Small cap round-up: featuring Solid State, Inland Homes, Watkin Jones, Severfield and others

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Small cap round-up: featuring Solid State, Inland Homes, Watkin Jones, Severfield and others

Solid State (LON:SOLI)

The shares of this value-added electronics manufacturer and distributor to the military and industrial sectors have been a very good performer since my mid-August profile on the company.

The announcement, by the group’s Pacer Optoelectronics unit, of a very useful $3m contract for a US rail infrastructure project, which is to be delivered over the next nine months, was seen in the market as further good news from the group.

When I profiled the company, its shares were trading at 404p; they are now around the 491p level – a very good gain in such a short period of time.

The company will be issuing a first half trading update later this month; it was on the 17 October last year.

My 546p target price should be beaten in short time.

Inland Homes (LON:INL)

Although there have been no RNS announcements from my favourite specialist housebuilder and brownfield site regenerator, I have heard a little buzz that it is going for a useful gain on a site at Hillingdon.

The company has already stated that planning applications are imminently due to be submitted on three sites where the Local Planning Authorities cannot meet their housing supply for approximately 250 units across 34.5 acres.

But it has not mentioned anything to shareholders about having submitted a detailed planning application to the London Borough of Hillingdon for what could be a 500-home project on a six-acre site in Freezeland Way.

Considering just how much work the company does on smoothing its way for its planning permissions I would expect the company to be successful in due course.

Yet another potentially chunky addition to its land bank.

The company’s shares, trading at 78p, are destined to break the 100p barrier within the next year, if not sooner.

Watkin Jones (LON:WJG)

In a month’s time, 5 November, this group will be holding a Capital Markets Day for investors and analysts to see Duncan House in Stratford, one of its recently completed student accommodation projects.

I profiled the group, which develops and constructs multi-occupancy residential property assets with a focus on the student accommodation and Build to Rent sectors, in mid-May at 225p.

Since then they have been down to 199p but are now back up to 224p; however, they have not yet been higher than my profile price – so somewhat disappointing in performance.

Nevertheless, I hope that the market will get encouraged come Guy Fawkes Day.

I note that brokers Jefferies International rate the shares as a “Buy” and have increased their target price from 253p to 279p.

However, mine is still 300p by the end of next year.

Accrol Group (LON:ACRL)

This Lancashire-based company is a leading tissue converter and supplier of toilet rolls, facial tissues and kitchen rolls, and supplies major discounters and retailers across the UK.

A month ago the company announced its results to end April; they showed a loss of £14m against £24.5m previously, with net debt down by £5.7m at £27.1m.

The group has gone through a major restructuring and debt will reduce as the business continues to improve.

The aim was to get it back into monthly profitability, which it has now done – and market expectations are on track to be met.

We should get a clearer trading update on Tuesday 22 October, when the company holds its AGM in Manchester.

I profiled the company way back in mid-March this year, with its shares then at 22p. By mid-September they peaked at 35p, before falling back to the current 29.75p level.

I see 40p being achieved in a short time span.

Severfield (LON:SFR)

This week’s £25m acquisition of another structural steelwork business, Harry Peers & Co, looks very interesting for Severfield, which itself is a market leader in the sector.

It will substantially boost the group’s activities into the nuclear, power generation and process industries sectors.

To fund the deal the group has used its own cash, together with a term loan, with £7m of the purchase price being performance-based but payable next year.

On what I could see with the deal, Severfield has acquired a leader in its own niche markets, which offers the group significant potential to provide business to get it able to use up to its 150,000 tonnes of steel per annum capacity.

I recently noticed that JO Hambro has reduced its stake in the group from 12.77% to 11.84% and that it has lent 165,900 shares to a bear of the stock.

Furthermore, Legal & General sold down their holding from 4.01% to under the declarable 3% level.

I think that both of those institutional holders may have got it wrong.

Less than a month ago I profiled this group at 62p; they are now 73p and not that far away from my maintained target price of 88p by the end of next year.

Brokers Peel Hunt target 100p and Jefferies International go for 98p, with both brokers rating the shares as a “Buy”. I am certainly not arguing with them.

Topps Tiles (LON:TPT)

Last Wednesday’s announcement from the UK’s leading tile specialist was a trading update for the 52 weeks to 28 September.

The company, which has 362 nationwide retail stores and four commercial showrooms, indicated that the more challenging economic backdrop and uncertain impact on consumer sentiment has seen a 1.9% fall in like-for-like sales.

Sales growth for the year as a whole, the company stated, compared favourably with the overall tile market.

It sees continuing uncertainty being impactive, but its board remains confident that the growth strategy will continue to deliver over the longer term.

Results should be close to market expectations, which suggests around £15.8m pre-tax profits for the period.

The shares were marked down to 65p on the news, which I consider is too low a rating for this group.

Brokers Liberum Capital rate the shares as a “Buy” looking for 95p, while Peel Hunt have a similar rating but seeking 100p for the shares.

My early May profile was at 75p, with a target price of 100p by the end of next year. Until further trading news is given by the group I hold on to my view of its shares.

Cohort (LON:CHRT)

Based in St Neots, near Cambridge, MASS Consultants is a specialist defence and technology business, focused on electronic warfare, information systems and cyber security.

