Parity PEG Price Reports – May 2019

PPPR 2019-05 May

Companies covered this month include…

FFX – Fairfx
FIPP – Frontier IP
FLTA – Filta Group
G4M – Gear4Music
HNT – Huntsworth
JOUL – Joules
KCT – Kin And Carta
MACF – Macfarlane
MGP – Medica
NXR – Norcros
SUMO – Sumo
TCM – Telit Communications
TMMG – Mission Marketing
TUNE – Focusrite
UPGS – UP Global Sourcing Holdings
VP. – VP
XPD – Xpediator

This guide explains the reasoning behind the Parity PEG Price Reports.

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  1. Comments on a few stocks in your report that are, or have been, of interest:

    FFX – I’ve been bitten once already by wobbly trading updates and I would wonder about Brexit fears… so I’ll forget about this one

    I see FIPP as a high risk investment. There are some positive announcements from various invested companies of late, such as with Alusid and the significant collaboration agreement of Exscientia (although FIPP has only a 3.32% stake in this company). The TVG partnership is also positive, though the share of the aware for them is not quantified. My primary query to you though is whether eps growth is a correct method to value this company rather than NAV, or projected NAV growth? I think this is a key question because a HUGE proportion of the company’s revenue, and thus profit, seems to be based on uplifts (or otherwise) in underlying asset values of invested companies and this is determined purely by the directors rather than any independent entity. Who is to say how accurate the directors calculations are? And is it appropriate to pay 87p for a company whose assets were last valued, by the directors, at 38.8p? In terms of you valuing using eps, last year there was a huge drop in eps, though an increase in NAV… and I would suggest there is a high risk of this happening in future years if one of the investments flopped. That said, it is overall an exciting-looking company.

    I was put off HNT by the very mixed trading within the company’s various divisions.

    Re JOUL… I just don’t go near the retail sector any longer. Also, from a fashion point of view, I’d say that if a woman doesn’t like wearing clothes with stripes (like me) then a lot of their range is of no interest; I have never bought from their stores.

    I hold MACF… though I can’t remember now my reasoning for buying them, and don’t feel overwhelmingly positive; today’s acquisition has been met with a positive response, however.

    I have watched MGP though I feel they have hit a ceiling; I am very put off by a recent director sale of 1.1m shares 148p, Pru have reduced their holding today. The valuation doesn’t support growth at the level of the last results.

    I hold NXR and enjoy the yield; I feel the debt and pension liability is factored into the price.

    I sold TMMG last week for a 39.5% profit in 8 months; I’m hoping for the price to moderate for a re-entry point… but if it doesn’t I’m happy with my return.

    I have mentioned TPG several times on your morning posts, and I remain a happy, long-term holder… especially as my top up last Monday is already in profit 🙂 I feel the long term share price should climb well, especially once more people forget about the company’s past and focus on what it is doing now.

    The CMA investigation is an additional reason to avoid VP. at present… as well as the share price looking like a ski slope at present.

    XPD – I don’t have any argument with your conclusion based on your methodology. Forecasts have been raised slightly to 4.87 (which must surely be post-adjusted) following the final results. Perhaps I am looking at things to simplistically… but considering that XPD raised pre-adjusted eps by 46.8% to 4.8 then even if they only increased pre-adjusted eps by half that percentage this coming year then that would mean a valuation in the current year of only PER 14 which seems quite low. Things also sound very positive in overall trading, and I like the geographical spread outside UK

    BTW, I see that all the previous comments on your Parity reports have disappeared… 🙁

    • Hi Andrea,

      Thanks as always for your valuable comment, much appreciated.

      FFX – Fair enough.

      FIPP – You’re perhaps right there, I just always stick with the EPS approach, it just works for me (usually) and keeps things simple.

      HNT – Fair comment and I have been in and out here previously.

      JOUL – Thanks for the insight and I believe, from memory, I don’t hold anything in the retail sector at present.

      MACF – Having now seen a revised Broker note from Arden (EPS of 2018A 7.1p, 2019E 8p, 2020E 8.4p) I see a 2 Year fair value here <50p so I will be avoiding for now.

      MGP - Perhaps 125p or so (as the report suggests) is fair value with 160p or so seeming to be a ceiling.

      NXR - That's fair comment but there's just too many negatives here for me.

      TMMG - I remain Long for now.

      TPG - Me too!

      VP. - Thanks, I was completely unaware of that.

      XPD - Remains on my Watch list for now.

      Thanks again as always - I can see all previous comments, when logged in and logged out so a little strange you cannot see them!

      • The comments have ‘mysteriously’ reappeared; it can’t possibly have been anything that I was doing……….. um, uh……….

        Thanks for the MACF forecasts, not exactly anything to write home about.

        I’ve added FIPP to one of my watchlists…