Small Cap Value Report (Fri 14 Apr 2023) - TIDE, IOM, STCM, NETW, DPH, SDRY, AO., 888

14th Apr '23 by Paul Scott

68 comments 8107 reads

Good morning from Gozo*! Just Paul here today, with it being a Friday.

I've done a few catch up items to get us off to a flying start below.

Update at 13:20 - I'm going to do one more company, 888, then wrap up.

Update at 14:56 - right that's me done for the day, and the week! Have a lovely weekend, and remember I'll be podcasting tomorrow, so tune in for the next thrilling instalments!

(* don't be jealous, it's windy & overcast here!)

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.

Main section summaries

AO World (LON:AO.)

Up 12% to 75.5p (£437m) - TU FY 3/2023 (top end of guidance) - Paul - RED

Another good trading update, with adj EBITDA at top end of previous guidance, at £45m. The trouble is, this only translates into about £4m real profits (PBT) by my calculations. Good news on bank borrowings though - these were cleared by year end 3/2023, with small net cash. And £80m RCF renewed until 2026. So considerable improvements, but still a very poor quality business, trading a whisker above breakeven. So it's a thumbs down from me at this valuation. Although as mentioned here last time, the shares clearly have momentum, so could be a nice trade, but it's built on flimsy foundations (as was proven with previous bull runs with…

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rmillaree

14th Apr '23

Staffline (LON:STAF)

I wont say there was any jiggery pokery but the current SP bars very little relationship to that at the time, and circumstances have not IMHO changed enough to justify the fall from grace! Clearly the successful CEO didnt spend a lot of time on securing a well based succession plan prior to stepping down!

I could be wrong but i suspect all the issues of stafline started when they moved again from their bread and butter work into more exotic contracts where there wasnt simple margin applied to their "earned crust" - i suspect its taken till now for that crapola to be sorted. So to me things very much did change for ther riskier that could have worked outr great but itr didnt

I suspect the more exotic stuff was also the reason for the accounting irregularities - as ever well paid bosses dont have much to lose by shooting for the moon - if it dont work they are off onto their next well paid venture whatever.

Note i could be wromg in my assuptions here i am posting from memory of an old geezer

Sina G

Thanks ! Just wanted this highlighting - hopefully the stockopedia balance sheets can be updated sooner in the future

davidjhill

Inspecs (LON:SPEC) is illiquid and Cockney Rebel was waxing lyrical on it on the podcast he did with Paul, so I suspect there has been bit of buying off the back of that.

Similar with Portmeirion (LON:PMP) where he likes it, Paul holds and now Simon Thomson at the IC tipped it. That chatter has pushed it up a quid. I'd like to buy some but I'm loathe to now until the froth/chatter has died down.

Paul Scott

Hi Sina G,

hopefully the stockopedia balance sheets can be updated sooner in the future

The 2022 figures for 888 Holdings (LON:888) were only published today! So they should update overnight on Stockopedia, or early next week.

Regards, Paul.

Matthew Smith

I think that's a valid point. How/when does Stocko update these figures? After both interims and finals I assume. There's no other way they could do it presumably.

BnB

The model at the time, and presumably hasnt changed much, was quite a (c?)lever one, in that they operated from customer premises thereby reducing overheads to a considerable expense versus other comparable operations.

You'd think. But actually premises are a negligible cost for successful recruiters when you consider that almost every workstation is (theoretically) a profit generator. In my recruitment ventures, my strategy was to take the most prestigious city centre premises with the best access to retail and nightlife - and hang the expense. Surprise, surprise, high earning, big spending, rain-making superstar consultants want to work where the bright lights are, not in some suburban business park!

The only expense that registers is that of the consultant teams, where the trick is to pay enough fixed wage to be reasonable yet to offer very generous variable rewards on high productivity. It sounds simple but so many entrepreneurs worry about the costs instead of the top line. We had the best paid consultants in the land - and the biggest profit margin.

What is useful about the on-premise model, adopted by many recruiters, is that it puts a presence on site, to which all new requirements go first, if not exclusively. It's very effective for keeping out the competition. However, it tends to go hand in hand with a low margin approach.

MichaelFBS

No it was Richard Leonard. I like Richard Leonard but I thought at the time (I think it was a PI world interview) that MADE was a odd call.

planetx

Titon (TON) .

Commented on this few days ago .

I like it and in fact increased my holding this week .

They need a turnaround CEO with a bit of oomph and I dont think the last CEO was that person.

Rockwood getting involved is very positive.

The real estate is understated significantly its I believe worth 7 million which pretty much underpins he SP.

It does remind me of Crestchic a little, the South Korean division they should try to divest itself of for a chunk of cash and that is on the basis they have little ability to influence it.

The UK company had a disastrous implememtation of am operating system that hit them hard, been there done that and Im told thars sorted .

There is headwinds at the moment Im sure with builders slowing on new projects plus wage inflation.

On the positive the implementation of trickle vents to improve ventilation has not only come to be a legal requirement but is also a rising tide as the recent sad death of a toddler has highlighted, this needs sorting.

Ultimately by my fag packet its 50% below its asset value and a Benjamin Graham play.

Bit of a cigar butt maybe.

Ive done very well following Rockwood so think they will now be the stimulus here to unlock that value ,

If you can buy in the 70-75p range I think good entry point,

There is a 5% shareholder clearly selling down, she seems to be the wife (widow?) of a previous and distant CEO so thats no problem once she has gone I think we may get a spike upwards .

The Phoenix

I have also attended some of Robbie's seminar's I agree he can scan through potential stocks quickly with his standard checks max 3x debt to profit etc, where he is mustard as others have said is ruthlessly cutting losers and knowing when to pyramid up on winners.

