Small Cap Value Report (31 Oct 2016) - SPL, POS, PPH, CTO

Monday, Oct 31 2016 by

Good morning!

I can scarcely believe that it's November tomorrow. I was out cycling in a t-shirt yeaterday, it was so mild. Yet again we're having such mild autumn weather that it must be playing havoc with clothing retailers' attempts to sell us winter clothing. Mind you, the same thing happened last year, so the prior year comparatives this year are actually like-for-like in terms of weather. So any retailers blaming the weather for poor sales this year will be given very short shrift in my reviews here!

My newish Windows 10 laptop has an incredibly annoying tendency to switch itself off without warning when the battery has depleted. This happened today, and I lost the whole section below on SPL. After some swearing & ranting, I remembered the feature on Google Chrome which re-opens recently closed tabs. It worked - Chrome had saved my work! So top marks to Google, and a big fat raspberry noise for Microsoft, quite frankly.

I suppose the next factor for us to all worry about is the US Presidential election. What an absolute farce the whole thing has turned into. I'll resist the temptation to comment further. If the most powerful country on earth can only come up with these 2 appalling candidates, then something has gone very badly wrong with its democracy. America has become a laughing stock - I think they've got horrendous problems over there. Anyway, let's hope it doesn't end up affecting our portfolios, or more importantly sowing the seeds for WWIII.

Let's start today with announcements from 2 companies which have been lousy investments in my portfolio, and the lessons learned.

SKIL Ports & Logistics (LON:SPL)

Share price: 12.12p (up 15% today)
No. shares: 44m (before fundraising) + 376m new shares = 420m
Market cap: £5.3m before fundraising / £50.9m after fundraising

Fundraising & name change - the market cap has collapsed here to just £5.3m. It's been obvious for a while that the wheels had come off, and that all the previous assurances from management were hogwash.

The only surprise is that they've actually been able to pull off a further fundraising at all. So far, the company has partially built a barge loading & unloading port in India. It then ran out of money to complete the project, hence the share price collapse as people dumped their…

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Mercantile Ports and Logistics Limited, formerly SKIL Ports & Logistics Limited, is a holding company. The Company develops, owns and operates port and logistics facilities. It is engaged in developing a port and logistics facility at Karanja Creek in the Raigad District of Maharashtra. It intends to develop and operate shallow draft ports or deep draft ports at other locations along the Indian coastline. Its project at Karanja is located in close proximity to Jawaharlal Nehru Port Trust (JNPT), a container handling port. At the Karanja port, the Company focuses on mid-stream discharge and loading of cargo while vessels wait at anchorage for a berth in JNPT, and coastal movement of cargoes, such as containers, cement and other break-bulk cargo, which typically ply in smaller vessels. It also focuses on developing an integrated container freight station (CFS) (logistics facility) at the Karanja port. It is also engaged in developing a port and logistics facility in Mumbai, India. more »

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Plexus Holdings plc is a United Kingdom-based company, which provides oil and gas engineering services. The Company is engaged in marketing a friction grip method of engineering for oil and gas field wellheads and connectors, named POS-GRIP. The Company is involved in the sale of its POS-GRIP technology and associated products; the rental of wellheads utilizing the POS-GRIP technology, and service, including assisting with the commissioning and on-going service requirements of its equipment. The Company's POS-GRIP is involved in deforming one tubular member against another within the elastic range to effect gripping and sealing. Its method of engineering for wellheads offers a range of advantages to operators, particularly for high pressure high temperature (HPHT) applications. POS-GRIP technology can also be applied for surface land, and platform production and subsea wellheads. more »

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PPHE Hotel Group Limited is a hospitality company. The Company, through its subsidiaries, jointly controlled entities and associates, owns, leases, operates, franchises and develops upscale and lifestyle hotels in gateway cities and regional centers in Europe. The Company's activities are divided into Owned Hotel Operations and Management Activities. The Owned Hotel Operations are divided into three segments: the Netherlands, Germany and Hungary, and the United Kingdom. The Company's portfolio of owned, leased, managed and franchised hotels includes approximately 39 hotels offering over 9000 rooms. The Company's development pipeline includes approximately five new hotels and the extension and reconfiguration of one hotel. The Company's hotels operate under brands, which include Park Plaza Hotels & Resorts, art'otel and Arenaturist in Europe, the Middle East and Africa. It owns and operates hotels, restaurants, bars and spas across various countries in Europe. more »

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24 Comments on this Article show/hide all

gus 1065 31st Oct '16 5 of 24

Hi Paul.

Good commentary as ever.

On the subject of SKIL Ports & Logistics (LON:SPL) , the last time I had any involvement with an Indian based company that changed its name, the company in question (Allied Deals/RBG Resources c.2003) collapsed with the auditors (PWC) resigning and the SFO (and I think the FBI for that matter) successfully prosecuting several of the Directors for fraud. Hopefully not an omen for this particular venture. The company wasn't listed but several banks and finance companies lost several hundred million USD in loans and receivables.

