Small cap round up: featuring On The Beach, Manolete and Vitec

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…

On The Beach (LON:OTB)

Yesterday’s Trading Update from the online holidays company was disappointing. Its shares fell 18% on the news that the way that the pound has been knocked has meant that its prices are more expensive.

Despite a higher demand coming through for its holidays, the beach breaks retailer warned that this devaluation against the euro will make it more difficult to maintain its margins and even harder to gain market share.

Accordingly, the company now expects lower than expected performance. However, it remains confident in the resilience and flexibility of its business model. It is still investing in its infrastructure, as well as scoping out possible opportunities elsewhere in its sector.

Let us hope that the profits knock is not too severe and that its shares, now 381p, recover in price.

I might, in this case, lower my Target Price from 630p to around the 550p level by the end of next year.

Read the original write-up HERE.

Vitec (LON:VTC)

In a week full of big market swings, it has not been at all surprising to see more companies report weaker trading.

Such an example is this broadcast cameras equipment supplier, which came out with a 15.7% profit fall at the halfway stage, at £16.6m, down from £19.7m last year.

The image capture company also reported a 29.3% lower earnings per share figure at just 27.0p.

But then it has already been stated that the current year will be surpassed by next year’s trading, during which big event coverage creates more business – like the summer Olympics, the US presidential elections and other such major events.

The group continues to drive organic growth, to improve its margins and to also make value-adding acquisitions. Furthermore, it is also growing its brands and developing new products to push out on to its markets.

I continue to rate this company as an excellent purchase. Its shares fell to 1,065p on the news but bounced back up to 1,150p by midday yesterday. They finished the week at 1,100p, with my 1,600p (by the end of next year) target price holding very steady.

Read the original write-up HERE.

Genel Energy (LON:GENL)

The directors of this Kurdistan oil company believe that the current share price significantly undervalues its assets. Furthermore, now that it has cleared all its net debts and is now boasting a £46m cash chest, it is using its much stronger balance sheet to repurchase its own shares – it says it is “a value accretive use of its cash resources.”

This week’s interim results to end June showed just how cash generative the company is – with 37,400 bopd being reported against 33,700 for the whole year in 2018.

Its drilling programme is ongoing, with over 10 wells expecting to be completed within the next six months.

The company looks to be generating some very material free cash flow in this current half year, despite increasing its growth investing.

It is still very acquisitive and is always assessing new growth opportunities.

I really find this company very attractive and I just love its massive cash generation, even while it is investing in its growth.

Its shares, now 179p, are down 13.5% on my 207p feature price. They are well below my 350p target price, so they offer some significant upside.

Read the original write-up HERE.

Arbuthnot Banking (LON:ARBB)

On Thursday it was announced that this private banking group has now completed on the £258.1m acquisition of a residential mortgage portfolio.

How did it pay for the purchase? Purely by cash from its own resources.

The shares closed the week at 1,370p. My target price is 1,640p.

Read the original write-up HERE.

Cohort (LON:CHRT)

Gradually the shares of this defence and security systems group are set to improve in price.

I have just started to read the company’s Report and Accounts and I continue to be impressed at the scope of its business. There is an ever-growing requirement by countries globally for even better defence protection and Cohort sells straight into those markets.

The shares have been steady at 446p since I profiled them, following the recent mega £4bn cash bid for Cobham, which is one of its competitors from US equity fund Advent.

My 607p target price remains confidently firm.

Read the original write-up HERE.

Manolete Partners (LON:MANO)

Wow, it really was one hell of a dramatic week for this litigation funding company.

Its major competitor, the international playing Burford Capital, was the subject of a very impactive 25-page report from Carson Block’s Muddy Waters short selling research outfit. Totally bearish of Burford, the effect on its share price was enough to knock them down from £14 a share to around 565p at one stage.

But a spirited defence against the Muddy Waters claims by the Burford board helped the shares to partly recover in price. The company’s directors stated that the report was “false and misleading” and contained “many factual inaccuracies, simple analytical errors and selective use of information”.

