Chief Executive Officer, Renew Holdings
Small-cap Investing with Paul Hill and Paul Scott
In this week’s smallcap investing show, UK equity analyst & markets commentator Paul Scott & I discussed our latest thoughts on 23 stock ideas.
00:00 Recent buys & sells
02:25 Begbies Traynor
05:25 SDI Group
08:40 SRT Marine
10:20 Watchlist stocks and Spectra Systems
13:05 React
16:30 Bodycote
19:20 Elementis
22:35 Avon Technologies & defence stocks
26:30 M&C Saatchi
30:35 On the Beach
33:30 Pets at home
38:15 Frontier Developments
41:30 Henry Boot
44:05 GetBusy
47:00 Zigup
50:05 Gamma Communications
53:05 Alumasc
55:10 OPG Power
57:40 Integrated Diagnostics Holding
58:30 PZ Cussons
1:00:40 C...
About Paul Scott
Paul Scott, a UK equity analyst and commentator, discussed a range of small-cap stock ideas on the Vox Markets podcast in May 2025. He mentioned doubling up on a "very small" swing-trading position in Bloomsbury Publishing. Regarding Pets at Home, Scott stated, "I think it's the wrong price," and suggested 350p would be a fair valuation. He also commented on Frontier Developments, noting the shares rose 8% following a trading update, and described the company as trading at roughly 0.7 times sales with "lots of cash." In earlier appearances, Scott reflected on his investment approach. In a 2023 interview, he said he had "stopped gearing all together now" after experiencing significant losses in a geared account during a bear market. He stated, "I think if you can compound at anything in the teens or above you're gonna make serious money long term," and described 20% annual returns in small caps as "doable." In a 2016 presentation, Scott said he was "increasingly coming around to the view that the big money investing is really made from concentrating your money into very oversized positions when you're on to an absolute surefire winner." He also noted that he regards small director buys as potentially a "PR stunt," but views "chunky" six-figure purchases as a meaningful signal.
Transcript (149 segments)
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Paul Hill0:09
Welcome back everyone to Vox Markets. My name is Paul Hill and I'm delighted again to be able to speak to equity analysts and stock markets commentator Paul Scott to discuss all things small cap. So, welcome Paul from sunny Alderney in the Channel Islands, I believe, this week.
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Paul Scott0:22
Thanks, Paul. Yes, it was tipping it down with rain yesterday, but it's brightened up a bit. So, I've just hired an e-bike. So, I thought but my duties to the listeners here take precedence. So, we'll carry on and do our video and then I can go cycling later.
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Paul Hill0:36
Yeah, well, it's been belting down here, but luckily it's had similar sunnier climes over the last few weeks on the markets and we over the weekend we also had a bit of back and forth between Trump and the EU and I think tonight we've got Nvidia's results coming out, that poster child of all things AI. But before we just start beginning to run through some stocks, have you been buying or selling anything this last 7 days or so?
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Paul Scott1:00
Just very small minor swing trading type positions, really. I doubled up on Bloomsbury Publishing. Very small positions though these are, trivial, really. I just looked at it and thought, well, at 40p earnings it's on about 12 or 13 times. That's probably trough earnings. Net cash balance sheet, so I think there's maybe a bit of upside on that, not a huge amount. I think that's the only significant trade I've done. There's loads and loads of things on my watch list though, Paul.
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Paul Hill1:30
I doubt whether you've been doing much, have you? You don't really trade, do you?
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Paul Scott1:37
No, I don't trade at all and I'm still licking my wounds from Argentex, but I have actually been voting against the proposed acquisition by IFX at their 2.49. I've done that this week. But just to alert investors on that, it's actually strangely quite difficult to do. Normally it's a piece of cake to vote in an AGM, but this time they've for some reason the board sent me instructions to vote online yesterday, which I did and voted against and then they sent another resolution vote ask me to vote against it. So I had to do it twice, which means that everybody's having to do it twice. They're not making it easy for minorities to vote in this case. But anyway, regardless of that, let's see what happens. But okay, just in terms of stocks on the watch list, we've got Begbies Traynor. We don't look at that that often. It's an insolvency practitioner, but it's also expanded into advisory into property and I think a bit of corporate finance anyway. Shares are still pretty cheap. I was looking at the PE ratio and I think it's about 9.4 times forward PE. Do you have any thoughts on Begbies Traynor at all?
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Paul Hill2:57
We like Begbies a lot. Yeah, I've got my notes up in front of me here. We issued a trading update on the 23rd of May. So that was what? Middle late last week. Yeah, all in line. No issues at all. The balance sheet's fine. It's self-funded a lot of acquisitions over the years. The core business as you say is an insolvency practitioner, which is a very high margin business. It's a really high margin, high quality business insolvency is because it's very difficult to get the required qualifications. So fully qualified insolvency practitioners are very scarce and it makes lovely margins. The core business makes an operating margin I'm thinking it's well into the 20s in percentage terms. What are the shares for? Are they still around a quid each?
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Paul Scott3:51
Yeah, they're just south of a quid, yeah. And they pay a 4% dividend yield. It just looks like AT&T type stuff, as in like, one day we'll wake up and somebody's bought it.
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Paul Hill4:00
Yeah, I mean, it's owner-managed still by Rick Trainor. At some point, obviously, I don't know when, but he's going to I imagine want to retire and effectively sell the business. But, yeah, it's neutral on net cash net debt. Well, 0.9 million net cash, which is nothing really. Profit before tax 23 and a half million in line with this is for April 25. And they're confident in their outlook. They've basically said as well that they've got good visibility of the order book, if you like. There's a lot of insolvency jobs that can drag on for several years. So, and they've got a pipeline of more bolt-on acquisitions as well. All for a PE of nine. And as you say, over 4% yield as well and self-funding acquisitions. I just think it's the wrong price. I don't understand why the market consistently persistently undervalues Begbies, but it does.
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Paul Scott4:51
Yeah, and it's a decent market cap. It's 160 million. So, if people wanted to buy a few, then they should be able to get liquidity quite easy, I would have thought.
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Paul Hill4:59
Yeah, reasonably. And the other one There's another listed one, isn't there? Begins with F. Can you remember the name?
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Paul Scott5:03
Yes, FRP Advisory.
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Paul Hill5:05
FRP Advisory. That is not quite as good value as Begbies, but they're the sort of next tier up in terms of size of jobs and prestige, if you like. I think they're both worth people having a look at. And you get your dividends while you hope for them to re-rate. And I mean, there'll be plenty of corporate insolvency work for years to come, I would imagine.
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Paul Scott5:24
Yeah. Good. Okay, let's move to another one which is still cheap. It's about 10 times, 10 and a half times PE. It's SDI, which is a sort of buy and build instrumentation business. I think it's trying to be a blueprint for Judges Scientific, but a much smaller type business. The shares have rallied really hard over the last four weeks. But again, even that, they're still as I say 10 and a half times PE. I don't know if you've had a look at this one. It's supposed to be quite, given it goes a lot into life sciences, this instrumentation, into R&D as well. It should have quite a lot of IPR.
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Paul Hill6:01
Yeah, we like it. I mean, we look at everything, so. Yeah, well, I missed the bottom on this. It was rather irritating, actually. It bottomed out around 50p. And then the chairman, Ken Ford, who's a great guy, we chat to him occasionally. He published an RNS of some fairly chunky buys, you know, not messing about type of director buys from him. And that was your signal. I think when a director spends 50 grand plus or does several clusters of 50 grand plus buys in a small cap, they're not messing about. They're not doing that for PR reasons, usually. So that was the signal, and I didn't act quick enough, so I missed it. They were up to 76p when I last looked on the 19th of May with an inline trading update for April 25. I think that reassures because there had been problems last year with profit warnings. And they sounded upbeat about the order book as well at SDI, saying the order book was robust. Tariffs in the US is only 10% of their business, so they say no material impact. The balance sheet's okay. So we like it. We think the fall was overdone, but for me personally, now I've missed a 50% rally. I mean, a lot of the readers are saying we're saying thing a lot of us are loath to buy something that's already bounced 50%, and a lot of these things are drifting back down again as people bank profits. So I think for me personally, I've missed the short-term trade on that. But I would certainly consider it on a sort of buy the dips type of list, going forward.
