Small Cap Value Report (19 Jun 2017) - BON, PTSG

19th Jun '17 by Paul Scott

48 comments 19716 reads

Good morning, it's Paul here!

I'll be writing all 5 reports this week, as I've given Graham the week off, since he was such a superstar covering for me last week!

Isn't this heatwave marvellous! That was part of the reason that my report on Friday fizzled out, sorry about that. I tried to shock my Mum, by disclosing that I'd been nude sunbathing on my terrace. She brushed it aside, replying, "Oh, your father & I used to wander around the house naked all the time, in the 1970s, until you started complaining!"

Good weather should be positive for pubs, and retailers. Although when it's this hot, clothing sales usually dip initially, as people head for parks, the beach, and of course their ghastly, stinking BBQs, instead of shopping centres.

I'm still mulling over those retail figures from last week. The growth in online is extraordinary - still growing at 20% p.a. overall. That's creating terrible conditions for traditional retailers without their own decent online presence - it's like being permanently in recession for them - sales leaking away online, plus consumer disposable income now falling too. Also the threat of higher interest rates may be looming. Not to mention the unstable political situation, Brexit (will it, won't it happen? Nobody knows, nor on what terms). Plus the nightmare scenario of a hard-left Corbyn Govt, propped up by the SNP, destroying the economy with the usual left-wing profligacy.

Bull markets certainly climb a wall of worry, and I'm amazed that the market is as buoyant as it is right now. Last week's wobble seems to be receding, with a lot of fashionable growth stocks now bouncing back from sharp falls last week.

For the time being, I'm leaving BMUS 40% in cash. I just don't see any compelling buying opportunities at the moment, given that most stocks are expensive, yet there are so many risks out there. Risk:Reward looks lousy to me at the moment, with the market generally. Hence why I'd rather hang on to the excellent gains in the last 2 years, and have some powder dry to deploy in the event of a significant correction - there will be one eventually, things are way too buoyant at the moment. When buying the dip stops working, I think we could see a big market correction.

Value vs Growth investing

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Bonitabeach

Ramridge

19th Jun '17

I totally lost any belief in Brown when, as a Chancellor, he repeatedly claimed to have ended the cycle of boom and bust in the UK economy..
Only when the crash came in 2008 did he finally admit he was wrong.

"Those whom the gods wish to destroy they first make mad” (as some wise dude said many centuries ago)

ailsa

In reply to post 10 Paul makes excellent points re the future costs of providing for an ageing population and future funding of the NHS. Today's politicians need to put such problems before the people and we all need to engage in discussion.

TangoDoc

It's a funny thing. So many commentators about political economics seem to think they are self made men when, in reality, we are standing on the shoulders of giants. Speaking for myself, I would be nothing today (indeed I would certainly be dead and gone) were it not for those early Labour administrations providing for my health and eduction and the council house we lived in. These were provided by the state out of general taxation, being perceived to be good for the nation as a whole. I see little reason why we should sneer at those noble aims. We should always realise that what goes around, comes around.

hayashi22

Well clearly your education was deficient as you can't spell the word correctly.

seadoc

Is not educted the meaning of the passive past form of verb to educate? Maybe the point Tango was making? (But never could understand this new speak, could be he learnt or if from over the pond learned.) Just a thought.

abtan

Agreed. That's what put me off buying and makes we wonder how they're growing so rapidly

janebolacha

You're right but I'd wager that those sincere and economically-responsible people who made up the Labour Administration of 1945-50, which is when those major and necessary social advances were made, would have been as appalled as anyone else by economic incompetents of the likes of Blair and Brown and, by unreformed Marxists such as Corbyn and McDonnell being in charge of the Labour Party. Those early pioneers of social justice were also looking from the appalling poverty of the Thirties and aiming to create a better future. Labour's record since that Administration has been dismal.

Example above: Phoenix Holdings

Catstycam

"Oh, your father & I used to wander around the house naked all the time, in the 1970s, until you started complaining!"

Might depend on what age you were at the time Paul, age 2 or 3 maybe not such a problem; aged 22 or 23 I can see your point!. If you had a lady friend at the time then I am not surprised you complained!.

