Small Cap Value Report (10 May 2017) - GAW, VTU, MBH, W7L, Wargamers Apology

10th May '17 by Paul Scott

76 comments 24915 reads

Good morning, Paul here.

Please note that I added a section on Treatt (LON:TET) (in which I hold a long position) interim results to yesterday's report, which is here.

Apology to Wargamers

Something really strange has happened on Twitter over the last couple of days. My account started to be bombarded with pictures of happy people on their wedding days. Most of the pictures were very nice, but I had no idea why they were being sent to me.

Anyway, it turns out that someone decided to stir up a Twitter storm, by copying some daft, tongue-in-cheek comment that I'd made here (in Jan 2014) describing customers of Games Workshop (LON:GAW) as nerds who never get married!

Now obviously, readers of my blog would understand that I often throw a daft aside into my commentary, just to raise a smile and lighten the mood a little. Also, there was a bit of irony involved, as I've never got married myself! Poking fun at myself, and others, is what I do sometimes. However, in text form, the intention can sometimes be misunderstood by others. So I should have chosen my words more carefully - a good learning point for me.

Taken out of context though, and copied to Twitter into a group reinforcing situation, I can see how people would take umbrage. Therefore I think the decent thing is to apologise.

Apology - on reflection, my comment was ill-considered. It was only intended as a joke, and had no malice behind it whatsoever. However, given that a whole bunch of people on Twitter have decided to take offence, then I retract my comment, with my apologies, and will amend the original article to remove my daft comment once I've finished today's report.

As a general point, I think urging people to spam any Twitter account with which you disagree, is wrong. However, sending pictures of happy marriage scenes is actually quite a nice way to protest! It's better than the abuse that usually pertains on Twitter.

Oh apparently I further put my foot in it, by saying that my favourite comedy is the Big Bang Theory! lol. Just to clarify on that point, I think it was hilarious up to series 4, passable in series 5 & 6, and terrible ever since.

Anyway, if any wargamers want to stick around, you're very…

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langley59

11th May '17

As others have noted there are pleasures to be had from car ownership which people are prepared to pay for, prestige (for some cars), enjoyment of driving, sense of freedom, not having the previous passenger's mess in the car, etc. Even if using a shared self driving car saves you money not everyone will choose it for these reasons unless compelled to by government. Fine to take a short trip in a self driving shared car as an alternative to today's taxis but not as a substitute for all driving in my view.

Regarding the cost I can quite envisage the costs being much higher than predicted. Governments would feel the need to replace the vehicle licence fee, fuel duty, VAT on fuel duty, car insurance premium tax, etc with something else. Travelling on public transport these days can be really very expensive so I'm sure sitting in a self driving car will be even more so.

kenobi

I love the twitter attack of happy wedding pictures !!! Just goes to show what nice people gamers are, and that they can laugh at themselves a bit too ! Thanks for the lovely story, and good of you to apologise,
Of course the whole thing could have been resolved with a polite email, however this way was funnier, and so British !!!

shipoffrogs

"The key problem with driverless cars that will greatly delay its widespread adoption that people seem to be completely missing and which makes it so completely different to smartphones or the internet etc. is that if something goes wrong with the technology you can't just hit the reset button. No, if something goes wrong people will die!!"
..........................................
Well that hasn't stopped people driving cars. Or smoking.

But you may have a point. The astronauts had to fight to have manual control to land Apollo 9 on the moon. Even so, the legendary Yeager viewed them as "spam in a can". Nearly 50 years later - we still have pilots.

simoan

Well that hasn't stopped people driving cars. Or smoking.

But you may have a point. The astronauts had to fight to have manual control to land Apollo 9 on the moon. Even so, the legendary Yeager viewed them as "spam in a can". Nearly 50 years later - we still have pilots.

But that's people killing people, so that's OK. Mankind has been doing that since the beginning of time. Machines killing people is completely different and creates all kinds of complexities because in our society someone has to be held responsible in law. Who is responsible if two autonomous vehicles collide injuring and/or killing people?

