Small Cap Value Report (Tue 13 Dec 2022) - CRU, SRC, OTMP, SOS, REAT, BEG, ACC, FCAP, DNM, ZYT, SYNT, GPH, FRP, SNX | Paul Scott

13th Dec '22 by Paul Scott

77 comments 9523 reads

Good morning from Paul & Graham! Today's report is now finished.

We've hit the ground running today, as Graham had a second wind yesterday afternoon & has prepared some extra sections for today's report.

Agenda

Paul's Section:

OnTheMarket (LON:OTMP) [quick comment] - announces a new share dealing facility, which looks designed to match up buyers with sellers from the expiry of 5-year lock-ins from the IPO in Feb 2018. This relates to both management, and estate agents that are also shareholders (some were given free shares in return for signing paying contracts). Zeus and Shore Capital will be looking to find buyers for the loose shares which might cause an overhang in the market, if holders try to sell individually. Sounds a sensible plan to me, but it is a reminder of the unusual shareholding structure with this company, which could suppress the share price next year if there are not enough ready buyers to absorb sellers’ shares. (no section below)

Sosandar (LON:SOS) - breakeven interim results (the slower half), and in line with expectations (PBT £2.0m) for FY 3/2023 outlook comments. Things look very good to me. Superb organic growth of +72% in H1 revenues. Big increase in inventories should unwind in H2, and cash looks fine - little if any risk of any more placings. Seems to be shrugging off the consumer downturn. Looks very good to me, as a long-term hold, so a thumbs up. More detail below.

React (LON:REAT) [quick comment] - says that trading in Q4 of FY 9/2022 was “especially strong”, and this has continued into the new financial year, where mgt sees an “optimistic outlook”. Today’s update seems to be a repeat of the TU on 26 October, but with less detail, so what’s the point? Maybe they want to get the share price up, to do another placing? This is the fundamental problem with REAT - it’s too small, and shares too cheap, to add value from acquisitions funded by discounted placings. The business itself actually looks potentially interesting. So if they can crack the problem of excessive dilution in discounted placings, then it might work. Worth keeping an eye on, I reckon. (no section below).

Access Intelligence (LON:ACC) [quick comment] - down 27% to 64p, on a badly received trading update. I took a dim view of this company when last looking…

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simoan

13th Dec '22

Simoan in case you are reading, you raised a point on Dec 1st about the classification of Next (LON:NXT) by Refinitiv. I followed up on this with Keelan at Stockopedia and Refinitiv initially replied in the vain “it is in the right classification”.

However, yesterday they came back to him with this:

“The TRBC code will be updated as “5340304010-Apparel & Accessories Retailers”.

The TRBC for the companies belonging to the Index Constituents list are changed only during rebalance which takes place twice a year. The next rebalance is scheduled for March/April 2023. Therefore, as of now the TRBC will remain as is, and the next change will be updated in March/April 2023.'”

Thanks, Michael. I heard back from Keelan earlier this morning that the classification for £NXT would be changed in March/April next year. Shame it takes that long but at least common sense will prevail... eventually!

All the best, Si

Michael_P

Thanks, Paul. The market certainly seems to have changed its mind on this one a few times. In stock terms, it has a value rank of 1 and a momentum rank of 97, which probably encapsulates different viewpoints on it quite well. Traders might like it as it is above the 52w high and currently up around 8% today on above-average volume. Today's contract upgrade is based on their ability to move automobile sensor data to the cloud. Without knowing the specifics, there are several potential uses for sending automobile sensor data to the cloud that include; better estimation of insurance risks and therefore setting premiums, finding patterns in the data that could lead to earlier identification of faults, and potentially better insights into causes of accidents (which could be particularly important with the growth of self-driving vehicles). The contract upgrade takes the value of this contract to $25.3million over 5 years up from the initial $5million announced in July 2022. Half to be paid up-front. Stocko reports 2021 revenue was $7.31million and 2022 estimate is $12.6million that may need to be upgraded. So that gives a sense that this is a big deal for the company with, as they say, an expectation of further progress to be reported soon. Unlikely to be of interest to value investors but could be of interest to growth investors and/or traders. I hold.

carmensfella

Just to mention another Mello show today and available to all readers here for free.

https://melloevents.com/mello-investment-trusts-and-funds/

The event will feature Fund Manager, Andrew Hollingworth, educational presentations from both Jonathan Davis of Money Makers and Nick Britton of The AIC, as well as company presentations from Arix Bioscience plc and Orchard Funding plc.

