Relatively few summaries this week due to the sheer volume of news and other commitments. As usual, if you think we’ve missed anything, join the discussion on Discord and have your say.
Anpario (ANP.L) - Final Results
Shore appear to have hired Alan Partridge as note title writer. The 25% drop in PBT here becomes a "recovery play".
Lynn, to the untrained eye, this might look rubbish and that I haven’t bounced back.
Looking into the details, £31.0m is a useful beat on "not less than £30.8m" guided on 24th January, and margins recovered well in H2 to 46.2% from 43.5% a year earlier. There's a tailwind for EPS next year from the mid-year tender offer. But, no, there's nothing in the numbers yet about a revenue recovery.
Sometimes, inventory can be used as an indication of the optimism of the company, but in this case, it is distorted by inflationary and supply-chain effects and after-effects. Still, finished goods of £3.3m versus £5.2m two years earlier hardly shouts confidence.
There's a general lack of public information about the company. For example, there are no shareholder presentations or a breakdown by product. Even the outlook statement is vague where others might give some YoY numbers:
Strong start to trading in the current year.
Increased volumes, cost reductions and efficiency improvements expected to be fully realised in profitability measures in 2024.
The industry and certain regions will continue to face specific challenges.
Therefore, it is good that broker forecasts are freely available after registering with Shore. They pick up on the marked H2 margin improvement:
FY24F gross margin assumption has been increased by 150bps to 45.5% (+50bps yoy), with FY25F increasing by 50bps to 46.0%
This seems conservative given the H2 figures but is naturally dependent on commodity prices. Revenue forecasts are unchanged, and factor in a recovery from here, but even out to 2025, unit volumes are surely down on the peak in 2021 and possibly before, and there's no sign of a return to the 52% margins of 2020. Although there appears to be underlying growth, there are various cycles affecting this business but we have to consider that 2020 and 2021 might have been a high point as well as 2023 being a low one.
Even if we do assume they eventually recover to the previous c.18p level of EPS, then applying a 10x multiple that would be normal for a low-growth business with an ROE normally only just into double figures, then we get a valuation of 180p, below this week’s share price.
Billington (BILN.L) - Contract Wins
…pleased to announce that the Group has recently been awarded six new contracts with a combined value of circa £90 million.
Sounds great, as these wins are for greater revenue than last year’s total. However, delivering this work appears to be in forecasts already:
The Group currently has a record orderbook and these contracts provide further confidence that Billington will continue to perform well in 2024 and into 2025, further underpinning current market expectations.
They may be being conservative here, but we’ll have to wait & see. The forward P/E of around 6 didn’t seem to reflect confidence in hitting expectations, so anything that underpins these is good news. The market has taken it as such, with the shares rising in response. The rating remains undemanding, though.
Getech (GTC.L) - Trading Update
Having now admitted failure in the Hydrogen space, and stopped using this as a buzzword to enthuse shareholders, it is unsurprising that in the battle for survival, Getech pivot to the investment fad of the day:
Artificial Intelligence (AI) and Machine Learning (ML) is accelerating the value of the Company's core asset and skills, namely its Globe geoscience platform and expert services.
However, ignoring the usual fluff, they are also doing the right thing: sacking deadwood and returning to their core business of selling the oil & gas services while selling the property for whatever they can get to keep the lights on.
The sale of the Kitson House part of Getech's office completed for £0.65m, as announced in January 2024. The Company has retained freehold ownership of Nicholson House, which was independently valued in December 2023 at £0.86m. Both buildings are located at the same site in Roundhay, Leeds.
Getech has previously identified the opportunity to reduce annual costs by £2m, as announced in 2023. The full benefit of these cost reductions is expected in 2024, assisting Getech in realising positive EBITDA and cashflow.
This must be the only property deal bought for £2.5m in 2006, that is worth significantly less today, and shows that this was likely a fire sale for survival of the business.
