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

20th Jan '16 by Paul Scott

72 comments 35656 reads

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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Ramridge

20th Jan '16

I promise this is my last Yogi Berra quote.
When a waitress asked him how he would like his pizza cut, he replied
"You better cut the pizza in four pieces because I’m not hungry enough to eat six."

Cisk

Hi Ram, nope - saw an advance screening in London.

Read it did very well in the US though, suspect it will here also.

Rusty2

Hello Jane, I have most of those shares also. I was considering selling Air Partner (LON:AIR) though, had it for 6 months and it just goes up and down, seems exposed also to any slowdown or terrorism. But on the plus side with the price of oil falling still should benefit them.

dscollard

just on a bit of data
FTSE350 is 19% from its highs last summer
FTSE is 25% off its highs
FTSE 250 is 17% off highs

given the technical definition of a bear market is a correction greater than 20% we are more than there for UKX and almost there for NMX and MCIX

going to finally finish "This Time it is Different" by Reinahrt and Rogoff . No two financial crises are ever the same:

I am 90% in cash and itching to go shopping..... soon. All the Henny Penny's are out to play so must be almost time to start buying

bobo

I have to admit I picked up HIK at sub £20, just felt it was the right thing to do. Now sat firmly on hands and just working in P2P market

Trying not to think about FEET

TRAK8 my stops blew me out with a small profit along with DOTD and BWY. Just got to sit on those hands

H & T (LON:HAT) is looking quite attractive now, has not gone down and I think if there is a recession its a good one to hold.

Bought some Trakm8 Holdings (LON:TRAK) today.

JDW72

A fair argument but at higher interest rates rents would increase and hence the yield would increase and there's also the prospect of longer term capital value increases which you wouldn't get with many other investments that provided such a high yield.

The moment there is an opportunity, mums and dads, grandparents across the land will (are) snapping up houses and flats for their kids/grandkids. I know people doing it.

janebolacha

Herbie, Air Partner (LON:AIR) is a share that is thinly traded and with a wide spread, not the kind of share I usually go for but I like the way they are building a quite diversified set of aviation-related businesses to complement their main air charter activity. Baines Simons is an aircraft safety consulting business and Cabot is an aircraft reselling broker, two areas that are, I believe, likely to show sustained growth, given the now very long waiting lists for new planes and the need to step up safety requirements, as well as to buy or lease second-hand planes to fulfill increased growth in numbers of commercial and freight flights. Cabot's deal to resell four 777's from Kenya Airways illustrates the potential in the brokerage business; I don't know the sale price but have seen figures of US$10m and upward per unit mentioned. so the commission (perhaps in the 1%-2% range?) just from that one deal would in itself have quite an impact on AIR's results. As for any impact of terrorism, it might well be positive for AIR's business of contract or ad-hoc chartering which is a market not really related to tourism or major commercial airports.

As always, DYOR and good luck,
Jane.

FREng

Steve. re Trakm8 Holdings (LON:TRAK) . In December, they raised £6m in an "oversubscribed" placing at 333p, to fund an acquisition. That placing and acquisition completed on 31 December (there has been no subsequent announcement but I confirmed this by phone with the company and also with the NOMAD).

So if the institutions did their due diligence competently, the shares are remarkably cheap today.

(disclosure: I'm long)

Maybe the institutions flipped their 333p placing shares in Trakm8 Holdings (LON:TRAK) for the quick profit and the sales and price fall spooked the PIs in a nervous market. That would explain why there have been no RNSs about thresholds of holdings being crossed as a result of the placing.

samenic

Crickey that is a really sobering introduction! Really hadn't realised you were so adversely affected in 2008 ,thankyou for recounting your ordeal.

OK thanks Jane for the detailed response, I did not know that the Kenyan deal was so great as no figures were given. Maybe I will hold for a while then.

maillotàpoisrouges

It remains to be seen that rents would increase if the base rate went up significantly, as that scenario may be associated with a recession, job losses etc. BTL is only a product of low interest rates over the last decade in particular. If the base rate went up significantly there would be a lot of distressed landlords selling property. Yes there will be exceptions. Most private landlords only have a couple of properties, maybe with 30% equity that would soon be wiped out by a crash. There are a huge no of reluctant landlords who couldnt sell their properties in the last 7 yrs who instead of selling at a lower price where persuaded to rent them out and buy a new property when they moved for jobs etc. If you already own your own home and have most of your capital tied up in it, why be even more heavily invested in property as an asset than say stocks or another asset class? Property in the UK is an accident waiting to happen. I own my own home, with a mortgage. I hope the market crashes so todays 20 somethings get the kind of chance i got in 1999 to buy a home at a reasonable price.

Steve L

Thanks for the info FREng

Booboobeaker

Hi, I note the absence of Synety (SNTY) from the report today despite an interim management statement. Did you sell your holding?

hayashi22

Many thanks Jane. Always good to hear what others are up to. I own ZYT. Much appreciated.

