On the hunt for bargains – Investors’ Chronicle

If my inbox is a barometer of market trends, then an ever-increasing number of small-cap companies want to be covered by the financial press. I would like in part to think that this is a reflection of the high quality journalism that my colleagues and I try to provide to our large retail investors.

However, it also reflects an awareness among directors of small and micro-capitalization listed companies that the market price of their shares is now largely determined by retail investors buying and selling, rather than block trading in securities. fund managers. To put it in perspective, IC’s subscriber base has a total of over £ 30 billion in liquid assets (bonds, stocks and cash), a considerable sum even for the management industry. funds. So, for example, if three percent of IC’s underwriters decide to buy £ 7,500 of shares in a £ 100million market-capitalization company, that would total a buy order for 7.5 million pounds sterling, or 7.5 percent of equity.

This factor alone explains why there can be dramatic re-valuations in stock prices in companies that I highlight assuming other investors share my positive view. For good measure, I spotted another opportunity this week.

Tap into a retail reccevery stock

  • The average daily pledge book returns to about 90% of pre-pandemic levels.
  • Sales of high-end jewelry and watches have outperformed since national lockdown restrictions were eased.
  • The interim dividend per share rose 60% to 4p.
  • New CFO Dianne Giddy will join South African financial services group FirstRand in the fall.
  • Improvements in Materials Analyst Profits.

CEO Chris Gillespie of Pawn Shop and Financial Services Company H&T‘s (HAT: 285p) exuded confidence as it delivered its first half year results since taking over from John Nichols who retired earlier this year. His optimism is justified.

The UK national lockdown meant H&T was unable to provide retail sales to in-store customers until the second half of April, but first half revenue and profit before tax only fell by 7% to £ 51.9million and £ 4.7million, respectively, a credible result figure. Importantly, Gillespie points out that the dynamics of retail sales (high-end jewelry and watches) have outperformed since the restrictions were lifted, underscoring pent-up demand from consumers who have cash resources to spend and like to spend, and increasing demand. public interest for their investment merits. H & T’s retail segment increased gross profit 139% to £ 6.7million on sales 26% higher to £ 12.4million including a credit of £ 1million for the release of previous supply for slow moving stocks.

Having seen its pawnbroker pound drop by a third to £ 48.3million in 2020 (as cash-rich clients who couldn’t spend during lockdowns redeemed pledges), the pound is rebuilding itself, up almost £ 2million in May and June and a further £ 2million in July. Real estate broker Numis Securities expects a closing pledge book of £ 59.5million at the end of the year, a cautious expectation in my opinion. The pawnbroker represented 55% of H&T gross profit in the first half of the year, and therefore remains the main generator of H&T profits.

Performance of Simon Thompson’s 2017 Bargain Equity Portfolio
Company Name ITLOS Opening price on 03.02.17 (p) Bid price at 08.09.21 (p) or exit price (see notes) Dividends Total return (%)
Kape Technologies (formerly Crossrider) KAPE 47.9 347 3.55 631.8
BATM Advanced Communications (see note seven) BVC 19.25 88.2 0 391.9
Oil & Gas trolley (see note 1) CARBONIZE 8.29 7.42 0 144.9
Avingtrans MEDIUM 200 388 11 99.5
Cenkos Securities (see note 2) CNKS 88.425 106 9.5 30.6
Manchester & London Investment Trust (see note 3) MNL 291.65 377 3.0 28.4
H&T HAT 289.75 282 40 11.1
Management consulting group (see note five) MMC 6.183 6 0 -3.0
Bowleven (see note four) BLVN 28.9 5.5 15 -6.1
Tiso Blackstar Group (see note six) TBG 55 20.4 0.54 -61.8
Medium 126.7
Total return on FTSE shares 6485 8017 23.6
Total return on FTSE AIM shares 977 1456 49.0

Note 1. Simon Thompson advised to sell two-thirds of the stake in Chariot Oil & Gas at 17.5 pence on April 3, 2017 (“Bargain Shares on a Rip”, April 3, 2017). Simon subsequently advised to participate in the one-for-8 open offer at 13p per share (“Sur le ryth des gains”, March 5, 2018) and to buy back the shares sold at 4p (“The northern adventure Africaine de Chariot ”, April 17, 2019). Simon then advised to subscribe to the opern one for six offer at 5.5p (“Exploiting margins of safety”, June 1, 2021). The total return reflects these transactions.

