5 Small Cap Bargains
http://bit.ly/rasGwz
BY
David Holding
Published in Investing on 7 October 2011

A bunch of small caps whose value isn't recognised by the market.
I've been trying to find a few small caps with limited downside and at least a little potential excitement. But a small cap doesn't need to be a world-beater. Its sheer size, or lack of it, is often sufficient thrill.
I believe this group of five offers an interesting each for different reasons, but always with what I see as real underlying value. They won't all come good, but as a basket with one egg in each, I think the aggregate result will be positive from here.
But the usual warnings apply. Four of the five are AIM-listed which is quite enough to deter many sane investors.
To provide a counter-balance to such risk, the directors have substantial stakes in all five businesses. Aligning your investments with directors' is a great help with small caps.
So in descending order of size…
Morson
In mid July, I thought Morson (LSE: MRN) to be a quality small cap at a bargain basement price. At the time, the shares were 101p. They're now 75.5p.
Thankfully, I concluded: "I'm going to watch, wait and hope that the next update talks of tough conditions and takes the share price a little further into bargain basement territory."
The company supplies engineering and technical personnel, whilst another area of the business provides engineering and project management design services.
The recent interim results saw an increase in turnover but a drop in profits. I thought this was an excellent performance in testing times. The government's strategic defence review and associated cut in public spending hit Morson's largest division; Aerospace and Defence.
But other areas of the business fared better. Morson's business is high volume, low margin, and is very susceptible to the highs and lows of the UK economy. But it isn't dependent on a single sector as it operates in several different markets with differing economic cycles. The company also believes that the future will see "demand for scarce engineering talent".
If Morson can make first half earnings of 5.2p per share in such challenging times, and the forecast 12.4p for the full year, then the shares are too cheap on a P/E of 6. Such a performance would be down on each of the previous five years.
Around two-thirds of the market cap is accounted for in net tangible asset value. The current yield, meanwhile, of almost 8% suggests it can't be maintained. I think that it can and tentatively dipped my toe in the water at 80p before the shares went ex-dividend by 2p.
Inland
In May, I thought shares in Inland (LSE: INL) were excellent value at 19.7p. They're now 17p despite very positive final results.
The company reported rising demand for developmental land in the southeast, and said it will look to increase its homebuilding this year.
Inland buys disused industrial land which it develops and submits planning applications for, before selling it to house-builders. But it has plans to increase the scale of its own homebuilding operation to improve margins and cash-flow.
The net asset value per share of 26.5p could see an uplift if the company's planning application for the development of 270 homes and 100,000 square feet of commercial space at its Poole site gets the go-ahead.
Inland's overall strategy was explained to a gathering of fxxls in May.
Haynes Publishing
It's difficult to see growth coming at Haynes Publishing (LSE: HYNS). But at 215p, with net tangible assets of 263p per share, maybe it doesn't need to?
The fully-listed car manuals producer has made a change of gear into electronic publishing. Its final results show a company yielding 7.3% (the shares went ex-dividend by 9.5p this week) and on a P/E of 7.4.
Haynes thinks the digital shift will help it grow. I think the economic woes will see more DIY mechanics buying the company's wares. Whatever way you look at it, it's too cheap.
Michel

I think it's time to get back into this one. SIPP now set up, so a good place to buy now and hold for 5 years.

The economy will be in a very different place in 5 years, and as the news keeps telling us, the rich keep getting richer...and they will keep buying posh bricks to keep their posh houses, hotels, libraries and palaces in good order.

and given the company has net assest of 63p a share....this could double at anytime in the next year as soon as one or more Inst.Inv realises this and makes a few sizeable purchases.

Tj

Martin Warner builds momentum at Michelmersh Brick http://t.co/5EnT7nO via @Stockopedia

Tuesday, Jul 12 2011 by Ben Hobson

Martin Warner, CEO, Michelmersh Brick Holdings plc
When Martin Warner brought Michelmersh Brick (LON:MBH) to the Alternative Investment Market in 2004, he had already built the business into the largest producer of handmade bricks in the UK. Since starting the business in the late 1990s, Warner and Chairman Eric Gadsden have built a portfolio of niche players supplying local markets and now oversee a group that owns most of the top-end brick makers in the country. Indeed, it was one of Michelmersh’s divisions, Charnwood Forest Brick that supplied the facing bricks for the regeneration of the prestigious Grade 1 listed London St Pancras Station. He believes the company is now well placed to grow in a market that is expected to see significant shifts in power among the industry’s main players in the near future.

Last year there were 1.35 billion bricks produced in the UK – a near halving of the 2006 figure of 2.5 billion. The country’s house building sector, which collapsed during the economic downturn and remains constrained by a depressed market for mortgage lending , has been largely responsible for that decline. According to forecasts by the Construction Products Association, construction of private housing is expected to grow by 62% over the next three years. However, until 2013, the country will still be building less than half the homes needed to meet the number of new households created each year. And despite growth each year, private housing construction in 2015 will still be 14% lower than 2007’s pre-recession levels. All this has put pressure on the country’s large volume brick manufacturers – including Hanson (owned by owned by Heidelberg Cement), Wienerberger and Ibstock (owned by CRH (LON:CRH) ).

Talk in the industry is that Heidelberg may be preparing Hanson for disposal – a situation which is of significant interest to Michelmersh. After starting with Dunton Brothers in 1997, Warner and Gadsden went on to acquire Michelmersh Brick, Charnwood, Blockleys, Taperell Taylor, Hathern Terra Cotta and fifteen months ago snapped up Freshfield Lane. The group’s operations are now generally focused on delivering products to more economically robust markets in the south-east of England. In tandem, it is also exploring ways to achieve value from its various clay pits, either by selling them to house builders or for landfill. Last year, group turnover increased by 30% to £23.3 million but a restructuring of its Blockleys site in Telford, Shropshire caused post-tax losses to come in at £5.3 million. The value of net assets was up 20% to £37.1 million representing net asset value per share of 63.8p. The shares are currently trading at around 30p. In June, the company reported that group sales volumes since the start of 2011 were ahead of budget.

Martin, you have been building Michelmersh for several years now. How has the industry changed in that time – are there still a number of local brick makers around or have those days gone?

Very few, there is only one other major UK independent brickworks left, which is up in Yorkshire. There are a few smaller businesses but there has been a lot of consolidation. The other interesting thing is that Heidelberg Cement, the owner of Hanson, has indicated its intention to exit the brick making business in the not too distant future. So it’s a very interesting market, coupled with the fact that demand has probably halved over the last six or seven years.

How many bricks do you make?

We make about 70 million, 30 million down at the new works we bought last year at Freshfield Lane, just over 20 million up at Telford and the rest are spread across our other three works.

What sort of health is the industry in and what factors influence that?

The fundamental driver of demand is house building and, as you know, there is not so much of it around t

http://3finking.com/articles/mbh.php - short but some good points, argues that MBH is looking good and is undervalued