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  • Writer's pictureMark Watson-Mitchell

Small Cap catch up: FAN, CTO, MACF and STVG

Volution Group (LON:FAN) – Confidence Going Forward

This energy-efficient indoor air quality solutions group last Friday declared its Interim Results to end January this year.

They were quite impressive showing better-than-expected figures and accompanying corporate statement.

Sales for the six months were 6.3% ahead at £172.5m (£162.3m) while its adjusted pre-tax profits were 9.9% better at £35.0m (£31.8m), generating a 10.5% advance in earnings to 13.7p (12.4p) and very easily covering an interim dividend of 2.8p (2.5p) per share.

Interestingly the group reported a strong performance from its UK residential market, up some 19.4%, while it was evident that tight pricing and operational controls helped to boost margins to 22.4% (21.1%), which is the highest such level since 2015.

CEO Ronnie George stated that:

"We made strong progress in the first half of the year, against a backdrop of higher interest rates and weaker new build demand.

UK residential was once again the standout performer, with tighter regulation and strong social housing demand continuing to drive activity levels.

Our greater exposure to refurbishment supported organic revenue growth in the period, and inorganic growth was strong due to a good performance from our recent acquisitions.

Continued strong execution of our operational excellence model enabled us to expand Group adjusted operating margins and grow earnings in all three geographic regions.

The excellent operating cash generation further strengthened our balance sheet and positions us favourably to continue to invest in future growth, both organic and through acquisitions.

Our strong performance in the first half, together with the tailwind from our three recent acquisitions, gives the Board confidence in delivering adjusted earnings per share for the current financial year slightly ahead of consensus.”

Analyst Edward Prest at Liberum Capital upgraded his Buy note on the group’s shares, lifting his Price Objective from 470p to 510p.

His estimates for the full year to end July are for sales of £352m (£328m), lifting profits to £69.9m (£65.1m), with earnings of 27.0p (25.8p) and a dividend of 8.3p (8.0p) per share.

For the coming year he has £367m takings, £73.5m profits, 28.3p earnings and 8.5p of dividend per share.

The group is obviously very expansive with its M&A programme, having completed three acquisitions within the last year, which will boost its overall growth, while its operating margins are improving so well.

The £873m capitalised group’s shares, which closed 3% better on Friday night at 436p, up 11p on the day, have strong attractions.

(Profile 23.05.19 @ 174p set a Target Price of 250p*)

(Profile 03.03.23 @ 348p set a Target Price of 400p*)

(Profile 19.07.23 @ 361.20p set a Target Price of 450p*)

TClarke (LON:CTO) – Massive Order Book Gives Confidence

The Final Results from this London-based specialist electrical and engineering services provider displayed record revenues for the year to end December 2023.

They were up 15% at £491m (£426m), however its pre-tax profits were 26% lower at £7.6m (£10.3m), while its earnings were 30% down at 13.75p (19.6p) per share.

A pointer of the current year was given by the £65m valued group when increasing its dividend for 2023 by 10% to 5.9p (5.35p) per share.

Perhaps looking at the group’s forward order book spells out why the group is showing such confidence – it was up 70% at £943m (£555m) at the 2023 year-end.

Let us hope that it can improve upon its operating margin for the current year, from its lower 1.9% (2.7% in 2022) last year.

CEO Mark Lawrence stated that:

"Initiated in March 2021, our ambitious journey aimed to double our revenues through organic expansion. It is very pleasing to report that in 2023 we successfully achieved these growth plans.

Our growth reflects the high quality of our operations and the talent and commitment of our people, supply chain partners and the ongoing support of our clients.

The Group boasts a robust forward order book comprising top-tier projects in our target sectors, underpinned by a strong balance sheet with our net assets having increased by 38% compared to 2022, reflecting our financial strength.

Looking forward, we are poised to maintain our progress in our targeted markets, positioning us favourably to achieve our growth plans for 2024 and beyond."

Analysts Andrew Gibb and Guy Hewett at Cavendish Capital Markets estimate that the year to end December 2024 will see £600m revenues, with adjusted pre-tax profits rebounding to £17.1m, hoisting earnings up to 24.1p and amply covering a 6.5p dividend per share.

For 2025 they see £650m, £19.1m, 26.9p and 7.1p respectively.

Those estimates easily back up the analyst’s Medium-Term Price Objective of 197p for the group’s shares.

At the end of last week, the shares, which hit 159p last June, were fractionally lower at 122.50p – at which level they are a strong hold for existing shareholders and offer a bargain for newcomers.

(Profile 10.12.19 @ 120p set a Target Price of 165p*) 

(Profile 04.12.23 @ 121p set a Target Price of 150p) 

Macfarlane Group (LON:MACF) – A Very Strong Hold

This Glasgow-based packaging distribution and manufacturing group last week announced another earnings accretive acquisition.

It was a small deal - just paying £3.25m cash for the East Anglia business of Allpack Packaging Supplies – but it will help to build up the group’s protective packaging operations.

The deal brought about upgrades by analysts Robin Speakman and Akhil Patel at Shore Capital Markets – they are now looking for the current year to end December for the enlarged group to pick revenues up to £285.4m (£280.7m), with adjusted pre-tax profits of £26.3m (£25.8m), earnings slightly lower at 12.5p (12.8p) but with dividends better at 3.8p (3.6p) per share.

For 2025 the brokers suggest £298.4m sales, £28.1m profits, 13.1p earnings and 4.0p dividend per share.

The analysts reckon that around 155p is now the implied share price.

The £206m group’s shares are now trading at 130p and remain a strong hold.

(Profile 08.07.20 @ 77p set a Target Price of 100p*)

STV Group (LON:STVG) – Netflix Deal Shows Undervalue

This group declares itself as Scotland’s home of news, entertainment and drama – including its STV broadcast channel and the STV Player streaming service.

Its STV Studios business is one of the UK’s leading producers of scripted and unscripted content, it is also Scotland’s biggest production group.

It works with Apple TV+, the BBC, Channel 4, Channel 5, ITV, Sky and Warner Bros.

Discovery – with a mass of top shows and series to its credit for those channels.

The latest good bit of news centres around the announcement that it has been commissioned by the global player Netflix for a new three-part drama series called The Witness – with filming starting this coming summer.

Upon the announcement the group’s shares went 5% better, closing the week at 214p, valuing the whole enterprise at just under £100m.

Expect this current year to see revenues rise to £175.2m (£168.4m) while its profits could improve to £18.4m (£17.0m), worth 27.7p (26.1p) per share in earnings and lifting its dividend to 12.0p (11.3p).

The larger increase will be witnessed in 2025, with £220.0m turnover, £23.4m adjusted pre-tax profits, generating 34.6p in earnings and covering a dividend of 12.4p per share.

Between now and the expected AGM in late April I have the feeling that this group’s shares could well advance through the 235p level, heading back up towards the peak 264p that it achieved this time last year.

Hold very tightly to your shares, which look too cheap in my view.

(Profile 10.12.21 @ 345p set a Target Price of 425p)

(Profile 05.02.24 @ 188.5p set a Target Price of 235p)


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


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