Small Cap catch-up: Piers, materials, cyber, videogames and telemedicine

Brighton Pier (LON:PIER) – Trading Update shows upside worth chasing

This diversified leisure and entertainment business yesterday issued a Trading Update based upon the group’s full year to end June.

It reported record revenues, with advances being made in its Brighton Palace Pier, its Bars and Golf divisions, while the Lightwater Valley theme park traded ahead of expectations.

The £32m capitalised group continued to generate strong cash flows, enabling the repayment of £7.7m of debt (37% of borrowings) during its financial year, leaving it well-positioned for the future, with a strong balance sheet, and underpinned by high quality assets.

CEO Anne Ackord stated that:  

“This trading period has been exceptional, benefiting both from pent-up customer demand and from hospitality-targeted Government recovery packages. The cash-generative nature of the group’s diverse businesses puts us in a unique position to capitalise on new opportunities as and when they arise.”

After yesterday’s Trading Update, Peter Renton, analyst at the group’s brokers Cenkos Securities, has estimates for the year to end June of £40.1m (£13.5m) revenues, with adjusted pre-tax profits more than quadrupled from £1.5m to £6.4m and raising earnings to 13.5p (5.7p) per share.

He rates the shares as an undervalued Buy and will be revising his current year estimates when the group publishes its results in September.

The shares closed last night at 87.5p, up 7.5% on the Update.

At that price they appear to me to be on a far too cheap rating at a mere 6.48 times historic price-to-earnings.

They offer some very good upside, well worth chasing.

(Profile 30.06.21 @ 61p set a Target Price of 75p*)

Lords Group Trading (LON:LORD) – ‘fair value’ of 114p

The Trading Update for the first-half year to end June showed this building products distributor performing up to expectations.

Revenues for the period were up 19.9% at £214.7m (£179.0m), with the merchanting side showing a 73.2% increase at £105.9m, while plumbing and heating eased 7.8% to £108.7m.

Adjusted EBITDA for the period is expected to be up approximately 33% to £14.0m (£10.5 million). The group stated that Management actions taken in H1 2022 continue to ensure profitability is upheld in its Plumbing & Heating supplies side.

Since it floated in July last year the group has made five acquisitions, with all now integrated and trading up to expectations.

The £129m capitalised group’s CEO Shanker Patel commented upon the group’s first year on AIM and stated that:

“I am also delighted with our strategic progress in the first half of 2022 and we have a substantial opportunity to grow the group’s current < 1% market share through bringing in new customers, a greater share of customer wallet, product range extension, new geographies, digital capability and valued added acquisitions.

“We have demonstrated that we are able to consistently grow our group revenues and profitability as we deliver both our organic and inorganic growth strategies. Our size, reach and product range are ensuring the strength of our proposition continues to stand out in our markets despite ongoing macro-economic uncertainties.”

Analyst Kevin Cammack at Cenkos Securities rates the group’s shares as a Buy, with a ‘fair value’ of 114p each.

Cammack is impressed by the group’s ability to outperform its peers and gain share, through range extension, new site openings and localised operational gearing.

He is estimating that the full year to end December will see £438.0m (£363.3m) revenues with adjusted pre-tax profits of £16.0m (£12.4m), generating earnings of 7.7p (5.5p) and a dividend of 1.9p (1.9p) per share.

For 2023 his figures suggest £490.2m sales, £18.7m profits, 8.6p earnings and a 2.1p dividend per share.

Since I profiled the group in late March, the shares have been up to 101p but have since slipped back to the current 79p.

Despite that I remain totally firm in my price objective.

(Profile 21.03.22 @ 90p set a Target Price of 115p)

Corero Network Security (LON:CNS) – record H1 and a strong ARR advance

Distributed Denial of Service (DDoS) is what this £50.0m AIM group is all about and what is more it is growing its annual recuring revenue (ARR) at quite a healthy pace.

