Small Cap Value Report (20 Jan 2016) - SPRP, SDM, COS, KBT, SNTY

Wednesday, Jan 20 2016 by
52

Good morning!

I did 5 more quick company updates last night, so here is a link to yesterday's full report.


Difficult market conditions

I don't suppose any readers need reminding that it's ugly out there at the moment. Probably like most people, I'm weighing up whether I should be cutting positions more, or just ride out this downturn? The trouble is, cutting positions often means that you miss out on the explosive rallies which are a feature of bear markets (and this is increasingly looking like a bear market). So better to sell after the big rallies, rather than panic and sell right at the lows, perhaps? Oh, for a crystal ball!

Bargains are appearing, and I have been (perhaps foolishly?) buying shares that I particularly like, at attractive prices. The trouble is that a PER may look low at first sight, but if earnings have peaked and are now likely to fall, if Western economies go into recession again, then we don't really know where we stand about future earnings, and hence valuing a share.

That will be a key theme in my interview with Somero Enterprises Inc (LON:SOM) management this afternoon - last call for your questions, using this form please.

We could be getting close to the point where markets rally strongly (it's amazing how quickly sentiment can turn when some good news comes out). Or we could be on the cusp of things getting worse, if there's some shock to the system. Are things really so bad, to justify such a big sell-off?

Thinking back to 2008, what really clobbered the markets was when systemically important financial institutions started failing, or needing bailouts. This time around, banks' balance sheets are very much stronger, and politicians & civil servants know what to do - they have to act fast, and shore up big financial organisations, to prevent contagion. So it seems to me perhaps unlikely that things will get as bad as 2008 this time around, but I reserve the right to retract that remark at any time!

What am I doing with my own portfolio? On my long-term, ungeared portfolio, I've trimmed a couple of positions slightly, but that's it. On my shorter term trading accounts, I've cut the gearing right back, and hedged with short positions. So far that's worked well.

As I've mentioned many times before, I had a…

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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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Fireangel Safety Technology Group plc, formerly Sprue Aegis plc, is engaged in the business of design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories. The Company also operates its own CO sensor manufacturing facility in Canada. The Company is also a provider of home safety products. The Company's principal products include smoke alarms and CO alarms and accessories. Sprue manufactures CO sensors for use in all its CO alarms. Sprue serves in the United Kingdom retail and the United Kingdom's fire and rescue services. The Company offers a range of brands, including FireAngel, AngelEye, Pace Sensors, First Alert, SONA, BRK and Dicon brands. The Company's subsidiaries include Sprue Safety Products Limited, which is engaged in distribution of smoke and CO alarms, and Pace Sensors Limited, which is a manufacturer of CO sensors. more »

LSE Price
39p
Change
 
Mkt Cap (£m)
29.6
P/E (fwd)
20.0
Yield (fwd)
n/a

Stadium Group plc is a provider of integrated electronic technologies. The Company operates through two divisions, including Technology Products, which incorporates wireless, interface and displays, power and stontronics, and integrated Electronic Manufacturing Services (iEMS) provided through design and manufacturing operations in the United Kingdom and Asia. It offers various services, such as design (electronic, mechanical and software), prototype, new product introduction (NPI), global procurement, in house tooling and molding, printed circuit board (PCB) assembly, box build and test, packaging and global logistics. It provides wireless machine-to-machine (M2M) connectivity solutions for original equipment manufacturer (OEM) devices in vehicle tracking, telematics, fleet management, smart metering, asset tracking, wearable technology, handheld devices, infotainment and security systems. It serves various manufacturers in the marine, aviation, medical and broadcast industries. more »

LSE Price
121p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

K3 Business Technology Group plc is a provider of integrated business solutions. The Company's business solutions encompass Enterprise Resource Planning (ERP) software, Customer Relationship Management (CRM) software, Business Intelligence and e-commerce, hosting and managed services to the supply chain sector. The Company's segments include Retail, and Manufacturing and Distribution. The Company's offerings to manufacturers and distributors comprise SYSPRO, Sage, and Microsoft Dynamics AX and Microsoft Dynamics NAV solutions. The Company's ax l offering is a retail and wholesale solution. The Company's products include modules for CRM, planning and scheduling, warehouse management, pallet management, data integration, payroll and human resources (HR). The Company operates from various locations in the United Kingdom, the United States, Holland, Singapore, Denmark and Ireland. The Company's subsidiaries include K3 BTG Limited, K3 Business Solutions Limited and K3 CRM Limited. more »

LSE Price
215p
Change
0.9%
Mkt Cap (£m)
91.5
P/E (fwd)
20.5
Yield (fwd)
0.9



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72 Comments on this Article show/hide all

Frankyboy 20th Jan '16 53 of 72
1

In reply to post #118805

Thanks for sharing that Herbie! Very helpful.

