Small Cap Value Report (13 May 2014) - PURI, ZYT, CAMB, LRM

Tuesday, May 13 2014 by
18

Good morning! I was watching CNBC last night and was struck by how upbeat people seem in America, with the markets there hitting new all time highs. This seems a complete contrast to small caps in the UK, where a mood of nervousness and gloom seems to have hit investors, with some big corrections in the prices of many UK small caps having been in evidence in the last two months.

The chart below demonstrates what a sharp divergence there has been between the FTSE 100 IDX (FTSE:UKX) and FTSE AIM ALL SHR (FTSE:AXX) in the last two months;

Sorry that the SMXX and AXX lines are so feint, I can't see any way to alter them - I'll raise a Stockopedia support ticket, and ask them to darken & thicken comparison lines, to make them more legible.

If you're not able to see the lines, the chart above shows that (rebased to the same level as FTSE 100), that the AIM All Share Index has fallen from a peak of about 6,800 in early March, to just 6,100 now. Whilst over that same period the FTSE 100 dipped to 6,500, and has since come back to about 6,850.

Why do I mention this? Because it makes me more inclined to use the current dip to buy good quality small caps - i.e. we're not seeing a general market downturn, just that pockets of over-valued shares in the small caps area are being corrected. That might well throw up some bargains, where people have become nervous and sold things that they shouldn't have.

 

 

 

PuriCore (LON:PURI)

There was a bizarre price movement in this small cap yesterday, which I hold. There was no news from the company, yet the price was suddenly slammed down about 25% for no apparent reason. Later in the day a trade for 1m shares printed at 25p (a huge discount to the opening price of about 40p).

From enquiries I made, this seems to have been a clumsy seller dumping 1m shares with Peel Hunt, who then were happy to offload the stock for a nice profit at around 32p during the day. Most of…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Realm Therapeutics plc, formerly PuriCore plc, is a biopharmaceutical company. The Company is focused on leveraging its immunomodulatory technology to protect and improve the health of adults and children. The Company has initiated drug development programs based on its hypochlorous acid technology. The Company is engaged in the development of small molecule therapies with potential application for the treatment of diseases in a number of therapeutic areas, and an initial focus in dermatology and ophthalmology. The Company has developed proprietary formulations of its technology, with anti-inflammatory and immunomodulatory benefits. Its pipeline of products include PR013 and PR022, which are in Phase I. PR013 is indicated for allergic conjunctivitis and PR022 is indicated for atopic dermatitis. Realm Therapeutics, Inc. is a subsidiary of the Company. more »

LSE Price
8.25p
Change
 
Mkt Cap (£m)
9.6
P/E (fwd)
n/a
Yield (fwd)
n/a

Zytronic plc is involved in developing and manufacturing of touch sensor products. The Company is also engaged in the development and manufacture of customized optical filters. Its geographical segments include Americas (excluding USA), USA, EMEA (excluding UK and Hungary), Hungary, UK, APAC (excluding South Korea) and South Korea. Its products incorporate an embedded array of metallic micro-sensing electrodes. Its technologies include projected capacitive technology (PCT) and multi-touch mutual projected capacitive technology (MPCT). PCT touch sensors can be constructed from one, two or three layers of laminated, toughened glass. Its sensing products offer touchscreen solution for applications, such as leisure, digital signage, retail, surfaces, banking and industrial applications. Its touch sensors are used in video jukeboxes and slot machines. The PCT touch sensors are used in a range of workplace applications, from medical diagnostic equipment to oil field machinery controls. more »

LSE Price
399p
Change
-6.1%
Mkt Cap (£m)
68.2
P/E (fwd)
13.4
Yield (fwd)
6.4

Cambria Automobiles plc is a motor dealer, which is engaged in the sale and servicing of motor vehicles. The Company is engaged in the provision of car vehicle sales, vehicle servicing and related services. It is a retailer of new and used cars, commercial vehicles and motorbikes. It operates on a dealership-by-dealership basis. It operates from approximately 30 sites with a total of over 50 dealer franchises. It operates dealerships across England, from the North West through the Midlands, down to Kent in the Southeast and across Exeter in the South West, trading under local brand names, such as Dees, Doves, Grange, Invicta, Motorparks and Pure Triumph. Its brand portfolio comprises Abarth, Alfa Romeo, Aston Martin, Dacia, Ford, Fiat, Honda, Jaguar, Jeep, Land Rover, Mazda, Nissan, Renault, Seat, Triumph, Vauxhall and Volvo. It also provides ancillary services. It offers finance and insurance for the execution of the transaction along with service plans to maintain the vehicle. more »

LSE Price
51.21p
Change
-3.4%
Mkt Cap (£m)
53.0
P/E (fwd)
6.8
Yield (fwd)
2.0



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27 Comments on this Article show/hide all

PhilH 13th May '14 8 of 27
3

In reply to post #83348

Spaceandpeople (LON:SAL) seems to have few fans at the moment plummeting to deeper depths today. Does it remain worthy of a place in a portfolio?

