[SharePad] Small-Cap Spotlight Report: SOSANDAR

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27 January 2024
By Maynard Paton

Fashion website Sosandar provides a fascinating dilemma for small-cap growth investors.

Bulls will highlight the online retailer’s very rapid expansion and bold ambition to raise profits to £10 million which, if achieved, would make its £37 million market cap extremely attractive. The story is also backed by keen co-founders and net cash.

Bears will note the £10 million profit ambition is based upon creating a chain of shops alongside continuing to sell clothes online. Sosandar’s website currently makes little profit and the fashion industry — whether selling online or through shops — is blighted by poor economics.

Let’s take a closer look.

Read my full SOSANDAR article for SharePad >>

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: LOK’NSTORE

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16 December 2023
By Maynard Paton

I love ‘owner managers’ — company bosses with significant shareholdings who want to build wealth for the long haul.

Such leaders do seem to act differently to standard chief executives. A hefty investment complemented by substantial dividends should certainly focus the mind on long-term operational matters…

…versus more typical executive considerations such as bonuses, expense accounts, awaydays and career progression.

I have attempted to identify promising ‘owner managers’ by screening for companies with the following criteria:

  • At least ten years of annual dividend increases, and;
  • A minimum 10% total director shareholding.

SharePad returned only eight companies, including James Halstead, Judges Scientific and Craneware:

(Source: SharePad)

I selected Lok’nStore as it offered the highest forecast dividend growth among the shares I had not previously evaluated for SharePad.

Lok’nStore’s history of annual dividend increases runs to 13 years, with another three years of payout advances predicted:

(Source: SharePad)

SharePad reveals Lok’nStore’s ‘owner manager’ to be executive chairman Andrew Jacobs, who controls 13% of the business:

(Source: SharePad)

Let’s take a closer look.

Read my full LOK’NSTORE article for SharePad >>

Maynard Paton

[SharePad] Small-Cap Spotlight Report: JUDGES SCIENTIFIC

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18 November 2023
By Maynard Paton

Today’s rough market for small-cap shares could be the exact time to hunt for your next great portfolio winner.

Take Judges Scientific, the £540 million group of scientific instrument manufacturers, which joined AIM at 95p at the bottom of the dotcom crash during early 2003:

(Source: SharePad)

These shares topped £100 earlier this year to give initial shareholders a staggering 100-bagger return. What can investors learn from this astonishing performer?

Let’s take a closer look.

Read my full JUDGES SCIENTIFIC article for SharePad >>

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: FONIX MOBILE

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14 October 2023
By Maynard Paton

Whisper it, but a few UK small-caps are still progressing well and maintaining resilient share prices in this difficult market.

Fonix Mobile is a good example. Recent full-year results from this £206 million business showed revenue up 21%, earnings up 10% and the dividend up 12%, which ensured the shares remain within touching distance of their all-time high:

(Source: SharePad)

Fonix currently appears on an old SharePad screen of mine that seeks respectable companies that have grown without acquisition. I have always believed the very best companies are those that can expand ‘organically’ and do not rely on purchasing other businesses for higher profit.

The screen’s filter criteria are:

  • Positive five-year turnover and operating profit growth;
  • A minimum of 15% for both return on equity (ROE) and operating margin;
  • Net bank borrowing of no more than zero (i.e. a net cash position), and;
  • A five-year acquisition spend of zero.
(Source: SharePad)

I selected Fonix as it had exhibited the strongest revenue growth after Alpha Group — which broke its organic-growth history by announcing an acquisition last month — and VAALCO Energy — an American oil explorer that I had no desire to review.

Let’s take a closer look at Fonix.

Read my full FONIX MOBILE article for SharePad >>

Maynard Paton

[SharePad] Small-Cap Spotlight Report: NCC

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22 September 2023
By Maynard Paton

“Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworsifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximised.”

Market legend Peter Lynch never liked great companies that ‘diworsified’ into less appealing sectors in the quest for growth.

His book One Up On Wall Street recounted how many famous US stocks blew big money on foolish acquisitions to ensure losses were maximised during the 1980s.

Diworsification sadly remains a popular management strategy, and UK small-caps have not been immune from ambitious boardrooms undertaking low-quality acquisitions and trying to prove Mr Lynch wrong.

NCC is a prime example. The IT group was once dominated by a terrific subsidiary, but lots of acquisitions created a series of mishaps and the shares are now back to where they were twelve years ago:

(Source: SharePad)

Let’s take a closer look.

