Review of Three Small Cap Stocks: CMCX, TOWN, And STU

Generally, before investing in shares, shareholders research about the group’s fundamentals consisting of the price, profits and market cap along with other parameters. If we talk about market capitalisation it gives an idea about the comparative size of the company, its existing assets and the scope of the company in near future. By the market capitalisation, shareholders get an indication about the undervalued or overvalued stocks. It is derived by the multiplication of the stock price, by the number of outstanding shares, and stocks with lower market capitalisation would generally be called the small-cap stocks. Investors with substantial amount to invest go for popular blue-chip companies, while common investors select the mid-cap or small-cap stocks that offer desirable gain prospects as compared to the larger companies.

We are discussing three stocks operating in financials and consumer services sector, detailing their key performances and as well as recent updates.

Stock price comparison of the three companies on the London Stock Exchange over the past one month along with that of FTSE All-Share index.

 (Source: Thomson Reuters)

CMC Markets PLC

CMC Markets PLC (CMCX) is a London, United Kingdom-based holding company. The group is a provider of mobile and online trading servicing to both institutional and retail clients. The group enables customers to trade more than 10,000 financial instruments, comprising commodities, treasuries, shares & ETFs, indices, and foreign exchange (FX) via its trading platform. The company’s operations are differentiated in four operating segments: Europe, the UK and Ireland (UK & IE), Australia, New Zealand and Singapore (APAC) and Canada, and Stockbroking service in Australia. The company provides four types of binaries: One Touch, Range, Ladder, and Up/Down.

On 21st November 2019, the company will announce the results for half-year ending 30th September 2019.

H1 FY2020 Pre-Close Trading Update (as on 3rd October 2019)

The company announced its pre-close trading update for the half-year ended 30 September 2019. During the period, the net trading revenue for the company was robust, generated through increasing income from the technology (B2B) business and higher valued customers. The stockbroking business revenue is anticipated to surge to around 14 million pounds in H1 FY20 against the £5.5 million in H1 FY19. Primarily as an effect of the revenue generated from several white label collaborations in Australia of which ANZ Bank is the biggest.

The CFD (Contracts for difference) business generated customer income (customer transaction costs) only marginally lower from the first half of 2019, despite the previous year comparative with four months of trading pre-regulatory change in the ESMA (European Securities and Markets Authority) region. This had been produced by modestly less vital customer numbers than the first half of 2019, underlining the company’s emphasis on, and continuing success in, retaining and attracting superior value customers. Changes made to the internal business model have resulted in the retention of a more significant proportion of customer income, meaning that the company anticipates the CFD business net trading revenue to be around 22 million pounds higher than the 63 million pounds reported in the first half of 2019 to around 85 million pounds.

For H1 FY20, the operating costs, excluding variable remuneration, will be slightly higher than the previous year and in line with earlier announced full-year guidance.

Outlook

In the first half of the financial year 2020, the company is likely to deliver robust performance. The group’s board is hopeful that the net operating income will be more than 170 million pounds for the full year 2020 and profit before tax is anticipated to surge, gaining from the operating leverage in the trade.

Share Price Performance

On 4th October 2019, at the time of writing (before the market closed, at 12:32 pm GMT), CMC Markets PLC shares were trading at GBX 119.49, up by 4.63 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 140.09/GBX 74.30. The company’s stock beta was negative 0.36, reflecting the negative volatility as compared to the benchmark index. The outstanding market capitalisation was around £330.17 million, with a dividend yield of 1.72 per cent.

Town Centre Securities PLC

Town Centre Securities PLC (TOWN) is a prominent United Kingdom property development and investment group. The company have property assets of more than £400 million. The group operates its portfolio around the United Kingdom, which comprises more than 900,000 square feet of retail accommodation and more than 360,000 square feet of prime office space. The company offers world-class office, residential and commercial accommodation and strong investment prospects via a high-quality portfolio that provides an annual income of over £26 million.

