Short trading week again this week for the Jubilee Weekend so not a lot of news to analyse. On the discord server, Leo & a few others have been cycling back to look at recent news in more detail from companies such as RA International plus follow ups from companies that presented at Mello last week. If you are missing your usual small caps fix head over to discord to get the latest.
Small Caps
Speedy Hire (SDY.L) - Final Results
Here’s the summary:
This appears to be a small miss on the stockopedia consensus:
But a small beat on the forecast of 4.0p from their house broker, Liberum. So maybe some out of date forecasts in the Stockopedia numbers. The dividend is definitely ahead of consensus though:
This is a good sign, plus the ROCE is the highest they've generated for a while. However, the current ratio isn't great at 0.97. This shouldn't be a problem since in difficult times they can cut capex to zero and run the business for cash. However, it makes sense to consider this when comparing investment opportunities.
As they've recovered from covid, debt has increased as they require working capital and more hire equipment to support customers. They clearly think they have excess capital though as they continue their buyback:
During FY2022 the Board reviewed the medium-term capital needs of the Group and as a result commenced a share buyback programme from 28 January 2022, up to a maximum aggregate consideration of £30 million. The programme is expected to continue until the 2022 Annual General Meeting which is to be held on 8 September 2022, when it will be reviewed.
On outlook they say:
The start to the new financial year has been encouraging, with underlying revenue for the year to date c.8% ahead of the comparative period in FY2022.
If 8% is indicative for the year then this would be £412m revenue, slightly ahead of the £401m Liberum were forecasting prior to today's update. So maybe a slight increase in broker's forecasts can be expected beyond the 5.2p 2023E EPS?
However, even with this figure, the forward Earnings yield is only 8.4% once you correct for the debt etc. Not terrible, but equally not stand out for a cyclical business that may face some challenging times into FY24. As always, our go-to comparison for any cyclical business is Somero which is on a forward Earnings Yield of 13.5% and much higher ROCE. At current prices, we see no reason to favour Speedy Hire over Somero.
XP Factory (XPF.L) - Full Year Results
We’ve had some concerns about the management here since some statements they made in RNS’s last year didn’t line up with what we were seeing when looking at their online booking system. For example, in their AGM statement last year they said:
We...have since extended our opening from Wednesday to Sunday
Yet Leo found no sites taking bookings for Wednesdays at that time. This may, of course, be a booking system error or individual sites telling management what they want to hear rather than any intentional miscommunication. Still, it means we are cautious about any statements made by the company.
In light of this, we were concerned by these results requiring 5 months post year-end to be released. However, they did change auditors at the turn of the year and this will have caused some delay and in the end the audit opinion was entirely clean, which is good to see. What about the results themselves?
Group revenue up 163% at £7.0m (2020: £2.7m)
2020 was, of course, a pointless comparator so this is largely meaningless. As, unfortunately, is the EBITDA figure:
Adjusted EBITDA of £2.7m (2020: loss £1.4m) inclusive of £2.6m R&D credits, net of associated costs
As well as the £2.6m R&D credits there was another £1.1m of covid support and local authority grants not mentioned above and of course, under IFRS 16 EBITDA now excludes rental payments which makes it irrelevant to a company operating out of physical leased sites. They do give adjusted pre-IFRS 16 EBITDA as well, but again you need to make your own adjustments.
Cash at year end £8.2m (2020: £2.7m) and £6.9m on 30 April 2022
This is good news, although again the comparison with the year before is irrelevant given the amount of equity issued in the interim. Cash burn of £1.3m in 4 months doesn’t look great. They also say:
The net proceeds from R&D grants were received in January 2022 and therefore show as a significant increase in trade receivables and also impact trade payables at year end.
Although this isn’t quantified here, house broker, Shore, give this R&D grant as £1.5m which means operating cash outflow is much worse than it first appears.
[As an aside, "net proceeds"suggests a third party was used to claim and in 2021, the £2.6m of R&D credits is given net of £0.6m of costs in claiming them. Tax credit claims companies would appear to be a good investment right now if one can identify any listed ones!]
Shore have promised a further update in due course, implying an upgrade. Currently they have 1.8p EPS in 2023 on revenue growth up 50% on 2022 due to significant further store openings, but cash flow positive throughout. Given the cash outflow already in 2022, then this looks a stretch. Despite rent-free periods and other incentives, rapid growth in store-estate will see cash outflow for fit-out costs etc. However, if they can achieve Shore’s forecasts the 25p share price will no longer represent a daft-looking valuation.
That’s it for such a short week, enjoy the extended Jubilee weekend everyone.