Small Caps Live Weekly Summary

BKS CGS JIM TGP TST ZYT

Quite a quiet week again this week. Here is a selection of what we discussed:

Beeks Financial Cloud (BKS.L) - Trading Update

This is in line, and the first time (in recent memory) that they have been free cash flow positive (if we give them the benefit of the doubt and include a delayed payment.)

Beeks has achieved a positive free cash flow position in the period after working capital movements, with unaudited net cash of £6.6m at 31 December 2024 (June 2024 net cash of £6.6m), with the company having received a delayed post period end payment of £1.2m in early January.

To be fair, they did have good results in 2018, but then failed to deliver for the next five years (not that failure mattered to shareholders who actually seemed to quite enjoy having to put in lots of new money.)

While there is always the chance of them turning success into failure once again, it looks like they may finally be on a path to sustainable growth that doesn’t require huge amounts of fresh capital. The problem is that with a forward P/E of 40, it is already in the price.

Castings (CGS.L) - Trading Statement

Perhaps not unexpectedly, the third profits warning arrives:

Taking all the above into account, it is the board's expectation that the company's result will be substantially below market expectations in the current year.

Here’s what broker Zeus say about it:

Zeus lower FY25 underlying PBT forecasts by 40% to £6.0m, showing one-off costs (£2.5m-£3.0m) as underlying at this stage. Due to caution on the macroeconomic outlook, we reduce volumes in FY26 despite some initial signs of improvement in heavy truck demand, which results in a 17% reduction in underlying PBT to £10.1m.

The biggest mystery is how this continues to defy gravity. The shares are only down 34% over the last year despite forecasts dropping almost 70%, to make them on a forward P/E of 25. The net cash, willingness to pay an uncovered dividend and discount to TBV are perhaps providing some support. However, this probably deserves to trade at a discount to TBV, as those assets have never been particularly productive. The average full cycle ROCE is maybe 10% max. This is a cyclical business, and earnings will probably recover. However, that doesn’t make it undervalued today, just overvalued in the past.

Inspiration Healthcare (IHC.L) - Trading Update

An uninspiring update here:

No revenue was recognised from the $4.3 million Middle Eastern SLE6000 ventilator contract during the FY25 period despite the first part of this order having been shipped prior to the year end as this initial shipment was held awaiting customs clearance. The revenue from this initial shipment of circa $2 million is expected to be recognised in early FY26 on receipt of the goods by the customer, with the second and final shipment expected to be made in FY26, following receipt of the final letter of credit.

After all the delays in shipping them, customs are now mysteriously holding the baby ventilators for months, and they are still awaiting payment from the customer. No indication is given on when this will be resolved.

On top of this, their broker, Panmure, downgraded FY26 by 46%. Not that this seemed to matter to some investors (or should that be “investors”) who bid the price up almost 80% in response. That must be a new record for the greatest mismatch between forecast trading and share price response.

The only thing that makes logical sense is that the market was pricing in material insolvency risk and that, with this update, that has now receded, despite the huge downgrade. However, we’d normally expect the close-to-insolvency company to have a low single-digit £m market cap, and while not huge, this was quite a bit higher. The only other explanation is that this has become a gambling chip completely detached from any fundamentals.

Jarvis Securities (JIM.L) - Dividend Declaration

Although this is technically a dividend declaration, it is also a company update:

Further to the announcement of 27 June 2024, the Company confirms that at this stage its subsidiary, Jarvis Investment Management Limited, continues to progress the additional remediation work recommended by the Skilled Person following their recent review. It is anticipated that the majority of this additional remediation work will now be completed by the end of the third quarter 2025. The Skilled Person will then review this additional remediation work.

This is a 9-month delay compared to previous guidance. The skilled-person review is the gift that keeps on taking. However, the dividend declaration may be signalling that the company is viewing their situation more positively:

…a first quarterly interim dividend of 1.5 pence per share, to be paid on 25 March 2025

This is the recent history of their quarterly payments:

So, having reduced payments from a peak in Jun 2023, this is the first quarterly increase.

Tekmar (TGP.L) - Framework Agreement

In another sign of how badly things have gone wrong here. A few years ago, Tekmar was meant to be the global leader for cable protection systems with a 75% market share. Now, they are doing the donkey work for a competitor:

…has been awarded a three-year framework agreement by Nexans S.A., a global leader in the design and manufacturing of cable systems and services.

Under the framework, RYDER will provide a wide scope of critical engineering support to Nexans and its associated offshore wind projects worldwide, including:

· Cable burial risk assessments

· Installation analysis

· Specialist subsea engineering consultancy

On the plus side, if they bill by the hour and get paid on standard terms, so this should improve their financial situation. Also, presumably, someone else is taking the implementation risk, and they aren’t facing ruin if their design/work fails.

Touchstar (TST.L) - Trading Update & Conclusion of Strategic Review

It’s a, good news, bad news, bad news, good news update here. Also known as the double shit sandwich.

The good news is that trading is ahead of expectations. The bad news is that these were walked down by a previous profits warning earlier in the year, so this is still a warning overall. Brokers had suspended forecasts following the strategic review. This graphically represents what the ahead statement looks like in reality:

This brings us to the other bad news: no one wants to buy them, at least at a price that gives the usual takeover premium to the current price. The good news is that they didn’t give up and sell out on the cheap, and there is some confidence that FY25 trading will be better. But not that much, given the drop in brokers forecasts here too.

Zytronic (ZYT.L) - Asset Wind Down

Despite engaging with multiple counterparties, the Company was unable to agree on suitably attractive terms for a transaction.

As a result, the Board, in consultation with FRP Advisory Trading Limited ("FRP Advisory") will commence the orderly wind-down of the Group's assets. At this stage, there can be no guarantee as to the level of returns, that may be available to shareholders.

This seems unsurprising but appeared to be surprising to some as the shares were marked down in response. We don’t yet have a company-guided figure on values:

As at 31 January 2025 the group's net cash position was broadly unchanged from the figure provided at 14 November 2024, but excludes wind-down costs. FRP Advisory is in late stages of finalising its outcome statement which will provide shareholders with an indicative range of returns available in an orderly wind-down.

Net cash broadly similar to £3.3m is presumably £3.1-3.2m. Losses offset by working capital wind down. There is also freehold property. Book is about £3.5m, which looks fair based on similar transactions. The remaining inventory and plant will have minimal value. the big unknowns are the costs of administering the wind-down and if there are any onerous contracts for supply to customers.

It may be that the return is yet higher than the current share price. However, given the illiquidity, holders will now be resigned to whatever they get.

That’s it for this week. Have a great weekend!