Financial Highlights (for the year ended 30th June 2019)

In the financial year 2019, the company gross revenue increase to £31.2 million as compared with the previous year. EPRA profit before tax decreased by 7.9 per cent to £6.4 million against the £6.9 million in FY18, due to the several factors including the short‐term effect of retail CVAs (Company Voluntary Arrangements), investments, and a one‐off dilapidation advantage in the previous year. ERPA earnings per share stood at 12 pence. The statutory loss per share of 23.5 pence (FY18: profit of 34.6 pence) and statutory loss before tax of £12.5 million (FY18: profit of £18.4 million), mainly signify the unrealised £18.3 million valuation movement on the investment properties. ERPA net assets per share were down by 7.8 per cent to 354 pence against the 384 pence in FY18. The like-for-like valuation of the portfolio decreased by 3.8 per cent in the financial year 2019 against an increase of 3.2 per cent in FY18, due to the continued pressure on retail valuations. The dividend per share for the year stood at 11.75 pence and remained the same as the previous year. From the past 59 years, the company had also improved its dividend per share every year.

In FY2019, the company had headroom of more than £26 million. On 30th June 2019, loan to value increased by 49.3 per cent against the 47.5 per cent in FY18, due to the unrealised valuation movement. Over three years, the net cash borrowings stood at its lowest level. Overall occupancy level surged to 96 per cent as compared with the financial year 2018 of 95 per cent. Retail and Leisure exposure decreased to below 50 per cent against 70 per cent in 2016. Investment portfolio (comprising Joint Ventures) initial yield stood at 6 per cent, with the reversionary yield at 6.8 per cent.

Outlook

The strength of the portfolio and the quality of the growth pipeline corroborate the prospective for long‐term development. Although the company see a continuing role for the type of retail assets that they own in the regions. The company maintains to improve exposure to non‐retail sectors.

The company is facing various challenges in the current market situation. The increasing gap between the underlying value of the business and the share price, the company maintain to look at the prospective strategic options. The company envisages it is suitable to heighten the disposal of ex‐growth retail properties, which despite the prospects of short‐term effect to income, will free up capital to re‐invest and will de‐risk the portfolio. The company is in the course of reviewing priorities within the growth pipeline where they see the hidden value, while the prospect for an earnings and NAV improving share buy‐back given the intensely discounted share price is also under consideration.

Share Price Performance

On 4th October 2019, at the time of writing (before the market closed, at 2:22 pm GMT), Town Centre Securities PLC shares were trading at GBX 188, down by 0.53 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 267.00/GBX 164. The company’s stock beta was 0.43, reflecting the lower volatility as compared to the benchmark index. The outstanding market capitalisation was around £100.48 million, with a dividend yield of 6.22 per cent.

Studio Retail Group PLC

Studio Retail Group PLC (STU) is a United Kingdom-based company, which operates in the education and home shopping supplies markets. The group’s businesses are differentiated in three segments: Findel Education, Overseas Sourcing, and Express Gifts. The company was earlier known as Findel plc. Currently, the company is traded on the FTSE All-Share index.

Legacy Financial Service Matters Update (as on 25th September 2019)

The company’s business is in line with the wider market. The company’s most prominent business, Studio, saw the level of direct complaints and PIRs (PPI information requests) surged substantially in the days up to the August 29, 2019, the deadline decided by FCA. This comprises a large block of earlier unseen claims from the Official Receiver, working on behalf of bankrupt clients. As with additional lenders, the company is assessing the quality and validity of these new claims.

Till 2008, the company’s largest business Studio sold PPI policies. In respect of PPI sold between 2012-2015, the company also undertook a proactive client communications process and paid a total refund of £7.5 million. From this, the level of continuing complaints and PIRs from that process decreased.

Recent News

On 5th September 2019, the company announced that it has come to an agreement with Sports Direct International PLC.

Outlook

The company is presently evaluating the likely uphold and payment prices regarding the current complaints and PIRs and anticipate that the majority of these will be declined. However, the company expect that a further provision will be required in the range of £6-£10 million in the company’s interim results, which will be declared in late November. The bulk of this is likely to relate to Plevin refunds, rather than mis-sold policies, and contains the cost of administering and reviewing the claims.

Share Price Performance

On 4th October 2019, at the time of writing (before the market closed, at 2:32 pm GMT), Studio Retail Group PLC shares were trading at GBX 203.84, down by 2.93 per cent against the previous day closing price. Stock’s 52 weeks High and Low is GBX 279/GBX 152.50. The company’s stock beta was 0.33, reflecting the lower volatility as compared to the benchmark index. The outstanding market capitalisation was around £181.53 million.