Small Cap round up: featuring Manolete, CMC Markets and Codemasters

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Small Cap round up: featuring Manolete, CMC Markets and Codemasters
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…

Manolete Partners (LON:MANO)

The interim figures to end-September, for this leading insolvency litigation financing company, were announced on Thursday.

They showed an excellent rate of progress, with revenue up 15% to £7.5m, helping to generate a pre-tax profit 42% higher at £4.3m.

Earnings leapt 41% to 7.9p per share, while a first-time interim dividend of 0.5p per share was declared.

The group ended the first half with a totally unutilised £20m revolving credit facility from HSBC, although cash balances were £6.6m at £3.1m, while net assets were £2.9m higher at £30.9m.

Investment into new cases was up 110% at 65, compared with just 31 at the same time last year. In fact, that is more than the 61 the company handled for the whole of the previous year.

The company has now completed the development of its proprietary regional network, with dedicated in-house insolvency lawyers in every major region in the UK.

One of the key features of Manolete’s business model is that it takes on and deals with its cases fairly quickly, and the average completion time is 11 months. It also acquires the majority interest in its cases, instead of acting as a third-party to those cases.

I consider that this company has massive, wide-open potential in its market. It has the capability to take on and achieve success in its acquired caseload.

I met the boss Steven Cooklin earlier in January this year and it was my first featured profile stock in mid-February, with its shares then at 230p, at which time I set a target price of 300p being achieved by the end of next year.

Well, that was attained and bettered inside the following fortnight, at which time I then followed it up with an end month profile at 330p.

The shares have subsequently peaked at 620p, only falling back to 400p when Muddy Waters hit its international competitor Burford Capital, before bouncing back up to 530p earlier this week.

The shares are back down to trade around the 450p after the results, but they will be back higher very soon – just mark my words!

CMC Markets (LON:CMCX)

On Thursday this online financial group announced a very good set of figures for the half-year to end-September.

On a 45% jump in net operating income from £70.6m to £102.3m, the company reported an impressive 318% leap in pre-tax profits to £30.1m.

Earnings rose 252% from 2.7p to 9.5p per share, while the interim dividend was raised conservatively from 1.35p to 2.85p, up 111%.

It appears that the continuing investment in its stockbroking side, up £4.3m, is showing useful returns – with net revenue in the first half rising 164% from £5.5m to £14.5m.

Elsewhere, the company has driven higher the revenue that CMC gains from each of its active CFD clients, now 45%, up at £2,047 due to better retention of client income.

Also impressive was the success of the group’s arrangement with ANZ Bank, for whom it operates a ‘white label’ partnership – that generated a first half £10m revenue.

Operating expenses in the six months were 13% higher at £71.2m. That figure is expected to be similar in the current half year, while overall revenue for the full year should be over £180m.

This company is one of the world’s leading online operators, serving retail and institutional clients globally through its 12 offices across the UK, Australia, Singapore and Germany. Its clients can trade in up to 10,000 financial instruments including shares, foreign currencies, commodities, indices, financial spread bets and contracts for difference.

The group considers that it is capable of taking advantage of the opportunities to grow its revenues from all three of its main operating areas – the UK, Australia and Germany, especially as it continues to invest in both its technology and people in the stockbroking and CFD businesses.

The company’s shares ended the day off 5p at 121p on the results news, but improved 4p to 125p by Friday.

I profiled the company in mid-October with its shares at 120p, setting a 180p target price.

The company should beat analyst projections for the full year.

These shares are inexpensive.

Ramsdens Holdings (LON:RFX)

Well done Ramsdens, was my reaction to their announcement mid-week concerning the recent hassles that pawnbroking and loans competitor H&T has been having with regulators about its high rate short-term loans business.

Its shares had fallen 20p in sympathy to just 185p.

The reactive statement, from the diversified financial services provider and jewellery retailer, bluntly declared that it does not offer unsecured personal loans nor high-cost, short term credit loans as defined by the FCA.

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Master Investor Magazine 54

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The shares recovered their previous poise to close the week trading at around the 200p, at which level I rate them as cheap. My early November profile at 204p put out a 250p target price, which I stick firmly to after confirmation that the group is continuing to trade in line with expectations.

Its interims to end-September will be announced on 3 December.

One Media IP Group (LON:OMIP)

Without any background explanations, it was intriguing, and possibly disappointing, to see the departure of Michael Grade and Ivan Dunleavy from the company’s board.

When those two gentlemen, both talented and experienced corporate operators, went on to the digital media content provider’s board, there were big expectations that they could work their joint wonders on what could have been an interesting quoted platform.

But it was not to be. Wednesday’s announcements of their departure and the appointment of two new board members hit the share price, which fell to 4p at one stage in reaction.

That they have closed the week at around 4.7p shows that the market is not too impressed at what transpired, with no definition of why two big names pulled away from the tiny £5.5m quoted company.

