Daily Stock Market Report (Mon 30 Dec 2024) - DUKE, CHSS, RPI, NARF

Good morning! 

The markets are open today, but it's looking like another quiet one as the festive lull continues. We'll keep this post open for comments and will take a look at those companies that have issued news today. 

Megan has also taken a look at UK tech success story Raspberry PI Holdings (LON:RPI), which has double-bagged since its June 2024 IPO and is now a member of the FTSE 250. 

Elsewhere, our 12 stocks of Christmas series is continuing. These are stocks we're feeling positive about heading into 2025 - here's a list of the companies covered so far:

• Garmin
• International Personal Finance
• Impax Asset Management
• Character
• MONY
• Tristel

New podcast episode: in case you missed it, the latest episode of our new Companies & Markets Weekly podcast dropped on Friday. Reflecting on an eventful year, Lawrence and Megan discuss some of the big winners of 2024 and the outlook for UK shares, plus some of the companies that have attracted subscribers' interest during the year. 

You can find the latest episode at the locations below:

• Spotify
• Apple podcasts
• YouTube

10.30am: today's report is now complete. Thanks for reading and commenting!

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Explanatory notes

A quick reminder that we don’t recommend any shares. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day. We usually avoid the smallest, and most speculative companies, although if something is newsworthy and interesting, we'll try to comment on it. Please bear in mind the "list of companies reporting" is precisely that - it's not a to do list. We have a particular emphasis on under/over expectations updates, and we follow the "most viewed" list of readers, so if you're collectively interested in a company, we'll try to cover it. Add your own comments if you see something interesting, and feel free to discuss anything shares-related in the comments.

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to, if they are using unthreaded viewing of comments.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced. And/or it's such deep value that we see a good chance of a turnaround, and think that the share price might have overshot on the downside.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk. Sometimes risky shares can produce high returns, if they survive/recover. So again, we're not saying the share price will necessarily under-perform, we're just flagging the high risk.

Others: PINK = takeover approach, BLACK = profit warning, GREY = possible de-listing. Links:

Daily Stock Market Report: records from 5/11/2024 (format: Google Sheet). Updated to 19/12/2024.

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Companies reporting

Name (mkt cap)	RNS	Summary	Our view
Duke Capital (LON:DUKE) (£152m)	Trading & Operational update	Q3 FY25 exp. recurring cash revenue of £6.5m, up from £6.4m in the prior quarter. “Underpins” dividend.	AMBER/GREEN (Roland)
World Chess (LON:CHSS) (£26m)	€6m loan facility	The chess marketing business has secured a new €6m loan to refinance existing debt and support chessarena.com.	RED (Roland)
Helix Exploration (LON:HEX) (£22m)	Acquisition of helium processing plant.	This 2024 IPO has made a down payment on a helium production plant, a first step to potential revenue generation.
Narf Industries (LON:NARF) (£10m)	HY results	Contract delays caused a decline in revenue. CEO loan is supporting working capital requirements.	RED (Roland)

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Bonus section (no RNS today): Raspberry PI Holdings (LON:RPI)

Up 80% in December to 667p - Megan - GREEN

After a rather underwhelming first few months on the market, Raspberry Pi has enjoyed a mega-December. The shares are up more than 80% in the last month alone, which now puts them 138% higher than the June IPO price. The company’s market cap now exceeds £1.2bn, which is almost 4 times the company’s trailing 12 month sales.

The funny thing is that Raspberry Pi’s share price surge hasn’t come off the back of any news, instead it seems to have been driven by the arrival of SW Investment Management on the shareholder register. On 12 December, the US based asset manager bought 6.9m shares to give it a 3.59% stake.

Now I am all for UK investors exhibiting some caution around IPOs before leaping in, but clearly there was a lot of pent up demand for Raspberry Pi which has now been unleashed by the arrival of a US investment manager on the shareholder register. What I am a little disappointed about is why it seemed to take the arrival of a US fund manager to persuade British investors of the potential. SW Investment Management is run by Stephen White who describes his role on his LinkedIn profile like this: “I manage a private limited partnership that buys a few stocks here and there.” He also admits to running Castle Union between 2012 and 2015 and describes this role as “managing partner of a business that basically failed.”

