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…
Capital (LON:CAPD) – time to get back into this mining services group
Today I am suggesting that investors who like to play the mining sector should have a good look at Capital.
It is now very much a growing mining services group having evolved from its base of supplying and operating drilling rigs, particularly in Africa.
This week the group has just announced a mega $60m-a-year contract, set for the next four years. It is with Centamin and covers an earth-moving contract as part of its client’s open pit revamp at their Sukari Mine in Egypt, one of the largest gold mines in Africa.
This is the second load and haul contract for the group and is a significant deal for Capital which could well presage other such contract wins in due course.
But to help finance the group’s development balance sheet it is looking to raise £22m by way of a placing of 38.5m new shares at 58p each.
The new contract, described as transformative, starts next month and cements further the good working relationship that it already had with Centamin.
Capital is currently active in several earthmoving tender processes with new and existing customers as it continues to evolve into a full-service mining contractor.
Brokers Peel Hunt rate the shares as a ‘buy’ with a price objective of 90p. Their analyst estimates that the current year to the end of this month will see revenues rise from $115m to $136m, with adjusted pre-tax profits almost doubling to $27.8m, worth 9c per share in earnings.
For the next two years the brokers go for sales of $165m then $175m for 2021 and 2022 respectively, with profits of $19m then $21m and earnings of 9.7c then 10.8c per share.
Obviously, the shares, now 63.5p, could well slip back to around the placing price level, which gives investors a very good opportunity to jump aboard before others realise just how the group is expanding.
(Profile 23.07.19 @ 48p set a Target Price of 76p*)
(Profile 22.10.19 @ 61p set a Target Price of 100p)
(Profile 03.08.20 @ 77.5p set a Target Price of 100p)
BigBlu Broadband (LON:BBB) – international connections to profit recovery
Last Tuesday the alternative supplier of super-fast and ultra-fast broadband services revealed it has had a transformational year in 2020.
Following the sale of its satellite interest it has sorted out its debt facilities with Santander, and is now into a net cash position.
The group provides its broadband services to both homes and businesses in predominantly rural areas.
It is now concentrating on its Skymesh Australian and Big Blu Nordic interests, as well as its majority stake in the UK’s rural broadband Quickline business, which has been a contract winner of late.
Brokers finnCap are going for a revenue drop this year, to end-November, from £62.1m to just £27.0m, with pre-tax profits easing back from £4.5m to £2.8m, almost halving earnings from 8.4p to 4.4p per share.
However, for the next couple of years they go for £33.3m in 2021 then £37.7m in 2022 revenues. That should see pre-tax profits recovering quite smartly to £4.0m then £5.7m respectively, worth 6.9p then 8.5p per share in earnings.
The brokers have a 170p price objective, so I will keep to my own aim for the shares, now 101p, now looking good for a steady rise higher.
(Profile 16.04.19 @ 122p set a Target Price of 175p)
discoverIE (LON:DSCV) – not to be chased yet
The consumer electronic products designer, manufacturer and supplier reported its Interim results to end-September earlier this week.
They showed sales down 6% at £217.9m and pre-tax profits 26% lower at £7.7m. Earnings per share fell sharply, some 36% off at 5.8p, while the dividend was increased 6% to 3.15p per share.
Increasing your dividend in the face of lower earnings can generally be seen as a defensive move against investor criticism of lower earnings. But is that the case in these figures?
Actually, it is encouraging to see such resilience by the group in the light of the Covid-19 hassles.
Apparently, the second half has already started well with increased orders and sales. Cost-cutting measures have yet to show through.
Brokers are going for current-year sales to end-March 2021 of £446m (£466.4m) and pre-tax profits of £29m (£32.8m), with earnings slashed to 24p (30.2p) per share but with a more than trebled dividend of 9.8p (3p) per share.
The shares are currently trading at around the 566p level, after having peaked at 690p in the middle of October.
Not to be chased until we see much bigger and more profitable orders showing through.