The advanced day is well worth a visit as its more to do with the set up's of entering and exiting possible trades.

Metatron

CAML management are transparent however China and Russia are trying to take control of the Kazak govt.It has become a more unstable country over the last 3 years.CAML might be tempted to sell their Copper mine in Kazak and concentrate on adding to their Macedonian mine in other stable countries. I remain a holder along with Atalaya Mining who are based in Spain.

Derbion

Sorry, I missed your comment a few day ago - I should have checked before posting. Thanks for replying (again). As Paul Scott has mentioned in his podcast, the quality of some of the posters on here is top notch and I count you as one such poster. As always, your posts are balanced and considered. Once again, thank you for sharing your thoughts - much appreciated. I will dig a little deeper into this stock over the weekend.

raggedtp

Ha! Me too!

Alkmund

I was in San Diego this January with work, shortly after the announcement of the difficulties in US distribution, and "mystery shopped" the Dr Martens (LON:DOCS) shop at the local mall when seeing it. The shop was very small compared to most in the mall and was nicely arranged with great iconic British related images and was playing complementary music too. The stall was really busy compared to any of the others I passed (Lululemon, Prada etc). I am in my 50s, still wear the shoes (not now all the time) and was so impressed I bought shares and have added since my return. Clearly I now own and am enthusiastic, but I thought it worth sharing my insight from that recent US visit today with Dr Martens again in the news.

Tommy H

Sod's Law = Murphey was an optimist!

A different thought on Steppe Cement (LON:STCM)

I hold, this is small now <1% but this is a longer term play one is my ISA with reinvestment, one is Mum's ISA drawing income.

The ownership and listing are complex and for most would be a walk away, but hence the 1% not 5-10%. I have bought and sold, so now in the red, but overall happy to continue holding, even though yesterday broke the 20% sell rule, today brought it back in and I have only just looked so cannot do anything until Monday anyway.

I work in Construction, so without going into the political beast that is HS2, UK Construction PLC bumbles along, sometimes making a boom year or blowing up companies, ROK, Carillion etcetera. Why mention Aberdeen Western Bypass for the fans of Galliford Try Holdings (LON:GFRD) they survived but a useful lesson on how much the cost of one bad project can be DYOR.

Last year I was doing some free consultancy with my previous company for a small start up trying to access an opportunity in the Eastern Europe market. When you look at the basic information the growth was something like 8% per year it was a what the beep are we doing operating in the UK??? Even after slow down it is still 3-4% for 2023. Then when you moved further into the former Republics, the growth was even greater and accelerating.

I can remember being sent to Poland in 2002, there was I think 20km of motorway in the whole country! My company was bidding to build 400km. Take a look at what is being built in the Balkans currently in terms of major infrastructure.

I will not get into the interesting economics of the Caspian Oilfields and how that plays out, or the expat money coming home (think of Ireland in the past) but Kazakhstan has many parts, as well as the "Great Game" going on.

We complain we cannot get Polish or Bulgarian labour for the UK Construction sector as they now get paid more at home so why work away? They complain they cannot get Lithuanian or Kazakh labour as they now get paid more at home.

So yes there are many challenges, but you wonder when a government that says slow domestic construction through the winter period, you do not want to pour concrete below 2C ideally, keep people warm and keep the heating costs affordable? Hmmm, could we send Sir Godfrey out to take some ideas? Not back to the days of King Coal, but maybe someone thinking what is more important right now?

Simply this is a country that is growing, expanding, has decades of underspending on infrastructure, has oil revenue, an educated population, there is the opportunity.

This is not one I would add to the "Coffee Can", or "Hundred to One" part of the portfolio.

But it is in the I can understand what Steppe Cement (LON:STCM) do, I can understand the basic economics of the local construction sector within the country and neighbouring countries, I can live with the ownership structure, I can see the opportunity for the next few years, and appreciate the wider geopolitical risk. Look at Ferrexpo (LON:FXPO) as a case study which I do not hold, having sold.

Ok time to move on.

Tommy

Thanks for that, dont know about top notch but balanced hopefully,

Im into a lot of very small microcaps which is quite risky but I keep them at a risk level that Im very comfortable with

Lucky dip

15th Apr '23

this matters to traders not investors. I look at the prices daily but make more decisions on price movements on weekly or longer basis,

Yes that's right Pinemartin. As with all financial websites, the historic accounts information is updated promptly on Stockopedia when it is published by companies on the RNS.

This is why it's so important to do the manual side of things too - i.e. looking through the RNS for each company, to see the more recent updates (trading updates, takeover bids, placings, etc) that will not be reflected in the published accounts yet.

Or, just read the SCVRs (and broker notes), because we've done that work for you! ;-)

RichardK

16th Apr '23

Paul, I wish your view on Stockopedia's prompt updates were correct. In many cases there are significant time lags between RNS and update. This could be due to Stocko's dependence on outside organisations (Thompson Reuters?) to update their numbers?

This may be too late (Sunday evening) to be read.

Richard

Samsgrandad

17th Apr '23

Kaz is a massive country roughly equal to Pakistan and India together with an ethnic mix and varied trading partners. The largest influence is Russia but since independence this has lessened and recent elections were held to change laws to reduce a risk of a repeat of the instability of a year ago. Largest export markets are Italy, China, Russia, Netherlands and France in that order covering 50%.

https://www.britannica.com/pla...

https://www.reuters.com/world/...

Small Cap Value Report (Fri 14 Apr 2023) - TIDE, IOM, STCM, NETW, DPH, SDRY, AO., 888

Main section summaries

AO World (LON:AO.)

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Paul Scott

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