I can’t comment on the expertise of Mr White, but I do like what I see at Raspberry Pi, especially its healthy community of customers.

In July I wrote about Raspberry Pi in my weekend newsletter and sought the expertise of some of my more technically minded colleagues (I work with a lot of software developers at Stockopedia). They use Raspberry Pi products to automate the control of household lights, monitor boiler flow and receive notifications when their plants need watering. They also pointed to the fact that the company has a huge following online. In 2023, the company’s website received 50.6 million visitors and the most popular Raspberry Pi subreddit has 3.2 million members (for context, Nvidia’s most popular subreddit has 1.5 million subscribers). It’s also popular among the more scientific members of the tech community, with 203,000 academic papers containing the words ‘Raspberry Pi’ as of May 2024.

This level of support and documentation only adds to the popularity of the products, because it makes them easier to use. If you’re looking to power up your Lego robot, Raspberry Pi is the technology of choice because the community can show you how to do it. And this feeds a network effect which gives Raspberry Pi an advantage over its competitors.

Paul also analysed the company in great detail after its IPO. You can read his verdict here. (Spoiler alert, he thought the shares were overvalued at £800m).

I am a bit more optimistic about the company. I can see that it is extremely hard to value based on any traditional metrics. But it is a fast growing, profitable company, with a loyal customer base, dedicated management team, operating in the tech sector. And this is exactly the kind of company we should be celebrating when it lists in London, regardless of whether a US investment management firm likes the look of it as well. GREEN

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Duke Capital (LON:DUKE) 

Up 2.5% to 30.8p (£157m) - Trading and operational update - Roland - AMBER/GREEN

Today’s update from this unusual “hybrid capital solutions” provider appears to be in line with expectations. The company is guiding for third-quarter “recurring cash revenue” of £6.5m, up from £6.4m in Q2 FY25.

As Graham discussed earlier in December, the business is aiming to transition from managing its own capital to a fee-based business managing third-party capital. The company says the hunt for a funding partner is ongoing with “significant progress” having been made.

Meanwhile, capital raised in November’s £23.5m equity raise has left the company “well positioned” to support growth opportunities in its existing portfolio.

Roland’s view: CEO Neil Johnson says Duke’s third-quarter performance “underpins our stable dividend”, supporting a 9% yield. With thanks to house broker Cavendish, I can see that earnings forecasts for y/e March 2025 are unchanged at 3p per share following today’s update.

Duke’s valuation seems very reasonable to me, trading just below book value with a chunky dividend yield. I think this remains a potentially interesting niche business, albeit not without some risks relating to its growing use of debt, track record of dilution, and investee quality. I’m going to stay at AMBER/GREEN.

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World Chess (LON:CHSS) 

Down 7% to 3.5p (£24m) - World Chess secures €6m loan - Roland - RED

I seem to keep seeing media coverage suggesting chess is becoming a more commercialised and large-scale spectator sport. I’m not sure how far advanced this process might be, but Main Market-listed World Chess does not (yet) seem to be sharing in the spoils. This business operates chess tournaments and chessarena.com, the official online gaming platform of the International Chess Federation (FIDE).

Today’s update shows the company has secured a new €6m short-term loan from “an existing shareholder”. These funds are due for repayment by the end of 2025 and carry a surprisingly low 4% interest rate.

Funds will be used to repay an existing short-term loan and potentially to increase marketing spend for the company’s online chess platform chessarena.com. 

Roland’s view: to me, this looks like money to keep the lights on. Checking back to the interim accounts, World Chess had net cash of just €57k at the end of June 2024, excluding c.€1.5m of lease liabilities.

H1 2024 revenue of €1.2m converted into a net cash outflow for the half year of €2.2m. This was offset by €400k of loans, €222k of funding from directors and €1.5m raised through a share placing.

