It's proved the correct call as a pre-close trading update at the end of last week was revealing and highlighted strong momentum across a broad range of funds managed which encompasses 10 open-ended investment companies (Oeics), two unit trusts and four investment trusts. Total assets under management (AUM) surged by a quarter to £2.78bn in the second half of last year, a sharp acceleration on the 8.5 per cent growth rate in the first half. This was in part down to strong inflows into Miton's CF UK Value Opportunities strategy fund which now accounts for £783m of AUM and is run by shrewd asset managers George Godber and Georgina Hamilton. The fund started last year with AUM of £211m and ended the first half with AUM of £378m. Market movements only account for a third of the net inflows into Miton's equity funds, highlighting their growing investment appeal amongst investors.
The performance of Miton UK MicroCap Trust (MINI:55.5p) which launched in April 2015 has been eye-catching too. Net asset value and the trust's share price are both up by around 11 per cent since launch (excluding flotation costs) in a period when the FTSE All-Share index has fallen by 14 per cent. I am not surprised as the investment techniques used by the asset managers are similar to the ones that I have used to uncover small-cap gems in this magazine for the past 18 years. Funds focused on larger companies have done well too, as highlighted by the 55 per cent increase in AUM of the CF Miton UK Multi Cap Income Fund.
Furthermore, the company is sensibly using some of its £14m net cash pile, worth 8p a share, to develop new funds and products. Following the appointment of Carlos Moreno in August as European equities fund manager Miton launched a new European equities fund in mid-December. Mr Moreno was previously a fund manager at JO Hambro Capital Management Group where he managed JO Hambro All Europe Dynamic and has 21 year's experience across european equities.
The progress made in the second half is in line with forecasts of analyst Stuart Duncan at house broker Peel Hunt that imply Miton delivered at least pre-tax profit of £1.8m in the second half of last year, up from £800,000 in the first half, to produce EPS of 1.2p and support a 16 per cent hike in the payout to 0.7p a share. On this basis, Miton's shares are rated on 17 times cash adjusted earnings and offer a prospective dividend yield of 2.4 per cent.
With the business clearly gaining momentum, I feel profits could accelerate if Miton continues to attract new mandates. This explains why Mr Duncan conservatively predicts that revenues will rise from £15.2m in 2015 to £17.3m in 2016 to deliver a 50 per cent plus hike in pre-tax profits to £4.1m and EPS of 1.9p. One caveat is the general market outlook, but with an enterprise value (market capitalisation less net funds) of £34m equating to only 1.25 per cent of AUM, and the shares rated on less than 11 times earnings estimates after adjusting for that cash pile, I feel the risk is skewed to the upside.
The shares are at an interesting juncture too as a move above the 31p resistance level, which has capped progress since April 2014, would signal an important chart break-out. I would not bet against it. Offering a further 22 per cent upside to my target price of 35p, I continue to rate Miton's shares a buy at 28.5p.
A chic performance
Despite unseasonably warm weather, and a spate of warnings from retailers, clothing retailer Moss Bros (MOSB:97p) has put in a chic performance in the second half of its financial year. Like-for-like sales increased by 4.2 per cent in the first 23 weeks of the six-month period driven by an impressive 3.5 per cent rise in retail sales and 9.5 per cent growth in hire sales.
This means the retailer is well on course to deliver revenues of £123m for the 12 months to end January 2016, up from £114m a year earlier, and with the benefit of improved gross margins, ahead by a further 2.8 percentage points in the second half, it should easily meet full-year expectations. Analyst John Stevenson at brokerage Peel Hunt anticipates Moss Bros' pre-tax profits will rise from £4.6m to £5.7m to produce EPS of 4.4p. There are decent prospects of earnings continuing this positive trend in the new financial year too.
Firstly, the company has completed 21 store refits in the past 11 months and plans a further 20 in the 2016/17 financial year which will mean that by next January around 102 of its 126 shops will be operating in the new format. These spruced up stores have a payback period of three years on investment and deliver like-for-like sales outperformance too.
Secondly, Moss Bros is successfully building up e-commerce sales. This segment now accounts for 10 per cent of the total, having grown by 33 per cent in the financial year to date. The benefit of having a growing online and tablet distribution channel is that it helps the company to target market its customer base in a more focused way, offload stock cost more cost effectively, and enables customers to use a click-and-collect service. The fact that Moss Bros had fewer blanket discount periods, and an increased penetration of new store formats, highlights the upside of the investment in both IT and shop refurbishments. The successful launch last autumn of sub brands, Moss London, Moss 1851 and Moss Esquire, has helped the positive sales momentum too, not to mention contributed to the 60 basis point rise in operating margin to around 4.5 per cent.
