Small Caps Podcast with Paul Scott – Episode 6 for 2023

Paul’s usual, slightly rambling, recap of the week’s Small Cap Value Reports on Stockopedia.

Has the market rebound got a bit too euphoric, I wonder?

As always, just my fallible views, never advice.


  • Good Morning Paul

    Great podcast as always – thanks.

    Re pubs/hospitality sector and, whilst not small cap, i met some old pals for a boozy long lunch in a Wetherspoons pub in the Victoria area (London) last week. They were doing a really good trade for the three hours we were there. Both beer and food were excellent value and satisfying. Staff good and lavatories clean.
    You may be right and the sector is turning the corner. I notice that Spoon’s chairman and founder made a multi million pound share purchase last week. I just might follow him with my own few pennies.



  • Pennant International

    1) They have freehold property worth @ £3.8m

    2) They have an account payable of @ £1.8m from General Dynamics, that will get paid eventually, in the meantime it attracts interest well in excess of bank rates.

    3) The majority of its revenue now comes from high margin, recurring, software delivery to the aerospace and defense sectors. Note the large increase in margins overtime these should increase further towards @50% – 55% as the percentage of software vs hardware revenue increases.

    4) The backdrop for defence spending is the best that it has been since the end of the Cold War and it is clear that many Nato countries will increase spending on new kit, but also on operating and supporting existing kit more effectively. Many Nato countries outside of UK, US, AUS and Canada are woeful in this regard, just look at the problems in Germany with its across all branches of the military but particularly with its helicopter and aircraft fleets. This is the exact area in which Pennant plays on both the hardware and software side. Making sure that expensive assets are supported, maintained and operated effectively over their intend lifecycle and thus operationally effective and available.

    5) Their client base is very selective and becoming qualified and trusted is a long and hard process. Their competition in these areas is limited.

    • Interesting points, thanks for adding them! 🙂 I’ve followed Pennant for many years, and met management a long time ago (wasn’t madly impressed). It had a tremendous run from 2009 to 2014, being roughly a 10-bagger, but eventually the excitement fizzled out, as it doesn’t seem to be able to create long-term shareholder value. It’ll be interesting to see if anything is different this time around. Could be an interesting trade though, based on what you’ve said, the £12m market cap looks modest.
      Thanks for your input, regards Paul.

      • Pennant International – Based on WH Ireland ‘s numbers it is on 10x this year. Property and receivables equal to half the current market cap. With an order book roughly 2x last years revenue and a qualified opportunities pipeline of @50 mn, some of which they will win for sure as they have been down selected or are sole bidders.

        Only real risk I can see is that the Defence Canada contract is not renewed at the end of this year. It would be a surprise as they have had the contract for more than 20 years and always been the sole bidder.. However, these things are never done, until they are done.

  • There are 3 additional points worth considering with respect to Pressure Technologies.

    1) Their Precision Machined Components Division, which principally services the oil & gas markets and is currently not profitable, should swing back to profit this year. It will most likely be sold at a point in the future and could easily achieve a significant percentage of the current market cap.

    2) For the Chesterfield Special Cylinders division the one area of potential growth you did not cover is that it is one of the few manufactures in Europe who are able to manufacture to the required standards for Hydrogen Storage and for buffer storage to protect production green hydrogen. Hydrogen revenue went from £0.2m in 2020 and increased to £2.2m in 2021. Clearly this has the possibility to go much higher.

    3) The Integrity Management business is also interesting it undertakes inspection and testing of high-pressure cylinders to the BS 8562 and EN 16753 standards. This is becoming more and more important to insurers as high-pressure gas cylinders typically degrade from the inside as well as outside. However, cylinders that cannot be removed or easily reached have historically undergone safety tests far less rigorous than those for transportable tubes. EN 16753 is the new standard for the inspection and testing of hard to reach/impossible to remove, gas tubes and forms the core of Chesterfield Special Cylinders’ Integrity Management service. As part of this standard, CSC IM specialises in delivering acoustic emission (AE) testing which is seen as the future of testing for seamless cylinders. Chesterfield Special Cylinders is the only company capable of delivering this strict new testing regime worldwide.

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