Small cap round up: featuring TT Electronics, DX, Avon Rubber and more…

5 mins. to read
Small cap round up: featuring TT Electronics, DX, Avon Rubber and more…
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Master Investor Magazine 60

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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…

TT Electronics (LON:TTG) – a year of strong financial performance

It is now obvious that its strategy of ‘solving electronic challenges for a sustainable world’ is working well for this global provider of engineered electronics for performance-critical applications.

For the 2019 year, its revenue showed an 11% increase to £478.2m, while its pre-tax profits were up 15% at £36.3m. Earnings came out 15% higher at 18.7p, with the dividend up 0.5p to 7p per share.

The group’s financial strategy of driving growth, enhancing margins and improving the quality of its business is continuing.

Of its group revenues some 47% is derived from its aerospace, defence and medical customers. That marks a swing from just 25% in 2015. In that same period margins have been enhanced from 4.3% to 8.4% last year.

The recurring revenue element of the business is increasing, as too is its order book.

The group, which has two manufacturing facilities in China, is already anticipating a hit from the coronavirus effect by allowing for a £3m impact on current year profits.

The group’s shares close the week at around 210p.

RBC Capital Markets has rated the shares as ‘Outperform’ looking for them to rise to 275p.

These shares are great value notwithstanding coronavirus!

Profile 27.02.20 @ 201p set an end-2020 Target Price of 250p.

DX (LON:DX.) – a cracking purchase set to deliver

I really like this little company.

On Tuesday morning this logistics and parcel distribution company, which operates in both the UK and Ireland, announced its first-half results to 28 December 2019.

They showed a pre-tax loss which was more than halved from £5.3m to just £2.4m. Revenue was £13.1m higher at £170.1m.

The management is confident that the improvement is ongoing and is encouraged by second-half trading to date.

Higher levels of service, productivity and efficiency will show through to the bottom line.

A return to pre-tax profit is expected for the year to end-June, with even better times anticipated as it goes into the next year.

The company’s broker, finnCap, is going for £334m of revenue and pre-tax profits of £3.2m. Then for next year £339m of sales and £6.2m of profits, worth 1p per share in earnings.

For the prospective year to end-June 2022 they predict £357m of revenue will help to generate £9.9m pre-tax profit, worth 1.5p in earnings.

On those estimates, it is perhaps understandable why they are looking for the shares to rise to 18p.

Even Liberum Capital rate the group’s shares as a Buy, going for 16p a share.

Now you can see why I like this little £65m capitalised company’s shares at only 11.15p today.

Profile 20.02.20 @ 12.5p set an end-2020 Target Price of 15p.

Avon Rubber (LON:AVON) – what an absolute winner

On Monday morning the group announced that it had secured a $265m body armour deal from the US Army. It was for a four-year contract to supply torso protection X-side ballistic insert body armour plates, and it confirms its position as a leading provider to the US armed forces.

That order follows on from the $21m order for the US Department of Defense for supplying aircrew masks.

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Master Investor Magazine 60

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Brokers Peel Hunt have raised their Buy rating up to 3,500p for the shares!

After hitting 2,845p earlier on Monday, they close the week trading at around 2,554p but looking very attractive.

Profile 03.10.19 @ 1,700p set an early TP of 2,000p and an end-2020 Target Price of 2,250p.

Braemar Shipping Services (LON:BMS) – looking for a quick recovery

Despite a slightly discouraging trading update earlier in the week, brokers finnCap have set a 224p target price on this integrated maritime services group.

That follows the company having enjoyed a strong second half year boosted by higher tanker markets in the final quarter of 2019.

But since then they have eased back and, of course, the virus effect will have a big impact on the new year results to end-February 2021.

Estimates are for £123m of revenue for the last year, with pre-tax profits of around £11.3m, worth 22.2p in earnings and covering a dividend of 15p per share.

A fall-back is anticipated this year, with £118.6m of sales and £7.7m of profits, worth 18.1p in earnings and maintaining the dividend.

After easing to 125p in response, the shares end the week at around 131p.

I think that is far too low a level, putting the shares out on a mere 7.2 current year p/e compared to that of its bigger competitor Clarkson, which is on 19 times earnings.

Cheap and worth buying for a quick price recovery.

Profile 05.12.19 @ 185p set an end-2020 Target Price of 250p.

CMC Markets (LON:CMCX) – the bet is on this going higher

Is this possibly the ultimate counter-cyclical stock?

As coronavirus hit the markets this company saw a massive uplift in its business.

Almost globally it provides online and mobile trading services, enabling clients to trade various financial products in the forex, indices, shares, commodities and treasury markets.

This week it raised market expectations for the full year to end March.

Net operating income is now going to come in ahead of the previously expected £199m to £203m range.

Now the pre-tax profits are expected by the market to be in the £47m to £57m range – that compares with only £6.3m last year.

I expect the company to announce a further trading update on 3 April.

Peel Hunt have raised their target price from 180p to 210p, while RBC Capital Markets raised their target from 170p to 195p, similar to Shore Capital who raised from 185p to 195p.

After hitting 184p at their best, the shares close the week at around 175p.

Profile 17.10.19 @ 120p set an end 2020 Target Price of 180p.

And finally…

Hostelworld (LON:HSW) – a coronavirus victim

This global hostel-focussed online booking platform announced its finals for the 2019 year on Wednesday morning.

It showed a 2% decline in net revenues at €80.7m for the year, although the second half actually reported a 6% increase to €41.8m.

Actual pre-tax profits fell significantly from €6.65m to just €3.01m. However, after a tax benefit of €5.38m the group classes its profit at €8.39m, worth €0.87 in earnings per share.

The virus spread has led to a fall in bookings and a big increase in cancellations in both Europe and in Asia. That has already hit first quarter pre-tax earnings by some €4m.

On looking at these results I am going to apologise for ever having profiled the company. Its prospects and its finances look to be far too confusing.

I now believe that its rating is excessive and as such, with its shares trading at just 80p, they are no longer a buy, in my opinion.

I will now be taking the company off my profile list and not following it in the future.

Profile 27.08.19 @ 152p set an end-2020 Target Price of 200p.

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