Thanks for your continuing efforts

Regrds

CM

Housemartin2

Jane makes the right point. The current Labour leadership are far to the left of any previous Labour party with which we are acquainted. Comparisons with previous Labour spending are not relevant. The last manifesto was way above them. However you would expect these sorts of policies from a party that now contains Marxist and other Hard Left proponents in influential positions. The philosophy was to take over bourgeois left parties and to complement the legislator by the Street.

All governments in Western society overspend, though the Left overspends more. TheTory administrations since Brown have been pretty poor, failing to reduce the deficit in a reasonable time, mainly IMO by not cutting spending hard enough early enough and cutting taxes far too early ( why increase VAT and increase personal allowances) Indeed given the changing structure of our society, there may never be a time for tax cuts.

I suppose we get the politicians we deserve, though you have to ask what sort of an ego thinks it would be good at running the country.

I am more in cash than I have been for some years

Tortoise investor

On Amazon the two most popular products are the gradual tanner (4 out of 5 stars) and the Skinny Tan 7 Day Tanner (3 out of 5 stars). The latter seems to be a bit love/hate. Also I've heard only positive reviews so far from women I know who have tried it. Can't say I'm tempted!

Gromley

Interesting comparison with Trinity Mirror (LON:TNI) (one of my larger holdings again currently).

It is something of an over-simplification to say that Trinity operate in a market that is in terminal decline.

Much as retailers such as Next (LON:NXT) provide goods (clothes & homeware) through both physical and increasingly digital means, so Trinity provide news through both physical and increastily digital means .

The challenges are similar; to deliver digital growth from a low base that offsets physical losses (& in volume terms Trinity is performing pretty well) and to deliver acceptable margins from the digital side (more challenging).

It is true that a low PE can be indicative of a business in trouble (a "value trap") or it can be indicative that "the market" doesn't 'get' the proposition. And while mentioning the PE, it's worth recognising that for Trinity Mirror (LON:TNI) cash generation is even better than earnings as they sweat the legacy assets. (On that score, there was an unconfirmed story a few days ago that Trinity is about to sign a deal to take over printing of the Grauniad, which would further sweat those assets).

Now is not really the time or place for a full inside out review of TNI (the interims end July-early August is better), but on my workings, considering the cash the legacy business has still left to throw off, the fledgling digital business is not just in the price for free, it's effectively valued at a substantial negative.

Similarly I'm sure mis-pricings will happen in 'bricks and mortar' retailing, but with the economic outlook I think it will be at least 12 months before I personally look for any bargains in discretionary retail.

Beginner

The reforms were largely based on the reports and writings produced by William Beveridge. He was a Liberal.

AnonymousUser252054

Perhpas you weren't aware, Paul's a Chaka Khan fan.

The Phoenix

Hi Paul,

Whats the score re Hawk Investment holdings ?

Hi Paraic

I don't recall seeing many reviews on Amazon when I did look, so I didn't pay too much attention to the star ratings, though I appreciate that may have changed.

I went through some of the vlogger youtube videos though, and there weren't that many who were impressed. Again, maybe some positive reviews have been released since I looked about 2-3 months ago (or maybe I just missed the positive vlogs!)

Clearly the product is more popular than I thought it was though as all the numbers keep going up!

Good luck to all holders

DGW

20th Jun '17

Paul - re PTSG. Why is Hawk Investment Holdings not a positive please/

Carcosa

Perhaps because Hawk Investment Holdings is owned by Bob Morton/Family and over the years they have been involved with questionable business practices in regard to listed companies to the detriment of ordinary shareholders.

That's the polite answer, anyway ;-)

Interesting re the vlogger videos. I wouldn't mind watching one of them as part of my background research - any you'd recommend?

According to CityAM today "Analysts reacted well to the news, as Niall Pearson at Hybridan said he would look for a further 57 per cent growth in revenues in 2018. This would hike revenues to £14.1m, £12.6m of which they attributed to Skinny Tan." http://www.cityam.com/266934/skinny-tan-producer-looks-golden-after-predicting-profit

So maybe 9/10p EPS for 2018?

Here's one vlogger review I saw:
https://www.youtube.com/watch?v=Jf1AGLStaOg&t=

It's fairly positive, however, it ends with a few negative points - eg the high price point.

I also recall wondering why the product would be so successful in Korea. I used to live in the region - albeit 10 years ago - and most people were interested in fair complexions. Perhaps things have changed?

Small Cap Value Report (19 Jun 2017) - BON, PTSG

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Paul Scott

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