Small cap round-up: featuring Volution Group, Harworth Group, Onthemarket, Polar Capital and others

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13 mins. to read
Small cap round-up: featuring Volution Group, Harworth Group, Onthemarket, Polar Capital and others

Volution Group (LON:FAN)

On Wednesday of this week the global supplier of ventilation products for the residential and commercial construction markets published its finals. And they were very good.

For the year to end July the company saw revenues rise 14.6% to £235.7m, with pre-tax profits leaping 38.3% to £23.1m.

Earnings increased 37.3% to 9.2p per share, while the dividend was just 10.4% better at 4.9p.

Despite having spent £11m on two acquisitions its net debt ended the year at £74.6m, which was just £2.6m lower.

Improving organic revenue growth together with the benefits from strategic acquisitions over the last couple of years underpinned these results.

The group stated that “Whilst there is major uncertainty in the UK economy caused by the current state of Brexit negotiations, we continue to focus on building on our strong financial performance and in particular the pursuit of operational excellence to further expand our operating margins.”

After the results brokers Peel Hunt upped their Buy rating of the company to Add, increasing their Target from 185p to 200p. Liberum Capital rate the shares as a Buy looking for 235p.

Having profiled the company at the end of May at 174p, the shares are now 170p, I am very confident that they are cheap – my Target Price is more bullish at 250p by the end of next year.

Harworth Group (LON:HWG)

The former Coal Board property arm, that is now established as an independent development company, has recently entered into an interesting joint venture.

Both Harworth and Russell Homes each have a 50% stake in a project involving 79 acres of land in Greater Manchester. The two companies hope to take advantage of the mixed-use land opportunities that the overall site may offer.

Harworth is a cracking little company and is quite skilled in land and property regeneration.

I was somewhat disappointed to see that the Isle of Man based property developer John Whittaker’s interests, controlled through Goodweather Holdings, his Grand Cayman investment company, had sold down from 21.41% of the company’s equity to just 16.29%.

But the next dealing announcement a couple of days later cleared up that with the knowledge that Nicholas Roditi had increased his stake in Harworth from 10.16% to 15.34%.

Worth £1.67bn and a former advisor to George Soros, Roditi is a shrewd dealer, a long-term player just like Whittaker, and he operates through The London & Amsterdam Trust Company, which is also registered in Grand Cayman.

The development company’s shares are still looking undervalued, trading at around the 121.5p level.

I profiled the company in late July at 130p, with a 170p Target Price, and I remain totally confident of future performance.

Onthemarket (LON:OTMP)

Is it now becoming apparent that this property portal is a strong competitor to Zoopla and Rightmove?

Thursday’s results announcement from the company, which were totally in line with expectations, stated that it is delivering greater value and growing leads to its agent shareholders and customers.

In September the site gave 112 leads per UK residential property advertiser, which compares to 168 for Rightmove in H1 2019, and against Zoopla’s last reported figure of just 90.

The company gives an average of 34 leads per £100 spent by its advertisers, whilst Rightmove gives 16 per £100.

The site attracts over 27m visits a month, 1.2m people users getting a total of 100m instant alerts monthly.

The total listings as at 30 September were 641,672 UK residential properties, which is 64% of those on Rightmove and 85% of Zoopla’s figures.

Over 3,000 agent firms operating in excess of 6,000 agency branches are on the group’s shareholders list.

Group revenue in the six months to end July was up 14% to £8m, whilst operating expenses were up 23% to £14.8m. Accordingly, cash was lower at £8.8m, compared to £15.7m as at 31 January. Even so, as it develops, the company is confident that it can fund its growth.

I have an error to admit to in my update articles of two weeks ago.

I was making comment upon the property portal’s lowering of market expectations due to the weaker property transactional market.

In the article I must have been dreaming (hopefully) when I stated that brokers Peel Hunt had a Buy rating out on the stock with a Target Price of 350p. I was so wrong – sorry – the brokers currently have no such rating.

Anyway, for my humble part I still rate the company as a good and now important player in the online property portal sector – currently with 30% of the market behind Rightmove and Zoopla, its two much more established participants.

The company’s offering is competitive and will gradually sign up hundreds, if not thousands, more estate agency groups to contractual use of the portal. As that happens the turnover will increase significantly and its profits will rise even faster.

At 80p the shares, which were featured in late September at 96.5p, are a longer-term investment than I had originally anticipated – even so I rate the company and its portal and consider that they offer big upside in due course.

Polar Capital (LON:POLR)

The fund management group, whose name comes up so frequently in the companies that I profile, has seen a fall in funds under management to £14.3bn.

In the last quarter the company suffered a somewhat challenging period, especially with investors reacting to the news of the departure of its long-standing manager of its Japan Fund, they pulled out some £400m. However, that fund is now being merged with the Japan Value Fund.

There were also two major client redemptions from Polar’s Technology and Healthcare funds, totalling £500m.

Overall net outflows were some £598m, which compares with net inflows of £150m in the previous quarter.

Performance fees will be impacted, they are always volatile, for that quarter – but the final three months of the year could well see better earnings.

Despite these AuM swings the specialist active asset management group is still some 3% over its end March totals.

The group’s shares, which I profiled earlier in September at 530p, have reacted to just 518p on the news. That doesn’t bother me because I still rate them and my Target Price of 675p by the end of next year remains solid and very achievable, especially considering the M&A activity in the sector.

Shore Capital rate them as a Buy going for 745p, while Peel Hunt are also buyers looking at 710p.

Hotel Chocolat (LON:HOTC)

The premium chocolatier will be holding its AGM in Royston, Herefordshire, on Thursday 21 November.

I bet the goodies offered will please the choco-buffs amongst shareholders and others present for the meeting.

The company’s shares are performing fairly well currently, now 385p against my end March profile price of 340p. My 402p Target Price looks very solid.

Pressure Technologies (LON:PRES)

This specialist engineering group has recently secured a significant contract for its Chesterfield Special Cylinders subsidiary.

The £3m plus deal is to supply nitrogen storage solutions to EDF Energy for its UK nuclear power plants at Torness, Hartlepool and Heysham.

This safety-critical systems order, for ultra large high-pressure cylinders, is the company’s biggest non-defence sector deal in its history. The company is a key supplier of gas storage solutions to power stations across the UK.

This £20m valued group’s shares at 106.5p are very good value, as far as I am concerned. I profiled the company in mid-June at 117p, with a 170p Target Price – my views remain both unchanged and strengthened.

discoverIE (LON:DSCV)

This international group that designs, manufactures and supplies innovative components for electronic applications, announced a Trading Update on Thursday morning.

It showed that the period to the end of September saw continued progress, with the group on track to deliver positively against earnings expectations.

Its order books were up 4% in the first half at £153m, with sales some 9% better in the period, trading on consistent margins.

The interims are due to be announced on 28 November.

The shares are around 408p, which compares to my early August profile price of 430p. Peel Hunt rate the shares as a Buy, looking for 500p. I adhere to my Target Price of 550p by the end of 2020.

The Gym Group (LON:GYM)

I note that Barclays Capital are suggesting investors should be Overweight in the stock, giving 300p as their target. They are now 260p, compared with my mid-April profile price of 220p – my Target Price matches that of the broker.

Miton Group (LON:MGR)

On Friday morning this fund management group, currently in the process of merging with Premier Asset Management, declared that it now has £4.68bn of assets under management.

That has shown an advance of £306m since the beginning of the year and gives more power to the merged AuM when the two eventually get together.

Miton, whose shares are holding steady at 53p, could represent a cheap way into the grouping.

Stobart Group (LON:STOB)

I like the look of Wednesday’s announcement from this aviation, energy and civil engineering group.

It concerned London Southend Airport and a new two-year agreement with an unnamed global logistics company to provide facilities and expertise to support the importing and exporting of goods through the airport.

Initially facilities will be enabled by converting existing hangars, giving runway access on the north side of the runway. The operations, which start this month, could well be renewed after the initial period.

Even so, it is providing a new revenue stream for the airport and its aviation services company and should contribute to next year’s figures.

The group’s shares at 121p, are up 16p on my mid-June profile price. My 175p Target Price by the end of next year still looks achievable.

Tricorn Group (LON:TCN)

What a disappointing Trading Update that was from this specialist tubing and piping manipulation business. On Wednesday the company warned that lower demand, impacted by hassles in the US/China tariff war coupled with slack orders on the UK side, will hit the group’s first half revenues to the end of September – some 7% down.

However, the effect on profits will be significant, the full year results will be materially lower.

We will get further information about the first six months and the present trading patterns and aspirations come the interims on 4 December.

But, hopefully, this will prove to be a temporary blip. There is a strong pipeline of opportunities and its Board is now obliged to react constructively to achieve greater sales and better margins.

