TASTY: H1 2022 Shows Encouraging £797k Sales Per Restaurant But Higher Costs Reduce Profit To Breakeven And Curtail Plans For 5-6 New Outlets

30 May 2023
By Maynard Paton

H1 2022 results summary for Tasty (TAST):

  • The absence of pandemic restrictions ensured H1 sales returned to pre-Covid levels, with sales per restaurant of £797k encouragingly at their best H1 level since H1 2016.
  • A “steep rise in inflation in relation to wages, utilities and input supplier costs” limited underlying profit to just £0.2m and will “inevitably impact” the H2 performance.
  • Pandemic-prompted rent reductions seem to have run their course, with annual lease costs appearing to return to £5m and total lease obligations staying at £52m.
  • Management curtailing plans to open 5-6 new restaurants was disappointing but understandable given the “prevailing economic uncertainties“.
  • Can TAST ever achieve a worthwhile margin from revenue now running at almost £45m? No evidence has emerged that TAST’s restaurant formats can easily pass on, reduce or absorb much higher costs. I continue to hold.

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[Podcast] BELLWAY With Roland Head And Maynard Paton

28 May 2023
By Maynard Paton

I have recorded another podcast with fellow investor and good friend Roland Head. This time we talked about Bellway, the FTSE 250 house builder that Roland bought for his model portfolio during October 2022. We discussed why Roland purchased the shares, the company’s financial history, the economics of house building and the outlook for house prices.

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MOUNTVIEW ESTATES: £115 Shares Trade At Lowly 13% Premium To NAV Despite Positive H1 2023 Revealing Sold Property Prices Gaining 19% And Welcome £10m Special Dividend

16 May 2023
By Maynard Paton

Results summary for Mountview Estates (MTVW):

  • A positive H1 2023 performance, with revenue up 21% and profit up 17% due to property selling prices gaining 19% and a greater number of properties sold. 
  • A significant £26m spent on new properties implies buying opportunities are emerging as “difficult times” and “economic storms” are forecast.
  • A 54% sales premium was realised against the 2014 Allsop valuation, and the remaining Allsop-valued properties now represent less than half of the property estate. 
  • Net debt remains very modest at just 6% of the property estate and allowed the welcome declaration of a 250p per share/£10m special dividend. 
  • The £115 shares trade at a lowly 13% premium to net asset value, which inched higher to a fresh £102 per share high, although the balance sheet could one day still be worth £200 per share. I continue to hold.

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[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

[Podcast] JAMES HALSTEAD With Roland Head And Maynard Paton

01 May 2023
By Maynard Paton

I have recorded another podcast with fellow investor and good friend Roland Head. This time we talked about James Halstead, the vinyl-flooring specialist that has lifted its dividend for 45 consecutive years. We discussed the company’s Polyflor product, its competitive position, the old-school family management and why the share features on our watch lists:  

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ANDREWS SYKES: 90% Family Ownership May Explain 4.7% Yield After Satisfactory H1 2022 Reveals European Revenue Up 17%, £34m Net Cash And Welcome £7m Special Dividend

30 April 2023
By Maynard Paton

Results summary for Andrews Sykes (ASY):

  • A satisfactory performance, with H1 revenue reaching a new £38m high, H1 profit gaining 8% and the welcome declaration of a £7m special dividend.
  • Assisted by strong Italian progress, European revenue climbed 17% to represent 27% — a record proportion — of the total top line.
  • A healthy 22% margin and favourable cash conversion lifting net cash to £34m left the accounts in good shape. 
  • A bombshell delisting on AIM brings greater attention to ASY’s 90% family ownership and the associated ‘relationship agreement’ small-print.
  • The 10% free float may explain why the shares yield a useful 4.7% despite the robust financials, upbeat company-blog commentary and potential further European expansion. I continue to hold.

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[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

Q1 2023: 10 Lessons From 3 Small-Cap AGMs

09 April 2023
By Maynard Paton

Happy Easter! I trust your shares have enjoyed a positive start to the year following the rough conditions of 2022. 

A summary of my portfolio’s first quarter:

  • Q1 return: +1.9% gain* (FTSE 100: +3.6% gain).
  • Q1 trades: None.
  • Q1 winners/losers: 6 winners vs 4 losers (1 unchanged).

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees, paid dividends and cash interest)

I will gladly take a 1.9% gain for this Q1 after the 23% mauling I suffered last year. My portfolio now requires ‘only’ a further 28% advance to revisit its all-time high from December 2021. 