Broker forecasts on Stockopedia appear to forecast revenue of €2.6bn this year – I think this is an error and should be €2.6m, with an associated loss of €3.6m.

I don’t see any evidence this company has a viable business model or that this new funding will be sufficient to allow World Chess to reach break even. I’d steer clear of this stock and see no choice but to go RED.

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Narf Industries (LON:NARF)

Down 7% to 0.6p (£9.4m) - Interim Results - Roland - RED

Narf Industries is a tech firm providing cybersecurity solutions to government entities. This business appears to be one of the crop of 2021 IPOs that were floated at excessive valuations and have since sunk without trace.

I would not normally look at a micro cap business like this, especially given the stock’s Sucker Stock rating and downbeat StockRank:

However, as it’s a quiet day I took a look this morning and was struck by this company’s seemingly rapid revenue growth…

…and the near-30% shareholding of CEO Steve Bassi:

Is there a quality software business in the making here? 

After all, cybersecurity threats to national security are a growing issue in most countries and Narf’s growth appears to be being driven by contracts with key US government agencies:

Source: Narf Industries website (30/12/24)

Let’s take a look at some numbers.

Half-year results summary: Investors were warned in November to expect a poor set of half-year numbers. Most of the company’s revenue comes from US government funding for research and other activities. Delays to the approval of the latest US budget meant that expected contract awards were delayed.

The company says it has also been focused on developing and commercialising its SocialCyber platform, which has now secured a $1.3m contract with DARPA.

Excuses are like elbows – we all have them. Narf’s reasons may be valid, but from an equity perspective, today’s numbers – covering the six months to 30 September 2024 – don’t look good:

• H1 revenue down 62% to $1.2m

• Operating expenses down 5% to $2.4m

• Operating loss: $1.8m (H1 23: op loss of $1.0m)

• H1 cash outflow of $1.4m, partially offset by $864k of director funding

The balance sheet highlights a more serious concern. Net cash fell to just $135k at the end of the half year, from $654k at the end of March 2024.

The company says that CEO Bassi has expanded a working capital loan to the business from $2.5m to $3.0m to help support operations. The accounts show $864k was drawn down from director funding in H1.

Going concern risks: solvency risks are flagged up in the going concern statement, highlighting mitigating measures:

• Mr Bassi has agreed not to demand repayment of his loan until Narf has sufficient cash resources to afford it

• Various senior managers have accepted salary deferrals until revenues are sufficient to settle the outstanding amounts

Company cash flow forecasts to the end of 2025 are said to indicate Narf has sufficient cash resources to meet all foreseeable liabilities. But I would argue there are significant risks here from an equity perspective.

Narf’s share count has already tripled since its IPO. I would not rule out the risk of a further equity fundraising:

Outlook: no formal outlook comment is provided, but the company notes it may have a material $5m contract in the pipeline:

Notified by current government customer of selection for $5+ million multi-year contract award, negotiations pending, with award anticipated in Q1 2025.

In the absence of new guidance today, I assume the guidance provided by Narf in November remains valid:

• FY25 revenue: “not less than $5m”

• “Cash flow breakeven” at end of FY25

• FY26 revenue: “not less than $8m”

Unfortunately, broker forecasts for revenue of $12m shown on Stockopedia appear to be stale – broker Canaccord Genuity placed its guidance under review in its November note and I can’t find anything more recent than this.

Roland’s view: this is a classic example of a company with a potentially exciting story to tell, but significant financial risk.

I’m not in a position to judge the relative merits of Narf’s research and software. But what I can see is that the company is potentially on thin ice, financially, dependent on the goodwill of its majority shareholder CEO and various key managers who are willing to work without salaries.

As a result, I see this as a highly speculative situation. Narf could go on to be a high-margin, recurring revenue multibagger. Or it could fail completely – or something in between.

For an outside equity investor, I think the dilution risk alone means this makes little sense as an investment unless you have some kind of edge.

I certainly don’t have an edge, so I’ll draw a line here. Given the solvency risks flagged up on the balance sheet, I have no choice but go RED on Narf Industries.