Fairpoint and H&T Group

Continuing with my very brief analysis of the value portfolio, I shall take a look at Fairpoint and H&T. Please note that this is not intended to be in-depth research, merely a snapshot based on the current financials of each company.

Starting with Fairpoint. The company describes itself as :- "The leading provider of advice and solutions to financially stressed consumers".

An initial glance at the figures reveals that the company is currently trading on a P/E ratio of less than 7, and yields a 4.3 % dividend which is covered more than three times by earnings. The company appears to be highly cash generative. Net cash at the June interims was £2.8m vs. net debt of £2m at the same period in the previous year. The current market cap. is around £54m. They operate a progressive dividend policy, and increased the dividend by 10% at the interim stage to 2.15p (2012: 1.95p).  Basic EPS was also up at the interim stage by 21%. Their outlook statement indicated solid progress.

Based on the financials and outlook it certainly appears to be an attractive investment, and probably undervalued? We shall see.

H&T Group has had a decent week, and the shares are up around 5%. They released a trading statement on 7th January confirming that full year profit will be in line with management expectations. The trading statement also mentioned that they had reduced net debt by around £7m to around £20.8m, although they mention that market conditions are challenging.

H&T are a pawnbrokers, and based on last year's earnings the historic p/e ratio is less than 5 and the dividend around 7.7% covered more than three times by earnings. It should be noted however that at the interim stage the dividend pay out was reduced from 3.8p to 2.1p in light of the challenging trading environment. EPS (interim) had fallen from 14.5p to 9p. If you strip out goodwill and intangibles from the balance sheet then tangible NAV is around £68m against a market cap of £56.5m.

This is one of those stocks where most of the bad news could already be priced in? Again only time will tell.

It's probably not too surprising that both of these companies have appeared on the value list given the nature of their businesses. Certainly, investors would perceive (possibly) that their prospects are inversely proportional to the health of the economy, and all indications point to a growing recovery.

21st Century Technology Plc

21st Century Technology (C21) is the second of the value plays on my list, and it is a company that I'm reasonably familiar with. It has been on and off my monitor a number of times. My impression to date is that it has been somewhat of a serial disappointer. Just when you think it's turned a corner a profit warning suddenly emerges out of the blue. In fact I wrote a few lines about C21 in my August blog with particular reference to Jan Holstrom, the outgoing Non-Executive Chairman:-

http://michae1mouse.blogspot.co.uk/2013/08/updates-ubc-media-densitron-ddd-group.html

However, it's a company that's always looked like it had promise, and with the recent Directorate changes, it is a company that is firmly back on my monitor.

C21 describes itself as "a leading supplier of public transport CCTV and other monitoring systems, including their award winning EcoManager".  Looking at the figures from last year's results the company looks very much like a value share with (in theory) potential for significant growth. Buying growth companies when temporary circumstances render them attractive as a value play can turn out to be very rewarding for medium to long term investors. What investors will need to weigh up here though is whether C21 is a genuine bargain or simply a value trap.

Based on last year's earnings, the historic p/e ratio is less than 6, the dividend yield is around 9% covered twice by earnings and the market cap. is £7m. The tangible asset value is around 4p or 8.5p including intangibles.

However, I mentioned that this could turn out to be a value trap because at the half year, Jan Holstrom had this to say about trading in the second half:-

".... We are now experiencing a significantly lower than expected order pipeline for H2 2013. We have received indications that revenue receivable from one of our largest customers is likely to be 70% lower in H2 2013 than H1 and below our previous expectations, whilst a four-year contract with the GoAhead Group is due to expire very shortly.
"In view of the above, the Board has sought to reassess the Group's order book and pipeline opportunities and anticipate that its financial performance for the year ending 31 December 2013 is likely to be significantly below its previous expectations and of the previous financial year, should the pipeline remain at its current levels."

So I suppose the question is can the new faces that have joined the Board put C21 back on track and re-establish a growth trajectory, and if they can, just how long will it take?

In October of this year, Russ Singleton, the Chief Executive Officer and Glenn Robinson the Group Finance Director, purchased over £160,000 worth of shares between them at 6.5p, and so it would appear that they are confident of steering C21 back in the right direction.

Only time will tell of course, and as ever please DYOR, and no advice is intended or given.

The low p/e, small cap, high yielders vs. FTSE all-share

For my next study, I have decided to compare the performance of the following companies against the FTSE all-share index over a period of around 3 years. The companies in question are:-

Bischi Mining (BISI) -110p
21st Cent. Tech (C21) - 7.5p
Fairpoint (FRP) - 130p
H&T Group (HAT) - 145p
Hydro Intl. (HYD) - 113.5p
MS Intl. (MSI) - 174p
Quarto Group (QRT) - 163.5p
Tandem Group (TND) - 75p
Walker Crips (WCW) - 44.75p

Again I don't hold any of these shares in my personal portfolio, and I haven't conducted any research on the individual companies. However, the selection is not a totally random one. Each of the companies listed has a current market cap. less than £100m and pays (or has paid) a dividend of over 3% (relative to it's current share price) covered more than twice by earnings. Their current p/e ratios are all less than 10 (based on last year's earnings). I have listed each company's current mid-price alongside it's ticker. The FTSE all-share currently stands at 3605.

Value investors will understand why I have chosen the nine companies above, and I intend to research each in turn and post my thoughts on this blog.

I'll start with Bischi Mining which already looks interesting to me. Bischi describes itself as a UK mining company with direct coal mining operations in South Africa. The current share price weakness appears to be related to "a short term impact on production following an incident at one of Black Wattle's main production pits, where we have mined into old underground workings which were never recorded on any historical mine plan". This will impact earnings for 2013, but they don't expect production or profitability to be impacted in 2014.

Looking at the financials, the historical p/e is below 9, the dividend yield is above 3.5% and the shares are trading at a significant discount to TNAV (169p). It also appears that they have a UK property portfolio linked to the retail sector which is performing well. Cash on the balance sheet looks healthy, and they don't appear to be heavily indebted. In fact what's not to like about this company with a medium to long term view?

Generally, I don't invest in mining companies but I am going to research this one further, and it will definitely go onto my monitor.

As ever, no advice intended or given.