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…
REACT Group (LON:REAT) – cracking acquisition is first big step on the upwards ladder
Last Monday, this £10m specialist cleaning, decontamination and hygiene group announced the £4.75m acquisition of Birmingham-based Fidelis Contract Services.
It is immediately earnings enhancing and looks to me to be an excellent fit into the group. Totally complementary and with little overlap in its service range, Fidelis will help to get the whole group one stage higher in its ambitious strategy to become one of the market leaders in its sector.
Analyst Ian Jermin at brokers Allenby Capital is now estimating that REACT will see its revenues to end-September this year almost double to £7.82m (£4.36m), with pre-tax profits more than quadrupling to £784,000 (£188,000), generating earnings of 0.14p per share against just 0.04p last year.
Fidelis runs at around an 87% annual recurring revenue, which I love to see.
Annualising out the enlarged group would see £10m sales and over £1m pre-tax. That, of course, assumes that no other acquisitions are being made – which I doubt will prove to be the case.
REACT Group is now on the move and its shares, at just 2p, look to me to be pure ‘option money’ on its future prospects. Time to double-up positions?
(Profile 28.01.21 @ 1.5p set a Target Price of 2.5p)
PCI-PAL (LON:PCIP) – cash-burning group missing opportunity to raise more cash
I am a strong believer that ambitious quoted companies should never flinch from issuing further shares for cash when valuations are high.
Unfortunately, this does not seem to be part of the strategy at this £64m payment card solutions group.
Early last month the company declared a good set of interim figures showing revenues up 56% and a slightly lower operating loss of £2.15m.
This is another of my lovely ARR selections, running at 86%.
The shares went up to 117p but alas no advantage taken by its management of its high share price.
I know that it had about £4.6m cash at the end of February this year, but, at its current burn-rate, that will not last for too long. So, the ability to place out some discounted stock, to build up even further its cash coffers, would surely have made sense.
Having seen a 54% appreciation in price over the last couple of months since my profile, I should be happy – but has the company missed its opportunity?
Its shares are now back to 107.5p.
(Profile 11.02.21 @ 76p set a Target Price of 95p*)
AG Barr (LON:BAG) – still busy with the fizzy
Considering the appalling conditions that the various lockdowns have combined to significantly impact the drinks sector, I was pleased to see the IRN-BRU group reporting such good figures earlier this week.
For the 52 weeks to 24 January the resilient group saw sales ease just 11.2% to £227m and pre-tax profits were off 30.5% at £26m. Impressively, its net cash rose 26.4% to £50.7m.
Analyst Wayne Bridges at Liberum Capital remains bullish about the drinks group, maintaining his ‘buy’ recommendation on the shares, looking for 625p.
He suggests that the shares will quickly capture upside when the restrictions are lifted.
Over the New Year period the shares reached a recent peak of 531p, but they fell back to 490p yesterday morning before closing the week at around the 500p level.
I fancy that we have another round to go with this stock, so hold tight.
(Profile 31.07.20 @ 444.5p set a Target Price of 525p*)
Stagecoach Group (LON:SGC) – Liberum sees the shares up to 125p
Considered by so many investors to be a really boring company in a really boring sector, this national bus operator has certainly done well since early December.
Admittedly all the private punters love the pharmaceutical and the fintech stocks because they offer the potential of mega-profits in due course. So bus and transport companies are pretty mundane.
However, analyst Gerald Khoo at Liberum Capital has upped his price objective from 100p to 125p and rates the shares as a ‘buy’.
The group, which issued its latest trading update last Friday, is obviously not enjoying the pandemic effects. But it is confident that its strong fundamentals will help it get through.
I am pleased with the performance to date, with the shares having been up to 105p recently before easing slightly to the current 102p – showing a near 39% gain in four months.
Pass down the bus and hold tight.
(Profile 07.12.20 @ 73.5p set a Target Price of 100p*)
Ten Entertainment Group (LON:TEG) – getting ready to prowl the alleys
Taking a view on which companies will do well when restrictions are off will continue to be a game for investors, professional and private, over the next few weeks.
It is not rocket science to suggest that, when the doors are open again and the alleys are in operation, ten-pin bowlers will flock back to their local centres.
Peel Hunt analyst Douglas Jack reckons that the shares of this group are materially undervalued. He sees them going to 300p.
He considers that the company has a ‘strong market position and attractive growth prospects’, making the valuation ‘very undemanding’.
Closing the week at 227p, the group’s shares have been higher at 243p since they were profiled, and they could very easily be back up there and above very soon.
(Profile 02.10.20 @ 135p set a Target Price of 170p*)
Sureserve Group (LON:SUR) – follow the ‘insiders’?
I have to say that I am sorry to see Bob Holt step down from the board of this energy support services and compliance group.
But he did do an excellent job in pulling it around and forcing it ahead in sales and profitability.
He also helped to get the group’s valuation up to sensible levels and offer investors even more upside in the coming years.
One of his supporters, Christopher Mills, who is also a Non-Executive Director of the group, took advantage of the much higher share price last Friday when his Harwood Capital sold 400,000 shares at around 79p each on behalf of various funds that it manages.
I remain bullish about the group and its prospects but would not be in a rush to add to holdings at this stage. Let us wait and see more good news before doing so.
The shares close the week at around 77.5p.
(Profile 14.01.20 @ 36p set a Target Price of 50p*)
(Asterisk* denotes Target Prices have been attained since profile publication)