Small Cap Value Report (Fri 17 Feb 2023) - PURP, CML, WAND

17th Feb '23 by Paul Scott

88 comments 7946 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.

Paul's Section:

Purplebricks (LON:PURP)

9.9p (pre market open)

Market cap £30m

Trading Update & Launch of Strategic Review

Purplebricks Group plc (AIM: PURP), the UK's leading tech-led estate agency business, provides an update on trading in respect of the financial year ending 30 April 2023 (“FY23”), and announces the commencement of a strategic review.

Key points -

Turnaround plan to focus on best-performing regions underway, but has incurred £1.2m more (one-off) costs than planned.

Q3 (Nov-Jan) sales instructions lower than expected.

Additional cost savings of £4m identified.

Fees to customers increased from 1 Feb 2023.

FY 4/2023 guidance reduced: revenue £60-65m, EBITDA loss of £15-20m.

Still expects to become cashflow positive in early FY 4/2024.

No update provided on the current cash position - a glaring omission. There was £31.3m at end Oct 2022, but that was after hefty cash burn of £12m in H1. So I think we can assume that cash is now likely to be considerably less, maybe somewhere between £20-25m? How much of that will be left once the strategic review process has concluded later this year?

Strategic review - is putting itself up for sale, so a Formal Sales Process under the Takeover Panel rules now starts.

My opinion -…

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Roger Baron

17th Feb '23

ECO Animal Health (LON:EAH) I hold, been noticing that long time major shareholder (and generally value investors) Schroders have been steadily increasing their holding this month, from 9% to 15.1%

FREng

Good rant timarr. And we have a Department for Science technology and innovation whose Minister doesn’t have a science, engineering or technology degree or any equivalent experience.

raggedtp

Thanks, Boon. Nice thought, "if this company ceased to exist tomorrow, will it cause any pain to the market it is trying to serve?"

I will try to apply it, as I am wondering whether to increase my holdings in International Personal Finance (LON:IPF) and Civitas Social Housing (LON:CSH) . I suppose little is indispensible, but both appear to have value to a chunk of people.

Rusty2

ECO Animal Health (LON:EAH) Strange this is not reflected in the volume of shares traded, unless it was spread over several months. The last director buy is missing from Stockopedia, maybe that problem is back again, I did notice it on another stock as well.

Quite a lot of exposure to Chinese pigs, I understand.

Wol

Why is insider trading a crime?

1. Because trading with inside knowledge gives those in the know a huge advantage. A good example was the film Wall Street. The Michael Douglas character made a fortune by buying into a company before anyone else knew the results of an important court case.

How easy is it to identify?

1. It is easy to identify insider trading. Just follow the change in share price before an important price sensitive announcement (e.g. a takeover bid). And then look for the large trades that fuelled that share price move. Isn't that interesting. This trade was instigated by the brother of an advisor on the takeover

2. It's not so easy to prove. Without evidence of information being passed we can know that it must have been insider trading but not prove it

Why are there so few cases brought to trial?

1. because the enforcement agencies don't have the skills or the resources? Or maybe they just don't have the motivation (see also the failures to shut down or prosecute the internet based financial scams that promise high interest rate guaranteed returns and then disappear with our money)

2. because some consider insider trading to be a victimless crime and so not important. This is definitely not true. Anyone who sold out of a company on a share price rise just before a takeover bid will know that

3. we were at Harrow or Eton together. Or maybe it was Balliol. It is much easier to jail people from the other side of the tracks

Paul Scott

Hi iamflimflam1,

Yes, I agree - I also listened to the CEO interview from PURP on 8 Nov 2022, and thought she was hopeless. I recall mentioning that in one of my podcasts. All she did was talk about process, and didn't seem to have any industry-relevant flair or experience. Just someone with HR experience, talking about her personal career journey - totally irrelevant to what was needed.

Reminds me very much of the CEO interview with Eve Sleep, where she dropped a bombshell which made me avoid the shares, which was, "We're up against some very well-funded competitors". That went bust some time later.

That's part of the reason CEO interviews are so worthwhile. Sometimes you just get a bargepole feeling. Not necessarily because the person is bad, but because they're trying to achieve the impossible, as with EVE and PURP.

So it's absolute codswollop to say (not you) that we ignore factors like this here. Between us, I think the community here is very good at spotting mgt that's out of their depth, and business models that probably won't work.

