Small Cap Value Report (10 Nov 2016) - DVO, PHD, BOTB, WIN

10th Nov '16 by Paul Scott

40 comments 21573 reads

Good morning!

Things seem to be moving at such a rapid pace at the moment. The overnight sell-off in markets yesterday, on news of the shock victory of Mr Trump, has rapidly reversed. So people who were waiting to get back into their favourite shares only had a short time to do so. This is why I prefer to use a bit of hedging against a market plunge, in situations like this, instead of selling up & hoping to buy back in more cheaply.

The problem with small caps, is that you can't just move in & out of them seamlessly, particularly if you want to deal in size that is multiples of the NMS (normal market size). The NMS can often be ridiculously small for many small caps too, so illiquidity becomes a problem even for trades of just a few £k. Then there can be hideous bid/offer spreads to absorb as well.

So overall, I'm really glad that I held all my long positions throughout the turbulence caused by the US elections. My hedging worked, and was actually profitable, because I closed most of the hedges when the S&P500 spiked down to 2,050 overnight. The selling seemed to have run out of steam, and it dawned on me that the market might actually rather like the idea of a pro-business President, even a clown like Trump.

Anyway, on to today's news - also I'll try to catch up with a backlog from yesterday too. I was too tired to write any more yesterday afternoon.

Devro (LON:DVO)

Share price: 182.8p (down 19% today)
No. shares: 166.9m
Market cap: £305.1m

Trading update - this is a new company to me, it's a maker of sausage skins. The share has come into my universe due to a falling share price. The price is down 19% today, so it must be a profit warning.

Devro has a 31 Dec year end, so today's update relates to H2 to date, i.e. 31 Jul to now, early Nov.

The first paragraph sounds OK - some negatives, but offset by favourable input prices & forex;

Sales volume trends were broadly similar to those experienced in the first half, enhanced by improvements in Russia and South East Asia, but impacted by further reductions in Latin America due to the previously highlighted issues, which are being addressed, related to the transformation of our global manufacturing…

Unlock with Email

Unlock with Google

Already have an account?
Login here

dscollard

10th Nov '16

That is the essence of the populist agenda. Use hardline rhetorical constructs (often not based in fact) to appeal to a demographic that typically doesn't vote (and is therefore not represented but equally is not representative of the previous status quo)

The challenge then becomes delivering against that hardline rhetorical agenda with real actions (this is where the hard facts start to get in the way)

So is it hard Trump or soft Trump?
Sound familiar?

AnonymousUser252054

The point I was responding to was that made by JonesJeff who wrote:

"It is about time Europe spent enough on it's defence to be able to fight off Russia without external assistance."

I don't want to hijack Paul's thread but in regard to the Ukraine and Syria I think Putin did what we (or the US) would have done. If Trump delivers on his promise there's an opportunity that could be his greatest achievement in office, and he might actually deserve a Nobel Peace Prize.

BrianGeee

Best Of The Best (LON:BOTB) ... does the CEO personally deliver the special divi to the door? Would be a nice touch!

jonesj

Nato has only moved into former Soviet states because their democratically elected governments want the protection of Nato.
We have seen what has happened in places like The Ukraine which are not part of Nato.

People were also in denial about Hitler in the 1930s. The mistakes of the past are too easily forgotten.

extrader

Hi deucetoace and jonesjeff,

Re Ukraine, it seems to me there are a couple of factors behind the Russian position : firstly, their historic need for buffer states to provide defence in depth/time to regroup where their 'border' areas lack natural hindrances eg mountain ranges and, more recently, the 'quid pro quo' at the time of the de-nuclearisation of parts of the FSU (including the Ukraine), that it would remain within the Russian 'sphere of influence'.

The West, not least in the form of the 'expansionist, empire-building' Eurocrats, (if 6 is good, 27 must be better) sought to bring Ukraine into the Western camp , in violation of this tacit understanding. I think it was naive of the West not to expect the Russians to react the way they have.

