In this mid-week catch-up of various picks in the Small Cap Sector Mark Watson-Mitchell today comments upon H&T Group, Longboat Energy, Card Factory, Tekcapital and a new selection Trinity Exploration & Production.
Also passing comments on CentralNic Group, Global Ports Holding and DX (Group).
H&T Group (LON:HAT) – firmly on track for record profits in 2023
Yesterday morning’s Interim Results announcement from the UK’s largest pawnbroking business showed a strong continuation of its trading momentum.
The six months ended 30th June reported pre-tax profits up 31% at £8.8m (£6.7m), while its pledge book grew 14% to £114.6m against £85.1m in June last year.
Even its retail sales advanced 11% to £23.0m (£20.8m), while its online sales were at record levels.
The group added eight new stores in the first half and had two closures, taking the number of stores it operates to 273, with more to be added in the second half year.
Foreign currency transaction volumes were 19% better.
CEO Chris Gillespie stated that:
"Following the capital raise in October 2022, we set out our plan for increased investment in the Group's operational capabilities and store portfolio to capitalise on the growth opportunity presented to the Group in the medium term.
I am delighted with the progress we have made and the momentum with which we enter the busy second half of the year.
We are mindful of the impact upon our employees, suppliers and stakeholders of persistent inflation and rising interest rates.
H&T is not immune to these factors, which have resulted in operating costs being higher than previously envisaged.
However, much of this cost inflation is now factored into the cost run rate.
We expect a lower level of cost inflation in the second half of the year which, alongside the growing revenue momentum of the business, puts us on track to deliver record profits in 2023.”
On the back of this report analyst Gary Greenwood at Shore Capital increased his ‘fair value’ assumption on the shares from 580p to 620p.
Cautiously he reduced his 2023 earnings estimates from 57.6p to 53.9p for the year, while his 2024 and 2025 estimates were 69.8p then 80.9p respectively.
On the back of those estimates the shares of the H&T Group are substantially undervalued and very capable of putting on a spurt above the 500p then 550p level.s soon.
They closed last night at 403.5p, at which level I consider them to be a ‘steal’.
(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)
Longboat Energy (LON:LBE) – broker values shares at twice the market price
The Norway and Malaysia-focussed emerging full-cycle exploration and production group yesterday morning announced the start of drilling operations on its 20% owned Velocette exploration well offshore Norway.
This is a gas-condensate prospect targeting Cretaceous Nise turbidite sands on the eastern flank of the Utgard High in the Norwegian Sea.
The prospect benefits from seismic amplitude anomalies indicative of gas-filled sands and is located within tieback distance from the Equinor operated, producing Aasta Hansteen field (~45 km).
CEO Helge Hammer stated that:
"We are excited to have commenced drilling the Velocette prospect which will be our ninth exploration well.
Velocette is a gas-weighted opportunity targeting very significant prospective resources.
The exploration well also has significant follow-on potential that will be derisked in the case of success."
Longboat recently tied up a very useful joint venture relationship with the Japan Petroleum Exploration company, centred around a $50m cash investment.
Analyst James Mccormack at Cenkos Securities rates the shares as a Buy, while valuing them at around 66p a share.
However, in finer detail, he values the Velocette prospect ‘unrisked’ at 81.8p a share to Longboat.
Analyst David Mirzai at SP Angel considered that investors should be happy to get back to exploration drilling following a hiatus in the programme, with the Velocette prospect a high potential infrastructure-led target with significant follow-on prospectivity on success.
He stated that Longboat Norge completed its joint venture last month with JAPEX, which will fund the Company’s acquisition of long-life cash-generative production assets that are anticipated to reach payback in under two years.
He concluded that investors will be hoping for more substantial success from Longboat’s ongoing drilling programme and from M&A to provide potential near-term catalysts to the stock, both from monetisation of the Kveikje and Oswig discoveries in Norway and following its initial entry into Malaysia.
Longboat Energy shares closed last night at 28.75p, valuing the group at just £16.4m.
(Profile 08.05.23 @ 20.75p set a Target Price of 26p*)
Card Factory (LON:CARD) – materially ahead of expectations
The Trading Statement from the UK’s largest greetings card retailer, issued on Monday morning, reported that trading in the first half year to end July was far better than market expectations.