David try explaining your rationale as to why you feel it may or may not be. Firstly Paul is not here to give investment advice. His criteria and risk profile might be quite different to yours. 

You'll find the community quite supportive of exploration if you're prepared to put your ideas out there.

Hope that helps

Phil

Professional Services: Sunflower Counselling
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MrM 13th May '14 9 of 27

Regarding Puricore (PURI), the balance sheet looks very weak, current assets only 18% more than current liabilities, and the interest cover is bad as well. The earning and margins are negative, what is there to like about the company?

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Paul Scott 13th May '14 10 of 27
5

In reply to post #83348

Hi Welshborderer,

Market sentiment is very much against Spaceandpeople (LON:SAL) at the moment, certainly.

We've not had any more news from the company, so we just have to form a view based on the published information. The share price going up or down doesn't change that, it's just a gauge of the balance of buyers & sellers in the market at any point in time.

Regards, Paul.

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Paul Scott 13th May '14 11 of 27
1

In reply to post #83351

Hi MrM,

Here's a link to my views on PuriCore (LON:PURI)

Regards, Paul.

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bsharman 13th May '14 12 of 27
1

Hi Paul. This may be a very basic question... but how do you know when there is an overhang of shares in a particular company? Also as an aside - If I had a couple of million (which I don't) say and wanted to buy a large number of shares in a small cap company but wanted to buy from an existing holder (for example) how would I go about doing this in practice? I have always traded online via a broker and wondered how the actual mechanics of the market work. Hope this is not a silly question!

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Paul Scott 13th May '14 13 of 27
13

In reply to post #83354

Hi Ben,

how do you know when there is an overhang of shares in a particular company?

I usually just ask my broker. They see more detail about which Market Makers have stock available, and have relationships with the MMs, so know how to find out if there is stock available. Also it depends how easy it to buy. I always start by probing to see if there is stock available below the mid-price. If a share is priced at say 62p Bid/ 65p Offer, then I might ask my broker to buy 5,000 shares at 63p to test the water. If we get filled, and the MM asks if we want any more, then my broker would try to get him to show his hand (i.e. let us know if there is lots of stock available, or just a bit). If we get the feeling that there is lots of stock available, and there is little buying interest in the market, then I might decide to wait a day or two for the price to drop a bit more.

So it's a game of cat & mouse really. You want to buy the stock as cheaply as possible, and you're also following the live Level 2 information, to see what other people are doing, and you can spot patterns which indicate with reasonable reliability if there is a seller churning out stock - i.e. if buyers are hoovering up stock, the price should start moving up. If it doesn't then there's an overhang, and I'll get my broker to find out where the stock is, and to let me know when it's nearly finished, then I'll buy.

So you just try things out to get a feel for what the underlying supply & demand of the shares are in the market.

 

If I had a couple of million (which I don't) say and wanted to buy a large number of shares in a small cap company but wanted to buy from an existing holder (for example) how would I go about doing this in practice?

In this type of situation I've rung the house broker to enquire if there is a big buyer or seller, and have organised the transaction off-market with them. And/or I've rung the company Chairman - sometimes they are happy to engage, other times they just refer you to the house broker.

The other method is to just repeatedly buy in the market, and get your broker to ask the Market Makers to sniff out a big line of stock, and then once you are known to be a big buyer, the stock tends to come to you, via the MMs. Trouble is, you run the risk over paying the MM a big fat profit margin, if he plays it shrewdly - i.e. if he beats down the seller on price, and talks me up on price, then he can make a nice chunk in the middle for himself. Hence why I tend to give a low price, and just say take it or leave it, if I'm a big buyer.

That's not exhaustive by any means, but gives a flavour hopefully.

 

EDIT: The other thing to follow is the "Holding in Company" announcements issued on the RNS. You can often see that an overhang in the market ties in with a major shareholder reducing their stake. If you want to buy a big stake, that tells you who the seller is, so you can just ring them up using the tel no on the RNS, and make them an offer direct! I've done that before, and say offered someone 10% below the market price to take out the whole lot. They're usually frustrated with drip-feeding stock into a falling market, so will quite often take your offer. 

Cheers, Paul.

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bsharman 13th May '14 14 of 27
2

In reply to post #83355

Paul. A massive thank you for the detailed and informative answer! Best Wishes, Ben

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jamesdougal 13th May '14 15 of 27

Hi Paul

I've often struggled to find details of directors' renumeration - do you know any good places to look?

James

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Bezhe 13th May '14 16 of 27
1

In reply to post #83358

Maybe you have struggled because you have been looking for "renumeration". It's "remuneration". But seriously, the annual report for any quoted company should have a detailed note on directors' salaries, bonuses, shares, options etc.

