Small Cap Value Report (15 Jan 2016) - MTC, BON, FIF, QTX, CTO, DIA, EGS

Friday, Jan 15 2016 by

Good morning!

The falling main Indices seem to be rubbing off on small caps, which was bound to happen sooner or later. In particular, I've noticed that some of last year's fashionable growth stocks, which had run up to racy valuations, seem to now be coming back down somewhat.

With the lack of liquidity in many small caps, it doesn't take a lot of incremental buying or selling to move the price a lot. Therefore inflated prices can be a bit of an illusion - the price is on your screen, but you couldn't sell any decent quantity for that price.

In my first report of this year, I commented that investors had become complacent, and that it looked a good time to take some money off the table, because growth stocks in particular had seen a very strong 2015, and seen a one-off re-rating to a much higher PER. Perhaps we're now seeing a bit of mean reversion, with investors less willing to price growth stocks to perfection?

It's always worth thinking about risk:reward. If something is fully priced already, where's the upside? It might continue rising on momentum in a bull market, but are we still in a bull market? The jury's out on that, but it's starting to look like the beginning of a bear market to me, or at best maybe just a sideways market.

Proactis Holdings (LON:PHD)

My latest CEO interview was recorded yesterday - here's the link.

Hopefully my interviews give a flavour for the type of people running companies that I like, and allow us to dig into key issues - with most questions submitted in advance by readers. If people like them, I'll keep doing more.

Mothercare (LON:MTC)

Share price: 218.5p
No. shares: 170.8m
Market cap: £373.2m

Trading update - this was issued yesterday, but I overlooked it, so given my focus on retailers, let's go back and check it out.

I like the summary box (see below) at the start of the RNS - anything which helps investors quickly assimilate the key points is very helpful, since we have so many announcements to absorb rapidly whilst still bleary-eyed, between 7-8am - the most important hour of the day. Providing of course that the summary is accurate, and not just cherry-picking the positives! (often these things do get over-PR'd! Which of…

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Mothercare plc is a retailer for parents and young children. The principal activity of the Company is to operate as a specialist omni-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes the Company's franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear; home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the world in over 60 countries through its international network. more »

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Bonmarche Holdings plc is a multi-channel retailer of womenswear and accessories. The Company offers clothing and accessories in a range of sizes for women through its own store portfolio, Website, mail order catalogues and through the Ideal World TV shopping channel. The Company's subsidiaries include Bluebird UK Topco, Bluebird UK Holdco and Bonmarch Limited. The Company has approximately 310 stores across the United Kingdom. more »

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Finsbury Food Group Plc is a United Kingdom-based bakery manufacturer. The Company is engaged in producing a range of cakes, bread and bakery snack products for retailers and the foodservice channel. The Company's segments include UK bakery, Overseas and Group Operations. The Company's UK Bakery segment manufactures and sells bakery products to the United Kingdom's multiple grocers and foodservice sectors. The UK bakery segment primarily includes the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Campbells Cake Company Ltd, Johnstone's Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. The Overseas segment is engaged in the distribution of the Company's product manufactured in the United Kingdom along with the sale of third party products primarily to Europe. Kara is the Company's foodservice brand. Its licensed brands include Disney, Thorntons, Weight Watchers, Vogel's, Village Bakery and Cranks. more »

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  Is LON:MTC fundamentally strong or weak? Find out More »

13 Comments on this Article show/hide all

herbie47 15th Jan '16 1 of 13

Good morning Paul,
Finsbury Food (LON:FIF) update looks good to me.

Re: bear market does the index have to fall 20% to be called a bear market?

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purpleski 15th Jan '16 2 of 13

In reply to post #118079

Yes lovely update from Finsbury Food (LON:FIF). I have held since Mar 2014 and have not (stupidly) topped up on the way up. It is a keeper for me any pull back caused by the current market I will buy some more.

Re bear market see:

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herbie47 15th Jan '16 3 of 13

In reply to post #118085

Thanks, I was rather late getting into Finsbury Food (LON:FIF), yes a strong hold and I will top up if it falls. The last trading update also did not mention margins, so revenue is up 46% but margins maybe reduced. I think the directors share awards are very generous under the LTIP. 

The FT100 has fallen 18% since April 15 and the FT Allshare is down about 15%, so we are close to 20% now so we will see. I'm buying a few shares where I see value.

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Hydrus 15th Jan '16 4 of 13

Thanks for PHD interview - I find the interviews very helpful.