For the six months to end June, the leading provider of real-time, high-performance, automatic DDoS cyber defence solutions, reported a 21% increase in its ARR to $13.6m ($11.2m).

This ‘penny share stock’ is rated as a Buy by its NOMAD and broker Canaccord Genuity, whose analysts are going for a sales uplift in the full year to end December, rising from $20.9m to $28.0m, but with an easing in its adjusted EBITDA to $2.8m ($4.2m).

The broker goes for a price objective of 26p for the group’s shares, compared to last night’s closing price of 10.25p, off 9.2% on the day after the Trading Update.

Medium-term investors wanting to have an exposure to the fast-growing cybersecurity market could do well with a small holding in the group’s shares, which have been up to 14.96p and as low as 8.75p within the last year.

Worth tucking a few away.

(Profile 14.04.20 @ 4.2p set a Target Price of 6.5p*)

Frontier Developments (LON:FDEV) – the games people play!

The Trading Update for the full year to end May by this Cambridge-based videogames developer and publisher reported a 26% advance in its revenues to a record £114.0m (£90.7m).

Analysts Ciaran Donnelly and William Larwood at Liberum Securities, consider that the group’s earnings quality is likely to increase as its scales up and the cadence of new franchises grow.

They state that the continual addition of successful franchises, alongside new content for existing titles which ensures a steady stream of revenues, increases the diversification and quality of earnings over time.

They rate the group’s shares as a Buy, looking for a price objective of 2110p.

Their estimates are for £11.7m pre-tax profits for the last year (£21.3m), with earnings dropping from 60.9p to 29.3p per share.

However, for the current year to end May 2023 they see £139.8m sales, £24.3m profits and with 55.8p in earnings per share.

Since I first profiled this group, its shares have more than trebled in price to 3300p, before easing back on Covid and other hassles, to a low of 1066p.

They closed last night up 42p on the day at 1448p and now they appear ready to resume their upward climb again.

(Profile 01.10.19 @ 1000p set a Target Price of 1500p*)

Medica Group (LON:MGP) – disappointingly the shares are just treading water

This £192m group is the UK’s leading teleradiology business with over 500 reporters working to help the NHS with its elective and out-of-hours radiology work.

It recently expanded its group footprint into Ireland with the acquisition of an outsourced imaging player, and also into the clinical trial imaging market.

Yesterday’s Interim Trading Update expects that group revenue for the period ended 30 June to be £36.0m, in-line with expectations and representing an increase of 36% over the same period last year.

In reporting that demand for the group’s services is expected to remain high, the group’s CEO Dr. Stuart Quin commented:

“I am pleased the business has continued its strong momentum and I remain confident that we can continue to deliver on our ambitious growth strategy.”

The group is continuing to evaluate strategic acquisition opportunities, to expand the scale and breadth of its existing telemedicine services and supplementing organic growth.

Edward Thomason, analyst at the group’s broker Liberum Securities, has a Buy out on the shares, looking for 245p.

For the full year to end December the analyst is going for £77.5m of revenues (£61.9m), pre-tax profits of £14.4m (£11.5m), earnings of 9.4p (7.8p) and a dividend of 2.7p (2.6p) per share.

Next year could see £87.7m revenues, £17.3m profits, 11.2p earnings and a 2.8p dividend.

For 2024 Liberum has pencilled in £98.9m sales, £20.8m profits, 13.5p earnings and a paltry 2.9p dividend.

The question is whether that set of predictions is enough to help to build the share price over the 200p level and then further ahead.

This company’s share price has been a total disappointment to date. Since it was first profiled, they have been up to 182.5p and as low as 120.5p this year alone.

Where will they go before the company’s interims are announced on 26 September – possibly carrying on treading water in the 150p to 170p trading band.

They closed last night up 7.5% on the Update news, at 157p.

(Profile 07.01.20 @ 155p set a Target Price of 215p)

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