Small Cap Value Report (22 Jan 2016) - TRAK, CCT, TMMG, CRW

22nd Jan '16 by Paul Scott

19 comments 17710 reads

Good morning!

It's a big rebound day today, with confidence apparently returning in part. Whether it's a strong but short-term rally in a bear market, or a more positive change of trend back into bull mode, nobody knows yet.

I've been doing lots of shopping today & yesterday - hoovering up many decent quality companies at relatively attractive prices, where sentiment alone has slammed the price down. The key thing I look for is an up-to-date, positive trading update. If that is in place, then you know the selling is purely sentiment-driven, and hence Mr Market is handing you a bargain on a plate.

Like the markets, I also had a late surge last night, and wrote brief comments on 5 more companies in yesterday's report, in case you missed it. I can't remember covering so many companies at this time of year before, it seems very intense this year. Good thing I've been doing Dry January, and haven't touched a single drop of the devil's urine since 29 Dec 2015, so a pat on the back for me, and hopefully readers are benefiting from my increased energy, and mental clarity!

I love market sell-offs, as the market just throws bargains at you. There's lots of money to be made in conditions like these, if you keep a cool head, and of course have some firepower to deploy. It's no good being 100% invested at the top of the market, as you can't buy the dips then.

A few themes that have popped into my head;

Highly indebted companies

As regulars know, I have an aversion to heavily indebted companies, because things can so quickly unravel if trading deteriorates. Also, I think ultra-low interest rates have caused mis-allocation of capital on a colossal scale - whether it's inflated property prices, inflated bond prices, far too much capex (leading to over-supply of almost everything, globally), and unwise takeover bids.

We're finally starting to see the negative impact of too much QE, and interest rates that have been left too low, for way too long. Therefore, there simply has to be a day of reckoning at some point, when the bad debts will need to be flushed out. The longer it is postponed, the worse it will be.

For this reason, I'm actively avoiding companies which are cyclical, and rely too heavily on bank debt. These will be the future disaster stories, when credit conditions really seriously tighten up…

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Carcosa

22nd Jan '16

Paul... Any comment about all the Director changes announced today for Character (LON:CCT) ?

Although earnings are forecast to be flat against last year I suspect there will be scope for revisions. And the future will be on the worldwide income from Teletubbies so the expectation of success from that should be sufficient to drive the share price.

maillotàpoisrouges

When you say you are picking up bargains Paul, as these short term trades playing the rebound, or adding to a longer term buy and hold portfolio?

Sorry, meant to say ''are these short term trades''

Paul Scott

hedley,

A bit of both actually. I tend to keep my long term positions for years, but often trade around the edges in the same stocks. So I might top-slice if they go up a lot, and buy the dips.

Also, I trade numerous other stocks on a short to medium term basis. That was not my intention, but it's been working so well in the last 2 years, I'd be mad not to do it! When you research as many stocks as I do (about 500) then you just spot bargains, as you've already got an idea in your mind whether it's cheap or not.

Market conditions such as we've had in recent weeks have been glorious - some wonderful plunges in prices in super companies, and you just wait for them to stop falling, pile in, then ride the recovery back up again. Hate to say it, but it's actually quite easy money. But you need a big sell-off in the market to trigger such opportunities and of course you need to have some money on the side to take advantage of it when other people are fire-fighting their falling portfolios, and making bad decisions.

Regards, Paul.

simoan

Paul,

I'm not sure what it is but I can never bring myself to invest in a marketing or PR company. How do you believe a word they say? It's no wonder they make such great claims about their balance sheet. However, The Mission Marketing Group as a company name always makes me laugh... reminds me that late 80's Goth band!

Have a great weekend, it'll soon be February... Si

jimbobjames2002

Mission Marketing (LON:TMMG) has been cheap for as long as I can remember. Sold out of them a couple of years ago as they were starting to look like a value trap and they still look like a value trap now!

Johns

Your comments about the Living wage are interesting Paul. I have been thinking a lot about this recently as some of my holdings are potentially affected by this issue. Do you think prices will rise to compensate ?

Rusty2

Yes Trakm8 Holdings (LON:TRAK) was a profitable trade for me up 27% in a day can't be bad. The thing is you have to watching certain shares in order to get these deals.

I still hold some Trakm8 Holdings (LON:TRAK), one thing lately that seems to have caused some confusion with investors is there was no RNS about the recent placing, I mean the completion, I understand the broker did not feel the need but I'm sure that has not helped the share price and caused some doubt about it happening or there were problems with it, doubt is not a good thing for investors.

Paul, I presume you will be asking about the Route Monkey Holdings Limited acquisition and accounts which seems to have been the main reason for the bear raid?