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Paul Scott7:38
Here's a scenario for you, Paul. If we hadn't have actually had a swan song or a swoon in April, hadn't have actually dipped to 50p and stayed at roughly round about 62 etc. Now it's gone up to 72 and was on a PE of 10 and a half, would that have changed your view? It's just that because it's come from such a low point.
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Paul Hill8:00
That's a good point. Yeah, I see what you're saying. So what you're saying if we hadn't had that downturn and it was still at 62p, yes, I probably would be tempted to buy. It's so difficult. I don't know what the listeners think, but we all have that quandary, don't you?
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Paul Scott8:15
Yeah.
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Paul Hill8:15
I suppose the guys who are happiest to buy are momentum traders, aren't they? They like to see breakouts on the chart, but we've had a lot of false breakouts on lots of things over the last year. So I think people are still scared of breakouts because quite often they drift back down again. We'll only know after the event which ones stick. That's why it's so fascinating this activity, isn't it? You just don't know what's going to happen.
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Paul Scott8:39
You don't know.
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Paul Hill8:40
Okay, good. Let's move to one which is a bit racier actually. I think we've discussed it before, but they came out with a big contract announcement that they've just started SRT Marine. They've got this 167 million euro Indonesia contract over 10 years, two years implementation, mainly sort of equipment getting into the coast guards etc. and then two years servicing. I think they've also got another big one about that sort of like they've got 320 million confirmed order book anyway and about 1.2 billion apparently sort of pipeline. It does seem to be hitting its stride, but it has been around the mill. And is this a sort of the gets question, is this a jam tomorrow or is this actually now the inflection point?
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Paul Scott9:27
Well, that's the big question, isn't it? And funnily enough one of my co-writers Alan who does the AR AI cartoon actually knocked up a picture of a pot of jam with SRT Marine. But his caption was it's jam today, which I thought was quite good. So, yeah, it does look like it's coming good, doesn't it? But I've just found with SRT in the past, I'm too I don't think I can give an independent view on it because I'm just too battle-scarred from serial disappointments over many years. Something always seems to go wrong with it and so it's not for me, but as I say, I don't think I'm really capable of giving an independent view on that.
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Paul Hill10:06
Yeah, okay, good. We've got a couple of comments from Peter T. Says first of all, big congrats to you Scotty on your Substack, great team of analysts and a good quality and respectful posters. So, and also a big cheer to Mr. C. He's asking also about any sort of stocks on your specific watch list that you'd highlight to, is it sort of like you haven't quite pushed the button yet or you're thinking about?
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Paul Scott10:35
Well, I mean there's absolutely loads. I mean really, seriously, just loads and loads of them. The best thing to do is just look at the things I mark green or amber green on my Substack and those, you know, you can a spreadsheet of all of them is available to premium members. So, yeah, there's too many to mention. I've got a list as long as my arm of things. Particularly, I'm looking at laggards at the moment, companies that are reporting positively but who haven't seen a significant, I mean I can mention, I always mention this one, but Spectra Systems. SPYS, why it looks a great quality business, we've talked about it loads of times, and it just hasn't budged. It hasn't participated in this rally at all for no particular reason, no company specific news. So, I'm looking for things where you've obviously still got selling overhangs despite the fact that the business is trading well. So, I think that's a good place to look.
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Paul Hill11:24
Didn't I read somewhere that they've just appointed a new finance director, non-board?
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Paul Scott11:30
Yeah, non-board finance director. One of the readers on my Substack today pointed out, apparently this is the fourth finance director in four years or something.
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Paul Hill11:38
Twice a year.
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Paul Scott11:39
Yeah, it looks like if you don't get on with the founder CEO, you're gone, which I think is a little bit of a concern, isn't it? Because I think most of us like a dynamic between CEO and CFO where it's sort of first amongst equals rather than a totally dominant founder CEO. But any views on that yourself, Paul?
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Paul Hill11:58
Yeah, with the if a company typically gets through their finance directors, it would be something I would look at negatively because you've either appointed them or recruited badly if you get through four. And then or alternatively, there is that sort of dynamic of it, you know, have we really got independent? So yeah, that'd be something I'd actually have a chat to. Is it Nabil if I remember rightly?
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Paul Scott12:23
Nabil, yeah, I think so.
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Paul Hill12:24
Nabil, yeah. That's what it was called. He's a huge larger-than-life character. I've never actually met him but he's based in America, but on webinars, you know, I mean, he has been described to me by quite a few smart investors as being an absolute genius. Him and his team, you know, they've got a team of about 10 or 15 actually brilliant scientists who just come up with all these innovations and commercialize them all. It's an incredible company and it's dirt cheap and it pays dividends. I mean, I don't understand why. Maybe the seller knows something we don't know. I don't know.
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Paul Scott12:57
Yeah, and it just might well be that, you know, they're basically he's got really high standards and people haven't met it. So, you know, as simple as that. Okay, we've got a question from Harish Hirani. He's asking about React PLC, the cleaning business that had a bit of a fall this week. I think they were talking about some of their premium contracts or larger contracts. Their decision the pay the customer decision cycles have been sort of elongated and therefore they had a bit of a hole, a bit of a profit warning. I don't know how you view this one now?
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Paul Hill13:32
Yeah, well, one of my team, Dave, he looked at this one. What was that? Tuesday this week? It was a profit warning. It dropped 19% on the day. It was a bit worse than that early on, 24% down. So, some people did buy the dip. React, we think it's something that's fundamentally a pretty sound business, subscale at the moment though, and it's got this chicken and egg thing where it can't really raise equity because the equity is so lowly valued, but its whole business model is based on doing bolt-on acquisitions for specialist cleaning businesses, which sounds boring, but they're quite high margin some of these businesses. And it's repeating rather than recurring revenues in many cases, but it sounds like 85% is repeating, but it sounds like customers are retrenching, and React did mention the NI and minimum wage hikes, not just in terms of how it affects them, but how their customers are reacting to this, and maybe rescheduling cleaning jobs, pushing back on price increases. So, it was a bit wobbly, and the brokers cut the forecast by that 20%. So, to my mind, that means a 20% drop in share price is probably about right to reflect the fact that things are a bit tougher than they expected. The balance sheet's quite weak, but the net debt position is only 0.7 times EBITDA, which is better than I expected. Although, I would flag up that you also probably need to add on contingent consideration. I would normally treat that as debt, you know, which is a bit higher, but not alarming. So, we still think it's not bad. We think it's okay. We're amber, so we're neutral on React. Have you looked at it, Paul?
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Paul Scott15:13
Yeah, I mean, it's very cheap. It's about six and a half times PE of adjusted earnings going forward. But what's sort of like I wouldn't have thought there'd be that high an IPR sort of barriers to entry for this type of business but to be honest they actually do make 12 and a half percent EBIT margins which says to me that actually they've got reasonable economies of scale so I'd be interested to have a chat. I think is it Shawn Doug who's the CEO? You know sure but they've done a few webinars on various platforms and they come across well management you know they sound like they're disciplined in terms of their acquisition pricing and strategy which is key isn't it in these buy and build things you've got to have all the guys who've made a success of buy and build say we have these strict rules we just don't overpay for things and it can often be small businesses especially as keen businesses where the owner just wants to retire and wants it to go to a small you know it doesn't want it turned into a corporate vehicle so they're passionate about who they sell to so I quite like the concept of React but it's had a bit of a bump in the road not a disaster though. I think it should be okay I would imagine.
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Paul Hill16:33
Okay let's go a bit further up the food chain we've got Bodycote which is basically an industrials business that I think basically does coatings and helps harden metals for specialist applications like aerospace and defense and industrials etc. Came out with a bit of a profit warning about six months ago and then I think it was an update just recently and they sort of reassured that they were going to hit their numbers but with the second half weighting shares have responded pretty well I don't know how you view this one at all it's sort of like it seems to be an interesting mid cap trading at roughly round about nine and a half times PE.
