Small Cap Value Report (Fri 10 Mar 2023) - AFRN, VRS, MORE

10th Mar by Paul Scott

81 comments 7502 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.

Aferian (LON:AFRN)

38.5p (down 36%)

Market cap £33m

Trading Update, FY22 Results Delay & Board Update (profit warning)

Aferian plc (LSE AIM: AFRN), the B2B video streaming solutions company, today provides an update on current trading and its impact on the outlook for the financial year ending 30 November 2023.

24i business is trading in line with expectations.

Amino business has seen reduced demand -

…device sales in the first half have been materially lower than anticipated.

Recovery is not expected until later in the year, as a result it warns on profit -

… management now expect Amino's outturn for the full year ending 30 November 2023 to be substantially lower than originally anticipated.

Cost savings of $5m (annualised) have already been implemented (cost efficiencies, and R&D teams)

Outlook -

… the Board now expects Group revenue and adjusted EBITDA for the year ending 30 November 2023 to be substantially below its original expectations. Whilst device revenues continue to be negatively impacted by the current market environment, the Board has confidence in the growth drivers of the video streaming market as well as Aferian's ability to address that market. Notwithstanding the difficult trading conditions of the Amino business in the first half of the year, the Company is still…

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laurie

10th Mar

SVB Financial (NSQ:SIVB) Molten Ventures (LON:GROW) Trustpilot (LON:TRST) Cazoo (NYQ:CZOO) Unbound (LON:UBG)

Molten Ventures has connections with Freetrade, Cazoo, Trustpilot, Unbound, Primary Bid, etc.

https://www.moltenventures.com/portfolio

This could be relevant if follow-on funding is needed or if stakes need to be sold.

Boon

I am sanguine about SVB. I don't think there is contagion, based on three things:

SVB is small, not a large bank. Yes, 18th largest. But there is a concentration of $$ at the top mega banks. So 18th doesn't really mean much.
SVB problems are unique. It was undiversified in its short term "liabilities" (ie current/checking accounts). Didn't build up a customer base across multiple industries, went all in on growth tech. The top banks don't have this issue, they are well diversified in terms of industries and customer types (B2C, B2B).
The government is not intervening in SVB. Because it is small and not a systematic risk. But if one of the larger banks get in trouble, you can bet that the governments (both UK and US) will backstop. They will not allow a big bank to fail. Just like they have always done since 2008. The playbook is clear.

If anyone has a recommendation for an ETF that has the big financial institutions, either USA or UK/EU, let me know. I'm going to be researching them to buy in if the markets keep dragging all banking shares down, as I don't see this as a systematic risk yet.

ACounsell

Be good to hear a similar story about the Patisserie Valerie fraud but I won’t hold my breath!

Surprised no comments on Hostmore (LON:MORE) following Paul’s review of latest news. There was much discussion on Stockopedia that this share and Unbound (LON:UBG), originally held in the private equity vehicle Electra Private Equity were significantly undervalued and when demerged and listed would be sound investments. This proved to be a fiction either due to misleading statements from the Private Equity group or inadequate analysis from potential investors including myself! Like Paul these two ‘dogs’ are my worst performing holdings - down over 90%. It is fortunate that my original investment was a small % of my overall portfolio as I fully expect both companies to go to zero!

Helvellyn

Investegate |Spirent Comm PLC Announcements | Spirent Comm PLC: Director/PDMR Shareholding

And another one today too !

jamesalastair

People do get punished. I remember one of our partners, Julian Pilkington at Spicer and Oppenheimin in the early 1990s, lost his practising certificate over our incompetent audit of Barlow Clowes. Sad end to a career really.

Rusty2

Says I need to subscribe, when I click on that link.

planetx

Simple case of private equity getting rid of their dogs at the peak of a bull market .

They did very well

Investors bought into it a bought PE dross at inflated prices .

Warren Buffer and Charlie Munger are scathing on PE mentality .

Buffett wrote that “private equity” is a “name that turns facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing.”

Simply a well executed coup by PE just be sure to learn from this and steer clear of PE listings that are only ever dumped on investors.

I’ve had some dealings with PE and luckily I Had the strength of mind to tell them where to go.

Smudge

Hi Snazzy,

Well, I thought I'd take up your suggestion. Just tried again with both the laptop and the phone and they both work as they should. Happy days.

Didn't work on Monday, the evidence is there in Monday's SCVR. Had to type it in by hand.

One little bit of good news on a rough and tumble Friday. Have a good weekend all!

TamzinPiworld

Franchise Brands (LON:FRAN) reported full year results yesterday, here is the presentation they gave to analysts at the LSE video & podcast. Executive Chairman, Stephen Hemsley (ex Dominos Pizza) and Peter Molloy, Managing Director, B2B Division gave a very comprehensive presentation. The figures are strong with a big contribution from the 2022 acquisition of Filta, which was previously AIM listed.

Revenue £99.2m +72%
aEBITDA £15.3m +80%
aEPS 8.38p +51%
Dividend 2p +33%
Net cash £8m

They run through each of the brands and go into detail on Filta. They plan to sell the B2C division; to grow the B2B division through cross-sell and upsell; to use technology to drive efficiency and continue to look for further earnings-enhancing acquisitions. Stocko is showing an upgrade to forecasts, yesterday.

Lucky dip

A day like today is best to pick up from your short list rather than looking at what is reported today.

Among my short list is CCC and SPT but it is really the big shots like Legal and General and some financials I am after today.

alison ruggles

ii who for me took over from TDW both excellent and simple, all you need fitting on one page and they went right back through various others to DHL some 20 years ago. ii now Aberdeen = all change...

rogerh

Since the disemvowelled company took over ii, there have been many changes, many upgrades, none of which have made things better, indeed the opposite with the recent website upgrade. Now they want to get rid of us troublesome people with pension trading accounts completely. It will be a nuisance but, in a way, I will be glad to part company. Our pension trustees have proposed AJ Bell and my initial contact with them has been positive. It is exclusively a GBX account i.e. you can't hold foreign currencies in the account. This was one of the best points of ii and meant you didn't have forex charges after the initial non-UK share purchase. The main problem is the stock transfer takes 6-12 weeks, so you can't trade your stocks during this period. If you are a buy-and-holder, this will be fine but if you like to trade, it's really an issue and I am currently wondering whether to cash out completely and buy back in again within AJ Bell, dealing charges and stamp duty notwithstanding.

Trident

You can register for a Free FT account, but you can only read a certain number of articles per month

MetalMaid

I am just catching up with yesterdays horrendous news about Wandisco (I do not hold) - my sympathy with holders.

In terms of the post mortem, I am thinking what lessons can be learned or what warning signs were present. I think that there is one interesting thought process that has not been discussed (apologies if it has).

Whenever there is a small cap company with extraordinary claims, I think we should all be sceptical. The smaller the company and the bigger the claims - the more sceptical one should be. I think this is only true of certain industries - especially imo healthcare / pharma and Tech. The reason for this is the amount of acquisition and staking activity that takes place in these sectors. And also the amount of ramping that goes on. If Wandisco's tech was so powerful and so important then why had no other businesses tried to either get a stake in the company or try a takeover. I am thinking that most of the big tech companies would have had a keen interest - if indeed what they were saying was true.

I have had a similar situation with Shield Therapeutics (no fraud - just fell for the story) - they told a great story! It sounded as though they had an amazing drug (which has had approval) with huge demand. However the demand side has failed to materialise (at least within a reasonable time frame) and the stocks market cap makes no sense for an approved drug with so much 'potential' (similar successful assets are often worth in the billions to pharma companies). The only lesson I could take from my bad experience was that if what they were saying was true - then big pharma would have bought them out long ago (given the valuation the market had on the business - versus the potential if what they said was credible). If the ones with all the knowledge in the industry have no interest - then my mistake was believing I knew better than the experts. Therefore my conclusion was that the drug had very little potential - as there had been no interest from big pharma - I don't know why they weren't interested - but the fact they weren't should be a red flag. I sold on this basis (basically concluding the company was a pr machine spouting BS). I took a huge loss but the stock did drop another 80%! And still no interest from the pharma world - this says a lot imo about the quality of their product or its marketability / or ability to monetise - not sure what - but the warning is there.

So to conclude, I am not sure if this would have been a red flag for people or not. But nowadays I am wary of any small cap that makes very big claims - in an industry where if what they say is true - would surely attract huge acquisition interest from other companies. If the road they have travelled is silent - the silence should be deafening!

BnB

Robert Walters (LON:RWA) The chart suggests the market might price this share at 450p

Are you feeling happier now after the 2% drop that spooked you turned into a 10% rise on a huge down day for the general market? I really think you just need to be patient and not worry about how low it could go. Instead, think about how high it should end up once current macro passes. If it drops, buy more.

Michael C

Yes, and I didn't sell.

Yes, and I didn't sell.

Good start to the weekend then

And it has played out like that this morning... SVB not seen as too big to fail, and allowed to collapse. Small enough for the usual FDIC process to take place for failed banks.

Now the question comes whether this sparks larger contagion... mass withdrawals in cash by retail customers. Corporates taking money out of smaller, regional (more vulnerable) banks.

I would be very surprised if the banking system couldn't survive this. All the tighter regulations post-2008 was gamed on scenarios like this, to prevent this type of contagion happening.

ed_miller

14th Mar

Sadly I lost out (lost my entire holding) on Redcentric (LON:RCN) because I bought prior to publishing of the mis-stated accounts.

I held after mis-stated accounts were issued though I would not have done had properly-representative accounts been issued instead.

I can't be the only one. The restitution scheme didn't cover this.

Small Cap Value Report (Fri 10 Mar 2023) - AFRN, VRS, MORE

Aferian (LON:AFRN)

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Paul Scott

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