Small Cap Value Report (3 Mar 2014) - SEE, THT, JSG, NWS

3rd Mar '14 by Paul Scott

12 comments 19465 reads

Good morning! Developing events in the Ukraine seem to be increasingly the focus. Personally I think the risk of war involving the West is virtually zero - politicians and the public lack the will to take on Russia in it's back yard. Indeed, we're so dependent on Russia for gas, that it's difficult to see how much leverage can be put on Russia before Putin just flips the switch to turn off the gas, to make a point.

Still, markets hate uncertainty, and risk, so expect volatile times ahead. Personally I won't be making any portfolio adjustments based on this, as I never do. International crises like this are little more than blips on the chart historically, as things always get sorted out one way or another. Although I will be looking for bargain purchases via panic, or forced sellers in stocks that I like.

The question is whether after such a huge bull run in small & mid caps, the market might now use the Ukraine crisis as an excuse to sell off? I think that's a strong possibility, but we'll have to see. At the moment Russia itself is bearing the brunt of the markets' nerves - with the Rouble hitting a record low this morning, and Russian shares down about 10%. Also it has been forced to raise interest rates from 5.5% to 7.0%, I see from scanning my Twitter feed this morning.

Seeing Machines (LON:SEE)

A reader complained that I didn't comment on results from Seeing Machines last week. There's always the option of reading the results yourself! Joking aside though, I didn't report on them as it was a busy day, and there was nothing remarkable in the figures or narrative - everything looked as expected to me.

Seeing Machines is the Australian software company which has developed and is already selling equipment which monitors face and eye movements in vehicle drivers, to identify and alert driver tiredness, thus preventing crashes. It works well, and is being rolled out in the large & expensive vehicles used in the mining sector, via Caterpillar dealers.

So whilst the market cap of about £65m (at 7.6p per share) might raise some eyebrows (since it is a small, and still loss-making company), it is the market leader in a huge, and exciting market.…

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maillotàpoisrouges

3rd Mar '14

How about Vertu Motors Paul? Should bode well for the likes of Cambria also!

kenobi

The risks with Ukraine is that this starts another cold war, will the US do something daft ? I don't suppose many Americans or Europeans have any appetite for foriegn wars, but like Syria, I'm not sure that the governments feel the same.
We need to see this from the other side too, there has been an uprising, and a democratically elected pro russian government has been removed. How would the Americans react if this had happened in Mexico ?
and then a government took over which wanted to befriend Russia ?

Yes I doubt that the Americans would feel relaxed about that, yet they expect the Russians to just accept it.

What will this do for oil and gas prices ? and what will that do for the world recovery ?

hopefully it will just blow over, it could turn very nasty indeed. I'm glad GWB isn't president.

cheers K

rjt

Ukraine - A good write up from Tom Winnifrith here, with which I agree( and with K above).

http://tomwinnifrith.com/articles/4417/ukraine-my-sympathies-are-almost-entirely-with-putin-russia-not-the-meddlers-of-the-west

Fangorn

We need to see this from the other side too, there has been an uprising, and a democratically elected pro russian government has been removed. How would the Americans react if this had happened in Mexico ?

Sums up my opinion succinctly Kenobi. US hasn't a leg to stand on. And both it,and EU should keep their noses out. Elections are due in Ukraine next year - at that point Yanukovych's Govt could be voted out - not as now, via a coup.

US has little in the way of options to force Putin to back down, similar for Europe which is heavily dependent on Russian gas.(Who's smart idea was that?)

Putin, for once, well within his right s with regard to current manoeuvres.

kevanp

Whatever the rights and wrongs of what is going on in Ukraine, whether you call it a coup, anti-government demonstrations that escalated, or outright civil war, and whatever your sympathies with Russia, to say that Putin has the right to invade another sovereign state is stretching the definition of "right" way beyond what is understood and accepted internationally. Clearly Russia is keen to maintain their influence over their neighbour, and to ensure that the Russian-leaning minority of the Ukrainian population is somehow protected, but it is difficult to believe that the change in regime in Ukraine, however it has been brought about, represents a clear and present threat to the security of Russia such as to justify an invasion.

And yes, I would make exactly the same point if the USA were to invade Mexico.

SevenPillars

It doesn't really represent a threat to Russia, but there is a large ethnic Russian population in the country, over 50% in the Crimea, so it's not surprising what they are doing, the US would do exactly the same in its backyard. It's long been accepted, although never officially, that these superpowers have their own sphere of influence which can become very complicated if it also includes an ethnic population of the superpower. The US doesn't even need that excuse as it showed with Grenada and various attempts at Cuba. As usual there is a lot of hypocrisy and sabre rattling type talk which all of these major powers engage in to justify their actions. Been the same throughout history. I suspect that if the Ukraine had been taken over by or was being attacked by an radical Islamist militia the UK and US wouldn't have said a word to any Russian invasion accept don't be too brutal and don't infringe too many human rights. Chechnya springs to mind. So much for that.