Burford declared that “there is a clear line between appropriate commentary and market manipulation.” However, as is so often the case, a short-selling attack can leave a stain on the share price the likes of which victims often find it hard to recover from.

Unfortunately, the Muddy Waters attack heavily impacted the share price of Manolete, falling from 535p to as low at 410p at one stage in sympathy.

Sensibly some canny market players bought their way into more of my favourite litigation funder’s shares at those lower levels. Deservedly their brave purchases proved very beneficial, with Manolete’s shares closing the week at a healthier 492p.

Read the original write-up HERE.

Codemasters (LON:CDM)

This company is one of the best recognised British game developers and publishers. It has a proven track record and is a global leader in the racing game sector.

It has an excellent potential, with its partnership with NetEase, in getting it further into the Chinese market.

The developer has new releases coming up over the next few months, ahead of its half-time results being announced in November.

In my opinion, the possible overhang of the reduced Reliance stake has held the shares back. Even so, at now at just 215p, my target price of 278p stays intact.

Read the original write-up HERE.

Zotefoams (LON:ZTF)

Last Tuesday’s interim results from the cellular materials technology group were very encouraging.

Group revenue rose 12% to £42.30m, upon which pre-tax profits were up just 7% at £4.93m. The company’s cashflows had improved, up from £5.20m to £5.83m in the first half.

It is still developing its operations at quite a pace, with three major capital projects underway in Poland, the US and the UK, which should expand its overall capacity and support the group’s growth.

Despite the company enduring difficult trading in its European foams market, coupled with unstable political and economic conditions, it is still feeling confident of its prospects.

Predicting that the company will meet market expectations for the full year helped the shares run quickly up to 580p before falling back to 548 on the day.

They closed the week at 551p, some way down on my article price of 600p, but I still hold on to my end 2020 target price of 750p.

Read the original write-up HERE.

Morgan Sindall (LON:MGNS)

This construction and regeneration group’s half-timers to end June showed a very steady revenue of £1.42bn. The reported pre-tax profits were 19% up at £35.5m, with earnings up 14% at 62.9p per share.

It has an average daily net cash figure of £123m. Its secured order book at the period end was up 19% at £4.2bn.

The company stated that the first half showed impressive results, with significant operational and strategic progress being made across the group.

Its strong balance sheet and net cash position has helped differentiate the business in its marketplace.

Being able to see its second-half prospects quite clearly, the company now expects to deliver full-year results ahead of expectations.

Now at 1,164p, the group’s shares are undervalued and have yet to reflect the strength of its order book, structural and strategic opportunities and its cash resources.

I profiled the shares at 1,300p three months ago, setting a 1,600p target price. My bullish opinion has not changed.

Read the original write-up HERE.

And finally…

Given the major upheaval within the Woodford fund management empire, I sincerely hope that fund managers are now undergoing a massive introspection of their own activities.

Just because you are a fund manager and have loads of OPM (other people’s money) to play with, it does not mean that you can walk on water and ride roughshod over set principles and regulations.

The Woodford affair has shown very clearly that building up a big position in any one company’s equity is not the magic formula for making capital profits.

Accumulating share positions obviously helps the selected company’s share price to improve. The weight of having multi-billion asset management companies inside your equity can be an attraction for other investors, while also showing your trade competitors and customers some of your company’s corporate strength.

But when the fund manager starts to get too clever for his boots and the market decides to take his trousers down and spank his posterior, then it will not be good for some of those major fund portfolio constituents.

Witness to that has been clearly shown by this week’s short attack on Burford Capital, one of Woodfords picks.

Other companies within his portfolios are now being painted with the same tar brush – “Oh, it’s another Woodford stock heading for a kicking” – you can almost hear market commentators uttering those words.

I do not wish ill on anyone in the investment business. It is hard to make profits and takes a great deal of research, determination and luck.

But what I do conclude is that it is always easier to buy shares than it is to sell them – so please be wary.