Small Cap Report (2 May) - SSP, JSG, SNX, ZZZ, CCT

2nd May '13 by Paul Scott

5 comments 18326 reads

Pre 8 a.m. comments

Good morning! Fairly quiet for results today, although my eye has been drawn to a trading update from Solid State (LON:SSP). They say that sales and pre-tax profits are in line with expectations for the year ended 31 Mar 2013.

As you can see from the Stockopedia "Growth & Value" table on the left, there are some good strong green bars (indicating top quintile in both absolute & sector relative terms) in the key areas of PER, dividend yield, and ROCE/ROE.

For me, that is always my instant glance as to whether the shares are worth looking into further, which in this case they are.

Also, a positive or at least "in line with expectations" trading statement is always a good starting point for researching whether to buy some shares, as you have at least got certainty over current trading, which reduces the risk of a profits warning, at least in the near future.

They have also done what appears to be a good value acquisition, paying £900k cash for Q-par Angus Ltd. It had turnover of £2.25m and post-tax profits of £214k for the year ended 31 May 2012, so the acquisition price of just £900k looks to have been a good deal. It is said to be earnings enhancing, which of course any profitable acquisition will be, if paid for in cash!

They conclude the trading statement by saying that order intake "remains strong". Looks to be an interesting potential investment, I might do some more work on this over the weekend.

Johnson Service (LON:JSG) issues a positive-sounding AGM trading update. Key points are that trading has been in line for the first four months of the year. They remain confident for the full year. It's got too much debt for my liking, so for that reason doesn't meet my investing criteria.

Post 8 a.m. comments

One thing that's generally struck me, is that whilst we've had a fairly indiscriminate move up in many shares in the past year, in order for those price rises to stick, then companies have to deliver solid trading results. So we're seeing some quite sharp pullbacks in share prices where results do not live up to expectations.

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Chrisfarrell21

2nd May '13

Hi Paul,

The concept of Snoozebox really interests me, and think it has more of a market at events like F1 and Moto GP where people would pay good money to be at the track for the whole 3-4 days. Festivals are more of a mixed crowd so agree that it might not fair as well there.

It will be interesting to see the next couple of updates now that Robert Breare has stepped aside as CEO to concentrate on sales, and the FD has gone. There were always questions about Robert Breare's past company history, and the FD should be responsible for the shortfall news issued on 22 April.

Also, Goldplat (LON:GDP) updated as well yesterday morning, the market seemed to take it well. It looks currently like one of the best value shares on the entire London market.

Paul Scott

Hi Chris,
I also like Goldplat (LON:GDP). I had a very small number of shares in it until recently, but got rid of them when I needed the funds for something else. Does look very good value though - PER less than 5 on broker forecasts, and it has net cash! 5% forecast yield too.

Downside is obviously risks inherent from African operations.

Regards, Paul.

campbellsmith

Hi Paul,

I totally agree with your comment about moving part into cash after a very strong run. We really don't have to be fully invested all the time. I too keep finding interesting companies to invest in!

So far this year, the SmallCap companies in my portfolio have significantly out-performed the 'traditionally dependable' larger-company element.

Keep up the excellent work!

Campbell

Indeed.

With a slightly longer term view, the potential development of a third recovery operation in Burkina Faso is interesting and would reduce the forward PER further, albeit a year or two down the line.

Also, the recent announcement on 24 April effectively values £GDP's share (after the transaction) in the South African recovery operation at £14.5m, which compares pretty well against the market cap of £17.3m, the net cash and the value of the other profitable operations.

Nopunting

4th May '13

Paul

When you look at Solid State, look closely at the cashflow statement; it requires quite material working capital to grow. Director remuneration is also quite high. I expect that they will need further equity to fund acquisitions of any material size

Edward

Small Cap Report (2 May) - SSP, JSG, SNX, ZZZ, CCT

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Paul Scott

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