What people miss is that what will prevent the adoption of autonomous vehicles well into the distant future is that it will require governments to pass legislation and it will create all manner of philosophical, legal and insurance issues. I'm not sure our society is ready for it and there are far bigger hurdles to jump than simply developing the technology to a point where it works - that's the easy bit!

All the best, Si

But all the signs are that California (the largest marker for cars in the US) is going to allow testing of self driving cars without human back up on public roads by the end of this year.

Isn't the really easy bit the insurance?

Isn't the really easy bit the insurance?

This is the USA you're talking about, right? Is there a more litigious country on the planet? It will be interesting to see what happens, especially when other drivers discover how to "hack" the driverless vehicles.

Si,
one day my grandfather was driving home from work when a neighbour waved him down.
He pulled over to be told to be careful as she had seen a car drive through the village a few days earlier.

Rusty2

Well let's hope they have improved: https://www.theguardian.com/technology/2016/jun/30/tesla-autopilot-death-self-driving-car-elon-musk

Seems the sensors could not distinguish between a white trailer and a cloud. I hope the navigating will be better than some satnavs which take people into rivers.

Yes as I posted before hacking can be a real problem:

https://www.ft.com/content/8eff8fbe-d6f0-11e6-944b-e7eb37a6aa8e

I think there is some way to go yet.

Luthrin

Well let's hope they have improved: https://www.theguardian.com/technology/2016/jun/30...

Seems the sensors could not distinguish between a white trailer and a cloud. I hope the navigating will be better than some satnavs which take people into rivers.

A number of the companies developing AV systems are very unhappy with the way Tesla has been promoting its Autopilot system, and this crash demonstrated why. Autopilot is an advanced driver assistance feature, not a fully autonomous system. It requires the driver to pay attention to the road at all times and be prepared to take action to avoid crashes, but many Tesla drivers have been engaging it and then concentrating on other things (watching videos on an iPad for instance).

Autopilot wasn't designed to handle a situation like the one that caused the fatality, and the investigation by the US National Highway Traffic Safety Administration concluded:

"NHTSA’s examination did not identify any defects in the design or performance of the AEB or Autopilot systems of the subject vehicles nor any incidents in which the systems did not perform as designed. AEB systems used in the automotive industry through MY 2016 are rear-end collision avoidance technologies that are not designed to reliably perform in all crash modes, including crossing path collisions."

This is why many of the developers feel that a leap to full autonomy is the only real path for this technology. The current situation where driver assistance features are being incrementally added to vehicles has the danger of creating complacency amongst drivers, with undue confidence in systems that have not been designed to handle all road situations.

12th May '17

Si,

one day my grandfather was driving home from work when a neighbour waved him down. He pulled over to be told to be careful as she had seen a car drive through the village a few days earlier.

Nice anecdote. I'll counter that with the fact that none of my grandparents ever learned to drive or owned a car.

Please don't paint me as some kind of luddite! I am not saying autonomous vehicles will never happen, only that the timescales being predicted are completely wrong. In the meantime many investors who believe the hype are going to lose money on rubbish blue sky stocks promising huge returns from technology related to this industry. As the great poet Chuck D once wrote "Don't believe the hype".

Tick, tick, tick...

http://www.bbc.co.uk/news/busi...

jonthetourist

Every year a huge number of people reluctantly decide to give up driving because of slowing reaction times, faiing vision etc. These old folks will be the natural adopters of driverless vehicles, and with enthusiam, because it will prevent the closing in of their lives that otherwise comes with giving up the car. Bring it on!