In terms of the use of Stop Losses, I have recently become a convert having read and digested the collected works of Robbie Burns (aka the "Naked Trader"). I'm not yet fully cured of my old habits but have become more ruthless in pruning stocks that drop more than 15% from the time of purchase. The hard part has been clearing out some very long term holdings (> 5 years) that are well down but have recently been showing signs of life.

One thing I have done is to set up a Folio on Stockopedia and whenever I close out of a stock position through a Stop Loss I notionally "buy" £1,000 worth of stock. So far, in the past 6 weeks this portfolio has fallen in value by about 7% (it would have fallen more but for a premium MBO of SWP (LON:SWP) that I missed). In the absence of these stop losses, this would have been the order of magnitude of my loss in my live holdings. Going forward, I may also use this "portfolio of ex's" to flag stocks to consider buying back into as and when any positive momentum returns.



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DGBell 31st Oct '16 6 of 24

Paul,any view on recent float LUCE ,tipped in Sunday Dail Mail?

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doug2500 31st Oct '16 7 of 24

It's very difficult knowing when or whether to sell.

I recently bought Trakm8 Holdings (LON:TRAK) thinking it looked good value and it was well off recent highs. It has since dropped about 20% and IMO looks even better value, but with results due in a few weeks I feel a bit blind. Will the results be terrible (and is the insider trading, which doesn't happen!, dragging the price down) or will they be okay as indicated in the latest trading announcement and market sentiment is wrong, in which case I should be topping up.

If I used stop losses I would probably have sold by now crystallising a loss, but would be protected from further falls. But if results are okay it should bounce back.

I wouldn't mind this conundrum but I can't help feeling that news leaks out but doesn't reach us PI's until the RNS hits the screen. Am I just feeling hard done by?

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SmallCappy 31st Oct '16 8 of 24

Paul re PC switching off - Apple are no better. I have a MacBook which flashes a little warning top right but does not show if you are in full screen mode (at least I dont think it does - so easy to miss it). The concept of an audible warning seems a bridge way too far for these geniuses from silicone valley.

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Cowlid 31st Oct '16 9 of 24

In reply to post #156490


have been in Trakm8 Holdings (LON:TRAK) for over a year to various degrees.  I thought all was rosy when they placed additional shares at 330p that was oversubscribed, and was sitting on a very tidy profit, all of which has been wiped out.  I guess a stop loss would have prevented this, but given that the price movements for this one can be significant, I didn't want to be stoplossed (?) out!

Paul has (rightly) been quiet on this share given the amount of trolling there is on other fora, and the frankly unprofessional personal mutterings of TW, but are you likely to comment on the results later this month?


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Banzii 31st Oct '16 10 of 24

Paul, best tweet I saw about the US election candidates:

The evil of two lessers.

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edgrove 31st Oct '16 11 of 24

In reply to post #156490

Trakm8 Holdings (LON:TRAK

"It's very difficult knowing when or whether to sell"
I too am holding TRAK, bought at a price substantially higher than it is today.Unlike you, however, I am not, in any way, concerned by this situation. Whilst not expecting "mind blowing" interims next month, I am content in my anticipation of excellent Finals next summer.
Perhaps you are "just feeling hard done by" but please, DYOR

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cafcash49 31st Oct '16 12 of 24

Some interesting views on stop losses. I used to set them only to be shaken out sometimes when the tree was shaken by the market makers. I now set an alert at a 10% loss on Stockopedia and this alerts me to look at the share and try to discover why it might have dropped. Sometimes I then sell and sometimes I decide to keep.
I also have a 'sold' portfolio which sometimes makes you feel good that you acted and sometimes annoyed with myself when it rises quickly after my sale. Hey ho, share investing is never dull and never an exact science.

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AnonymousUser252054 31st Oct '16 13 of 24

In reply to post #156469

That is a little bit brilliant, thanks for posting the link. Having said that, this year I read the history of the building of the Panama Canal and you will not believe how malevolent the US's role was, and also just finished the novel 'King Coal' describing working conditions in the early 20th century. It is sentimental and incorrect to suggest that 'in the past' the US was the greatest country in the world that its people were better informed and more moral. It has plenty of previous to be ashamed of, just like us.

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Nick Ray 31st Oct '16 14 of 24

In reply to post #156520

"The past is a foreign country; they do things differently there."

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DarwenLad 31st Oct '16 15 of 24

In reply to post #156490

Like many others I like TRAK. The management has bent over backwards to present its case to private investors whether by presentations after its AGM or at ShareSoc events etc, and these presentations have been made available to wider audiences by easily accessible videos (many thanks to the PI film maker). I may be a terrible judge of character, and am not a technical expert, but the management come across as knowing their business and understanding the twists and turns of the markets in which it operates, albeit as one of the smaller players.

