Small Cap Catch-Up: Pawnbroking, Sales and Inside Deals

K3 Capital Group (LON:K3C) – Bid Approach Could Spark Counters

This business sales and advisory group is in advanced discussions with Sun Capital Partners concerning a possible 350p a share cash offer from the US group.

The news yesterday afternoon saw K3C’s shares rising 12% to close around 338p.

Although still in the throes of hammering out the details, I wonder whether the market’s dealers are indicating a certain caution by marking the shares up by just 15p on the overnight price?

K3C is currently valued at £248m, while its shares in the summer peaked out at 370p which then put a capitalisation of £272m on the business sales, recovery, corporate finance and restructuring experts.

There have been other parties expressing an interest in talking takeover with K3C – perhaps that is why the market is being reticent in spooking the value just yet.

Holders should sit very tight and await the outcome, which could take weeks well into 2023 to come to fruition.

(Profile 21.10.20 @ 147.5p set a Target Price of 200p*)

H&T Group (LON:HAT) – Time to Play

Readers will have enjoyed a cracking set of gains playing in the shares of this pawnbroking group since my Profile in early July this year.

They were then 332.5p, with me setting a Target Price of 400p.

Several mentions over the last few months have proved beneficial to those who participated.

In early October the shares responded positively to a well-subscribed £16.9m fund-raising at 425p a share.

At that time, I stated that they were a thumping-good purchase even at 448.5p.

“Clearly, to me anyway, these shares must now be seen to head upwards to the 500p level before some profit-taking eases them back and then presses them even higher still.”

So far in December the group’s shares have been an active market, several times breaking above the 500p marker.

Where to now?

Well, do not get me wrong, I really do rate this group and its prospects – so medium-term holders should grip hard to their positions.

For ‘quicker’ players it would be sensible to lock-in some gains. There could be a Trading Update out in mid-January concerning the year to the end of this month, meaning that ‘dealers’ could well be manoeuvring the stock ahead of such an announcement.

Overall, however, investors should be in this stock, it could easily hit 575p in 2023.

Last night they closed at 495p.

(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)

RBG Holdings (LON:RBGP) – And There’s More

Well Nicola Foulston has not surprised me, the former winner of the Veuve Clicquot Woman of the Year award followed up her chunky purchase on Monday, with another wedge being taken out on Tuesday of this week.

Sensibly she took advantage of her limited ‘insider’ share dealing opportunities after the professional services group, of which she is CEO, declared a share-price knocking £4m hit in its litigation finance business.

That means she will have taken out 350,000 shares this week – 250,000 @ 64.65p and 100,000 @ 68.75p, taking her total up to 11,865,264 shares (12.45%).

Follow the ‘insiders’ is what I say.

The shares closed last night at 67p.

(Profile 05.02.21 @ 80p set a Target Price of 100p*)

(Profile 17.08.22 @ 88.5p set a Target Price of 120p)

SDI Group (LON:SDI) – Could Be a Cheaper Opportunity to Buy In

This group, which designs and makes scientific and technology products for digital imaging and sensing, enjoyed a cracking first half-year’s trading to end October.

Its sales were up 28.3% at £31.7m, while adjusted pre-tax profits were 14.0% better at £6.5m, leaving earnings up 28.1% at 5.02p per share.

Chairman Ken Ford stated that:

“We are pleased to report yet another strong set of financial results. SDI Group continues to execute on its business model, adding two quality businesses to our portfolio and maintaining growth. A higher interest rate environment will lead to a small increase in interest rate expense in the second half.We look forward to delivering a full year trading performance in line with market expectations.”

Analysts Mark Brewer and Dr Stephen McGarry at the group’s brokers finnCap are obviously keen on the group’s potential. They have a price objective of 275p on the SDI shares, against the current market price of 155.5p.

Their estimates for the full year to end April 2023 show £66.5m (£49.7m) revenues, with adjusted pre-tax profits putting on a fractional £0.1m to £11.9m. Earnings could come out at 9.1p (8.7p) per share.

The coming year might see £71.2m of sales, £12.4m profits and 9.3p earnings per share.

Much as I like this group, its products and its potential, I have to say that I feel somewhat wary of its high rating currently.

There could well be a cheaper opportunity to buy into the equity in due course.

(Profile 28.10.20 @ 76p set a Target Price of 95p*)

FRP Advisory Group (LON:FRP) – Look to Bank Some Gains

Tuesday of next week will see this specialist business advisory company announcing its interim results for the six months to end October – they will show a strong performance against the macro environment.

Revenues should be some 10% better at £49.4m while its underlying adjusted EBITDA could come out at £11.6m, an advance of 5%.

The group’s services are offered under five different headings – restructuring advisory, corporate finance, debt advisory, forensic services, and finally, pensions advisory.

CEO Geoff Rowley stated that:

“FRP has made good progress in the first half, continuing to grow our team, revenues and profits. Our strategy remains to deliver sustainable profitable growth by ensuring our five service pillars work together to provide solutions that achieve the best possible outcomes. 

Our Restructuring team is well positioned to service the expected increase in demand stemming from the many challenges faced by UK businesses, although uncertainties persist over how long the available liquidity and government backed loans can sustain troubled businesses or how proactive key creditors like HMRC and institutional lenders will be on addressing over-due debts.

 Our Corporate Finance team has a strong pipeline and they are seeing an increase in demand for debt advisory colleagues to support on transactions.”

On Wednesday of this week the group announced the acquisition of APP, a team of 16 advisors in tax and audit services, based in Limassol, Cyprus.

Analyst Peter Renton, at the group’s brokers Cenkos Securities, considers the group’s shares as a Buy, despite them trading on 21.5 times the current year price-to-earnings ratio.

He applauds the group’s first overseas deal and reckons that APP will enhance the group’s overall service to its clients on international matters.

For the current year to end April 2023 he estimates £100m (£95.2m) in revenues and £24.0m (£23.1m) adjusted pre-tax profits, giving earnings of 7.8p (7.6p) and covering a 4.6p (4.3p) dividend per share.

The group’s shares, which closed last night at 166p, just a few pence short of the 173p peak, are not for chasing until a lot more profits are generated and then reflected in its rating.

For the meantime I would suggest holders should be looking to bank some of, if not all, of their gains.

(Profile 15.02.21 @ 104p set a Target Price of 130p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)