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ACounsell 20th Jan '16 54 of 72

Paul,

I know it has been a busy few days with small caps and trading updates but have you had the opportunity to look at the Monday's Trading Update from International Greetings (LON:IGR) (one of Ed's NAPS with a very high QVM ranking). It seemed very positive, and the valuation didn't seem too stretched, but after today's market mayhem the shares are down c. 15% in two days. They mentioned business in China and other emerging markets (Braxil, Mexico) as being good - that might have scared investors in the current exposure to China = disaster narrative. In your last post on them (Oct 20th) you mentioned the balance sheet and there is a high level of indebtness - this could be the issue I guess but the fall seems overdone to me given the fact that they are in the consumer market and even in China that is a growth opportunity (unlike commodities at the moment!)

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grb 20th Jan '16 55 of 72

Today might have been a good day to start a NAPS portfolio...

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jonesj 20th Jan '16 57 of 72
1

In reply to post #118748

H&T does seem to be slowly recovering from their own problems & the negative sentiment from when their direct competitor failed at around that time (Albermarle & Bond).

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herbie47 20th Jan '16 58 of 72

In reply to post #118838

Yes but I think it will prosper in a recession, pawnbroker with the gold price going up, look back to last recession, I think it came unstuck when the price of gold fell? Believe they have sorted out this problem and restructured but I don't remember all the detail. I note it has hardly fallen this year unlike a lot of mine.

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herbie47 20th Jan '16 59 of 72

In reply to post #118820

Yes maybe. I may do one if I have time.


I set one up, for the first time for a while it was easy to find 2 shares in each sector before always struggled to fill, Telecoms, Health, Energy and it looks quite attractive many I own already and there are a few new names that have not been on the other NAPS I have set up such as SkyePharma (LON:SKP), Fyffes (LON:FFY) and Treatt (LON:TET). 

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ACounsell 20th Jan '16 60 of 72

In reply to post #118820

Unfortunately started it on 8th January (!) but might consider topping up on International Greetings (LON:IGR) and Cambria Automobiles (LON:CAMB) as falls look overdone to me. Maybe catching a falling knife but 'who dares wins' as they say!

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vik2001 20th Jan '16 61 of 72
1

I set up a dummy naps last year around late November and it was up. so I invested in a real life NAPS of 50k last week and presto it down -6%
yes starting the NAPS I believe in about 4-5 weeks would go down really well, especially after whats going on in the markets you would hope.
I did create another thread about how important is timing of the market? especially with a naps portfolio, but no one can play GOD and guess whats going to happen. I guess the market needs to be a bit on your side.
however it be really interesting to see how the NAPs portfolio responds as the year goes on with everything that's happened at the start of this year.

thanks herbie for yr insight on your test run naps.

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mgallear 20th Jan '16 62 of 72
1

Hi Vik2001 just being down 4% at the moment would not feel that bad to me at the moment. We could be near the bottom so you may have got your timing right. I work out the Market Zweig System for market timing - www.investstrat.com. When the 4% model goes up that is the time to buy. The other thing to do is set a stop loss at around 10% as some shares just go down and down. However, at the moment you may not want to do that and put it down to Mr Market having one of his turns. There is serious gain to be made from getting the market bottom right and then hanging on. Try not to invest everything at once to avoid buying just before a dip. To days fall is likely to see some kind of relief rally at some point but beware after that the falls could continue.

The fact that oil and gas went down so much last year suggests we are in a global recession already and the market is forward looking and is pricing in the recession in now, later it will hopefully start to price in the recovery. The big brand names that are unlikely to go bankrupt with big dividend yields are probably the best strategy if you can stomach being a contrarian – BP with a yield of 8% plus is likely to be attractive to the value investors at some point.

You can do the naps for yourself any time of year, look for high quality and low gearing among these picks.



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herbie47 20th Jan '16 63 of 72
1

In reply to post #118850

Car dealers are vulnerable to recessions, I know I bought my last car in 2008 they were desperate to sell then as no one was buying. So I would be cautious and I think thats why it has fallen so much today. I do hold Cambria Automobiles (LON:CAMB) myself, I was thinking about selling yesterday along with Epwin (LON:EPWN), oh well.