Company RNSs were generally very acceptable during the quarter. Dividends were held or raised and thankfully no profit warnings emerged. As always I am hopeful a mix of respectable competitive positions, capable managers and asset-rich balance sheets will steer my portfolio through whatever the markets may bring.

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SYSTEM1: Proposed Board Changes Still Have My Support After Stefan Barden Explains Data-Platform Sales Focus, 5-Bagger Exit Ambition And ‘Now Or Never’ Vote Decision

07 April 2023
By Maynard Paton

Notice of general meeting summary for System1 (SYS1):

  • Confirmation of a vote on 21 April to i) appoint former director Stefan Barden as executive chairman; ii) demote founder John Kearon from executive to non-executive, and; iii) retire two non-executives.
  • Data and Data-led revenue advancing 33% during FY 2023 and 50%-plus during Q4 2023 suggests SYS1’s mooted 25% growth target is achievable.
  • My conversation with Mr Barden revealed his data-platform sales focus, plans for a £100m-plus exit and the reasoning behind SYS1’s $1 billion market-cap ambition.
  • SYS1’s proposed new US advisory team emphasised Mr Kearon’s advert-creative sales approach, which I now believe explains the group’s lowly revenue and lack of profit.  
  • Shareholders have, according to Mr Barden, a “now or never” decision to support SYS1 becoming the “definitive” marketing-data platform with a potential 5-bagger outcome. I still support the proposed board changes and continue to hold.

UPDATE 17 April 2023: Following the publication of this blog post, Stefan Barden/James Geddes and SYS1 have referred to its contents within this RNS announcement issued on 13 April 2023. Mr Barden has since provided a further statement that is now published at the end of this blog post.

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S & U: Record H1 2023 Prompts Management To Cite Broker’s £33 Price Target As £22 Shares Trade At Possible 1.2x NAV And Yield 6%

24 March 2023
By Maynard Paton

Results summary for S & U (SUS):

  • A seemingly lower-than-normal bad-debt charge underpinned a record H1 performance, which in turn supported fresh highs for net asset value (NAV) and the dividend.
  • Mixed signals remain at the primary motor-finance division, with encouraging collection rates offset by lingering pandemic-related provisions and talk of “choppy waters ahead” testing “policies and procedures“.
  • Bumper progress at the property-loan operation heralded the subsidiary declaring its maiden dividend and another divisional executive appointed to the board.  
  • Debt remains under control at 42% of customer loans, although admin and other costs have reached their highest combined proportion of revenue since at least FY 2016.  
  • Management’s webinar commentary cited a broker’s £33 price target, with subsequent RNSs suggesting the £22 shares are not expensive at a potential 1.17x NAV with a 6% income. I continue to hold.

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[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 issues. The 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

SYSTEM1: Proposed Board Changes Have My Support After H1 2023 Cash Outflow Of £2m, Underwhelming Strategic Review And Frustrating Management Q&A

09 March 2023
By Maynard Paton

Results summary for System1 (SYS1):

  • H1 2023 revenue falling 15% to FY 2012 levels and underlying cash losses running at £2m-plus raised further doubts about SYS1’s services, marketing, pricing and expenditure.
  • Despite encompassing “all strategic options” and the board’s composition, a three-month strategic review simply “validated” SYS1’s existing plans with a greater focus on the United States. 
  • A management presentation revealed the transition to automated Data services still requires old-style consultancy work, and overlooked questions about partnerships, cash flow and expenses.
  • The unsatisfactory H1, underwhelming strategic review and frustrating Q&A were thankfully followed by two former executives proposing very welcome board changes.
  • Fresh executive leadership seems needed to maximise SYS1’s “superb, proven suite of products” and re-establish worthwhile levels of profit. I support the proposed board changes and continue to hold.

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MINCON: First Greenhammer Contract Heralds ‘Transformational Potential’ As H1 2022 Reveals Profit Up 18% Following 55% Construction Sales Surge

21 February 2023
By Maynard Paton

Results summary for Mincon (MCON):

  • A very satisfactory performance buoyed by healthy post-pandemic orders, showing revenue up 27% and profit up 18% to set new H1 records.
  • Positive progress was reported throughout the group, with construction-related sales up 55% helped by greater demand for specialist drilling.
  • The long-awaited Greenhammer system has won its first commercial contract and now offers “transformational potential” to MCON and the mining industry. 
  • Greenhammer and other new developments may hopefully improve MCON’s financials, given the group’s modest margin, significant stock level, net debt and poor cash conversion.
  • The shares do not appear outrageously expensive on a possible 16x P/E, although the group’s expansion led by the dominant family owners has yet to deliver superior returns to outsiders. I continue to hold.

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