Paul's weekly SCVR summary - episode 25 (week-ended 16 Dec 2022)

Podcast - episode 25

Week-ended 16 December 2022

41 companies covered this week, incredibly busy. Very cold this week!

Monday

Totally (LON:TLY) - outsourced NHS services. Interesting co. Big contract win, but StrollingMolby pointed out this was contract renewals, not so exciting. Not much historic profit, but forecasts look good. Keeping an eye on it.

Tristel (LON:TSTL) - good interims. Might beat FY expectations, as H2 weighting historically. Strong balance sheet, £10m net cash. International expansion - USA. Share price over-valued at 38x PER - why pay double what it’s worth in a bear market?

CentralNic (LON:CNIC) - reader request. Internet domains & services. I’m warming to this share. Weak balance sheet & excessive debt. But banks have renewed facilities, so must have been all over the numbers. Starting buybacks, surprisingly. Founder CEO stepping down, CFO taking over. Looks interesting.I did more work on the numbers, does look genuinely cash generative, but lots of adjustments & acquisitions. Fwd PER only 8.6

ENGAGE XR Holdings (LON:EXR) - bargepole job. Shares dropped 46%. Running out of cash, only E1.9m left end Dec 2022. E6m EBITDA loss for 2022. Orders delayed. I’d get out now. Might not be able to raise more cash, avoid anything that needs to raise fresh cash. Delisting risk.

Argo Blockchain (LON:ARB) - Graham wrote its obituary.

Argentex (LON:AGFX) - Graham covered. Doing well, as is Equals (LON:EQLS) - who reached out asking if I want a call with mgt, so I’ll take them up on that, looks interesting company.

Really good reader comments on Monday, 66 of them. We love it when readers like PlanetX add great comments on a company visit to Crestchic (LON:LOAD) - really adds value, thanks. Team effort the SCVR between writers & subscribers. Come on lurkers, post some comments, if they add value (not just announcing your trades - pointless).

Tuesday

Monster day, 14 companies, a new record. We do listen to feedback, but we can’t please everyone. We’re covering more companies, with shorter sections for the less interesting/smaller caps.

OnTheMarket (LON:OTMP) - new share-dealing facility, to cope with Feb 2023 lock-ins expiring. But could still be an overhang of sellers. Good company though. Christopher Mills likes it, favourable comments in excellent recent interview on Vox Markets with Paul Hill. Possible multibagger if it can break duopoly of RMV & Zoopla.

Sosandar (LON:SOS) - long-standing favourite of mine, and it’s worked. Flattering fit of clothes, meeting unfulfilled need. Mgt are fantastic. Breakeven H1 results, H2 seasonally stronger. In line with FY 3/2023 forecast for £2m profits (I mis-spoke and said £2m revenues, when I meant £2m profits, apologies). Looks really good, best it’s ever been, but share price still modest. Shouldn’t need to raise any more cash. Thumbs up from me. Tuck away & forget share. Riding out consumer downturn, as customers are affluent, and often get 20-30% discount. Most marketing is free, as repeat customers via email. PIWorld did a good webinar. Does have fashion risk though. Long-term could be very good.

React (LON:REAT) - cleaning companies, acquisitions. Trading good, Q4 “especially strong”. Nothing new in this update, less detailed than Oct update, so what’s the point? Maybe they want share price up, to do another placing. Problem is that it’s having to dilute too much to do acquisitions. Growing the company, but not growing EPS much. Might need to use debt for future acqns? If they can crack this problem, could get interesting. Some cleaning companies can be nicely profitable. Keeping an eye on it.

Access Intelligence (LON:ACC) - dismal, very risky, avoid. Loss-making, capitalising costs, cash pile halved to £4.5m. Waffly commentary, orders have slowed.

Dianomi (LON:DNM) - down 15% on a TU. Floated in 2021, a very bad year for IPOs. Still profitable, EBITDA halved, £10.8m cash pile, about a third of mkt cap. Not burning cash. Might be interesting to look at. Not a basket case.

Zytronic (LON:ZYT) - v interesting value situation. £14m mkt cap, £6m cash. Still profitable. Talking about rebuilding sales pipeline. Have we seen the low? Illiquid.

Synthomer (LON:SYNT) - disposed of a division for £199m, but only makes a dent in the £1bn debt pile (I mis-spoke, and said cash pile, when I meant debt pile, sorry!). Made a huge acqn for £760m earlier this year, spectacularly badly timed. Bank covenants relaxed. Divis on hold until end 2023. Customers destocking & deteriorating macro conditions. I’m avoiding it, too complex, and I don’t want to own companies with huge debt piles right now. Risk of dilutive fundraise.

Global Ports Holding (LON:GPH) - speculative share. Colossal debt. Cruise ship ports doing better. More than all operating profit in H1 consumed by finance charges. Equity is a call option really. Could be a nice, but high risk punt.

