Market Comment and a Small Cap Catch-Up

Market Comment

Two weeks ago, I called the market lower, suggesting that the then FTSE 100 Index was looking toppy at 7577.47, while looking for a fallback to a possible 7150, before the market optimistically recovers early next year.

On Friday night the Index closed 94.05 points down on the day at 7332.12.

I still think that it has further to ease, then stalling, ahead of a firmer closing at the year end.

Worryingly for many, I am sure, I do consider that to control inflation in 2023, it surely is now very possible to see The Bank of England raising rates up to 5%, especially as we have a recession now forecast to last into 2024.

Will that control inflation or just create desperation as mortgage payers have to cough up more in their monthly repayments, which in turn will see house prices falling in 2023.

As if massive delays at the Land Registry had not done enough to cobble so many completions over the last year, the first-time buyers are now being frozen out of the market as mortgage lenders fear that they will quickly end up with negative equity, which would leave those lenders uncovered.

The average UK house price grew by 12.6% in the year to end October, to a record £296,333.

However, we have already seen property values fall back by around 5% in the last few months, with Rightmove stating that it had seen a 2.1% fall in November alone.

As asking prices are beginning to show their biggest fall in over four years, it is now being anticipated that there could well be a 10% or thereabouts value easing next year.

As interest rates are charged higher, personal pockets will need to be deeper, hence the upwards spiral of wage and salary demands to just match the extra costs.

It is interesting to note that so many of the current ‘strikes’ in progress could actually lead to eventual staff pruning (not the NHS though).

Royal Mail, said to be losing £1m a day, has nobbled Christmas card sales for companies like Moonpig and the Card Factory, while beneficiaries are the delivery companies like DPD, Amazon and the DX (Group).

Restaurants, pubs, nightclubs and bars will end the year on a dreary note as customers substantially reduce their spending, and with operators reporting understaffing. There are reports of hundreds of staff functions having been chopped back, especially as the rail strikes continue to hit travel.

Even in the City times are tough, with brokers decrying the fall in M&A business and hitting profits and bonus payments, while Goldman Sachs is reported to be looking to cull some 4,000 members of its global staff.

I bet that there will be some massive price savings happening in the retail sector straight after Christmas, especially as companies feverishly seek to boost their takings in an otherwise bleak seasonal period.

Perhaps better weather this week may grant some reprieve all around – who knows?

Small Cap catch-up

Kitwave Group (LON:KITW) – Just Keeps Getting Tastier

The announcement of the latest acquisition by this fast-expanding wholesale group, £29m for WestCountry Food Holdings, has spurred analyst Mark Photiades at Canaccord Genuity Capital Markets to increase his price aim for its shares.

Upping the objective from 345p to 390p, the analyst also upped his profit estimates for the current year.

On an estimate of sales for the year to end October 2023 to rise to £569.1m he sees £23.6m adjusted pre-tax profits, worth 25.9p earnings and covering a 10.9p dividend per share.

The group’s shares closed the week at only 184.5p, which looks pretty well under-rated and offering some much bluer sky for 2023.

(Profile 14.02.22 @ 145.5p set a Target Price of 180p*)

Global Ports Holding (LON:GPH) – Stay Aboard

After announcing excellent ‘recovery’ interims last Tuesday, this group, which is the world’s largest independent cruise port operator, added to the good news.

On Friday morning it announced that it has achieved ‘preferred bidder status’ for an 80/20 joint venture to operate the Alicante Cruise Port, on the East Coast of Spain.

The group’s shares have been a wonderful performer. In just over a month, they have risen impressively by 60% to close the week at 131p.

I still see them at 150p in 2023 – which is so close right now.

Hold tight – but expect some profit-taking, perhaps offering averaging-up possibilities.

(Profile 11.11.22 @ 81.5p set a Target Price of 100p*)

Cohort (LON:CHRT) – Recovery on Track for Next Year and Beyond

This defence and security products and services group early last week announced its first half results to end October, clearly showing that profits recovery is on its way this year, especially as the group has reported record order books.

However, analysts Andy Chambers and Natalya Davies at Edison Investment Research now have a 610p ‘fair value’ on the group’s shares, which is down from 683p previously.

Their estimates for the full year to end April 2023 are for £165.9m (£137.8m) revenues, pre-tax profits of £17.6m (£14.7m) with earnings of 35.0p (31.1p) and a dividend of 13.4p (12.2p) per share.

The coming year could see £179.7m sales, £19.6m profits, 36.5p earnings and a 14.7p dividend per share.

They rate highly the £194m group’s prospects to pick up good business as defence spend increases globally.

Having highlighted the group’s shares at the end of last month, then at just 418p, I continue to consider that the company is undervalued and should see a good advance in 2023.

They closed at 472.5p on Friday night, after hitting 490p during the day.

Hold very tightly.

