Small Cap Value Report (12 Jun) - CRE, AMO, VNET, HYC, CGS

12th Jun '13 by Paul Scott

6 comments 15460 reads

Good morning! A very quiet day for small cap news, which is handy as I have a long drive today to visit family in Cheshire. So let's start with a share I've liked in the past, Creston (LON:CRE) . Looking back to my last comments on Creston on 22 April, I liked the apparently low PER and good dividend yield, but was confused by both their complicated accounts, and their last trading statement.

At 93p a share the market cap is currently £57m. They are a advertising, marketing & PR group, leaning heavily towards digital (now 48% of group revenue).

So the key figures for the year-ended 31 Mar 2013 are: turnover up a whisker to £75.2m, group headline EBITDA up 2% to £12.0m, and "headline diluted" EPS up 19% to 14.66p. It is important to note that the rise in EPS has been driven entirely by an unusually low tax charge this year, so it's important to NOT start valuing the business on a multiple of that 14.66p figure.

As I've complained before, Creston's accounts are just too complicated. They have so many different reported measures of profit, adjusting for so many items, that it's far too difficult to unravel how much underlying profit the group really makes.

To my mind, the underlying performance doesn't seem to have altered much from last year, so last year's EPS of just over 12p is probably about the right figure to use for valuation purposes for this year too, which normalises the tax charge. So at 93p that puts it on a normalised (for tax) PER of about 7.8, which still looks good value.

The Balance Sheet is OK, once you write off the £105m goodwill (clearly they have done lots of acquisitions in the past). Removing all intangibles brings the net tangible asset value down to only £5.2m, so there isn't really any asset backing here to speak of, although you wouldn't expect that from a people business.

The net cash position has been flattered by a large reverse premium received from a London landlord for signing a new lease, so best to ignore that and treat the company as being broadly cash neutral, in my opinion.

The final dividend is flat against last year at 2.67p, so with the interim dividend of 1p, that gives 3.67p for a yield of 3.9%,…

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bsharman

12th Jun '13

Hi Paul. Do you know if there is a way to find out what certain fund managers are buying and selling (more immediately) other than from the monthly fund reports that they produce? Thanks.

MrContrarian

Vianet: "Also, the pub companies test the equipment extensively in trials before installing it, and this kit has been in use for many years. So accuracy should not be an issue"

The devil is in the detail. Punch admitted in 2009 that it 'misled' Parliament on flow measurement and that Blulines' device only gave total fluid vol. Punch previously told the investigation that Brulines kit distinguished between beer and the water used for cleaning.

So either the Punch rep lied or did not know what he was talking about. Neither is good and has undermined the credibility of the pub-tie lobby.

I don't know if current Brulines kit does measure only beer flow, which is exempt from Weights and Measures legislation on the thin grounds that it is not used as the basis for charging for product. IMO in effect it is used for exactly that. Brulines should immediately press for inclusion in Weights & Measures law.

I'm glad I only bought a small holding in Vianet.

Cisk

bsharman, there is no other way apart from looking at RNS announcements when holdings go above 3%, and any changes when holding is >3% (including going below that level). There is a delay from when the trade has taken place to announcing it to the market, but it has to be reported to the market within a certain time frame (can't remember what it is).

LSE trade data is limited to price, volume, date / time (and a few other things), so you never know who the trading parties are, and you don't even know the trade direction (websites use the price to determine this).

So you'll only get the RNS shareholding announcements when the fund in question has a sizeable holding. Clearly this is of more relevance for small caps, as funds are likely to have a larger % shareholding.

I haven't yet seen any commercially-available service to private investors that actually collates this data so you can profile what funds are doing with their holdings. As you say, the monthly reports from funds sometimes have some of this data (usually at a high level) but normally you have to wait for the year end reports to get a full listing.

I've discussed this with Ed & Dave and I believe / hope that this is a feature that may be added to stockopedia in the future. The additional data feed / licence is expensive though, so I'm assuming that it will be an extra feature if it does get introduced, rather than being part of the pro package.

There are a lot of funds out there that are mediocre at best, however there are some that are (relatively) small that specialise in smaller companies and have been doing rather well. Being able to track their moves yourself could well be a profitable strategy, and would certainly avoid some of the high investment hurdles (e.g. £100k minimum etc), management fees and liquidity / redemption restrictions. So there's plenty of opportunity to track fund performance and cross reference against their holdings etc.

snickers

Re VNET. I read the latest parliament debate last night. Complaints about the government soft pedalling the issue, listening more to pubcos than to CAMRA, repeated promises to reform being broken. The most effective pub-saving measure, putting a floor under supermarket booze prices, has been not taken. OTOH how much reform (reduced rents) can the pubcos take? If they collapse I suppose they sell large numbers of pubs to developers.

Hi Cisk, Thanks for your detailed reply. It would be useful to have a basic top ten holdings list for some fund managers, which is updated on a monthly basis. Currently I have to use other websites to find this information. I am thinking of fund managers such as Mark Slater and Giles Hargreave and their small cap growth funds, which I like to follow - it's always a good start for further research! The information available is limited to the top 10 holdings and therefore the share prices may have already increased quite substantially. It would be interesting to see the 'new' purchases for each fund which over time become larger holdings and then feature in the top 10. Thanks again.

Delpher

13th Jun '13

VNET. Having done some research it appears that a large proportion of Vianet's systems installed measure volume only and that most landlords use the system to monitor problem tenants. The introduction of a monitoring system has an immediate effect on the tenant who treats it as a spy in the cellar. Many landlords are conservative and use tried and trusted management systems to manage their better tenants. The Vianet products are unique in the industry and in a cash trade it must be inevitable that remote systems will play an increasing part in pub management which may result in the need to upgrade the systems. Flow meters are widely used in industry and monitoring can be influenced by varying densities of liquids and gas but these can be allowed for within acceptable tolerances. Vianet should have ironed out these issues and could invite a the Government to test their systems. I see the main problem for vianet is whether the Pub Code will result in a huge increase in non-tied pubs but I cannot see this happening because the brewing industry is reliant on tied pubs to maintain is beer sales and a huge increase in untied pubs would have a catastrophic effect on the industry.

Small Cap Value Report (12 Jun) - CRE, AMO, VNET, HYC, CGS

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Paul Scott

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