Small Cap Report: WGB, JPR, TNI, TRI, NXR, STOB, RGD

Good morning. Apologies for slightly erratic service lately, should be OK to do a report every day for the rest of this week hopefully.

I hold shares in Walker Greenbank (LON:WGB), a luxury interior furnishings group that looks a good value situation to me, on a fwd PER of about 8. Slightly irritated with their RNS this morning which just mentions them having won a magazine award, with no financial information mentioned at all. The RNS is not for PR, it's for proper financial news!However, I shall forgive them providing they keep delivering good earnings growth as they have done for the last 3 years.

Troubled regional newspaper group, Johnston Press (JPR) has issued an IMS which says that they expect full year operating profit performance for 2012 to be broadly in line (i.e. slightly below) market expectations.

That's all very well, but they are really not making much inroads into their gargantuan debt pile at all, which has only reduced from £352m at the start of the calendar year, to £336m at 31 Oct. Just servicing the debt seems to be absorbing the lion's share of their cashflow.

When you take into account the declining nature of the business, I remain of the view that the equity of Johnston Press is probably worthless - as I don't believe that the business will generate enough cashflow to ever repay its debt. Therefore these shares do not tempt me at any price - why take the risk?

Whereas Trinity Mirror (TNI) is a much more convincing newspaper story, with debt reducing so fast that it looks set to eradicate its net debt by 2014 (although a big pension deficit will remain there, but largely offset by freehold property assets).

(I hold neither long nor short positions in either JPR or TNI).

Interim results (6m to 30 Sept) from international fastenings group, Trifast (LON:TRI) look pretty respectable, with underlying EBITDA up 50% to £4.6m, and adjusted EPS up 25% to 2.3p.

The full year forecast (per Stockopedia, which I am now using for my fundamentals data, and have to say am finding it an excellent reference site) is for 4.5p EPS this year, rising to 5.2p next year, so at 42p a share that puts the PER on about 9 falling to 8 next year. Given that they have £7.7m of net debt,  and that it's an unexciting low margin business, that valuation looks about right to me. The divi yield is under 1% too, so not of interest to me when 5%+ divis are available elsewhere for similar companies.

The maker of Triton showers, and Johnson Tiles, is a group called Norcros (LON:NXR). I like the value characteristics of these shares, with a PER of about 6, and they fixed their debt problems a few years ago, which is now under control. Their interims to 30 Sep look solid - underlying PBT is up 11% and underlying EPS up 22% to 1.1p, so assuming no seasonal bias that equates to 2.2p for the year, not bad considering the shares are only 12.5p to buy, and looks to be a bit ahead of broker forecast.
There's also a decent 4% divi yield.

On the downside, they have a pension deficit that has grown to £22m, due to the discount rate being reduced (a problem with almost all pension funds right now, as a spin-off from QE). However, with that representing only a small percentage of the £366m scheme assets, it's not difficult to see that deficit just melt away once interest rates normalise in the future. Depends on your point of view.

Their South African business has moved back into profit. They also have some surplus property pending disposal. There is net debt of £20.2m, but as they point out, this is only 1.1 times EBITDA. Which makes the mkt cap of £72m look pretty tempting when you consider that their cashflow should pay down net debt pretty rapidly. I like Norcros as a long-term value play.

Interesting to see that the retail bond market is going from strength to strength, with Stobart (LON:STOB) being the latest Listed company to offer a bond to retail investors, with a 5.5% rate of interestm repayable in 6 years. I can see the attraction, given that deposit accounts pay peanuts in comparison.

Still, with banks reluctant to lend, then surely retail bonds are a useful way to help our economy grow out of recession, so a positive thing.

The headline numbers from Real Good Foods (RGD) don't look at all good. I've never understood why this company has such a large & enthusiastic private investor following, cannot see the attraction at all myself. Seems to be a high turnover, very low margin business, with rather a lot of debt.

Right that's it for today. See you back here tomorrow!

Regards, Paul.