Small Cap Value Report (5 Sep 2016) - CAMB, VTU, SDY, KOOV, BLV, CARR, REDS

Monday, Sep 05 2016 by

Good morning!

This morning's report comes to you from an alley on a side street in Corfu old town!

I'm flying back to the UK on Weds. So there will be a normal report today & tomorrow, but Weds will be late I'm afraid, as I don't get back home until about 3pm. I'll still do a report, but it will be late afternoon/early evening on Weds. Sorry about that.

My experiences of fund management

EDIT: Clarification - Fundamental Asset Management

I seem to have accidentally caused some confusion, for which I apologise. Fundamental Asset Management has asked me to clarify that the only part of their business I was involved in was a minor portfolio service called the Small Cap Value Portfolio.

So the SCVP had nothing to do with FAM's core business of IHT portfolio management, which is of course continuing completely as normal! (and is an excellent, well-run, strongly performing service).

One reader apparently misunderstood, and thought that FAM was shutting down, which obviously it isn't! This has caused a few red faces, for which I profusely apologise.

Over the last 3 years, I helped to run a portfolio management service, called the Small Cap Value Portfolio, through an excellent FCA-regulated firm called Fundamental Asset Management (who are specialists in IHT planning portfolios). Working with FAM has been terrific - they're really genuine, decent people, and have a wealth of experience in AIM stocks.

I've not mentioned it here before, as it could have been seen as a conflict of interest (i.e. being seen to drum up new clients by mentioning it here), so Stockopedia asked me not to refer to it here in the past. I did however declare all positions held, within my usual disclosures here, as if I held them personally (which I did in nearly all stocks anyway).

However, seeing as we're winding down the very small SCVP service (due to failing to reach critical mass to make it cost-effective), I thought it would be worth a mention, to pass on some snippets on what I've learned from 3 year's work, helping to (as part of a regulated team) manage other peoples' money.

NB. This has no effect on FAM's main activities, as noted above.

Firstly, it's incredibly stressful! If you lose your own money on a share that goes wrong, it's annoying, but you learn the lessons (if there are any - sometimes it's things you could never…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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Cambria Automobiles plc is a motor dealer, which is engaged in the sale and servicing of motor vehicles. The Company is engaged in the provision of car vehicle sales, vehicle servicing and related services. It is a retailer of new and used cars, commercial vehicles and motorbikes. It operates on a dealership-by-dealership basis. It operates from approximately 30 sites with a total of over 50 dealer franchises. It operates dealerships across England, from the North West through the Midlands, down to Kent in the Southeast and across Exeter in the South West, trading under local brand names, such as Dees, Doves, Grange, Invicta, Motorparks and Pure Triumph. Its brand portfolio comprises Abarth, Alfa Romeo, Aston Martin, Dacia, Ford, Fiat, Honda, Jaguar, Jeep, Land Rover, Mazda, Nissan, Renault, Seat, Triumph, Vauxhall and Volvo. It also provides ancillary services. It offers finance and insurance for the execution of the transaction along with service plans to maintain the vehicle. more »

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Vertu Motors plc is an automotive retailer in the United Kingdom. The principal activity of the Company is the sale of new cars, motorcycles, and commercial vehicles and used vehicles, together with related aftersales services. The Company is engaged in the provision of management services to all subsidiary statutory entities. The Company operates a chain of franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles. The Company also operates various franchise dealerships, such as Volvo, Volkswagen, Land Rover, Audi, Mercedes-Benz and Jaguar, and operates Honda dealerships in the United Kingdom. The Company operates approximately 125 franchised and over three non-franchised operations across England and Scotland. The Company's subsidiaries include Bristol Street First Investments Limited, Bristol Street Fourth Investments Limited, Vertu Motors (VMC) Limited and Grantham Motor Company Limited. more »

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Koovs plc is a supplier of branded fashion garments and accessories for sale by a third party through Website principally in Republic of India. The Company offers dresses, tops, jumpsuits and playsuits, skirts, trousers and leggings, cardigans and pullovers, lingerie and sleepwear, and swim and beachwear, among others, for women. It offers shirts, t-shirts and polo shirts, vests, jeans, jog pants, shorts, hoodies and sweatshirts, coats and jackets, and innerwear and socks, among others, for men. In addition, the Company offers bags and wallets, accessories, sunglasses, jewelry and watches. The Company offers its products of various brands, including Knockaround, KOOVS, Kultprit, Pataaka, Pepe Jeans, Shuffle, Sole Threads, Vans, Voi Jeans, Modello Domani and Mr Button, among others. The Company's subsidiary is Koovs Marketing Consulting Private Ltd. more »

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66 Comments on this Article show/hide all

Paul Scott 5th Sep '16 27 of 66

In reply to post #149370

Hi John,

You said;

"Surely the advice to run your winners is a key example of being prepared to learn from and build on your successes? Catch yourself doing something right and do more of it is my summary."

Absolutely right, I agree!

