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Small Cap Value Report (Tue 13 April 2021) - DLAR, RBG, SOS, BILN, HRN

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Good morning, it’s Paul amp; Jack here with the SCVR for Tuesday.

Timing – TBC.

Agenda -

Paul -

De La Rue (LON:DLAR) – A reassuring trading update for FY 03/2021. At top end of (tight) range of £36-37m adj operating profit, so in line with expectations really. Don’t forget the £15m p.a. pension recovery cash outflows, which are material to the valuation.

Boohoo (LON:BOO) (I hold) – a separate post here – I comment on the announcement of acquisition for £73m of a Soho office block, plus the recent 1.2m sq.ft. (leasehold) warehouse in Daventry. The group is gearing up for major expansion, with new brands acquired recently, such as Debenhams, Dorothy Perkins, Wallis amp; Burton. NB. Separate, new thread – here. Please do not comment on BOO here! We’re now using separate threads, to avoid clutter here with what is now a mid-large cap.

Totally (LON:TLY) – a positive trading update. Looks an interesting company, that is growing on me, the more I research it.

Revolution Bars (LON:RBG) – to do

Sosandar (LON:SOS) – to do

Jack -

Billington Holdings (LON:BILN) – improving outlook but cost and competitive pressures from this micro cap steelworks company

Hornby (LON:HRN) – positive reaction to today’s ‘ahead of budget’ update but a degree of recovery already priced in


Paul’s Section De La Rue (LON:DLAR)

187p (pre market open) – mkt cap £364m

Trading Statement

De La Rue plc (LSE: DLAR) (“De La Rue” or the “Company”) today announces a trading update for financial year 2020/21, which ended 27 March 2021.

This sounds encouraging -

As a result of continued positive trading, the Board expects Adjusted Operating Profit for the financial year 2020/21 to be around the top end of the £36 million to £37 million range previously indicated in the Company’s trading update of 28 January 2021.

Here are my previous notes relating to the 28 Jan 2021 trading update. It was an ahead of expectations update, with guidance raised from £34m adj op profit to £36-37m.

Today we’re told it’s at the top end of that range, but given £36-37m is quite a tight range, then today’s update is only really in line with expectations, and I wouldn’t expect them to miss guidance that has only recently been increased, and being near the end of the financial year. So it’s mildly positive, but not a big deal.

Net debt – this sounds positive, but due to deferrals of capex, so only a timing difference -

End of year Net Debt was approximately £53 million, which is lower than market expectations(1) by approximately £21 million. This is mainly due to lower capital expenditure during the year, consistent with adjustments made to the timing of capital spend as the Turnaround Plan has evolved. Total aggregate 3-year cash investment for the Turnaround Plan remains unchanged.

Furlough - DLAR has joined the increasing list of companies that have repaid taxpayer support through the furlough scheme, in this case a relatively trifling £0.4m. If companies are now performing well, it’s only fair amp; decent for them to repay the furlough support monies, and any other grants they received which were surplus to requirements.

As an investor, it does give me a warm glow that a company has repaid furlough money. It suggests to me that management behave ethically, which is important, as it probably means they’re less likely to be fiddling the books, or their expenses!

Asset impairment charge of £13m (classed as exceptional) will be booked in H2. Doesn’t really matter, as it’s non-cash. This relates to the closure of a plant in Gateshead.

Diary date – 26 May 2021 for publication of FY 03/2021 results – as previously announced.

My opinion – slightly positive, but shouldn’t really make much difference to the share price, which like everything else, has been doing well lately.

The key issue on valuation here is the large cash outflows of £15m p.a. into the pension scheme. That consumes about 40% of operating profit, so it’s a very material cash outflow.

Remember that pension recovery payments are not reflected in the PER, so on a PER basis DLAR looks cheaper than it actually is. Hence why I’m flagging this point, because it’s very significant to how we value DLAR shares.

