Small Cap Value Report (Fri 22 Mar 2024) - IGP, TRAK, DARK, SYM, BILN, REC, SAG, ECEL

22nd Mar by Paul Scott

77 comments 9167 reads

Good morning from Paul!

Today's report is now finished. Have a lovely weekend!

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps (usually) between £10m and £1bn. We usually avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced. OR it's such deep value that we see a good chance of a turnaround, and think that the share price might have overshot on the downside.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk. Sometimes risky shares can produce high returns, if they survive/recover. So again, we're not saying the share price will necessarily under-perform, we're just flagging the high risk.

Links:

Paul & Graham's 2024 share ideas - live price-tracking spreadsheet (2 separate tabs at bottom),

Frozen SCVR summary spreadsheet for calendar 2023.

New SCVR summary spreadsheet from July 2023 onwards.

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BnB

22nd Mar

Would you still advocate investing in technology when the era of 0% interest rates is over? Inflation is back and history suggests only 'real' assets perform.

Semiconductors aren’t real? Software doesn’t promote productivity? Big Tech’s cashflows are illusory? Think how much the world has changed since the creation of the Internet. It will change more in the next 10 years than it has in the last 20. Can you afford not to invest in technology?

Howard Adams

Hi BnB (and others)

With regard to the discussion on investing in US tech, and the question posed, is it real? Yes, in my opinion and extensive research it is very real indeed.

Below is a graph showing the YTD performance of a selection of US tech stocks who provide products to different layers of the full technology stack (from chip designers right up to software creators to exploit the power of the chips).

NVIDIA (NSQ:NVDA) design the semiconductors and infrastructure and software which supports the data centers and computing power used by many of the companies in the world. Microsoft (NSQ:MSFT) supports the operating systems most of us use (excluding Apple users) and are now leaders in rolling out AI co-pilots which with infiltrate everywhere. Taiwan Semiconductor Manufacturing Co (NYQ:TSM) make most of the worlds semiconductors (for designers such as NVIDIA (NSQ:NVDA) & Advanced Micro Devices (NSQ:AMD) ) Advanced Micro Devices (NSQ:AMD) compete with NVIDIA (NSQ:NVDA) but offer a different design thus providing an alternative. Palantir Technologies (NYQ:PLTR) supply a whole software stack which knits together data security, integration of multiple data sources, real time digital twins of organisations, use cases to support many industries and latterly integration of AI to exploit users data.

In short, I believe these are all very real assets and are fueling a new era of productivity across the globe. As well as creating new technologies for the world to dig deeply into some of the most challenging problems facing mankind.

I selected these few to illustrate just some of the layers in this tech. sector.

I agree with BnB that you do not need to be particularly conversant with this world in order to invest in it and therefore taking steps into it through a selection of ETFs is a sensible approach.

Regards

Howard

PS I hold all the stocks listed.

StrawberryDreams

Some big tech are naturally hugely profitable, even without stripping out R&D expenses, and have large cash piles and moats.Of the currently still unprofitable ones growing sales, which were rewarded heavily during virtually zero rate environment, i'm sure some will become winners of the future.I wouldn't like to guess which ones...... but i am invested in some currently loss making cybersecurity tech names as part of what i see as a continuing secular trend.Look at all the outages recently of big businesses like Greggs (LON:GRG), J Sainsbury (LON:SBRY), Mcdonald's (NYQ:MCD) etc.. now that was probably a common 3rd party software provider's fault for many of the affected names, but we'll never know for sure which is a good thing, as that could naturally become a cybersec issue if we did.But could equally have been a cybersecurity issue from the start.. especially with the current geopolitical trend and increasing digitalisation of society.

dfs12

J D Wetherspoon (LON:JDW) didn't recover as much as I expected.... down 6% at close. Maybe next week : )

Cuddlesticks

Nike is rationalising its running shoe offering but focussing on its high performance running shoes which use Zotefoams (LON:ZTF) foam cushioning. So its a good thing for Zotefoams (LON:ZTF) and is aligned with the strong start to FY24 they reported.

AcornInvestor

Friday night 5.10pm RNS from Beeks disclosing option conversion and sale of shares by CEO and CFO. Disappointing timing by the broker, clearly underhand, and in my view there is a smallish accompanying taint to Beeks Financial Cloud (LON:BKS) which is unfortunate as I hold them in high regard (I hold).

Rusty2

It is a bit confusing, as they are reducing forecasts, for the first HY, that is probably why the shares were down 9%. 14 brokers have reduced their profit forecasts. "NKE's direct-to-consumer strategy not driving growth as
expected, say executives, amid losing ground in the running
category"

The switch could benefit Zotefoams (LON:ZTF).

Huwster

I had a similar reaction but on reflection I'm not so concerned and it could offer a buying opportunity on Monday depending on the market reaction. I prefer the after market announcement on a Friday to give people a chance to reflect over the weekend rather than announce during market hours where PIs have an unfair disadvantage. Although large in monetary terms, its only 10% of the CEO's total holding and reading between the lines I wonder if this is the reason he needs the cash for a certain settlement without spelling it out: 'This shareholding now excludes 740,000 Ordinary Shares that continues to be held by Mr. McArthur's former spouse'. The CFO transaction is a much bigger share of his total options / shareholding but perhaps he has his own personal reasons and was just taking advantage of the liquidity event offered by the CEO sale to institutional investors. All conjecture of course but one viable explanation.

