Small Cap Value Report (15 Jun 2016) - WGB, SERV, SFR, CHOO, CGS

Wednesday, Jun 15 2016 by

Good morning!

We're seeing a relief rally today, as the latest poll last night showed a small lead for the remain side. The last few days have certainly been a wake-up call to those of us who believe that a leave vote is the best thing for the country in the long run (and I fully appreciate that some readers disagree, it's a matter of opinion). There's no doubt that a leave vote would be chaotic for the markets, and would probably put a big hole in our portfolios for a while anyway.

We had another terrific, and courteous discussion about Brexit in the comments section after yesterday's report. Thanks to everyone who is contributing to the debate, which has been the best I've seen anywhere. Maddox in particular, who works in the City, left us in no doubt that a lack of EU passporting would lead to many job losses in the City, as banks, etc, relocate some operations to within the EU. I've heard the same thing from a friend who is Co. Sec. for an overseas bank which has London as its European HQ.

Some other fascinating snippets I picked up - apparently 80% of Dutch people want the UK to leave the EU. The article suggested this is because they are also disillusioned with the EU, and hence want the UK to open the door to them also leaving. Mind you, I did wonder whether they just think we're a pain in the neck, and want us out for that reason? Germans and Poles have apparently been polled, and strongly want the UK to remain in the EU - although it's pretty obvious why - for self-interest.

Probably the most astonishing intervention, was George Osborne basically blackmailing the electorate to vote remain - saying yesterday that he would impose an emergency budget, increasing income tax by 2%, and other punitive measures, if we vote out. He seriously thinks that he will still be Chancellor after an out vote? It's a diabolical tactic too, which to me indicates appalling judgement, plus malice. So he needs to be kicked out, regardless of the outcome of the vote.

In terms of the markets, it's obviously all about Brexit right now. When the polls & betting odds move towards remain, then shares go up. When they move towards leave, then shares go down. Goodness knows what would happen on an actual Brexit vote? Probably a…

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Walker Greenbank PLC is an international luxury interior furnishing company. The principal activities of the Company are design, manufacture, marketing and distribution of wall coverings, furnishing fabrics and associated products for the consumer market. It operates through two segments: Brands and Manufacturing. The Brands segment is engaged in the design, marketing, sales and distribution, and licensing activities of Sanderson, Morris & Co, Harlequin, Zoffany, Anthology and Scion brands operated from the United Kingdom and its foreign subsidiaries in the United States and France. The Manufacturing segment is engaged in the wall covering and printed fabric manufacturing businesses operated by Anstey and Standfast. It sells in approximately 80 international markets. It operates through its subsidiaries in the United States and France, and its own sales operations in Holland and Dubai. The Company has showrooms in London, New York, Paris and Dubai. more »

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Servelec Ltd is engaged in providing software, hardware and services to the health and social care, oil and gas, energy and utilities sectors. The Company's segments include Servelec Health & Social Care, Servelec Controls and Servelec Technologies. Its Servelec Health & Social Care division develops enterprise-wide systems for implementation across community health, mental health, child health, social care and hospital-based services. It supplies software and information technology solutions and services into the healthcare and social services markets. Its Automation division is made up of Servelec Controls and Servelec Technologies segments. The Servelec Controls segment is engaged in the provision of control and safety systems to oil and gas, power and nuclear industries. The Servelec Technologies segment specializes in wide area telemetry control system, business optimization consultancy and remote telemetry units to the water, oil and gas, and rail industries. more »

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Severfield plc is a structural steelwork company in the United Kingdom, which is engaged in construction contract business. The Company serves the construction and infrastructure markets. Its construction sectors consist of commercial offices, industrial and distribution, stadia and leisure, retail, and data centers and other. Its infrastructure sectors include transport, power and energy, and health and education. It has worked on over 120 projects, which include One Angel Court and Nova Victoria in London; Anfield Stadium; London Bridge Station; Nissan paintshop, Sunderland, and Dublin waste to energy facility. Its subsidiaries include Severfield (Design & Build) Limited, which designs, fabricates and constructs structural steelwork and portal frames for the warehouse, distribution and industrial sectors, and Severfield (NI) Limited, which delivers constructional steel products in the United Kingdom and Irish structural steel market. more »

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115 Comments on this Article show/hide all

Flackwell 15th Jun '16 16 of 115

Who wants to stay in apart from the hypocritical scots who want closer european union but a distant relationship with their closest neighbour

And personally I'm glad that labour voters are thinking for themselves instead of following the party line

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Fegger 15th Jun '16 17 of 115

If Brexit happens I am sure the UK will break up. It would be the double combo if being outside Europe which a majority of Scots wish to stay in plus Scotlands complete lack of identification with the uncaring market obsessed and self serving current Conservative party. Scots as a nation have a much greater social conscience.