Hi Kev,

As far as I am aware Russian troops have only move into the Crimea, not invaded Ukraine proper. And it was to Crimea that the deposed Yanukovych fled - hence Russia moved at the request of the legitimate President of the Ukraine, the man who had been democratically elected, to ensure his safety. Not sure why you think this is invading, illegally, another sovereign state.

As full disclosure I have no sympathies with Russia outside of this one current issue. In case that helps. It's purely a case of self determination and who is the legitimate elected representative of Ukraine - the new incumbents are not. Yanukovych is. And the latter has clearly asked for his Ally, Putin, to back him up and save him from a lynching.

Population demographics are interesting. Countrywide as you say Ukrainians 77%, Russians 17% odd but I gather that the majority of Russians reside in Crimea/East Ukraine, along with Russian sympathising Ukrainians in the East of the country. The Pro Europe leaning Ukrainians reside predominantly in West Ukraine.

"but it is difficult to believe that the change in regime in Ukraine, however it has been brought about, represents a clear and present threat to the security of Russia such as to justify an invasion."

A debateable point I agree. Ultimately, if Yanukovych , as the legitimately elected ruler has asked for Russian assistance then it's a done deal, regardless of whether the West likes it or not and the likes of Kerry haven't a leg to stand on.After all, there are plenty of examples round the world where the US/Britain/France have moved in at the request of the legitimately elected government of the day are there not.

It's certainly an interesting time for investments - Gold up, but some,most notably gold miners are down. FXPO, clearly suffered a bout of knee wobbling.. :)

Hi Oliver
You've made some interesting points, and clearly the situation is not as clear cut as I'd thought. These would appear to be the salient facts:

1. It is true that Crimea is an autonomous republic within Ukraine, but its current state is that of being governed by a representative of the president of Ukraine. I'm no international lawyer — I wish — but I reckon that invading Crimea would be considerd tantamount to invading Ukraine.

2. I take your point that, were Yanukovych considered still to be the legitimate leader of Ukraine, his inviting the Russians in to protect his country could render Putin's actions legitimate.

3. However, his legitimacy at this point in time is at the very least, I would suggest, questionable. Yes, he fled Kiev because of civil unrest, but he was, apparently, then fired by the Ukraine parliament, and disowned by his own party.

My arguments have nothing whatever to do with what the West thinks — particularly America. I am only basing my observations on my scant knowledge of what constitutes international law, which does — as was so often brought up in relation to the invasion of Iraq — generally prohibit invasion of a sovereign state.

As you say, interesting times. And a great opportunity in my opinion to pick up some bargains before everything settles down again.

Yep concur with much of what you say. One hopes though that it's swiftly sorted for all concerned.

The warnings of

"March 3, 5:03 p.m. -- Russian Black Sea Fleet Commander Aleksandr Vitko issued an ultimatum to Ukrainian troops in Crimea on March 3. “If they do not give up by 5 a.m. tomorrow, there will be a real storm of subdivisions and units of Ukraine's military forces all over Crimea,” Interfax news agency quoted him as saying.

Earlier, the Ukrainian Navy was given an ultimatum to give up by 7 p.m. on March 3, otherwise they will be attacked."

certainly wont diffuse the situation. One hopes it doesn't snowball and other countries get involved.

Crimea certainly has a long history of being part of Russia(18th-20th century) prior to becoming part of USSR, then achieving independence in 1990's apparently s part of independent Ukraine. Who can forget the tales as a youngster of the fabled "Charge of the Light Brigade"

hornbeam1

Re JSG. Paul thanks for your review

The acquisition of Bourne is interesting. From my previous time spent in the industry, Bourne was always regarded as a technically innovative and well run outfit. As you say should fit in well,
JSG on my watch list as well now, was always put off in past by the heavy weight of those loss making dry cleaning outlets.

4th Mar '14

The Russians seem to be denying that the Ultimatum was given to the Ukranians.
There is clearly no appetite in the west for any more military adventures, especially against Russian in their back garden. As such, I think we should keep our rhetoric constructive.

I think the Ukraine has been subjected to a tug of war, where the west, particularly the US has been trying to pull them into european/western infulence. I suspect much of the revolution has been financed and planned by western powers, just as it was in libya (remember the SAS men who were captured just before the revolution ?).

So lets just accept that the Russians are on their door step, and have the most influence. Lets trade with them, and do deals, help the people of Ukraine by giving them opportunities without pulling them into the eu or nato, both of which would be a mistake. (because I don't want to finance their bailouts, fight wars over the ukraine, or have 100,000's ukrainians come here looking for work).

K

"So lets just accept that the Russians are on their door step, and have the most influence. Lets trade with them, and do deals, help the people of Ukraine by giving them opportunities without pulling them into the eu or nato, both of which would be a mistake. (because I don't want to finance their bailouts, fight wars over the ukraine, or have 100,000's ukrainians come here looking for work).

K"

Spot on. :)

Small Cap Value Report (3 Mar 2014) - SEE, THT, JSG, NWS

Seeing Machines (LON:SEE)

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Paul Scott

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