t spot the ‘errors’, nor the management, who also have big questions to answer.

A lot of detail is required about what really has gone on inside the company, about the way that its management seemed oblivious to the transgressions and, of course, yet again a major firm of accountants auditing a quoted company’s books seemed to be ticking the numbers off without removing their blindfolds.

We shall see what transpires, in due course, but all I can say once again is that I apologise for ever having profiled an obvious ‘dog’ of a stock.

Onthemarket (LON:OTMP)

Despite the announcement, on Tuesday, of what looks like a very important new listing contract, the shares of this online property marketing portal have not reacted positively.

The site has tied up an agreement with one of the country’s largest housebuilding groups, Persimmon, for whom it will now cover listing and other advertising products.

Last year Persimmon sold 16,449 new homes. All of its properties will now be listed by onthemarket.com.

It was only a couple of months ago that the company announced that it had signed up Barratt Developments, another of the UK’s leading housebuilders.

That will take the number of listing developments on the portal up to 733, thereby helping to drive up user interest in the website.

The company’s shares, at just 67.5p, are still easing back from my end September 96.5p profile price, with my target price of 175p by the end of next year not looking too clever.

Even so, I hold on to my hoped-for price progression.

Renold (LON:RNO)

Another dodo in my profile list is this international supplier of industrial chains and related power transmissions.

On Wednesday, the company announced its interim results to end-September and they reflected tougher market conditions impacting revenue and order intake, which was down from £104.1m to £95.7m. However, margins were responding to some tweaking.

The company reported its underlying revenue for the first half was down from £110.8m to £98.2m, while its underlying adjusted operating profit was up from £7.5m to £7.7m. The underlying adjusted operating profit margin was also much better, up from 7.4% to 7.8%.

But it does appear that its global spread of sales and manufacturing gives its some balance. Whether that can continue in the second half is as yet uncertain.

Even so, with no sudden hassles occurring, the company is expecting to meet market estimates for the year.

The shares, at just 18p, have eased back too much now – compared to my 30p profile price in early June. My 60p target price is still way off, but I do see the shares improving from these current levels and moving back up to the June price within the next four or five months.

Wincanton (LON:WIN)

Britain’s largest third-party logistics company is said to be still mulling over the Eddie Stobart situation – will it now put up a joint operation suggestion to ESL? Certainly, Wincanton is efficient enough to be able to help get ESL back on the road to recovery.

On Wednesday the company reported a 1.9% rise in first-half revenue to £529.9m for the end of September. It saw underlying pre-tax profits increase 9.1% to £26.2m, with earnings leaping 9.9% to 17.8p per share, covering the 8.3% increased dividend of 3.9p per share.

That was a very encouraging set of results, with its strong cash generation helping net debt to fall from £24.2m to just £14.8m.

From a low point of 245p during the week, the shares have closed at 258p and look fairly strong as the company progresses still further in this second half to end-March 2020 (pre any deal with Eddie Stobart).

In May I profiled the company at 247p, with a 350p end 2020 target price – to which I still adhere.

Driver Group (LON:DRV)

This global professional services consultancy group to the engineering and construction industries will be announcing its final results on Tuesday 10 December.

The company was a large buyer of its own shares during the summer at around the 52p to 55p price range.

The shares are almost stock still at 55p, looking very boring. That compares with my late April profile at 59p and I’m looking for them to touch 85p by the end of next year.

I still feel that is possible, hopefully a good set of figures and outlook announcement might get them going.

Carr’s Group (LON:CARR)

Last Monday this engineering and agricultural feedstuffs business reported that the year to end August had seen an almost stand still in its revenue at £403.9m, up just 0.2%.

However, its pre-tax profits were up 9% at £18m, while its earnings per share improved 5% to 14.6p.

In the full year there was a robust result reported from the agricultural feeds division and a strong performance from engineering.

Apparently, the board was pleased with these better than expected results.

The group is now in an excellent position to grow upon its strong market positions and enable it to continue its growth.

The shares moved up from a 135p level at the end of last month to end the week at 150.5p, which was a good performance but still behind my mid-July 153p profile price. Even so I maintain my 200p target price before the end of next year.

STV Group (LON:STVG)

On the back of the group’s recent tie-up with Sky it was very pleasing to see that it had just pulled off another big deal.

STV Productions, the Glasgow-based independent production company inside the STV fold, announced a contract to license off 160 episodes of Antiques Road Trip to the Discovery channel and 60 episodes of Celebrity Antiques Road Trip to the Really free-to-air channel.

After touching 401p on Friday of last week, it was disappointing to see some profit-taking pulling the shares back to end the week at 392p, which is only 22p above my end August profile price.

Peel Hunt have made a ‘buy’ recommendation, looking for 480p. These shares look cheap to me.

Avon Rubber (LON:AVON)

The last year has been one of massive transformation inside the Avon Rubber group. And early next year it hopes to get confirmation that it can go ahead with the acquisition of the 3M ballistic protection business for $91m. And that should make a big impact upon the group’s future results.

With some $340m of long-term contracts the group’s order book gives it tremendous visibility going into the 2020 year.

The highly innovative and technologically advanced respiratory equipment maker for the defence, military, security, fire and law enforcement sectors to milking point solutions group is an unlikely combination of business interests – but it does work.

The shares have responded well to last Wednesday’s results, up from 1,810p last Friday, to end the week at 1,940p after peaking at 1,948p last Monday.