The event will also conclude with an Investment Trusts and Funds panel!

There are lots of interesting sessions and all annual pass holders and individual ticket holders will be sent the recordings within 48 hours of registering.

We hope you can join us.

David

Mark B

I think the characters disappear when the data is transferred and the receiving data type(s) has a different collation/codepage which would then translate it to something else, giving the appearance that the original character has disappeared, where in fact it has been replaced with something else - usually odd looking. I would, as a developer, trace the data and check that all collations/code pages are compatible or the same for the data types on its journey.

GavSmith01

Zytronic (LON:ZYT) Good summary Mark. The div was actually up from 1.5p to 2.2p, and that along with the positive narrative gives me optimism, like you, that the turnaround is well underway.

I think the pipeline is telling - £59m in September 22, vs £28m September 21 (+110%) - and I would hope that this has been added to as a result of a number of trade shows since then. Their LinkedIn feed has been busy. There are some new products which they are only just starting to showcase now (e.g. Electroglaz and Zybrid Hover) which also look promising.

There is a lagged effect from the pipeline to order intake, and then again to revenue, and of course only a percentage in the pipeline turn into orders, but I an hopeful this will percolate through in due course.

BnB

The responsibility really is on the management of Stokopedia to find more high quality writers for a mid-cap value report and a large-cap value report.

Strongly seconded with the acknowledgment that Megan is now providing large cap and international commentary. But the companies highlighted so far have been as mainstream as you can get, from Facebook to Alphabet to Vodafone, probably yesterday’s big winners rather than tomorrow’s, and where there is a multitude of alternative coverage.

I personally wish there were more focus on the mid-cap space because this is where I find the sweet spot in UK stocks in terms of quality and profitability.

jimrog64

This has long been a jam tomorrow share, and classified by Stockopedia as a momentum trap. However, this is probably a good time to do further research on Futura Medical (LON:FUM) , as they are likely to finally start generating some income next year. They have a novel OTC cream for erectile dysfunction. It has been shown in clinical trials to work. An additional trial requested by FDA was completed last year and regulatory approval is expected in the US in Q1 23. This will be the biggest market. Licensing agreements are in place for many other areas of the world, and production of the product has started. EU launch will happen in the first half of next year. It all depends on marketing and actual sales but the potential market is huge, and broker estimates suggest considerable potential upside. RNS this morning - https://www.stockopedia.com/sh...

Effortless Cool

BnB,

I think that you are being incredibly presumptuous. The SCVR reports are what they are and are what they are always have been. Within the confines of some fairly loose parameters, Paul and Graham write about what the want to write about. If it doesn't meet your brief, why should they care? Why should any of us care? You should address your grumbles direct to Stockopedia, not to Paul.

Further, the SCVRs have never been about in depth analysis; that is our job if we are going to invest in individual shares. They are high level analyses from experts, intended to generate ideas, promote discussion and, sometimes, give warnings. In these respects, I think they are extremely successful, and the discussion often draws in contributions from subscribers who have done the in depth analysis.

So, at the risk of quoting Richard Madeley, "jog on"!

Silver Moon

We need specifics - which companies are we missing out?

Fair point.

So let me start by expressing the view that there is a disproportionate balance towards illiquid stocks in the general coverage. For those who invest in larger than average tranches these are a no go and for those operating on a smaller scale the spreads are a deterrent - not to mention that these names typically carry a higher risk of value destruction. For all that we are grown-ups responsible for our own decisions, it’s inevitable that our eyes get drawn to the names discussed within. That has been expensive for many investors here, particularly in the retail space. Let’s start making money again

This exactly has been my problem too BnB, something I've been aware of for some time now and am working hard at putting it right, taking a pinch of salt with everything.

