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Small Cap Value Report (Fri 11 June 2021) - SGM, NWF, RWA, VANL, W7L, MIND

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Good morning, it’s Paul amp; Jack here with the SCVR for Friday. This week seems to have whizzed by in a flash!

Timing – I’m having lunch with a SCVR reader today, so need to be finished here by noon. Today’s report is now finished.

Agenda -

Paul’s Section:

Sigma Capital (LON:SGM) – well done to shareholders here, it’s time to dust off your bunting! Cash takeover bid at 36% premium, 202.1p – an excellent result. Could there be more similar deals, with UK equities clearly looking attractive to USA buyers.

Nwf (LON:NWF) – this business makes most of its profit from distributing fuel, but also sells food amp; animal feed. Ahead of expectations update today, for FY 05/2021, but no figures given – not even telling us what market expectations were. This is a steady, resilient business, paying a reliable 3.5% divi yield. However, I’m worried about ESG, so can’t see much upside from here, despite the low PER.

Robert Walters (LON:RWA) – materially ahead trading update, has only had a modest upward impact on the share price. Maybe that’s because it’s so obvious that current forecasts are too low? The share price is back to pre-pandemic levels, so maybe the recovery upside is in the price? Looks that way to me.

Van Elle Holdings (LON:VANL) – good signs of recovery in a positive update today. Nicely asset backed. Worth a closer look, as a potential recovery share I think. Although its track record is very mixed.

Jack’s Section:

Warpaint London (LON:W7L) – positive momentum continues at this founder-led cosmetics operation, which looks to be emerging from 2020 in good condition.

Mind Gym (LON:MIND) – recovering revenue and renewed investment into digital. The company was generating good growth pre-Covid, but does not expect to return to profitability until FY23.

Paul’s Section Sigma Capital (LON:SGM)

149p – mkt cap £134m (£182m at takeover bid price of 202.1p)

Takeover Bid

A recommended (by the Directors) takeover bid has been announced for this property developer.

The price is 202.1p in cash – a healthy premium of 35.6% to last night’s close of 149p.

This is obviously a really good outcome for shareholders. People often belly-ache that a bid undervalues the company, but that’s just posturing in my view. In reality, a bid at a 35.6% premium gives you a healthy profit, and a cash exit, which you can then recycle into buying more shares than you would otherwise have been able to, in something else equally or more attractive. Hence the overall portfolio impact is positive, whatever people say.

The bidder is a new bidco set up by PineBridge Benson Elliot LLP – which calls itself:

“a leading private equity real estate fund manager, with over $3.5bn of managed equity”

This is part of PineBridge, which has $112bn in assets under management, headquartered in New York.

What’s interesting, is that this is one of a growing list of UK companies being bid for, at typical premiums of 30-40%, by investors in the USA. Suggesting to me that there’s a mismatch between valuations that American private equity funds are prepared to pay, and how the UK stock market values companies. That’s a very obvious opportunity for us to make money, if more of these bids happen. It’s so difficult to predict which companies will receive bids though.

There are two reasons why I want to remain fully invested at the moment, despite this usually being a slow time of year, when shares often sell off slowly (“sell in May amp; go away”):

  1. Takeover bids are happening all the time, suggesting that overseas buyers in particular see the UK market as cheap.
  2. V-shaped economic recovery is happening, with many companies now reporting buoyant trading, and massive Govt financial stimulus doing the trick – even risking economies overheating.

It’s good to see a bid for a company in the small caps space (this deal values Sigma at £182m), whereas until now most bids have been for £1bn+ midcaps. Let’s hope we get more slices of the action, in the small caps world.

I wonder what other stocks this has read-across for? If a USA buyer thinks Sigma is worth 36% more than the current share price, then there could be other property developers also under scrutiny? I hold Watkin Jones (LON:WJG) for example, which has obvious upside from a growing pipeline, although family insiders recently sold a big stake.

Rothschild managed a private sale of Sigma, with multiple well-funded interested parties.

Note that better access to growth capital is also given as a reason for this sale, stating that private equity ownership would give easier access to growth capital than a standalone AIM listing. That’s a bit of a worry – it would be a pity to see the best growth companies disappearing, and us just left with the dregs.

My worry is that private equity could be cherry-picking the best companies from the UK stock market, and offloading investments they don’t want onto the market through IPOs!

Well done to Sigma shareholders. I imagine it’s a done deal, since institutional shareholders will have almost certainly already given their approval in private.