Frp Advisory (LON:FRP) - I’m not keen on businesses with conflict between partners (fee earners) and outside shareholders. Too expensive, PER c.20. Good balance sheet. Begbies Traynor (LON:BEG) looks better value. FRP higher up sector food chain.

Synectics (LON:SNX) - not madly exciting, but looks good value. Could be a nice recovery share. TU - slightly ahead of mkt exps. Has net cash. Quite good value.

Coral Products (LON:CRU) - Graham reviewed this in response to reader requests. Looks quite interesting, lots of acquisitions, worth a look.

Graham also reviewed Sigmaroc (LON:SRC) Begbies Traynor (LON:BEG) and finnCap (LON:FCAP)

Wednesday

Trackwise Designs (LON:TWD) - bombshell announcement of 1p placing, 92% discount. Very sorry for shareholders. Graham warned us off it months ago, many thanks. Ran out of cash. Same story - avoid everything that needs to raise more cash. I did have a very small position personally, fun money only, but I sold when Graham warned on it, months ago. In the SCVRs, we specialise in balance sheet analysis, this is key info you need to know about, SCVRs are coming into their own. There is an open offer, so you can top up. I’d abandon it. Won’t be enough probably - broker says only funds it to Q3 2023.

SThree (LON:STEM) - one of my favourite staffing companies. FY 11/2022 update. Mentioned softer market conditions in Q4, so I’m cooling a bit on this one. Difficult to see any immediate upward catalyst. Have we seen peak earnings? 2023 forecast might need to come down. Long-term great co.

Billington Holdings (LON:BILN) - very good update. “Significantly ahead”. Also upgrades 2023 guidance. Great, good balance sheet too. But be aware of economic cycle. Orders could dry up in a recession, and rising interest rates. Look at chart in 2008, when recession started.

Mirriad Advertising (LON:MIRI) - one of worst shares I’ve ever seen. £1.6m revenues for FY 12/2022, EBITDA loss £15.5m! What are they doing?! Only £11.5m cash left, halved from a year ago. Heading on full throttle directly into an iceberg. Going to zero I think, total bargepole.

Loopup (LON:LOOP) - tend to put out positive sounding updates. Poor management has destroyed a lot of shareholder value. Something interesting here, but I think it needs to raise c.£10m fresh equity - may not be possible. So it’s an avoid for me, until properly refinanced. Burning cash. Uninvestable for me. Extremely high risk, and might de-list I think.

Getbusy (LON:GETB) - slightly ahead of exps. Good revenue growth. £1m loss. Cash £2.2m. Quite interesting, has a profitable legacy business, and using this to fund 2 blue sky projects. Worth a look.

Cyanconnode Holdings (LON:CYAN) - terrible H1 figures. Dangles a carrot of much bigger Q3. Weak bal sht. Rec’bles is 3x H1 revenues. Figures look v peculiar to me. Shares worth nothing on historic figures IMO. Shareholders have to hope mgt are telling the truth about future growth. Very very high risk I think.

Volution (LON:FAN) - Graham looked at this reader request. Potential value?

Graham also reviewed Cohort (LON:CHRT) and PROCOOK (LON:PROC) (we both think PROC is no good - an avoid)

Thursday

Zotefoams (LON:ZTF) - one of my favourite companies. Mgt v good. Proven it can absorb & pass on inflation. Own freeholds to factories, and modernised with capex. GARP share, I’d like to own (but don’t due to lack of cash!) Ahead of exps for FY 12/2022. Priced about right for now? Good long-term hold, esp if Re-Zorce blue sky project takes off, could be huge (recyclable drinks containers).

A reader pointed out that Mark Simpson wrote something negative about ZTF. Don’t we consult? No! We’re all freelance writers, and have different views, not a house view. Great to have a variety of opinions, and we love to hear subscriber opinions.

Carclo (LON:CAR) - another profit warning. Be careful - highly dependent on bank support, and a huge pension deficit, fallen but large deficit recovery payments still. Very high risk of a dilutive equity raise. But, annual report shows it has large freehold property, which could explain why bank remaining supportive.Lost a big contract recently. FY 3/2023 will be materially lower than expected. Either a multibagger, or a disaster. Why take the risk?

(Sorry for the banging noises on the audio, I’m not sure what I was doing, probably getting over-excited and banging the table!)

Currys (LON:CURY) - huge business, £10bn revenue behemoth. H1 small loss, big goodwill write-off, but H2 weighting. Confirms still profitable for FY, but reduces guidance. Bal sht very weak once you write off intangibles. Totally dependent on trade creditors for funding. I’m worried what would happen if trade credit insurers withdraw cover? Could be existential threat. High divi yield not sustainable in a downturn, in my view. Probably going to be OK, but I wouldn’t take the risk. Low to middling risk maybe? AO.com had to do equity raise. Thumbs down.

