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Small Cap Value Report (Fri 31 Mar 2023) - TGP, TPX, NCC, SWG, EMIS

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Good morning from Paul!

A busy week, with 2 CEO interviews published this Weds amp; Thurs – a reminder of the links here -

Interview with Dorian Gonsalves, CEO of Belvoir (LON:BLV) – I thought this went really well, lots of interesting points about the property market. I rate this share highly, and despite a recent bounce, it’s still attractive value on a PER of about 10, and divis yielding about 4.7%. On top of that, it’s paid off all bank debt in recent years, and has self-funded more acquisitions. Management impress me as down-to-earth, experienced, hands-on people. They’ll be at Mello Chiswick in May, so you can meet and chat to them, as I did last year. A big thank you also to BLV for making a generous donation to ZANE, my favourite charity providing humanitarian aid to destitute pensioners mainly, and other terrific projects, in Zimbabwe.

 Interview with Mike Raybould, CEO of Portmeirion (LON:PMP) – another interesting interview I thought, with more energy than the rather dry presentation on InvestorMeetCompany! The group is performing well, and has a large tailwind this year from freight costs which will be millions lower than last year. High inventories are also likely to normalise, which should wipe out net debt in 2023. Given the decent 2022 figures, and sound outlook for 2023, this share looks obviously under-priced to me. There’s also a decent yield too. 

The weekend podcast from me will go out early tomorrow, because I’m jetting off to Malta (Gozo) for 4 weeks! I’ll be on holiday for 2 of those weeks, so Graham amp; Roland will be covering things here. Obviously I’ll be heckling from the back, in the reader comments, I won’t be able to keep away!

Have a lovely weekend everyone! :-)   I’ve got a bit more work to do on today’s report before signing off later.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates amp; results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it’s anybody’s guess what direction market sentiment will take amp; nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed – please be civil, rational, and include the company name/ticker, otherwise people won’t necessarily know what company you are referring to.

It’s quiet for news today, being a Friday. This is what’s on my list -



Down 23% to 1396p (market cap £878m)

CMA Investigation - This is an unusual situation. A recommended takeover bid has been in progress for a while, as you can see from the chart looking like a table. The UK’s Competition amp; Markets Authority (CMA) has put a spanner in the works, by rejecting a proposed remedy for CMA’s previous concerns. So a phase 2 investigation is now happening. Both parties are “considering their options”. Judging from the share price reaction, it looks like investors reckon the deal’s likely to fall through. Pity, as it was a generous bid (at 29x PER). 

This raises the question of whether it’s best to wait for a bid to complete, or maybe even be improved, or to sell in the market once a bid is announced. At the moment it’s looking as if selling in the market was the right move here – hindsight eh! Bad luck to any holders, but who knows, the deal might come back.

Shearwater (LON:SWG)

Profit warning - another cyber-security group that issues a profit warning – down 39% to 50p (market cap £12m)

Says much the same things as larger NCC – customer spending decisions slowed or stopped in Q4 (of FY 3/2023). Resulting performance “significantly behind market expectations”, guiding £breakeven adj EBITDA (forecast and LY actual were both £4.4m, so this is a big miss) – ouch, that is bad. 

Also a £0.8m hit from unhedged forex movements. It is hedging from now on. 

Net cash is up though, at £3.4m. 

Says the pipeline is still strong. 

Last balance sheet has an odd item (£7.1m non-current receivable – what’s that for?) and is dominated by intangible assets. Only £3m NTAV.

My opinion – not clear that this is a viable business – history shows it’s never made any significant profits, usually loss-making. No divis paid historically. But £12m market cap is very cheap – recovery opportunity possibly? Delisting risk, as 6 big shareholders own c.63%?

Tekmar (LON:TGP)


No. shares: 61.0m existing + 80.8m fundraising  + 11.1 retail offer = 152.9m after the placing + up to 155m convertible loan shares = 308m potential shares assuming full conversion of the £18m convertible loan facility. Of this, SCF would own 70.4% of the maximum enlarged share capital. So existing shareholders are now just along for the ride, with SCF now in effective control.

Market cap £14m after placing. Then up to £28m if convertible loan fully converts (£18m)

Refinancing – SCF Partners (private equity firm) is the new investor (putting £4.3m into the placing element of this). Talks have been going on for a while, so we knew TGP was trying to refinance. It’s raising £7.3m through issuing 80.8m new shares at 9p each – the same as yesterday’s closing price, and similar to what we’d be guided to expect in previous announcements. That’s big dilution, more than doubling the share count from its current 61.0m.

There’s also a convertible loan deal, up to £18m over 3 years, which if ultimately converted would be a lot more dilution. The convertible loan facility is described as a “war chest” primarily for acquisitions. The terms put SCF in the driving seat – it can “request” TGP to draw down the loans, or they can be drawn down at TGP’s option. Repayment is 2 years after drawdown, which seems quite short term. Not cheap either, with 10% interest. Conversion price is 11.6p. 

There’s a retail offer of up to £1.0m alongside the placing, which is good to see.

My opinion – Tekmar has been a disastrous float (in 2018), going from being a nicely profitable company, to a cash-strapped basket case, with the share price collapsing accordingly. It’s good to see the company securing proper finance, but all of this is likely to limit the upside on the share price, due to heavy dilution. It should at least de-risk the company by properly funding it. Looking at the terms, I think this effectively hands control of the company to SCF. So it’s probably best seen as a deferred takeover bid priced at 11.6p. That’s not enough upside on the current share price to make it worth my while buying and holding this share. The upside case would be that the expansion strategy results in the creation of a much more valuable company, but SCF would get most of the benefit from that, so what’s the point in maintaining a stock market listing? It’s quite a strange deal – I don’t see why SCF didn’t just take over the whole company. I can’t get excited about this share, so it’s just AMBER for me, assuming the refinancing deal completes.