A friend/mentor told me simply, when I asked for his advice, "Do more of whatever works!"

So I wrote that down & pinned it on the wall next to my desk.

For me, it's always the speculative stuff that goes wrong. Whereas most of my other things do pretty well. I have one family account which has a set of strict rules on keeping gearing low, and stock selection (quality small-mid caps only). It's done remarkably well. Whereas other family accounts which have speculative stuff in them too, seem to always rack up losses which dissipate the gains on the sensible shares.

So I'm now changing the strategy on the other accounts, to bring them more in line with the one which does consistently well.

Regards, Paul.

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Warranstar 5th Sep '16 28 of 66

In reply to post #149307

The final step in my investment decision process is to decide on my conviction level for the share at the current price. This can range from "very firmly convinced" to "Not convinced" I will invest larger amounts in companies which I decide that I am very firmly convinced about. "Not convinced" means zero investment.

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clarea 5th Sep '16 29 of 66

Question Paul,

What PE would you not normally go below seem to remember you saying sub 5 from memory understand will be the odd exception like Trinity Mirror. Re running winners even the great Naked Trader made the bulk of his money from two massive winners in Telecom Plus I think from £1 to £18 odd and Dialight.

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Paul Scott 6th Sep '16 30 of 66

In reply to post #149331

The first paragraph of the microcapclub article is such obvious rubbish, that it has put me off reading the rest of it. It said;

"Getting Started is hard work. Warren Buffett’s right hand man, Charlie Munger is quoted, “The first $100,000 is a #####”. Warren Buffett made his first $100,000 in the early 1950’s when he was still an individual investor, compounding his capital 50% annually over several years. $100,000 in 1950 is equivalent to about $1 million today. So perhaps Munger’s 2015 version would be, “The first $1 million is a #####”.

Sorry. $100k in 1950 is NOT equivalent to about $1m today. Nowhere near. Who writes this crap? Maybe 50-100 times in terms of stock prices (or more). Not 10 times. That's ludicrous.


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Paul Scott 6th Sep '16 31 of 66

In reply to post #149388

Hi clarea,

What PE would you not normally go below seem to remember you saying sub 5 from memory understand will be the odd exception like Trinity Mirror.

It depends. I always work on forward PER, so that relies on broker forecasts. So my first port of call is to check the broker forecasts for reasonableness. What I find with small caps, is that the broker forecasts can often be wildly wrong. So it's a huge mistake to just adopt a mathematical approach which assumes that broker forecasts are going to be 100% accurate.

I look at broker forecasts, try to get hold of the detailed notes, then dissect them. You can sometimes find situations where the broker forecasts are way too conservative, and completely out of kilter with what decent companies are saying in their narrative, with trading updates & results.

Avesco (LON:AVS) is a good recent result. That has been obviously under-priced for a long time now (and still is), which is why I keep going on about it.

Stockopedia's momentum score is great for this - as it measures stocks which are seeing broker forecast upgrades.

In my view, overall, there's no substitute for really getting stuck into the numbers, doing detailed research. As with everything, the harder you work, the luckier you get.

To go back to your question, I think a PER of under about 8 right now, is probably signalling that something might be wrong. The first place to check, is the balance sheet - debt, and wobbly working capital. The second place to check, is management. Who are they? Why does the market have little confidence in them?? In conjunction with that, check the ownership structure. Is there a dodgy shareholder with a controlling interest?

Obviously, if it's overseas + AIM, then it's probably dodgy. Apart from USA companies, which I find are usually OK.

I could go on!

Regards, Paul.

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back2value 6th Sep '16 32 of 66

Avesco - I liked the look of it, so I scratched my head for a while and then, when placing a separate order, spoke to my broker. He pointed out that AVS shares are quite illiquid and have / had a yawning wide spread, and so I declined to buy - just a few weeks ago - at just over 200p.

Lesson? more courage of convictions required!


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gaustin 6th Sep '16 33 of 66

Paul - a bit off topic, but is the Sharesoc event in Brighton on 13 September still going ahead?

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kalkanite 6th Sep '16 34 of 66

In reply to post #149391

Hi Paul

I have taken 30 seconds to qualify your comment and come up with this...

I hope the link comes out as I had it. It is essentially an inflation calculator, put $! / 1950 and it calculates the value to be $10.02 in 2016 so the article appears to be spot on.

Are you using the 50 - 100 times as an example of had you invested that money in the stock market at that time? If so I think you may be confusing the metrics.

I follow @IanCassel on twitter and find his articles very informative for investors.


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hayashi22 6th Sep '16 35 of 66

In reply to post #149415

The bit I liked in your referenced post was 'What I look for and why'. Those criteria are useful though they might point you towards a few blue sky companies. Like Paul I have really avoided this space for some time and indeed the mining world. for me avoiding the ones which go wrong has been a big help to recent rather good performance -over and above the market bounce from the Brexit vote.