The group reported that the macro backdrop continues to be uncertain, and there is still much to be delivered over the remainder of the year.
Nevertheless, given the strength of the performance in the first half, together with the current outlook for the second half, the Board now expects the full-year outturn to be materially ahead of its previous expectations.
The group’s shares closed last night at 101p, which was well up on the 86p of this time last week.
(Profile 05.08.20 @ 42p set a Target Price of 60p*)
Tekcapital (LON:TEK) – research report by Kemeny Capital values the shares at 21.4p each
The analysts stated that Tekcapital commercialises university-developed technology and has built a portfolio of four publicly listed and privately held companies with the potential to improve the lives of millions of people.
They consider that Tekcapital shares trade at a substantial discount to their portfolio’s NAV and that their fair value indicative target of 21.4p represents 104% upside from the current share price of 10.375p.
(Profile 12.09.22 @ 24.75p set a Target Price of 32p)
And Finally ….
Trinity Exploration & Production (LON:TRIN) – shares surged 40% on news of its Jacobin oil discovery
With nine operating licences, Trinity Exploration & Production (LON:TRIN) is the largest Trinidad & Tobago focused independent E&P Company, with assets onshore and offshore on both the East and West Coasts.
On Monday morning the £40m capitalised company saw its shares advance some 40% to 104p, on the back of the news that the deep Jacobin exploration well, located in the onshore Trinidad Palo Seco area (100% WI), has successfully encountered over 290ft of net oil pay, including 63ft in the deeper exploration targets.
The share price surged in early trading on initial positive signs from the deeper exploration targets.
The results are believed to validate Trinity’s geological model and are within the pre-drill range for a commercial discovery.
Trinity now plans to conduct flow testing to confirm the deliverability of the Lower Cruse reservoirs, which is expected to commence during September following the installation of a heavy-duty workover rig.
The company stated that the Jacobin results validate both the structural and stratigraphic model demonstrating the existence of a deeper turbidite play across the Palo Seco area and Buenos Ayres bloc.
The next step is to undertake a full production testing programme commencing next month with the flow results expected to be a major focus for investors in 4Q23.
The company’s portfolio includes current production, significant near-term production, growth opportunities from low-risk developments and multiple exploration prospects with the potential to deliver meaningful reserves growth.
Its low-cost business model is geared up to providing growing margins and increasing profitability within the current oil price environment.
As a profitable oil producer its management has paid particular focus to maintain low costs and break even for growing levels of profitable production.
CEO Jeremy Bridglalsingh stated that:
"This is a very significant and material achievement by the Team. To find virgin oil in our mature acreage points to a step-change in our understanding of the hydrocarbon system, the remaining resource potential and how we can approach the exploitation of these resources.
The next step is to undertake a full production testing programme, that is expected to commence during September. We look forward to updating shareholders on our progress."
Analyst James Mccormack at the group’s brokers Cenkos Securities rates the shares as a Buy.
For the current year to end December he is looking for revenues to ease to $71.1m ($92.2m) but with adjusted pre-tax profits more than doubling to $5.6m ($2.5m).
That will be good news for the group’s investors including Hargreaves Lansdown private clients (10.34%), David and Monique Newlands (10.27%) and Interactive Investor Clients (3.53%) amongst others in the equity.
This is a new stock for readers to follow through this column.
The shares closed last night at the much more attractively priced 95p, following some profit-taking after Monday’s rise.
It could well be a good time to take out a few at around the current price, just to make sure that you have a toe in the game.
Further purchases could be made after additional newsflow within the next few months.
I now set an easy Target Price of 120p.
And Finally Finally
Just be ready for CentralNic Group (LON:CNIC) to announce its interims next Monday morning, The shares are edging higher and are now over the 130p level.
Have you noted the continuing strength of the share price of Global Ports Holding (LON:GPH) recently? Now looking much firmer at 224p.
Delivery specialists DX (Group) (LON:DX.) are showing a growing strength as they get their Tufnells depots reopening programme underway. The shares, which are heading higher, are now 36.5p.
(Asterisks * denote that Target Prices have been achieved since Profile publication)