Overall though, the trading turnaround at DLAR so far has been very convincing, hence I rate this company highly.

Stockopedia gives it a high StockRank (see green line below, under the share price line).

Share count almost doubled with the emergency refinancing last year, there are now 195m shares in issue, versus 114m prior to covid. Therefore don’t expect the share price to regain previous highs any time soon (if at all), because that would be a very much higher market cap than before.




Totally (LON:TLY)

34.5p (up 11%, at 10:50) – mkt cap £62m

Trading update

The Board of Totally plc (AIM: TLY), a leading provider of a range of healthcare services across the UK, today announces an update on trading for the 12-month period ended 31 March 2021.

Excellent trading performance

(we’ll be the judge of that, let’s see the numbers!)

This sounds good –

Based on draft unaudited numbers, the Group anticipates reporting EBITDA* for the year ended 31 March 2021 substantially ahead of both management expectations and the historic underlying EBITDA of £4.0 million reported by the Group in the financial year ended 31 March 2020.

What has driven this strong trading? -

… due to multiple factors but primarily as a result of the Company being able to respond proactively and quickly to the numerous demands for its healthcare services during the global COVID-19 pandemic...

That does raise the question of whether the improved performance is temporary or might be sustainable? We’ve seen in other areas, how the authorities threw money at pandemic-related problems, with little cost control. So I’m just flagging that as a question to ask here.

Liquidity – sounds good -

As at 31 March 2021 the Company was in a healthy financial position with £14.8 million of net cash (31 March 2020: £8.9 million). The Company has no debt financing ** and all deferred HMRC payments have been paid in full.

Although, as with all companies, a snapshot cash position on a single day can be quite meaningless, as it’s easy to window dress, and may not reflect intra-month, or broader seasonal gyrations.

I would much prefer companies to report average daily net cash/debt, in addition to year end snapshots.

Contract renewals – sounds good, but remember that TLY is a low margin business -

Over the course of the 12-month period the Group announced numerous contract renewals and new business models being delivered, many targeted to manage demand during the pandemic, which amounted to an aggregate contract value of c. £92.5m….

The Directors also note that waiting lists across the UK have all increased during the last year as a result of elective care being paused during the COVID-19 period. The Group’s insourcing division continues to be appointed by numerous hospitals across the UK and Ireland to provide services to help reduce these waiting lists.
The Directors therefore anticipate significant growth for the insourcing division of the Group in the short term.

Forward guidance amp; diary date -

The Directors expect the Company to release its audited final results for the 12-month period ended 31 March 2021 in July 2021.
The Directors expect to re-introduce market guidance at the time of the final results.

My opinion – I looked at this company properly for the first time in a few years, when it last issued interim results. Checking back through my notes from the webinar, I liked management (who came across as intelligent, thoughtful, articulate, according to my notes!), but I decided not to invest due to the low EBITDA margin, and that EBITDA turned into no actual profits, due to a large amortisation charge.

Also the balance sheet is weak, with negative NTAV. The cash pile comes from a favourable working capital position (i.e. creditors much larger than receivables). If you were to equalise the two, then the cash pile would evaporate. Hence it’s one of those business models where they have to keep the plates spinning, in terms of keeping creditors above receivables. In the last webinar, they did say that the NHS are “good payers”, and contracts are sticky, so the favourable working capital position may be sustainable.

Looking through the last cashflow statement, Totally doesn’t seem to be routinely capitalising costs into intangible assets, so maybe it’s OK to ignore the amortisation charge? In which case, the underlying level of profitability might be closer to EBITDA than I previously imagined? (a good thing).

Overall, I’m warming to this share. It’s not really a sector that appeals to me personally (low margin outsourced contracts from the NHS), but I can see why people might latch onto this share, given that the newsflow is good, and management seem to know what they’re doing. Today’s update is strong, and I look forward to reviewing the figures when they come out in July.