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herbie47 6th Sep '16 36 of 66

In reply to post #149391

Actually I think inflation is about 10x from 1950 to now. I did find this:

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herbie47 6th Sep '16 37 of 66

In reply to post #149403

Avesco (LON:AVS) spread is not that wide about 3% at most, often is lower, actually spread today on 1,000 share trades is 2%. Yes they are quite illiquid they are correct, so buying/selling large amounts maybe difficult. I do execution only transactions.

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tabhair 6th Sep '16 38 of 66

In reply to post #149391

I agree Paul, those Microcapclub articles which are so popular at the moment are a bit silly, trying to suggest that just about about anyone can invest like Charlie Munger or Warren Buffett and get 50% annual returns. It's all very promotional and disingenuous. Apparently a 10 bagger isn't even enough now, that site talks about 100 baggers! Like you can just stroll into a supermarket and pick one of these of the shelf!

I think people would be much be much better off to listening to the likes of a Lord Lee. He talks about the same thing (good companies, good track records, good management, hold forever) but without the promotional aspects. Buy a basket of about 8-10 of these companies, keep tabs on them ever 6 months and you will get rich (slowly). Of course, that's the catch in all this that Microcapclub seem to gloss over. The process of getting rich will take at least 10 years for the ordinary person.

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andrea34l 6th Sep '16 39 of 66

Only reading this morning as on hols myself.

If u think CAMB is excellent value and trading sounds more encouraging than VTU, why not sell ur VTU and buy CAMB? I looked at VTU a while ago and thought it was poor value in the sector, I currently have LOOK (which have done well for me in a short amount of time) and MMH (which seem to put out good results and news but share price doesn't reflect it for long)

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herbie47 6th Sep '16 40 of 66

In reply to post #149448

Talking about supermarkets, Tesco (LON:TSCO) always comes to mind when WB is mentioned, how many million did he lose on that? Not that keen on these american articles either, pity there are not more UK based ones.

Yes I do follow Lord Lee, sure he has some long term holdings but he does trade quite a bit, it's hard keeping up sometimes.

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kalkanite 6th Sep '16 41 of 66

In reply to post #149448

Hi Tabhair

While I agree very much what you say in post 38, I will say this about Microcap club.

It makes the point that if you are looking for 10 or 100 baggers they are quite right to say that it requires a great deal of effort and analysis to find such a company, also you cannot expect to get a multi bagger company without having the conviction to hold, it is so easy to think I have doubled my money so will take the profit etc. etc.

The problem for any investor writing blogs etc. is that if you write enough articles then it becomes more and more likely that someone will be able to pull apart something that you have said, so I think when reading such articles, it is the thrust of the content that is important and not any small inferred pieces that distract from this. It must be rather frustrating for authors to write an articulated article only to have it torn apart due to small detail.

Lord Lee is an excellent example of the ideal mentor for investors to learn from but I expect if you read his book (which I have) there are some detail that can be contested, but the thrust of his investing methods is excellent.

One of my favourite articles from Microcap club is "I passed on Berkshire Hathaway at $97 per share" (1982).......

I couldn't find a time in that year when BH was $97, but the article is excellent all the same.


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Fangorn 6th Sep '16 42 of 66

In reply to post #149391

"Sorry. $100k in 1950 is NOT equivalent to about $1m today. Nowhere near. Who writes this crap? "

Calculate the value of $100,000 in 1950
Inflation Calculator
$100,000.00 in to Calculate

$100,000.00 in 1950 had the same buying power as $1,002,224.58 in 2016
Annual inflation over this period was about 3.55%,000&year=1950

Presumably two sites are linked.

Just catching up on some reading hence I have seen,since posting, someone has already linked such.

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brileen 6th Sep '16 43 of 66

Hi Paul

Thanks for your short piece on REDS. I took a small speculative position in this company recently. This mainly on the back of the new board seemingly sorting out the previous tangle which the company had got into. The board now seems well qualified to deal with the demands of this small company and this on the back of a reasonable cash position very low PE.

If you are able to dig out any more information from the brokers( which I have been unable to do), I should be very grateful for your efforts.

As always thanks for your daily excellent Blogs (for me tuition).


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herbie47 6th Sep '16 44 of 66

In reply to post #149460

"swell chicks"

It's words such as that which I found so off pointing in some american articles. I take your point about the overall content but I do find some of the language very grating.

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marilyn thorpe 6th Sep '16 45 of 66

just wondered what happened to CARR

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tabhair 6th Sep '16 46 of 66

In reply to post #149460

I don't think I am being too unfair.

Let's say you are incredibly smart/visionary/lucky and you found the next Berkshire Hathaway today. Ignoring the fact that you managed to someone how find the stock that will perform in the top 0.1% in the overall stock universe over the next few decades, you plonk down your $1000. Assuming Buffett's exceptional 21% average returns, you still have to wait 12 years before you have your ten bagger. If you're looking for the 100 bagger, the wait will be 24 years.

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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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