(Profile 06.08.19 @ 446p set a Target Price of 607p*)

Volution Group (LON:FAN) – Blowing up Well?

The AGM Trading Update from this globally operating air quality solutions specialist saw the current year starting well, with a 7% increase in the first four months sales.

Better returns were reported from its sales in the UK, Australasia and Continental Europe.

The group’s CEO, Ronnie George, stated that:

“We are pleased with the start to the new financial year and in our ability to achieve our margin targets in the face of inflation. With our geographic and end-market diversity, our ongoing focus on operational excellence, and our cash generation, we are well positioned to continue to capitalise on the many structural growth opportunities in the months ahead.”

Charlie Campbell at Liberum Capital has a 450p price objective for the group’s shares.

The analyst is looking for £316m (£308m) sales for the year to end July 2023, while pre-tax profits could come in at £60.0m (£60.9m), worth 23.2p (24.0p) earnings and covering an increase in the dividend to 7.4p (7.3p) per share.

His estimates for the following year are £328m sales, £62.5m profits, 24.0p earnings and a 7.5p dividend per share.

Despite PrimeStone Capital halving its holding in the company to now 4.9%, the group’s shares, which closed at 333.5p, are still a good hold.

(Profile 23.05.19 @ 174p set a Target Price of 250p*)

(Profile 25.01.21 @ 301.5p set a Target Price of 350p*)

SigmaRoc (LON:SRC) – Big Appeal at This Price

After last Monday’s Trading Update from the quarried materials group, analyst Charlie Campbell at Liberum Capital eased back his price objective for the group’s shares from 130p to 120p.

Even so, at Friday night’s closing level of 54p that still offers massive upside, with group expectations of being 10% higher than market estimates.

For the year to the end of this month he suggests group sales of £580m (£530m) and almost stand still pre-tax profits of £60.1m (£61.6m), worth 6.8p (7.1p) earnings per share.

His expectations are for an advance next year to £64.5m profits on similar sales of £579m, worth 7.3p a share in earnings.

That price aim presents a big upward possibility – so even going halfway to 87p gives big appeal.

(Profile 04.09.20 @ 49p set a Target Price of 65p*)

Time Finance (LON:TIME) – This is the Time to Buy

The shares of this alternative finance provider look to be trading on a very low 4.9 times price-to-earnings multiple on projected 2024 earnings per share.

The group’s Trading Update last week encouraged Andrew Renton, analyst at the group’s brokers Cenkos Securities, to expect a material re-rating of the group’s shares.

His revenue estimates for the current year to end May 2023 are for £25.0m (£23.6m), lifting pre-tax profits to £2.8m (£1.1m) and earnings up to 2.5p (1.0p) per share.

For the coming year he views £29.0m revenues, with £4.6m profits and earnings of 3.9p per share.

On those estimates you can easily understand him suggesting that the group’s shares could double as such progression becomes visible.

These shares are for buying at the current 20.8p.

(Profile 23.12.20 @ 21.5p set a Target Price of 30p*)

(Profile 07.01.22 @ 23.5p set a Target Price of 30p)

Hunting Group (LON:HTG) – Arden Partners Rate a Buy

Following last week’s Trading Update, which reported the group making progress on all fronts, analyst Daniel Slater has rated the shares as a Buy, looking for them to rise to 370p.

He is going for current year sales to the end of this month to rise to $695.7m ($521.6m) turning the group around from its 2021 loss to an adjusted pre-tax profit of $10.7m, generating earnings of 5.0c (loss 26.2c) per share. Confidently he expects the group to pay out an uncovered 9.0c (5.0c) dividend.

For the coming year Slater goes for $815.9m revenues, $41.4m profits, earnings of 19.4c and with the group paying a totally covered 10.0c per share in dividend.

The shares closed last week at 291p – a level which to me shouts out as a good investment.

(Profile 15.03.21 @ 275p set a Target Price of 350p*)

Fulham Shore (LON:FUL) – A Punt for 2023

Analyst Sahil Shah at this Franco Manca and The Real Greek restaurant group’s brokers Singer Capital Markets remains keen on the shares, which he rates as a Buy aiming at 15p each.

Successfully navigating the headwinds in the six months to end September, while the final half is expected to lag somewhat.

For the full year to end March 2023 Singer’s estimate takings lifting to £101.2m (£82.6m), while adjusted pre-tax profits of £0.8m compare with the previous £3.7m positive, taking earnings down to 0.1p (0.4p) per share.

Jumping into next year Shan goes for revenues of £112.3m, providing £3.0m of profits and 0.3p of earnings.

The shares, which touched 18.89p this time last year, are now at 10p, fractionally off their 9p lowest.

However, I do think that they could well make an interesting ‘punt’ for recovery next year.

(Profile 15.12.21 @ 16p set a Target Price of 20p)

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