Advertising to pottery to bathrooms – three very interesting Small-Cap stocks – SAA, PMP and NXR
M&C Saatchi (LON:SAA) – Vin to win?
Well, I do hope that the modest Vin Murria gets her way.
As I have said many times before, she is a canny lady and one of serious ability.
The big question is – will she win with her £250m bid battle to gain control of the advertising agency group?
Her investment vehicle AdvancedAdvT (LON:ADV) earlier this week made its improved offer for Saatchi.
The cash vehicle has some £105m in its coffers, which could really boost Saatchi’s rebound from its previous accounting hassles and its big fall-off in business.
However, it appears that the board has rejected the offer, furthermore, the 18 persons on the executive committee, like spoiled children having their toys taken away, have threatened to walk away from the company if Vin wins through.
Together, with her personal holding of 12.5% and with ADVT’s 9.8%, that accounts for some 22.3% of the SAA equity.
Vin also has acceptance indications from Paradice Investment Management and Octopus Investments and others totalling some 20.7% of the equity.
Private investors are said to own some 5%, but I would have thought that figure was understated.
I gather that the other Saatchi directors own 13%, obviously in opposition to the shares and cash offer from ADVT. Citing in their rejection that Murria is totally undervaluing the group, they have already predicted profits for the next two years in their defence.
I do not, as yet, have any indication on just how Invesco Advisers (4.72%), Herald Investment Management (4.36%), Cavendish Asset Management (3.36%) and Maurice Saatchi (3.36%) intend to vote on the AdvancedAdvT offer.
So, it all remains in the melting pot for some weeks to come, unless a decisive move is made one way or the other by either side.
After touching 210p in January, the Saatchi share price is currently back to trade around the 165p level.
What will happen to it if Vin does not get enough acceptances to gain control is the big quandary.
With 22.3% of the SAA equity, could ADVT add to the joint holding through further market purchases sufficient to swing the balance?
I make absolutely no predictions, but I do repeat that I have a very high regard for Vin Murria, she has an innate business talent and ability,
I would back her any day.
Even at 165p, my column readers who followed through on my Profile pointer two years ago will have almost trebled their money.
(Profile 11.05.20 @ 64p set no Target Price)
Portmeirion Group (LON:PMP) – a cracking pottery group
Yesterday’s AGM Trading Statement from this £61m group did not seem to impress the market too much.
Its shares responded by falling 40p to 435p on its contents.
But I think that the market is missing a trick here.
The designer, manufacturer and worldwide distributor of high-quality homewares stated that sales for the first four months of the current year were up 2% and its gross margins were gently better.
The group, which boasts the Portmeirion, Spode, Royal Worcester, Pimpernel, Wax Lyrical and Nambe brands within its homewares portfolio, is always much stronger in its second half year.
However, the group cautiously did note that
“There has been a significant change to consumer sentiment and spending since last year as consumers deal with the impact of inflation in food staples, energy and fuel prices.
In addition, there has been further Covid related disruption in supply chains and sales markets, including China.
So far we have successfully mitigated these challenges by forward-ordering stock and having long-term energy contracts in place until March 2024.”
That fall back in share price could well prove to be a cracking buying opportunity to get into some very undervalued quality stock.
Analyst Sahill Shan, at brokers Singer Capital Markets, is estimating sales to rise from £106.0m in 2021 to £110.2m for this year to end December.
He looks for adjusted pre-tax profits to increase from £7.2m to £10.0m, lifting earnings up to 56.0p (38.7p) and boosting dividends from 13.0p to 18.66p per share.
Jumping forward to next year he has pencilled in £118.0m of sales, £11.9m profits, 64.9p earnings and a dividend of 21.63p per share.
Understandably he rates the shares as a ‘buy’ and has set a price objective of 840p on them.
Earlier this year they touched 710p, that was in January, since when they have just drifted back to the current, in my opinion, very low level.
I consider that its quality will shine through, helped by an attractive 4% yield. We may well have to wait until the group declares its interims update in mid-July for the market to fully judge the group’s value.
However, I rate Portmeirion and ‘basic’ companies like it as part of Britain’s Small-Cap commercial backbone, they are to be backed.
Trading on just 7.7 times price-to-earnings, I agree with Sahill Shan that the shares are an undervalued purchase at the current level of 435p.
(Profile 28.08.20 @ 376p set a Target Price of 480p*)
Norcros (LON:NXR) – getting bigger in the bathroom
This is yet another ‘quality’ stock that just gets on and does its business. It is not loud but gently pushes ahead with its expansion strategy.
Just a week ago the bathroom and kitchen products group announced its cash and debt-free acquisition for £80m of Grant Westfield, the market-leading waterproof bathroom wall panel products group.
The earnings-enhancing deal was funded from the Norcros facilities together with an £18m Placing of 8.09m shares at 230p each.
On the face of it bathroom panels does not sound exciting – but this group’s panels are easier and faster to install, as well as being of a high quality, that is also waterproof and durable.
Enough of my advertising blurb.
Let us look at the Grant Westfield profile some more – it has a 12% market share of the UK bathroom wall covering market and some 40% of the bathroom shower and panel market.
It gives Norcros, which operates in both the UK and in South Africa, a good boost in its own product range offering, which includes shower, enclosures and trays, tiles, taps and related fittings and accessories for bathrooms, kitchens, washrooms and other commercial environments.
The group’s end March 2022 finals results are due inside the next three weeks (9 June) and analyst Toby Thorrington at Edison Investment Research is positive.
He goes for sales revenues to have increased from £324.2m in 2020 to £396.2m, pumping up pre-tax profits from £29.0m to £36.0m for the year, with earnings of 34.0p (29.1p) and covering a dividend of 9.0p (8.2p) per share.
For the current year his estimates are for £436.7m of sales, £40.2m profits, 35.0p earnings and a 9.8p per share dividend.
The group’s shares, which hit 351p last October and have since been down to 211p, closed last night at 247.5p, firmer after the well-received deal and easily subscribed Placing.
Yielding around 4% and trading on a mere 7.28 times historic earnings, these shares are well worth tucking away into any portfolio looking for well-funded growth.
(Profile 20.08.19 @ 214p set a Target Price of 321p*)
(Asterisks * denote that Target Price have been achieved since Profile publication)