In July MASS was awarded a £4.79m contract for electronic warfare operation support systems to protect combat aircraft against missile threat, delivery for which will take place over a nine-year period.

This Cohort subsidiary, it was announced on Wednesday, has been awarded five military support contract extensions, worth a total of £11.1m covering a three-year delivery span.

The group had already announced at the recent AGM that to the end of August its order book was up 10.4% at £210.9m, so these extensions help the book to increase still further.

Despite net debt having more than doubled to £12.9m by end August, the group has sufficient financial resources to augment its organic growth through targeted acquisitions.

I really like this group, it is an important player in its sector, which is currently being closely scrutinised by private equity groups, especially in the US.

Its shares, profiled at 446p in early August, are now trading at 489.5p, with my target price firm at 607p.

Studio Retail (LON:STU)

The passing of the PPI deadline in late August saw a mega rush of additional claims on the company, formerly known as Findel.

The online value retailer and education business, primarily a retailer and distributor, handling and supplying specialist products manufactured by third parties.

It is expected to announce its interim results to end September in late November, at which stage it could well be making a provision of up to £10m to cover any PPI claims pressure.

Having profiled the company, then as Findel, at the beginning of July, when its shares were 253p, I have been none too pleased with their subsequent performance. Currently trading at around the 210p level, my Target Price of 375p is a long way off.

Obviously disappointed, however, I will hold that target until I see the interims and the full PPI ramifications next month.

Loungers (LON:LGRS)

I am looking forward to with optimism to the AGM statement from the Loungers, bars group in two weeks, on Wednesday 16 October.

It is being held in one of the group’s own premises – the Cosy Club, in Guildford at 2pm that day.

The company now has 156 ‘value for money’ café / bar / restaurants across the country, operating under the Lounge and Cosy Club brand names.

The group, which is the only all-day operator of scale in the UK, consistently outperforms the wider UK hospitality sector, believes that there is a potential for at least 400 Lounges and 100 Cosy Clubs in the UK.

And at the current rate of 25 new openings a year that potential will not take long to be achieved.

So, we will see just how well the current year is trading with the AGM statement.

Just a month ago I profiled the company at 205p, since when turnover in the stock has been fairly light. They have drifted slowly to the current 199.5p, at which level the group is valued at about £185m.

My target price is a hopeful 275p before the end of next year.

Rank Group (LON:RNK)

I am hoping for a positive statement at this gaming services group’s AGM on Thursday 17 October.

Operating in the UK, Belgium and Spain, the group with over 150 venues, is also classed as a multi-channel gaming brand. Grosvenor Casinos, Mecca, and Enracha are its main operating names.

I have been pleased with the performance of the group’s shares since I profiled the company in mid-June this year, then at 157p.

At that time I set an early target price of 200p, then advancing up to 220p.

Now trading at around the 195p level, the first of those will be achieved, perhaps helping up to the second price after the AGM statement.

Springfield Properties (LON: SPR)

This company is a leading housebuilder in Scotland offering private and affordable housing. It has a plethora of projects on hand and its land bank is looking very good indeed.

It is also quite innovative. It was the first housebuilder in the UK to use non-recycled waste materials for the roads on its estates.

Zero Waste Scotland last year reported that non-recycled plastic was costing Scotland £11m a year. They also stated that 20m plastic bottles were littered around Scotland and that 120,000 tonnes of plastic waste was produced by Scottish households alone.

The first site, at Elgin, was declared in late May this year. The road in Elgin accounts for 20 tonnes of recycled plastic, the equivalent to 17,042 plastic bags or 6,000 plastic bottles, which would otherwise have been consigned to landfill or incineration.

The company already have its second stretch of private road planned. Going forward, its strategy is to discuss recycled plastic roads with local authorities with a goal to using plastic roads on all of its developments across Scotland.”

I note that Progressive Equity Research are looking for the leading Scots developer to see sales for the year to end May up from £191m to £216m, then up to£240m and £255m in the subsequent years. In the same period, analyst Alastair Stewart goes for pre-tax profits to rise from £16.5m last year to £18.6m this year, then up to £24.4m and £26.2m respectively. Those estimates see price earnings ratios falling from 7.p now to 5.8 times for the year to end May 2022.

I look forward to the AGM statement on Wednesday, 23 October.

The shares, now 113.5p, compared to my early March 114p profile price, look to be excellent value. I now put out an easy target price at 135p.

And finally ….. one for the gamblers

Audioboom (LON:BOOM)

This coming Monday will see this leading global podcast company announce its third quarter trading update.

Perhaps at the same time we might get some proper information about the sudden departure of the company’s Chief Executive Officer, Rob Proctor. That occurred last Monday.

Just three weeks ago the company’s shares were trading at 210p, they dipped to 180p by the end of September and have since fallen even further. They now languish at around the 157p level.

Investing in such early stage developing companies can be very risky. My profile in early July was at 210p – where they go to next is anyone’s guess.

However, I do consider that it is becoming an accepted and potentially major player in the global podcast broadcasting marketplace. As it progresses, I can see big profits being achieved.

Gamblers could well take a view after Monday’s update before averaging their original purchases.

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