I rate RPS a ‘buy’ but could fellow small cap Autins (LSE: AUTG), whose shares plummeted 30% yesterday after unexpected bad news, offer even better value?

Improving performance

RPS has been through a tough time. Although its activities are spread across a range of sectors, including the management of water resources, urban design and transport planning, it also has significant exposure to oil and gas, both in consultancy and operations.

The first half of 2016 saw group profit before tax and amortisation (PBTA) — excluding exceptional items — falling 30% to £20.2m from £28.8m. This followed on from a 22% decline in 2015, which also saw a £20m impairment of assets due to the oil and gas downturn and a provision of £7m for doubtful debts.

The good news today is that a significant proportion of the doubtful debt has been recovered, resulting in a reversal of provisions totalling £4.2m. Moreover, the company said that even excluding this provision reversal, the full-year result is “still well above current market expectations”. In fact, second-half trading has been so good that despite the 30% fall in H1 PBTA to £20.2m, the full-year number will be close to last year’s £51.8m.

Trading at about 16 times earnings and with the board intending to maintain the dividend, giving a yield of 3.7%, I reckon RPS could be a strong performer as the oil and gas outlook improves.

Revenue warning

AIM IPOs often disappoint, but even by the usual standards, Autins is a shocker. The company, which supplies insulation products to the car industry, listed on AIM just five months ago with a placing of 15.8m shares at 168p. Of these, 7.5m were existing shareholders selling out.

Yesterday, Autins announced that chief executive Jim Griffin — who pocketed over £2m selling shares in the IPO — “has, for personal reasons, resigned … with immediate effect”.

The company also announced that, while its results for the year ended 30 September 2016 will be in line with market expectations, it “is now aware that a major customer has provided revised volumes and introduction timings for certain platforms”. As a result, the board expects revenues for the current year to be “materially lower than market expectations” and is also evaluating the likely impact on the year to 30 September 2018.

Autins hasn’t given any numbers but the AIM Admission Document told us that 58% of the group’s 2015 revenue came from one key customer (Jaguar Land Rover) and that if “any of its key customers” terminated or significantly reduced business with the company, “its results of operations and/or its financial condition could be materially adversely affected”.

Ahead of yesterday’s grim news, the house broker had been forecasting revenue of £33.5m and profit of about £3.3m for fiscal 2017. At a current share price of 150p, the company’s market cap is £33.2m. That looks too high to me, given that the pre-revenue-warning forecasts are going to be materially lower. As such, I have to rate the shares a ‘sell’.

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