The current Conservative party reminds me of the Labour party in early nineteen seventies where ideology was being pursued without reference to reality. Current examples were to make all schools academies plus the sell off of social housing without replacement. Grass roots supporters are now continually rebelling as the leadership are so extreme.

And most importantly the current Conservative leadership have demonstrated their complete lack of competence. I remember from A level politics studying manifestos and how much were actually put into practice. And also how many actions of government are related to having to deal with responding to world events, economics, disasters, actions of other countries and domestic events. So you need competent leaders to do this.

The current 3 top Conservative ministers plus Boris Johnson have truly shown who they are recently and we should believe them (to paraphrase Maya Angelou) Osbornes budget contained critical flaws with regard to disabled people and was rightly overturned. He now has been completely inappropriate in threatening budget cuts if he doesnt get his way on remaining in EU.

I dont think I have ever seen such continued imcompetence from a Home Secretary over the Child Abuse Commission with the drawn out mistakes again and again in appointing a chair.

Boris Johnson has not really been picked up on this but has made extraordinarily offensive statements about race and immigration during the campaign which show him to be unfit to be he PM of a diverse country

And then Cameron who has played it completely wrong and been at the helm of the incompetence. And shown to be lacking in leadership skills which do require compromise and deals with people and not just trying to bully and bluster your way through all the time.

I actually have come round to thinking that coalition governments govern better. I think we need a central coalition and to get rid of the extremes which are doing us no good

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ap8889again 15th Jun '16 18 of 115

I actually rather admire Cameron for calling the referendum. It is an issue that has poisoned politics for some years, and clearly there are severe differences of opinion within parties and between the experts.

Without a workable consensus, with a divided legislature and an executive facing the prospect of big bills for the various calamities befalling Europe, it was entirely right for the executive branch to ask the great British public to indicate a clear preference one way or another.

Whatever the result, democracy will have spoken, and a mandate achieved for a decisive course of action. It was a brave move by Cameron and although I oppose him on this matter I do not think less of him for seeking the will of the people.

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Fegger 15th Jun '16 19 of 115

And the problem now with the EU is that we are between a rock and a hard place.

I went to a fascinating debate at Conway Hall, London last weekend between a Remain law professor and a Leave former Irish MEP (for 10 years)

And in my view we should work together with the other European countries and to isolate ourselves I think is not in our best interests. And economically I think we are better off in the EU.

But the MEP pointed out that she had spent 10 years in the EU and in her view you cant reform it or the Treaties which govern it). You now need all 26 countries to agree changes . She pointed out that Cameron says he has got concessions but whether they will happen is another matter - hes been promised but will they go through among the 26? And she decided to stop being an MEP as after 10 years she felt she could never influence the change she felt was needed.

So it leaves me more pessimistic than before whether the EU can be changed for the better. But I still voted Remain (postal)

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Owen001 15th Jun '16 20 of 115

In reply to post #135956

At last someone who appreciates what DEMOCRACY is all about! I also admire Cameron for calling this referendum - let the people decide & not some invisible civil servant hiding in Brussels. Don't forget that a 100 years ago the sun never set on the British Empire - why do the british people not believe or have the confidence in their own ability. (PS - I am not british)

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oscar247 15th Jun '16 21 of 115

In answer to the continuing threats and intimidation as exemplified by Osborne's latest hysterical outburst in support of campaign fear, I recommend :-

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herbie47 15th Jun '16 22 of 115

Paul, enjoy your lunch, if you have a chance Accsys Technologies (LON:AXS) results are out today, I believe you are a holder. Look quite good but still a loss, hopefully next year will be in profit.

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lucien2k 15th Jun '16 23 of 115

Outsourcery (LON:OUT) going into pre-pack administration, I know Paul has reported on them before and no surprise to anyone that has followed them.

The brexit debate in the media moved closer to insanity today with Farage vs Bob Geldof on the Thames. I don't know if the issue is that the media covers only the craziest statements (ala Trump) or if our politicians have decided that the best way to counter distrust of politicians is to attempt to plumb new depths of distrust.

