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Questor: money flows out of Scapa but readers should resist any temptation to join the flood
Questor Inheritance Tax Portfolio: after a torrid month for the tapes maker – the loss of its boss and a big contract – things are now looking more rosy
It’s been an eventful few weeks for Scapa, the maker of industrial and medical tapes tipped here in March last year at 471.4p.
On May 21 it published perfectly satisfactory full-year results but unnerved the market somewhat by announcing that its chief executive, Heejae Chae, who had largely steered the company’s successful restructuring, was stepping down.
Two weeks later came a much bigger bombshell: Scapa said it had received notice from a large customer, ConvaTec, that it was terminating a contract in North America worth about $30m (£24m) a year in sales. The shares lost 47pc.
Then on Monday this week the company said Mr Chae had agreed to rescind his resignation and would stay on “to execute the current strategy”.
Keith Ashworth-Lord, who holds Scapa in his SDL UK Buffettology fund, told Questor: “The results in May were nothing other than good, but Chae’s retirement was a bolt from the blue. He is regarded as the architect of the firm in its present form and the market thought there were no succession plans.
“Then, when the ConvaTec announcement came, investors put two and two together, came up with five and crucified the share price.”
He added: “Last week a group of shareholders, including us, tried to get him to change his mind and convince the market that he hadn’t resigned over ConvaTec. We got the result we wanted this week and the shares have recovered to about 195p.” He said the loss of the contract was “material but not the roof falling in”.
“Chae will stay until the problems are solved and that will give Scapa time to sort out the succession,” he added.
“This holding has not been my finest but we are sticking with it. We bought more shares heavily after the fall – about 800,000 at various prices as low as 159p. We think it’s been an absolutely classic overreaction by the market. Personally I’m very relaxed about the whole thing.”
Questor: hold
Ticker: SCPA
Share price at close: 199p
Update: RWS
Keith Ashworth-Lord also holds RWS, this time in his top 10. On Tuesday the company, which specialises in translating patents, announced buoyant interim figures: sales rose by 23pc compared with the same period last year to £172.3m, while pre-tax profits increased by 51pc to £27.6m, or by 24pc to £35.6m on an “adjusted” basis. Net debt fell by 23pc to £63.9m while the interim dividend was increased by 17pc to 1.75pc a share.
Questor: hold
Ticker: RWS
Share price at close: 612p
Update: PTSG
When we tipped Premier Technical Services Group (PTSG) in April last year we described it as “boring”. The share price graph since then has been anything but, although unfortunately in the wrong direction.
David Stevenson of Amati Global Investors, whose holding in the firm prompted our tip, said three factors had contributed to the shares’ 44pc fall: questions about the “quality” of profits, in relation to exceptional items and cash conversion; a “bear raid” by a hedge fund; and concern over the way certain property assets of companies it had acquired were transferred to another firm controlled by two PTSG directors.
“Its underlying businesses continue to progress through organic growth and acquisition,” Stevenson said. “We think some of the concerns over earnings ‘quality’ are overdone, because exceptional costs and low cash conversion are par for the course when you acquire companies, especially if they are undergoing a turnaround. Likewise we believe that the hedge fund made the most of its bear case.
“We are more worried about potential failings in corporate governance over the property sales. An independent surveyor is reviewing this and we will await their report.”
He added: “PTSG is very efficiently run, but the stock is on the naughty step now. However, we see the shares as potentially oversold.”
Questor: hold
Ticker: PTSG
Share price at close: 99.5p
Update: Manx Telecom
Manx, which we added to the IHT Portfolio a year ago at 180p, has been taken over by an infrastructure fund called Basalt. The shares were delisted on May 10 at 215p, including a dividend payment of 7.9p, so we made a profit of 19.4pc. Shareholders should have received their money via their stockbroker by May 23.
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