Small cap round up: featuring MPAC, Aukett Swanke, Medica and others… 

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Small cap round up: featuring MPAC, Aukett Swanke, Medica and others… 
Master Investor Magazine

Master Investor Magazine 60

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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…

Continuing the words of caution

My goodness these are trying times for investors – professional and private alike – the indices are up and down like a yo-yo. The recent drops have, in my view, been overdone.

However, I warn my readers that such market swings will continue to be so exaggerated for quite a while yet.

The market and the analysts are having to undergo a total ‘rethink’.

Forecasts for UK earnings as a whole are really optimistic and caution must be used when judging your investment criteria.

I do think that it would be prudent to model into your considerations some impact from slower economic growth brought about by all the efforts, government-wise, to contain the Covid-19 outbreak.

But it is also worth remembering that business rates have been put on hold too – and that is a plus factor for several companies.

Look for resilient demand drivers in the businesses in which you want to invest. Check out their levels of borrowings relative to their revenues. Where possible seek out the highly cash generative business models.

It is imperative that investors allow for dividends to be either reduced or suspended until after business resumes to previous ‘better times’ levels.

Last weekend the FCA put out a statement that it “strongly requests all listed companies observe a moratorium on the publication of preliminary financial statements for at least two weeks.”

This means that the delays in reporting will only add to the market’s pressures, especially for companies where the virus impact has been felt.

So, what now?

As I have stated before – it is too late to sell out unless you really need to do so. At this point it makes sense to just stand back and watch instead.

The FTSE swing back upwards in the last few days shows that it still has bullish hopes, but do not trust it until both the nation and the market is healthier.

A few days on the uptick may fill you with a certain amount of confidence that the recovery is on its way, but please do not get sucked into what old market hands would call ‘a fools rally’.

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Master Investor Magazine 60

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However, that is not to say that the market will not recover because it certainly will. And yes, buyers today with fresh cash and a load of patience could well scoop the pool – but please be wary.

MPAC Group (LON:MPAC) – well placed for normality

Yesterday’s Covid-19 Impact and Trading Update declared that it has a strong balance sheet, is well financed and remains debt free. It is, therefore, very well positioned to navigate the pandemic.

It has sufficient liquidity to meet its needs throughout 2020. Even so it is now not recommending the 2019 final 1.5p per share dividend payment – that is very prudent.

“The Board remains confident in the ability of the management teams across the Group to manage the business through difficult times and to ensure that Mpac is well placed when the market returns to normality.”

I just love this stock – ok like everyone else it obviously has hassles with the virus but it has put in place measures so as to not compromise the long-term prospects of the business.

After having touched 377p early last month, the shares have subsequently been down to 175p in the middle of last week. They close this week trading at around the 210p level – looking very inexpensive in my view.

Profile 19.12.19 @ 182p set an end-2020 target price of 235p*.

Aukett Swanke Group (LON:AUK) – not immune but hopeful

Having almost halved in the last month from 2.9p to as low as 1.55p, yesterday’s AGM statement was bullish enough to see its shares recover to 1.68p.

It appears that the group has stringent cash management and good liquidity, with adequate banking facilities, hopefully enough to cope with any Covid-19 hassles.

It has been actively transferring its office operations to home or remote working, with minimal cost in doing so.

Profile 11.02.20 @ 2.8p set an end-2020 target price of 4p.

Strix Group (LON:KETL) – cheap buyers around

In markets like these it is always interesting to note what the institutions and other professional investors are doing.

I noted that Octopus Investments have increased their holding by 20% in this kettle safety controls maker. They now hold 11,435,982 shares in the Isle of Man based group.

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They close the week at only 141.5p, after having fallen to a low of 110p recently.

Profile 31.12.19 @ 196p set an end-2020 target price of 250p.

Speedy Hire (LON:SDY) – financially robust

The year to end-March for the UK’s leading provider of tools and equipment hire is looking good.

The results, which should be announced on 19 May, will show a small advance in revenue, despite these very tricky times.

Just how the group will fare for the coming year is the unknown factor, but it does appear to have good banking facilities and a robust balance sheet. It has a well invested hire fleet, together with a diversified customer base in the construction, infrastructure and industrial markets.

Its shares, which were 88p a month ago, close the week at around 46p after a recent Low of 34p.

I await the finals in two months.

Profile 15.10.19 @ 52p set an end-2020 target price of 75p*.

Medica Group (LON:MGP) – looking to double revenue

It appears that Medica has activated its contingency plans and has been able to demonstrate that it can continue to provide its operational service remotely from home and maintain its service levels.

Luckily its entire business model is focused around its radiologist reporters working from home and, as a result, they are well-placed to continue to deliver the service despite the challenges.

Its management has looked at the scenarios around this pandemic, such as – reduced A&E admissions impacting the number of cases that it gets; a reduction in non-essential elective routine cases; and radiologists doing more shifts to support hospitals.

However, it could mean that there will be a shift to more non-urgent cases to the company. It could also see an increase in reporting capacity. Finally, the company could experience an increase in routine work from deferred elective procedures later in the year.

In the company’s own words “The company has a strong balance sheet and is well-placed to continue to deliver its high-quality service to support the NHS during this time of unprecedented pressure on healthcare resources.”

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“With a strong balance street and leadership in a growth market, we are very optimistic about the long-term prospects of the business, notwithstanding short-term uncertainty from Covid-19. We are highly focused on executing our strategy to double our revenues in the next five years.”

I remain convinced that this group’s business model is one of growth and is highly appealing.

Its shares, which fell to a low of 88p on Monday, are ending the week at around 115p, they will be a lot higher before the end of this year.

Profile 07.01.20 @ 155p set an end-2020 target price of 215p.

And finally…

The Gym Group (LON:GYM) – not as ill now

Much as Boris and his senior medical advisers might tell us all to stay as fit and as healthy as possible, these latest virus measures have been bad news for all the members of this low-cost gyms and health club operator.

Last Monday we were informed that all 179 of the group’s sites had been closed, thereby restricting, if not denying, its members of the ability to stay fit.

Having seen its shares down over 70% at one stage, they were just 75p on Monday, they have subsequently bounced convincingly to close the week at around 136p, but still way down on their January high of 325p.

Profile 11.04.19 @ 220p set an end-2020 target price of 300p*.

(* denotes that set Target Prices have been achieved.)


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