Monday morning Small-Cap thoughts – SAA, SDI and CMO

M&C Saatchi (LON:SAA) – whatever happens Vin is already the winner

The lovely Vin Murria could well be taking her next step to gaining control of the advertising group before tomorrow evening.

It is a 5pm deadline for indicating to the market what she is going to do in her attempt to achieve an agreed bid for the company, in which she is the largest individual shareholder and also controls a further stake through her quoted acquisitions vehicle AdvancedAdvT.

She is already on the group’s board, sitting as Deputy Chairperson.

Readers will know that I have a great deal of time for Vin, she is a very sassy lady and deserves respect for her ability in building up and floating companies within the high-tech sector.

When she started to accumulate her stake in the Saatchi group it was only bouncing along on its backside, having experienced a number of balance sheet and other corporate hassles in the previous three years.

Having bought in at prices, that I would guess, that were well below 50p a share, she is already well in profit with her existing holding of 15.24m shares, representing 12.5% of Saatchi’s equity.

Advanced AdvT (LON:ADVT), in which Vin is the Chairperson and owns 17.5m shares, some 13.1% of its equity, has a 12m share stake in Saatchi, some 9.82%.

The latter (ADVT) has previously made a cash and shares bid which was rebuffed by the group’s other directors.

Her job has been made just that bit more difficult in working out what to do – whether to bid more cash, less shares or to just walk away from continuing the battle.

After the advertising company announced late last month its excellent recovery results for 2021, it also stated that the first quarter of the current year had seen strong trading.

Furthermore, it is expecting to make £31m pre-tax profits for 2022, against the 228% improved £27.3m for 2021, with an even better £41m for next year.

The group’s shares, which touched 210p in early January upon rumours of a potential bid, closed at 181p on Friday night.

It is a hard one to call. As I stated earlier, I have masses of time for Vin, she is a winner – but will she get Saatchi?

Whatever way it goes, she really is gaining either way, so too are readers who followed my Profile two years ago – they will have trebled their money already.

(Profile 11.05.20 @ 64p did not set a Target Price)

SDI Group (LON:SDI) – broker increases price aim

Last Friday morning, this digital imaging and sensing scientific and technology products group, announced that its results for the year to end April will be way up on market expectations.

This strong Update has subsequently brought about a number of analyst upgrades.

Mark Brewer and Dr Stephen McGarry, analysts at finnCap, have upped their estimates for the last year and are now going for £49.0m of revenues (£35.1m) giving £10.5m of adjusted pre-tax profits (£7.4m), generating earnings of 7.6p (6.0p) per share.

For the current year just starting they increase their revenues to £53.1m, profits of £10.6m, and 7.7p of earnings per share.

The group’s shares jumped 18p on the day, to close at 169p. That compares favourably to the finnCap increased price objective of 265p.

Upside for the shares is still very visible as Chairman Ken Ford and his management team continue their organic and acquired growth strategy.

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

Coral Products (LON:CRU) – undervalued at 15.5p and yielding 6% plus

Following on from its very positive Trading Update in late April, this Manchester-based plastic products group, declared the earnings enhancing £3m acquisition of Film & Foil Solutions.

F&FS looks to be a good fit. It is a leading converter and supplier of flexible packaging film, print lamination film and speciality plastics, paper and aluminium foils.

Analyst Nick Spoliar, at brokers WH Ireland, considers that the group is well-placed, with a positive product portfolio and the ongoing support of cash on the balance sheet.

He suggests that its shares at 15.5p, down 0.75p on the news, continue to trade below asset value and that they continue to yield over 6%.

Since my first Profile on the group its shares have almost hit my Target Price, missing it by 0.11p per share.

However, I still see that being achieved.

(Profile 28.04.21 @ 14p set a Target Price of 18p)

CMO Group (LON:CMO) – dropping my Target Price

This company’s shares have not been a good performer since I profiled the online builder’s materials retailing group.

They have slipped back from 165p to the current 127.5p on an almost gradual weekly price fall.

Last Friday’s announcement of its 2021 end December results declared a 46% advance in group sales to £76.3m, showing a £1.5m adjusted pre-tax profit, worth 1.9p per share.

Analyst Charlie Campbell at Liberum Capital estimates that the benefit of recent acquisitions will help revenues to increase to £95m this year, almost trebling profits to £4.1m, worth 4.7p in earnings per share.

Further estimates for next year see £112m of sales, £6.3m profits and 6.3p in earnings.

Perhaps the building materials supply shortages are becoming more visible and impactive than earlier considered. No doubt we will get an up-to-date picture come next month’s AGM.

Campbell has a price objective out for the group’s shares at 180p, that would put them out at a very fancy price-to-earnings ratio – perhaps too much for my tastes.

Accordingly, I am now dropping my Target Price to 150p from the previous 200p.

(Profile 08.11.21 @ 165p set a Target Price of 200p)

Card Factory (LON:CARD) – sending you our best wishes

Just a year ago this specialist retailer of greetings cards was enjoying its shares trading at almost 98p.

Since then, Covid-19 and inflationary pressures burned a hole in its corporate pockets, helping to more than halve the share price to as low as 38.60p in February this year.

However, last Wednesday’s results announcement for the year to end January, saw revenues rise 28% to £364.4m and pre-tax profits swing around from £16.4m losses to a positive £11.1m, taking earnings up to 2.4p per share against a 4.0p loss.

Now that the group has been successfully refinanced it is expected to see net debt falling back again – last year it eased back from £107.7m to just £74.2m.

That is a lot more encouraging, as reflected in the share price, which peaked last week at 66p, before closing on Friday night at a very solid 60.30p.

It does feel as though times are getting better – so we send the group our best wishes.

(Profile 05.08.20 @ 42p set a Target Price of 60p*)

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