Small Cap Value Report (17 Mar 2017) - GYM, STHR, IKA

17th Mar '17 by Graham Neary

18 comments 10521 reads

GYM (LON:GYM)

Share price: 173p (-6.5%)
No. shares: 128.2m
Market cap: £222m

(I have a long position in GYM.)

It was helpfully pointed out in the comments last night (by rhomboid1) that two private equity backers of The Gym intended to sell down the rest of their stakes.

It's a large placing for 30.5% of the company and has now been completed at 175p, about a 5% discount to yesterday's closing price.

Unsurprisingly, the share price has dropped today to around (just below) the placing price.

One of the technical hazards when investing in recent IPOs is that an overhang of stock can continue for some time.

Of course, if you think the shares are good value, this can be the basis of your opportunity to keep buying.

The problem is that insiders and private equity backers tend to know the most about the companies they are selling to the public markets, and so it's difficult for public market investors to come off on the right side of the deal.

Anyway, I think the overhang has been cleared now as far as The Gym is concerned.

Though I personally run a very concentrated portfolio when it comes to my biggest holdings, I am very cautious with growth stocks and recent IPOs. So The Gym currently represents only about 1% of my portfolio. But as time passes and as the investment thesis develops, I hope it will prove worthy of adding to.

SThree (LON:STHR)

Share price: 307.5p (-2.5%)
No. shares: 129.6m
Market cap: £399m

Q1 Trading Update

SThree reports a flat performance in Q1 at constant currencies, or up 12% in GBP terms.

This is a global STEM recruitment group with its heaviest weighting in Continental Europe (nearly half of gross profits).

I last reported on it in January, at the results for the year to November 2016. Those results showed gross profit increasing by just 2% against 2015.

The lack of overall growth makes it fairly uninteresting in some ways, but I think it's still pretty easy to defend investing here.

The international/sector diversification it enjoys means that it's flexible to allocate resources where there are the best opportunities, making it less risky than some other players in the recruitment sector.

This helps to explain why it current enjoys a 14x PE ratio (versus the likes of

Unlock with Facebook

Unlock with Google

or Unlock with your email

Already have an account?
Login here

Roly Tavernor

17th Mar '17

Hi Graham

Just wondered why the Stockopedia Quality rating has jumped from 54 in your report on 12 Jan 17 to 87 now?
Seems a lot to me. Many thanks.

Roly

bestace

In a former life I had some involvement in the Bridges Ventures private equity fund which has now disposed of its holding in GYM (LON:GYM), so I can shed a bit of light on their motivations for selling.

The fund started life in 2006 and the intention was always to last for around 10-11 years. As such it has been in wind down mode for some time now with the intention being to have wound down completely by mid 2017. This is in line with the timing of yesterday's disposal so I don't think they have concerns for the future prospects of the business, or at least if they do this is not their primary motivation for selling.

As it turns out, they've sold their final holding at a lower price than they could have realised if they had sold out entirely at the IPO, but they will have multiplied their original investment something like 6-fold so fair play to them.

Ramridge

Hi Graham - Re. GYM (LON:GYM) After my note of yesterday and after taking a long position, there is a placing and the SP drops some 7%.
Never underestimate Donald Rumsfeld's "Unknowns-Unknowns" to trip you up.

andrea34l

Didn't a similar bookbuild sale happen with OTB, and they have since risen above it. Glad I didn't jump into GYM after reading the results and report.... but now watching the price still drift with interest.

Re IKA, I think a Stockopedia rating of 3 says it all

Graham Neary

Many thanks for your insight, bestace

Cheers

GordonRussell

Re GYM : I have read some very positive reviews of their gyms from happy gym members . Their gyms appear to be busy and well supported . Not been into one myself . Added today on the fall at 172p . Comments from Bestace explain the share sale so this should recover in time provided the business continues to grow profitably as of late

clarea

Graham,

Out of interest how many stocks do you hold in your portfolio on average ?

No issues if you prefer not to disclose

Thanks Andy

Just for the avoidance of any doubt, it should be noted there were two private equity funds selling out yesterday and while I may know a bit about Bridges, I don't have any insight into the motivations behind the selling by the other fund, Phoenix Equity, who I think had a bigger shareholding than Bridges.

Hi Roly. I presume the full year results, changing broker forecasts and share price all contributed.

Cheers

Graham

Hi Andy. It varies, historically I've nearly always held less than 10 and often around 6-7, but I'm probably going to start diversifying now with a few more 1%-2% positions where I have less conviction but still want to be involved. I think what matters most is the size of the biggest, high-conviction positions.

Regards

Graham

Thanks

dscollard

on GYM (LON:GYM), as of yesterday 82% of the shares are held by the City(one of the highest in the LSE) , I am guessing that as some of these unwind their positions then there is potential for price dislocations given the average daily volumes are around 100K .

1milby30

dscollard,
Where did you get that pie chart from? I'd be interested to have a look at some of my holdings major shareholders in this view.

Thanks,
Joe

Golspie

IC has a concern about a PE of 41 and competition risk and has it as SELL.. IMHO barriers to competition are low, clientele renewals uncertain and I cannot see any USP.

Aislabie

i agree that Ilika (IKA) is the bluest of blue sky stocks and I find it too uncertain to get into my portfolio, but I also recognise a certain guilt about that.
This is is exactly the sort of technology pushing company that Britain needs to see succeeding on a world scale. It will take patience, a lot of capital and no small amount of luck but it would be wonderful to have it lead a large new wave of battery technology.
But I strongly suspect that if it does fund its footing and start to grow fast it will become a willing seller to an overseas buyer long before it reachs its full potential. I understand that founders and early backers have to have nerves of steel to turn down attractive deals. But I regret it and it reinforces my concern that even if I decided to take a huge risk here, as a small holder, I would be taken out long before I enjoyed the gains that go with an Amazon or a Facebook.
So I don't invest, and just hope that they can prove my decision disastrously wrong

leishylegs

Hi Joe,

I am not dscollard but the pie chart is from Sharepad, who I subscribe to alongside Stocko. Both are great services and I feel complement each other well.

Richard

Graham Ford

I'm a bit confused. Doesn't the pie chart show the top shareholders increasing their holdings?

20th Mar '17

the pie charts show changes over the past 3 months. recent RNS's show selling in the past few days.

Small Cap Value Report (17 Mar 2017) - GYM, STHR, IKA

GYM (LON:GYM)

SThree (LON:STHR)

Unlock the rest of this Article in 15 seconds

About the Author

Graham Neary

18 comments

Unlock this StockReport™ in 15 seconds

Unlock this StockReport™ in 15 seconds