The share price chart is the same as everything else – up 50%+ in the last 6 months! In this case it seems justified, by a strong trading update today.




Note that Totally qualifies for the “Tiny Titans” stock screen, as shown on its StockReport. I’ve had some good stock ideas from the Tiny Titans screen in years gone by, I can’t vouch for the stocks it currently selects, but it could be worth a look. The picture below is a clickable link.



Jack’s section Billington (LON:BILN)

Share price: 342p (pre-open)

Shares in issue: 12,934,327

Market cap: £44.2m

Billington Holdings (LON:BILN) is a well-run steelworks and construction safety operator. It tends to have quite a low operating margin but it also likes to operate with a prudent net cash position, which makes it able to navigate trickier periods like the past twelve months. It’s a small company, and the shares can be illiquid, but it is one of the better run micro caps out there in my view.


It also now owns a selection of other businesses that somewhat diversify its operations and have been slowly increasing those low margins (the past year or two notwithstanding).


Those businesses are:

  • Billington Structures – nationally recognised and award winning steelwork contractor,
  • Easi-Edge – safety barriers and measures for construction sites,
  • Marshall Steel Stairs – engaged in the design, fabrication and installation of highly engineered steelwork, staircases and balustrade systems,
  • Tubecon – structural steel fabricators specialising in Architecturally Exposed Structural Steelwork (AESS) and other complex structures work for the UK Construction and Rail,
  • Hoard-It – re-usable and eco-friendly site hoarding solutions (a part of Easi Edge), and
  • Shafton Steel Services – a large independent steel services and processing centre based in Barnsley, South Yorkshire.

As noted though, it’s been a disrupted year for many construction operators and Billington’s share price has come down after hitting multi-year highs in FY19 into FY20.

UK gross domestic product fell by 9.9% in 2020, remember – the biggest fall in annual GDP since 1709 – and the current estimate is that the UK structural steelwork market declined by 20% in 2020.

But with the economy unlocking, is the outlook improving quickly?

Final results


  • Revenue -37.1% to £66m,
  • EBITDA -53.8% to £3.6m,
  • Profit before tax -71.2% to £1.7m,
  • Cash and equivalents -15.6% to £15.1m,
  • Earnings per share -71.6% to 11.3p.

There’s an operational gearing effect here, with smaller changes in revenue translating into bigger impacts on profits. Unfortunately this time it is going the wrong way. The group’s cash position looks robust though, particularly given it is only a £44m market cap company.

So if conditions improve that gearing effect can quickly start contributing positively once again.

These results are affected not just by Covid, but the fact that 2019 was a bumper year for the group, with a number of large projects completed that year.

And though the year-on-year figures look bad, the company is not distressed. Billington remained profitable, it’s got a strong cash balance, and the group is resuming dividend payments (of 4.25p covered 2.66 times by earnings).

Covid disrupted the first half of 2020 but the impact subsided in the summer months and the group ‘enjoyed a return to more normal trading conditions in the later part of the year, which has continued into 2021.’

The order book for the remainder of 2021 is strong and Billington’s facilities are operating at full utilisation. The group notes a ‘75% improvement in the order book for structural steel activities at the year end relative to 31 December 2019… with a good pipeline of future opportunities.

It does, however, caution that the outlook ‘remains competitive’. Continued price escalation and the availability of some raw materials remains a concern and, while Billington can partially mitigate these headwinds, it could take a while for margins to recover.

So on balance the outlook is improving and positive, but with definite notes of caution around margins and price amp; competitive pressures.


Billington has prudently managed its way through Covid, and it’s perhaps unfortunate that a bumper 2019 comps make the Covid-disrupted 2020 decline look particularly bad.

I would back the company to bounce back but of further concern is comments regarding the competitive environment and market pricing pressures. Perhaps this is management prudently acknowledging risks but it is also a reminder that Billington operates in a tough industry.