As a thought experiment, consider the US Monroe Doctrine and its assertion of US primacy throughout not only the North American continent, but the South American continent as well (and its repeated historical interventions, both overt and covert in support of this claim). Or a map of the world showing overseas US military bases and overseas Russian ones.

The Trump presidency, for better or worse, is likely to force us to revise our world view in many ways ;-<

ATB

Bonitabeach

11th Nov '16

Paul,

You dismiss Trump as a "bizarre narcissist". Is that an upgrade or a downgrade from "clown"?

Warren Buffett said "pretty scathing things about his modus operandi"
The "modus operandi" of Warren Buffett is one of the causes of Trump's election.

He has spent his career maximising the return to capital of the companies he has invested in at the expense of the employees working there. Behind the warm and cuddly facade is an utterly ruthless man in the pursuit of only one thing, money - and he doesn't care about the little people who get crushed along the way. He has riches beyond dreams but his avarice drives him on.
Read the results of his last big move on Kraft Foods:

thousands-layoffs-coming-after-buffett-merges-heinz-kraft

The little people voted for Trump; I hope he doesn't let them down.

Regards,

Cuthbert C

13th Nov '16

Someone said that half the US population went to the polls and supported Trump.

That's absolutely not true.

Voter turnout was only 55%. So the voting breakdown was
27.4% Trump
27.6% Clinton
45% abstain

The real divide is not between those who supported Trump and those who supported Clinton. It is between those who voted and those who didn't. The real scandal is not that Trump won - although in my opinion that brings shame and opprobrium on the US. It is that the political process is so dysfunctional that the two candidates who were offered were equally disliked and rejected. And even more that almost half the population did not think it worth voting.

here is an Excellent article on this subject

I was much taken by a remark made by one of Trump's sons. he said that the key to understanding his father was to realise that he was a blue collar worker but had a bigger bank balance. I think that is very perceptive and is helpful in getting my head round his character and behaviour.

"Voter turnout was only 55%"... "half the population did not think it worth voting".
Not sure I can reconcile those two statements.
As regards the turnout it was actually higher than the election that put Bill Clinton in the White House (53.5%).

Personally I would have liked Bernie Sanders to have been the Democrat candidate and to have won. As for the current rioting it should have been when the news broke of the Democratic party's sabotage of his campaign, or at the murder of staffer Seth Rich who it is believed leaked the story.

staverly

A quick skim of WIN annual reports reveal glaring corporate governance issues. Here's 2 for starters:

ridiculous remuneration, CEO, promoted from finance post last year, eager to follow in his greedy predecessor's footstep, drew £1.65m. Chairman has helped himself to £178k for each of the past two years ... as a non-exec!

BTW, the latterheld equivalent position at Queens Moat Hotels (went spectacularly bust after long running fraud)

Bushranger

Both US and UK indeed most countries that have an optional voting system have very poor turnouts. Australia has one of the highest election turns outs. It is compolosry to vote in Australia. I heard both US and UK politicians argue that it is undemocratic to make voting compulsory? Personally if the system gives you a choice to vote or not then there it is no wonder there is a low turnout. Political landscape in both the UK and US would be dramaticly different if voting was compulsory, perhaps thats why its never implemented.

Fangorn

"Political landscape in both the UK and US would be dramaticly different if voting was compulsory, perhaps thats why its never implemented."

I'm intrigued - how so? What's to say we wouldn't get the same results we do?

Shine66

You quote me as saying "Voter turnout was only 55%" and that "half the population did not think it worth voting" and claim those statements are inconsistent.

You are misrepresenting what I actually said, which was that "almost half the population did not think it worth voting".

Are you seriously objecting to my describing 45% as almost half?

In any event you have entirely missed the point I was making which was that the biggest division is not between the two quarters of the population who voted but between the half* who voted and the half* who didn't. You might disagree but you should not misrepresent.

