OMG! Tuesday 28 February: Summary of last week’s newsletter

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The OMG newsletter recommends at least 15 companies each month, using the writers’ experience of small caps to give you a winning edge. Last week they wrote about Mears and BGO. Read about these Opportunities 4 Material Gains!

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Mid-week Tip

Rebuilding investor confidence

Mears (LSE:MER) is a former stockmarket favourite, but il-advised diversification led to a period of disappointments. However, the latest trading statement shows that the ongoing business is trading strongly and ahead of expectations. There are still opportunities for growth in areas, such as energy efficiency. Mears floated on AIM more than 25 years ago at 10p a share and it soared above 500p within its first two decades as a quoted company. During that time, it moved to the Main Market and the shares are also listed on Aquis. Most of the care business has been shed by Mears, although there is still a small social care operation left, and it is back to concentrating on its core business. There was a loss in 2020 because of lockdowns preventing maintenance, but Mears bounced back to profit last year. Clients are still catching up with maintenance following Covid lockdowns. There has not been an update on the order book since the interims when it was worth £2.5bn. There are new bids and renewals coming up. The contract pipeline is growing, and government policy involves higher standards and reducing homelessness. There are also increasing opportunities in energy efficiency. Affordable housing is another area that is set to grow. Peel Hunt forecasts a 2022 pre-tax profit of £28m, which is just above the consensus figure, rising to £30.2m in 2023. The 2022 dividend is expected to be 9p a share, up from 7.8p a share, and that would be covered more than twice by forecast earnings. Buy for medium-term growth and income.

 

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BGO – 186.5p – Virtually priced

After 20 years in development the vision is near to its reality, as  Bango is benefiting from the surge  in  online trading  with its  global  data-driven commerce platform and virtuous business model. It reports finals for the December year-end next Tuesday and the interim revenue accelerate with a 49% increase. Online commerce represents around $3trillon of EUS (End User Spend) and with subscription payments (Spotify etc )  growing particularly fast. It has been EBITDA positive since 2019 and last year made a PBT of £0.73m profit after total admin expenses of £10.7m on revenue of £12.2m.  Assuming a gross margin of around 95% and that a P/E of  30x would be fair value  profits after tax  need to reach £5m  which  implies revenue of  £18- £20m. ash generation is inherently strong and net cash of $9.6m can be reinvested in R&D and marketing so further equity rising should not be needed. There is an  opportunity for significant growth although the rating is high it looks a medium term buy.

 

Reviews

HAYD – 4.35p- Hope over experience

SNX – 115p – Return of the Dividend

SEE – 7.9p – More models with DMS

TRCS – 890p – Continued growth

NFC – 1230p – New growth Engine

DUKE – 40p – Another follow-on

 

Finally: 

We draw the line at being armchair war correspondences, but the market invisible hand may have been prescient if  Russia  actually do  seek a ‘settlement’ rather than an ‘ escalation’.  

 

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