The collapse in the shares to 10.5p at one stage, was overdone, they are now 11.5p. It presents a very good longer-term averaging chance for holders.

My mid-July profile featured shares of the tiny company at 18p, with a 27p Target Price.

That now might take a two-year span to attain, so I now reduce that Target to 20p before the end of next year.

Gulf Keystone Petroleum (LON:GKP)

The very point that this Kurdistan independent operator and producer repurchased 8.73m shares at an average price of 232.62p per share over the three months from 8 July to 8 October, costing $25m, is a big value pointer.

Who better to know the real value of the company’s shares than its own management – if they thought that they would be wasting company money then I presume they would have held back from doing so, awaiting cheaper prices.

However, coupled with their generous dividend top-ups, they must consider they are worth a great deal more for the company to have back in its treasury.

Share buy-backs can be controversial at the best of times, but this company could well have made an excellent corporate move.

It is generating a lot of cash now and it already has a wide range of operating interests in the Kurdistan region of Iraq – so reducing earnings-divisible share numbers must be good news.

I profiled the company less than a month ago at 230p, with a 300p Target Price. The shares are fractionally easier at 212p, a good averaging price level, especially as I am totally confident about my Target Price by the end of next year (I may even be increasing that soon).

Peel Hunt rate the shares as a Buy, looking for 381p.

Block Energy (LON:BLOE)

This Georgia oil and gas operator has performed appallingly in price since I profiled the company in early June at 13p. Now at 4.11p it is apparent that short termers have taken a very bearish view of the company and its potential.

Its multi-well programme is fully funded into 2020. As the company itself declares – it is a clear entry point for investors to gain exposure to Georgia’s under-developed opportunities and strong regional demand for oil and gas.

The AGM on Thursday 31 October will be held in the City and, hopefully, that is when we will get a more comprehensive breakdown on its current year potential.

A few items of good news could help to see the shares recover in price – but my 25p Target Price looks well adrift now, so I am lowering it to18p by the end of next year.

Forterra (LON:FORT)

I note that GLG Partners, the $33bn fund managers, have increased their exposure to the shares in this leading brick making group.

It is now up from 5.13% to 5.7% of its equity. The shares are now at 282p, just 4p short of my 286p profile price at the end of May.

Trading in the building and construction sector is not without its headaches, so how has the company fared in the second half of the current year to end December – interesting.

Codemasters Group (LON:CDM)

Last Wednesday this video racing games developer and publisher gave out a Trading Update for the six months to end September.

Group revenue almost stood still at £39.8m, up just £0.1m, whilst gross margins improved from 88.5% to 89.3%, with net cash increasing by £7.76m to £24.6m.

The group stated that, as a result of the first half’s ‘strong financial performance’, it is confident that the full year results will be in line with expectations.

The interims will be announced on 26 November, when hopefully we will see growth in its digital sales and margins showing through to the bottom line for the full year.

On Friday the company released its GRID award winning racing game, which features 104 career events across 12 race locations, the best drivers including Fernando Alonso and his esports team, FA Racing Logitech G and the return of the revered Ravenwest Motorsport.

Brokers Liberum Capital, Peel Hun and Shore Capital all rate the shares as a Buy with Target Prices of 310p.

The shares are currently trading at around the 214p level, compared to my end-June 225p profile price, my early Target Price is 275p while 350p is still possible by the end of next year.

Watkin Jones Group (LON:WJG)

This student flats and build-to-rent developer has clearly stated that, just one week into its current new year, it is forward sold for all its planned developments for 2020.

Furthermore, its pipeline for 2021 and further ahead, has strengthened.

This group is well placed for medium-term growth in revenues and profits.

Brokers Peel Hunt rate the shares, now 227.5p, as a Buy, looking for 265p.

My mid-May piece was at 225p with a Price Target of 300p – ok so I am more bullish, but confident.

And finally ….

Eddie Stobart Logistics (LON:ESL)

Next Wednesday at 5pm the doors will close on both DBAY Advisors and Andrew Tinkler.

Hashed up accounting led to a suspension of the group’s shares in late August.

Then in mid-September it was announced that both had shown predatorial interest in the company.

That 5pm lock-out is the time restriction put upon both potential bidders for the lorry firm. By then they are both obliged, under the Takeover Rules, to make bids, or even counter bids, for the beleaguered firm.

Or they back off – preferring not to spend their funds, perhaps waiting to buy big positions in the equity once the group’s shares are requoted on the market upon publication of the ‘true’ results.

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