Small cap round up: featuring Capital Drilling, discoverIE, Augean and more…

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Small cap round up: featuring Capital Drilling, discoverIE, Augean and more…
Master Investor Magazine

Master Investor Magazine 54

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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 Drilling (LON:CAPD)

I was very pleased to see the latest note, from Peter Mallin-Jones at brokers Peel Hunt, on my favourite drilling rig services company.

The analyst has updated his bullish views following the award of the Bonikro contract. It is a ‘game changer’ in so much as it now takes the company into ‘load and haul’ services – which widens the group’s mining services offer.

The broker has upped its price target to 84p.

I have now profiled this company twice this year – on 23 July at 48p with a target price of 76p, then again on 22 October at 61p going for 100p before the end of 2020.

The shares are closing the week at around the 72p level, still offering some useful upside in price.

Topps Tiles (LON:TPT)

On Tuesday the UK’s leading tile specialist announced its results for the year to 28 September. They showed an adjusted 0.2% fall in group revenue to £214.3m and an adjusted pre-tax profit of £16m, which was unchanged.

Adjusted earnings came out at 6.61p per share, off just 0.5% over the previous year, however, the dividend was maintained at 3.4p per share.

By the end of the period the adjusted net debt was £4.9m lower at £11.3m.

The group enjoyed a year of strategic progress and very solid sales, and considering the weakened economy that was impressive. But the first few weeks of the current year have seen sales easing, due to a weaker sector demand.

The company appears to be confident about its range of products, which should be beneficial to both sales and the growth of the group over the medium and long term.

The shares went 2p better to 68p on the news. They close the week at 72p which compares to my early May 75p profile price and below my maintained 100p target price by the end of next year.

Liberum Capital still rate the shares as a ‘buy’ but have lowered their price target from 95p to 85p.

On The Beach Group (LON:OTB)

The online travel company reported a 35% increase in revenues to £140m; however, it saw its full-year profits fall 26% to £19.4m.

There were some £25.6m of exceptional costs incurred by the company when Thomas Cook failed in the late summer, due to the cost of refunding its clients, 15% of whom had air flights booked through the failed group.

There is a massive opportunity to go out there and grab big chunks of the Thomas Cook vacuum created by its demise. That company’s customers have to go somewhere to book their travel requirements and, hoping that OTB can handle that added wad of business, the online company is now committed to spending a lot of money in its marketing efforts.

Brokers Liberum Capital rate the shares as a ‘buy’ looking for 520p, while Peel Hunt are more bullish in going for 550p.

I featured the company in late March at 448p, looking for 630p by the end of next year – I downgraded my target price to 550p straight after the Thomas Cook collapse.

They dipped to 360p after the Cook crash, but the shares are closing the week trading higher at around 442p after the results and accompanying statement.

I still feel that the company has big potential and the opportunity to really boost its customer numbers over the next few months is there to seize.

My lowered target price stays intact.

discoverIE Group (LON:DSCV)

The customised electronics designer, manufacturer and supplier announced, on Thursday, its interims to end-September.

They recorded a 10% increase in revenue to £232m and pre-tax profits of £10.4m, which was up an impressive 33%.

Earnings at the halfway stage were 28% better at 9.1p per share, while the dividend was raised just 6% to 2.97p a share.

At the period end the group’s order book stood at £153m, which was up a healthy 15%. The group stated that it is trading in line with market expectations for the full year.

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In early August I profiled the company at 438p and set a 550p target price by the end of next year.

After the results I was pleased to see that broker finnCap has upped its target from 535p to 579p. And even more so to see Peel Hunt increasing their sights from 530p up to 650p.

The shares close the week trading at around the 550p level, so I am obviously very pleased that my target price has been scored so soon.

The Vitec Group (LON:VTC)

The trading update on Thursday from this image capture and contention creation solution supplier was disappointing.

Although progress in its operations was significant, there have been a couple of hiccups along the way. Retail destocking of its products has been severe, while a fire early last year is still impeding another of its operations.

Pre-tax profits for the full year to end-December will be in the range of £47m to £50m.

The company’s shares fell 135p to 1,000p on the news, which is quite a bit lower than my early July profile price of 1,150p.

Accordingly, I now lower my end 2020 target price from 1,600p to 1,250p, on the assumption that 2020 will be a strong year. The shares close the week trading at around 1,010p.

Augean (LON:AUG)

I do like the way that the shares of this specialist waste management group are creeping better.

