Small cap round up: featuring Coronavirus, Augean, Hotel Chocolat and more

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Small cap round up: featuring Coronavirus, Augean, Hotel Chocolat and more
Master Investor Magazine

Master Investor Magazine Issue 59

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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…

Coronavirus – caution yes but there are so many bargains around now

Shock, horror, extreme fear, panic, devastation – you can use whatever term you like for describing the effects of the Covid-19 pandemic. One thing, though, is incredibly evident and that is the global impact on share prices.

In our market we have seen prices really falling off across the board.

It has certainly turned into being a bear’s delight as the tickers have turned red.

However, as I stated yesterday in my profile on TT Electronics, mega investors like Buffett, Templeton and others have declared principles of opening their wallets as others are wildly selling.

They just love ‘buying when there is blood on the streets.’

Those wise investors will already have done their research work and assessed specific corporate values before they then start to take stock out of the market.

Got a spare £10m?

And as I look at the screens right now, I wish that I was running a £10m fund – I would certainly be doing a Buffett.

There are so many bargains around in the value stocks part of the markets.

They may well be companies that have or will be hit by production difficulties or the slow importation of goods, and yes it could affect current-year profitability, but value and class will always come to the fore.

Stick to ‘value stocks’

The steady, cautious investors, able to take a longer-term view will win out.

Stick with below-market average price-earnings ratios, with cash-generative, market-leading companies with good balance sheets. Stay away from the ‘puff and wind’ stocks where the promises are for big times ahead.

Markets will always over-react, whether on the bull or the bear tack.

They rise and they fall but they carry on and so too should you, don’t run scared.

Be prepared with your shopping list for when the buyers return, which they will.

Special Note:

After SARS in 2003 the market improved by 14.59% within six months and was up 20.76% within the year; Avian Flu in 2006 saw an 11.66% tick up in six months and 18.36% in the year; Swine Flu in 2009 was +18.72% and +35.96%; MERS in 2013 was +10.74% and +17.96%; Zika in 2016 improved 12.03% in six months and 17.45% in the year – nothing is new!

Over-reaction is normal and just think how well the markets have risen since those viral outbreaks, breaking into new high territory – so don’t give up hope!

*****

Augean Group (LON:AUG) – real profits in the muck

A cracking set of underlying figures from this waste recycling group, showing a 33% jump in revenue to £91.5m and pre-tax profits increasing from £11m to £19.2m. Earnings were 67% up at 15.2p per share.

There were heavy legal costs together with the still disputed HMRC payment – but those were strictly ‘one-offs’.

I anticipate increased profit estimates being made when the accounts are published.

The shares are closing the week largely unchanged at 198p, which is a strong positive signal while the market has fallen so much.

Profile 31.10.19 @ 158.5p set an end-2020 Target Price of 200p.

Hotel Chocolat (LON:HOTC) – sweet tasting

The chocolate retailer’s shares hit 421p after the interim results on Tuesday. They showed sales up 14% at £91.7m, while pre-tax profits were 7% better at £14.9m. Net cash was up 11.5% at £24.3m, while earnings were 20% better at 11.5p per share.

The first half to 29 December 2019 was a very strong period despite some supply inefficiencies.

Further growth can be expected. The shares close the week around 400p.

Profile 21.03.19 @ 340p set an end-2020 Target Price of 402p.

Finsbury Food (LON:FIF) – profits like the dough set to rise

The interims to 28 December from this speciality baker saw sales up 4.7% at £159.4m and pre-tax profits 17.9% better at £8.8m. Earnings were up 14% at 4.9p per share, while net debt was £3.5m down at £32.6m.

The full year will, hopefully, see another set of good results. The shares end the week at 92p.

Profile 12.12.19 @ 84.5p set an end-2020 Target Price of 110p.

Springfield Properties (LON:SPR) – well worth a fried Mars Bar

Steady growth for this year and next is the order of the day for Scotland’s only quoted housebuilder. This week’s interims to end-November 2019 saw sales up 5.4% at £79.8m and pre-tax profits just 3.4% better at £6.3m.

Estimates suggest that £18.6m profits are possible for the year to end-May, up 12.7%, with earnings of 15.5p per share.

The coming year could see £20.8m profits, worth 17.4p in earnings.

That would make the shares at 135p look very appealing when the markets settle.

Profile 05.03.19 @ 114p but did not set a Target Price.

John Menzies (LON:MNZS) – still a long-term flyer

It was only to be expected, I suppose, but this global aviation services group has been impacted by the virus.

On Thursday the company stated that there will be an adverse impact of £6m-£9m off its profits for this current year due to its Macau operations being hit, that is where it handles its Chinese carriers.

More detail can be expected to be given when the company announces its 2019 finals on 10 March.

The shares close the week around 323p.

Profile 17.12.19 @ 450p set an end-2020 Target Price of 530p.

And finally…

Johnson Service Group (LON:JSG) – a clean up?

Next Monday morning will see this leading UK textile services provider announcing its finals to end-December 2019.

Market estimates were suggesting that the revenue will be up from £321m in 2018 to £347m for 2019, with pre-tax profits leaping from £33m to £37m, giving earnings of 8.1p per share.

This current year we should see some £362m of sales and profits of £39m, worth 8.7p per share in earnings.

Although this puts the rating at quite a high level, remember that it is totally UK based and hopefully not impacted by the virus.

The shares are now trading at around the 185p level.

Profile 24.12.19 @ 196p set an end 2020 Target Price of 250p.

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