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  • Writer's pictureMark Watson-Mitchell

SysGroup, CentralNic and nine other interesting Small Cap stocks

SysGroup (LON:SYS) – 58p ‘fair value’ for shares now at just 25p

Last Wednesday this multi award-winning managed IT services, cyber security and cloud hosting provider, provide a trading update for the six-month period ended 30 September.

SysGroup focuses on a customer's strategic and operational requirements - enabling clients to free up resources, grow their core business and avoid the distractions and complexity of managing IT services.

The Update reported a strong trading performance, despite the challenging macro-economic environment.

It expects to report first-half revenue of £11.32m (£7.58m) and adjusted EBITDA of £1.67m (£1.34m),

The company notes the need for managed IT services remains prevalent and as businesses increasingly seek to invest in technology to increase efficiencies and improve their margins, it is ideally placed to capitalise on that growing market opportunity.

Analysts Bob Liao and Carl Smith at Zeus Capital consider that this strong update demonstrates just how robust its business model is in the face of the general hassles.

They state that the group’s recent acquisitions are doing well, and that they are confident in their estimates for the current year.

The brokers are going for revenues to end March 2023 to rise to £20.5m (£14.7m) while adjusted pre-tax profits will rise to £2.4m (£2.0m), generating earnings of 3.7p (3.4p) per share.

Their valuation on the shares is 58.3p, which is significantly higher than Friday night’s closing price of just 25p.

The group’s interim results are due to be announced on Monday 21 November, by that time I would hope that the shares will be trading towards the 34p level at which they stood this time last year.

(Profile 22.06.22 @ 26.5p set a Target Price of 34p)

Filtronic (LON:FTC) – it is still tough out there

This company is the designer and manufacturer of products for the aerospace, defence, telecoms infrastructure and critical communications markets.

The group's trading performance in the opening months of FY2023 is in line with internal forecasts. As anticipated, the industry-wide shortage of critical semiconductor components has continued to hamper full output during the trading period, but it expects that situation to ease as it progresses through the calendar year 2023.

With its healthy orderbook, the company remains confident of delivering results for the full financial year in line with market expectations.

We will have to wait until the first week of February to see the interims to end November.

Brokers finnCap, who currently have a price objective of 20p on the shares, is estimating revenues for the year to end May 2023 will be £19.0m (£17.1m) while adjusted pre-tax profits will almost halve to £0.8m (£1.5m), dropping earnings down to 0.3p (0.5p) a share.

The shares closed the week at 12p after dipping to only 9p a couple of months ago.

Hold tight.

(Profile 04.02.22 @ 11.6p set a Target Price of 14.5p)

CentralNic Group (LON:CNIC) – a big winner for 2023

Last Wednesday this global internet platform, that derives recurring revenue from marketplaces for online presence and online marketing services, announced the $7.6m cash acquisition of Intellectual Property Management Co. Inc, a California-based corporate domain name management business with many globally recognised brands among its customers.

The group expects this move to give better coverage and increased market share in the North American market as well as synergies from streamlining procurement and operations. The acquisition will be immediately earnings accretive.

Ben Crawford, CEO of CentralNic, said:

"Domain management to protect enterprise customers against cyber squatters is a strategic priority for CentralNic. IPMC has been entrusted with the protection of some of the finest brands in the world, which will now join more than 1,000 corporations and organisations that already rely on CentralNic's domain management suite of services."

Analyst Bob Liao at Zeus Capital is very positive about the group. He is going for current year revenues to end December of $709.6m ($410.5m) with an adjusted EBITDA of $82.0m ($46.3m), worth basic adjusted earnings of 20.9c (11.8c) per share.

The Q3 results will be out on Wednesday 21 November.

Between now and then investors should keep a close watch on the shares, looking to be tempted at around the 120p level in order to stock up on more for portfolios.

The shares closed at 128.5p on Friday night.

If you are not buying then hold very tightly because I still consider that this is a real cracker and could well turn out to be one of the big winners in 2023.

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

Bloomsbury Publishing (LON:BMY) – a strong quality hold

My long-time favourite in the publishing sector is this £369m capitalised group, that is so well-known for having discovered JK Rowling and her Harry Potter epistles.

Last Wednesday morning the group declared its interim results to end August.

Commenting on the results, Nigel Newton, Chief Executive, said:

"Bloomsbury achieved very strong results in the first half with year-on-year revenue growth of 22% to £122.9 million and profit growth of 23% to £15.9 million. These are our highest ever first-half sales and profits. These results demonstrate the strength and resilience of our strategy of publishing for both the consumer and academic markets, our growth of digital revenues and our global diversification.

Throughout this cost-of-living crisis, books remain an affordable treat. Reading offers a form of escapism and an ideal - and inexpensive - therapy for dealing with the stresses and strains of day-to-day life.

Our financial position is strong, with net cash of £41.5 million. This gives us significant opportunities for further acquisitions and investment in organic growth.

