Small-cap round-up: featuring Restore, AG Barr, Kape and much more…

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 shares…

Restore (LON:RST) – second rejected bid approach in last few weeks from Marlowe (LON:MRL) possible offer at 530p a share

Yesterday morning Marlowe, the business services and software group, confirmed that it had made two bid approaches to Restore and that it could well bid 530p a share for the information and data management services group.

The outline of such a bid makes a lot of commercial sense and would create a very interesting grouping focused upon very much the same customer sectors.

Restore issued a very positive Q2 trading update a couple of weeks ago and is due to announce its interims next Tuesday.

So, will 530p eventually win the day? 

I reckon that Restore’s board will await a firm offer before rejecting yet again, unless Marlowe recognises just what the grouping is worth to both sides.

Will that see a higher bid offer from Marlowe? 

Yes, I think that it will, but not that much higher.

Even so, a third-party may come in and spoil the party.

Restore’s shares were up 60p yesterday to trade around the 480p level, while Marlowe’s shares were 60p lower at 805p.

Holders should sit very tight but need not be tempted to top up their holdings yet, certainly not until more is known.

(RST Profile 16.09.20 @ 335p set a Target Price of 420p*)

(MRL Profile 30.01.20 @ 468p set a Target Price of 550p*)

DX (Group) (LON:DX.) – insider made a very canny purchase

On Friday 2 July Lloyd Dunn, the CEO of this delivery solutions group, purchased 312,500 shares @ 32p each, taking his holding up to 62.26m shares representing 10.85% of the equity.

On Thursday 15 July the group detailed a significant expansion of its Maidstone Depot, as part of its strategy to open further depots over the next year as it accelerates its investment programme.

Then on Monday 19 July the group announced a trading update for the 53 weeks to 3 July. The company is continuing to trade well and now expects to ‘significantly exceed’ existing market forecasts.

The full results will be declared at the end of September.

In response to the update the group’s brokers, finnCap and Liberum, both upped their price objectives to 57p and 50p respectively.

I have not been disappointed with this profile stock, since I first featured it sixteen months ago and updated my comments on the company several times since then.

On 19 May I noted in a feature on Logistics companies that “DX (Group) is showing significant growth and has such potential that it cannot be ignored.”

My view stays solid.

The group’s shares, now trading at around 33p, offer strong upside potential. 

(Profile 20.02.20 @ 12.5p set a Target Price of 15p*)

AG Barr (LON:BAG) – getting busy with the fizzy

On Tuesday of this week the leading drinks brand group stated that trading has gone better than expected, spurred by hospitality sector customer restocking and recent innovation launches.

Famous for its IRN-BRU, Rubicon and Funkin branded beverages, the group surprised the market as it upped investor anticipation of just what the interim trading update, due on Tuesday 3 August, will reveal.

House broker Shore Capital upgraded its estimates for the current year to end-January 2022 by 15%, looking for £244m of sales (£227m) and adjusted pre-tax profits of £38m (£32.8m), with earnings of 27.4p (22.3p) double covering a 13.7p (nil) dividend per share.

The broker’s analysts Clive Black and Darren Shirley expect to prepare further upgrades for the 2023 year after the imminent trading update.

In the meantime, the group’s shares at 570p remain a good hold.

(Profile 31.07.20 @ 444.5p set a Target Price of 525p*)

Kape Technologies (LON:KAPE) – profits reflecting growing customer base

Cybersecurity services group Kape has been an excellent performer since my late 2020 profile on the company and I see it continuing to please.

In the interim trading update to end-June, announced on Tuesday, the digital security and privacy software business stated that trading had been strong in its first six months.

Analysts Gareth Evans and Ian Poulter at Progressive Equity Research noted that the group was gathering further momentum. They estimate $200m of revenues for the year to end-December ($122.2m), with adjusted pre-tax profits more than doubling to $64.3m ($30.8m), generating earnings of 25.3c (13.5c) per share.

They have pencilled in $250m of sales next year, profits of $83.3m and earnings of 32.4c per share.

The group’s shares at 302.5p still look inexpensive for such a growth company.

(Profile 21.12.20 @ 172p set a Target Price of 215p*)

Centaur Media (LON:CAU) – intrinsic value of 68p per share

This week the international provider of business information, training and specialist consultancy declared its interim results for the six months to end-June.

On the back of a 22% increase in revenues at £18.3m the group saw its first half operating profit of £0.5m replacing its previous £1.1m loss. It actually declared a 0.5p per share of dividend (nil).

Encouragingly the group also saw a 42% increase in its net cash position at £11.9m.

The final half of the year historically has a greater weighting of revenues and profits.

Analysts Caspar Erskine, Kevin Ashton and Harold Evans at Singer Capital Markets upgraded their estimates to £36.4m revenues for this year and £41m next year, with £1.1m pre-tax profits (£0.3m loss) this year and more than tripling to £3.5m next year, with earnings of 0.7p then 1.9p per share respectively.

The brokers have placed an EBITDA generated intrinsic value on the group’s shares at 68p each, compared to the current 45.5p.

Hold tight for further upside.

(Profile 03.03.21 @ 33p set a Target Price of 41p*)

Augean (LON:AUG) – another delay in the bid

The bid talks are continuing between Morgan Stanley Infrastructure and Augean, the waste management group.

They are obviously serious and that is why, yet again, no offer has been announced, with the Panel on Takeovers and Mergers granting MSI another delay in its deadline to put up or shut up – now limited to 5pm on Thursday 19 August.

With its shares now trading at 302.5p, holders should stay tight.

(Profile 31.10.19 @ 158.5p set a Target Price of 200p*)

(Profile 10.06.20 @ 185p set a Target Price of 235p*)

And finally…

SThree (LON:STEM) – ahead of end-November expectations

Focused on the Science, Technology, Engineering and Mathematics sectors this specialist staffing business is looking strong.

Last Monday saw the company report its interims to end-May.

They showed a 10% increase in net fees at £164.3m and a 110% improvement in pre-tax profits at £27.6m. That jacked up earnings by 136% to 14.4p per share, while net cash ended up 53% at £47.5m.

Considering the Covid-19 hassles, that was a very impressive set of numbers. It was no surprise that the company’s broker, Liberum Capital, upped its price objective to 580p, comparing very well with the current 473p.

Analyst Iain Daly at Radnor Capital Partners estimates £336.4m of net fees for the year to end-November. He sees £50.1m of adjusted pre-tax profits (£30.1m) and earnings almost doubling from 13.5p to 23.9p per share, capable of covering 8.8p of dividend (5p). He estimates £58m of net cash at the year end.

We will have to wait another six weeks or so until the group’s Q3 update to confirm a continuation of the first-half trend.

Even so, I consider the shares to be an excellent constituent for any short-term growth portfolio.

(Asterisk* denotes that Target Prices have been achieved since profile publication)

Profile company results, meetings and updates expected within the next two weeks: