Small Cap Value Report (Fri 13 Jan 2023) - REVB, GLE, LIKE, WIN, DIA

13th Jan '23 by Paul Scott

33 comments 7825 reads

Good morning, just from Paul, as Graham doesn't work on Fridays (usually quiet for news). I've got a long list of backlog items, so I'll be putting in a full 6 hours today, to cover as many companies as I can by usual finish time of 13:00. Plus of course whatever news is delivered fresh on today's RNS.

That's it from us for this week. Have a lovely weekend, and as usual I'll be podcasting tomorrow.

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

Paul is writing all of today's report.

Long sections:

Revolution Beauty (LON:REVB) - a fascinating update today, following investigation of financial irregularities discovered in the accounts. Shares have been suspended since Sept 2022, but it sounds as if there's light at the end of a tunnel, with the company still solvent, and bank being supportive. Everyone should read today's announcement, as it details how the figures were fiddled. (more detail below)

MJ GLEESON (LON:GLE) [I hold] - a trading update that (as expected) reflects consumer caution, with a significantly reduced Dec 2022 (interim period end) closing order book. Cancellation rate has improved in last 6 weeks, but new reservations down 25%. Hence expect a soft H2 to June 2023 - which is now reflected in more realistic broker forecasts, and a bombed out share price. With an immaculate, ungeared balance sheet, and a remarkably low valuation (well below NTAV), I think this share…

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Breakout Trader

13th Jan '23

Nope, working ok for me

Robbie Burns

It's ok Rich, I didn't read it!

Caulkhead

It appears to be under "REVB search on twitter" Paul

MiserableJacktPotato

I don't know about the UK, but in the company I work for, which is US based, we get regular training on the illegality of 'channel stuffing' which is considered fraud. I can't see how the authorities don't get called in here.

Roger Baron

Revolution Beauty (LON:REVB) Can someone please explain, is "Cooking the Books" the same as Fraud?

The Jedi Investor

That’s a relief! It was reading NT v5 whilst sat on a sun lounger that made me think “what the hell am I doing”!!

Harry Hindsight

MJ GLEESON (LON:GLE) - looking at my 'tea leaves' I'll wait for the next golden cross 50 passing the 100 (normally 200 safer but later to the party). 500p looks a reasonable support/resistance level so will set a price alert for 450p. Can also set a moving average crossover alert in stocko so make some notes and forget about.

(I definitely don't know anything about your boo hoo trade.) I was on hols a while back and saw a bloke on a sun lounger reading NT. I went up to him and said "why are you reading that crap book?" He got the surprise of his life - he looked at me and at the pic then back again. He moved the book over his bits as I think he got embarrassed because he was wearing rather tight speedos.

GibboP

Nah, I was just pleased to see you !!

rmillaree

Practicably speaking i would say its very similar.

Obviously with these being different terms there may be some overlap where some cooking the books may not amount to fraud and some perhaps does. Unfortunately i suspect there is alot of minor cooking the books that goes on with listed companies.

Note some provisions are subjectively "estimated" and some accounting methods can be chosen "subjectively" froma list of options.

An example

Company directors can make a provision at year end for supplier returns - they choose "reasonable" basis for making these provisions - ultimately its subjective and hard to prove one is lying if they come up with plausible cock and bull story that is not known to be cock and bull at the time.

Also one may have choice of options ref stock writeoffs or depreciation rates used.

One can go from ultra conservative to ultra aggessive on both the above measures.

Its probably quite easy to go ultra aggressive and get that past auditors - in some respects if directors are trying to minimnise returns provisions and minmise stock w/offs - they are trying to maximise profits - to me this is cooking the books if they are not using honest fair and reasonable cals. They may not be doing anything techncially wrong though if the numbers used are agreed with auditors - note some peeps may call these adjustments window dressinga and not cooking the books. The reality is any directors that are looking to "maximise profits" rather than "get true values" probably are cooking the books even if that variety of cooking the books is deemed to absolutley fine by auditors.

It all stinks a little bit - any company that apears to be pushing the aggessive boundaries in any sense should come with red flags - as its so easy to manipUlate the numbers as one sees fit.

Funnymoney

Revolution Beauty (LON:REVB) Go to Twitter and enter "Three easy steps to destroy". You will find an article by Paul@investmentideen - I think related party transactions are always a red flag and assume I don't have enough knowledge to de-risk. Others may do things differently.

topvest

Regarding Likewise (LON:LIKE) - Tony Brewer was actually the Headlam (LON:HEAD) CEO until 2016. Likewise is a Headlam version 2.0.

It was VERY impressive Gibbo. Though obviously not in my ballpark.

Tanglands

Revolution beauty is an interesting story and set of circumstances. I have some experience of the work done by the audit firm and the audit partner involved. I can say that although the red flags may have been obvious, identifying all of the matters investigated would not have been so clear, and the work done by the audit team, lead by the partner, would have been excellent to identify this awful abuse of directors power.
when reviewing the accounts we should, I would suggest, also take a little time to at least scan the audit report, to see the matters identified by the auditors as being significant areas of risk.

Hi not sure it’s quiet as “ easy” as you suggest to get past the auditors. So changes to depreciation rates, would require disclosure in the accounts. Change in stock provisioning policy, would require explanation, and as in this case potentially a pya, to ensure yony consistency. Sure there are some judgment areas, but nowadays, they are very few.
in revolution case, I dont believe there was fraud, just a deliberate attempt to mislead by generating transactions that made no commercial sense, in an environment, that seemed to be”poisoned” by a number of personal loans, possibly given so as to buy off those that should have been challenging. Utter failure by the NED’s for starters!

The Boon Fund

On Appreciate (LON:APP) would like to hear thoughts from others on this takeover situation.

So the GM is going to be on the 20th Jan, and votes for this takeover are due in on the 16th Jan (Monday!)

So far, a very low percentage of irrevocable votes for the deal have been declared. On top of that, a fund that specialises in buying shares in takeover candidates, Samson Rock, has amassed 20% of the shares. Clearly almost enough to be a blocking vote, given that 75% of shareholders need to vote yes to have this takeover pass through.

And yet... there has been no news on an increased offer, etc.

Samson Rock has been accumulating shares since November (when the offer was announced), buying shares between 5-8% discount to the offer price. It might be that they're just arbitraging the price here (5-8% gain for a few months holding). But it seems like at a 20% stake, they are intending more.

Thoughts?

(I hold in the Boon Fund)

garbetklb

I've no investment in Appreciate (LON:APP) , but I do have an investment in Crestchic (LON:LOAD) where Samson Rock are now up to 10.68%.

Pardon my ignorance, but is the threshold 75% of issued shares, or 75% of those who vote? If the latter, 20% is approaching a blocking stake - especially if nominee accounts only vote those shares for which they have instructions - not always the case in my hazy recollection.

I thought I'd try to see what they have done in the past - but drawn a blank. Their website appears to need a login. And they are such a prolific issuer of Form 8.3 that it's impossible to see anything at a quick look.

So does anyone know if they have previously taken the relatively small price arbitrage, or have any examples of where they have sought to stir things up?

Olly Daney

14th Jan '23

Year in review

Hi everyone this is my year in review as a young investor at age 23. It’s a little late but I’ve been thinking a lot about what I have learnt over the course of 2022. lots of you have a wealth of experience, so any comment on what I have to say here will be greatly appreciated.

My first though in reviewing my year is that it’s my first bear market and how much I have learnt in it, firstly I have learnt the hard way that companies need good cash piles at least 3-6 months of cost in the bank to help them in trickier economic times such as this.

My second lesson has been using lots of different methods of working out value and working out a rough average has been useful. Using methods such as discount cash flow to work out an intrinsic value while at the same time using price earning and the value of a company’s asset, IP or brand to come to a conclusion has been this year has been lesson I’m going carry on with, less story and lots more of a maths based approach.

Thirdly, just reading and watching more whether it be both books and articles. YouTube videos on how to work out a value of a company or a podcast on the Psychology of buying value when everyone else is selling and looking long term. Along with hard learnt lessons this year this is how I feel I have improved as a long term investor.

My final lesson of the year was with the war in Ukraine it has taught me that when headlines are negative its a great thing to buy into. In October we had the failure of truss and all the market melt down that went with it. People where talking about nuclear weapons in Ukraine with Ben Wallace flying of to Washington and what at the time felt like never ending growing inflation number and a failing economy. But since then and it’s only been three months and there is political and economic stability, Putin didn’t use nuclear weapons and has been pushed back out of Kherson and is being mauled everywhere in the battlefield. Inflation seems to be peaking off and we are in recession but it doesn’t yet seem to be as bad as it was predicted especially within the housing market. Looking at the all share for example it hit a low of around 3700 on the 13^th of October and is now on the 11^th of January 4222. I added to positions in stocks such as Agronomics, lords trading and Eqauls During this time it has been good for my portfolio but I learned that having the courage to buy through the head,Ines and look long term has been my key lesson for this year.

Thanks everyone

Olly

rhomboid1

Hi Olly

I’m no expert…no one really is…but I tend to concentrate on buying businesses that are conservatively financed & focussed on long term success…by so doing I avoid the need to think about macro…because that imho is a big fat waste of my time

It works for me

15th Jan '23

Thanks for that rhomboid1. When you say conservatively financed, are you looking for companies with little or no debt or large cash reserves or anything along those lines

Small Cap Value Report (Fri 13 Jan 2023) - REVB, GLE, LIKE, WIN, DIA

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Paul Scott

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