Tpximpact Holdings (LON:TPX)

Up 10% to 31.4p (market cap £29m)

Covenant Waiver amp; Current Trading

Continuing the theme of lousy floats and financial distress. This software services company has been on a knife edge recently, due to onerous bank debt. I last looked at it here on 31 Jan 2023, when it fell 38% to 28p on a profit warning, also flagging a likely bank covenant breach on 31 Mar 2023 – very high risk, so I had to flag it as RED. There’s a 10% relief rally today, but I don’t think shareholders should be celebrating yet, as it’s not out of the woods by any means.

Crunch day is today, talk about cutting it fine. The bank has given it temporary breathing space -

Further to the announcement made on 31 January 2023, the Group reports that it has been granted a waiver from the requirement to test each of the financial covenants applicable to its £30m revolving credit facility as of 31 March 2023. TPXimpact’s lender is currently undertaking a review of the Group’s short and medium term cash flow forecasts, the outcome of which will determine the nature and extent of future waivers. A further update will be provided when this review is concluded.

I don’t like the sound of that one bit – bank reviews often end badly. It seems to me that a placing (on possibly bad terms for existing holders) might well be the price for ongoing bank support.

Current trading/ order intake sounds OK though -

The Board confirms trading in January and February 2023 was in line with management expectations. In addition, the momentum in new orders has continued in Q4 FY23, with new business wins of over £30m in the quarter.

My opinion – still too high risk. I wouldn’t want to hold this share until it’s properly refinanced, which I think would need to involve an equity raise. Even then, it’s not clear if this company is actually any good or not. So why get involved? It might be a recovery situation, with breakeven forecast for this year, but a return to decent profit next year FY 3/2024. So if that recovery in trading is achieved, the shares could recover too. As you can see from the chart below, this share was a stock market darling in 2021, so there’s plenty of scope for it to rise substantially, if dilution is avoided. So high risk, potentially high reward I’d say. Might be worth a closer look once the financing has been sorted one way or another. Overall, it’s too high risk still, so I have to maintain my RED stance.



93.6p (down 38% at 10:14)

Market cap £292m

Bad luck to shareholders here, with £186m wiped off yesterday’s £478m market cap. It’s a profit warning I’m afraid.

Trading Update   (profit warning)

NCC Group plc (LSE: NCC, “the Group”), a leading independent provider of global cyber security and resilience services, is today providing a revised outlook due to further deterioration in the macro-economic and market environment.

The current year is FY 5/2023.

Previous guidance (with H1 results) was FY adj operating profit of £47m.

Since then market conditions have worsened, especially in the USA.

Delays amp; cancellations by customers, driven by tech sector staffing layoffs.

Banking turmoil recently has led to reduced customer appetite for tech project spend.

Higher interest rates and inflationary challenges for customers.

New guidance – adj operating profit £28-32m.

Cost-cutting is now being considered.

Challenges above expected to continue into FY 5/2024.

Strategy is to deepen client relationships amp; offer broader services.

Confident in medium term prospects.

“Macro-economic headwinds, market volatility and uncertainty are undermining business confidence, particularly in the technology sector where we are well represented, and as a result we are seeing demand fall in the form of projects being further delayed, reduced or cancelled.

I’m not familiar with this company, or its cyber-security sector, so I can only really comment on the numbers. Here’s my take on the last H1 results (6m to 30 Nov 2022) -

Net bank debt of £54.8m is quite hefty, but well within an enlarged facility that was agreed in Dec 2022 (4-year £162.5m RCF +£75m accordion option).

Balance sheet is weak – NAV of £303m contained £392m of intangible assets, so NTAV is ugly at £(89)m – although software companies don’t tend to need much in the way of assets. Bottom line here is that there’s no balance sheet support for the shares, this company will be valued entirely on earnings. Since these have missed forecast by a long way, then inevitably the share price has fallen considerably today, as it should.

NCC has been highly acquisitive, including a huge acquisition (IPM) in June 2021 costing $216m.

Not particularly cash generative in H1, with all cashflow being paid out in dividends – makes me wonder if the divis might be at risk of being cut in future?

Outlook comments (published 2 Feb 2023) mentions lengthening of sales cycle, and delays in buying decisions. So the writing was on the wall. Also broker forecasts have been reducing in recent months -


Unfortunately, there are no broker notes available on Research Tree for NCC, so we’ll just have to work out the figures manually.

NCC achieved 10.8p adj basic EPS for FY 5/2022. That was based on £48m adj operating profit.

Today it’s saying £30m (mid point of range) for this year. That’s a 37% drop in profit, so if I apply the same % fall to EPS (not strictly correct, but it gives us a rough idea) then we get to 6.8p EPS for this year (my estimate). That’s well below existing broker consensus of 10.0p.

It sounds like there’s little prospect of much recovery in FY 5/2024 too.

So we should probably only be valuing this company on a lowish PER of maybe 10-15 times? That would get me to a theoretical share price of 68-102p, compared with the current price of 95p, which is at the top end of my range.

So today’s share price is still arguably a little too high, but that depends on whether you think future performance will improve, get worse, or stay about the same.

My opinion – it’s not a disaster, but clearly is a considerable disappointment. I’m quite surprised, as I would have thought cyber-security would be a vital, and growing space.

I’m worried that it might have overpaid for previous acquisitions.

Balance sheet is weak, hence the generous divis might not be sustainable.

I don’t know enough about the company or sector to form a judgement on whether this is a bump in the road due to macro factors, or whether there’s something more serious happening. Hence neutral view from me, AMBER.

Amazingly, the share price is now back down to where it was 12 years ago -




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