Mind you, I'm drawn like a moth to a candle by value, which can often be a mistake.

Regards, Paul.

Absolutely spot on. It does surprise me that in all these analyses of small listed businesses the emphasis is almost wholly on the metrics and numbers. Very little attention seems to be paid to the quality of the senior management team. Which in my opinion is probably the most important factor in determining the likelihood of success.

I don't understand how you've come to that conclusion. Quality of management is something we think about & discuss a lot here. But its so subjective, that's the problem. Think about all the time "impressive" management turn out to be useless! A few examples - RBGP. Then there was Edi Truell at that software company, who pompously turned up to ramp the shares and made us all feel as if we were honoured to be in his presence.

That's exactly why I like hands-on, down to earth entrepreneurs, with plenty of skin in the game, who just get on with the job. Not fancy city types. We talk about this exact point all the time here!

Silver Moon

I do wish you well JASVFS, and well you might as Watkin Jones (LON:WJG) is now at an attractive price. Buy low, sell high.

Silver

Caduceus

Nothing to do with stocks... but this is going to be so funny if its true!...

https://aviationweek.com/defense-space/aircraft-propulsion/hobby-clubs-missing-balloon-feared-shot-down-usaf

$400,000 of missile used to destroy a $12-$120 dollar ballon! Would the military/government ever admit to it?

...or is it a planted cover up? ooooooo conspiracy'o'clock!

Lucky dip

thanks for mentioning this. I hold from days I was following Simon Thompson.

has been a ten bagger in reverse for me. not worth even selling it!

Anyone know if the alert system is broken on here? I keep clearing old alerts (in th top right hand corner) on companies I hav'nt owned for ages but they keep coming back?

Dojosan

c24% of rev is from China.

OK, not as much as I thought.

Seems to working for me but is annoying of getting alerts for buy price which turns out to be sale price. I have reported this but support don't see the problem. Im also getting alerts for prices well below the sell price sometimes.

Needs improvement, along with the share prices on here which are misleading.

illiswilgig

MS International (LON:MSI) David - I - almost - pine for the long boring months at 320p :-) It does seem to be more volatile nowadays.

I've not heard that its been tipped today though I did notice that 22k were traded in 1 hour today and the daily average is only 11k. Immediately after that the price spiked on low volume. I expect the market makers ran out of stock?

The free float is only 45% and in realityis much smaller than that. A lot of investors have held the stock through some thin years and are not in a hurry to sell? It doesn't take much stock being bought or sold to move the price 10% either way at the moment?

cheers

Mark

Samsgrandad

19th Feb '23

WANdisco (LON:WAND)

Paul re your question "Could WAND be a good way to play the explosion of data that is happening now in various sectors? Possibly, I don’t know."

That is my main reason for not "investing" in WAND. There are reasons for trading in it but in my opinion that ship has sailed.

I have posted at length on previous occasions so will keep it brief.

Wandisco's recent contract wins are from existing users with on premises data centres storing large amounts of live changing data. These customers want to follow the trend of outsourcing their data processing to cloud providers like AWS and Google but have huge amounts of data to move. That isn't the same as saying that new data, from possible new and existing customers, using 5G mobile networks to enable that data to get straight to the cloud, needs the services of WAND.

IMHO, a risky bet on what I think is a zero sum game that I will sit out.

Indeed, the amount they have bought is about 4 mil shares and according to London Stock Exchange there's been under 3 mil traded since start of year. I suspect the 2 1/4 mil that Daske sold were bough by Schroder off market.

Michael_P

20th Feb '23

No question that historical performance has been lamentable, but Stocko now classifies this as Contrarian with a ValueRank of 99 and Quality Rank of 74. Given the near 70% increase on Friday, the market must have been pricing in a large possibility that the covenants would be breached. The question of how to extract value from land held remains, but with price to tangible book and price to sales both below 0.2, if ways to do that can be found, there could be considerable upside. Clearly, not without risk this one, though.

Why don't PIs have access to the same information as institutions and professionals? That is also unfair. They often can't buy shares at a discount either.

Lochinver

None of the SCVRs I have ever seen give an appraisal of the capability of the senior executives at the same time as reviewing the numbers .. Unless it is after the event and things have already gone badly wrong. In which case its easy to point the finger.

Small Cap Value Report (Fri 17 Feb 2023) - PURP, CML, WAND

Paul's Section:

Purplebricks (LON:PURP)

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Paul Scott

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