Small Cap Round-Up: Internet, Broking, Sites and Drilling

6 mins. to read
Small Cap Round-Up: Internet, Broking, Sites and Drilling

CentralNic Group (LON:CNIC) – totally undervalued at six times earnings

I just love this stock. It is a total money-machine and its shares are totally wrong-priced.

When I look around the market, I am so often amazed at the gross valuations that some companies achieve.

But when I see businesses of real value that are not appreciated it makes me so frustrated at the market’s ignorance.

CentralNic is one such company.

This global internet platform company that derives recurring revenues selling online presence and marketing services, reported that in its third quarter of the year it had seen accelerating organic growth.

The group’s globe-trotting CEO Ben Crawford stated that:

“CentralNic continues to build momentum in the third quarter against typical seasonal trends, with year-on-year organic growth now reaching a record 66%, a further acceleration over the 62% reported for the twelve-month period ending 30 June 2022.

“This continued reliable financial performance has allowed us to refinance at a notably improved interest rate, with a pool of quality lending banks which have the means to provide ongoing support to CentralNic’s growth strategy. We look forward to the future with even greater confidence.”

The group drives the growth of the global digital economy by developing and managing online marketplaces allowing businesses globally to buy subscriptions to domain names for websites and email, to monetise their websites, and to acquire customers online.

It supplements its organic growth by identifying and acquiring cash-generative businesses in its industry with annuity revenue streams and exposure to growth markets and then migrating them onto the CentralNic software and operating platforms. 

And what I really like to see is the fact that CentralNic is a virtually pure play recurring revenue business with high inherent cash conversion consistently above 100%. That is absolute magic for any plc financial director – just imagine how easy it is for arranging fresh lines of funding, should it be necessary. Totally confidence inspiring for any banker.

For the current year analyst Bob Liao at Zeus Capital has upgraded his estimates to $709.6m revenues ($410.5m) and adjusted pre-tax profits of $68.7m ($31.9m), generating earnings of 20.9c (11.8c) per share.

He goes for a conservative $752.2m sales for next year, with $74.7m profits and 22.0c per share in earnings.

The group will be announcing its Q3 results on Monday 22 November, at which time I would expect a bullish statement to engender more interest in the company’s shares.

At the current 132.5p they trade on a mere 7 times this year’s earnings and 5.9 times those for next year – at this level it is an almost guaranteed winner for investors who are prepared to be patient while the market gradually begins to realise its real value.

(Profile 12.07.21 @ 89p set a Target Price of 110p*)

finnCap (LON:FCAP) – a takeover by Panmure, will it succeed?

When, at the beginning of September, Sam Smith, one of the UK’s leading female brokers, stepped down as CEO of the broking and corporate arranger, it was perhaps a signal of change.

Yesterday the company announced that it had an approach from competitor Panmure Gordon regarding a combination of the two firms.

Discussions are at a very early stage and may well come to nought.

However, I for one would be unhappy to see finnCap lose its independence.

I do realise that broking fees have been very much lower in the last year, while the corporate side must have also felt a considerable pinch with the dearth of new issues and deals.

That has already been reflected in the easing back of its share price from a 39p peak last November to a recent low of just 12.5p.

On the news, the group’s shares leapt 20% to 17p, considerably below my Profile price of April last year.

Capitalised at £31m, the company had a cash balance of some £13m at the end of August.

(Profile 14.04.21 @ 40.25p set a Target Price of 50p)

Hercules Site Services (LON:HERC) – significant infrastructure demand

These infrastructure sector labour supply specialists are expecting to report a 38% increase in revenues for the year to end September, taking it up to over £45m.

Apart from labour supply, it also has a construction services business and a suction excavator operation. Substantial demand across the sector has helped all of the group’s income streams,

The group’s CEO Brusk Korkmaz stated that:

“We expect HS2 and other key infrastructure projects to continue to drive growth in our labour supply business in 2023, and our suction excavator fleet is set to expand to 30 vehicles by calendar Q1 2023 to meet client demand.

We also expect that additional contracts to lay fibre for broadband will contribute to the momentum built up by the civil projects team during the last year.”

Encouragingly the group’s brokers SP Angel have a Buy rating out on the shares, currently 44p, with their price objective being 74p – which would be a very useful gain.

My Target Price of earlier this summer is lower than that, but disappointingly the shares have not yet even broken above my base price. That could well change between now and January when the group announces its final figures.

(Profile 04.05.22 @ 52p set a Target Price of 64p)

Capital Limited (LON:CAPD) – good upside still left in the price

The mining services group yesterday declared its Q3 Trading Update to end September. It showed that the group is well on track to meet market expectations for the full year.

Analysts at Tamesis Partners are now looking for the year to report $283.8m revenues ($226.8m), with pre-tax profits halving to $40.7m ($82.0m) and earnings of 15.1c (36.8c) per share.

For the coming year they go for $317.8m sales and recovering profits of $53.4m, worth 21.2c per share in earnings.

Despite there always being a seller around the market when good news is published, I would actually consider that the shares, at the current 82.7p,

have some good upside still left for pursuing.

(Profile 23.07.19 @ 48p set a Target Price of 76p*)

(Profile 22.10.19 @ 61p set a Target Price of 100p*)

(Profile 03.08.20 @ 77.5p set a Target Price of 100p*)

And finally …….

Revolution Bars Group (LON:RBG) – another round in the offing?

From a low of 9.8p this bars group’s shares have firmed up a fraction to close last night at around 11.6p and that is despite the delay of its finals that were due yesterday.

The time lapse is due to the group being at a very advanced stage of looking to acquire another drinks operation.

I do not expect there to be any difference in the figures from those already guided. Instead, appropriate audit finalisation procedures will be completed when negotiations have been concluded.

Let us hope that such a deal is successful and adds to the Revolution group as far as accretive earnings are concerned.

We need some good news to help to get the shares running upwards again.

(Profile 13.10.21 @ 24.25p set a Target Price of 31p)

Smiths News (LON:SNWS) – delivering its own news

Ahead of this newspaper and magazine distribution business announcing its finals on Wednesday 9 November, the company noted on Monday that it had concluded two renewals.

With Frontline and Seymour, magazine distributors, the group has secured distribution through to 2030, worth some £180m annually.

CEO Jon Bunting stated that:

“We are delighted to confirm this new agreement with both Frontline and Seymour.  Long term partnerships with publishers and distributors are central to our business model and allow us to continue to drive efficiencies and deliver great service for publishers, retailers, and ultimately for millions of consumers across the UK.”

The group’s shares, which were 41p a year ago, have subsequently been down to 27p, before picking up to 34p this week on the back of the renewal news.

Hopefully the current firmness can be continued through November and onwards.

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

(Profile 24.06.21 @ 39.5p set a Target Price of 55p)

(Asterisks * denote that Target Prices have been achieved since Profile publication)

Comments (2)

  • Mike says:

    Many thanks for the update. Re CentralNic Group, shouldn’t the P/E multiples be higher as earnings are in cents ($) so need to be converted to pence (£) first. Even so it still looks great value!

  • Tolle says:

    You missed the news issued by time finance that it had set a new record for own book lending this month. Own book lending is the most profitable lending, Although it takes longer to show in the profit line than brokerage lending. Good news time, no idea why the resident experts ignore it in favour of crashing drink and leisure stocks which they hope will recover. Ok, there will be a dead cat bounce …. That hurts …

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