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  • Writer's pictureMark Watson-Mitchell

Taking a ‘small cap’ look at HSP, RCN, EPWN and FNX

Hargreaves Services (LON:HSP) – Trading Update boosts share price

The Trading Update from this ‘brownfield’ developer seemed to give the market a bit of a boost in the group’s share price, lifting it some 12.5% to 534p.

It gave the market guidance that its results, to end May this year, will be better than expectations.

The strong performance of its joint venture interest in Germany, Hargreaves Raw Materials Services, benefitted from currently firm prices in certain of the commodities, like pig iron and zinc, on its recycling side.

In reaction, analyst James Tetley, at brokers Singer Capital Markets, based upon his ‘sum of the parts valuation’, upped his price objective for the group’s shares from 620p to 690p.

For the current year he sees £166m revenues, £24.4m profits, 71.5p earnings and the ability to pay a 20.4p dividend per share.

Readers who went into the stock on the initial Profile will have already seen a clear doubling of their money inside the last fifteen Covid-19 impacted months.

It must be tempting for holders to sell half now and ride the balance for free.

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

Redcentric (LON:RCN) – services group is buying a small cyber security operation

Yesterday morning this managed services group announced the £2.4m acquisition of 7 Elements, which provides of security testing, incident responses management and bespoke security consultancy services.

It looks to be a very good fit in with Redcentric’s own services.

Analysts Andrew Darley and Kimberley Carstens, at the group’s brokers finnCap, consider that the current valuation for its shares is far too cheap. They have a 190p price objective out currently.

The year to the end of this month is estimated to see revenues of £94.9m, adjusted pre-tax profits of £13.9m, earnings of 7.1p and a dividend of 3.5p per share.

For the coming year they go for £103m sales, £16.1m of profits, 8.2p earnings and a dividend of 4.1p per share.

What I love to see is that this expanding group has an excellent 89% annual recurring revenue, this is just so right.

At 114p the shares are looking slightly perkier, after touching just 108p a few days ago.

I would now look for averaging by investors currently holding the shares.

(Profile 19.04.21 @ 139.5p set a Target Price of 170p)

Epwin Group (LON:EPWN) – good 2021 finals due in under three weeks

This group, which is a leading manufacturer of low-maintenance building products, is due to declare its final results for the 2021 year on Wednesday 6 April.

We are expecting to see the company announcing sales up some 37% at £330m, and a more than doubled profit in the £11m to £12.5m range, worth circa 7p in earnings and almost thrice covering a 2.4p dividend per share.

The group is believed to have halved its year-end net debt position to around £9m.

Late in January the company’s CEO Jon Bednall noted that trading in the first two weeks of 2022 had remained strong and in line with expectations.

Allowing for current hassles to have had some impact, some £330m is the current year’s sales estimate. Even so, it looks as though a further profits recovery is possible to around £14m pre-tax, worth almost 8p per share in earnings.

The shares, which were up to 121.60p last September, are currently trading at around the 98.5p level.

My thoughts are that they could edge higher within the next month, I would rather be a buyer than a seller, just yet.

(Profile 22.08.19 @ 73.5p set a Target Price of 100p*)

Fonix Mobile (LON:FNX) – further advance expected after strong interims and a cracking 99% ARR

On Tuesday morning this group, which provides mobile payments and messaging services for clients across media, telecoms, entertainment, enterprise and commerce, issued its interim results for the six months to end December 2021.

They showed a 16.2% increase in revenues to £28.6m, a 20.3% advance in adjusted pre-tax profits at £5.2m, helping to push up its half-time earnings by 21.4% to 4.4p per share.

All sections of the group’s business saw increases in the six months.

Its clients list includes blue-chips, such as BT, Comic Relief, ITV, Global Media, Children in Need and Bauer Media amongst hundreds of others.

When consumers make payments, they are charged to their mobile phone bill. This service can be used for ticketing, content, cash deposits and donations.

It also offers messaging solutions, in fact, last November and December saw record levels of business, with some 84m SMS messages being processed in a single month.

The group’s broker, finnCap, considers this business to be highly scalable and is expecting a good second half to round off the year to end June.

Analysts Andrew Darley and Michael Hill estimate £53m (£47.7m) revenues, profits of £9.6m (£8.3m), earnings of 7.9p (6.9p) and a dividend of 6.0p (5.2p) per share.

For the coming year they foresee £58.4m sales, £10.6m profits, 8.8p earnings and a 6.6p dividend per share.

I really like the generation of this group and consider that its shares, now at 153.5p, have great upside potential.

They peaked last year at 190p and could easily be up there again soon.

(Profile 01.02.21 @ 136p set a Target Price of 170p*)

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


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