Two frustrating value stocks.

Matchtec (MTEC) - the £142m recruitment business has announced in line interim results in which they reported further progress in integrating the Networkers acquisition which they now expect to largely complete by the summer of this year, with the full synergy benefits realised by mid 2017. Demand remained strong in engineering and telecoms but the IT area was weak, although improving in the second half. Energy was also a weak spot on the lower oil price, but they have reduced their exposure to oil and gas to just a third of the energy business with their recent diversification. They also continued to invest to expand their overseas operations to further this diversification. Despite this investment the cash conversion was strong and this saw net debt (which some have worried about) reduce in the period by £8.8m to £24.8m (31 July 2015: £33.6m).

Overall they reported some modest 6 to 7% growth on the back of this and this was matched by a 6% increase in the interim dividend to 6p which suggests to me they will probably pay 23p for the year rather than the current 22.8p consensus. At the current 470p this morning they trade on around 10x with a near 5% yield which still seems cheap, although this seems like another one that the market is reluctant to re-rate. If they do continue to successfully integrate Networkers and expand there operations internationally while producing some modest growth then the shares should be able to make some progress in the medium term, but I suspect continued patience will be required.

Norcros (NXR) - the £106m bathroom fittings and tiles group has announced a year end trading update today. While not showering the market with good news they did at least say that Group underlying operating profit for the year is expected to be marginally ahead of market expectations. Aside from that their suggestion for turnover looks a little light versus forecasts, so given their comments on operating profits presumably this means margins might be slightly better than expected.

They alluded to tougher conditions in the UK market and strong growth in South Africa was negated by movements in the Rand. They did however get a boost from their acquisitions last year and this is part of their plan to double revenue to £420m by 2018. Which seems ambitious and I hope they don't go all out to get the turnover but at the expense of profits because as Warren Buffet said "turnover is vanity and profits are sanity."

The spending on acquisitions meant a cash outflow for the year and leaves them with £33m of debt versus £14.2m last year,  so they may still have a bit of headroom on the borrowing front for more acquisitions. Having said that though the other liability they have is a large Pension fund which saw an increase in the deficit to £73.5m (2012: £61.9m) representing an 84% funding level (2012: 85%) in the latest triennial review. The increased deficit was driven predominantly by historically low gilt yields.  A revised deficit recovery plan has been agreed with the Scheme Trustee, with a cash contribution of £2.5m per annum starting in April 2016, and increasing with CPI, payable over the next 10 years. This compares to a deficit recovery payment of £2.1m in the year to 31 March 2016 under the previous plan. So an extra £0.4m per annum hit to the bottom line.

The shares continue to look good value at 170p which puts them on around 7.5x with a 3.5% yield for the coming year assuming no changes to forecasts on the back of these numbers based on forecast eps of 23.5p to 24p. So it is on a zero growth type of rating so if they can deliver growth in their turnover, profits, earnings and dividends over the next few years then they could well be cheap and one could argue for a re-rating to say 10x which would give a price target of around 22 to23p which is close to the highs they reached last year. It may however continue to be one of those frustrating value stocks that just sit there on a low rating if the market continues to ignore it on the basis of its chequered history, pension deficit and South African exposure.