Read my full NCC article for SharePad >>

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: RECORD

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12 August 2023
By Maynard Paton

I have once again revisited a SharePad screen that applies two ratios favoured by ‘quality’ investors — operating margin and return on equity (ROE).

The exact criteria I re-used were:

  • An operating margin (latest and 10-year average) of 20% or more, and;
  • An ROE (latest and 10-year average) of 20% or more.

Any business with a persistent margin and ROE of at least 20% could be very special.

To narrow the field down further, I also sought companies that carried net cash (i.e. net borrowings excluding IFRS 16 finance leases of less than zero):

(Source: SharePad)

This time the filter yielded 20 matches, including Games WorkshopHargreaves LansdownPlus 500 and Polar Capital.

I selected Record because it was among the better share-price performers of the last twelve months that I had not already studied for SharePad. Let’s take a closer look.

Read my full RECORD article for SharePad >>

Maynard Paton

[SharePad] Small-Cap Spotlight Report: HOTEL CHOCOLAT

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15 July 2023
By Maynard Paton

I love ‘owner managers’ — company bosses with significant shareholdings who live and breathe their business and want to build wealth for the long haul.

Typically entrepreneurs, the owner-managers who lead quoted companies do seem to think and act differently to standard chief executives.

A hefty investment complemented perhaps by substantial dividends should certainly focus the mind on fundamental business matters…

…versus more common executive considerations such as bonuses, LTIPs, adjusted earnings and career progression.

But seeking owner-managers is not a foolproof way to identify your next great multi-bagger. Hotel Chocolat provides a useful example of what can go wrong even with devoted founders in charge.

The upmarket chocolate retailer floated at 148p during 2016 and its shares reached 530p the other year…

(Source: SharePad)

…but a series of mishaps has since dragged the price down to 120p and raised questions about the board’s decisions and composition.

Let’s take a closer look.

Read my full HOTEL CHOCOLAT article for SharePad >>

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: BELVOIR

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15 June 2023
By Maynard Paton

Today I have revisited a SharePad screen that applies two ratios favoured by ‘quality’ investors — operating margin and return on equity (ROE).

The exact criteria I re-used were:

  • An operating margin (latest and 10-year average) of 20% or more, and;
  • An ROE (latest and 10-year average) of 20% or more.

Any business with a margin and ROE of at least 20% is probably quite special.

To narrow the field down further, I also sought companies that carried net cash (i.e. net borrowings excluding IFRS 16 finance leases of less than zero):

(Source: SharePad)

This time the filter returned 21 matches, including Impax Asset ManagementSomero EnterprisesJarvis Securities and Quartix.

I selected Belvoir because it was among the worst share-price performers of the last twelve months. Let’s take a closer look.

Read my full BELVOIR article for SharePad >>

Maynard Paton

[SharePad] Small-Cap Spotlight Report: REACH

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14 May 2023
By Maynard Paton

Let me start by confessing this article covers pension deficits.

What follows is therefore not thrilling and does require some concentration. But please stick with me, especially if you have ever fallen victim to a ‘value trap’.

You see, an onerous pension scheme is a common reason why companies trade on permanently low ratings. The market essentially believes too much of their future profits will have to plug a retirement ‘black hole’ instead of being paid out as dividends.

A good example is Reach, the newspaper publisher that used to be known as Trinity Mirror.

An update the other week confirmed a £95m profit was expected for 2023:

“Profit expectations for FY23 remain in-line with market consensus.(1)

(1) Market expectations compiled by the company are an average of analyst published forecasts – consensus adjusted operating profit for FY23 is £95.3m (range from £93.7m to £96.5m)”

…and yet the market cap is £265 million and the 83p shares currently trade on a P/E of approximately 3:

(Source: SharePad)

Studying the group’s pension situation goes some way to explain the rock-bottom rating.

Let’s take a closer look.

Read my full Reach article for SharePad.

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: JAMES LATHAM

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15 April 2023
By Maynard Paton

I have embarked on further ‘back to basics’ filtering to unearth a potential long-term winner for my portfolio.

This new screen identifies companies that offer a rising dividend, low valuation, robust balance sheet and decent director ownership.

The exact filter criteria I applied for this search were:

  • A 5-year annualised dividend growth rate of 10%;
  • A forecast 10% dividend increase;
  • A trailing 12-month P/E of 15 or less;
  • Net borrowings less total leases of no more than 0 (i.e. a net cash position excluding IFRS 16 lease obligations), and;
  • A minimum 5% total director shareholding.

