Small Cap Value Report (21 Jan 2016) - SOM, MCO, ANCR, ECK, QXT, EMR, ESCH, FOUR, IGR
Good morning!
Somero Enterprises Inc (LON:SOM)
(at the time of writing, I hold a long position in this share)
I recorded a fascinating interview yesterday afternoon with the CEO & CFO of Somero Enterprises Inc., listed on AIM since 2006. This is a highly cyclical specialist maker of laser-guided concrete screeding machines, which claims to be (by far) the world leader in this niche. The company is based in the USA, where it does most of its business, but is also expanding into China, and has smaller sales in many other countries.
Why it was particularly interesting to interview this company's management, is for their insights on the economic outlook in USA & China in particular, which I focussed on. I was expecting to hear caution, but not a bit of it! They were very bullish about the economy in America right now, and the pipeline for the next 1-2 years.
With regard to China, their feeling is that the market opportunity there is enormous, and so far they have only scratched the surface, that even in more depressed conditions there is still plenty to go for.
This interview has added to my general sense that things are perhaps not as bad as the markets seem to be thinking. For that reason, I closed nearly all my large cap shorts yesterday, and went long of a basket of US large caps with Stockopedia StockRanks in the high 90's. I'm lucky enough to have the US subscription service here, and it's very helpful to see all the key numbers in a format with which I am familiar. Just one successful trade would easily cover the cost of a subscription - it amazes me how people will cheerfully punt on the markets and lose thousands without a qualm, yet baulk at paying a few hundred quid for quality information sources - false economy if ever I've seen it.
This sanguine view is confirmed by a deluge of trading updates in the UK in recent weeks, most of which seem to have been fine, both in terms of 2015 results, but also outlook. I'm seeing a generally fairly confident tone in the outlook comments that UK small caps are putting out at the moment, with obvious exceptions such as embattled sectors like resources & associated service providers.
Therefore, for what it's worth, I'm more a buyer than a seller at…
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44 Comments on this Article show/hide all
In reply to post #119000
I tend to agree if the Iranian sanctions are lifted there will be even more oil on the market.
sorry to break this to you herbie....
http://www.reuters.com/article/us-global-oil-idUSKCN0UV14D
regards
In reply to post #119009
OK so its already happening, looks like they are going to ramp up production also.
Funny enough the oil price has gone up to over $29 now.
Just a comment on Stockranks: it seems a bit odd to me that the overall Stockrank is 97 for Animalcare whilst Value is 97, Momentum is 97 but value rightly sits at 49. So if each of two of the three components equal the overall value, it implies zero weight to the Value component. Can that be right?
Paul, thanks for pointing at the EBIDTA issue in your interview with Somero Enterprises Inc (LON:SOM) ? May I ask what their answer was?
In reply to post #118961
I hear you had a disagreement about Trakm8 Holdings (LON:TRAK) with Tom Winnifrith over on shareprophets yesterday. Are you willing to share your summary opinion here?
FWIW I took a look at TRAK last night and decided the basher was wrong (but at least consistent with his terrible call on BOO). IMHO TRAK is a solid GARP share and I bought some this morning. I almost feel like a day trader seeing what the share price has done already...
Having done my research, I would now like the basher to bash some more as I would like my next buy to be sub 200p. Thanks in advance. Si.
Regarding Eckoh (LON:ECK), Maybe if somebody is going to investor show on 2nd feb, london, they could take up the issue of share options directly with them.
Pauls comment "The share option charges were not only considerably more than total dividends paid to all shareholders in both years, but represented nearly 57% of adjusted operating profit in 2014, and nearly 28% in 2015. So this company is clearly a lucrative vehicle for management, less so for shareholders, with a paltry 1% dividend yield"
In reply to post #119024
I see what you mean but many 99s have scores in the 80s, in fact very few have 3 scores in the 80s, I know I screen them, there are only 7 that 3 x 80 scores or higher, none have 3 x 90s scores. So if a share has 2 x 97 that is very high and will balance out the lower value score. I guess if value score was over 80 if would be a 100. only Hydro International (LON:HYD) has 100, well it did yesterday now 99 as value has dropped.
In reply to post #118982
Don't forget their arch enemy..Iran, they wish to turn the screw there as well.