* yes of course I'm rounding the numbers.

Apologies, Tournesol, it was not my intention to misrepresent your original statement, it was a copy/paste fail on my part. Unfortunately I am unable to edit my original post, sorry.

Pete

WarrantStar

Hi
Compulsory voting is an interesting idea. It all hinges on what the carrots & sticks might be:

Ideas for sticks:
Forbidden to use all internet social media
AND / OR
£100 fine
AND / OR
Published list of non voters who do not support democracy

Ideas for Carrots

50 free lottery tickets
AND / OR
£20 voucher for all large retailers
AND / OR
Published list of voters who actively support democracy

What do you think?
My opinion is that we should encourage democracy!

Jardine

One of the major reasons why the level of voter turnout in the US election was so low is due to the electoral college system. In the majority of US states the outcome is highly predictable, whether that be Repulican or Democrat. In those states anyone voting for the other party might think "why bother?" And many would be voters obviously decided not to bother. And in the end Hilary Clinton received more votes overall than Donald Trump yet she is not going to be the next President of the United States. This is unlike the system we have in the UK where a constituency votes for an MP who represents them in Parliament.

Jardine

I think you need to consider the parallels between the way that US Presidents are elected with the way we choose our Prime Minister. In effect each of our parliamentary constituencies acts like a small US state with a single vote in the electoral college. So if 27% of the votes are cast for party A and 27.1% for party B then party B gets the entire constituency allotment of MP's and gets the entire constituency allotment of votes for the next PM. So we can and do end up with a house of commons where the parties have numbers of MP's which bear no relationship to the number of votes cast. And we get a Prime Minister who is in effect selected by the party machine rather than the electorate. Not significantly more democratic than the US system and in fact less so where the PM is concerned.

Warranstar.

Your carrots and sticks are too insubstantial I think.

I tend to think we need incentives to vote which derive from the notion that citizens have both rights and responsibilities and you should not get one if you shirk the other.

I'd say that personal tax allowances should have to be earned by fulfilling your civic duty to vote. No vote = no tax allowance. Ditto all state benefits from child benefit to job seeker's alllowance through child care benefits and student loans and pensions. You do not have to vote but if you choose not to then you do not get to enjoy the benefits and advantages of citizenship.

Of course we need to reform the voting system ranging from introducing some form of proportional representation through to electronic voting and getting rid of voting fraud which is a real problem in some areas. Perhaps we should have a "none of the above" option where such votes are subtracted from the vote counts of the candidates. If nobody gets elected we get a rerun with different candidates.

And we need the ability to sack sitting MP's and not let them stay in office after they have been exposed as failing in their duties.

Tournesol

I make two points in response as I understand the similarities you highlight but I believe the systems are very different indeed.

1. In the US you vote for a President. In the UK you vote for an MP.
2. In the UK you have a much larger number of constituencies than the number of states in the US. In a swing state such as Florida a simple majority of just one vote could have a hugely distorting effect on the overall result for the county as all the electoral college votes (29) would be cast depending on the result of that simple majority. In the UK each constituency result delivers just one member to parliament.

The big difference is that here in the UK we vote for an MP and in the US they vote for the President.

14th Nov '16

Hi Warran,

All a bit too limp wristed for me.The carrots aren't that attractive,and the proposed penalties hardly likely to persuade someone to go vote.Nor, in fact, should we be offering "carrots" in the first place either imo.

Why reward someone for not engaging in the voting process...

I'm with Tourn, concur with ALL that he scribbles two messages or so dow - especially vis the sacking f MPs found to be putting their fingers ion the till,or worse.

mpat89

15th Nov '16

BOTB
I'd rather they spent this on getting some operational gearing on the go.
They can go overseas or really push their online marketing to see those sales grow exponentially
Instead they are removing cash from their balance sheet

Small Cap Value Report (10 Nov 2016) - DVO, PHD, BOTB, WIN

Devro (LON:DVO)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

40 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...