I'm sure you get asked this all the time Paul, but do you use Level 2 data or charts to time your trades?
BW
Hedz

lightningtiger

Since TRAK do not pay a dividend I have top sliced a 10% profit to "make up" for it last year. Not sure why it has taken such a big hit down recently but rebounding again today. It appears that one of their directors has been concentrating negotiations with the AA, presumably to get some of their company clients to also consider joining TRAK.
As well as people shorting the share perhaps the strong drop in oil prices have made the sharp spike down & now today the oil price has come back a bit the share price is recovering again.

herbie47,

Yes, I'll definitely be asking Trakm8 Holdings (LON:TRAK) CEO about the Route Monkey acquisition. I had a look at their accounts (at Cos. Hse.) in December, and they looked ridiculous - crazily high debtors, hence highly questionable revenue recognition, hence probably artificial profit. The accounts look a mess.

However, TRAK will obviously have done detailed due diligence, and see value in RM's techology. It wasn't a big acquisition, relative to the overall size of the group.

But yes, I definitely want to understand better the logic for that acquisition.

The bottom line for me, is that it boils down to trust in management (who themselves own almost half the company). You either trust them to run the company as best they can, and their competence, or you don't.

To my mind, the idea that any of us know telematics better than TRAK is ridiculous. They wouldn't have made the acquisitions they have done, without good reason. But I look forward to hearing deeper explanations from the CEO on Monday.

Regards, Paul.

OK thanks Paul, it should be a very interesting interview and getting to know the management better is really useful.

dscollard

lovely market for trading: caught HFD almost on its lows with a nice bump on trading update. I use their services anyway so it was a bit of a Peter Lynch manoeuvre with some charting and a view that the price action in advance of the update was saying that the whispers were good on numbers. I might use this phenomenon in future as I am both a fundamental and technical trader along with a good helping of macro. Fond believer in the adage " if you only have a hammer" and all that. Truly don;t get the fundamentalist v chartists debates: more akin to religious zealotry imo. I use what works and have no interest in beliefs

Got into PDL at 57p before a huge run up to 100p.which was my target. Might take another bite at that from the 70p if it rallies off the retrace.

Lovely bounce in RDSB from yesterday which is nice though was looking at TLW and should have , could have but hey. I originally bought that around £2 in 2005 and sold at £14 and a bti so it owes me nothing

Volatility is a joy if you have the time, tools, discipline and cash to exploit

MichaelFBS

"Good thing I've been doing Dry January, and haven't touched a single drop of the devil's urine since 29 Dec 2015, so a pat on the back for me, and hopefully readers are benefiting from my increased energy, and mental clarity!" Definitely noticed the difference, so thank you very much. I don't drink at all not for any self righteous reasons but because I found out after 10 years of suffering from amnesia (I would wake at 4:00 in the morning every morning) that the "devil's urine" (a new one on me) was the cause. One bigger positive is I have much more energy in the mornings.

@dscollard you knocked it on the head though when you say "Volatility is a joy if you have the time, tools, discipline and cash to exploit". I suspect many of us who have day jobs simply don't have the time to trade this market. I am 20% in cash but do hope to put it to work soon - if I can find some good ideas!!

DWit199

I think you mean insomnia, if memory serves me correctly.

Yes you are completely right. I can't remember why I wrote amnesia and not insomnia!

gus 1065

23rd Jan '16

Morning Paul.

Any views on the RNS release from your favourite "champagne" stock, Mobile Streams (LON:MOS) ? Seemed to have an especially effervescent day on Friday moving up from 4.9p to 10.4p before finally closing up 26% at. 6.6p. Half empty glass suggests ongoing issues in Argentina but speculation from the the half full glass-ears that they are making good progress with 600m potential customers in India and some cash still on the balance sheet. Coupled with it being very small cap and limited free float there may well be some more gyrations in the coming days.

Gus.

Flackwell

25th Jan '16

If I could proffer my 2p's worth

Theory is that given this money is directly falling into the lower paid section of society it will soon be recycled into the economy - ie it will be spent rather than saved and as a result economic activity should rise

The question clearly is by how much and in what sectors?

brucepackard

@Paul. Yes completely agree on your comments on TMMG. HBOS also used to claim that they had a "strong balance sheet" a couple of months before they did a rights issue, and then subsequently failed. To me it is a bit of a red flag when the company management make qualitative comments that are incongruous with the numbers. It suggests they live in la la land. Do they think we don't look at the numbers?

Small Cap Value Report (22 Jan 2016) - TRAK, CCT, TMMG, CRW

Highly indebted companies

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Paul Scott

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