I ran the screen the other day and SharePad returned only four matches:

(Source: SharePad)

I selected James Latham because it traded on a remarkably low trailing P/E of 6.

SharePad shows Latham’s dividend rising nicely over time with only a couple of setbacks:

(Source: SharePad)

SharePad also shows the trailing P/E at its lowest since 2007:

(Source: SharePad)

Let’s take a closer look.

Read my full James Latham article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report Revisited: WANDISCO

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18 March 2023
By Maynard Paton

You can become a better investor by occasionally visiting the stock-market graveyard.

One company that now seems destined for the cemetery is WANdisco, the software developer that the other week suddenly warned of “significant, sophisticated and potentially fraudulent irregularities“.

The shares have been suspended while independent investigators work out what exactly has occurred. Remarks including “significant going concern issues” make for grim reading:

The identification of these irregularities will significantly impact the Company’s cash position and lead to a material uncertainty regarding its overall financial position and significant going concern issuesThe Board now expects that anticipated FY22 revenue could be as low as USD 9 million and not USD 24 million as previously reported. In addition, the Company has no confidence in its announced FY22 bookings expectations.

I wrote about WANdisco for SharePad during May 2021 and the bombshell announcement must prompt a revisit. What can we learn to help us avoid the next great investment disaster?

Let’s take a closer look.

Read my full WANdisco article for SharePad.

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: TELECOM PLUS

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12 February 2023
By Maynard Paton

Difficult market conditions have prompted many investors to find safety through attractive dividend shares.

Hence a new screen to pinpoint companies that boast a dependable payout, a meaningful yield and respectable prospects.

The exact criteria I employed for this search were:

  • A record of dividend payments spanning at least 20 years;
  • A 10-year dividend growth record of 5% or more;
  • A minimum forecast three-year dividend growth rate of 5%, and;
  • A forecast dividend yield of at least 4%.

I applied the screen the other day and SharePad returned 14 matches:

(Source: SharePad)

I selected Telecom Plus from the shortlist as the company offered the highest forecast dividend growth for the next three years:

(Source: SharePad)

Let’s take a closer look.

Read my full Telecom Plus article for SharePad.

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: QUARTIX

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20 January 2023
By Maynard Paton

Today I have revisited a SharePad screen that applies two ratios favoured by ‘quality’ investors — operating margin and return on equity (ROE).

The exact criteria I re-used were:

  • An operating margin (latest and 10-year average) of 20% or more, and;
  • An ROE (latest and 10-year average) of 20% or more.

Any business with a margin and ROE consistently above 20% is probably quite special.

To narrow the field down further, I also sought companies that carried net borrowings of less than zero (i.e. net cash):

(Source: SharePad)

I selected Quartix because it was among the worst share-price performers during the last twelve months. Let’s take a closer look.

Read my full Quartix article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: STRIX

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12 December 2022
By Maynard Paton

A profit warning and 32% share-price crash brought Strix to my attention the other week:

(Source: SharePad)

This small-cap dominates the market for kettle controls, and I wondered whether that strong competitive position could support an eventual recovery.

Let’s take a closer look.

Read my full Strix article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: TRUSTPILOT

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18 November 2022
By Maynard Paton

Read a set of company results, and chances are you will spot a reference to Trustpilot. Examples of quoted businesses mentioning the popular review website include:

  • AJ Bell: Our operational performance indicators have shown excellent levels of customer service as demonstrated by our high 4.5-star Trustpilot score.
  • AO World: “Over 350,000 Trustpilot ratings, averaging an “Excellent” 4.6/5 stars.
  • Big Yellow: “We have over 3,200 reviews from the independent review site TrustPilot. These reviews average a 4.7 out of 5-star rating, labelled as “Excellent” on the TrustPilot ratings scale.”
  • Procook: “We are pleased to have retained our excellent-rated Trustpilot score of 4.8.
  • Redde Northgate: “Customer satisfaction is the cornerstone of our business success and the ‘excellent’ satisfaction scores achieved across our businesses from Trustpilot.
  • Redrow: “We continue to be rated as ‘excellent’ on Trustpilot.
  • ScS Group: “Improved Trustpilot rating to the maximum 5 stars, maintaining our ‘Excellent’ rating with over 370,000 reviews.”
  • Travis Perkins: “The experience with Toolstation remains best-in-class with the business achieving a 4.6-star rating on Trustpilot.

With so many quoted companies trumpeting their Trustpilot reviews, is Trustpilot itself worthy of a 5-star investment rating?

Let’s take a closer look.

Read my full Trustpilot article for SharePad.

Maynard Paton