(Profile 08.08.19 @ 438p set a Target Price of 550p*)
Equals Group (LON:EQLS) – don’t hold your breath
I have been continually disappointed by the performance of this international payments group since I first profiled the company way back in mid-February last year.
The management at the time was very busy talking up its growth potential and just how strong the group was as it was developing.
But it did not come to pass anywhere near how they predicted.
So, Tuesday’s trading update was viewed by myself with loads of scepticism that ‘all was well again and the group was going great guns’.
For the period to end-November the group reported “continued financial and operational progress with increasing client activity across the group”.
Well we shall see.
The group’s brokers Cenkos Securities rate the company’s shares as a ‘buy’ – anticipating a fall in revenues from £30.9m to £28.0m for the year to the end of this month.
However, losses of £3.7m are expected against £2.3m pre-tax profits last time.
Earnings will fall from 2.8p to a loss of 0.7p per share.
The statement goes on about how the management has cut cost here there and everywhere and that sales are set to boom.
But the brokers come in with a jump in revenues to £32.1m in the coming year and still a big £1m pre-tax loss.
Hang on for 2022 and you could see £37.6m of sales and a £1.5m profit, with earnings of 1p per share.
Certain analysts are calling this share, now 29.5p, as ‘cheap as chips’ – they may well be right, but I am not holding my breath in anticipation.
There again – I have been wrong about this stock before – and should never have profiled it in the first place – even though it reached my target price at one stage before the collapse.
Leave this one for others until its management shows the goods.
(Profile 14.02.19 @ 89p set a Target Price of 100p*)
Macfarlane Group (LON:MACF) – this is ‘value’
It is never going to set the world alight – but that is what I like about this £144m packaging products manufacturer and distributor.
It has been going for years and years and has thousands of clients and multitudes of product lines. It supplies to customers in the consumer goods sectors, for food manufacturers, internet retailers, mail order companies, electronics suppliers, and into the defence and aerospace sector too. Now that is business!
Despite the virus’s impact on its markets it is predicted to see only a £500,000 fall to £224.9m of sales in the year to the end of this month.
Pre-tax profits could ease fractionally from £14.4m to £14.1m, while its estimated earnings are almost steady at 7.6p (7.7p) per share, covering a predicted 2.4p dividend.
Its shares were up to 116.5p in mid-January this year and could well be back up there in the early part of next year.
Currently trading at around the 89.5p level, I stick firmly to my price objective and hope to see them higher in due course.
(Profile 08.07.20 @ 77p set a Target Price of 100p)
Pressure Technologies (LON:PRES) – setting a new target price
Since I first profiled the shares of this specialist engineering group at 117p they have peaked at 147p before collapsing back to just 71p now.
The group is a UK designer and manufacturer of high-integrity, safety-critical components and systems serving global supply chains in oil and gas, defence, industrial gases, and hydrogen energy markets.
It creates value for its customers by enhancing the performance of their safety-critical supply chains and advancing safety and reliability in demanding environments through technology, high-quality engineering and the skills of its people.
Covid-19 hit it for six and knocked it straight off its new management’s strategic course of expansion.
It had trebled 2018’s profits to £1.8m for the year to September 2019, on the back of a £7.5m lift in sales to £28.3m, with earnings of 7.8p against 2.9p previously.
For the year to end-September this year, the group has indicated £25m of sales. That could see it turn in a £2.7m loss for the year.
Brokers N+1 Singer are suggesting £26.5m of sales in this current year to end-September 2021 and a bounce back to a profit of £0.5m. They are then going for £28.5m of sales and £0.9m of profits for 2022.
The group last Tuesday announced a £7.5m fundraise at 60p per share, a very sensible issue that should help to strengthen the balance sheet and finance its slow recovery.
At the current 71p I remain a fan of the business and will now set a new target price of 100p for the shares in 2021.
(Profile 17.06.19 @ 117p set a Target Price of 170p)