Silver

MiserableJacktPotato

Lol, they were supposed to start selling the prophylactics years ago. Remind us what happened. Oh yeah, management screwed it up (pun intended). Zero credibility and deserves bargepole status.

illiswilgig

Zytronic (LON:ZYT)

Thank you GavSmith01 - and very well put. Good to hear your views - and the brief positive writeup from Paul above. The pipeline is indeed accelerating which looks very promising. But I'm trying not to count too many chickens right now, having made more than my fair share of mistakes in the last year.

There is a presentation on the Investor meet Company platform this Thursday 15th December at 1pm GMT.

Management have only presented once before and I found them to be open and frank - though nervous at first . The presentation was well worthwhile for me. Particularly for the Q&A which put a lot of colour on the pipeline and sale process.

There looks to be an update on Research Tree from Singer this morning. I can't see it without a subscription - though they refer to updating pbt/eps +45% from a low base. Which looking at the stockreport seems like 3.88 upto 5.6p. Which is not exactly pushing the boat out.

Thanks for correcting my slip up on the increase in dividend 2.2p from 1.5p (not 2p). A healthy increase indeed - especially since since I am dependent upon investment income for living expenses (thanks to the impact of longcovid) and with so many fallen shareprices I prefer to utilise dividend income rather than take capital right now.

I hope to update my forecasts soon and will post here when I manage it,

cheers

Mark

I think that you are being incredibly presumptuous

No. I’m responding to Paul’s grumble that he is receiving a lot of complaints by speculating on the basis for subscribers’ dissatisfaction. And I’m doing so in, I think, a polite and respectful manner intended to foster constructive debate and, ultimately, a better service.

Snazzytime

The clue is in the name Small Cap Value Report.

A better service for you, perhaps, but not for me and, I strongly suspect, the vast majority of subscribers who value the SCVR in its current form.

If you would like a mid-cap report, then take that up with Stockopedia, not with the author of the Small Cap value Report.

Paul Scott

Thanks Mark B,

I'll take your word for it! ;-)

Regards, Paul.

The clue is in the name Small Cap Value Report

Of course. But that doesn’t answer why the voices of dissatisfaction have grown louder of late. And they certainly have as Paul himself acknowledged.

Perhaps it’s just the end of a long and unprofitable grind for ‘22. But perhaps it’s worth asking what would improve the forum and members’ performance . And yes, I’m all in favour of a MidCapQualityReport if Stocko will oblige!

planetx

Hargreaves Services

I have just heard on the grapevine (wind farm /forestry) from a very well connected source that Hargreaves are marketing their wind farm portfolio in Scotland for a potential sale .

This will be a very significant transaction which is not factored in the share price .

I have been trying to guess the value but I don’t want to embarrass myself with a wildly inaccurate guess .

On a multiple of potential earnings of wind farms in planning I will simply say I believe it is very significant .

Rusty2

Probably because small caps have generally not been performing well, if prices were soaring then less people would be complaining. Also a lot of PIs seem to have left the market. Loss of interest in small caps, heard that from various sources.

I would favour more mid cap coverage, maybe Graham could review some mid caps?

Mind you there must a lot more small caps, now share prices have dropped, like Synthomer (LON:SYNT)

muckshifter

Hargreaves own the land and rent it out to wind farm builders and operators / owners, but don't own any actual wind farms, so if there was a possible sale it would presumably be of the land where wind farm builders have options with Hargreaves.

Helvellyn

With Hargreaves Services (LON:HSP) being a recent buy for me I had wondered why the move up in sp this morning with no reported news, looks like there could be some substance in rumour.

Thanks for that Dave.

Richard

Small Cap Value Report (Tue 13 Dec 2022) - CRU, SRC, OTMP, SOS, REAT, BEG, ACC, FCAP, DNM, ZYT, SYNT, GPH, FRP, SNX

Agenda

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Paul Scott

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