The cashflow performance is worth noting as year-end net funds of £17m, about 17p a share, is ahead of expectations and means that Moss Bros' board should be able to maintain a progressive dividend policy and the multi-million pound investment in its store refurbishments. The forecast 5.4p a share full-year dividend payment will cost £5.4m, but given that Moss Bros's annual non-cash depreciation and amortisation charge is £7m, which subdues the IFRS pre-tax profit line, the company has ample cash profits to support the payout. This explains why the company can pay out a dividend well ahead of its IFRS earnings. Indeed, based on another year of growth, analysts believe that the company should see rising cash balances again which in turn offers scope for better than expected incremental cash returns to shareholders.
So, offering a prospective dividend yield of 5.6 per cent, rated on 15 times cash adjusted EPS estimates of 5.2p for the next financial year (January 2017 year-end), and on a modest enterprise value to cash profits multiple of 6.5 times, I maintain my positive stance and have a fair value target range between 120p to 130p.
Please note that I first initiated coverage on Moss Bros shares at 39p ('Dressed for success', 20 Feb 2012), and last updated the investment case at the current price post the interim results ('Platforms for success', 30 September 2015). Buy.
Awaiting bumper cash returns
The end game looks in sight for Bioquell (BQE:142p), a provider of specialist microbiological control technologies to the international healthcare, life science and defence markets. I first spotted the potential here after the company announced it was selling off its specialist testing services subsidiary, TRaC ('Bug busting potential', 20 April 2015). The share price was 124p at the time and I subsequently reiterated that advice at 137p ('Bug busting potential for short-term gains', 16 November 2015).
I have good reason to be positive given that the board initiated a strategic review of its retained biocontamination control technology products business after the TRaC sale completed. A business combination, joint venture, a distribution deal, or a co-promotion agreement, are all being considered as is an outright sale of the company. In a pre-close trading update at the end of last week, the board confirmed that trading is inline with expectations and that the strategic review will reach a conclusion by the end of March.
Bearing this in mind, and the fact that Bioquell has net funds of £47.5m, or 112p a share, the biocontamination control technology business is in effect being attributed a value of only £12m based on Bioquell's market value of £59.5m. That's hardly a punchy valuation for a business that generated revenue of £27m last year, is expected to produce double digit top-line growth this year as I outlined in my November update, and could make cash profits north of £4m.
A valuation of at least 170p a share, valuing Bioquell's equity at £72m, or 1.1 times book value, and placing a value of £24.5m on the biocontamination business, should easily be achievable in a sale scenario. The downside risk looks limited too given that investors can expect a substantial cash return in the event that the retained businesses are not sold. I continue to rate Bioquell's shares a buy at 140p.
UTV Media hefty cash return
Shares in Irish television and radio company UTV Media (UTV:184p) are unchanged on my recommended buy in price ('On the right wavelength', 26 October 2015), albeit that represents an outperformance of 8 per cent in a falling market.
Still, there are reasons to expect upside towards my 215p target price as investors reappraise the investment case when the £98m disposal of UTV's television business to ITV completes in the first quarter. The sale will leave the company with excess cash, so the board plans to make a distribution to shareholders of £55m, or 57p a share, of which £50.8m will be made through a tax-efficient 'B' share issue shortly after the transaction closes, with the balance of £4.2m paid as a special dividend.
Post the distribution, UTV will have an enterprise value of £114m, equating to nine times the annual operating profit of its retained radio assets. The plan is to launch three new national radio stations on the second national radio multiplex D2 in the first quarter this year: talkRADIO, talkSPORT2 and Virgin Radio, a music station operating under a 12-year license agreement with Virgin Group; develop talkSPORT's overseas by expanding its geographical footprint to commercialise the increasing appeal of the Premier League globally; and leverage UTV Radio Ireland as the leading commercial local radio operator in key urban areas.
It's worth flagging up that the UEFA Euro football tournament will be held in France in early summer. When the tournament was held in Poland and Ukraine, talkSPORT's revenues surged by 16 per cent in the first half of 2012 and its contribution over the course of that year rose by a quarter. That's good news for prospects, and investor sentiment too. I would also flag up that UTV has identified costs savings of £1.9m this year, a sum equating to 15 per cent of operating profits, and a further £1.1m in 2017. That's not an insignificant sum. Trading buy.
Finally, so far this month I have published articles on 33 small-cap companies from my watchlist, all of which are available on my IC home page.
MORE FROM SIMON THOMPSON...
I have written articles on the following companies since the start of last week:
■ Grainger: Buy at 243.5p, target 280p; Dart: Take profits at 580p; Crystal Amber: Hold at 159p; Redde: Take profits at 203p; Burford Capital: Run profits at 196.5p; Renew: Run profits at 404p; Plethora Solutions: Speculative buy at 4.5p ('Stock check', 5 Jan 2016)
■ GLI Finance: Recovery buy at 37.5p ('GLI shelves fundraise and its chief executive', 6 Jan 2016)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking