Paul's weekly SCVR summary - episode 1 for 2023 (w/e 6 Jan 2023)

SCVR Podcast - episode 1, 2023

Audio is here, and on podcast platforms.

Intro - hoping 2023 is better than 2022. Very attractive valuations now in small caps. Long-term should be fine. Short-term, I don’t know. Could be another bear market rally, nobody knows.

Tuesday 3 January

Hotel Chocolat (LON:HOTC) - salvaged 20% of its Japan JV. New deal with brand royalty receipts (unspecified). I don’t know why share price has gone up from 156p to 198p. Looks overvalued to me. I don’t rate the product, which is ordinary & expensive. Readers agreed in Tuesday’s SCVR. Maybe the business is trading well, as share has good momentum? We’ll see. Chart momentum sometimes links to good trading, and sometimes it doesn’t. Too expensive.

Bidstack (LON:BIDS) - really bad announcement, in legal dispute with their major distributor. Risk:reward looks much worse, so I’d ditch them.

Aptamer (LON:APTA) - 8% drop on profit warning. Looks like it’s burning through the cash pile, so looks risky now. But upbeat comments for 2023 outlook, as always for jam tomorrow companies. Worst possible time to be coming back to the market for fresh cash. Existing shareholders are lambs to slaughter. I would ditch anything like this, and you can always buy back once they’ve refinanced (often at huge discounts). Delisting risk due to concentrated shareholder register.

Cineworld (LON:CINE) - looks bust. Again it says existing equity might be heavily diluted, or even worth nothing. Why take the risk? Trying to sell itself as a going concern. Massive debt ranks ahead of equity legally, remember. Lenders calling the shots. Why take the risk?

Graham wrote an interesting review of UK Indices in this report. AIM and NASDAQ both dropped by about a third. Bargains now?

Reader comments mentioned. We like subscriber reviews of their own portfolios, thanks for posting. I name check some of our favourite subscribers, posting good comments. Thanks to MrContrarian for his excellent early morning snapshots.

Wednesday 4 January

Very quiet for news.

Heiq (LON:HEIQ) - never liked this. Overpriced float, and profits since vanished. Poor end to 2022, now loss-making. Turnaround potential? Possibly. Balance sheet looks quite strong, albeit red flags over high inventories and receivables. CEO buying, discussed in the comments section. 50 projects in pipeline. I’ll keep an open mind re potential turnaround.

Concurrent Technologies (LON:CNC) - underwhelmed with breakeven in H1 & H2 for 2022. Cash pile down - but good reasons explained. Supply chain restricted sales in 2022. Very big order book, double shifts, so should catch up in 2023 and make a good profit. Historically decent profits. Valuation maybe warm, as not much sign of organic growth. But new products sound promising. Thumbs up overall.

More good reader comments, including from a hospitality operator - very interesting.

Thursday 5 January

Dignity (LON:DTY) - received bid approach in Oct 2022, only announced today. Outrage - takeover rules on disclosure are ridiculous, has created a false market in the shares for almost 3 months. Anyone who sold in Oct-Dec was fleeced - they sold at an undervaluation, whilst a sale of the business at a premium was being negotiated behind closed doors.

Graham looked at Mattioli Woods (LON:MTW) and Glenveagh Properties (LON:GLV)

Next (LON:NXT) - Xmas better than expected. Relief rally to many other companies. Said forex has caused most of inflation. Has planned 8% price rises in first half of calendar 2023, then below 6% in H2. So high inflation does seem to have peaked, and looks set to reduce in 2023. More evidence of this building. Takes time to feed through due to hedging & forward contracts, etc. Really good news, that inflation should recede.

B&M European Value Retail SA (LON:BME) - 8% divi yield (half is specials). I did a video mystery shop, in Friday’s SCVR. I like this share.

Angle (LON:AGL) - interesting project, but listed almost 20 years, takes so long to commercialise. Shares dropped c.40% in 2 days, as 2023 not now big commercialisation year, pushed into 2024, which is also when cash runs out. Got much higher risk.

Greggs (LON:GRG) - in line update. Very strong revenue growth (c.+17% LFL). Customers are trading down to value retailers. Still expanding (150 new shops this year), longer opening hours, product innovation. Shares now look expensive after a good run recently.

Generally, there could be upside when energy costs fall again, and consumer spending begins to recover maybe in late 2023, or 2024? Will profit margins improve?

Friday 6 January

Essentra (LON:ESNT) - first time I’ve looked for years. Complicated, restructuring. Dropped 8% on a softer Q4. Big return of capital planned when big disposal completes end Jan 2023. Looks quite interesting potentially.

Nanoco (LON:NANO) - announces it’s agreed a settlement with Samsung, but no details, and 30-day standstill process to finalise the terms, shares shot up 40%. Sounds very interesting!

Clarkson (LON:CKN) - ahead of exps update, brokers raised 2022 & 2023 forecasts by 20%, but shares only rose 4%. Presumably the market is assuming bumper profits now aren’t sustainable - that sounds credible to me (non-expert), since boom & bust in container shipping rates.

One Media IP (LON:OMIP) - interesting tiddler, buys music rights. Royalty rate in US has gone up. It’s funding a loss-making software business from recurring royalty receipts. Sub-scale though. Worth a look for micro cap specialists.

Launch of my new spreadsheet (for Stocko subscribers only, please don't share the link on the internet) - that shows all the companies we cover in the SCVRs, and colour-codes them according to my/Graham’s opinion on the share. So users can quickly see a large number of shares, to pick up ideas for further research.

Positive feedback from users, thank you. I’m trying to iron out teething problems, with popup comments not appearing on Macs, iPads, etc (since fixed).

Other investors may see shares differently, as people have different approaches. Graham and I come at it from a Value/GARP perspective.

Turns out we wrote about 533 unique companies in the 2022 SCVRs! (per Oliver at Stocko HQ). So lots of coverage of the market.

Macro comments

More companies seem to be saying customers are getting more cautious. So we are going into a recession - not good for company earnings. So I’m quite cautious still, especially as share prices are rebounding. Compelling argument to sell the rallies, I think.

Market conditions felt bullish this week, I’m not convinced it will last.

NEXT - did a really good profit bridge, and loads of great info in its update, as always, in a class of its own. Higher Corporation Tax takes a big chunk out of Next’s forecast profits for calendar 2023. So check broker forecasts that they have included 25% Corp Tax - old forecasts for small caps might not have factored this in.

Sainsburys is raising staff wages 10%. Puts pressure on other sectors, and profits. We need productivity gains, but not many companies seem to be doing this.

Spot prices on energy now much lower in UK & Europe. Der Spiegel saying European storage nearly full still, milder weather, much less reliant now on Russian gas, being replaced with imported liquid gas.

Inflation falling overseas too.

Attraction of listing on UK stock market declining - valuations lower than in private market, onerous costs & hassle. Dignity didn’t like scrutiny of being public company. So could we see a big reduction in the number of UK public companies? Maybe we need fewer, but better quality companies on the UK market. Brokers chase fees, and float rubbish companies on excessive valuation.

US markets - driven by Fed, and jobs market - wages growth cooled in Dec apparently, which caused stock market to rally.

Do leave feedback on my podcasts!

(apologies, I forgot to type up the previous 2 podcasts, but I'll try to do this every week, time permitting)

Regards, Paul.