Small Cap Value Report (Fri 10 Feb 2023) - MEX, ZYT

10th Feb '23 by Paul Scott

64 comments 6548 reads

Good morning from Paul!

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Agenda

There's nothing of interest today in company news. Thank goodness, as I must admit to being a bit tired out, after the crazy avalanche of news in the first 6 weeks of the year, so it's pleasant to be taking things at a more gentle pace this week! Also great to be seeing so many strong recoveries in small cap share prices, although I'm still wondering if these will stick, or whether we should be banking some profits?

I might call it there for today's report, and go for a nice long walk & listen to some podcasts. Then I need to update my summary & watchlist spreadsheets, and prepare for tomorrow's small caps podcast.

Sections below -

Tortilla Mexican Grill (LON:MEX) - notes below from my company visit to its Head Office yesterday. Cautious thumbs up from me.

Zytronic (LON:ZYT) - a quick review of its trading update earlier this week. Thumbs up from me.

Company Visit - Tortilla Mexican Grill (LON:MEX)

I can’t remember the last time I visited a company, it was so long ago, pre-covid. These days, almost all contact I have with companies is on zoom-type calls. Yes, it’s more efficient for everyone, but lacks the human element of a face-to-face meeting, and seeing people in their own environment, interacting with colleagues, etc.

So…

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Michael C

10th Feb '23

I have asked the question.

I'm gradually beginning to dislike the HL platform.

Mark Simpson wrote about this recently. https://www.stockopedia.com/co...

PDiddy

The company who sold out, Netease its believed to be, a Hong Kong based firm bought in lower than the price we see today at 43p, pre IPO, they've made a profit. The TR1's are not out yet, but there is suggestion Swedbank (big major shareholder with 17m shares) hoovering up the shares sold by Netease. Whomever it is would not have done this without positive inside info.

Bouden54

I think it's always worth top slicing to at least lock in some gains, especially if it's gone up on no obvious news. Ultimately you have to try and assess how much further upside you see - if you think there is more upside in other shares then logically would make sense to switch into those. I personally sold MJ GLEESON (LON:GLE) today after quick 30% rise - rationale was that it had lagged the rebound in other housebuilders but now largely caught up. On the other hand I sold H & T (LON:HAT) way too early last year and still kicking myself.

donQ

Crazy true, all the 8 shares are flying (4 of them over 15%+) today.

At 2pm average gain of these shares are 12%...

Dojosan

I think the absorbed restaurant chain was Chilango - a hipster chain that received millions - https://www.crowdcube.com/comp...

Monty Carlo

I would suggest everyone has a very, very careful look at what Ruffer were doing in Bitcoin and what it says about how they manage governance & risk.

I would also want to know whether they really have the ability to match the investment banks when it comes to the scarce expertise needed to accurately price those deeply-out-of-the-money options & swaptions they trade in....

Rusty2

Crazy but some of the spreads are quite wide. Problem is you can't often buy at the tip price. I found ST tips a mixed bag, some good ones with a load of lemons. I don't follow him anymore, I think Globo was the last straw, not that I ever invested in it.

Caduceus

Has the link for the webinar that happened this Wed been sent out yet? I haven't seen anything or recieved an email?

grazza

Thank you both, I was looking at the buy and sells and using guesswork it seemed that the market makers were left holding millions that they would need to offload but I guess they could have flipped them for a low margin and some of the sells were actually buys.

Deegee Eff

Those that like Shepherd Neame (OFEX:SHEP) may also like Daniel Thwaites (OFEX:THW) also quoted on Aquis. They are a beneficiary of rising interest rates via interest rate swaps, very straight forward, good quality business. Which even used to deduct it's pension fund deficit from NAV ! It does not anymore as it no longer has a pension fund deficit.

The price stands a very big discount to NAV, could be in a good business with UK hotels now able to raise prices, and with higher occupancy levels. ( According to Whitbread who own Premier Inns ).

portugull

Entain (LON:ENT) my largest holding is down nearly 16% in 2 days as a direct result of a remark in an analyst briefing by the CEO of MGM that MGM had "moved on" and would not be bidding for Entain. They had made an all-share offer for Entain in January 2021.

I feel pretty miffed that the CEO dropped this comment seemingly off the cuff which was very damaging to the SP of Entain their 50/50 JV Partner in BetMGM.

Surely Entain should put out an RNS given the very sharp drop in the SP. I would appreciate any comments from Subscribers to this situation.

garbetklb

OFEX (or Aquis) shares. I hold National Milk Records via Interactive Investor and recently successfully Bed n SIPP it from my Trading Account into my SIPP.

Yes I had an email, think yesterday, will check.

Yes, yesterday.

davidjhill

MGM were deluded in trying to bid for Entain (LON:ENT) in the first place. In reality they couldn't afford it as they would have to give too much of their own company away to get it. The low ball bids initially were laughable.

Entain (LON:ENT) is capable of generating cashflow of £800m p/a and in 2 or 3 years time this will be circa £1.2 to £1.4bn by my calculations. Although they have £2bn of debt they are highly cash generative and if they don't acquire anything else this will be gone in 2 years time if they want to do that. That makes a fwd EV of £7.5bn look cheap in my view. I think the US business will also be extremely valuable over a 3 year time horizon.

As I understand it the JV is exclusive to the US and neither party can sell out of it without the other party agreeing and neither party can do their own venture that competes with the BetMGM business. The MGM CEO did also say that they highly value the US JV with Entain (LON:ENT. The drop was bizarre as there wasn't a 15% bid premium built into the price, maybe 100p as some bid talk swirled around and I suspect some investors may have been spooked at MGM saying that they were going to use their acquired swedish vehicle to globally expand. Again in my view thats just fanciful. Both Flutter Entertainment (LON:FLTR) and Entain (LON:ENT) are global leaders in this space - others will have a hard time trying to compete.

Always some regulatory risk but Entain (LON:ENT) know what they are doing and only operate in regulated markets. They are adept at changing with the rules and expanding in other markets. the UK market is much less important to them than it used to be from a diversification of revenue and profitability.

I doubt Entain (LON:ENT) would see the need to comment on MGM saying they aren't bidding. They've only just issued a trading statement which was good and the BetMGM JV will move into profitability this coming year so no further capital required in that business either. They believe they can more than double the valuation over the next 3 years and are heading in that direction so I don't know why the market got so spooked over the MGM CEO saying he didn't plan on bidding. Big overreaction me thinks.

Scott Daniel

Thank you for your efforts as always gents.

GloucesterBob

Is the link to the webinar

How To Read A StockReport - Forensic Stock Analysis in 2023 | Login to this event (webinarjam.com)

Many thanks davidjhill for your lucid response on Entain (LON:ENT) .

I bought my opening position in October 2020 and took a 5 year view based on the premise that virtually all US States would legalise betting which given the size of the market meant Entain, previously GVC, would be in a very powerful position.

I concur that in 3 years Entain will be a very valuable business and I have a target price of £28.

Thank you for stating why you do not expect an RNS from Entain on the price drop.

I will not be adding as I am already at my maximum in any one share.

Thanks mate, have messaged the team.

Logical David

11th Feb '23

Hi Scott, welcome to Stocko. I see you have just joined and this is your first post.

Small Cap Value Report (Fri 10 Feb 2023) - MEX, ZYT

Agenda

Company Visit - Tortilla Mexican Grill (LON:MEX)

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Paul Scott

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