DX (Group) (LON:DX.) - interesting turnaround. Chequered past. Says pipeline “very healthy”. Good liquidity, with net cash. PER 7.6. Yield 5.2%. Not a sector I like, but could be worth a fresh look.

STV (LON:STVG) - TU was more like a PR release. Concealed a profit warning, slipped out 18% reduction in forecasts via the broker. Pretty disgusting, undermines my confidence in the company and mgt. Huge issue is pension deficit, £7.1m recovery payment just in H1. Share price depends heavily on pension scheme.

Science (LON:SAG) - Graham reviewed it, worth a look.

Hunting (LON:HTG) - Graham reviewed.

Friday

Apologies for late start, but everything was covered.

Rank (LON:RNK) - gambling company. Ethical ESG issues could cause a problem for bank & fund managers maybe? Graham predicted it would end up making nothing this year, looks like he’s right. EBITDA misleading, due to large finance charges. Obvious recovery share once consumer disposable recovers. £35m energy costs. I get the bull case - you buy at cyclical lows. Bal Sht weak once you write off intangibles.

Short rant about banks pulling funding for oil & gas sector.

Some ESG looks misguided, but I love the AGM votes now being more critical from instis.

Fulham Shore (LON:FUL) - profit warnings. A stalwart until now. Rail strikes impacting it. Wider read-across for bars/restaurants in city centres? High exposure to London. Profit warning blurred by commentary. Downgrade was buried in a broker note, slashed PBT forecast down to zlse to zero, I don’t like the way this has been handled. However, I don’t see FUL at risk of going under, as it’s highly cash generative. So could stop opening new sites in a recession. Overall - I think FUL should be fine long-term. Short-term, probably still over-valued.

I am more worried about Hostmore (LON:MORE) - high debt, I think we were sold a pup here, I got it completely wrong - best avoided maybe for now?

Hollywood Bowl (LON:BOWL) - cracking results for FY 9/2022! Superb. Even better than guided, due to successful VAT appeal. Just a lovely business, throwing off cash. Is the bowling boom sustainable? I don’t know - your call. Generous divis & self-funding expansion. But, what would happen if it puts out a future update like FUL above, saying that trading is slowing? Risk that shares would sell-off. So bear that in mind. But things are so good now, I have to give it a thumbs up!

Dev Clever Holdings (LON:DEV) - total crock, it’s de-listing.

Sutton Harbour (LON:SUH) - strange share. Owns property, but lots of debt, sounds like the bank are getting restless. Big shareholder owns 72%, so de-listing risk is very high. Why get involved?

Overall - loads of share ideas above. We love chucking loads of ideas at you, to do your own, more detailed research on. Essential to do your own work. NOT recommending things. Of course we get things wrong, like BOO. I apologise again for being over-confident on this. But the facts & figures completely changed. We’re NOT gurus! So of course in a severe bear market everybody has had a lot of small cap losers, and we don’t pretend to be able to pick winners all the time. Got one snide reader comment this week on this. It comes with the territory, but not very nice to be on the receiving end, but there we go.

Macro news/views

UK economy shrank by 0.3% July-Oct - looks like a formal recession happening (2 qtrs negative)

Interest rates - Fed raised 0.5% to 4.5% - looks too fast to me, as Fed usually does.

BoE raised 0.5% to 3.5%, we’re 1% below Fed, 9th raise, probably sensible.

Gilt yields behaving.

Market forecasting peak interest rates 4.5% by Aug 2023.

UK inflation dropped slightly to 10.7% - looks like a peak has been put in.

Recovery of £ vs $ could help reduce inflation faster, but hedges need to expire first. Quite bullish.

Are interest rates now permanently high? Not necessarily. Once inflation comes down, wouldn’t surprise me to see interest rates back down to 1-2%, which would be good for equities, property & bonds. Who knows!

US inflation slowing, lower than ours.

Cold weather causing chaos with energy prices.

Admin matter - tags disappear in Stockopedia articles, software glitch. Thanks to Snazzytime & others, who post comments to flag to me when tags disappear, very helpful. Last night I went through all SCVRs since 1 July, and replaced all the missing tags.

Strikes - really starting to affect businesses. Fulham Shore (LON:FUL) - said losing trade in town centres. Moonpig (LON:MOON) - postal strikes harming it. I get why people go on strike, to protect their standard of living against inflation. But it damages their employer - nail in the coffin for post & rail? I just order everything from Amazon now, get it next day with no interruptions. Repeat of the 1970s & 1980s? Killed off many industries. So I would avoid MOON & Royal Mail.

Thank you for listening & your fantastic reader comments on Stockopedia, it’s a team effort!

I’ll do one more podcast before Christmas, so see you next week.

Byeeeeeeee! :-D