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Paul Scott17:11
We like it. I think we've mentioned this one before. I don't really understand what it does as I'm just a numbers man, really. So, yeah, just under a billion market cap. We had news on Tuesday this week, trading update, which as you say, the full year outlook was in line. No direct tariff exposure, it says as well. We like the balance sheet. It's got a nice sturdy balance sheet. Net debt's only 0.5 times, so that's pretty modest. It talked about some supply chains improving, but some markets remaining weak. So, a little bit mixed on this trading update, but the bottom line is they're trading in line with expectations. We're finding this with a lot of companies now. The broker forecasts seem to be set at quite realistically modest levels. And that's what I look for. I like for achievable broker forecasts, so we don't get yet another profit warning from some of these things. And yeah, Bodycote stands out as really good value, we think. So, we like that one. Yeah, thumbs up from me and my team.
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Paul Hill18:11
Yeah, I think you were positive on it, Paul, as well. Last time.
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Paul Scott18:14
Yeah, I think I mean, it's one of those things, isn't it? Where when I look at sectors, my preferred choice is technology and healthcare. But when I actually look for where I've made most money over 30 years, technology, yes, in particularly in software, that's been the number one where I've made most of my profits. But actually second is industrials. I've made more money in industrials than I have in healthcare over 30 years. And healthcare's been pretty generous to me as well. So, you know, but I don't spend that much time looking at industrials. And I think if you've got something really quite niche and has got good IPR with recurring revenue streams like aftermarket, then I think the UK's got some good companies, actually.
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Paul Hill18:59
Yeah. Yeah. Do you know what the operating margin is in Bodycote? Because that's my kind of key criteria I look for.
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Paul Scott19:07
Yeah, it's I've got it forward over 16% EBIT margin.
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Paul Hill19:11
Well, that's very good. I mean that in that one number tells me that it's a quality business then, yeah?
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Paul Scott19:17
Yeah. Yeah.
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Paul Hill19:19
Yeah, I like that, yeah. Another one which is industrial came out with an update or basically I think it's just sold its talc division is Elementis which is quite popular with one of the fund managers in the Harwood stable. I think it's Stuart Whittleton. It basically they've got the number one access and they own the hectorite mine out in America. And they supply chemicals and stuff into cosmetics and deodorants and stuff like that. I don't know how you view this one?
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Paul Scott19:58
Elementis, it's going through a bit of a turnaround. It is, yeah. I didn't do a report on it this week. They sold the talcum powder thing, didn't they? For what seemed like quite a good price. I'm doing this from memory now as I can't find my notes, but I think it was around 120 million dollars, but then they said the net proceeds would be 55 million dollars. So the 120 million was the EV. So it must be taking quite a big chunk of debt away from the group which is a positive thing. Is that the right way around or is it cash? No, it would be taking debt with it, wouldn't it? They must have given some debt or effectively it had a negative working capital. It was basically like closing accounts, I think. Yeah, I always get myself entangled in knots on these sorts of calculations. But yeah, no, it sounds very good and they're going to use nearly all of the net proceeds, 50 million dollars for a buyback. So the market liked it. I think the shares were up about 10% yesterday, I think. And yeah, I remember when I was in Gozo listening to Christopher Mills explaining the upside on this as well. Similar sort of basis. A lot of their things seem to be some of the parts and disposals can create value, can't they? They like to be a catalyst for that. So, yeah, I think it looks interesting.
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Paul Hill21:23
Yeah, I think what's definitely worth people considering is that it's got a number of divisions and selling off non-core assets means the rest of the business makes better margins and grows faster. But more importantly, if somebody wants to put a number on the business, it's a single shot. You can pick it up. So, that's where the Harvard guys are very good at. They do the sum of the parts basis and they can help direct us to realize that hidden value in the private market. So, I think I don't know what the world's biggest hectorite mine is worth in California because they own it, Elementis, but I could imagine it's probably a big number.
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Paul Scott22:08
I've got to ask, what on earth is hectorite?
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Paul Hill22:10
It basically goes in it's an ingredient that goes into lots of coatings and it goes into detergents and deodorants and cosmetics and stuff like that. So, it's a bit forward integrated, but they've got the supply just about all around the world.
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Paul Scott22:30
Well, that sounds good, doesn't it? So, they can price gouge everyone who uses it if they choose.
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Paul Hill22:34
Possibly. Possibly. Okay, we've got a couple of questions that related. We've got SCS81. He's asking about any thoughts on the recent surge in European defense stocks. Has it run its course and is it time to sell the sizzle? And then we've also got Rebecca who's asking about Avon Technologies which is big into defense, particularly into rebreathers and gas masks and also helmets for the US military and stuff like that. So, let's take defense as a total. Any thoughts on defense as a sector because it has run very hard and the EU did this week say that it was going to try and it was targeting 5% of GDP on defense spend across each country compared to 2% mandated currently, which is a massive massive increase.
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Paul Scott23:29
Oh, yeah. Massive, and it won't happen. They'll say it will that's their aim, but it absolutely. Well, the only ones I really know about are Avon, which we're moderately positive on. Amber Green, we've been several times this year. Yet, that trotting out nice reassuring updates. We're not really sure how to value it though. We think maybe it's a bit choppy, but people are obviously betting on it, you know, continuing to outperform. The other one I've looked at is Kinetic Q. I like that one. I think that had quite a positive outlook with the recent figures that came out. And Cohort we've been all over for several years actually, but that looks fully up with events. So, the only thing I would say is that it's a very obvious trade, isn't it, buying defense shares at the moment. And maybe it's a little bit stale as a theme, but that's all I've got really, Paul. So, over to you.
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Paul Hill24:25
Yeah, no. I was just looking at the PE ratio for Avon Technologies and clearly the E hasn't yet been updated by analysts for the extra spend in Europe and the States on defense. But, looking at the past numbers, i.e. the ones before the announcement, it's on a PE ratio of I'm getting it says here on Stockopedia 80 times for this year and then 106 times for the following for 2026, which just says to me is that it has definitely moved hard. And I guess if you look at that over the last month from 13.50 to nearly 18 quid. I mean that's probably it's either it's a bit of a rocket ship just the I'm not convinced those numbers are right.
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Paul Scott25:11
No, nor am I. The problem sometimes with broker consensus is that if some brokers leave defunct forecasts in the numbers there they kind of dilute the rate on Sharescope I've got 81.8 cents. That's US cents. So what's that about 60p for the current year which is March 25. What are the shares?
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Paul Hill25:38
No, I've got You're right. You're exactly right, Paul. I made a mistake. I was reading the wrong number out. The forward PE is 30 going down to 23 in 2026. Yeah, that's the number I've got. Which we know is a lot but if people feel that the company is growing into the valuation and if people are expecting an outperformance and profit people often forget profit is the operationally geared difference between two large numbers at the top, revenue and cost of sales. So profit can double, you know, or more. So hence why it's sometimes paying up for a high PE can be worth it, can't it? But you've got to really have done your research properly which I haven't really done with Avon because I haven't got time. I'm covering over 600 companies so we're just doing very brief reviews but it certainly looks good, doesn't it?
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Paul Scott26:31
Yeah, no, good. Okay, let's switch sectors. We've got Ben Sharma and he's asking about M&C Saatchi, the advertising stroke marketing business. It's got quite a reputation for helping large corporates with their advertising campaigns. But what I think it also about a third of the business is to do with issues or the issues division, which I believe is humanitarian aid agencies. It helps get the message out across the world for disasters or disaster relief, but also for vaccination programs and education and stuff, which is quite unique. Anyway, regardless of that, what do you think of M&C Saatchi?
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Paul Hill27:10
I like it actually, and I should disclose I bought some recently. So, I've got a small long position in this. The reason I bought was just it seemed to be on a very attractive valuation. Have you got the P/E on that one, Paul?
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Paul Scott27:25
Yeah, I've got it about 8 and a half actually.
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Paul Hill27:27
Yeah, that's I don't understand. There was some put and call option shenanigans on the balance sheet a few years ago, but that seems to have largely run its course now. I think they could either buy out the options and or let them lapse, and it's now quite small relatively. The last balance sheet I've looked at was December. Net tangible value was modestly positive, and it had modest net cash. Again, I don't really know entirely what their specialisms are. So, it's interesting what you just said. I didn't know that. But, I was very impressed with how well it traded throughout the whole pandemic. You would have thought, wouldn't you, marketing PR would just be slashed by the clients, but Saatchi's actually did pretty well throughout, which tells me they've got some sort of point of difference. And Vin Murria obviously tried to take it over. She's got a big personal stake as well as her company ADVT, I think it is, isn't it? Advance ADVT. They hold roughly 20% of it. I think it's very interesting. And again, seems cheap for what it is. I could imagine this being a third higher than it is at the moment given a bit of patience. So, yeah.
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Paul Scott28:42
Does it pay dividends, Paul? I can't remember.
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Paul Hill28:44
But only a small one. I've got a yield of about 1.1%.
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Paul Scott28:47
Oh, okay. Yeah, have you looked at it at all?
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Paul Hill28:50
Yeah, I think it looks very cheap, but it didn't typically I don't usually go for marketing and advertising. They're not my type of business, but given the valuation and you know, this used to be a very sexy area in the TMT times. But you got to look at I think it all comes down to how you see marketing and advertising in the new digital AI world panning out and how much do companies need of advisers and third parties to do their campaigns and if you're positive on that they're still going to need it for that human element, human touch, then they should be well placed because the brand's very good.
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Paul Scott29:31
Yeah, and it also looking at your chart there, it hasn't actually bounced very much from the bottom. So, I think I bought I'm slightly in profit on this trade. I think I bought around 160. Precisely for that reason that the market was roaring back up again and this one wasn't and it's financed okay and it's cheap on and what are the updates like this year? I've reported on three times this year. In line. Yeah, in line with expectations. That was on the 15th of May. So, we've got quite a recent 3 million pound cost savings on track, it said and like for like revenue broadly in line with last year. So, slightly below. The only thing you've got to with PR companies, you've got to filter the RNS even more heavily than with any other company. They try to persuade us that black is white and up is down is what they do for their living. So, you can't believe a word they say in their road show statements, but
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Paul Hill30:30
No, I know.
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Paul Scott30:33
Okay, let's move to online travel. We've got On the Beach, which is really sort of seems to be taking market share. It's more of a retailer of package holidays and flights and stuff, an aggregator rather than actually having the hotels itself or doing taking on its balance sheet like TUI would do. But they seem to be doing really well. How do you view this one? I was suspecting we were going to be peak travel and peak holiday, but doesn't seem to be the case.
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Paul Hill31:04
Yeah, we like it, but we were all over this when the founder bought about 2 million pounds of the stock a few years ago at around 90 or 95 p, I think it was. Well, you can't get a clearer bull signal than that, can you? And sure enough, that began a very significant rise. The news from it has been good. We softened from amber green we were amber green back in February. We've softened to amber just because when my colleague Dave looked at it on the 13th of May, that was H1 results. We just felt well, it was in line, but profit was up 23%, which is very good for the H1 figures. Confident statement about the outlook, but we kind of felt it was up with events, the price, because travel businesses don't command big PEs anymore. And we just feel they're a great quality, you know, like Jet2 and easyJet. I know they're different business models really, but within the sector that are on a PE of half of what On the Beach is on. So, we kind of feel it's up with events, been a very good performer in the last year. So, we're kind of profit taking type view of it now, but I think they've got a medium-term aspiration, haven't they, to hit much higher forecasts. So, what's your view, Paul? You don't really like travel companies, do you?
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Paul Scott32:31
No, online travel would I'd always question what the real USPs are for this above sort of guy generative AI or the other big aggregators in leisure the Expedia's and lastminute.com and all this is but having said that I was just looking at the margins and 23% EBIT margins for On the Beach seems fantastic.
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Paul Hill32:53
That is fantastic. Yeah, right. I didn't realize it was quite that high. The other thing is I think they spend a colossal amount of marketing and it struck me that if they can actually innovate and make the marketing more effective instead of just repeating ad nauseam those TV ads of those fat children wobbling around eating croissant. I mean surely they can find a more imaginative way of advertising. And if so that operating margin could really shoot up, couldn't it?
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Paul Scott33:26
Yeah, no true true. Okay, right then Abel Cerini is asking about Pets at Home basically. They did come out with a statement today saying they were all in line and things were moving ahead but I think they've got to I think they came up with some statement today saying that the sales were positive but the costs were increasing and but the actual veterinary side was doing well. The shares actually responded pretty well up 3% today.
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Paul Hill33:56
Yeah, I was I hold this personally just for full disclosure. Yeah, I was looking at this this morning. I did half write a full section up but I ran out of time so I've just done a brief I haven't got the right page in front of me. I'll just waffle for a second and just Will you tell me what you think Paul while I find my notes.
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Paul Scott34:14
Yeah, I mean it clearly I think some of the overhang from the CMA review for the vet side has helped the shares move up but also I think some of the worries about the UK consumer and competition particularly from China seems slightly unfounded and therefore you've had a nice bounce in the shares, but only really back to the back end of last year where they had the sort of profit warning or some sort of event at the back end. So, it looked to me it looks as though it's probably moving towards where it should be. It's still probably got a bit of I mean, looking at that, it looks as though it's got a bit more upside to go to me.
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Paul Hill34:52
Yeah, I like it. I found my notes on it now from this morning. Yes, you're quite right. It was an update this morning, wasn't it? Basically, it was in line. So, in line, the results. And that was for the financial year March 2025. In line, adjusted PBT was basically flat, slightly up at 133 million. Now, I did Now, this is the interesting bit. I've mentioned this to you before as well. It's a high-margin vets business buried in a retail share. And this is where I think there's an angle on the share. I think it should be on a P/E of 14 or 15. It's actually on a P/E of about 12 because people haven't realized that the vets business is so important. It's only about 10% of revenue, but it's actually now over half the total profit. It's 51% of the total profit. And it's growing like a train. The PBT growth within the vets division grew 23% for March 25 year end. But of obviously, that's offsetting declines in the retail side of things. So, I think that's the angle on this one. Also, it's got no debt. The only debt is leases debt, which I ignore. And so, you've got a debt-free, highly cash-generated business that pays a 5% dividend yield as well. Yeah, I think it's great. I think it's really cheap. Now, the slight cloud, I did wonder if the market may recoil at this, but it hasn't done, is that the first 6 weeks of trading, so what will that be up to mid-May was in line so that's fine but the guidance it's given is for a decline of between 6% and 14% in PBT for the new financial year. So you know I was actually quite surprised the shares didn't sell off on that but they didn't so I guess that's because of the extra cost isn't it? It's where you've got the NI and the minimum wages and I don't know the marketing costs or whatever it is they've got in there and or new initiatives etc. that's taken that margin down but oh and big news that we haven't covered before Pets at Home it's now become a platform. Yes, I'm a platform now so it's not just a shop selling rabbits it's now a platform for all your pet needs. They're going to expand into animal insurance which I think is a lucrative area. Another interesting angle Paul with the CMA inquiry which we probably all think now is pretty benign. With that it scared off CVS Group who are now have given up buying vets in the UK and are now expanding in Australia. Well that could present a nice opportunity for Pets at Home I would imagine.
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Paul Scott37:43
Yeah well I don't think until the CMA announces what's actually happening I don't think anybody's going to be buying vets but it might well be going forward. You think they set them up as joint ventures I think don't they Pets at Home I believe.
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Paul Hill37:57
Yeah.
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Paul Scott37:58
With so they're semi-private you know they're not I think anyway but I think it's the wrong price basically. I think this is worth 350 I think would be a fair price for it. So yeah I like that one.
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Paul Hill38:14
Good. Okay well we had another we had a trading update from Frontier Developments gaming company quite what's the market cap on it? Roughly around about 100 million market cap. Lots of cash actually. And they basically do their own games etc. I think one of them is to do with Jurassic Park or something like that. One of the dinosaurs and stuff. The shares responded very well today, up
8%. They trade at roughly they still trade at less well, 0.7 of given the way the cash is, 0.7 of sales. So and they they're just about reaching sort of like profitability or getting back to profitability. I don't know if you've had a look at this one today. It looks still looks cheap actually. Yeah, my colleague Dave knows more about computer games than I do and he covers this one for us. And I read his section on it. I have to say I was really tempted to pick up a few of these personally. Because as you say, it's got a nice solid balance sheet with plenty of cash. It's got it's owner managed I believe. The founder still owns a big chunk. Have you seen the long term charts on Frontier Developments? It's unbelievable. It's lost It's staggering isn't it? Yeah, 30 quid. 30 quid during the lockdowns. Over 90% down. So there's a lot So basically just on and I don't think I think the share count has not changed as well. In theory, if it if it hits one or two blockbuster games, there could be very good upside on this. So I think I know nothing about the sector whatsoever. As a purely as a risk reward punt, I'm tempted by this one. But the only trouble is, if you look at that zigzag section of the recent chart, it's done about five or six big rebounds. There we are. In the last year and it immediately sells off after all of them. So you look at the current current price today and you think oh well, you know, it's not going to keep going up is it? People are just going to use that to sell into again. So I don't know. It's any views from from your end Paul?
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Paul Scott40:15
Yeah, I think they play in the sort of the bigger rather than indie games which are about a million pound a shot. I think they play in the big boys league with these larger franchises and therefore which are much more competitive. Yeah. And if you if you're competing against the likes of EA EA and Sony and people like that then you think well okay, well they've got hundreds of millions of pounds budget. It's quite a diffi- You've got to have a really strong franchise and then mine it as go for going forward in terms of the recurring revenue streams. So it it is a bit like um I don't know sort of like getting a getting a winner in in sort of the Eurovision Song Contest or having a sort of like a you know a major hit in so whatever it is whatever industry but yeah, I mean how much recurring revenue streams but I it does look very interesting and very cheap no doubt about it.
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Paul Hill41:06
Yeah, I think just as a a risk reward punt if that drops back down again if this is another spike um I'd be very tempted if I had a little any cash burning a hole in my pocket. I nearly bought a few today actually but I just when I looked at that chart I thought mm. Yeah, that chart tells you there's still stale bulls in there who are selling doesn't it? So
Okay, well again and the one to changing sectors we're going to go to sort of like house building construction and land development. We go to um Henry Boot which basically does sort of homes out in the northeast and the and the Midlands etc. So it's got these three divisions. It trades incredibly at round about well, the share price is currently 220 and the net tangible assets seem to be about 100 sorry, 310 p. So it's it's significantly below net tangible assets. I don't know if you've had a look at this one as a sort of like a a recovery or value play.
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Paul Scott42:01
I've not I don't think there's been any recent news from Henry Boot has there?
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Paul Hill42:05
No, there I don't think there has no no it's just very cheap.
Yeah, we we last looked at it I should have drunk that diet Coke so quickly. Sorry. We last looked at it 2 months ago and yeah, we flagged up that the shares then were trading at a discount of a third to the net tangible asset value, which is I mean that was when they were £2.08. Do you know what they are now, Paul?
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Paul Scott42:30
Yeah, 220.
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Paul Hill42:33
Oh, so they have rebounded a bit. I think isn't this the one that does it's sort of land redevelopment?
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Paul Scott42:37
Yes, it is. Yeah.
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Paul Hill42:38
Yeah, I think they sell the they get planning permission and then sell it on, I think, don't they? So, are they doing some house building themselves now as well?
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Paul Scott42:47
Yeah, they bought I think they bought a premium house builder as well as they they're more affordable, which is you know, where they really made their name in the in the in the northeast. And I guess it comes down to really it's it's your view on sort of like that whole industry of building and construction and land development. But if you're bullish on that area, I think you're probably this this is probably the biggest discount to net tangible assets actually cuz I think most of builds itself are about round about net tangible assets or slightly below.
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Paul Hill43:16
I do like that this sector at the moment. I think the fears are overblown. Although I would I suppose interest rate expectations have deteriorated, haven't they, in the last few weeks. And there's also some government threat, wasn't there, to take away undeveloped lands from developers and for or force them to do something with it.
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Paul Scott43:37
was actually. Good point.
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Paul Hill43:39
Yeah. So, no, but on the face of it, I certainly on the discount to NAV, Henry Boot looks very interesting. I think it's been listed a long time, hasn't it?
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Paul Scott43:48
Mhm. Yeah, it has, yeah. I think Simon Thompson's quite liked it actually for some time as well.
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Paul Hill43:53
Yeah, we've just calling up my spreadsheet. It's being a bit slow. Um Yeah, we're amber green on it, which is our code for moderately positive. Yeah.
Mhm. Okay, good. Let's move to software. We we've only talked about it once before. Get busy basically does document and task management sort of like for I think it's for the accountancy firm. 92% recurring revenue streams. Um seems cheap, but um I don't know if you've ever ever had a look at this one at all, Paul.
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Paul Scott44:24
Yeah, yeah, we've looked at everything, Paul. So Um it's uh yeah, it's got this profitable division that some online online vault or something it's called. A smart vault. Smart vault, yeah, which a lot of the accountancy firms use and seem happy with. So that's good, but it's it's it's ex-growth. And then they're using the cash flow from that to do two or three, I think two um sort of startup type that well, you know, early stage, should we say in terms of commercial penetration. So it's it's really a bet on whether you think the the the growth areas can succeed or not. I'm a little bit um skeptical on this one. Mhm. The story feels a bit stale to me. Um you know, they've been telling the same story for a long time. Doesn't really make any proper profit, no dividends, and a weak balance sheet. So no, it doesn't float my boat, Paul, but I'm not trying to make a judgment on what will happen in the future. That's the readers to do. So um you you know this one as well, don't you?
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Paul Hill45:23
Yeah, I mean I guess you sort of thesis needs to be how much unique IPR does it bring to the table and and can it get impacted by generative AI? But I did notice they've actually just you know, sort of like the integration with uh Intuit, you know, the big um sort of accountancy software company, which seems to be going well with their, you know, basically their customers. And if they can sort of you know, hang on the coat tails of Intuit, I mean that's got a huge installed base. So you might find they they, you know, they they do quite reasonably. But I mean it's all it's all to do with sort of like improving productivity, improving efficiency with sort of document map, you know, document management and file management and that sort of stuff. So, it's in I don't know enough about it, but it does look interesting. It's only trading at about one times EV EV sales, so it's certainly not expensive.
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Paul Scott46:11
Yeah, that it is it Intuit or Intuit? I can't remember, but I know the thing you mean. Yeah, Intuit Intuit it is. The big American boys, yeah. They do TurboTax, I think it's called, is their is their main one. And is that are they are they linking up with Get Busy, one of Get Busy's new ventures, or is it their old SmartVault thing? Do you know? I think I think it's SmartVault. I think SmartVault is is getting the I mean, it may just be they're putting APIs together. They're just connecting it so they can do it electronically, which may not be huge, but if you do get sort of like the power of Intuit behind it, or you've got in a much better position to sell SmartVault to the Intuit installed base, then you know, you might have sort of upselling opportunities there. So, that could breathe some fresh life into the the sort of legacy business, maybe. I don't know.
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Paul Hill46:54
So, that could breathe some fresh life into the the sort of legacy business, maybe. I don't know. good. Okay, another another large-cap or mid-cap that is trading really cheap is Zigup, which used the old North What's it called? North Northgate. That's it, yeah. Basically, does the white hires out white vans to tradesmen and also does the insurance and the servicing and stuff like that. And I was looking and they came out with quite a good update. They're saying they saw rental growth of about 6% like-for-like. The shares currently trade at less than seven times PE, and they seem for a a rental company a pretty decent balance sheet. I don't know if you've had a look at this one at all, Paul.
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Paul Scott47:37
Yes, yes. No, we like this one. It's I just think it's irrationally cheap. The as you say, the balance sheet is actually very strong. Now, my co-writer, John, he did a section on this, and he focused in on the debt and said, "Oh, it's got far too much debt. It's it's you know, it's a high multiple EBITDA like that." I said, "No, no, no, you're looking at it wrong. The debt is to finance the fleet of vehicles which they own. So, you know, you need to almost think of it as being like a mortgage on a house." Um and it's actually and the vehicles are worth I think about double what what the debt is. So, the debt isn't a problem at all and it's got net tangible asset values of value of 822 million, which is pretty similar to the market cap. But, it's interesting how different investors do see debt in in different ways. I'm not saying my way, well, I more or less did say my way is correct, but But, no, I mean, other people just just look at things differently, don't they? And John's a very experienced and successful investor. So, um yeah, but I mean, on a PE basis and a dividend basis, this little company looks fantastic. I cannot understand why it remains so cheap. So, maybe I'm wrong. I mean, yeah, I've got a forward PE of 6.5 and a dividend yield of 7.5.
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Paul Hill48:55
Yeah, higher dividend yield than than the PE ratio. Incredible. Yeah, normally you never normally see that at companies which also have bulletproof balance sheets. You know, it's normally that that happens when there's something really badly wrong, you know, it's in terminal decline. So, I don't understand why it's priced the way it is. Just seems dirt cheap to me.
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Paul Scott49:15
Yeah, I think probably people they're expect or the share price is suggesting that the UK economy is going to fall off a cliff, but I don't see it. I think with the extra stimulus that's been put in then I think we're going to be okay, to be perfectly honest.
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Paul Hill49:27
Yeah, and also this the the the the van rental hire business does a fair bit of business in in Spain as well. But, and then the insurance side of it, they provide courtesy cars for the insurance companies. That seems very stable. They don't seem There is a risk that they might lose, you know, it's competitive, they might lose a big contract, which did happen once before and knocked the shares, but it was is buying opportunity because they won another contract back and you know, so yeah, I think it's it's not really nice value share for people who just want a decent I mean 7.5% yields. It's not bad, is it?
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Paul Scott50:03
Yeah, no, I would agree. Yeah. Another one which has come Sorry. Sorry, Paul.
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Paul Hill50:08
Yeah, and another share that's come off a lot. Tom Hildrick has pointed out is Gamma Communications. It basically does I think it's sort of calls a call center sort of like services and software, I think and it's got also got some data centers as well. Largely around Europe. I've got a sneaky suspicion it's moving up to the main market. But the shares are trading at I was just looking at the sort of Stockopedia. They're trading at roughly around about 13 times PE and 12 times for next year, which for a considered a high quality business does seem pretty cheap. I don't know if you've had a had a look at this one of late.
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Paul Scott50:44
Yeah, we've covered it three times this year. Moderately positive on each three of the three occasions. Mhm. I think it was uh uh one of the team who pointed out that was this the one that received a a takeover approach from Italy last year? Yeah, I think it did. Yeah. It did didn't it? I can't remember what happened with that. Yeah, I think it's slightly disappointed on the 14th of May. I've got it here dropped 13% to £11.36 on a um a trading update that basically said UK trading was soft. But they're mitigating that with cost controls, cutting costs. And it was in in line for the full year, but it still dropped sharply. So what what are the shares now? Are they are they have they bounced? They're £12.12. Oh, okay. Yeah, they've bounced 5 or 6% and haven't they? I mean I don't I don't really understand anything about the business Paul, but it it just the headline numbers it looks it looks good value to me. Yeah. You you'll know about this one.
Yeah, I think it I think it's you know, Tom have a look at the recurring revenue streams and look at sort of the contracts and the go forward and if you've got a sort of like a 3 to 5 year time horizon, I think it's it's probably a good bet. I I would the key question to ask though is will call centers be impacted by AI generative AI? If they put in I gen tech, you know, AI into these and therefore you don't need as many people and much seat many seats, whether that's working at home or whether it's working, you know, home working or whether it's actually in a in a call center, then what that what does that mean in terms of their sort of services? It will will will they be will there be less demand? So I think you've got to get your head around that as will people basically be happy speaking to a a chatbot, you know, who can who who's who who speaks well or do they want actually human interface? I don't know. And also um I I noticed it spent all its cash pile. It did have a nice cash pile in December, but it spent a lot and some bank debt on a major acquisition and I have questioned whether they possibly overpaid for the acquisition.
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Paul Hill52:55
Right, okay. Good point. it's not an opinion. It's just I'm asking people the question for people to home in on that because prior you haven't got that balance sheet support so much now. But yeah, it does look interesting, yeah.
Yeah, we've got Steve Walters here asking about an old favorite of yours, Alumasc, but basically does sort of roofing and building products. It's been a real sort of like thoroughbred over the last sort of 12 months or so. What's your latest on this one? It seems to be trading at less than 12 times still, pays a 3% dividend yield, so pretty good value.
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Paul Scott53:28
I thought I'd written about this recently, but I can't find my notes on it. So yeah, I still like it. I mean the shares had done well but with with good reason. I think I'm pretty sure they've been putting out in line updates and that it makes a very good um operating margin for a building pro- products company. So, it seems to be in Of course, yeah, the shares have done really well, haven't Yeah, doubled over the last 12 months. Yeah, that's Wow, I haven't thought about that. That's fantastic. No, we really like it. Um, we think the re-rating is is fully justified. Um, and uh yeah, no, it's it's a real quality little company this is.
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Paul Hill54:06
Niche products. It's got I think four divisions, hasn't it, Ali Mask? I had a chat with management not that long ago. Very straightforward people. Just, you know, this is what we do. This is our disciplines on margins and blah blah blah. Um, yeah, completely bucked the trend, hasn't it?
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Paul Scott54:23
Mhm. Yeah, no, it seems to be in the right place at the right time. I know roofing products and the sort of like water management stuff with the environment and the upgrading of buildings. And they really are in a very, you know, in the right place at the right time. And I think they do that huge sort of like um flood um storm water relief sort of like funnels that are going into one of the big airports out in Hong Kong, if I remember rightly.
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Paul Hill54:48
Yeah, that was deferred, I think, wasn't it, that contract? Oh, it wasn't deferred, was it? Oh, okay. I believe so, but I can't remember when. And I think they still hit their numbers even without it. I think that was the story. It was Yeah, yeah, they very interesting niche products, isn't it? You know, a little British company, obscure British company, making drains for Hong Kong airport. How impressive. It is really good, isn't it?
Yeah. Good. Okay, we've got Paul the parrot. He's asking about I've never even I don't even know what they do, but you might know. He's OPG Power. I presume that's something to do with renewables or hydrogen or something, but I could be totally wrong.
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Paul Scott55:24
Yeah, that came up yesterday or the day before. Um, we've decided to drop coverage on this because it's based in um I think it's based in India with a UK Right, okay. And it's cash is about 70% of the market cap. So, it could be a bargain and its update was in line. But, we we just generally because of the performance of very small overseas companies listed on AIM, we generally have a blanket do not touch type of attitude towards them. If they've been around for 10 years or something like MTI Wireless Edge, for example, that's um uh you know, an Israeli nano cap, but it's been around for so long and it's paid dividends for so long, we now trust it. You know? But, the more speculative stuff that that doesn't pay divvies um and that's overseas companies listed on AIM, it's just safest to steer clear of them, I think.
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Paul Hill56:19
Yeah. Yeah, I would I'm not besmirching this individual company in any way. I'm just saying as a generic thing. Oh, and it's over 50% owned by a family, I believe, which is another negative as far as I'm concerned. So, yeah, you don't know you said you don't know this one.
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Paul Scott56:36
I don't know it, but I would I reiterate what you've said, you know, treat companies, particularly in India, with sort of and China, with a sort of like, you know, fair deal of skepticism because it's actually quite difficult getting any capital out of it if they do make money and they have surplus capital. Actually, bringing it back to pay dividends for shareholders is really tough because you get a really heavy withholding tax and the only way around it is to effectively get loans in the UK, which is then securitized against the business out in India. And therefore, using the loans, then you can pay dividends. So, you have to manufacture it, but that still gives you a a debt in the UK for the PLC offset by cash in India that you that is trapped, you can't get out. So, what other than just investing it is it's or selling eventually, but even if you if they do sell, you'll still get withholding tax on that on that business that the PLC will have to pay.
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Paul Hill57:30
Yeah, that's a really interesting angle on it. I hadn't thought about that. Um there was another company today Oh, excuse me. That um similar sort of thing. Here we are. Integrated Diagnostic IDHC. Yes. Egypt Egypt. Yes, showing growth. But of course, it's operating in a hyperinflationary economy where where the growth is is And and again, you got the similar problem. I think that's Egypt, isn't it?
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Paul Scott57:54
It is. It's the Egyptian pound, yeah.
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Paul Hill57:56
And they can't get they can't get the foreign currency out. Same sort of thing as as you saw. I don't know if that's still the case, but that was the case last time. So, for that reason, even though it's saying ahead of expectations, if it's locked up in a in a country with a with a currency that's in crisis, there's quite a few African countries at the moment hyperinflationary, isn't there? They just can't get the dollars that they need for imports. We just we just think again, we need to keep this simple and just stop covering companies like um the the OPG thing and and and IDHC. We're just dropping them.
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Paul Scott58:30
Yeah, well, there was there was a classic example of that, wasn't there about um I don't know, a year ago with PZ Cussons, the Yeah, the soaps manufacturer and the personal products, etc. It had a big problem with um it had trapped cash in Nigeria, and then they had the devaluation of the naira, and they couldn't get the money out, and therefore it went to zero. About 100 million In one day, it was worth 100 million sterling in cash, and then it the next day, it went down to about one. And it was zero.
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Paul Hill58:59
Crazy, wasn't it? Now, this one actually, I'm I've been meaning to have a fresh look at this cuz I had a call uh from I hope he doesn't mind me so I'm sure he won't mind me saying had a call from Lord Lee, who used to be on the board of directors of PZ Cussons many moons ago, I think. Yes. And he said there could be a special situation here of interest. Um cuz he reckons the Nigerian operations could be sold locally for probably quite a lot more than people think based in the UK. So he said this actually we should get the Howard boys on this because they'd like it because it's again a sum of the parts special situation I think. The Lord Lee was was very bullish on and that was quite recently he briefed me on it but I haven't followed it up. So yeah, could be an angle on that one so we probably shouldn't dismiss it out of hand.
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Paul Scott59:50
No, I would agree. No, I mean all the bad news has already happened. It's trading it's trading at roughly around about 11 and a half times PE and the dividend yield is what 4% so it's looking it's looking very cheap no doubt about it. Would somebody buy it to break it up? Might well do actually because they just basically you get Nigeria for free if the main business in Europe and I think it's Australia as well. It's it's it's still got good brands. I think it's Carex isn't it as one of them their brands or It's a few yeah, I think they might own Saint Tropez as well the fake tan thing. So they should sell it to Donald Trump. Yeah, Lord Lee reckons they've got some really valuable brands in this and that we shouldn't just dismiss it out of hand. So yeah, so be interesting read a feedback on that actually if anyone has the time to do a proper research job on it. Let us know what you think.
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Paul Hill1:00:42
Yeah, okay good let's switch sectors. We've got retail which is the company which has done really well of late. I'd written it off quite a big market cap. We've got Currys the electrical retailer. The shares have just been sparking up you know for the last sort of like six months or something. What's your sort of your latest on this one? It sort of trades up it's it's it's gone up a lot but I still get a PE of 11 and a half with a I don't know how much of a dividend yield it's only about 1.5% but what do you any more juice in the tank left on this one?
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Paul Scott1:01:12
I was slow on the uptake on this one so apologies for that. I was skeptical last year but it kept rising and we finally the penny dropped with me finally, that actually this thing's quite good in April this year. So, I moved it up from amber to amber green. Um because, you know, you can't keep fighting against the company that just keeps putting out positive trading updates. Yeah. It has a tendency to um to put out trading updates. And instead of saying trading updates, you know, it says strong momentum continuing or something as as the actual title of the RNS, which is a bit um throws me off. It doesn't come up on my searches properly. But anyway, uh it just keeps pushing It puts out sort of incrementally better guidance. So, you know, you have lots of positive updates for it, but it's not by much. They're just inching up the guidance by 5 or 10 million. Uh but there's no there's no doubt about it. They're trading well, and I think it seems to be well managed. An interesting angle on Currys is that it's so big that they get kind of first dibs with the manufacturers and distributors. They said that. I remember a webinar with the management during the pandemic. They said, "Look, you know, we're not at the back of the queue for a scarce supplies. We're at the front cuz we're the biggest." Um so, I think it's a better quality business than I realized, to be fair. Um and the latest update was on 21st of May. So, that's very recently, isn't it? And it was a slightly ahead update for um the April year end. Um Profit up 37% year on year. I mean, that's that's impressive, isn't it? Oh, and it's going to resume divvies as well. So, uh they disposed of their Greek subsidiary for a decent profit, didn't they, a while ago? So, I think that's fixed the balance sheet. Uh so, no, we we're sorry we were late to the party on this, but yeah, it's um we think it's quite good. Balance sheet's not the best. Yeah. Negative negative net tangible asset value. But basically, the business is funded by the suppliers. Um but we we think it's still actually quite reasonable value. It's one of those things that's growing into, you know, growing into the price. And uh yeah, but I I don't think I'd invest in it personally because
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Paul Hill1:03:18
No, I wouldn't either. It only makes 2 and 1/2% EBIT margins and Exactly. Super low margins. It's like it's like the contractors. I mean, they've done really well the shares. Yeah, they the civil contractors, but I wouldn't really touch cuz it's just cuz they if things go wrong, they go wrong badly. Okay, we've got just a couple of final questions. We've got Richard Leppington. He's asking about Drax basically who own that big power station up in the northeast which is a biofuels. You sort of burns off pellets and stuff. We talked about it briefly and the sort of the potential upside at that time was that the longevity of the power plant might be long might be greater than most people think simply because the energy resilience in the country it'll take a brave person like, you know, Ed Miliband to actually shut the thing. But this and the shares still trade at six times PE PA dividend yield of 4 and 1/2%. Do you have you had a look any update on this one? Any look any view views at all?
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Paul Scott1:04:22
Not not really Paul. No, I haven't looked at that this year, but as you say the attraction is obviously super low PE, decent dividend yield, and a strong balance sheet, but the issues you mentioned are going to be the crux of the investing case, aren't they? Either a bargain or sort of terminally ill. I don't have an opinion on this one.
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Paul Hill1:04:42
Yeah, shares have done very well over the last 5 years. They've gone from 2 pounds to 6.50 or 6.40. So yeah, now they've they've done well pretty much pretty much good.
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Paul Scott1:04:51
Bit too specialized for me that one.
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Paul Hill1:04:53
Okay, we've got Shay Seven Winds. He's asking about Funding Circle. I don't know if you've had a look at this one. This is basically the They do they do effectively specialist loans for businesses. Usually act as the intermediary between an institution wanting to give loans and the actual business provider. They do have a small on the small number on their balance sheet. Went through a bit of a turnaround. I haven't really looked at this at all of late. I don't know if you had a you you you've sort of crossed the you put your pencil over it at all?
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Paul Scott1:05:24
Uh not this year, I don't think. Um the I thought the bull case for this last year was very very good. Um very very interesting and I did a bit of research on it and I really liked it and I bought some. I think I'm I caught the tail end of the bull run on it. Yeah. But then um it dropped sharply on the 4th of February, didn't it? Where a legal a legal issue emerged. Oh, yes. Yes. saying that the documentation and processes may have been ineffective. That was at the Times that broke the story. That was it. And they really crashed but I think they've come I don't has there been an update on that? I'm not I don't know what Yeah, I haven't seen it. No, you raise a really good point. I was just trying to remember what they sort of the black spot was to sort of like, you know, to to to follow up on but you exactly right. That was it. Yeah. Yeah, and they done some buybacks with surplus surplus cash. I think so if the key point for me would be that would need the legal case would need to be resolved, I think, before I'd want to spend much time on looking at it fresh.
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Paul Hill1:06:26
Yeah.
I would agree. Okay, Casper Casper Mann he's asking about Science Group and he says about they're still making a lot of noise about the management of Ricardo. Do you think Do you think this is justified and any is it either Science Group or or Ricardo should are there any of them buys at all or or interesting stocks?