211p (up 4%, at 08:37) – mkt cap £104m

Trading Update

NWF Group plc (‘NWF’ or the Group), the specialist distributor of fuel, food and feed across the UK, today announces a trading update for the year ended 31 May 2021 and its notice of results.

Good news -

The Group is pleased to report that it saw strong overall trading performance in the fourth quarter and as a result, headline profit before tax for the financial year ended 31 May 2021 is now expected to be ahead of market expectations which were established before the pandemic, demonstrating the continued resilience of the Group.

No Govt (or rather taxpayer) support measures have been used.

Fuels division – ahead of expectations, thanks to cold winter, and working from home (WFH). Looking for acquisitions in this fragmented market.

Food – improved in H2, as expected.

Animal feeds – margins under pressure, due to commodity price increases.

Net debt – lower than expectations, due to stronger trading, good cash management, and lower than planned capex.

Diary date – 3 August, for FY 05/2021 results publication.

Valuation - working on the existing figures, the valuation looks quite modest, and quality scores are decent, a good combination –


The graphic above is a nice example of how NWF shows a lot of green (good) in the right hand column (comparing it with the stock market as a whole), but with less favourable (orange) for the key PER amp; divi yield scores in the “Industry” column on the left. With my apologies to the colour-challenged readers. But you can get the same information from the length of the bars (long = good, short = bad).

This highlights that NWF looks cheap, but it’s in a sector which is cheap. If you look at the top of the StockReport, NWF is categorised as in the Oil amp; Gas sector. Although it is diversified into food, and animal feeds too, so that might confuse things a bit, but the majority of its profit does come from fuel distribution, I just checked last year’s results statement.

My opinion - whilst sounding positive, this update doesn’t have any numbers in it. I can understand why they might be hesitant to give numbers, as it’s only 11 days after year end, and the figures are probably still being worked on by the accounts department. Then there is always the need for caution, in case any audit adjustments are needed.

From investor/commentators point of view, the problem now is that we have to guess what the figures might be. We’re told they are ahead, but not by how much.

It doesn’t even have a footnote, giving the figures for what market expectations are – there’s no reason why that should have been omitted, many companies are now including a footnote to explain market expectations, it saves readers time, so is useful. These things are meant to be written to inform readers, not lead us on some kind of treasure hunt to deduce what’s going on from cryptic clues, requiring us to do more digging!

Overall, as I think we’ve mentioned here before, NWF is cheap, and pays out about 3.5% divi yield. It’s a resilient business, that’s largely immune from the economic cycle, because people will always need fuel amp; animal feed. I suppose there might be a longer term threat from the move to renewable energy. Actually, that’s probably quite a big threat, which I hadn’t really considered before.

The share price hasn’t really gone anywhere in the last 3 years, and it’s difficult to see what would change. Although with low interest rates, a 3.5% yield, and a PER not much above 10 (once we bake in today’s out performance update) could be seen as attractive to value investors. Why is it stock market listed though? It’s difficult to see any reason.

Inflation is a big worry right now, but I think NWF should prove fairly resilient to inflationary pressures. Its fuel division in particular has pass-through revenues, with a markup applied, which logically would be easy to flex upwards in response to rising prices, maintaining NWF’s profit margin.

The cyber incident (someone hacked their computer system) doesn’t seem to have done much damage.

Looking back at last year’s profits, most of the group profit came from the fuels division. Given that one-off factors helped boost profits in that division this year (cold winter, and WFH), and my concerns about how ESG issues could make this share unfashionable amongst investors, I’ve cooled on it, and don’t think this is something I’d want to invest in – mainly because it’s difficult to see why the valuation would go up, against ESG headwinds, and the long-term phasing out of oil in favour of renewables.

Therefore, whilst it gets a thumbs up for the yield amp; low PER, overall I’m going to steer clear.



I’ve almost run out of time, so a couple of quick comments to finish with -

Robert Walters (LON:RWA)

712p (up 2.5% at 11:04) – mkt cap £543m

Trading Update

Short and sweet!

The positive momentum reported in the Group’s first quarter trading update has continued through the first two months of the second quarter and the Board now expects profit before taxation for the full year ending 31 December 2021 to be materially ahead of current market expectations.

