Small Cap Value Report (21 Jun 2016) - CIR, BOTB, PVCS

Good morning!

In my rush to get into the City yesterday afternoon, I omitted to comment on Circassia Pharmaceuticals (LON:CIR) - some sort of drug development company. Roughly £500m was wiped off its market cap yesterday (two thirds).

I have no idea why people feel the compulsion to gamble on this kind of thing. It's not investing, it's pure gambling. All too often this type of share is set up by very shrewd promoters, who make a lot of money en route, then eventually the story collapses. Risk:reward is terrible - they nearly always fail! So why on earth would we want to back it? I just don't touch anything like this. Story stocks are hopeless - they nearly always go wrong - I'm speaking from experience here, having backed hundreds of them over the last 20 years. What we need is profits & divis, at a low valuation, and bombed-out investor sentiment. Or just growth in a vanilla sector, at a reasonable price.

People like stories, because it removes the need to do proper analysis of the figures. They nearly always fail. It's hard enough to make money on proper companies, so why delve into the undergrowth into heavily promoted story stocks? I'll never forget the lessons I learned from the TMT boom & bust in 1998-2000. Utter madness. You see the same thing happening over & over again now too. There are loads of over-priced story stocks out there. Buyer beware. 

If someone butters you up, and tells you a great story, for a nil turnover company on a stratospheric valuation, then you're probably being conned. The sensible thing is to smile, be generally affable, but quietly walk away, funds intact.

Best Of The Best (LON:BOTB) update

(at the time of writing, I hold a long position in this share)

I enjoyed meeting William and Rupert from BOTB yesterday. I'm not keen on the company name though. "BOTB" means nothing to me. Why not rebrand it WinALovelyCar.com ? (or similar).

A small group of us had about 90 minutes of quality time with management. Overall, no surprises. It's exactly as I thought - a lovely, unique business, making solid progress - with 70%+ of business now online. Capital-free, and a cash machine (note the 2 big special divis). Also, management are like limpets on their own shares & options, a good sign in my view.

I think the rating is possibly a little rich, based on the new FinnCap forecasts. However, the intent seems to be under-promise & over-deliver. Growth of 10% doesn't warrant a PER of 20. So much though I like the company, and management, I'd like to see a much more ambitious approach, given the brilliant opportunity that they have created. That's easy for me to say though. I just think that when a fantastic opportunity is in front of you, then caution should be relegated to the back row. In the room, yes, but not the principal driver.

However, will this share be materially higher in 5 years' time? Very likely, in my view.

PV Crystalox Solar (LON:PVCS)

(At the time of writing, I hold a long position in this share)

Update on arbitration - this is a special situation. The Chinese have basically almost killed off solar panel production in Europe, by dumping (a technical term meaning selling at below cost price) in order to protect Chinese jobs. Ask your local MEP why this situation was allowed to happen.

Anyway, the interesting thing about this share is the potential damages which it might receive from a customer contract, who is (understandably) trying to wriggle out of a commitment to buy solar wafers at much higher prices than the current market price.

I haven't got time to dig into the detail of this type of thing, but several very clever friends of mine have, and they agree that there's potentially good upside here. When clever people converge on the same stock, and talk passionately about the upside, then it's time to sit up and take notice, I find. There's usually a better than 50% chance of being right, which is what we want.

Unfortunately, the timescale has been pushed out - a hearing pencilled in for Jul 2016 has been delayed until Nov-Dec 2016. What's the betting that timescale might slip further into the future?

So potential jam tomorrow. An interesting one for special situations investors - doing your homework properly, and considering every potential outcome is key with this type of thing. For now though, it seems to have gone off the boil, due to the delay. 

Photo-Me International (LON:PHTM)

Share price: 

let's catch up later!

(work in progress. I'm updating this article gradually. So pls refresh this page from time to time. Estimated time of completion - 3:30pm (today)  PP>

Sorry,  everything conked out.

Cheese, see you in the morning!

Coverage may be erratic over the Referendum time.

As you walk on by! tish tish, as you walk away (Single Minds)

Regards, Paul.

(usual disclaimers apply)