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vik2001 20th Jan '16 64 of 72

Thanks for that insight. How would you know the market is right in a bear market to reinvest at the correct time, thus avoiding further falls

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ACounsell 20th Jan '16 65 of 72
2

In reply to post #118868

I appreciate that if there is a recession they could be in trouble but I just cannot see why we should have a recession in the UK. Employment is at an all time high (even allowing for self-employment levels), there is no inflation, interest rates are going no where soon, wage growth is low but higher than inflation, the oil price collapse means that petrol/diesel is extremely cheap and heading lower, and even the energy companies have started cutting prices (albeit only a smidgen!). Add to that we are growing faster than virtually any other world economy. UK Businesses not in oil or related services and without significant exposure to export markets (especially China/Emerging markets) should be benefiting from the UK Consumer having more discretionary income (people won't be saving the extra income) If you are a consumer focused business in the UK then surely you must benefit from this combination of factors. At least when I studied economics many years ago that is what one should expect - these days high/low oil prices, inflation/deflation and low/high interest rates are all negative whichever end of the scale we are at. I fear that in the current economic climate I have lost the plot altogether!

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herbie47 20th Jan '16 66 of 72
2

In reply to post #118880

Well my take on it is if China goes into recession (I think it already is but not according to the official figures) it will have a knock on effect around the world. Europe is quite exposed to China and a lot of our exports go to Europe. If China really slows down it will also affect the USA. Yes you are correct some companies may not be affected. The reason why our market is down 20% is because of China and oil with few other spanners thrown in. Quite a few jobs are already going in steel and oil industry this will probably get worse and other industries are struggling such as supermarkets, are all these new jobs full time ones or are some just zero contract ones replacing proper full time ones? I just read 77% of new jobs between 2010-13 are low paid ones less tha £8 p.h. Much of the recovery has been build on quantitative easing which many economists are uneasy about. Also last year there have been quite a few profit warnings although we don't have the last quarter yet so I don't know if its the worst year since the last recession. Think the recovery is fragile and with low interest rates there are less options. Already the BoE have called off any rate rises for a while. USA put theirs up too soon it seems and may cut again.

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vik2001 20th Jan '16 67 of 72

In reply to post #118868

I think NAHL would be a good buy at the moment in the Consumer Cyc group. has the potential to rise up a lot further, and has a great yield.

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AlanJenkins2 20th Jan '16 68 of 72
1

Apologies for being late with this,but it looks to me as if the subtext of today's announcement by Synety may have been that in order to achieve breakeven asap they are having to do things which might not otherwise be in the best long-term interests of the company.

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ed_miller 21st Jan '16 69 of 72

In reply to post #118610

Note, he was quoting the great Danish physicist, Niels Bohr.

Regards,
Ed Miller

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Ramridge 21st Jan '16 70 of 72
1

In reply to post #118892

Hi Ed -
Having googled a bit, you are right and the quote is not as dumb as it appears.
"
The quote comes from a question and answer period during a seminar in Copenhagen where Danish Physicist Niels Bohr laid out the fundamental nature of quantum physics for the public. Included was the description of the Heisenberg Uncertainty Principle which basically says that you can't predict where a particle will be at a specific place in time, or vice versa.

"

So in the quantum world, if you can't even predict where a particle is right now, it is hopeless to try to predict the future!

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herbie47 21st Jan '16 71 of 72

In reply to post #118886

Could be but this is the company that got hit by the change in law about whiplash claims, to be honest its not the sort of company I would want to invest in. My 2 selections are Cambria Automobiles (LON:CAMB) and Character (LON:CCT).
Cambria Automobiles (LON:CAMB) has just fallen 7% so maybe a good time to buy?

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Webpax 21st Jan '16 72 of 72
2

Synety (LON:SNTY) tend to vary the metrics they present and since they abandoned their previous KPIs it has become more difficult to track progress. However I've been tracking the simple increase in Annual Recurring Revenue (ARR) from the company's RNSs:

Half year period
31/12/12
30/06/13
Added in 6mPer month average
ARR£150,000£376,000
£226,000
£37,667
Half year period
30/06/13
31/12/13
ARR
£376,000
£871,000£495,000£82,500
Half year period
31/12/13
30/06/14
ARR
£871,000
£1,720,000£849,000
£141,500
Half year period
30/06/14
31/12/14
ARR
£1,720,000£3,002,000£1,282,000£213,667
Half year period
31/12/1430/06/15
ARR
£3,002,000£3,878,555£876,555£146,093
Half year period30/06/1531/12/15
ARR£3,878,555£4,623,080*£744,525£124,088

*The company didn't quote this figure explicitly but said year on year ARR was up 54% (£3,002,000 x 1.54 = £4,623,080)

The growth does seem to have peaked in 2014 and now appears to be tailing off although there is probably not enough data to be conclusive.  They certainly added significantly less ARR in 2015 (£1,621,080) than they did in 2014 (£2,131,000).

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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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