Small Cap Value Report (Fri 16 Sept 2022) - WINE, ADF, PMP

16th Sep '22 by Paul Scott

39 comments 6527 reads

Good morning from Paul. Running slightly late today.

Agenda - a very slow news day.

Naked Wines (LON:WINE) - the former CEO returns as an unpaid adviser for the next 2-3 months. Let's hope he can help extract some shareholder value, or reinflate the bubble?

Facilities by ADF (LON:ADF) [no section below] - I had a look at the recent interim results, which seemed slightly disappointing. I still think this is one of the best recent floats, because the company raised fresh money, for expansion, at a reasonable price with its IPO. As opposed to a lucrative exit for existing shareholders, like so many recent floats. An issue seems to be that smaller contracts incur additional costs, moving equipment around, thus profit slightly disappointed. But the H2 outlook sounds good. Admirable clarity on who its customers are. Still looks quite good, I think. (I'm not currently holding).

Portmeirion (LON:PMP) - I cast my eye over interim results. A broker update shows that this is really a profit warning, with forecast EPS reduced by 20%, which seems to be concealed in the company's commentary. Good strong balance sheet, but note inventories are up a lot.Energy costs are hedged into Q1 2024, so no panic there. I think this share is attractively priced, if you take a long-term view.

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.

Paul’s Section:

Naked Wines (LON:WINE)

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shanklin100

16th Sep '22

Hi Paul,

Thank you for your review of the Portmeirion (LON:PMP) H1 results.

Despite the apparent cheapness of the shares, the fact that the company didn't make it entirely clear, in the RNS itself, that they were downgrading expectations makes me wonder whether they can be entirely trusted going forward to make it clear when they are delivering bad news.

As you have pointed out on countless occasions it is very easy for companies to highlight existing market expectations and then revise this to reflect their current perception of reality; we normally view this as a plus for management provide the change does not reflect their incompetence (a la Joules (LON:JOUL) for an ongoing example of this). So why didn't Portmeirion (LON:PMP) do that here?

MrContrarian

My morning smallcap tweet: Licking dust off the bowl of news

Science in Sport (LON:SIS) Light Science Technologies Holdings (LON:LST)

◄Science in Sport (SIS)► CFO gone. He is not thanked. Replacement starts in a month. [SP=28 Cap=39m]

◄Light Science Technologies (LST)► first milestone, to develop a cloche lighting system for Zenith Nurseries and demonstrate viability, is now complete, resulting in revenue of £51k. Gov't grant to LST for project inc to £621k (from what?). [SP=6.98 Cap=NA]

◄Notes► SP & cap are 20m delayed

Tortoise investor

Interesting chart from the FT:

I think this is a useful reminder that companies reporting revenue increases right now may, in some cases, be simply reflecting inflation pushing up prices, but their sales volume may be going down. We should treat trading updates which talk about revenue increases but little commentary on profitability with a lot of caution.

Portmeirion (LON:PMP) saying UK revenue has fallen -13% probably obscures an even worse fall in volume of products bought. (I still bought Portmeirion (LON:PMP) yesterday as I think it looks good value now even if it slightly misses revised broker estimates).

I think Argentex (LON:AGFX) has good long-term prospects but the '22 and '23 EPS figures got slashed at the last update by Singers due to the company's short-term costs, and I don't think most investors have woken up to this yet - neither have the Stockopedia computers which for some reason are still showing old EPS estimates. I expect it to tumble when it next publishes a set of results.

ridavies

Has been pretty quiet on the Angle (LON:AGL) front for a little while, though they did have an RNS a few days ago with a poster presentation to a US symposium with another progressive benefit to the use of Parsortix which the US lab has generated.

There is an upcoming AJBell sponsored webinar covering among other things Angle presentation. Contact Chris at Shares magazine to register. 29th Sept 1800. Angle (LON:AGL) first on apparently..

ken mitchell

darren23.

I’m also only down around 10%. Key reason for not being worse (I’ve had disasters like Boohoo (LON:BOO) too) is a balanced portfolio including a wide range of Investment Trusts (near zero interest in these on Stocko) and shares and Trusts paying big dividends.

Portfolios holding only UK small company shares are arguably far too narrow. And so many quality small companies have taken a hit too. Now looks the time to be buying part stakes in them, but this year has not been the time for a portfolio full of them!

These are some of my current holdings:- £OCI. Down 3% ytd. Investment Trust on huge current 35% discount to NAV.

£GKP Risky but up 15% ytd AND astonishing 35% already paid out in dividends this year.

TP Icap (LON:TCAP) Lucky buy bought at the bottom as interest increases are a plus for TCAP and up a fast 70%.

