Small Cap Value Report (Fri 20 Jan 2023) - LUCE, HOTC, FIF, DOCS, BUMP, HEAD, PAY, WRKS, G4M, STB

20th Jan '23 by Paul Scott

69 comments 8960 reads

Good morning from Paul, and unusually for a Friday, Graham offered to join me today, to look at some backlog items of interest.

I did a few backlog items last night, whilst watching The Apprentice, so we're off to another flying start! And hopefully nobody here is going to get fired!!

Today's report is now finished.

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

I've got to finish early today, so not sure we'll get through that much of today's list, but here it is anyway -

Paul's Section

Luceco (LON:LUCE) - rose 20% yesterday to 128p - FY 12/2022 TU - guidance: operating profit (adj) at upper end of £20-22m previous range, on £206m revenues. Good, but does that justify a 20% rise in share price? Slow Q4 (as expected), revenues down 22% on Q4 2021, due to accelerated customer de-stocking. Demand from housebuilders slowed 10%. Gross margin improved in H2 to 37.5% (H1: 34%) after raising selling prices. “Exceptionally strong free cashflow” from reducing inventories & good collection of receivables. This has slashed net bank debt from £54m (June 2022) to £24m (Dec 2022) - that’s really good news, as I was worried about high debt, when reporting on its Oct 2022 profit warning here.

Liberum forecast 10.0p EPS for 2022, and only 8.3p for 2023. So price probably about right for now. If…

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Fegger

20th Jan '23

The whole point was that Doc Martens were not fast fashion . The other issue is another company who bought the equipment that Dr Martens used to use in this country is now selling boots. And being recommended word of mouth on social media which is the best recommendation.

ACounsell

Couldn't agree more - just look at Hostmore (LON:MORE) and Unbound (LON:UBG) !!

Phil117

Once. But I don't believe the kids / young adults who make up the majority of its current consumer base see it that way. It's a lifestyle statement / accessory. These are the same kids who profess to be green but love their disposal coffee / travel, and will go to a music festival with a cheap tent, which they then discard. Sorry. The world has changed. A Mercedes today, build quality wise, has nothing to do with a Mercedes from the 60s / 70s / 80s. Nevertheless the brand sails on. Times change...

Bouden54

Secure Trust Bank (LON:STB) Canacord say the current share price is pricing in a very significant rise in bad loans, which they think is very unlikely given their fairly prudent lending approach over last couple of years, with an increased focus on prime lending on the consumer finance side. I personally think it looks significantly undervalued and have been buying.

timarr

RE: Spirent Communications (LON:SPT)

Yeah - I mean, it wasn't a profit warning, but in fretful times markets tend to shoot first and examine the bodies afterwards. But when a second half weighting from a respected company in a growth area causes this kind of collapse you know capitulation can't be far away.

In the end, as a holder, you have to take one of two positions on these things - you either bail with the market (why fight it, right?) or trust in your analysis and hold through whatever the weather. I'm in the latter category, and I'd need to see either the long-term outlook change or evidence of utter management incompetence before I would sell my holding.

Speaking of utter management incompetence, the Dr Martens (LON:DOCS) update yesterday was a shocker. The valuation now looks stupidly low, but how much credibility is left? Although this is another IPO gone wrong it looks in a different class to many of the others, which were floated at stupid prices. This one was floated to get the owners away from the management, it seems.

Congrats to all Seraphine (LON:BUMP) holders, btw. We need all the help we can get these days ...

Edgeofchaos

Yes I don't wear them myself but they seem to be in fashion at the moment. I've seen people wearing them quite a lot recently; even in the office that style of high boot seems acceptable now. In years gone by they catered for a niche/ alternative crowd and perhaps another crowd who prized them for their durability. I'd probably put a pair on myself but am generally too tight for that sort of carry on.

In terms of investment my fear is that the recent revenue spike is a fad driven perhaps by a splurge in marketing etc. Its hard to gauge the sustainability of revenues when they've increased so dramatically. Are we we mid fad or have previous owners or PE rinsed it and are we approaching a decline. I'd need to understand this better.

There is a price at which I'd buy both the boots and the shares but I might just wait for a sale Dr Martens (LON:DOCS)

Lucky dip

when a share like SPT drops 18% in today's market you have three options: sell, hold or buy more. I did the last!