The strong first half performance means that we are confident of achieving the Board's expectations for the year ending 28 February 2023.”

Clearly stated by the group was the fact that the strength and resilience of its strategy and financial position gives it confidence in its ability to achieve continued success.

Furthermore, it plans to invest in further acquisitions and organic growth, especially within its development of its digital channels.

Current market expectation for the year ending 28 February 2023 is for a revenue of £242.6m and a profit before taxation and highlighted items of £26.9m.

The group’s shares had a strong rise from 400p at the start of last week to close at a healthy 450p, after hitting 459p during the rise.

The shares are a very strong, quality hold.

(Profile 28.02.19 @ 231p set a Target Price of 257p*)

(Profile 27.03.19 @ 238p set a Target Price of 270p*)

Foxtons Group (LON:FOXT) – no letting up it is going strong

London's leading estate agency, continued to make progress in the third quarter delivering growth across all areas of the business, with revenue in the three months ended 30 September 2022 up 25% to £43.8m (Q3 2021: £35.1m).

Revenue for the nine months ended 30 September 2022 was £108.9m, up £10.4m, or 11% on the prior year.

Guy Gittins, CEO, stated that:

We enter Q4 with a less certain sales market backdrop, but cost action taken in H1 and our resilient lettings and financial services businesses leave us positioned to weather further macroeconomic and political challenges.

Whilst we are mindful of the ongoing macroeconomic and political uncertainty, the strength of our performance in the third quarter gives us confidence in the outlook for the full year.

Accordingly, we now expect to deliver a result for the 2022 financial year ahead of our previous expectations.”

From a week’s low of 27p right up to 33.5p was the reaction to the third quarter indications.

The shares are still a very long way off my entry value over a year ago, and as for the Target Price – well what can I say? I was too previous.

Perhaps it may mean that a takeover for the group could be the only way for my price aim to be achieved.

Analyst Greg Poulton at Singer Capital Markets rates the shares as a Buy.

He is looking for revenues this year to end December of £134.9m (£126.5m), with adjusted pre-tax profits of £11.7m (£7.8m), taking earnings up to 2.7p (1.9p) and covering a dividend of 0.80p (0.45p) per share.

His price objective is 69p.

(Profile 07.07.21 @ 60p set a Target Price of 76p)

Hunting (LON:HTG) – looking for robust growth

This international energy services provider to the world's leading upstream oil and gas companies stated in its Q3 Trading Update that it had continued its strong momentum across all of its operating segments.

Chief Executive Jim Johnson stated that:

"Overall Hunting is well placed to grow strongly within the current market environment and with a compelling, diversified product offering across all areas of the global oil and gas market, the Group remains well placed to deliver robust growth in the medium term."

The group’s outlook continues to improve with the acceleration of activity across the global oil and gas industry generally.

As at 30 September 2022 its order book was $438m, which provides confidence that sales momentum will remain robust for the remainder of the year and well into 2023.

Analyst Daniel Slater at Arden Partners rated the group’s shares as a Buy, looking for 370p a share as his price aim.

For the current calendar year, he is estimating sales of $695.7m ($521.6m) and an adjusted pre-tax profit of $10.7m (loss of $40.6m), which would pick earnings up to 10.7c (26.2c loss). It could reveal a 9.0c dividend which would obviously be uncovered.

He now awaits the December Pre-Close Statement to give further evidence of recovery going forward.

The shares closed the week at 258p.

I rate this group highly, despite having to suffer the ups and downs of the oil sector globally.

But it always seems to win through.

I feel that its shares are undervalued and have a lot further to climb yet.

(Profile 15.03.21 @ 275p set a Target Price of 350p*)

Alumasc Group (LON:ALU) – back over 200p soon?

The AGM Update from this premium sustainable building products, systems and solutions group reported that its first quarter year’s trading had stayed robust after last year’s strong performance.

Both volumes and margins in its continuing operations have been strong, and ahead of the corresponding prior year period.

It noted that transportation costs and material prices were stabilising, although exchange rates and energy prices have been volatile and could have the potential to impact costs further.

The group has three business segments with strong positions and brands in their individual markets. The three segments are: Water Management; Building Envelope; and Housebuilding Products.

Almost 80% of group sales are driven by building regulations and specifications (developers/housebuilders, architects and structural engineers) because of the performance characteristics offered.

It was a ‘satisfactory AGM Update’ was the view of analyst David Buxton at brokers finnCap. He has maintained his 315p price objective.

His estimates are for the current year to end June 2023 to reveal £91.0m (£89.4m) of sales and adjusted pre-tax profits of £11.3m (£12.7m), reducing earnings to 24.2p (28.2p) but paying a higher dividend of 10.3p (10.0p) per share.

This company will remain one of my favourites, however, my view is tempered by the still apparent tricking trading hassles.

The shares at 150p are staging something of a price recovery, it would be good to see them back over the 200p level again very soon.