The company, which I profiled way back in late February this year, with its shares at 5.75p and a 10p target price, has been a pathetic performer to date.

I now feel that an expected structural review of its operations and its high cost borrowed deals, will be the forerunner to a big fund-raising. At 4.7p, the shares are a quick and very disappointing sale.

Helical (LON:HLCL)

On Thursday the property group announced its interim results to end-September, with nothing surprising arising from the accompanying statement.

The group’s net assets are now up to £574m, while its total portfolio is valued at £956m up nearly £70m in the first half.

Borrowings were £337m up from £269m, giving the loan to value rate an advance from 30.6% to 35.3%. Its borrowing rate at 3.5% is 0.5% lower than the previous half year.

The company’s core business is developing and owning dynamic, well located office space in London and Manchester. It is focused upon capital profits through the development and letting of its high-quality office space.

The current portfolio continues to generate such profits as it reaches its fully let and stabilised potential.

The group’s net asset value has risen to 486p per share.

Its shares closed the week at around the 402p price level at which I still rate them highly, as I do its potential to be bid for in due course. This is a ‘class company’ and its quality will continue to impress.

Codemasters Group Holdings (LON:CDM)

I was interested to note earlier in the week that Reliance Big Entertainment, the Singaporean group, has now disposed of the remaining 14.2% of the video game developing company’s equity, some 19.9m shares at 205p each.

The stock was seamlessly placed, with 5.4% going to The Capital Group from Los Angeles, with another 5.33% going to SFM UK Management, which nearly doubled its holding up to 10.98%. The balance 3.22% equity went to other non-declared holders.

Closing the week around the 214.5p level, this group is looking very appealing to me now that a big brake has been taken off the shares with Reliance now out of the way.

My end-June profile rated the shares, then 225p, as capable of hitting 278p before then rising to break through the 350p level over the next couple of years. With Reliance out of the equity I anticipate early upside.

Speedy Hire (LON:SDY)

In the middle of last month, I profiled the shares of this tools and equipment hiring firm at 52p.

Over the last couple of weeks or so I have noticed a gradual rise to 61p.

I understand that broker Liberum Capital has increased its target price to 80p, which is 5p higher than my own 75p target price by the end of next year.

Severfield (LON:SFR)

Slowly but surely, the shares of this structural steel group are edging higher.

The group’s interim results to end-September are due to be announced on Tuesday of next week.

Remember that, when those figures are announced for the first six months, the second half-year will be significantly more heavily weighted than the first, due to a number of larger contracts due to be delivering good profits.

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Master Investor Magazine 54

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The order book is still increasing, up £20m as at 1 September at £301m, the highest level for over three years.

These shares at 75p, compare well with my mid-September 62p priced profile. My 88p target price is maintained, before the end of next year.

Chemring Group (LON:CHG)

I have a feeling that this defence and security products group is pleased to sell off its US ordnance and pyrotechnic products for military customers division for $17m.

Chemring Ordnance had a $57m revenue but made a $0.2m loss last year.

The sale leaves the group now more able to concentrate upon developing its growing divisions – like Sensors and Information; and Countermeasures and Energetics – while also improving the quality of group earnings.

In late June I profiled the company, with its shares at 177p. They are now 192p, after recently peaking at 206p.

My 300p target price by the end of next year remains intact.

Pressure Technologies (LON:PRES)

This Sheffield-based specialist engineering group will be releasing its finals, to end-September, on 17 December.

It appears that the first-half momentum has carried on through into the final part of the year. Revenue and profits are expected to be in line with market estimates.

Order books are expanding at its two divisions, Precision Machined Components, and Chesterfield Special Cylinders – the recently announced major contract with EDF Energy being a good example of what the group can achieve.

It is looking at opportunities in other sectors, particularly in the oil and gas markets.

Although I profiled this company in mid-June, with its shares at 117p and a target price of 170p, I have not been at all perturbed to see them fall back to 90p at one stage this week before closing at around the 97p level.

In fact, investors should take advantage of the lower price because this company really does have some strong upside potential.

And finally…

Eddie Stobart Logistics (LON:ESL)

Well the saga rumbles on.

First of all, DBay Advisors, which floated the company a couple of years ago, has offered to take control of the ’error accounted’ transport company.

It wishes to take 51% of the equity while putting up a £55m loan to the company at an extortionate rate of interest.

It looks like ‘raid’ to me; however, the company is fast running out of working capital as it goes headfast into the Christmas delivery season.

Wincanton (LON:WIN) has now declared that it is still very interested in what is going on at ESL. A tie-up with the largest third-party logistics group would seem a natural fit for both companies, so we will have to wait and see what transpires.

Former boss Andrew Tinkler has now come back into the ring again, stating that he is considering what he could do with and for ESL.

Still, the accounts do not appear to have been completed for the end of the first half of the company’s trading year.

DBay Advisors has called a shareholders meeting for 6 December to discuss the ‘rescue bid’.

It all just rumbles on.

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