Small Caps Live Weekly Summary
Mello CHH PMP RTC ULTP ZTF
A final promo to join many of us at Mello Chiswick on Tuesday 2nd and Wednesday 3rd June, which is shaping up to be a well-attended event by both companies and SCLers. The schedule is now available here. 25% discount code for tickets: SIMPSON25
With the UK Bank Holiday, it was a boring week for materiel news, so this will be brief this week. (Remember this is a summary of many opinions, and isn’t the view of any one commentator; check out the actual discussion on Discord if you want the nuance of the different opinions.) To avoid spam, the only way for new members to join the Discord server is via the Small Caps Live website. This will be instead of direct invites via Discord. All genuine investors are still very welcome to join in the discussions.
Churchill China (CHH.L) - AGM Statement
The Company is pleased to note that hospitality sales remain broadly in line with expectations.
Broadly in line is, of course, slightly below. Which begs the question, why should they be pleased to announce this? Unless they actually expected worse than their own expectations!
So what this probably means is that they are slightly behind market expectations, but they were worried that things were going to be much worse, so they are pleased it’s only a minor warning today!
We may be nitpicking here, but it isn’t the most convincing update. For example:
remain confident in our long-term outlook
Suggests a lack of confidence in the short and medium term.
It’s still a well-run business and trades on a significant discount to Net Tangible Assets. At some point, this looks like it will be a good investment, but we just don’t see any indicators that that time is today.
Portmeirion (PMP.L) - Statement re Government support for UK ceramics
Seems good news:
The Board of Portmeirion Group PLC, the global homewares brand group, welcomes the announcement from UK Chancellor today that the UK Government will provide a £120 million fund to support the UK ceramics industry.
However, there is zero detail from the Government behind it so far;
We look forward to finding out further details
At least things are moving in the right direction and are compatible with the company’s strategy.
The signalling is perhaps starting to make this look interesting. Even if the announced scheme doesn’t directly help them because of energy hedging, it would be embarrassing to announce it and have one of the most iconic companies go under.
A combined package of energy, labour and government guarantees on loans would significantly move the risk-reward ratio here.
RTC (RTC.L) - AGM Trading Update
They don’t do forecasts, but if they did, this sounds a lot like it would be a profits warning:
Rail:
significantly increased fuel costs, materially raising fleet expenses, and this is, and will continue to, unavoidably impact margins within our Rail and Energy divisions.
And
This uncertainty is contributing to more cautious hiring behaviour among clients, with some delaying, scaling back or, in certain cases, cancelling recruitment plans.
Energy:
Following the extension of targets to 2028, demand for new installations has softened in the short-term, reflected across the industry through workforce reductions...This has led to a short-term reduction in demand, which we anticipate will increase in the medium-term as these programmes scale.
Only conferencing appears to be going ok, presumably because lower rainfall means fewer delegates getting wet due to the leaks we experienced at the Derby conference centre during a Mello event!
Ultimate Products (ULTP.L) - New CEO & Q3 Trading Update
This is a bit of a shock. We had no idea Andy Gossage was looking to give up his role:
The appointment of Simon Harrison as Chief Executive Officer, following a thorough search process. Simon is currently the CEO of Princes Group PLC (LSE: PRN), the FTSE 250 international food and drink company, and will join Ultimate Products as CEO designate on 5 September 2026 before assuming the role of CEO on 26 October 2026….
Simon is replacing Andrew Gossage, who has notified the Board of his intention to step down as CEO with effect from 26 October 2026, following more than 20 years in executive roles with the Group. After a short sabbatical, Andrew will continue with the Group as a Non-Executive Director from 1 May 2027. As part of these changes, Simon Showman, who founded the business in 1997 and served as CEO until 2024, will move to a Non-Executive Director role with effect from 1 June 2026, while continuing as President and Founder.
Perhaps signficantly, Harrison has gone from a £750m market cap company to a £43m market cap company. Although his base salary at Princes was £500k, this isn’t too different to Gossage’s c£400k, so not a huge step to meet this.
We do feel a bit sorry for Gossage that the share price jumped as his departure was announced, but this is most likely down to the news acting as a catalyst for change.
The risk is that a more measured CEO is coming into a poorly performing business. Surely there will be a kitchen-sinking profits warning to come before we get a final reset?
We also got a Q3 update the following day:
Group sales are expected to be marginally ahead of market expectations, with profitability remaining in line with consensus, reflecting the change in sales mix
They at least appear to be slowly building a track record of avoiding further warnings.
It’s pretty cheap on 10x FY26 and 7x FY27 earnings, although that assumes quite a big improvement in prospects. However, this shouldn’t be a highly rated business. Its gross profit margin is less than 25%, PBT margin is mid-single digits, it has debt on the balance sheet, and a very volatile performance. These don’t scream high rating to us.
It seems unlikely that founders and long-term management have been running a good business into the ground with bad decisions; perhaps it's just not a very good business. For example, the EPS is below the IPO ten years ago. It also makes it that bit less likely that we're about to see an inflexion point in margins, with the biggest holders deciding to step down.
Finally, we got a CFO buy:
…on 28 May 2026, Chris Dent, Chief Financial Officer, purchased 23,923 ordinary shares in the Company ("Ordinary Shares") at a price of 52.25 pence per Ordinary Share.
This is a start, but it doesn’t really get anywhere close to meeting his contractual requirement for holding. Given his apparent reluctance to buy shares in the recent past, and his sudden interest this week, are we finding out what he really thought of his outgoing CEO?
Zotefoams (ZTF.L) - Trading Update
This seems strong:
The Group reports strong trading in the period, with overall revenue increasing by 26% year-on-year to £64.1 million. Performance reflects robust demand across key markets and the contribution from Overseas Konstellation Company (OKC), offsetting the anticipated moderation in Footwear.
But ultimately in-line:
The Board is encouraged by the solid start to 2026 and its full-year expectations remain unchanged.
This seems to be the problem:
The Group is actively monitoring the impacts of instability in the Middle East, has taken steps to mitigate the impact of raw materials and other cost movements, and is well-positioned to adapt to evolving conditions.
No indication of what these actions are; presumably, they are trying to renegotiate pricing with customers. This also puts the revenue numbers into context. Volumes are possibly down in EMEA, and perhaps not just in footwear:
The underlying EMEA business was stable against a strong comparator (£40.4m) which benefited from exceptionally high Footwear volumes. Footwear, which is the largest component of the Consumer and Lifestyle vertical, saw revenues moderate as expected. Transport & Smart Technologies, including aviation, space, and automotive applications, continued to grow maintaining the momentum observed last year.
We would have liked to see the phrase “continued to grow volumes”, not just “continued to grow”, in there to be sure that the momentum here wasn’t just commodity-driven price increases on lower volumes.
And this seems to lack detail, too:
Cash generation has been similarly robust, reflecting our ongoing focus on working capital efficiency.
Either they don’t know the period-end net debt from a month ago, or they aren’t willing to tell us, presumably for Partridge reasons:
Lynn, to the untrained eye, this could look like it’s rubbish, and that I haven’t bounced back.
That’s it for this week. Have a great weekend!