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AstonGirl 15th Jan '16 5 of 13

Re Finsbury Food (LON:FIF), there was a conversation on Twitter this morning between some of us who are shareholders re the lack of forward guidance in their HY results. Historically they never have included this; however it would be of benefit so I emailed them asking if it could be included. Once I get a reply I shall report back.

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dscollard 15th Jan '16 6 of 13

been pondering the macro too: lots of highly leveraged oilers who will now struggle to service their debt: JNK approaching 2009 levels which is a bit spooky. Baltic Dry index also oddly low. Last week's global economics prospects report is on my weekend reading list, that seemed to cause some dismay to boot.
Not sure yet if this is a dip to be buying: I'll wait for some green shoots first. That said, the darkest hour and all that

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Igotts 15th Jan '16 7 of 13

Just a tiny point for information:
TLA stands for Three Letter Abbreviation. An acronym forms a word using the initial letters, such as Laser and Sonar!
Why do most people get it wrong?

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simoan 15th Jan '16 8 of 13

In reply to post #118124

Why do most people get it wrong?

I blame it on genetics, in particular a lack of "pedant" genes :-). Or more likely, it's just the internet doing what it does best; spreading language misuse and misinformation. I certainly wish it was all I had to worry about...

All the best, Si

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Paul Scott 15th Jan '16 9 of 13

In reply to post #118124


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Catstycam 15th Jan '16 10 of 13

Good evening Paul. Thanks for your comments. Regarding the state of the markets, do you think things are different now to the last fall back in around October last year?. It does appear that although there is still the same concern over Chinese growth that the main driver this time is the falling oil price. Whereas a falling oil price would normally be thought to be good for growth of the economy it seems that this time the market is seeing it not only as there being over supply but lack of demand due to slowing growth from at least China. Personally, the falling price surely means that costs should be lower for companies and puts more buying power in consumers pockets.

Whereas back in October I sold most of my holdings only to buy back in at a slightly higher price (typical mistake), trying to time the market, this time I have tried to be braver and hold my nerve. Shares generally bounced back reasonably quickly. However, with some of my holdings taking a big hit over the last 2 days, ie INL, I would be interested in your views. Noticeable today was just how fast share prices fell at the day end, meaning unless one was able to follow the market closely most would have got caught out.

I believe now is not the time to buy into any company not making a profit and to be diligent when picking any stock to invest in. I use a number of different criteria before investing, including those detailed in the Zulu Principle, the Naked Trader as well as Stockopedia however this does not protect against any market fall.

It seems the market is looking for any reason to worry about and drive the market down. I guess when the tide goes out it takes all the boats with it, and we see who is swimming naked!.



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cyberbub 15th Jan '16 11 of 13

Catstycam, I think you are being too rational. There can be the world's best company, making fat profits with no debt and on a p/e of 2, but if holders are still selling then the SP will fall further. The problem with any steep fall is that it creates a herd effect which then becomes hard to stop. And given how many people are highly leveraged, if one part of their porty falls by 10% they will probably be forced to liquidate a different 40% to cover it. Shorters then come in to force their hands further.

At times like this we can see how much Mr Market is simply a human pendulum, swinging between greed and panic and greed and panic.

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herbie47 15th Jan '16 12 of 13

In reply to post #118154

I think it maybe different from October 2014, then the market only fell about 10% so it ws just a correction, now the market has already fallen over 15%, the FT100 18%. Re Inland Homes (LON:INL) I sold mine about 2 weeks ago, they did go up rather a lot recently, most shares that have done that have been hit this week, there does not seem to be much selling in INL so it is probably market makers marking it down? Maybe bounce next week? Wise to take some profits and have a war chest ready I feel.

It interesting watching the Dow Jones index going up and down around 16,000 level worth watching to see how that ends up.

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Catstycam 15th Jan '16 13 of 13

In reply to post #118166

Thanks for the reply Cyberbub. I am sure you are correct about being rational and I agree with your comments. I hadn't thought about people being highly leveraged being forced to liquidate some of their holdings in order to cover others as I have never shorted stock myself. I think what caught me by surprise with INL was that it suddenly fell steeply at the day end and with prices being delayed by 15 minutes without having direct access to live prices unless I constantly checked on line with my broker account (which isn't practical) there was very little I could do about it. I am a believer in using stop losses but I didn't think it may come into play with INL today.

Whan rational seems to go out of the window where do we go?.

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 Are LON:MTC's fundamentals sound as an investment? Find out More »

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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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