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Gostevie 13th May '14 17 of 27
1

In reply to post #83358

Hi James,

It should all be in the Annual Report and Accounts, which in turn should be available on the company website.

Steve

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jamesdougal 13th May '14 18 of 27
1

In reply to post #83360

Ha - probably!

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Jardine 13th May '14 19 of 27
1

In reply to post #83355

I would be interested to know what additional information "Level 2 market information" gives you and whether this is worth paying for? Also, what is the most cost effective way to subscribe to get Level 2 data? I've never looked at a Level 2 screen so I'm not aware of what it shows.

Andrew

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Aislabie 13th May '14 20 of 27
5

Paul
re. Cambrian you say "he likes to buy freeholds cheaply (which is an excellent strategy - freeholds should be much more popular with investors than they are)"

I want to raise a key point here. It is possible that a garage constitutes a special use building for which there may be some justification for acquiring freehold, as it is in a sense part of the industrial machinery of the company. In this case the purchase may be justified.
But what I have seen much more often is small companies buying their office building or standard industrial estate unit and this is almost invariably crazy. The company is using its precious cash flow (most commercial mortgages do not go beyond 75%) to acquire a major asset (often their largest).
1. In a sense, as the business of management is management of assets, they are now in the property business
2. They have complicated both expansion and downsizing of their business, as each decision will have to be weighed in connection with a property asset business.
3. They have got into the property business without answering the two basic questions that a real property investor will ask: A) is this the best building that I could buy for the money?
B) is my business the best tenant for this building?
Since the answer to one or both of these questions is probably "no"they have made a bad property decision as well.

When arguing with companies who claim that the ownership gives them an appreciating asset, I have frequently been able to point out that the return on putting the property downpayment into expanding working capital gives a far better return.
I'd be happy to defend this at a future ShareSoc meeting.
So while investors might like the diversified asset strength of a freehold property, they should, in my opinion, look very squinty-eyed at a management that that thinks it is a good way to spend cash flow

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Yantomawr 14th May '14 21 of 27

In reply to post #83371

Hi Andrew, I believe that ADVFN allow you to download a free guide to "Level 2" from their website.

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RobbOnTheRock 14th May '14 22 of 27

In reply to post #83373

Hi,

They do, and having read it, I'm still not 100% clear on how to use it :)

I think it's something that you try and get a free trial on and then try and figure it out (I.e. Learn from your mistakes type deal).

I'm still trying to work out if I would see much benefit of it...

Cheers
Andy

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DJLJ23 14th May '14 23 of 27
1

Andy,

I tried the level 2, for 2 weeks and struggled to get the hang of it. I did the course with Naked Trader and his advice was that it took months to really understand what its telling you. However, on the course, he clearly demonstated, with real trades, that you could identify short tern trends and take advantage of them.
For me, i concluded, that my portfolio size and trading style that level2, was not for me.
hope this helps david

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cig 14th May '14 24 of 27

In reply to post #83374

If you're not trading at least 5 figures amounts with a direct market access broker (or like Paul via a full service broker with DMA and direct market maker contacts) level 2 is unlikely to be very useful. It's also a bit of a poker table as people play cat and mouse with showing their hand, so if you're not into poker that may not be for you. Finally with today's fragmented markets (there are multiple exchanges and off exchange channels), level-2 on a single exchange will at best show you a partial picture.

And in any case it only will get you intra-day (or maybe sometimes intra-week) advantage, it's all a bit of a wash for a long term retail-sized investor: sometime you get a bad entry, somewhat you get a good one, and they will tend to average each other out in the long term. It's more useful if you actually market make yourself, or if you trade market moving volumes.

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RobbOnTheRock 14th May '14 25 of 27

In reply to post #83380

Gents,

Thanks, that's largely similar to my own conclusions, hence why I have not tried it out.

Seems a bit complex for me at this stage in my investing career ;)

Cheers
Andy

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Jardine 14th May '14 26 of 27

In reply to post #83380

Thanks for the comments regarding use of Level 2 market data. One further question on this topic. Paul noted in a tweet (on Twitter) on 5 February:

2m shares just gone through at 40p on French Connection (LON:FCCN) (10% premium to market price earlier this morning). Interesting!

This was the prelude to a sharp rise in the share price of French Connection (LON:FCCN) which is now 87p.  Would this information have been sourced from a Level 2 screen or from somewhere else?

Andrew

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cig 14th May '14 27 of 27

In reply to post #83391

Level 2 is the set of public unmatched limit orders sitting on an exchange's order book. Level 1 is just the best one of these on each side, aka bid/offer.

Here Paul was talking about a past trade (rather than a price offer), you can see them on the LSE website for instance, with 15 minutes delay for the free feed. Some trades' publication may be delayed. I'm not sure there's a requirement to publish off market or internalised trades (a broker matching two of their own clients without an external trade) in the UK, in the US they have a consolidated tape with everything.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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