In the very limited time available, I’ve had a quick skim of the StockReport, and can see that:

  • The forward PER looks high, at 25.8
  • BUT, this is based on forecasts which have been roughly halved from pre-pandemic levels (see graph below)
  • The sector is recovering strongly
  • There’s been no dilution during the pandemic – share count is similar to pre-pandemic

Therefore, this looks to me like a situation where the forecasts could be far too low. Hence the forward PER would not be particularly high, and the share price is justified in having recovered strongly.

It looks likely to me that there could be further upgrades as 2021 goes along.

Although given that today’s update has only had a modest boost to the share price, it does look as if the market has already worked out that forecasts are far too low.

My opinion - the recruitment/staffing sector does look interesting, because it’s recovering strongly.

Although the key question is whether share prices now already factor in the upside that everyone knows is there from the strong economic recovery? It looks that way to me.



Van Elle Holdings (LON:VANL)

47p – mkt cap £50m

Trading Update amp; Investor Presentation

Van Elle Holdings plc (AIM: VANL), the UK’s largest ground engineering contractor, today provides a trading update for the year ended 30 April 2021 (the “Period”) ahead of announcing its final results, which are expected to be released on Tuesday 17 August 2021.

  • Q4 continued to improve – March amp; April strong
  • Exit run-rate at end FY 04/2021 back to pre-pandemic levels
  • Continued into the new financial year
  • Industry-wide supply chain pressures, cost amp; availability of some materials
  • Most divisions trading at near capacity limits
  • More detail is provided – see the RNS
  • Acquisition of ScrewFast has gone well
  • FY 04/2021 revenues expected to be £85m, slightly up on last year
  • Adjusted loss before tax slightly better than consensus forecast
  • Net cash £3.8m (excl. Lease liabilities)
  • Order book at 1 June 2021: £26.4m (up from £23.6m at 7 Jan 2021)

My opinion – this could be an interesting stock for readers to research in more detail. I particularly like its strong balance sheet, so the shares are almost completely backed by tangible assets:


Whilst it doesn’t scream bargain on a PER basis, it sounds as if business has now more-or-less returned to normal. Hence maybe results for FY 04/2022 could be better than currently forecast?

On the negative side, it’s one of those shares that floated (in 2016) on the back of strong performance, then profitability collapsed a couple of years later, which doesn’t go down well with investors, understandably.


Jack’s section Warpaint (LON:W7L)

Share price: 140p (pre-open)

Shares in issue: 76,752,355

Market cap: £107.5m

Warpaint London (LON:W7L) is a cosmetics maker that owns its flagship W7 brand as well as a couple of others like Technic. W7 is sold in the UK primarily to retailers and internationally to local distributors or retail chains.

The Technic brand is sold in the UK and continental Europe with more of a focus on the gifting market. This division also supplies own brand white label cosmetics produced for several major high street retailers.

Other brand names include Man’stuff, Body Collection, Vintage, Very Vegan, and Chit Chat.

The group has had a rough time following its IPOs a couple of years ago, with a costly US venture that has reduced returns on capital and a UK business that at times has failed to match the anticipated levels of growth.

Recent updates suggest Covid has been a positive shock for the company, enabling the co-founders and major shareholders that still run the company the chance to shake up the business and enact a couple of changes. The US business model has changed and is now lower cost. The group has bagged a couple of promising retail contracts. And there is now more emphasis on its small but growing internet operations.

All in all, I think it’s worth keeping tabs on.

AGM statement

Trading in the year to date has been ‘encouraging’. UK where sales for the first five months of the year are up 64% year-on-year and up 18% compared to the same period in 2019. That’s encouraging and confirms what Warpaint has suggested in previous updates, namely that trading momentum is good by any standard right now.

The roll out of W7 across Tesco stores has helped UK sales. In June 2020 the Group’s W7 products were in 56 Tesco stores and today they are in over 1,300, with a further expansion planned for later this year. Warpaint’s other brands are also performing well in the UK.

The trial launch of W7 products in 50 Francesca’s stores in the US has seen sales exceed expectations. Warpaint hopes to roll out ‘across a significant portion of their 444 store estate later this year’.

E-commerce sales of W7 products for the first five months of the year were approximately three times the level in the same period in 2020 and the group anticipates further significant growth (albeit from a modest base).


Conditions continue to sound positive for Warpaint, which remains some way below its all-time highs.

Errors have been made since the group’s IPO. The hope is now that lessons have been learned and the result is a fundamentally more robust and profitable company. It has always generated lots of cash. How it has then spent that cash was perhaps sub-optimal (with the benefit of hindsight).

