Small-cap round-up: featuring Smiths News, Augean, Hotel Chocolat and 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…

Smiths News (LON:SNWS) – with upgrades due, these shares are so cheap that I am now setting a new target price

Last Tuesday, the UK’s largest newspaper and magazine wholesaler announced its trading update for the 43 weeks to 26 June. It was very positive, confirming that the results for the full year to 28 August will be better than market expectations.

The shares touched 47.5p in reaction, up 4.5p on the news. 

Jonathan Bunting, the group’s CEO, stated that, 

“Our performance since the half-year has been pleasing, with robust operational control securing the benefits of the improving sales and stability in our core markets. We remain focused on delivering for all stakeholders and are confident that the business is well placed to build upon recent progress as the remaining restrictions on social movement are lifted.”

With some 55% market share, the group distributes newspapers and magazines on behalf of the major national and regional publishers, delivering daily to around 25,000 customers across England and Wales. 

The speed of turnaround in the UK and density of Smiths News’ coverage is critical to one of the world’s fastest physical supply chains.

Analyst Andy Murphy, at Edison Investment Research, is looking for current year revenues of £1.07bn and pre-tax profits of £27.9m, worth 8.7p in earnings and easily covering a 1.6p per share dividend.

For next year he has inked in a £1.03bn revenue and almost £30m profits, generating 9.3p in earnings and able to pay a 2.3p dividend per share.

With its shares now standing at 44p, that puts them out on a ridiculously low current year price-earnings ratio of just 5.1 times and on a handsome 3.6% yield.

For the next year they are on only 4.7 times earnings and yielding 5.2%.

Considering that the group is only capitalised at £115m and making £28m/£30m profits, these shares are incredibly cheap and could fit well into almost any portfolio – whether going for growth, yield, or whatever.

Surely one of the private equity groups could come along and bid for the group.

I am now setting a new target price of 55p.

(Profile 24.07.20 @ 20.25p set a Target Price of 27p*)

Augean (LON:AUG) – a bid next week?

They have until next Thursday (22 July) to put up or shut up. 

By 5pm that day, Morgan Stanley Infrastructure (MSI) must have announced whether it does intend to make an offer for the waste products management group. 

Panmure Gordon were appointed Joint Broker to the company in addition to N+1 Singer on 6 May. 

Then 21 days later MSI announced in response to press speculation that it was at the early stages in considering making an offer for the company. 

The group’s shares, which touched 315p after the approach was made, before falling back to 265p while awaiting any further news, have started to move ahead again and close the week a lot higher around the 292p level. 

Holders should sit very tight and take a chance on a sexy bid coming along next week. And who knows – even an agreed bid could see a third-party offer coming along.

(Profile 31.10.19 @ 158.5p set a Target Price of 200p*) (Profile 10.06.20 @ 185p set a Target Price of 235p*)

Hotel Chocolat Group (LON:HOTC) – firming up after the melt-down

The post-close trading update from this British chocolatier and digital-led retail group for the 52 weeks to 27 June made good reading.

Revenue is expected to come in 21% better at £165m, with brokers going for around £7m pre-tax, almost treble last year’s £2.4m. Earnings of 4.6p (3p) per share are estimated.

But the current year, just started, could see £190m of sales, £15m profits, giving 10p of earnings per share.

Further out, the year to end-June 2023 should see about £220m of sales, pushing profits up to £20m, worth 13.5p in earnings per share.

On Tuesday, when the update was announced, the shares jumped up 14p to 388p in response.

The pandemic seems to have brought out the best in the company’s management and bolstered its digital side, while also pushing heavily the subscription models which engages its customers more than normal High Street retailing.

At the same time, it has been making strong in-roads into the markets in Japan and the US.

Angus Thirlwell, the co-founder and CEO, stated that, 

“Our goal of becoming the most tech-activated chocolate brand is moving forward in leaps and bounds and is already helping to power our major achievements and future growth. Indeed, this year we expect more than 50% of our sales to come from digital, partners, and subscription-continuity models, reflecting how Hotel Chocolat is growing and evolving. Our brand-building stores will continue to play a pivotal role in our digital-led business, with an unrivalled ability to introduce new customers to our brand.”

Despite the currently high price-earnings ratio on the shares, the group’s broker Liberum Capital has a 600p price objective for the stock.  

The shares close the week at around the 376p level. They could well be ready for another push ahead and way higher than my previous aspiration.

(Profile 21.03.19 @ 340p set a Target Price of 402p*)

Solid State (LON:SOLI) – a strong performance ahead of expectations

The specialist value-added component supplier and design-in manufacturer of computing, power and communications products actually did quite well in the last year.

For the twelve months to end-March it saw sales revenue down just 1.6% at £66.3m but its adjusted pre-tax profits were up 14.9% at £5.4m (£4.7m), producing earnings 15.7% better at 46.4p (40.1p) and allowing a good 28% hike of its dividend to 16p (12.5p) per share.