Frankyboy

I just wrote to a friend about the VERY admirable and helpful honesty of Paul. His revelation deserves the GREATEST respect. However, I DO think it's essential to understand charting to help with timing. Fundamentals alone are not sufficient these days. The excellent NAPS portfolio strategy, for example, would have been hurt if it had been employed, literally, at the beginning of the year or after the seminar. I intend to adopt this but with and without chart timing.... just to see the difference. This is similar to Edward Croft’s half/quarter year rank rebasing....but with ‘added’ chart timing.
It’s still a great strategy, but there's nothing magic about the beginning of the year. It would be interesting to do a NAPS portfolio every month and compare a year's chart performance from EACH start in two years time... if I live that long and am not 'OVEN READY''!.. (think cremation:)... you heard it here first! :) A running monthly or quarterly NAPS portfolio would be most interesting too.
I'm a twenty year 'charter' (sounds like a public movement from the middle ages) and have only twigged recently, thanks to a VectorVest trial, that fundamentals RANKING is a quick and practical way to bolster your confidence with your chart selection, by reducing risk. That's why I joined Stockopedia recently because RANKING, IMHO, is the only realistic way of weighing companies against each other without the RIDICULOUS amounts of effort required to dig into the nooks and crannies of the minutiae of company reports. Remember also that even major companies like Tesco ‘cook the books’ to cover up the true state of the company. How many ‘experts’ saw THAT coming?
I'm new to EMPLOYING fundamentals (except for using P/E ratios to cut down the number of possible buys in a raging bull market!), but there is SO much data to analyse that there is NO way that I could fully unravel ONE company (think Tesco again), far less analyse ALL the FTSE250 companies to see which is the best prospect!
Also, remember that even all the so called fundamental analysing ‘experts’ can't agree on a company’s potential... see ‘BROKERS (lack of) CONSENSUS’. So what hope have private punters got? It would be arrogant, and dangerous, to believe we could better those disagreeing experts!
I haven’t even mentioned the effects of computerised, high frequency black box algorithm trading with a side dish of shorting, options, futures, global markets, media manipulation and distortion..... no things aren’t easy for us ‘respectable and ‘traditional’, ‘genteel’ investors’! The die is loaded against us. I’m not even mentioning the fact that even virtually untraded shares have their charts moved around, daily, by the Market Makers to form expected charting moves.... all with no one trading!!! It’s a miracle!!
Market Makers and or computerised trading also move around the prices of some FTSE100 companies to a ridiculous degree. How can a MASSIVE tanker of a company have its worth changing by 10-20% every few days. Those moves are enough to scare people out of investing.
Also, I suggest that chartists take Candlesticks with a HUGE pinch of salt as my other charting software has intraday charts and there are many times when the intraday chart has a sudden up or down price movement of several percent, over a couple of minutes duration, (enough to blow stops) which will result in a false wick or shadow.... be careful. Of course during the market opening, trading volatility also forms wicks and shadows on candlesticks, which don’t represent actual price movement during the rest of the day. It’s a minefield I tell you!
It is worth remembering, too, that now there are only around 10% of ‘investors’ who are private (it was 50% in the 1950s). The daily trading volume on the FTSE100 is only HALF what it was in the years around 2007. So the Stock Market activity has shrunk by a half!! I think that the smart money went into property (damn it) but their time will come. The only time I went into property was in 1989...RIGHT at the peak of the property bubble ?....is there another one coming? These are very tricky times to invest in so that company fundamental Ranking, such as Stockopedia provides, really is an important aid to minimising risk.
There are a number of charting strategies to help avoid these massive downs and investors should, at least, make themselves familiar with the basics. The old axiom of holding shares for five years, or the ‘long term’, is a’ get out’ for the brokers and commentators and is a leftover from the 1985 to 2000 bull run.... it doesn't make much sense with the market the way it has been since 2000! Without charting your success would be totally down to the luck of when you started ‘investing’.
Also, run through the FTSE 350 constituents and you'll notice that even in the current dive, so far, two thirds of the PE ratios are STILL overvalued. That alone suggests that there may still be some way to go. Once people start selling off, the Market Makers have to move the prices down FAST to minimise the period during which they’ll be without their spread (their living) whilst we’re out of the market.
The big danger with going 'fundamental only' is that: -
a) the data can be up to a year out of date and even that's without Tescoesque 'end of year’ account manipulation and,
b) It's all very well digging out a ripe company out of your 'fundamentals' allotment but the price will NOT go up unless everyone else notices it too. Only then will the price rise genuinely as opposed to virtual price rises created by Market Makers (the barrow boys of the Stock Market!).
Apologies for the disjointed ‘rant’... I only meant to write a paragraph.
Me? I think I’ve learnt enough in the last twenty years to do well, but only in the market of twenty years ago!! ? Today’s market is something else.

I did set a dummy NAPS up at start of June and start of December last year, performance is June -5.6% and December -3.5%. This includes the spread but not dealing costs or stamp duty. June NAPS was down 3.7% today. Ed's 2016 NAPS is -5.8% (down 3% today). So you can see since June they have not gone up but then the market is down quite a bit.

simoan

Well it looks like my portfolio has been in a Sam Peckinpah movie today - only one share up on the day. First time that has happened for years.

I've never really been interested in going long TRAKM8 before but it looks a good growth business being needlessly bashed by the same person that tried to bash BOO with a "secret dossier" a few months back. That went well didn't it? So I will probably start buying some tomorrow.

I love bashers me! Si

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

Difficult market conditions

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Paul Scott

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