In reply to post #119024
Rosered wrote:
"Just a comment on Stockranks: it seems a bit odd to me that the overall Stockrank is 97 for Animalcare whilst Value is 97, Momentum is 97 but value rightly sits at 49. So if each of two of the three components equal the overall value, it implies zero weight to the Value component. Can that be right?"
No, that's not how the StockRanks are calculated. According to this Stockopedia help page:
http://help.stockopedia.com/knowledgebase/articles/184381-how-do-you-calculate-the-stockopedia-stockranks
"The Stockopedia StockRank™? is an equally weighted combination of the following component rankings.? Please refer to the subsidiary pages to learn more about each of them...?
ValueRank
QualityRank
MomentumRank
We calculate these ranks for every company in the market, sum them and then re-rank the output from 0 (worst) to 100 (best). The stock showing the highest Composite StockRank will have the highest score across all 3 contributing ranks."
Paul
Just listened to Somero interview. I found it very reassuring to hear that the key difference in the eventual downturn that we will have compared to 08 is that the balance sheet is a different animal - Mr Cooney's view was that in 08, with a lot of debt, investors were sceptical about Somero's ability to survive. That should not be the case this time, particularly since they have a lot of variable cost too. Anyway, my point was not to provide a transcript (!) but just to say thank you and invite any contrary opinions.
Thanks
Paul;
An extremely interesting interview with the Somero directors, thanks for organising it. Certainly a very good sales presentation covering all their 'Unique Selling Points' & also their views on World economy & Chinese potential; just a little concerned that they were over selling their own book on the economy aspect. However The reasons behind the 207/8 downturn relative to the current position was very convincing.
In reply to post #119063
Very helpful. I see and understand the methodology now. However as some more interested in value and quality and a bit wary of momentum, I will be more careful in referring to the Composite Stockrank. Thank you for your assistance.
In reply to post #119072
"However as some more interested in value and quality and a bit wary of momentum, I will be more careful in referring to the Composite Stockrank."
In that case, you mighty prefer to use the QV Crossover Rank rather than the QVM Composite StockRank (if you're not already using the QV Rank):
http://help.stockopedia.com/knowledgebase/articles/374424-what-are-the-stockrank-crossovers
In reply to post #119075
Thank you pka, I now see I can use the QV crossover in duplicate form then add a few twists of my own.
Paul
Re: Oil Sector
Although a sub $10 barrel can't be ruled out, there is a general consensus emerging that the bottom has been reached and for those brave enough to take the plunge, now might be a good time.
Given that share picking can be both enjoyable and rewarding, I've been researching, cash rich, low cost producers, boasting huge reserves and sensible ongoing development budgets, overseen by strong management with records for delivering. Also importantly no exposure to the potential tinderbox of the Arab World, after all, why compound risk?
FWIW I've been drip feeding into two stocks.......
SOCO International
LekOil
I'm sure many of your admiring followers would appreciate if you feel able to disclose, if and when, you decide to make an investment in the sector.
With king regards
I wonder if they would appreciate it enough to make a donation to the excellent http://qualitysmallcaps.co.uk/
Agreed on oil near the bottom and added a last tranche of RDSB which I have been building since the £15. (I sold my original share last summer just north of £25
I favour integrated big oilers rather than simply E&P producers since the integrated super majors can hedge their downstream off their upstream to some extent. They are also traders in the business with good hedging strategies
Supermajors can also capitalise on distress selling of assets and pick up cheap producers in times of low oil price
On supply/demand and price. The relative in-elasticity of the industry means that the supply response to a much lower price takes ages to play out. For a high enough price there is no shortage of oil. However, as oil falls below $30 many operators cannot produce without a loss. So for example the lifting costs in the North Sea are around $50 a barrel whereas Kuwait is around $5 a barrel.
CAPEX in the industry is being slashed with uneconomic wells being capped: this will lead to a supply constraint and price will respond ...and so the cycle goes
FWIW I still think we can get a bit lower and RDSB may be available nearer £12....but for my mind then the rest of the market may well follow that canary!
EMIS yesterday (Thursday) would be worth a gander. Market reaction to results seems very harsh.
I really enjoyed the Somero interview and am especially interested as I am involved in the development industry and have shares in this company. Quality, flatness (especially on retail warehouses) and speed are quite big issues for us and I'm certainly going to investigate this company with our contractors in more detail.
Anyway, the CEO sounded positive and straigtforward and answered every question without waffle so certainly worth the effort - thnak you Paul