The recently announced trading update, delivered about six weeks ago, was extremely bullish, declaring that the group’s end-December figures will be materially ahead of consensus market expectations.

So, we now know that the results show far better than the previously estimated £16.5m pre-tax profits.

Increases of 20% in both landfill volumes and in landfill pricing have combined with increased radioactive waste profit and good performances by both the North Sea and the treatment businesses.

At the end of October, I profiled the company as its shares stood at 158.5p. They close the week at 175p which is just 25p below my end-2020 target price.

Obviously going higher methinks.

Epwin Group (LON:EPWN)

Over the last month the shares of this low maintenance building products group have been edging gently higher, they are closing the week at 94p, up from 80p at the end of October.

I point out the price rise but, unfortunately, I can give no reason for its recent strength, apart from recognition of the value that I perceived in late August when I profiled the company, with its shares at 73.5p.

My target price – 100p by the end of next year – is so close to being scored a lot earlier than anticipated.

If any reader knows why, then please contact me with the reason.

Severfield (LON:SFR)

This structural steelwork group declared its interims on Tuesday morning, for the six months to end-September.

They showed lower revenue at £131.7m against £149.1m previously, with pre-tax profits off by £4.9m at £8.2m, which was almost as expected. The second half-year should show a much stronger performance as a number of large contracts will deliver much better profits.

The good cash generation of the group resulted with an end period £22.5m in net cash.

What was very encouraging was the fact that the UK and European order book was 10.5% higher over the five months to 1 November at £323m, while the India order book was steady at £134m over the same period.

Underlying basic earnings per share were down 1.27p at 2.27p, while the interim dividend was up 10% at 1.1p per share.

These results were in line with what the market was expecting, the shares easing just 1p to 75p in response to the results. They close the week at 74p.

My mid-September profile featured the company at 62p, with an end-2020 target price of 88p – I remain very confident of this being attained.

Subsequent to the results Peel Hunt rated the shares as a ‘buy’ looking for 100p.

Anglo Pacific Group (LON:APF)

I understand that the total income for the first nine months of the current financial year is up a very useful 39% at £46.1m.

That advance, which is equivalent to the whole of last year’s revenue, leads to a confident prediction that this will show through as a record year for the group.

Apparently, the upping of production at the Kestrel Mine in Australia has provided the big boost.

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The group’s shares were profiled in early October, then at 195p, they are closing the week at 181.5p. At that price they are a cheap purchase if you take the view, like me, that they will hit 250p before the end of 2020.

On Thursday I was interested to see that the company announced that it had appointed RBC Capital Markets as the company’s joint corporate broker, joining Berenberg and Peel Hunt.

Really? Three joint brokers? Is boss Julian Treger planning a massive fund-raising operation? Or is a big acquisition or placing on the cards?

Polar Capital Holdings (LON:POLR)

For the six months to end-September the fund management group actually recorded a rise in assets under management from £13.9bn to £14.3bn in the first-half period.

That goes against the general easing back in AuM being reported elsewhere in the sector, as the Woodford mess saw investors being hit for six with massive management costs as their assets reduced.

Pre-tax profits were £2.4m lower at £24.9m over the corresponding half year in 2018.

Adjusted diluted earnings were 19.8p, down from 21.9p, while the 8p interim dividend was maintained.

I profiled this company nearly two months ago on 10 September. The shares were then 530p and my target price was 675p by the end of next year.

They are now closing the week at around the 541p level – I feel that these shares will be going a lot higher over the next few months.

After the results, analyst Paul McGinnis at Shore Capital rated the shares as a ‘buy’, declaring them to be undervalued and looking for a ‘fair value’ target of 700p.

Cake Box Holdings (LON:CBOX)

On Monday the specialist retailer of fresh cream cakes reported its first-half figures to end-September.

The interim revenue was up 6% at £8.77m and its pre-tax profit was 27% better at £1.74m. Earnings came out at 3.67p, up 30%, while the dividend was 33% better at 1.60p.

The gross margin was 45%, with net cash up to £1.5m, almost double the £0.8m figure in 2018.

The group at the period end had 122 franchise stores, having opened nine new stores in the first half. It should hit a full-year opening target of 20 stores, helping the company to report another year of successful growth.

In late July I profiled the company with its shares then at 180p; they close the week at around 163p; however, the 17p fall below that price does not perturb me.

At its current rate of new store opening I see the shares hitting my 240p target price on or before the end of 2020.