Investor1942

Hi Paul, I think you are missing a trick with W7L. which is targeting a similar female market to BOO and look how that has progressed.. I listen to my grand children and thus bought Keyword Studios some three years ago.. You don't necessarily have to understand the business , I don't either but get talking to teenagers and follow the trend

hayashi22

13th May '17

Great post 1942. Year you were born?! I remember scoffing about ASOS when it launched-as I thought it was another Dotcom. You learn most from mistakes and missed opportunities. So I learnt my lesson and now a big holder of BOO from well below 30p. Another one springs to mind -think I bought some ARM in 2003 at around 70p-no doubt sold for a handsome profit. What a mug I was.
You may be right about W7 I just felt people preferred to shop for these products.

sharesurfer

14th May '17

These are my notes on buying Warpaint a few months ago

Warpaint 158p. £100M.
BUY Has a PE of 17 and EV/EBITDA of 17 also. Hence, as you would expect, the net cash position is neutral. In fact it has slight net cash of £1.5M. Nice revenue growth CAGR but not much growth in profit historically though its forecast to grow EPS by 20% next 2 years. Nice operating margin of 25%. Very high ROE/ROCE (34% and 54%). Nice Operating CF ps. Capex is only 3.7% of OCFPS. So lots of FCFPS. P/FCF ratio is 26.2. A- Magic score. Earnings manipulation risk is high. Low gearing - looks like very strong balance sheet. Net cash. Good quick and current ratio. So a good company. Probably fairly valued but worth an investment. The intangible of course is how strong a competitive advantage do they have. The OM and high ROE would indicate quite a strong one. Most of the reviews of their products on Amazon and elsewhere are very positive. BUY.

The last bit is I think important. I looked at the reviews of their products on Amazon and the reviews are universally good. Am thinking of averaging up but I never like to do that too soon. Chart shows an exponential rise which can be a bad entry point thought its well supported on volume.

Edward Croft

Sharesurfer - Warpaint keeps coming up on my screens. It's my daughter's 17th birthday today and she has some girlfriends over so I asked them if they knew about W7.

One asked if it was a London postcode, which of course it is, but that's probably not the answer that Warpaint investors would want to be hearing !

Another after a bit of prompting, and querying for context, suddenly clicked and said "oh yes they make colour palettes", further adding to one of her friends "they basically make clones of Naked palettes". (Naked is another cosmetic brand).

So at the lower end of their targeted 16-30 age group they seem to be lacking in brand awareness.

The numbers do look interesting though.

Ed - That's interesting and gives me some food for thought. I suppose you can look at it two ways. One is to think brand recognition is low in their target market and that is bearish or you can think there is scope to improve brand recognition in future and therefore profits. Ultimately though, I will do what I always do and let the price action determine whether I buy more or even sell.

And on the theme of cosmetics, another company that is showing a lot of momentum and growth in Revenues and Profits is Innovaderma. I have shares in this one too and have averaged up recently as the price has shown a lot of momentum.

Paul Scott

16th May '17

Hi Ed,

I always ask friends to ask what the target audience think of it.

Other mates of mine said their daughters were not impressed with W7 - poor quality, tacky, were the comments.

Bottom line, that doesn't matter in the long run, if the financial results keep soaring. However, I'm very, very suspicious of recent floats. A lot of companies seem to be buffed up for a float, then the figures go horribly wrong some time later, once profits have been banked by founders & advisers.

So I'll keep an open mind on Warpaint.

Regards, Paul.

Self-driving cars? You'll never get me in one, on the open road, or in town for that matter. Death traps. Or more like immobile objects, as teenagers walk in front of your self-driving car, laughing, as you're forced to make emergency stops, repeatedly.

Elon Musk & all his wide-eyed, cash-burning awe, won't make it through the next recession.

Personally, I can't wait for the lease to expire on my internet-enabled, totally incomprehensible Merc C200!
Then I'll go back to a proper car - one that doesn't even know what the internet is, and so can't be hacked. One where I can change the spark plugs myself!

PP.

cig

17th May '17

Yes self driving cars will kill people, but the bar to improve on the status quo is not particularly high: they just need to kill fewer people than human drivers, who´re not particularly good at driving safely on average. No doubt it will still take a while though. I expect them to appear first to rebalance car sharing pools (e.g. have the car do 2-3 rounds of commutes by going back on the low-load leg themselves, while still leaving the option for the passenger to drive if they're a luddite).

Small Cap Value Report (10 May 2017) - GAW, VTU, MBH, W7L, Wargamers apology

Apology to Wargamers

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Paul Scott

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