Now though, the group is optimistic that these positive trends will continue and it is backed up by £6.6m of cash and no debt. Things could finally be starting to click here. With a market cap of £107m and expected FY21 revenue of £45.2m though, it does not seem obviously cheap. Particularly when you consider the track record and the alarming decline in returns on capital.

Hopefully this trend begins to reverse with the store roll outs and growing online business.

The group is extremely cash generative and this could give more of a sense of the robustness of the company.

My suspicion is that there could be a strong underlying business here that is poised for revenue growth and margin improvements as it rectifies previous missteps and executes on existing growth opportunities.

Mind Gym (LON:MIND)

Share price: 141p (-7.54%)

Shares in issue: 99,791,784

Market cap: £140.7m

Mind Gym (LON:MIND) uses psychology and behavioural science to improve workforce productivity and human capital.

The shift to work-from-home over lockdown hit business quite hard but the company has transitioned to online video classes in this period and now looks to be ramping up investment in digital.

I’ve not been sure of this one in the past but looking over it again today, the company is cash generative and there were promising signs of growth (before Covid). Joanne Black and Octavius Black remain the largest shareholders, with more than 55% of the stock.

That means there’s only a c30% free float though and, looking at the quote, liquidity is an issue here. The spread is some 984bps so trading in and out or flip-flopping on a buy decision would be costly.

Full year results


  • Revenue -18% to £39.4m,
  • Gross profit margin +750bps to 87.4%,
  • Adjusted PBT -95% to £0.3m; statutory PBT down from £7.4m to a £0.4m loss,
  • Adjusted diluted EPS -94% to 0.3p; diluted EPS down from 5.91p to a loss per share of 0.23p,
  • £16.8m of cash at bank and cash generated from operations of £5.9m (down 44%),
  • Capex up 396% to £3.2m.

It’s encouraging to see cash generation comfortably ahead of earnings, which has obviously been hit by Covid disruption. The increase in capex could also be a positive sign, assuming that capex has gone towards promising growth opportunities.

Indeed the group explains that £2.8m of capex was spent on developing its new digital offerwith a further significant investment expected to be made during the current financial year’. Two products are on track to launch in FY22 and Mind Gym notes positive feedback from beta trials.

The second half has seen a strong recovery in trading, with revenue up 79% on the first half and up 6% year-on-year.

This recovery has been helped in part by the group’s pivot to virtual delivery and its digital strategy. ‘Digitally enabled’ revenue more than doubled from £15.1m to £30.5m in the year and made up 77% of total revenue. ‘Pure digital’ revenue was up 51% from £4.3m to £6.4m and contributed 16% of total revenue.

Mind Gym says this ‘builds confidence for our next generation of digital products’. These digital initiatives are responsible for the increase in gross margin, and it looks as though there has been no drop off in quality of service, with the percentage of participants rating their Mind Gym experience as ‘Excellent’ up from 50.1% to 56.1%.

Current trading – FY22 has started strongly, with continued demand for Mind Gym’s services. FY22 revenue is expected to at least reach pre-COVID FY20 levels and the group expects to break even after investment in its digital offer, with a return to profitability in FY23.

Going forwards, it expects to reinvest profits from its core business into digital, proprietary IP and marketing initiatives to drive sustainable long term growth.


The company deserves credit for its fast switch to digital alternatives and it will be interesting to see how much of this sticks going forwards.

Has the company unlocked a new suite of services over lockdown, or will customers rush back to the more traditional physical location packages? If the former, that could be good for margins.

Mind Gym is certainly backing digital with its £2.8m investment into capex here. Two new digital products are expected in FY22, and the group says:

We anticipate that even with the return to live, in-person delivery, the majority of our business will be digitally enabled (which includes virtual) and our pure digital offer will also continue to grow.

It sounds like there is potential, and Mind Gym has been able to generate attractive returns on capital and operating margins in the past. However, at this point, the company doesn’t see a return to profitability until FY23.

There’s not much maintenance capex here, and the group has a good cash balance, so it is in decent shape to last through that period. But with a market cap of around £140m and trading at close to 4x sales, the valuation seems full given the near term prospects.

Then again, pre Covid, the group was racking up some eye catching compound annual growth rates. It’s a potentially huge market and I’m becoming more open to the long term opportunity here, but more work is required on the market itself and the quality of Mind Gym’s offering.

Given the current valuation and lack of profitability forecast for the year ahead, I’m not feeling too much pressure to rush in, so there should be time to do a little more work on it.



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