I don't think we have had a reasoned debate, the article by Dyson last week is the closest thing I have seen to a logical argument.

A vote to leave will mean chaos in the markets, but we'll adapt, improvise and overcome. As always.

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rhouchin 15th Jun '16 24 of 115

In reply to post #135905

JohnEustace, I think that is a great last point. Which ever side you are on, the way Cameron et al. have progressed a move from the status quo (to attempt to create his legacy in my view) has been reckless - renegotiation and then on to referendum.

If a CEO tackled a situation in a similar way, and did as much to destabilise stakeholders, he would have already been shown the door. The lack of preparation for the debate (as evidenced by continuous spurious facts and claims) and the vote (market reactions etc.) is severe mismanagement.


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Golspie 15th Jun '16 25 of 115

Will the narrow losers accept the result? The cynic in me suggests that in fact some Remainers and Leavers would prefer a narrow Leave result on the basis that it will send shockwaves to the EC, who will probably offer greater concessions – which will have to be on the ECJ and Immigration – to persuade us to hold another referendum. There is after all considerable precedent for follow-on referenda where variations to EU treaties have been rejected by various different countries.. The would be a short-term hit on the markets, but in the long term the markets will recover and I suspect that the electorate would be happy to see such an outcome.

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Casabanker 15th Jun '16 26 of 115

I think there are too many issues facing the electorate over remaining or leaving the EU. Perhaps we should have been allowed to vote on whether we wanted more political integration before the Mastricht Treaty was signed. Better still, consultation on the decision to introduce the single currency. The single currency is the big mistake, the elephant in the room in my opinion. It worked during the good times but clearly found wanting in the bad. That decision shows a lack of good government in my opinion. That has led me to look at the system which was featured on the programme done my Paxman in Brussels.There is a Parliament but no government and no opposition. The UK system has its weaknesses but it has generally served well over centuries. When we vote in our own general election, we can see from the various manifestos, what is being touted and each one of us has to make a value judgement when voting. I have voted at European elections but haven't a clue what i am voting for! Consequently, the turnout to vote is always low for European elections. I don't feel I have on iota of influence.

The weak European government system led to the introduction of the Euro. The result is 18 countries have the same currency and the remainder (9 I think) has their own currency. The UK had intentions to join the Euro but thankfully failed the first trial of the ERM.

The Tories, in the late nineties, were totally split over Europe and consequently lost the next election to Tony Blair and co. It was he who kept the UK out of the Euro, probably his best and most important decision of his whole tenure. Just think what life in the UK would be like if we had adopted the Euro. We have more debt than Greece. We have witnessed the efforts in Southern Europe to reign in public expenditure ad nauseum since the financial collapse of 2008. It's futile and mostly it hasn't worked.

I am not against an integrated Europe. It's the system and method that is wrong. A United States of Europe is possible but first you need political union and then banking union and then a single currency could be introduced.

I am voting out because I believe our system, in spite of its weaknesses, is still vastly superior to the one established in Europe.


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Frankyboy 15th Jun '16 27 of 115

Moron Brexit I'm afraid.... yes I really am afraid! Sorry to hijack your thread Paul..... but these are special times and stock market related. Slap me on the wrist if these posts are inappropriate.... I won't take offence!

Just an interesting side dish, which I heard on the 'Light Programme' on the wireless yesterday. I heard a Lorry driver bemoaning the fact that the EU have imposed a new Lorry driving test and the lorry driver being interviewed was annoyed that he had to cough up £500 to sit the test, even though there was nothing new in the requirements. Really irritating for him.....but that's standards and exams for you.
Later a lady phoned in saying that, prior to EU membership, she can remember when her lorry driving husband used to spend over half a day waiting for all the paperwork to be competed at Dover!

Also the fishermen are getting a lot of airtime but people forget that you need regulation there you remember that cod was TOTALLY fished out on the east coast of Canada in 1992! It was only last year that they started to see solid recovery.... that's 20 odd years. With the massive human population density surrounding the North Sea, combined with mechanised automation, can we risk a free for all?

These are just two tiny considerations from a sea of possibilities where it's impossible to foresee outcomes.
Scotland nearly separated on the back of their, at the time, confidence in their oil income..... are we doing the same with the OUR financial confidence based on our (currently) relatively successful economy? Is the related real risk of UK break up worthwhile?