Revenue for the year to end-September was up 8.3% at £179.3m, while the adjusted pre-tax profits were 15.4% better at £31.4m. Adjusted earnings came in at 91.7p per share, up 18.9%, and easily covering the 30% improved dividend of 20.83p per share.

Importantly, the net cash position at the year-end was £48.3m, up £1.8m.

Even after next year’s 3M acquisition costs are covered the group is forecasting a return to a net cash position by early 2021.

This was a very strong set of results and an impressive accompanying trading statement.

I profiled the company just over a month ago in early October when the shares were 1,700p. So, their subsequent performance has pleased me, now just 60p below my 2,000p target price before the end of next year.  Brokers Peel Hunt have increased their target price to 2,000p, up from 1,850p.

I have actually stated that I do see them heading up to 2,250p in due course, and after this week’s results I can see that easily happening before the end of next year.

Ebiquity (LON:EBQ)

I was somewhat surprised to see that Michael Karg, the CEO of this leading independent marketing and media consultancy group, has stepped down from the board with immediate effect.

Alan Newman, the group’s CFO has taken over, whilst Karg will stay on as an adviser until the end of the year.

Perhaps something more is behind this sudden move than just a CEO stepping down, because the Capital Markets Day due next Tuesday has been postponed.

When I know more about what, if anything, has gone on behind the scenes, I will inform Master Investor readers.

The shares, which I only profiled on Guy Fawkes Day at 43p, with a target price of 75p, have closed the week at 42.5p.

Speedy Hire (LON:SDY)

The leading tools, equipment and plant hire services group, which supplies the construction, infrastructure and industrial markets announced its interim results on Wednesday.

For the half year to end September revenue was up 5.9% at £204.2m, while pre-tax profits were 21.5% better at £16.4m.

Earnings per share came out 25.2% better at 2.58p and the dividend was up 16.7% at 0.70p per share.

The utilisation of equipment was fractionally better at 56.5% against 56.2% in 2018.

The group showed very good cash generation and a stronger balance sheet, with net debt reduced by £4.1m to £85.3m over the end March figure.

The company is succeeding in widening its customer base and its services offer. Despite the current uncertain UK environment, the company remains confident that its full-year results will be up to expectations.

Brokers Liberum Capital rate the company’s shares a ‘buy’, looking for 77p. They are currently 58.5p, up 6.5p from my mid-October profile price of 52p, which is when I put out a 75p target price by the end of next year. Undervalued.

Stobart Group (LON:STOB)

Thursday’s interim results from the aviation and energy focused business for the half year to end-August showed revenue up 34.1% to £93.1m.

Its underlying earnings before interest, depreciation and amortisation were up 187.1% at £12.1m. However, the actual loss for the period was 19.4% worse at £20.9m after allowing for non-cash impairments and amortisation, together with set-up costs.

The group is still considering how to dispose of its £80m portfolio of non-strategic infrastructure assets, while optimising value.

The airport passenger numbers were up 41.8% at 1,189,178, while aviation revenue was up 25.8% at £26.4m and its EBITDA was 43% better at £4.1m.

On the Energy side its waste management tonnage volumes were up 22.5%, its revenue up 43.5% at £42.9m and its underlying EBITDA was 35.4% higher at £11.7m. This division is set to become increasingly cash generative.

I was actually impressed that the company had decided to suspend paying out any dividend for the next two years or so.

The defence of this measure is that it will use those retained funds to invest in helping to attain its corporate goals, especially at Southend Airport where it is aiming to reach a flow through of 5m passengers a year, over four times the number that are using it now.

The shares fell back on the news, which I consider is the wrong reaction. They ended the week at 120.5p. However, that is still up on my mid-June profile price of 106p.

It is worth noting that Jefferies International rate the shares as a ‘buy’, looking for 168p.

I stick rigidly to my end 2020 target price of 175p.

Norcros (LON:NXR)

On Thursday the interims from this bathroom and kitchen products supplier were announced.

The six months to end September saw revenue up 11.4% at £181.2m, while underlying profit before tax was 14.1% better at £16.2m. Earnings came out at 15.7p, up 12.9%, with the dividend improved 10.7% at 3.1p per share.

There was a strong UK domestic organic growth reported in both the retail and the trade sectors.

Net debt was reduced, while the cash generation was good.

These results were impressive, especially when so many other companies in the sector are suffering lower sales. The company’s leading market positions were obviously so much more important, as was its strong portfolio of branded products.

The Cheshire-based company employs some 2,200 people across its UK and its South African operations.

Its board is confident of achieving market expectations in the second half and also for the full year to end-March 2020.

I featured the company in late August at 214p. They are closing the week at around 234p, an appealing level. My target price of 321p by the end of next year remains intact.

And finally…

Watkin Jones (LON:WJG)

The ability of a company to withstand one of its key directors and shareholders selling down a third of his holding is impressive.

The disposal of 9.8% of the student accommodation developer’s equity by Mark Watkin Jones was obviously a relatively easy task for his brokers. He now holds 45,584,407 shares in the company, some 17.8% of the issued share capital.

Just as pleasing as the ease with which the shares were placed, without massive market disruption, was the fact that institutional holders like Octopus Investments and Canaccord Genuity declared increased holdings – respectively up to 9.05% and 5.23%.

The shares ended the week at 215p, which is, unfortunately, still down on my mid-May profile price of 225p. The target price of 300p is some way away, but I still see the shares getting there on or before the end of 2020.