Angling Direct (LON:ANG)

I like the way that the shares of this angling tackle and accessories retail empire are creeping upwards currently.

Just a month ago I profiled the company, with its shares at 58p and setting a target price of 100p by the end of 2020.

At its current rate of progress, in both the opening of new and the acquisition of existing shops, hopefully it could be just in time for the seasonal buying period.

The shares close the week at around the 66.5p level – only 33.5p more to go.

Wincanton (LON:WIN)

I think that they have made the right decision – just back away and don’t get sucked into what is still a melee of hassles.

The figures seem to be totally mystifying to a number of onlookers and players – so just leave Eddie Stobart Logistics(LON:ESL)to the company that floated it off in the first place, or even its former boss, who is still interested. Count yourselves lucky that you are resisting what could prove to be a load more trouble.

HML Holdings (LON:HMLH)

The property management services group reported revenue for the six months to end-September was up 14% at £15.5m, while adjusted operating profit was 5% lower at £1.07m.

Adjusted earnings were fractionally easier at 2.1p per share (2.2p).

The business is hoping to show early signs of the benefits of its acquisitional growth, with 7% of that interim revenue increase derived from recent purchases. The number of units now under management has increased to 82,000, up 6,000 over 2018.

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As with most parts of the economy, the group’s market conditions have been somewhat challenging. Even so, it is confident that its strategy will deliver value over the long term. Hopefully that will show through for its shareholders.

The shares close the week at 32.5p, which compares to my end-February profile price of 32p and is still way below my, obviously optimistic, end-2020 target price of 50p, but I remain hopeful.

Brokers finnCap are looking for 57p.

Ten Lifestyle Group (LON:TENG)

Although it is still losing money, this online global lifestyle and travel service platform, is showing net revenue growth in all the regions in which it operates – Asia-Pacific up 11%, Europe, the Middle East and Africa up 18%, and an impressive 38% increase in the Americas.

For the year to end-August the pre-tax loss was £7.3m, which compares with a loss of £8.5m in 2018.

Cash at the end of the period was £8.4m lower at £12.3m, with a slower outflow in the second half. That was after £12.2m having been spent on enhancing the client experience of using its platform.

Big corporate wins for the group boosts confidence, with a strong pipeline of future initiatives to kick in added momentum.

The shares close the week at 123p, which is fractionally above my mid-September profile price of 120p. I am very confident that my target price of 150p will be achieved before the end of next year.

Peel Hunt have boosted their ‘buy’ recommendation, increasing their price target from 155p to 200p after the results.

Codemasters Group Holdings (LON:CDM)

Last Tuesday morning saw the announcement of this video game developer and publisher’s interims to end-September. They were strong and confident.

From the release of just one game in the period, the group declared revenue of £39.8m, which compares to the £39.7m from the two game releases in the same period last year.

Operating profit was £12m compared to an operating loss of £3m previously.

Net cash was £24.6m at the end of September, up from £16.7m in H1 2018.

The company is shifting its emphasis on to digital sales, which is expected to continue, and boosting gross margins in the process.

The board predicts that the full-year results will be in line with expectations.

Following the statement, brokers Peel Hunt, Shore Capital and Liberum Capital all rated the shares as a ‘buy’, with two of them looking for 310p. Berenberg also rate the shares as a ‘buy’, going for 290p.

I profiled the company at the end of June at 225p and then setting an early 278p and an end-2020 target price of 350p.

With the shares closing the week at around 234p I am well below everyone’s targets it would appear. But I still like what I see about the company.

And finally…

Joules Group (LON:JOUL)

Look out next Thursday for the trading update from this now increasingly international lifestyle brand retail group.

I profiled the shares at 282p way back in mid-March with a 387p target price by the end of next year.

They close the week at around 236p, and depending upon the update commentary I may well be downgrading my target.

Solid State (LON:SOLI)

On Tuesday of next week this electronic products group will be announcing its interim results to end-September.

A strong first half would see a big upgrade to the full-year figures.

The shares are now 474p, against my mid-August profile price of 404p. My end-2020 target price of 546p remains solid.

Loungers (LON:LGRS)

This fast-expanding bars, cafes and restaurants group will be declaring its interim results very soon.

My early September profile price was 205p, with a 275p target price.

They close the week at 200p. The upside is strong and the shares are cheap.

The Gym Group (LON:GYM)

Barclays Capital rate the shares, now 268p, highly enough to see them going to 300p – they say you should be ‘overweight’. Oh, very funny!

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