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  • Writer's pictureMark Watson-Mitchell

Small Cap catch-up - CNIC, HAT, SRC, TLY, GPH and DWF

CentralNic (LON:CNIC) – ridiculously cheap on 8 times earnings for such strong cash generative growth

I think that the market is missing a trick here and Monday’s first half Trading Update prove my point.

This global internet company derives phenomenal recurring revenues from providing its customers with its various internet services.

For the six months to end June CEO Michael Riedl stated that:

"CentralNic has continued to deliver yet another strong quarterly performance. Furthermore, we have enhanced our market share in each of the segments in which we operate.

Our sustained performance is a testament to our strong ingrained culture of operational excellence, a factor that keeps us at the fulcrum of the industry ecosystems in which we operate.

Through our ongoing initiatives to boost operating leverage, we are fortifying an already highly dependable and sustainable business model.

Our unrelenting commitment to these efforts continues to build upon our prime objectives of creating a market leader in its space and maximising shareholder value."

Noting the effects of the significant £34m share buyback programme that is now underway, analysts Bob Liao and Carl Smith at Zeus Capital have lowered their weighted average share count which helps to upgrade their earnings estimates by 2% for this year and then by 12% for next year.

For the year to end December they are now looking for revenues to increase to $825.5m ($728.2m), with adjusted EBITDA of $91.8m ($86.0m) taking earnings up to 21.3c (20.0c) per share.

For next year they see $868.9m revenues, EBITDA of $97.3m, increasing earnings to 25.1c per share.

This veritable money machine sees its shares standing now at 127p, after hitting 129.6p on Monday morning after the Update announcement, which is pretty close to my 115p to 130p prediction of a few weeks ago.

Come the first half results being published, together with any relevant upgrades, on Monday 14th August I would expect the shares breaking above that 130p level and start heading back up to and through the 150p level last seen in January, when they peaked at 160p.

I know I can be boring, but these shares really are looking so attractive at present, just look at that massive annual recurring revenue driving its balance sheet.

With the highest guesstimate being 350p, the market’s average consensus Target Price is 260p for the £358m capitalised group’s shares, which at 127p are only trading on 8 times current year earnings – that really is ridiculously cheap in my view.

(Profile 12.07.21 @89p set a Target Price of 110p*)

H&T Group (LON:HAT) – going above 500p and very soon

The news this week from this leading UK pawnbroking group is that it has increased its banking facilities to enable a greater growth in its pledge book.

Longstanding bankers Lloyds Bank have increased their facility to the group from £35m to £50m, made up by a £45m revolving credit facility and a £5m overdraft.

This additional finance will be used to fund further growth in the pledge book as well as investment in the group’s store portfolio.

CEO Chris Gillespie stated that:

"I am very pleased with the progress we have made in the first half of 2023 in an environment of rising interest rates and persistent inflation.

I am particularly encouraged by the growing momentum with which we enter the busy second half of the year.

I am looking forward to updating the market when we report on 8th August."

Analyst Gary Greenwood at Shore Capital Markets will be upgrading his views on the group in early August.

In the meantime he estimates that the current year to end December 2023 will see adjusted pre-tax profits rise from £19.0m to £32.5, taking earnings up to 57.6p (37.2p) and increasing the dividend payment to 23.0p (15.0p) per share.

For next year he sees £40.5m profits, 70.3p earnings and a 28.1p per share dividend.

The company should be announcing its Interim results on Tuesday 8th August, ahead of which I would expect to see the group’s shares improving from the current 430p level.

I still see a run upwards and well through 500p in the short term and then way above that as the group’s growth potential becomes even more evident.

An excellent purchase at these prices.

(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)

SigmaRoc (LON:SRC) – get really dug in

This UK-based quarrying group is involved in the production of aggregates and the supply of value-added industrial and construction materials.

It also provides shipping logistics, road contracting, and waste recycling services, as well as engaging in the limestone quarrying and processing.

In addition, the company offers international marketing and financing services.

It operates in the UK, the Channel Islands, Belgium, the Netherlands, Luxembourg, Northern France, Finland, Sweden, Poland, Norway, Estonia, Latvia, Lithuania, and Spain.

Ahead of declaring its Interim results to end June in September the group earlier this week announced a Trading Update for the first half to end June.

Revenues were up 17% at £290m (£247m), while its EBITDA was 15% better at £55m (£48m), taking its H1 earnings up to 4.0p (3.6p) per share.

CEO Max Vermorken stated that: "The first half of 2023 has been a further validation of the Group's model.

A number of the Group's end markets have performed ahead of expectations, and we have been able to move swiftly to implement targeted commercial and operational initiatives in response to destocking and slower demand in some product areas and regions, which has contributed to a very resilient performance in the Period.

In parallel we were very active on the M&A front, seizing a number of opportunities to strengthen the Group's footprint through transactions at highly attractive multiples.

The Group is integrating those which have already closed and is preparing to welcome others in H2. Competitively, strategically, and financially the Group has taken a firm step forward.

Looking further ahead we need to respond to the challenges of more volatile end markets and adapt accordingly. We continue to focus our efforts on operational, safety and governance improvements to build a leading Group in quarrying, limestone and industrial materials."

Analysts Charlie Campbell and Edward Prest at Liberum Capital rate the shares as a Buy with a price objective of 120p.

Their estimates for the full year are for £591m sales (£538m) pre-tax profits of £65.1m (£62.7m), but with earnings fractionally lower at 7.1p (7.8p) per share.

The coming year they suggest could see £628m revenues, £72.7m profits and 7.8p earnings.

At the current 62.20p, just below its recent 64p trading High, I suggest that these shares are undervalued at anything up to 80p.

(Profile 04.09.20 @ 49p set a Target Price of 65p*)

And some quick notes ……

Totally (LON:TLY) – the shares of this medical outsourcing group, dipped to a Low of 11p before bouncing up to 13.5p on Monday. Last night they closed at only 12.75p, from which level I consider that they are more than capable of moving a lot higher, with a rise to trade the 15p to 17p band again looks very possible.

(Profile 12.03.20 @ 12p set a Target Price of 18p*)

(Profile 21.04.23 @ 19.5p set a Target Price of 25p*)

Global Ports Holding (LON:GPH) – just over a month ago I suggested that the shares of this cruise port operating group could easily rise from the then 196.5p, looking for an early break above the 200p-220p price range.

They hit 213.8p yesterday before easing back to 210p on a quick bit of profit taking – however I still maintain my upward view.

(Profile 13.07.20 @ 74.8p set a Target Price of 100p*)

DWF Group (LON:DWF) – Take the market offer and immediately reinvest, if you haven’t done so already, then I would suggest that holders should take the 97.20p bid price in the market and forgo the 3p dividend.

Immediate reinvestment of the realised funds could prove highly beneficial as long as you do your own homework, like CNIC or HAT.

(Profile 01.06.20 @ 67p set a Target Price of 100p*)

(Profile 28.06.23 @ 56.5p set no Target Price but noted significant undervaluation)

(Asterisks * denote that Target Prices have been achieved since Profile publication)


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