Analyst David Buxton at broker finnCap forecasts £78m sales this year, profits of £5.9m, earnings of 60p and a 17p dividend per share. That is an upgrade on his previous estimate and now he has raised his price objective for the group’s shares from 1,025p to 1,075p. The shares close the week at around the 935p level.

The group has a good order book going forward but, like so many other companies across the industry, it may suffer some supply shortages.

It has a good corporate growth strategy in place that could well help to push the group up through the £100m market capitalisation fairly.

Hold very tight.

(Profile 15.08.19 @ 404p set a Target Price of 546p*)

RPS Group (LON:RPS) – interims due in the next week or so

At the end of April this year, Jack Douglas, CEO of the leading multi-sector global professional services firm, stated that the group remained well positioned to benefit as markets recovered and restrictions ended.

The company has a very healthy order book that should help to boost fee revenue over the year. 

The group’s later than anticipated interim results are due within the next month (11 August) and will, hopefully, point firmly towards the year ending some 8% better in sales at £495m and nearly 50% better in pre-tax profits at £20m, worth 5.5p in earnings and amply covering a 1.1p dividend per share.

Analyst Joe Brent at Liberum Capital is looking for £513m sales next year, almost £25m profits, 6.6p per share earnings and a 2p dividend.

So, the imminent interims will prove to be a very useful pointer as to current year and future prospects.

The group’s shares close the week at around the 105p level, not that far away from their 119p peak of 2021.

The broker rates the shares as a ‘buy’, as do I.

(Profile 05.05.21 @ 88p set a Target Price of 110p*)

Some Quickies……

National World (LON:NWOR) – This emerging media group’s shares had a sudden spurt on Friday of last week, hitting 37p at one stage, before falling back to the current level over this week. It just goes to show the potential for them to absolutely take off on investors digesting the impact of any future acquisitions. I understand that a number of useful deals have been and are currently under consideration. If the sums are right, I imagine that there will be plenty of institutional support from some of the ‘small cap funds’. They are currently around 32.5p each.

(P 17.05.21 @ 18.5p TP 25p*)

Foxtons Group (LON:FOXT) – Forget the boardroom movements at this estate agency group. Consider instead the strength of current year profits recovering to some six times those of last year, rising to £9.5m against £1.6m. And then also the estimate for next year of £12.5m pre-tax – that makes the shares at the lower than profile price level of just 53p look great value to me.

(P 07.07.21 @ 60p TP 76p)

The Brighton Pier Group (LON:PIER) – Don’t forget to check out the companies that will do well out of the re-opening after the restrictions come off (even if masks still have to be worn). Such as this entertainments and clubs and bars group. Apart from owning and operating the Pier itself, it now also owns the Lightwater Valley Attractions business, as well as eight Paradise Island mini-golf centres and nine Eclectic premium bars across the country. Its shares, after having touched 69p recently, are now just 60.5p and ready to move a lot higher. Is a trading update due shortly?

(P 30.06.21 @ 61p TP 75p)

Ramsdens Holdings (LON:RFX) – I note that Otus Capital Management last Friday almost doubled their holding in this pawnbroking, jewellery and foreign exchange traders group. I really like this company and I am confident that it will prove to be a long-term winner. Otus now have 10.07% (6.19%) of its equity. The shares at 167.5p are very capable of going up to my previously achieved price aim.

(P 07.11.19 @ 204p TP 250p*)

Journeo (LON:JNEO) – I fancy that the shares of this information systems and transport technical services group are ready for another run upwards. More contract orders, like the Abellio London Bus contract, will start to group together and help to build up overall revenues. The Abellio fleet of 900 vehicles are going to be connecting over 4G to the Journeo cloud-based software and services system. It has also been appointed preferred supplier to Metroline. With the shares now trading at only 103p they are looking too cheap to ignore. I see them going above their previous high of 134.5p.

(P 07.04.21 @ 95.5p TP 120p*)

Westminster Group (LON:WSG) – This managed security services and technology-based security solutions group has won another useful contract. This one refers to it supplying security services to help protect the historic Royal Palace and Fortress of the Tower of London. That is added to the recent contract news from the group – the long-term Central and West Africa mega-million contracts, as well that at the Palace of Westminster. Its profile is growing and so too are its shares, now 5.85p. Higher to go yet.

(P 17.03.21 @ 4.2p TP 6p*)

Ebiquity (LON:EBQ) – This media investment analysis group is on track to meet market expectations for the year to end-December. That should see last year’s £1.3m loss replaced by a healthy £2.6m pre-tax profit, worth 2.5p per share in earnings (loss 1.9p). And that could be on the back of just a £5m increase in revenues to £61m. For the coming year, £68.5m of sales and £5m of profits could kick earnings up to 4.7p per share and be capable of paying a 1.3p dividend. Its shares at 57p have further to climb despite having doubled this year.

(P 05.11.19 @ 43p TP 75p) (P 03.02.21 @ 20.5p TP 27p*)

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

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