AnonymousUser1822519

As Paul says, "....clearly I didn’t follow my own rules here". Its not always as easy as it looks otherwise we would all be millionaires. Just yesterday, I was pondering about breaking one of my rules, I didnt in the end, but I did break another, and that's with me trading for over a decade now. One thing I won't do though is pass judgement on my fellow investor/traders.

The Boon Fund

More broadly - why does anyone buy IPO shares? They have been a terrible investment (generalising of course) over the last few years.

The reason why? Private funding has been much easier to access, through PEs and VCs. So there is no incentive for a well run, quality company with genuine growth prospects to raise money via a (laborious) IPO process.

However, could this tide be shifting? I can see that PE and VCs will be tightening their deployment from now on. Therefore, companies will find it harder to raise funding privately, and maybe now see it easier to do it via public markets.

BnB

I'm in the same camp. I simply don't see enough in the (sort of) PW to justify that level of a fall. It's not as though the name is expensive at half the price of Calnex Solutions (LON:CLX). Both are picks and shovels plays on 5g adoption which is a multi year runway. I wish I'd been smart enough to sell at open and buy back just before the close however. Instead I just dripped a little more in at luchtime.

I just reckon there's very little chance of a permanent loss of capital on a multi-year basis. Obviously there could be a slowdown next year, but by the time that happens the market will have probably gone from depressed to manic and be ignoring all warnings because they're looking ahead to sunny uplands.

Or perhaps 5g will be proven to Bill Gates' way of injecting us all with nanotechnological widgets that inject us with viruses that make us all think that the planet is warming (to be fair, he has form with this with DOS).

Or something. I have no idea what the markets will do in the short term.

I also bought a few more today.

Helvellyn

Timarr

That made me laugh !

But seriously you hit the nail on the head, the market looks forward and Spirent Communications (LON:SPT) said today that although they have not seen any customers cancel orders some have pushed them back , so the market took this as a potential PW.

I didnt hold before today but I bought a few this afternoon.

Michael C

I watched the PIworld video presentation by the CEO of Secure Trust Bank (LON:STB. He stressed prudent lending practices and other reassuring factors, I did the usual research, and I bought. The sp remained very weak and I convinced myself the market knows better than me and there must be something wrong with the company so I sold just before the recent 25% increase. Sometimes one feels one just can't win!

jjis

RNS out:

"the requisite majority of Appreciate Group Shareholders voted to pass the Resolution at the General Meeting to approve the implementation of the Scheme, including the adoption of the amended Appreciate Group Articles,

and accordingly the Scheme was approved."

jonno

Congratulations to Stockopedia contributors on the standard of discussion. It is top drawer. I especially liked today's commentary on Spirent Communications (LON:SPT).

Roger Baron

The above also prompted me to have a speculative punt 10 days ago. Made back some of what I have lost on Hostmore

raggedtp

And my response was to sell Appreciate (LON:APP) after the offer was made, and buy PayPoint (LON:PAY) with the proceeds when it fell, average 520p. Its latest TU is very encouraging, and I think it has a growth path, as it seems to be managing a lot of different business strands rather well now. With a div of nearly 7%, I'm fairly sure the SP will be usefully higher in 2 years (my normal horizon for target prices), especially as it got APP for a song in my view.

Paul Scott

Hi Andy (Haggis58),

BTW what software do you use to store your copious commentaries on each share?

Stockopedia! These are my notes, here in the SCVRs. It's literally where I keep all my information on individual stocks, posting it here! :-) I don't keep any other records, other than an A4 notepad with one page per day, where I jot down the occasional idea, things for the podcasts, to do lists, notes from telecons with companies, etc.

Regards, Paul.

Thanks moolahcoast, I've fixed that error now.

Thanks Bert, it's Dry January, so I celebrated BUMP with a coffee and a slice of strawberry gateau in Bournemouth this afternoon! :-) Next job this weekend is the Tax Return, clock's ticking on that, end January I think.

Small Cap Value Report (Fri 20 Jan 2023) - LUCE, HOTC, FIF, DOCS, BUMP, HEAD, PAY, WRKS, G4M, STB

Agenda

Paul's Section

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Paul Scott

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