Small Cap Report - NXT, TED, DLC, SNCL

Interesting RNSs are starting to appear again at long last, and should build into a tidal wave of trading statements over the next couple of weeks, especially from retailers (which I take a particular interest in, as I spent 8 years as the FD for a ladieswear chain).

Fashion bellwether, Next (LON:NXT) is the first fashion retailer to report. I so admire this business, both as an analyst, and as a customer. They just execute consistently well, at everything. Even their trading statements are a model of clarity, giving precise profit & EPS guidance (if they do it, why can't everyone? I often hear company management say, "we can't give forecasts, that's your job", at analyst meetings. My answer from now on will be, "well, Next give precise forecasts to the market, so why can't you?!"). We're only talking about current year forecasts here of course, not future years.

There are no surprises within the Next figures, just slight out-performance against previous guidance, and the trend of Next Directory growing strongly has continued, with sales growth year to date of 10.5%, versus only 0.6% sales growth in Next retail.

They see the outlook as "subdued but steady". Interestingly, Next buys back a hefty chunk of its own shares each year, so a hidden benefit in that EPS has risen in spectacular fashion over the years. It's a clever strategy that has helped drive a remarkable share price performance. As usual, I can't bring myself to buy the shares now that they have already risen so much. The fwd PER is 13.5, which looks about right.

Ted Baker (LON:TED) announce that their trading statement will be issued next week, on Wed 9 Jan.

CAD/CAM software company, Delcam (LON:DLC) puts out a strong trading update, indicating that they finished the year with record orders, saying that they have, "ended an already strong year on a new high". Impressive stuff!

It's always pleasing to see a British company succeeding out there on an international level. The shares have reacted positively, as you would expect, and have punched through 1000p. The PER is getting close to 20, so it's a bit warm for me, but I can see the attraction for growth investors who believe that the growth will continue.

Trouble is with toppy ratings, you're only ever one profit warning away from losing your shirt, which makes it difficult to sleep at night. Personally I'd rather look at fundamentally good companies which have had a temporary slip-up, and are priced for failure, but go on to recover. But each to their own!

Horticultural products group, William Sinclair (SNCL) had a lousy year in 2012, due to the exceptionally wet weather, which hampered harvesting of peat. This more or less wiped out profits for the year, which fell over 90% to just £261k. It's got debt, and a significant pension fund deficit of £13m (compared with £20m mkt cap), and isn't particularly cheap on a PER basis, even if you look at a more normal prior year's trading, so I won't be following up on this one. Too messy.

On a final point, I'm doing another little thing or charity, this time it's Cancer Research's "DryAthlon". The idea is that you don't drink any alcohol for the whole of January, and instead you donate the money you save to Cancer Research. What a great idea! And you can get people to sponsor you too. It is still open for new joiners, so if you fancy having a dry January & helping charity at the same time, then why not sign up?!

I've already tapped my friends here for sponsorship to my Half Marathon on Feb 17th, so am not expecting any more donations to the DryAthlon, but if anyone does feel like giving me a bit of encouragement for a dry January, thenmy Cancer Research fund-raising page for DryAthlon is here. Why not donate a virtual pint (of diet coke!)?!

Incidentally, my training runs were going very well, got up to 10 miles just before Xmas (although the last 3 miles of that were hobbling/walking/spurts of jogging), but the effects of Xmas food & booze, and a Cold, mean that there's still a lot of work to do. But I went back outside yesterday evening, and managed 4 miles, so am getting back into my stride. Will keep you updated.

A dodgy right ankle is the main problem, rather than stamina (I badly sprained my ankle in April 2012, and it's not fully recovered unfortunately, so seizes up when I run on it). But we'll get there, where there's a will, there's a way!

We're back to daily reports here now, so do check back here every trading day from now on, should be a very busy month for trading statements, then we'll start to get into the mega-busy period of Feb-Mar for 31 Dec year-ends.

Regards, Paul.

(Paul does NOT hold shares in any of the companies mentioned today)