2. Simon Thompson advised to sell Cenkos Securities’ stake at 106 pence on April 3, 2017 and the price of 106 pence shown in the table above is the exit price of the stake (“A Profitable Income Beat”, 3 April 2017). Please note that Simon has since included stocks in his 2020 bargain stock portfolio and rates stocks as a buy.

3. Manchester and London Investment Trust paid total dividends of 3 pence per share on May 2, 2017. Simon Thompson then advised to sell half of the stake at 366.25 pence on June 26, 2017 (“Top slicing and running profits “, June 26, 2017), and selling the remaining half at 377p (” Second Chance Good Deals Sharing “, August 17, 2017). The 377p price shown in the table is the final release price.

4. Simon Thompson advised bank profits on half of your holdings in Bowleven at 33.75 pence (“Hitting pay dirt”, April 9, 2018). The company then paid a special dividend of 15 pence per share on February 8, 2019 and the remainder of the stake was sold at 5.5 pence (“Share taking and profits”, December 9, 2019).

5. Simon Thompson advised to sell Management Consulting shares at 6p in February 2018 (“How the 2017 Bargain share portfolio fared”, February 2, 2018). The price shown in the table is the 6p exit price.

6. Tiso Blackstar has transferred its UK listing to the Johannesburg Stock Exchange. The shares were then delisted on November 23, 2020 when shareholders received an exit cash payment of Rand 415 per share upon cancellation of their shares.

7. Simon Thompson advised bank profits on half of your holdings of BATM shares at 49.9 pence (“Bargain Shares: Exploitation of Price Anomalies and Upper Slice,” December 3, 2018) and then repurchased the shares at 43.5 pence (‘BATM armed for a re-rating’, July 11, 2019).

Source: London Stock Exchange.

One consequence of the buybacks is that net cash of £ 32.5million (83p per share) is up 151% year-on-year, accounting for almost a quarter of H & T’s net asset value of 136. million pounds sterling (347 pence). In addition, with an unused £ 35million credit facility, the company has the firepower to fund targeted acquisitions and exploit organic growth opportunities resulting from the withdrawal of certain margin lending activities. high interest from competitors such as Provident Financial. It is reassuring that H & T’s £ 3.4million personal loan portfolio includes only a small balance of high cost short term loans which has led to FCA’s ongoing review of its lending practices in this niche. The cost of turnaround should not dampen H & T’s growth prospects.

Shore Capital analysts plan to raise their 2021 pre-tax profit estimate from £ 7.9million to £ 10million, a cyclical low, to produce earnings per share (EPS) of 20p and a payout of 10p per share (18% improvement). For 2022, Shore expects pre-tax profit, EPS and dividend of £ 15.5million, 31.4p and 12.5p, respectively.

The stocks have produced a total return of 11% since I included H&T in my 2017 good business equity portfolio, far behind the portfolio’s 126 percent return. On a cash-adjusted forward price-earnings ratio of six, offering a potential dividend yield of 4.4% and a price 18% below book value, a revaluation to my fair value estimate of 400p seems firmly on the cards. To buy.

■ Simon Thompson’s latest book Successful stock selection strategies and his previous book Stock selection for profit can be purchased online at www.ypdbooks.com, or by calling YPDBooks on 01904 431 213 to place an order. The books are not sold by any other source and are priced at £ 16.95 each plus postage and packaging of £ 3.25 [UK].

Promotion: Subject to stock availability, both books can be purchased at the promotional price of £ 25 with free postage and packaging.

Both books include case studies of the companies in Simon Thompson’s discounted stock portfolio that beat the market, outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and equity filters that he uses to identify small cap companies with investment potential. Content details can be viewed at www.ypdbooks.com.

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