In addition to the demand issues caused by the pandemic, the Group has faced a significant increase in structural steel costs during the year. During the period the price of iron ore and scrap steel nearly doubled leading to major increases in the price of steel products, ‘a trend that is expected to continue.’

But Billington does differentiate itself well, with a gaggle of well regarded businesses and a cash-backed balance sheet. And the outlook is improving, which is what I’m looking out for:

During the year our structural steel businesses, Billington Structures and Peter Marshall Steel Stairs continued to see market pricing pressures, due to the impact of Covid-19, and suffered a number of project delays… By the year end we had seen a return to more normal levels of activity and I am pleased that the businesses have been successful in securing a significant amount of new business for 2021, in a variety of sectors.

As with all the Group’s businesses, the easi-edge perimeter edge protection and fall prevention business experienced a material drop in activity in the first half due to the Covid-19 lockdown, although as projects restarted a recovery was seen in the second half. The business entered 2021 with a good degree of forward visibility and we anticipate the improving trends experienced in the later part of 2020 to continue, although there remains uncertainty as to when certain project deferments will restart.

hoard-it was impacted, particularly in the first half, as the pandemic led to a pause in new site commencements. However, on-site activities built back up to historic levels in the fourth quarter and hoard-it entered 2021 with a promising pipeline of new business.

Current forecasts for the UK structural steelwork industry are for the market to return to growth with an increase of 16.2% in 2021 and a further 7.4% in 2022 following the fall in 2020. These forecasts will be subject to revision of course, particularly given the unprecedented conditions.

The pension scheme remains in surplus, liquidity is strong, dividend payments are resuming, and the company expects improved results for FY21, so I’m cautiously optimistic here. At the end of the day though, this is a volatile micro cap stock, so that must also be taken into account.

Hornby (LON:HRN)

Share price: 57p (+15%)

Shares in issue: 166,927,838

Market cap: £95.1m

A very brief update from this intriguing turnaround backed by Phoenix Asset Managers. Hornby (LON:HRN) owns several known and nostalgia-inducing toy model brands including Airfix, Arnold, Bassett Lowke, and Hornby model railways.

The group has recently moved back into profitability despite the obvious pandemic headwinds but, again, liquidity is an issue here with a 606bps spread.

Hornby has a market cap of more than £90m on revenue of £43m. In the past ten years, the most net income it has generated in any one year has been £3.16m.


Meanwhile, shareholders have been considerably diluted, so I’m cautious as to the potential upside here.


Although there is no denying that the group’s products are interesting. As we’ve seen with Games Workshop, strong brands with loyal fanbases in this area can translate into a surprising amount of ongoing value.

Trading update for the 4th quarter ending 31 March 2021

Group sales for the 4th quarter were ‘very encouraging and ahead of budget’, with cumulative sales for the financial year ended 31 March 2021 also ahead of budget and 28% up year-on-year.

So that suggests FY revenue of £48.4m. The fact that management accomplished this feat during the Covid period is certainly encouraging.

Net cash as at 31 March 2021 was £4.7m compared to net cash of £5.4m at the end of March 2020.

We can expect more detail in June.


Shares are up 15% on this brief update.

Let’s say we want the share price to double over two years to 110p on 10% profit margins and a 15x PE multiple. That requires 7.33p of earnings per share across 167m shares in issue, meaning a net profit figure of £12.24m.

Using that hypothetical 10% profit figure means we would need £122.4m of revenue compared to this year’s c£50m. The group has not been close to that level of revenue at any point in the past decade.


There’s a lot of guesswork in these numbers and it’s a very speculative exercise, particularly with regard to potential margins, but it still suggests to me a good degree of recovery is priced in.

It’s possible that Hornby is a special company with unique and valuable IP but I have no experience with its products and so I find the upside hard to judge here.

It’s an interesting case and the market clearly likes what’s happening but, on balance, I would want a cheaper share price before considering it as an investment.



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