Bottom Feeding - ECOR.LSE, HTG.LSE, and SFOR.LSE

Slimmer pickings this week, as a lot of sectors have bounced back off their tariff-induced lows, but I've found three companies that look interesting.

Ecora Resources (ECOR.LSE)

Those who have been subscribers to Firm Returns for a while will be familiar with ECOR, as it's a holding I've covered quite extensively. For readers who aren't, the company owns a portfolio of mining royalties, over largely base metals such as Copper, Cobalt, and Nickel.

It also has a metallurgical coal royalty nearing the end of its production life, that has contributed a significant proportion of revenues in recent years due to elevated coal prices. These cash flows have been recycled into building out the portfolio with a number of new royalties over late-stage development projects.

In the year ended 31 Dec 2024, the company generated total revenues of $59.608m (FY23: $61.900m), operating profit before impairments and revaluations of $39.476m (FY23: $42.206m), and a net loss of $(9.827m) (FY23: $0.847m net profit).

Total equity at 31 Dec 2024 was $434.638m (FY23: $482.019m), and it had net debt of $82.352m (FY23: $74.550m).

ECOR generated net cash flows from operations of $29.595m (FY23: $33.540m), and invested a net $6.264m in purchases of royalties and other assets (FY23: $43.173m). Free cash flow was $22.067m (FY23: $29.710m), which it used to pay dividends totalling $10.836m (FY23: $22.062m), alongside $10m of share repurchases (FY23: nil).

Market capitalisation: £127.26m ($169.68m)

Valuation: Using the FY24 figures, the shares currently offer a (5.8%) earnings yield, 13.0% free cash flow yield, 6.4% dividend yield, 12.3% shareholder yield (dividends + share repurchases), and trade at 0.4x book value - if you use analyst consensus NAV, this falls to 0.3x.

Reason: A significant proportion of the portfolio is development stage and largely being discounted by the market, which is focused on the producing assets and the cash flows they're generating. Commodity prices also play into this, and there's obviously uncertainty now around their near-term outlook.

Interest level: High - At the moment, the shares pretty much trade around the dividend, which is tied to free cash flow. As certain producing assets ramp up, and development projects come online over the next few years, we should see free cash flow increase and the share price with it.

It should however be noted that there's the potential for production delays, especially if commodity prices are impacted by an economic downturn. With a 3-5 year time horizon though, I think the shares look attractive.

Hunting (HTG.LSE)

HTG is precision engineering company, primarily manufacturing and distributing tools and components for the upstream oil and gas industry.

In the year ended 31 Dec 2024, the company generated total revenue of $1,048.9m (FY23: $929.1m), gross profit of $271.9m (FY23: $227.7m), an operating loss of $(21.1m) (FY23: $51.5m operating profit), and net loss of $(25.5m) (FY23: $112.2m net profit). There was a $109.1m goodwill impairment that impacted both the operating and net losses.

Total equity at 31 Dec 2024 was $902.3m (FY23: $950.1m), of which $817.8m was tangible (FY23: $754.9m), and it had net cash including lease liabilities of $70.7m (FY23: $33.4m net debt).

HTG generated net cash flows from operations of $188.5m (FY23: $49.3m), and invested a net $25.5m in purchases of PP&E and other assets (FY23: $32.4m). Free cash flow was $124.2m (FY23: $(17.5m)), which it used to pay dividends totalling $16.7m (FY23: $15.0m), alongside $14.2m of share repurchases (FY23: $9.0m).

Market capitalisation: £421.42m ($561.75m)

Valuation: Using the FY24 figures, the shares currently offer a (4.5%) earnings yield, 22.1% free cash flow yield, 3.0% dividend yield, 5.5% shareholder yield, and trade at 0.7x tangible book value.

Reason: Falling oil and gas prices, coupled with a negative political climate in several markets such as the UK.

Interest level: High - The current valuation looks attractive: there's upside if the oil and gas markets rebound, and the company's fairly robust balance sheet provides decent downside protection.

S4 Capital (SFOR.LSE)

SFOR is a digital advertising, marketing and technology services company.

In the year ended 31 Dec 2024, the company generated total revenue of £848.2m (FY23: £1,011.5m), gross profit of £754.6m (FY23: £873.2m), an operating loss of £(302.8m) (FY23: £20.2m operating profit), and net loss of £(306.9m) (FY23: £(14.3m)). As you can probably guess from these figures, there were some pretty substantial goodwill impairments in FY24.

Total equity at 31 Dec 2024 was £577.5m (FY23: £891.8m), entirely intangible, and net debt including lease liabilities was £181.5m (FY23: £224.4m).

SFOR generated net cash flows from operations of £84.1m (FY23: £(10.7m)), and invested a net £12.3m in various assets (FY23: £13.3m). Free cash flow was £18.3m (FY23: £(12.6m)), and it didn't pay a dividend.

Market capitalisation: £162.61m

Valuation: Using the FY24 figures, the shares currently offer a (188.7%) earnings yield, and 11.3% free cash flow yield.

Reason: Weak digital advertising market; substantial debt burden; and likelihood that assets are overvalued and vulnerable to further impairment.

Interest level: Low - Could be some value if the digital advertising market rebounds, but the juice doesn't seem worth the squeeze.

That rounds out this week. See you again next Wednesday, when I'll have another three companies for you.