Broker Cavendish introduces some 2025/2026 forecasts with some punchy numbers. We’d take these with a pinch of salt when the order book shows no signs of recovery:
Getech's order book value has been maintained at £4.5m (31 December 2023: £4.6m; 31 December 2022: £4.6m)
But the key point is that they appear to have survived, and for a good while, this was looking doubtful. The key to a sustainable future for Getech, if not the planet, will be for them to stick to their core profitable Oil and Gas business. The problem is that they remain subscale as a listed business, with little scope to grow to a reasonable size, even if they hit Cavendish’s aggressive forecasts.
National World (NWOR.L) - FY Results
A useful EBITDA beat over post-period end guidance translates to an EPS of 2.8p versus 2.5p forecast, although there is a discrepancy in how broker Dowgate calculates figures for previous years. The dividend is raised a little less than expected. This is the outlook:
In Quarter 1 2024, our EBITDA is slightly higher than internal expectations with total revenue slightly lower than internal expectations. There is still some continuing market volatility as audience and programmatic yields are impacted by algorithm changes by the global social media platforms.
As a result, forecasts have been edged up from 3.0p to 3.1p. However, these are adjusted figures and many of the adjustments are recurring:
Restructuring and acquisition costs occur because they are a serial acquirer. So. it would be nice to get some guidance on whether that restructuring is largely complete following acquisitions, or whether this is like Reach where it is part of normal business. Incomplete acquisition costs are huge. It seems like something big is on the way, which may muddy the waters on all these adjustments again this year.
However, based on the current business we have:
The Group maintains its guidance for 2024 to deliver revenue of £100 million, with an improved EBITDA margin.
This means perhaps around £11m EBITDA, and if we put this on the same multiple as Reach, accepting all the adjustments, then we get a valuation some 50% higher than the current price. If you consider that Reach has a large pension deficit, legacy phone-hacking provisions, and looks operationally weaker than National World, then a comparative valuation here would be 2-3x the current price.
Given the beat vs expectation, the share price was marked up first thing by market makers, but this just attracted sellers, and it has been returned to previous levels. It seems the big seller has been playing a little harder to get recently, but there's no evidence they've gone away. This should present a good opportunity for anyone willing to look through the short-term selling pressure.
XP Factory - Interim Results
Alan Partridge pops up again in the broker world. This time, working for Singer and suggesting that for XP factory, “Strong execution continues; shares deep value”.
Deep Value normally indicates a struggling company with poor earnings, but one has a lot of tangible assets that may prove valuable or more productive in the future. Singer appears to be right about the first part:
However, on the assets side:
Is made up of:
These are mainly fixtures and fittings that they couldn't sell for anywhere near the cost price. Leases and intangibles make up the rest. So what they mean is that to the untrained eye, these look rubbish and that they haven't bounced back.
An operating profit that excludes lease finance charges that they have to pay is, of course, not a helpful metric. Given the lease accounting, the cash flow statement is king:
This looks better than the income statement but includes £500k of landlord incentives. So, about £750k underlying. Given these bars require continuous investment in refurbs to keep them as places that people want to visit, there is a lot of future growth baked into a £25m+ valuation here. They have a growth strategy, but it seems reliant on getting upfront landlord incentive payments. While high-street conditions are weak, they may continue to get these. But in a stronger market, or if their currently trendy offering loses its shine, they will likely stall. The balance sheet still looks weak here, too. Current liabilities £16.5m, up from £15.2m last year, and Current Assets £7.9m doesn’t give a lot of wiggle room.
Zotefoams (ZTF.L) - Preliminary Results
Zotefoams seem to have invented a new way of reporting that excludes loss-making parts of the business:
The real results show declining EPS and increasing net debt:
Alan continues his sterling work for Singer and titles their note “Record year with another exciting year ahead” to avoid the untrained eye thinking these results were rubbish.
This is a highly capital-intensive business, and they are flagging further capital expenditure. It is not clear if they generate an acceptable return on this:
Group return on capital employed improved to 10.3% (2022: 10.1%), with increased profitability of the Polyolefin Foams and HPP business units offset by the increased losses of MEL as noted above.
It’s certainly not high enough to consider paying a 16x P/E for such a business as the market currently prices this at.
That’s it for this week. Have a great weekend!