(Profile 13.02.20 @ 116p set a Target Price of 145p*)

(Profile 08.06.20 @ 80p set a Target Price of 105p*)

PCI-PAL (LON:PCIP) – trading in line

Analyst Lorne Daniel at brokers finnCap has a 125p price forecast on this group’s shares, compared to the current 56.5p in the market.

The group is a global cloud provider of secure payment solutions for business communications products secure payments and data in any business communications environment including voice, chat, social, email, and contact centre.

It is integrated to, and resold by, some of the worlds' leading business communications vendors, as well as major payment service providers.

The group’s revenue for Q1 is expected to be some 29% up with a strong pipeline of opportunities in front of it. Stating, quite boldly, the Board is pleased with the group's performance and that trading is in line with expectations for the year ending 30 June 2023.

Last Thursday’s AGM Update mentioned no news on the patent dispute, when that is finalised Daniels expect to see a dramatic upward revaluation of the group’s shares.

I suggest that holders should remain steadfast for the time being.

(Profile 11.02.21 @ 76p set a Target Price of 95p*)

(Profile 23.02.22 @ 55p set a Target Price of 70p)

Hargreaves Services (LON:HSP) – broker’s 710p valuation

This is a diversified group that delivers services to both the industrial and the property sectors.

The Group's Chairman, Roger McDowell stated that:

"I am pleased to confirm that all three business sectors, Services, Hargreaves Land and HRMS, are trading in line with the Board's expectations. The Board remains confident in delivering full year results in line with market expectations."

Analyst James Tetley at brokers Singer Capital rates the group’s shares as a Buy, fixing a price objective of a very healthy 710p a share.

His estimates for the current year to end May 2023 are for revenues to lift to £200.0m (£177.9m), but with adjusted pre-tax profits to ease back to £25.3m (£32.7m), taking earnings down to 71.7p (100.5p), however he sees a slight lift in the dividend to 21.0p (20.40p) per share.

With this group’s shares having been looking a bit weary prior to the Update it was perhaps not too surprising to see them react upwards to the improving ‘vibes’ having been up to 405p after last Thursday’s AGM.

They closed on Friday night at ??? which is still some way away from James Tetley’s price objective.

There could well be another Update in early December, by which time the price may have stabilised in the 390p - 420p trading range.

Hold very tight.

(Profile 29.12.20 @ 263p set a Target Price of 325p*)

Solid State (LON:SOLI) – upgrading estimates

This group is a specialist value-added component supplier and design-in manufacturer of computing, power, and communications products.

It serves specialist markets with high barriers to entry, such as in the industrial, defence and security, transportation, medical and energy sectors.

In its Trading Update for the six months ended 30 September 2022 it has stated that revenues are expected to show 30% better at £59.0m (£39.0m) with adjusted pre-tax profits up 54% at £5.0m (£3.25m).

Analysts from brokers WH Ireland Limited, finnCap, and Edison Investment Research, provide equity research on Solid State, and the average of their research forecasts, for the 2022/23 financial year, have been upgraded to show revenue of £117.3m (£108m), and adjusted profit before tax* of £9.4m (£9.15m).

In reaction to the £133m group’s note of considerable progress being made, its shares had risen over 100p to the 1175p closing price last Friday night.

That is more than double my Target Price of just over a year ago, a prudent slicing of half a holding carries them in for nothing as the group progresses.

(Profile 15.08.21 @ 404p set a target Price of 546p*)

React Group (LON:REAT) – ready to double in price

Last Wednesday this leading specialist cleaning, hygiene and decontamination company announced a trading update in respect of the year ended 30 September.

Trading in the last three months of the year ended 30 September 2022, and into the current financial year, has been especially strong across the group, with all divisions continuing to win a broad spread of business providing the positive margin contribution and cash generation we are seeking. This positive start underpins the company’s optimistic outlook for the current financial year.

Shaun Doak, CEO stated that:

“Q4 performance has shown good growth which has continued so far in the current financial year.

The nature of these contracts provides us with both recurring income and potential to provide ancillary services. Despite the volatile macro-economic domestic and international background, the markets we are addressing are large and fragmented, providing significant opportunities for growth.

We remain confident that the high-quality services the Group provides will continue to be very much in demand and that we will meet our growth expectations for the current year."

Analyst Greg Poulton at Singer Capital Markets rates the group’s shares as a Buy, with a price objective of 2.5p.

His estimates for the last year were for £13.6m revenues against £7.7m previously, with adjusted pre-tax profits of £0.8m (£0.5m) and earnings of 0.1p (0.1p) per share.

For the current year he sees £19.7m sales, £2.2m profits and 0.2p per share in earnings.

In June last year this group’s shares hit 3.65p each, since when they have been down to 0.72p.

Currently at only 0.80p I would suggest that these shares now have an upward path to travel, they could easily double again.

(Profile 28.01.21 @ 1.5p set a Target Price of 2.5p*)

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

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