Brothersinarms

Yes. There's been no previous RNS about change in the CEO's beneficial holding so it seems the divorce is recent. The last mention was 2019 when she was described as his wife.

Also, as Michael Tee points out on twitter, their renumeration is designed to be through shares/options so they've got to sell some time. In 2023, the CEO was paid 64k and the CFO 126k. Compare that with Tclarke (LON:CTO) which is half their size.

IncredibleMosesLeroy

No, I don't think software improves productivity on it's own:

If it did the annual growth in productivity would be substantially above the red line, not below it since 2009-2010. My thesis is that we are witnessing the final stages of a bubble supported by 15 years of 0% interest rates at the exact moment that globalisation has gone into slow reverse.

I will have shorts on the Nasdaq and S&P by June. Best of luck!

We'll have to respectfully disagree on what constitutes 'real'- I don't think it is YTD share price performance of a corp (NVIDIA) now sitting on a PE of 78.

I meant in the traditional sense of 'hard' or physical assets: gold, property, land, commodities etc.

I don't share confidence in the NASDAQ, it is absurdly concentrated in a handful of names. I would caution everyone before they run off and buy a NASDAQ ETF, you do not have the breadth of exposure you think you do:

Blimy88

How did you calculate these numbers out of interest? Thanks!

Albertos

Perhaps there is more to be concerned with in their down-sizing of their auditors.

However, the CEO selling £3.6m of shares does jar slightly - remember some big sales by director/founders in Telecom Plus (LON:TEP) which proved to be the top by a considerable margin, even though they retained a considerable holding, as here.

Edit: Equally as someone famous said, there are many reasons to sell, but only one to buy - so who knows.

Hi IncredibleMosesLeroy

With regard to your point ....

'I meant in the traditional sense of 'hard' or physical assets: gold, property, land, commodities etc.'

I am not so confident your examples hold 'real' value. For example property values of CRE (Commercial Real estate) in the US are being decimated to the extent it is increasingly likely some US Regional Banks will indeed collapse as they have large exposures to these 'real' assets.

Google Gemini highlights a couple of examples ....

Absolutely, here are some recent examples of significant drops in US commercial real estate valuations:

Office Space: A major investor, Brookfield, defaulted on a significant loan for suburban office buildings in Washington D.C. This comes after they walked away from another loan on LA office towers. Green Street, a real estate research firm, reports a 25% decline in office property values nationwide over the past year. US commercial real estate: Storm in a teacup or next shoe to drop?: https://www.euromoney.com/article/2bn7moukmsgomoogyi2o0/capital-markets/us-commercial-real-estate-storm-in-a-teacup-or-next-shoe-to-drop
Investor Woes: Blackstone, a prominent investment firm, reported profits from CRE sales being cut in half in the first quarter of 2024 compared to the same period in 2023. This indicates a softening market where buyers are offering less. US commercial real estate: Storm in a teacup or next shoe to drop?: https://www.euromoney.com/article/2bn7moukmsgomoogyi2o0/capital-markets/us-commercial-real-estate-storm-in-a-teacup-or-next-shoe-to-drop

Unless China does some extraordinary stimulus I cannot foresee any significant rise in commodities in the near future. If anything we might be heading for a globally synchronized deflation.

In today's climate I am more comfortable betting on chips, tech infrastructure and software than your list of 'real' assets.

I am less convinced about the investing thesis of 'real' assets than I have been in the past.

ridavies

23rd Mar

RE Billington Holdings (LON:BILN) I an intrigued by the largest shareholder. I cant find out very much about them or what they stand for. Can anyone shed more light on the main holder? I am rather suspicious about large cagey holders, especially after my losses on the IEnergizer fiasco.

Deleted - repeat post

Most commentators would consider established businesses with strong cashflows to be real assets which reward in inflationary times. We saw this in the margin expansion enjoyed by large caps and niche winners with pricing power during the inflation surge of ‘22. And I’m afraid that showing us a chart of the UK’s lack of productivity to illustrate that US software companies’ products don’t promote business efficiency is simply bizarre.

However, your proposed short might briefly work after a very strong run up for the Nasdaq. I think your timing might be quite good. But not for the reasons you suggest. Interest rates are more likely to fall than rise this year and next. Tech stocks are vulnerable to a fall when or if the growth rates actually being enjoyed today turn out to be less sustainable than currently anticipated. That may or may not happen. And I challenge you to leave your short on for half a decade as your thesis demands.

Boon

The largest shareholder in Billington Holdings (LON:BILN) , Gutenga, is an entity controlled by the founder of Billington - Alexander Ospelt.

My notes show the last sale was in June 2023 at 390p. And there has been some other large chunky sales in 2019-2020, in the 300p to 410p range?

So wondering if we will get further sales into the market, now that the SP is north of 400p+.

24th Mar

Thanks Boon for your explanation on ownership of Billington Holdings (LON:BILN)

murrb

Billington Holdings (LON:BILN) If I remember correctly some time ago the board and Gutenga decided that the large shareholding was creating liquidity problems given the company size, and that Gutenga would therefore gradually sell down a proportion of their shareholding as and when feasible, with a view to improving liquidity.

Small Cap Value Report (Fri 22 Mar 2024) - IGP, TRAK, DARK, SYM, BILN, REC, SAG, ECEL

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