4 companies under 10x p/e
Posted: January 21st, 2021, 9:50 pm
Most of the market has seen valuations rally but these four names still have fuel in the tank. Each has its own put-offs, but I think each has an interesting future and good upside potential.
Reach PLC on 6.0x 2021 p/e. 202p share price.
Reach has been on quite the run from 60p in September to more than 200p now, but there are reasons to be optimistic that there is more to come. Reach is in the middle of a lifecycle-defining transformation during which it hopes to become a winner in digital content. Reach has over 40 million unique users across its publications like the Daily Mirror, or Liverpool Echo and is now embarking on better monetisation of them, using big data and analytics.
The catch on Reach is in two parts. There is a big £210m pension deficit (accounting basis), and whether Reach works as an investment will depend on how quickly they can outrun the decline in their print publishing division. The signs are encouraging with Reach bouncing back from the pandemic hit with a flourish of trading ahead of expectations statements. In the last Q3 period digital revenue growth was 13% benefitting from a strong recovery in digital advertising, compared to print revenues down 15%. In the digital universe, content and distribution are of utmost importance, and Reach has both of these in abundance. Costs are also lower, and businesses like Reach can be more agile. Forecasts have been on the rise and 2021 eps is now forecast to be at 34p putting Reach on 6x p/e.
Capital Limited on 8.6x 2021 p/e. 63p share price.
Capital is a drilling contractor and mining services business operating in Africa. Capital’s fortunes have been aligned to that of the gold sector which has itself been in something of a boom period and this is beginning to mean much stronger exploration activity within the space. A helpful capital raising environment have left Capital’s bulk customer base with more money to spend, and demand is being pent up into this year. Some of Capital’s largest blue-chip customers include Allied Gold, Centamin Egypt, Barrick Gold and Kinross. Capital has already been trading well given revenues were up 18% in FY2020.
In combination with an improving market, Capital is stepping up its mining services business to real scale. The first of these was a major contract with Centamin Egypt at their Sukari mine. Capital has aspirations to become a full service mining services business. This means more recurring revenues, and better predictability and less volatility in utilisation of Capital’s extensive asset resources. This and other contracts means forecasts are for Capital’s revenues to strongly increase 38% in 2021 and another 15% in 2022. Underlying EPS are forecast to grow from 6.7 cents in 2020 to 10.2 cents in 2021 and 15.7 cents in 2022. This means Capital is trading on only 7.4x 2021 p/e and only 5.6x 2022 p/e. All the while, the quality of Capital’s earnings is stepping up and further contract wins could be in the pipeline.
Bilby PLC on I think under 6.0x 2021 p/e. 26p share price.
Bilby is a provider of property services to local authority and housing associations. This has traditionally been around gas and electric fittings, retrofits and reactive maintenance, but will morph in the future to include services around renewable energies and installation of EV charging points. Bilby has a stained history under old management with weak corporate governance and poor systems and processes that led to contract problems. Under the helm of David Bullen who joined in April 2019, things are turning a corner and he is working his magic as he did as the former CEO of AIM darling Anpario. Working capital practices have improved and operational structures have been brought in. Debt has reduced to £4.9m and the group’s culture has been strengthened.
In Bilby’s pandemic hit first half when non-discretionary work was deferred, the group still delivered adjusted eps over 1.9p a share and most of the adjustments on this was non-cash charges. Double that would mean 3.8p of eps in a pandemic year. Better receivables collection policies helped Bilby churn out £3m of operating cash flow. In the year before the pandemic, the group earned £4.7m of EBITDA and £5.4m of operating cash flow before working capital. A very low multiple of Bilby’s valuation at £15m. Significant efficiency savings have been earned and have been reinvested into systems and processes, growth opportunities and green accreditations and revenue visibility has improved. Bilby will emerge from the pandemic a much stronger and better business at a basement valuation that has not kept up with the market recovery.
finnCap Limited on I think 6.0x 2021 p/e. 22p share price.
finnCap is a small UK specialist broker that was welcomed to the AIM market in December 2018. Since its birth finnCap has become a household name in the small cap market, offering a range of services like Research and Equity Capital Markets functions. finnCap stands to benefit from an uptick in capital markets activity in 2021. We are witnessing a flood of private equity investment across the capital markets, as well as new stocks looking to list on the London Stock Exchange and the need for capital raises after a ravaging pandemic. finnCap’s latest deal was announced on January 19th as a Joint Bookrunner on a keystone £20m placing for Surface Transforms.
In finnCap’s first half, the group showed excellent financial performance with revenues up 44% to £20.5m and pre tax profits more than doubling to £3.6m. 35 transactions were completed and total deal and advisory fees grew more than 50%. Finncap had net cash of over £10m on a business valued by at £38m. Director Richard Snow recently bought over £20,000 of stock in finnCap showing his confidence in the business. The only forecasts in the market look very low. Finncap did 2.2p eps in the first half of the year yet the research provider only forecast 2.5p of eps for the entire year. I think finnCap will beat these forecasts and real eps will put finnCap on about a 6x p/e. For a small cap specialist with a nice niche and strong brand, I think finnCap is an interesting choice.