Thungela Resources (LON:TGA) Coal! So a no on those grounds for some. Up 347% ytd and goes ex another 16% dividend this Thursday. I bought after the best of the gains this year.

£AEWU. Down 3% ytd but dividend of 13% at my buy price. A Commercial Property REIT. These have gone to very big discounts again and are well worth checking out.

Chesnara (LON:CSN) Up 10% ytd with big 8% dividend supporting the share price.

£ MNG. Down 4% ytd but again very big dividend.

And finally I hold these 3 Mining sector Investment Trusts bought at the depths of the covid crash:-

£ BRWM Up 2% ytd Blackrock Energy and Resources Income Trust (LON:BERI) Up 25% ytd and CQS Natural Resources Growth and Income (LON:CYN) up 24% ytd. These have between doubled and tripled since purchase with very big dividends on top.

This awful market is not the time to despair imo but to look for shares and Trusts at bargain prices that could well rocket in the next inevitable bull market.

JCPr

I'm lucky enough to be just 15% down. My three largest holdings are Burford Capital (LON:BUR), AstraZeneca (LON:AZN) & Jpmorgan Global Growth & Income (LON:JGGI) (ex-SCIN in my case) so they've done OK. It was a lot better a few weeks ago before Burford starting dropping again. I've also a few others that have also done OK this year Begbies Traynor (LON:BEG), Qinetiq (LON:QQ.) Anglo Pacific (LON:APF) Serica Energy (LON:SQZ) Record (LON:REC), Ramsdens Holdings (LON:RFX), H & T (LON:HAT) . And then I have some right howlers. I was also rescued from my stupidity in buying Micro Focus International (LON:MCRO)

MichaelFBS

Yes indeed but I think it is a case of rather than “buy the dip” it is “sell the bounce”. That to be on a short term view is entirely rational and if this is a repeat of the 70’s (see chart) then pretty rational on a long term view also. I am considering increasing cash. No I don’t think it is too late.

Only 10%. That’s impressive in this market.

Regards

Michael’

planetx

I had a quick looK at Tandem just now.

This was my industry for 30 years so have sone insights.

Fundamentally tandem is a solid operation but the industry is brutal right now and Tandem are pretty exposed and most certainly do not have much of a Buffet style moat.

They are claiming a small profit but that includes a “currency gain” which I am guessing means sone stock was bought at a higher USD rate and seem to booking this as currency gain. Not really profit and certainly an exception item.

Cash is down, sales are down, stock is up, buying price is up plus almost certainly there is a mountain of stock on order / on the way (this is happening to all bike companies ) which will cause

- stock build

- cash decrease

- margin erosion .

- buy price increase

It remains solid long term but I think there will be a humdinger of a profit warning and stock build in the next 12 months , especially if the “currency gain” card is overplayed .

I would avoid like the plague for now unless you have a long long term view and can stomach a profit warning .

Darren23

It is quite possible. My sons JISA (managed by me) is down 9.06% YTD. 40% BRK, 20% Fundsmith, 8% Buffettology and Bioventix (LON:BVXP), LVMH, JPM, Visa and then some c@&p NFLX Tremor International (LON:TRMR) £AAZ. And we had a big win in PayPal when I sold half at the peak having seen it nearly 3 bag 18 months.

My own portfolio? Down about 30% YTD but dividends (Anglo Asian Mining (LON:AAZ) £BVXP and Sylvania Platinum (LON:SLP) to name three have held up). Cash is about 12% and I am looking to increase that 20% very soon.

Michael

The Phoenix

I think its a case of everything ultimately follows the fed if they are cutting rates and doing qe you should make decent money if holding a basket of stocks if they are putting rates up and tightening up liquidity you will really struggle to make headway could be best to forget about markets for six months and wait until hopefully they start cutting rates and printing money again.

rwh3ue

Jarvis Securities (LON:JIM) can anyone explain what the rns just issued is all about - market clearly unhappy.

Bouden54

Sounds like some sort of FCA investigation but impossible to tell how serious this might be given lack of detail. Share price down more than 30%.

JASVFS

I'm doing the opposite MichaelFBS, so far you're right!

laurie

£JIM Jarvis Securities (LON:JIM)

Nothing is on the FCA website yet. When/if something nasty appears, it will probably be in the section labelled ‘what can this firm do in the UK?’ https://register.fca.org.uk/s/firm?id=001b000000MfExQAAV

These links concern Model B clearing/broking arrangements which might be relevant. I’m still confused. Jarvis does a lot of white-label broking for others. At the moment I think that JIM’s regulatory checks on the clients of these other firms may be being looked into. https://www.globalbankingandfinance.com/model-b-clearing-how-an-old-clearing-arrangement-can-help-navigate-a-changing-future/

https://legalbeagle.com/7531316-model-clearing-agreements.html

timarr

RE: Jarvis Securities (LON:JIM)

At the moment I think that JIM’s regulatory checks on the clients of these other firms may be being looked into.

