Questor: its niche in the booming offshore energy sector hasn’t kept Tekmar’s shares afloat

Questor share tip: the firm is a leader in protection systems for subsea cables and pipes – surely few markets are as packed with potential

Russ Mould 1 December 2020 • 6:00am

Undersea cables — A map of undersea cables of the world

One stock screen that this column continues to run is to look for firms that trade on very low multiples of, or even discounts to, net asset (or book) value.

This is based on the (admittedly now seemingly unfashionable) disciplines outlined by Warren Buffett’s mentor, Benjamin Graham, who noted in his 1934 book Security Analysis: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.”

Buying at a discount to book value at least gives some degree of protection.

Aim-quoted Tekmar offers such an opportunity. Its market value is £35.4m yet the last set of full-year accounts showed net assets of £46m, although it must be noted that a fair chunk was intangible items such as goodwill, so the investment case is not totally clear cut and, as with all “micro-cap” stocks, risks abound.

That much is made clear by the shares’ dismal performance since flotation in June 2018, and how they trade 60pc below their January high despite Tekmar’s leading position in the niche of protection systems for subsea cables and pipes.

There are surely few markets as packed with potential as this one, as Britain prepares for its Green Industrial Revolution and to throw money at wind power, an area where Tekmar’s skills are likely to be in high demand.

Yet the shares have foundered, thanks in part to an acknowledgement in October of contract delays, a classic problem for project-driven businesses such as this one and for smaller companies more generally. But that business is still out there and Tekmar’s launch of a new, 10th-generation product early next year should serve to cement its competitive position.

Meanwhile, the new chief executive, Alasdair MacDonald, has launched a review designed to cut costs, increase efficiencies and boost profits following the departure in the summer of the founder and former boss, James Ritchie-Bland, who had initially identified the potential of the offshore energy market.

Following Tekmar’s financial performance may not be entirely straightforward for a while as the firm’s year end is about to switch from March to September, but at least it has net cash on the balance sheet to help it weather near-term disappointment over sales and profits. The next set of results is due today.

Investing in smaller companies is suitable only for patient, risk-tolerant savers who can withstand a few setbacks; certainly the road to recovery at Tekmar could yet offer a few lumps and bumps.

But the balance sheet hopefully provides some protection and there has to be a chance that a trade buyer turns up for the business at some stage, given the global momentum in the offshore renewable energy industry.

Micro-caps can be very risky but the potential for rewards means Tekmar could spark positive returns.

Questor says: speculative buy

Ticker: TGP

Share price at close: 69p

Update: Sanderson Group

Some investors are wary of companies that change their name, either out of sympathy with the sailors’ superstition that it is bad luck to rename a vessel or with the more cynical view that such shifts are an attempt to politely airbrush away a patchy share price or financial history.

The latest test of both views comes in the form of Sanderson Group, the new name for Walker Greenbank as of today.

First assessed two years ago, the wallpaper-to-fabrics group’s rich heritage and strong brands, which include Zoffany, Harlequin, Sanderson and Morris & Co, are yet to translate into returns for us.

But nor are we in loss to any major degree and a balance sheet that has net cash before lease commitments means we can afford to remain patient as the firm, like so many others, cuts its cloth so that it can come through the pandemic.

We’ll stick with Sanderson.

Questor says: hold

Ticker: WGB

Share price at close: 81.5p

Russ Mould is investment director at AJ Bell, the stockbroker

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.