Saturday, 1 February 2014

2014 Stock Picks: Group 4 Small Cap Non Resource Stocks

Group 4 of the list contains just 4 stocks. That’s a shame really as it would be good to consider a wider number of small caps that are NOT in the oil gas sectors. I like to have a few non resource stocks in my portfolio and have done very well with Blinkx, Top Level Domain Holdings and some banks in the past. For the original list of 41 stocks chosen by twitter followers please see here....

But now, I say, bring on the small cap non resource stocks and let’s see what they are made of…….

Small Cap non resource stocks (£10m - £30m)

Chosen By
Starting Market Cap
Starting Share Price
Fox Marble
Ashley House

Parity (PTY)
First up is Parity. Parity offers a suite of services to businesses across the technology, recruitment and talent management services. They are developing a “Technology Lab” to harness the latest breakthrough technologies and in 2012 bought Inition which pioneers the use of 3D technology such as filming, printing and scanning. Originally formed in 1993, they were pioneers in PRINCE project management methodology and built their business around this and IT solutions. 

In 2009 the business slipped significantly into the red following steep revenue declines and embarked on a significant restructuring and cost cutting exercise. The business has since re-focused its strategy on growing its Resources, Talent Management, Systems and Inition divisions, whilst making moves into the digital media and 3D technology markets. The business returned to profit in 2012 and at the half way point in 2013 saw revenues up 8.5% to £46.5m and profit before tax and non recurring items of £0.5m (2012 £0.09m loss). Cash at period end was £3.15m and net debt was £5.86m. Ongoing pension costs and pension liabilities had both been reduced thanks to the improving financial position.

Recent trading has continued to improve and the December trading update reported that EBITDA was expected to exceed £2.5m, over 80% ahead of last year. The business has now been divided into 2 divisions - Parity Professionals (mainly IT resourcing) and Parity Digital (newer technology, 3D, web and business intelligence services). Parity Digital is expected to grow strongly in a rapidly growing market and both divisions are expected to benefit from the economic recovery.

Fox Marble (FOX)
Fox Marble is focused on marble quarrying, extraction and production from Kosovo and the Balkans. It has mining licences across 6 separate quarries and a maiden JORC resource indicating an in situ valuation of approximately €16.5billion. It potentially has over 300 million cubic meters of premium marble (91.3m cubic meters in reserves classification) and is aiming to transform itself from an extractor of raw material to an established supplier of premium quality marble worldwide. Recent work in a new quarry has revealed marble similar to “Calacatta Gold” a rare premium marble found on the Italian coast - the things you learn doing this!

Four quarries are now operational and the first sales of marble were made only recently towards the end of 2013. A distribution agreement for the USA has been agreed. A processing plant development in Kosovo is progressing, albeit they are developing this in parallel and dependent on sales and order growth (my assumptions based on their statements) to protect risk to capital and to take advantage of unused capacity in Italian factories. The plant should be completed during 2014 however. Fox’s first shipments of slab marble have been made to the USA. An agent in China has been appointed, two in Italy, and European sales potential is developing with a strategic partnership with Pisani (an established sales channel) from which they took their first orders recently.

Their December pre close statement in December highlighted €500,000 worth of marble orders and repeat orders coming through. At the end of November cash reserves stood at €5.7m so they are well funded. They have just invested another €500,000 in quarrying equipment.

I liked the look of this whilst researching it. A lot actually! Good development and growth to date and production now translating to sales. Interest reportedly building and potential for global sales channels which should be helped by economic recovery. The management team seem focused on growth whilst taking their risk management seriously but have high ambitions and some decent track records. And best of all the 2 founders own over 35% of the shares in issue. Together with others and a couple of funds over 60% of the share float is out of public hands. So, I've bought a small amount of these and will be looking to change my kitchen work-surfaces, fireplaces, and bathroom surround to marble very soon!!

Camco Clean Energy Plc (CCE)
Camco is a project developer working to develop, construct, deliver and operate projects globally. They have more than 20 years of successful project delivery across Asia, North America, Africa and Europe, implementing clean energy and emission reduction solutions, reducing costs and maximising financial and environmental benefits. They pride themselves on their track record in technical delivery and commercial expertise, working with local industry, multinational companies, governments and regulatory bodies.

Camco are involved in Biogas facilities, renewable energy projects, emission trading solutions, carbon offsetting trading, energy storage, and advisory services across all of the above. They were formed in 1989 and operate globally, with more than 200 staff in 12 countries. They have won numerous awards for their pioneering projects as well as winning a couple of “Top 50 best places to work” type awards. The almost total collapse of the EU carbon markets was a challenge for them but they reduced costs and focused on other growth markets.

The share price rose last year from 1.5p to over 8p, but has since fallen back to under 5p. Half year results ending June last year showed revenue rising from €3.7m in the previous half to €5.2m. Gross profit of €2.6m compared to a loss of €7.4m previously. Two directors were buying in November and performance recently has been strong with some good business in North America and an impressive win for some biomass plants across Africa as part of a Clean Tech funding award. At the time of the half year results the CEO Scott McGregor stated “We have now completed our cost reduction program to structure the Company with a lower cost base more appropriate to our current business initiatives and accelerated our business activities in US, Africa and the UK to deliver top-line results as quickly as possible. We are now positioned to benefit from the significant increase in opportunities that we have generated and for the remainder of 2013 and 2014 we will focus on delivering these.”

Ashley House (ASH)
Ashley House operates in the health and care market and provides solutions to building challenges for properties such as surgeries, hospitals etc. It was established in 1991 and grew by specialising in the design and construction of new purpose built doctors surgeries and medical centres. In 2004, a new company was set up to purchase properties designed by Ashley House and other primary care facilities. Since then they have grown into a national organisation that develop tailored solutions for properties in the social care sector, matching the needs of the various providers. Its mission is “to deliver the most cost effective health and community care property solutions through enduring partnerships and proven expertise”. They partner with health and care professionals, providers, visitor centre operators and charities.

The market has been challenging recently but the board state that they are building momentum and that they expect further progress to come from their healthy forward pipeline of schemes and bids.

At the last set of results (end of October) they reported a forward pipeline of £103m of value and new business from their Extra Care of £62.7m. Both of these figures were well ahead of the comparison for the previous 6 month period. Revenue for the half was £5.5m but that was down from £7.2m the prior year. Loss before tax was £0.8m and net debt stood at £1.2m, albeit they had reduced that by £1 since the year before.

This seems to be a business which has had its share of challenges over the past years due to the market and the challenges of the health and care sectors, but is back on the road to recovery according to the board and the recent reports. Most recently they have just received over £3m from two previous projects which were well overdue and had impacted their balance sheet.

This isn't one for me, it’s too far from my core interests, but I can see that they are turning around the company and are operating in a market that they know and understand. That should set them up for success if they can maintain the forward momentum they have created recently.

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