Immigration is a huge issue, but even here perhaps it might be worthwhile waiting to see if the 4yr benefit suspension works. The opposing risk to this is the likelihood that we'll have a 2yr stampede through the closing British entry door before it closes. Is immigration 'a heads we win, tails we lose' situation for us?
I heard today that several European countries economies are starting to outstrip our rate of progress. Could it be that, in ten years time, our youngsters will be going over to the continent to make their living? Who knows, certainly not me.

All I can say is that I'm out of the market at the moment, as neither decision is obviously better or offers short term prosperity AFAICS! Every imaginable, or unimaginable, outcome is possible with this decision.

Scary times.

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ap8889again 15th Jun '16 28 of 115

I would be very interested to find out what our gracious host made of Sir Phillip Green's evidence to the Select Committee today over the BHS debacle?

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Graham Ford 15th Jun '16 29 of 115

The supposed economic benefits of being in the EU don't seem to have translated into high GDP growth for the EU overall, or low unemployment in the EU overall. Some countries stuck with the Euro seem to be suffering terribly - Portugal, Greece, Spain, Italy. Whether that is solely the fault of the Euro or the fault of EU membership or their own governments or a combination is hard to know. What is sure is that membership of the EU does not automatically confer good economic performance. So from that it is hard to believe that leaving can be anything like as bad for the economy as the doom-mongers say.

How bad will it be for the City if we leave?

Long standing commentator David Buik is very relaxed about it.

Research commissioned by Neil Woodford has also led him to believe that the effect on the British economy will be nothing like as dramatic as people expect.

I think we need to remember that, if the UK leaves, tariffs on our exports to the EU would be mitigated by a weaker pound and by potentially reduced tariffs on imports to the UK from non-EU countries.

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Funderstruck 15th Jun '16 30 of 115

Paul; Sensible & balanced report as always.
Cameron expected the referendum to quell the squabbles in the Party; but where does he really stand ; switching from an aggressive reform position and getting elected on changes he would demand from Europe to going into discussions on a Remain ticket. How is that for a tactic!. What was he promised by Merkel.....President of Europe?
His about face and disgraceful methods to scare the populous will see him and Osborne unable to survive no matter the result. True colours revealed.
The key element in this is to regain our Democracy , other aspects are secondary but still important.
One question not asked , is what plans do Europe have for the next 10 years. Clearly Federalisation to make the Euro work thus reducing further British influence, but also their own army which will weaken NATO. Etc Etc.
Scotland will stay with Britain , they cannot afford otherwise and would not wish to accept greater austerity and their government overseen by Germany.....What a Mess.

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gus 1065 15th Jun '16 31 of 115

Re. Paul's comment about Castings (LON:CGS) having plenty of cash, worth noting that they are proposing a 30p per share special dividend distribution in September in addition to the regular and quite reasonable regular dividend flow.


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cyberbub 15th Jun '16 32 of 115

One thing that few have mentioned about the Referendum if the result is 'Leave' (which I believe it will be), is that it will probably start the ball rolling towards further countries leaving, and in due course the disintegration of the EU entirely. Where would that leave the stability of Europe and its markets? Where would it leave the UK's place in Europe, having to deal with dozens of separate countries? Do we really want to return to a fractured continent with ever-shifting alliances?

To Brexiters I say, the EU is far from perfect, but be careful what you wish for.

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Calalily 15th Jun '16 33 of 115

As Winston Churchill said we are of Europe but not consumed, I believe he was and still is correct. If we leave the EU we are still in Europe and will still trade with Europe. GErman carmakers have now said they will fight any raise in tariffs ... Clever people. Mervyn King has said its over done both ways and doesn't believe there will be a great shift either way.

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JohnEustace 15th Jun '16 34 of 115

In reply to post #135950

I agree. We didn't really appreciate Nick Clegg and Danny Alexander until we saw what things are like without them.

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ed_miller 15th Jun '16 35 of 115

In reply to post #135989

Surely it was Brown, not Blair, that kept us out of the Euro. Blair wanted us in the Euro and was the most pro-EU PM we've had. Brown was more sceptical of our joining the Euro and introduced his famous 'tests' knowing we wouldn't meet them. Not that I'm any fan of Brown either, who sold down our nation's gold reserves at the bottom of the cycle, and who seems to have slept through his Economics 101 lecture in thinking he could overcome human nature's fear and greed and somehow stop asset markets experiencing bubbles. Not even Brown's massive ego could end 'Boom and Bust.' Still, natural justice saw that he got what he had long wished for.

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


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