Small Cap Value Report (Wed 15 May 2019) - PMP, ZYT, MOSB, SDI, ZTF, SDY

Good morning, it’s Paul here!

Mello London

A reminder that the Mello Trusts amp; Funds event is taking place today, at the Clayton Hotel in Chiswick. I had a quick chat with organiser David Stredder yesterday, and he’s very pleased with the calibre of speakers, and some excellent panel discussions lined up. Should be another great Mello event!

Mello’s “three-day investor-fest!” continues at the same venue, this Thursday amp; Friday, with the main Mello Investor Show. Here’s a 2 minute video from our friends at PIWorld, of last year’s event at the same venue.

I’m starting to panic about my small caps presentation at 14:00 at Mello London this Friday. I’ve got some ideas in my head, but no slides or script yet. Unfortunately, this clashes with one of the 2 presentations from Sosandar (my largest long position).

I also want to talk to Mello attendees (and Stockopedia subscribers) about my recent charity observer trip to Zimbabwe, with ZANE, which was a trip of a lifetime in some ways, although also very upsetting, seeing such desperate poverty, and the sheer scale of the problems there.

After discussing things with David Stredder, he’s suggested I give a 5-minute snapshot of Zimbabwe in my 14:00 talk this Friday, then invite Mello delegates to a more detailed (and hopefully interesting) 30-min talk (with photos, and hopefully some audio clips too), starting c.17:15. Then it will be Peroni time, with great hilarity all round no doubt ensuing! Mello events are tremendously social, with a great community feel, I find them enormous fun, as well as being so interesting.

Incidentally, I’ve just had this email from ZANE about donating old spectacles. I wonder if any readers here could help too?

ZANE donors helps many people to see again and to see better in Zimbabwe. Cataract operations restore the sight of many pensioners and veterans.

Some cases are not suitable for cataract operations. In these cases the patients are provided with spectacles. However, there is a shortage of spectacles frames in Zimbabwe, making them very expensive.

If you have any old spectacles, would you consider donating them so that even more people in Zimbabwe can be helped? If you would like to donate an old pair of spectacles, with or without lenses, please send them to;

ZANE Spectacles, PO Box 451 Witney OX28 9FY 

Update to yesterday’s report.

A subscriber kindly sent me some updated research overnight (many thanks for that!). This has enabled me to crunch the numbers more easily, and arrive at a more informed view on Portmeirion shares.

I haven’t been able to copy it here without corrupting the text, so here is the link to yesterday’s full report, where you can find my update on the company.

Also from yesterday;

Zytronic (LON:ZYT)

Share price: 267.5p (down 1% at close of play yesterday)
No. shares: 16.0m
Market cap: £42.8m

(at the time of writing, I hold a long position in this share)

Interim results

Zytronic plc, a leading specialist manufacturer of touch sensors, announces its consolidated interim results for the six months ended 31 March 2019. 

This came out yesterday. At first, I thought it was an administrative error, a duplicate announcement. That’s because the headline numbers all looked familiar. Later on, I realised that the numbers had been previewed in the profit warning of 2 May.

I reviewed the latest interim results last night, and there are no surprises in the figures. 

So it’s really the outlook comments that interest me most;

“As stated in our recent trading update, whilst historically trading in the second half has shown an improvement over the first half, and there are several projects that should improve performance as they come to fruition, at this stage the Board is taking a cautious and conservative view on an increase in activity levels from the Gaming sector in the second half.”

That sounds OK to me.

Cashflow – the only possible amber flag that I noticed when reviewing the interim results was that both inventories and receivables have risen, despite revenues having fallen. That’s a little unusual, so something to keep an eye on.

The risk is that the company might be sitting on unsold inventories, and/or could be struggling to get customers to pay for deliveries which might not be satisfactory.

Zytronic has a track record of being straight with its accounting, so I don’t see elevated risk here. This is just a reminder to myself to check that the working capital movements reverse back to normal when the final accounts come out.

My opinion – I mentioned in my report here on 2 May, that I was considering a purchase. I succumbed to temptation a few days later, so have picked up a small, starter size long position. That’s mainly for the big divis, and the recovery potential, backed up by a very strong balance sheet with plenty of cash.

I’m not 100% confident on this one (well, we can never be 100% confident on anything), and think there’s a possibility of another profit warning later this year. Hence why I’ve only dipped my toe in the water, with a small initial purchase. Generally speaking, I like to start small, then gradually increase positions if the newsflow improves.

Trading update – says that it’s on track to meet market expectations for the FY 01/2020. Forecast to make a small loss, so that’s not very interesting.

I can’t see what is likely to change, to make MOSB profitable again – retail trends are very much against this type of legacy retailer. Hence the low market cap is fully justified, in my view.

There’s a good review from Graham here on 22 Mar 2019, looking at its most recent annual results.

I won’t be doing any more work on this one today.

An in line with expectations trading update, with some additional info.

This share has had a fantastic run up in 2019 – looking fully priced now, to me.

We might see some profit-taking today, I suspect.

Results for FY 04/2019 will be out in July, so I’ll take a proper look then.

This company is attending Mello, and will be presenting tomorrow at 14:45

AGM trading update 4 months to 30 Apr 2019.

Constant currency revenue growth of 20% looks good (even better at 25% with currency benefit) – some benefit from Brexit-related stockpiling by customers.

Caution urged;

After this strong start to the year we anticipate a return to trendline growth rates, with a reversal of the inventory build in Polyolefin Foams and more demanding prior year comparatives in HPP.

Outlook sounds OK;

While it is still early in the year, and we are mindful of the less stable political and macroeconomic environment, we expect to meet market expectations for growth for the full year and remain confident about the long-term prospects of the business.”

My opinion – looks expensive at a 2019 PER of 28.7, dropping to 23.2 in 2020.

However, there could be upside on that, if the new capacity being created delivers better than expected growth.

I think this is a potentially interesting company, which I would like to learn more about. They are presenting at Mello tomorrow, at 16:45.

Results for FY 03/2019 look good – at a very quick initial look, the adj. EPS of 4.9p looks a beat against consensus of 4.65p shown on Stockopedia (from Thomson Reuters, as always).

Balance sheet looks pretty strong to me.

At 62p per share, the PER looks reasonable.

I quite like the look of this – it looks a decent business, performing well, at a reasonable valuation.

I’m short of time today, so probably won’t have time to dig any deeper.

Interim results seem to be good;

“Further strong progress across the Group with trading results and cash ahead of management expectations…

I like this company, but do have reservations about its balance sheet, explained in detail here.

That may not matter today, as the positive update could see the share gain more ground.

It doesn’t say anything specific about full year expectations though, so sounds like no increase in expectations there.

If I have time, I’ll add some more detail later, as I see a broker update note has just hit my email box. Could be worth a closer look?

Stockopedia