Reach PLC on 6.0x 2021 p/e. 202p share price.
Reach has been on quite the run from 60p in September to more than 200p now, but there are reasons to be optimistic that there is more to come. Reach is in the middle of a lifecycle-defining transformation during which it hopes to become a winner in digital content. Reach has over 40 million unique users across its publications like the Daily Mirror, or Liverpool Echo and is now embarking on better monetisation of them, using big data and analytics.
The catch on Reach is in two parts. There is a big £210m pension deficit (accounting basis), and whether Reach works as an investment will depend on how quickly they can outrun the decline in their print publishing division. The signs are encouraging with Reach bouncing back from the pandemic hit with a flourish of trading ahead of expectations statements. In the last Q3 period digital revenue growth was 13% benefitting from a strong recovery in digital advertising, compared to print revenues down 15%. In the digital universe, content and distribution are of utmost importance, and Reach has both of these in abundance. Costs are also lower, and businesses like Reach can be more agile. Forecasts have been on the rise and 2021 eps is now forecast to be at 34p putting Reach on 6x p/e.
Capital Limited on 8.6x 2021 p/e. 63p share price.
Capital is a drilling contractor and mining services business operating in Africa. Capital’s fortunes have been aligned to that of the gold sector which has itself been in something of a boom period and this is beginning to mean much stronger exploration activity within the space. A helpful capital raising environment have left Capital’s bulk customer base with more money to spend, and demand is being pent up into this year. Some of Capital’s largest blue-chip customers include Allied Gold, Centamin Egypt, Barrick Gold and Kinross. Capital has already been trading well given revenues were up 18% in FY2020.
In combination with an improving market, Capital is stepping up its mining services business to real scale. The first of these was a major contract with Centamin Egypt at their Sukari mine. Capital has aspirations to become a full service mining services business. This means more recurring revenues, and better predictability and less volatility in utilisation of Capital’s extensive asset resources. This and other contracts means forecasts are for Capital’s revenues to strongly increase 38% in 2021 and another 15% in 2022. Underlying EPS are forecast to grow from 6.7 cents in 2020 to 10.2 cents in 2021 and 15.7 cents in 2022. This means Capital is trading on only 7.4x 2021 p/e and only 5.6x 2022 p/e. All the while, the quality of Capital’s earnings is stepping up and further contract wins could be in the pipeline.
Bilby PLC on I think under 6.0x 2021 p/e. 26p share price.
Bilby is a provider of property services to local authority and housing associations. This has traditionally been around gas and electric fittings, retrofits and reactive maintenance, but will morph in the future to include services around renewable energies and installation of EV charging points. Bilby has a stained history under old management with weak corporate governance and poor systems and processes that led to contract problems. Under the helm of David Bullen who joined in April 2019, things are turning a corner and he is working his magic as he did as the former CEO of AIM darling Anpario. Working capital practices have improved and operational structures have been brought in. Debt has reduced to £4.9m and the group’s culture has been strengthened.
In Bilby’s pandemic hit first half when non-discretionary work was deferred, the group still delivered adjusted eps over 1.9p a share and most of the adjustments on this was non-cash charges. Double that would mean 3.8p of eps in a pandemic year. Better receivables collection policies helped Bilby churn out £3m of operating cash flow. In the year before the pandemic, the group earned £4.7m of EBITDA and £5.4m of operating cash flow before working capital. A very low multiple of Bilby’s valuation at £15m. Significant efficiency savings have been earned and have been reinvested into systems and processes, growth opportunities and green accreditations and revenue visibility has improved. Bilby will emerge from the pandemic a much stronger and better business at a basement valuation that has not kept up with the market recovery.
finnCap Limited on I think 6.0x 2021 p/e. 22p share price.
finnCap is a small UK specialist broker that was welcomed to the AIM market in December 2018. Since its birth finnCap has become a household name in the small cap market, offering a range of services like Research and Equity Capital Markets functions. finnCap stands to benefit from an uptick in capital markets activity in 2021. We are witnessing a flood of private equity investment across the capital markets, as well as new stocks looking to list on the London Stock Exchange and the need for capital raises after a ravaging pandemic. finnCap’s latest deal was announced on January 19th as a Joint Bookrunner on a keystone £20m placing for Surface Transforms.
In finnCap’s first half, the group showed excellent financial performance with revenues up 44% to £20.5m and pre tax profits more than doubling to £3.6m. 35 transactions were completed and total deal and advisory fees grew more than 50%. Finncap had net cash of over £10m on a business valued by at £38m. Director Richard Snow recently bought over £20,000 of stock in finnCap showing his confidence in the business. The only forecasts in the market look very low. Finncap did 2.2p eps in the first half of the year yet the research provider only forecast 2.5p of eps for the entire year. I think finnCap will beat these forecasts and real eps will put finnCap on about a 6x p/e. For a small cap specialist with a nice niche and strong brand, I think finnCap is an interesting choice.