My main problem with TRAK is that there are no major shareholders apart from the directors - John Watkins (17.8%), Cowley bros (11.0%) etc. I would have much more faith in TRAK if there were a few solid long-term institutional investors like Liontrust, Schroders, or Henderson. If they have done their due diligence on TRAK, and decided to invest a sizeable amount so their stake is notifiable, then I could sleep a bit more easily.

The only institution with a notifiable stake is Hagreave Hale. According to latest shareholdings listed on TRAK's company website, HH has a 3.4% stake which implies that it has reduced its holding by 0.5m shares over the last year . Hardly a rousing show of confidence in TRAK’s future.

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Nick Ray 31st Oct '16 16 of 24

The thing about stop-losses is that they work if the price continues to fall: they are a trend-following strategy. They are an attempt to predict the future by looking at the past.

How often will it be the case that the price of a stock continues to fall after the stop-loss is triggered? If markets are efficient then this is a question about whether the mean return of the market is positive or negative in the immediate future. If the market return is negative in the near future then on average stop-losses will result in a net gain. If the market return is positive in the near future then on average stop-losses will result in a net loss.

This is a basic result from the MPT/CAPM view of the world. It assumes that the selling point chosen and the stock affected are effectively random (because the future is not known and is not predicted from the past) and we sum over all possible outcomes in the whole market.

As a corollary, if stop-losses are triggering often for you and in most cases protecting you from worse outcomes, then your stock selection/buying rules should be reviewed because you are fishing in a pool with negative returns on average (or equivalently, you are in a bear market).

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Paul Scott 31st Oct '16 17 of 24

In reply to post #156475

Hi Ramridge,

Yes, that's a good point about stop losses being triggered by erratic trades.

I should have emphasised that I don't actually use automatic stop losses. Instead, I make a manual note of when a speculative share has dropped 50%, and make a decision to sell it myself. So I always like to stay fully in control of the actually trades, and not have a spread bet firm do them on whatever terms suit them!

Regards, Paul.

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Paul Scott 31st Oct '16 18 of 24

In reply to post #156499

Hi Dave,

Oh yes, I'll definitely rummage through Trakm8 Holdings (LON:TRAK) next set of accounts & do a detailed article here.

I just don't comment on day-to-day price movements when there's no newsflow, as it's pretty pointless - prices in illiquid small caps go all over the place in between announcements, as we know!

I thought TRAK's last update was a bit wobbly, and explained why here. So it's a share I've not held since June, and will wait to see what the results say before deciding whether or not to buy back in. I'm not keen on updates which say that they're expecting a stronger H2, as sometimes that fails to materialise & leads to a profit warning.

The share price has come down a lot, but I think that's because the market probably thinks it won't hit forecast earnings. The Stockopedia graph shows a dip down in broker consensus this month:


Regards, Paul.

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John Cannadine 1st Nov '16 19 of 24


I think the comments from T Clarke mean that the fraud was perpetrated before anything was accounted for - i.e. the company lost sales / stock / money it did not even know it had. Hence if anything is recoverable (which must be unlikely) it will go straight on the bottom line. Looks very sloppy.


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Effortless Cool 1st Nov '16 20 of 24

In reply to post #156556

My interpretation is different. The wording suggests to me that false invoices have been paid. That is, money has been paid out for goods and services that were never received. The invoices have thus been processed through the system and reflected in the financial statements.

In this case (if I may briefly put on my rose-tinted glasses), any recoveries made would directly benefit the bottom line and margins may improve now the fraudulent invoicing has ceased.

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John Cannadine 1st Nov '16 21 of 24

In reply to post #156565


I don't disagree. Effectively the fraud is already in the figures and had the fraud been avoided the figures would have been better.


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peterthegreat 1st Nov '16 22 of 24

In reply to post #156541

The point I would make about stop losses is that they are fine for most companies but it tends to be a matter of personal choice rather than right or wrong. I do not use them because the companies I invest in are rigorously screened to ensure they are of the highest quality and will, almost inevitably, provide a decent but boring return over the long term, so temporary setbacks are not a problem for me as I am a long term investor. My strategy is based on the business of the company, not the share price so the only time I would sell a holding is when the nature of the business fundamentally changes for the worse which, in my experience, is quite unusual.

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peterthegreat 1st Nov '16 23 of 24

In reply to post #156538

I must admit I always regard directors with large shareholdings as more significant than any amount of institutions as the directors, particularly founder(s), know better than anyone about the business and it is their personal money. However, I do tend to look out for Hargreaves Hale on the register as they are AIM specialists and, in many cases, tend to invest in the types of solid companies I am interested in as they hold them in their inheritance tax exempt funds. I am not implying that TRAK is a good investment at current levels but I would view the above indicators as being positive for the business.

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AnonymousUser252054 1st Nov '16 24 of 24

In reply to post #156649

I've been wondering lately if institutions use stop-losses, I get the impression they don't.

It's reassuring to find certain of them, including Hargreave Hale, listed as a major shareholder. But once in IIs seem to stick with a company that unexpectedly hits the buffers, regardless of a clearly disintegrating share price, I'm not sure why.

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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