Small Cap Value Report (19 Feb 2014) - MONI, GMR, 247, ABDP, CGS

Wednesday, Feb 19 2014 by
22

Good morning! Did you see the Robert Peston documentary last night at 9pm on BBC2, about China's credit-fuelled investment boom since 2008? Fascinating. A number of key points struck me - that he sensed a general mood of impending doom amongst the Chinese people (which could explain why insiders are so keen to exit AIM Listed Chinese stocks at virtually any price)?

Also, that an estimated 15% of the housing stock in China has been bought by speculators and is lying empty - a clear sign of an overheated housing market. When the property crash happens, the banks will be hit hard with bad debts, although being a one party State the Government has the power to do whatever is required to prop up the Banks - although nobody knows the size and risks in the shadow banking sector.

It's the explosion in debt in the last five years that is the most remarkable thing - the Chinese banking system has apparently grown from 120% of GDP to 200% of GDP in just five years, if I recall the figures correctly. It was not clear whether that includes the large shadow banking system, but probably not, as nobody knows how big it is. So the true figure could be much larger. 200% doesn't strike me as a crisis level though, but the rampant growth in lending cannot possibly continue forever.

As Peston concluded, history demonstrates that a credit boom on this sort of scale has never ended well. So I suspect that worries about China could now become a key investor concern. We certainly need something to rein in bullish sentiments in our Stock Market, as it's really getting out of control as far as growth companies & some smaller caps are concerned, in my opinion.

I cannot remember equity markets feeling this frothy about growth companies since 1998-99. Valuations are becoming bonkers on many growth companies, often with lousy business models - but nobody cares (for now) if the share price keeps going up (Ocado, and others spring to mind). We're now firmly into the "euphoria" stage of this bull market in my view, so I reckon it could be maybe another year or two before the inflated prices of growth companies experience a crash?

I've shorted a few over-valued growth companies, but it's not going well so far. So perhaps it would have been better to sit on…

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Monitise plc is a specialist in financial services technology. The Company is focused on accelerating the digital transformation of banks and financial institutions. Its segments include Americas, which is engaged in mobile banking, enterprise alerting and short message service banking products; Europe, which provides bank-grade mobile banking and digital services based on the Monitise Enterprise platform (MEP); FINKit, which delivers digital services to banks and financial services partners; Create, which collaborates with businesses that operate in various sectors, including financial services, retail and automotive; MEA, which provides digital solutions, and Content, which operates digital distribution networks and digital ticketing transactional platforms. Its portfolio of platforms, products and services are designed to help its clients around the world design, build and run services to customers delivered over smartphone, tablet, personal computer and any other digital device. more »

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Gaming Realms plc is a United Kingdom-based gaming company. The Company is engaged in the provision and marketing of casino services to customers in the United Kingdom, and social gaming on Facebook to customers in the United States and Europe. The Company creates and publishes real money and social games for mobile. The Company operates through two segments: real money gambling and marketing services, and social gaming and licensing. The Company's real money gambling and marketing services segment operates its brands and provides other digital marketing services to both gaming and non-gaming clients in the United Kingdom. The social gaming and licensing segment provides freemium gaming and licensing services to the United States and Europe. The Company licenses its Intellectual Property (IP) and Game content into adjacent markets globally across multiple gaming and merchandise categories, such as lotteries, gaming machines, social slots and casual game Web portals. more »

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5.95p
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Veltyco Group plc, formerly Velox3 plc, is a marketing company. The Company is focused on gaming, binary options and lottery operations. The Company is focused on generating marketing leads and entering into marketing contracts for the activities of its partners in sports betting, casinos, poker games, lottery and binary options, such as Betsafe (online casino and sports betting), Lottopalace (lottery) and Option888 (binary options). The LottoPalace.com Website offers players the opportunity to play the lotteries, including Germany Lotto, Mega Millions, Power Ball, National Lottery and Euro Millions. By providing a lottery system, it gives access to a range of lotteries and jackpots. Option888 is an online binary option platform. Through the Betsafe brand, it offers casino, sports betting and poker games. more »

LSE Price
2.63p
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2.2
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n/a
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11 Comments on this Article show/hide all

Maddox 19th Feb '14 1 of 11
2

I also listened to Robert Peston last night - and his views were predictably pessimistic – seems to suit his personality. I well remember him during the GFC (Global Financial Crisis) apparently taking a perverse pleasure in the unfolding events and expounding the threshold of Armageddon on which we stood. Not to say that isn’t an accurate reflection of another Asian bubble destined to burst at some point. It has got to be a concern.

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bsharman 19th Feb '14 2 of 11
1

Whilst I agree that there is a bubble in smaller growth stocks. Many large cap companies have not really gone anywhere - insurance and supermarkets (or is that just the ones in my portfolio!) and most resource companies have gone down. I'm going to watch the Robert Peston show now!

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bsharman 19th Feb '14 3 of 11

Paul. If you have a spare moment, could you have a look at Styles and Wood. I (when I was a very inexperienced investor) bought these at 22p in 2010. They were by far my worst performing investment since and were always firmly rooted to the bottom of my portfolio league table. However they are having a bit of a resurgence recently and have risen strongly from a low of 4p in September to their present price of 18p. I'm almost at break even!! They look cheap based on PE (5), PEG (0.074) and price to sales (0.11). This one seems off the radar of most investors.....

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Ian_of_London 19th Feb '14 4 of 11
2

In reply to post #81468

Did you see Paul's previous comments on Styles & Wood?
http://www.stockopedia.com/content/small-cap-report-25-apr-dia-nbb-hnt-sty-wand-bae-72802/

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kenobi 19th Feb '14 5 of 11

It's the explosion in debt in the last five years that is the most remarkable thing - the Chinese banking system has apparently grown from 120% of GDP to 200% of GDP

figures all the more remarkable as gdp has be growing compounding at around 8% per year over the 5 years so the dollar growth figures would be even more startling.

K

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bsharman 19th Feb '14 6 of 11

In reply to post #81470

Hi, Yes I have just read those thanks. The company has been diversifying away from low margin work and have really grown the Education and Healthcare work and are looking much more positive. Yesterday they announced a £4.1 million refurbishment of the Royal Northern College of Music. and they have grown their Education sector work from £1.5m to £10m in 18 months. What I don't quite understand is the impact of pref shares on the balance sheet. Is it that they are a liability and one on which they have to pay dividends. I'm a little confused about this but wish I had bought some at 4p in September!!

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intuitive6191 19th Feb '14 7 of 11

I presume that Peston managed to mention China's empty city syndrome ? Very difficult to see how this is going to have a happy ending.

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Bezhe 19th Feb '14 8 of 11

China feels like it could be another Ireland, but on a bigger scale. Scary.

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bsharman 19th Feb '14 9 of 11

I thought that China held most of the US debt. Who holds the Chinese debt then?

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jonesj 19th Feb '14 10 of 11
1

Anthony Best make very good equipment and have sold it to the likes of some of the worlds largest car makers.
Some of their products will be the kind of big one off item a car company might buy & perhaps keep it for about 30 years. Other equipment might sell more frequently.

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Fangorn 20th Feb '14 11 of 11

Have you not thought about Shorting Chinese listed companies on AIM PP?

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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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