Hard to tell from this, but I'd guess that's correct. Perhaps AML failures on third-party clients? That might explain the paucity of information, as well.

The last annual results stated that they held £1.5m in model B customer deposits, which don't generate interest payments (because they're not Jarvis' client funds).

All guesswork at the moment, but at a guess it may not be a major income impact. FCA fines and reputational damage might be more the problem.

An annoying end to an annoying week. Ho hum.

raggedtp

Ha, Ken! Many similarities! I'm down 10% as well. Probably more diversified, which is hard work, but have three PE Trusts, Oakley Capital Investments (LON:OCI), NB Private Equity Partners (LON:NBPE) and £CTPE. And actually ICG Enterprise Trust (LON:ICGT) is in the category. I'm 95% invested, with some high yielding alternatives like Volta Finance (LON:VTA) and Chenavari Toro Income Fund (LON:TORO), but also, like you, £CSN (long-term) and TP Icap (LON:TCAP), very short-term! Otherwise some v. strong miners like Wentworth Resources (LON:WEN) and £CAML. My current downers are the more speculative end, like £TUN (been to site, believe it will work and triple in three years' time) and Ferro-Alloy Resources (LON:FAR), but more in key staple yielders like £PHNX. And never sell £LGEN.

I have considered Gulf Keystone Petroleum (LON:GKP), just nervous about the geopolitics.

I held Aew UK Reit (LON:AEWU), but sold it when it went to something of a premium. Now it's at a discount again, I might reconsider, but I hold Real Estate Investors (LON:RLE), which is discounted by miles and just might get wound up next year if it stays so unpopular. Any thoughts?

What helps, Darren, is that I have target prices (on a 2-year forward basis) for everything, which I challenge regularly, and will lets me dream; but I use yielders to make sure I have more dividend income than I need. That way I sleep nights.

Kansaiboy

17th Sep '22

Thanks planetx appreciate you taking the time provide your thoughts on Tandem (LON:TND)

My take is similar to yours on the update and short term agree it's not going to be pretty

I'm thinking though that with the new warehouse coming, developing digital marketing expertise/efficiencies and escooter legislative changes on the horizon there might be something for the longer term here.

As with many stocks on the watchlist though, need to get the timing right

Thanks again

Hi raggedtp

Our investment tactics seem similar and my portfolio is diversified too. I only gave examples in the previous post. The great thing about a widely diversified portfolio is that it cashes in on the sectors and Countries/Regions doing well even in general bear markets, and limits the losses overall.

I also focus on big dividend paying investments and these in time make the portfolio self financing with no need ever to invest new money, Just wish I had cottoned on to that obvious point many years sooner!

e.g John Lee gets more back in dividends from some of his holdings each year than he originally paid for the stake! And from memory more back every year than his ISA stake.

So like you I hold quality shares like Aviva (LON:AV.) and Legal & General (LON:LGEN) and Phoenix group (LON:PHNX) already paying big dividends with promises of increases, and several Commercial Property Trusts paying up to 13% at buy price. Can’t add on Real Estate Investors but bought UK Commercial Property REIT (LON:UKCM) on crazy 41% discount yesterday.

Henderson Far East Income (LON:HFEL) pays over 8% and has increased the dividend for multiple years and a way of investing in Far East.

Foreign holdings via Investment Trusts include Vietnam VietNam Holding (LON:VNH) and VinaCapital Vietnam Opportunity Fund (LON:VOF) both excellent performers yet on big undeserved discounts and holding up well too. Also Europe via European Assets Trust (LON:EAT) (though others have done far better) and Japan, US, Far East etc and Biotech which looks good now after a bad spell e.g International Biotechnology Trust (LON:IBT) and £BIOG.

The good thing for most readers and followers of the brilliant small company updates here is how so many look astonishing bargains. I hold a few of those too like Volex (LON:VLX) and Somero Enterprises (LON:SOM) and have a several so well covered by Paul and Graham here on look to buy list.

We could well be looking back to realise that now is one of the once in a decade or so buy opportunities!

Small Cap Value Report (Fri 16 Sept 2022) - WINE, ADF, PMP

Paul’s Section:

Naked Wines (LON:WINE)

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Paul Scott

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