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Paul Scott1:06:46
Well, all I would have to say is I wouldn't want to get on the wrong side of Science Group. They're like a dog with a bone if they take a dislike to you, which they clearly have done to Ricardo. And I think it's to be fair there's it's it's the comments that Science Group are making about Ricardo are perfectly fair. It has under underperformed badly. Um Science Group um announced today or yesterday I think it's now up to it owns 22% of Ricardo, which is a big bet um relative to its market cap. So I think um that has encouraged some traders to buy Ricardo shares on the back of it by saying well they obviously see value. They operate in the same consultancy sector and they think uh shareholder value can be unlocked within Ricardo. Uh they're trying to So So Science Group is trying to ask the chairman and it announced today or yesterday I think it was saying they want shareholders to So they requisitioned a meeting and they want shareholders to treat this as a vote of confidence or no confidence in uh Ricardo's management. So we'll have to just wait and see what happens. Um fascinating situation though. Yeah, yeah. But I'm just watching from the sidelines. However, I would say Science Group shares I'm very positive on. I'm green on those. I think they it's got a fabulous track record over about the last 10 years or something and it's on a P of 12.8. Um it's got a sound balance sheet with lots of freeholds on it and it's been trading well despite um you know tough macro. So Science Group looks to me like a real quality owner managed business. I wanted to get the um the CEO on for an interview but he he batted me away. He said he won't He said he likes to fly under the radar. Well he could have fooled me reading his RNSs about Ricardo. That's not exactly flying under the radar, is it?
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Paul Hill1:08:37
Yeah. Okay, we've got a couple of comments just about um some of the companies you've got. Mark is saying for Funding Circle Rockwood have recently sold a chunk but Sellafield have finished selling. So that's quite interesting cuz that's Richard Staunton. Yeah. And then you've got Rebecca. She adds that um Gamma are entering the FTSE 250 in the June research shuffle which may be impacting the actual shares as well. Could be a sort of like you know artificial, sell off, um We've got one final question from Eli. He's asking about, seeing machines, which I think these do these sort of driver assistance schemes that are now getting adopted by quite a few of the car OEMs around the world and truck OEMs, too, sort of like make sure that the drivers don't fall asleep and notify them and all this sort of stuff. Um, been a long time coming this one. I don't know whether you've ever had a look at it.
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Paul Scott1:09:27
Yeah, I I mean, it's it's I should add, full disclosure, I do currently hold this myself. I bought quite recently, yeah, at around 2p, because it um, the reason being that it it had a profit warning, which is why the chart plummeted. Mhm. Um Uh, because they had a they yeah, that big sort of drop from around 4p down to 2p, or even lower than 2p, was um, triggered by I think it was a Q3, um warning effectively. They're very dependent on royalties from the car manufacturers. And but but they can't time, you know, that the seeing machines is not doesn't control in any way the timing of when new models are launched. And as you would expect, you know, making cars subject to delays, blah blah blah. So, it collects in a small royalty and that that's now being driven by legislation, primarily in the EU. But as I say, they did have that considerable setback where you suddenly thought to yourself, oh God, you know, is this all a a big story, you know, and they're not generating the growth. Well, anyway, the the reason I bought in was because the Q4 update showed a strong rebound. Mhm. Um, which validates what management was saying about this just being a a one-off soft quarter. So, the growth seems to be um, back or getting back on track. And you've got an absolute deluge of new models kicking in which will be mandated by EU laws to contain this equipment. It's eyeball tracking. A very sophisticated and seeing Machines there's hardly any competition. There's two or three other companies globally. They seem to be the world leader. And crucially, they've got two major industry partners that have bought equity and or uh injected convertible loans. Now, if big industry players are pumping money into this thing, that tells me all I need to know. You know, they've done the due diligence for me and it got down to a reasonable price of 2p. It's still still speculative and the track record of the company's diabolical. It really is. So, yeah, have you got anything to add to that, Paul?
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Paul Hill1:11:34
Well, it's quite I mean that the the end market cap is 122 million and you know, pounds. So, it's not actually insignificant. It's super liquid obviously at that sort of like given the given the price. I guess the sort of the the big picture sort of question is for sort of driver assistance, is is it ever going to be impacted if we go autonomous driving? I.e., you know, cars which are actually self-driving themselves um and or or trucks and stuff. And the answer to that is well, it all depends on what the law allows and how good they get. Um but if you are if you if it's if it's if it's done as a recurring revenue model, then if you get onto a lot of cars and you'll and you're getting an annual sort of like, you know, service fee for those models as well. Those models will be around for for 10 to 15 years anyway.
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Paul Scott1:12:22
Yeah, no, it's a one-off royalty at the time of manufacture, I think. So,
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Paul Hill1:12:28
Oh, you see, right. Yeah, I think so. But, there are other verticals that it goes into for for example, aviation um and large mining trucks and things. But, yeah, the self-driving thing, I mean, I don't know. It feels to me that still a long way off. I could be for for mainstream motoring, you know, I think most people want to drive themselves, don't they?
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Paul Scott1:12:45
Yeah. Well, yeah, I mean, I would prefer to drive myself, but it's actually happening, isn't it? Waymo have proved it works out in um in in California and um San Francisco. These are like masses of Waymo self ultimate, but they are expensive. That system is far too expensive for normal cars. It is actually already happening in China cuz they're doing it, but how safe that is I'm not sure. And if you believe if you believe Elon Musk, he says he's going to have autonomous driving allowed in US roads next year in 2020 26, but he's been saying that for years. It all comes down to how liberal and how free the yeah, basically the regulators are going to allow it.
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Paul Hill1:13:24
Yeah, interesting. I mean, I would imagine it's self-driving cars are only take a a niche part of the market to begin with.
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Paul Scott1:13:33
No, no, I can't I mean I No, I think a lot of people I mean, would I give up my car? Probably not, but I'd probably share it with my wife and then if we want basically just to go down the shops or anything. If you've got basically these parked up I mean, it's just so cheap. You You don't got to worry about servicing it and all this other stuff. But yeah, if you want to if you want to drive your XJS classic Jag up the road to get a bottle of milk, then you you know, you don't drive a you don't have an autonomous vehicle.
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Paul Hill1:14:02
Yeah, I think there's room for both. I think there'll be a big enough I mean, I don't know. Nobody does. But I suspect there'll probably be a a plenty big enough market for seeing machines to make a lot of money from even if even if self-driving takes say half the market.
True, true. Brilliant. Okay, well, thanks very much Paul. Thanks everyone for your excellent questions. If apologies I haven't been able to get through all of them, but hold them for next week. They'll be Thursday as usual at 2:00 p.m. Same channel, same people and talking about same well, different stocks this time, but I hope you have a great I hope you have a great week in Albany there Paul. You got any got any plans you got you going down the the local pub there at it's this evening?
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Paul Scott1:14:45
Oh god, no. I did that at the weekend. Oh, bloody hell, they can drink here, I tell you. You know what I mean?
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Paul Hill1:14:52
You know what I mean? Loads of friends. I know that. I know that half the half the village already knows it's great out here. I definitely encourage people to to get out to Guernsey or or Alderney if they can. They're lovely places.
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Paul Scott1:15:04
There's lots of history there, isn't there? Which is fascinating.
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Paul Hill1:15:06
Incredible. Incredible. And you're off for a short break as well, aren't you, Paul?
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Paul Scott1:15:10
Yeah, we're going down Devon, so go going to going tomorrow. Bit of swimming in the estuary, which should be nice, but yeah, I mean, the Dartmouth is sorry, yeah, Dartmouth is absolutely fabulous because it's got it's got stuff from the Middle Ages, it's got stuff from the Tudors and Stuarts. It's also got plenty of the naval colleges of and the Second World War, lots of history. And yeah, the food's not bad and the drink's pretty good as well, so can't we can't really ask for more than that.
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Paul Hill1:15:36
Yeah, great. All right, then. Thanks a lot then, guys, and speak to you next week.
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Paul Scott1:15:41
Yeah, thanks, everyone. I'll see you next week.