Small Cap Value Report (Tue 25 July 2023) - QUIZ, TSTL, RCH, WIX, STEM, PIER, FA., YU., ECEL, TYMN | Paul Scott

25th Jul '23 by Paul Scott

80 comments 8266 reads

Good morning from Paul & Graham.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. 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, with market caps up to about £1bn. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

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.

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.

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.

I've re-jigged our agenda, with very brief comments on things we've not covered (which should explain why not covered) - let me know if this is helpful or not -

Summaries of main sections below

Quiz (LON:QUIZ) - 10.15p (£13m) - Final Results - Paul - AMBER

I review (reader requests) FY 3/2023 results, which looks quite good. Although current trading section concerns me, and looks like a £3m shortfall on profit vs LY. I struggle to see how that can be fully…

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jesseowens

25th Jul '23

Not sure how to understand the £Yu business model, they seem to be offering commoditised services in fiercely competitive markets, yet are growing spectacularly with fantastic returns on equity. Is this just a result of the extraordinary volatility in energy markets or is there some secret sauce that I'm missing ? Competitors like Inspired (LON:INSE) don't seem to have benefitted in the same way

BnB

SThree (LON:STEM)

Not much to comment on since it’s an in-line report, but the relative resilience of the name’s fee income, derived from it’s >80% focus on contract revenues, shines in the numbers. Shares look good value to me around these levels. Compare where they were just a couple of months ago near 475, when doom and gloom had already fully descended and without the news deteriorating in any meaningful way since. I’ve been topping up in the range 330-350 and would continue to do so today if the position wasn’t by now outsized.

Viz

I've held a little stake in Reach (LON:RCH) for a while.

I'm firmly of the view that this will the leader of a declining industry that has some cash to throw off eventually.

Pensions will be revalued positively with interest rates massively increasing, recurring revenues and assets that can be sold.

Whilst you wait, I locked into I think a 12% divi (from memory)?

It's not going bust and lots of positive noises in the medium term.

Epitychia

Reach (LON:RCH) . Seems to be a race between their pensioners dying off to reduce the pension fund and pensioners dying off who are buying their papers.

Snowbum

Interesting indeed from Wynnstay (LON:WYN) , they do however have a pretty significant competitor in this space from DSM-Firmenich AG (AMS:DSFIR) ‘s Bovaer which is at a more advanced stage in terms of being brought to market.

M48

Paul, your Quiz (LON:QUIZ) dividend question was I think answered in the July 22 investormeetcompany presentation last summer, in Question 2. Basically they said they needed to see a sustainably higher level of profitability. That was a year ago and they obviously passed on this in the most recent results announcement, so could be a couple of years away absent any likely profit growth this year.

Camtab

Nice post Planetx. In trying to find stocks of interest to me in my process the foremost filter has become recognising the challenges we face arising from a fossil fuel era which has been allowed to expand without any form of challenge. That our bills are charged at the most expensive form of fuel being used is a further example. It has also allowed small segmentsof global society to have disproportionate influence on global decisions. Not to mention the fact that these are finite resources produced over millions of years and spent within a few hundred. The whole system needs overhaul but the challenges of doing so even now seem so high. I just wonder if the markets are capable of delivering it and whether private finance isn't a more effective conduit in these circumstances. Of course these circumstances do raise huge opportunities for us investors across hydrogen, renewables, battery to name a few. I think the form of capitalism we see today will be very different from that practised in 50 years time. But Adam Smith wouldn't necessarily have imagined how we practise economics today when he wrote "Wealth of Nations".

Some here will accuse me of trying to make a political statement. I am not. I am trying to think differently, the hydrocarbon age can't and won't last. I as a small investor have to try and work my way through that because the oft stated "it's different this time" is likely for once actually true. Just saying..............

Paul Scott

Morning M48,

Great, thanks for the additional colour on Quiz (LON:QUIZ) re divis.

Regards, Paul.

Wolf of Small Street

Eurozone, especially Germany, looks ropey to say the least.

UK PMI

I take your point about newspaper buyers declining in number. However, a point that I've been pondering, is whether (and how many) people start buying newspapers when they retire? It's actually a nice daily ritual, to get moving & keep fit, to walk to the shops every day, pick up a paper, have a coffee, etc. Hence there must be a certain number of new newspaper buyers coming in as well - almost certainly not enough to offset those who become too old to buy any more papers, or die off as you say.

We may not need to buy a newspaper, as we can get our news online. But sometimes it's a nice little ritual to buy the Sunday Times, or whatever, and spread out the sections. Do some people also perhaps emulate what their parents/grandparents did, as they get older, maybe for nostalgic reasons? (e.g. buying the Radio Times at Christmas, and putting rings around programmes)?

The surprising resilience of demand in the face of big cover price rises does suggest to me that some newpapers could be around for a lot longer than people think. I remember going to an AGM of Trinity Mirror (now Reach) in May 2012. I distinctly remember the then Chairman stating that newspapers had a remaining lifetime of 10 years. Well here we are, 11 years later, and TNI remains a cash machine, spewing out large profits still!

One final point, is why don't newspapers enlarge their fonts? That would both make it easier for older people to read (I struggle with them at 55!), and mean that they can spread out less content in the same space, saving money on editorial costs.

Even if all the articles are written by AI, I'm sure the tabloids in particular would be far more factually accurate than the made-up garbage they tend to publish now!

ryanc106

Bullish!!

davidjhill

Reach (LON:RCH) had been walked down consistently over last 6 weeks on anticipation that the trading updates would consistently underperform expectations. They didn’t and the price has been walked back up again as shorts close and people buy back in for the dividend.

Nothing meaningfully changed in its interims.

gary3980

If I was going to read any paper published by Reach (LON:RCH) , then it would need to be a physical copy - trying to read anything they produce online is awful with the number of ads distorting the format.

Rusty2

I stopped buying newspapers, when I retired, good to read on the train but not at home. I see most younger people, get their news from social media sites, such as tiktok, which is a concern.

My local shop, which used to have lots of newspapers, has hardly any now.

Lots of complaints about AI, getting the information all wrong.

Reach (LON:RCH) sites are awful, so full of adverts, I would not want to use them, on a regular basis.

rogerh

May I ask what instrument you use for buying short term government bonds?

hVIVO (LON:HVO) Another nice £13m contract. looks undervalued to me on a cash adjusted PER of just 10 which, for a CRO and the global leader in its niche looks miserly now.

RDHOWARTH

I bought the bonds themselves - I’m less keen on etfs / funds because I like the redemption. In my SIPP I can’t do that - the Gen Accident Prefs are a poor substitute but probably ok if we turn down. There are money mkt funds you can use now but I don’t know them well afraid.

It does look good David doesnt it. Must be a chance of a beat as the year end draws closer? Full '23 revenue visibility in April update, Liberum thought they had until September to sign new contracts and recognise revenue in the same financial year.

rk71

Alumasc (LON:ALU) (I hold)

Note from FinnCap says the purchase allows Alumasc (LON:ALU) to access to sales direct to contractors (which is ARP Group's strength), whereas Alumasc (LON:ALU) sell through merchants. Looks like an intelligent purchase of a complimentary business. There's been no change to forecasts on the notes as they state it will take up to 3 months to formalise the deal and get regulatory approval.

Like many companies it currently looks cheap P/E 6.2 (with a 32% discount to peers), whilst we await sentiment on interest rates to improve.

Aislabie

I may be too cynical, but where the market seems to welcome the Trading Update from Alpha International (LON:ALPH) I tend to see a busy attempt to skim over a profit warning. There is no mention of "profit", no Net Profit , no Profit before Tax, not even an "Underlying Profit" or even a dreamland EBITDA. Nada , zilch. Almost everything is about Revenue, Operating Income, and meeting (unstated!) expectations

But there is an "accelerated investment programme and maintaining strong underlying profit margins". I tend to immediately translate this to"higher costs and lower actual margins". I do actually approve very much of higher investment in a growing business but it looks like APHA does not want to risk such a straightforward admission.

"The business is on track to deliver another strong year of revenue and underlying profit growth in line with meeting (unstated) expectations"

Alongside this it is admitted that "macro uncertainty has resulted in a noticeably more conservative approach to forecasting and hedging". Also,"revenue from spot contracts (which are...lower-margin) increased by 50%". Toronto did not grow but has "resumed its growth trajectory". The "Portfolio Managers (in June) are "achieving their new business quotas" - which of course are not stated.

I believe that this is in no way a bad company and it is achieving growth in most areas but there seems to more than a hint of embarrassed attempt to avoid being too clear about the actual earnings.

Small Cap Value Report (Tue 25 July 2023) - QUIZ, TSTL, RCH, WIX, STEM, PIER, FA., YU., ECEL, TYMN

Summaries of main sections below

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Paul Scott

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