Small Cap Value Report (Fri 21 Jul 2023) - DPP, THRU, DWF

21st Jul '23 by Paul Scott

62 comments 5940 reads

Good morning from Paul. Sorry, overslept this morning, I must be on Central European time: 8am is 7am.

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 £1bn. 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.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

Paul’s Section:

DP Poland (LON:DPP)

Unch at 7.7p (£55m) - H1 Trading Update - Paul - RED

DP Poland, the operator of pizza stores and restaurants across Poland and Croatia, announces a trading update for first half of 2023.

This company has the Dominos Pizza franchise for Poland (114 stores) and Croatia - the latter being a startup with only 4 stores. I'm not keen on companies that have to pay a third party to use their brand.

DPP has…

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mojomogoz

21st Jul '23

Haha. It was a hot bath by comparison! Exams never enjoyable...but CFA is nowhere near as archaic and painful as later stage actuarial stuff...and if you are bad student like me then that makes the CFA much easier to cope with.

Rusty2

No, I'm talking about a camera with an IR filter which blocks out light below 820nm, you can get other filters, you can also use IR film in film cameras. They work by recording IR light.
IR illuminator, no, my camera does not emit anything, it records light in the IR spectrum. It is invisible to humans but can be recorded on sensors and film.
Most cameras has filters that remove IR, on the sensors, as it can cause problems with normal visible light images.
It is the same as your camera but just has a different filter on the sensor.

ezlifeme

Infra red the top debate - Quiet RNS day, markets not overly volatile. No disrespect to any contributor but Pedantry to the fore. Have a good week end all

sevenccc

Roger did you see the Divi and capex cut announced last month for I3 Energy (LON:I3E) ? I believe this will bring the Divi rate down to around 8%. Still decent.

jamesalastair

Completely agree with you.

Camtab

So many times planetx I have waited for pennies and missed opportunities. Trifast has a 5% spread which is more the issue I would have thought. I agree with your selection although my main issue is whether they can get profit margins back. That is not to say they won't be profitable it is more of a case of whether 10% margins are achievable in the new world. I have a small holding.

Michael Tee

Like many of you, I have always been hugely impressed by Chris Mills and enjoyed his Mello interview very much.

He sang the praises of React (LON:REAT) saying his fund had been buying shares.

Subsequently the share price rose and at 4.30 today the following RNS appeared saying his Oryx fund had reduced its holding:

newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230721:nRSU8539Ga&default-theme=true

Sounds like pump and dump.

Stocko only has a spread of 145bps on Trifast (LON:TRI) , but looking at the trades, it does look much wider than that.

Tommy H

Thank you Mojomogoz

I did the Engineering Council Exams instead! They seem a lot lot better than even the CFA, three years of formal training signed off. Submit your reports and CPD. Interview, written exam (essay at that time). Done.

Tommy

Thank you RDHowarth

Most of my Pension is DC which I am very conversant with, I have my little pot to drink from and that is it.

It is the DB matching that was beyond me, will go back into the overall funding versus liability section of the letter this evening!

Dear Monto Carlo

Thank you, I am not looking to transfer it is more understanding the dynamics of DB pensions and what the investment side is.

Whilst the company I worked for does not exist any more, it was sold out of what is now Taylor Wimpey (LON:TW.) into Carrillion back in the 1990's and the pension is part of Anglo American (LON:AAL) I do not know how or why just very grateful!

This is more about my understanding for investment to the dynamics and impacts of pensions on existing companies, so where this may or may not go on shortfall schemes over the coming years, as I hear a lot of yields going up is good investing in companies with shortfalls (buy less to get the income you need) so their deficit payments should be reducing at the next assessment point, but as you say there is a lot on the volatility of the underlying assets so it is never easy when taking a simple year end snap shot.

Poland is very different from the early 2000's when I first was sent there with work, and have been back regularly since. Amazing place and well worth visiting!

There are several good things going on in the country, young educated workforce and increasing opportunities without having to emigrate (temporarily or permanently), there are several challenging dynamics including wider unemployment levels, temporary immigration and their Eastern Border.

With regards to take out food, the demand for take out and delivery is increasing as the wealth demographic increases and the western work/life balance impacts, but is there a demand for a subsidiary of an international pizza chain over a local owned and operated pizza shop which does not have a logo but avoids the overheads? I do not see the investment moat or thesis.

I do not hold DP Poland (LON:DPP)

Monty Carlo

In general you are on the right track, higher yields should mean reducing deficits.

But...in truth it is more complex than that. It is actually real yields that matter most on the liability side (the combination of interest rates and inflation). On the asset side there are also quirks - the shift from RPI to CPI for linkers, how credit spreads have moved relative to gilt/swap rates etc. Schemes may hedge less of their inflation risk than their interest rate risk so you get a range of outcomes after major shifts in markets. Schemes also vary in where they cap the inflation uplift (in fact within the same DB scheme you may find multiple tranches, as they got less generous over the years). Some schemes also shifted from final salary to career average etc etc so it is impossible to generalise. This is one reason why IFAs charge so much for DB pension transfers - there is a huge amount of analytical work to be done, not to mention the liability if the client later sues for poor advice.

There are several ways of measuring the funding status/deficit of a DB scheme - the actuarial and accounting approaches can be very different.

The Pension Regulator website is a good place to read more.

DJLJ23

a quick check found they hold a few patents, thou last one granted a good 10 yrs ago

The Boon Fund

But one could say the same thing about Domino's Pizza (LON:DOM) with their UK stores - they couldn't have been the only pizza stores when they started in the UK, yet this "foreign brand" with "franchise overheads" is now quite dominant. Market cap £1bn+

Same with Yum China Holdings (NYQ:YUMC) - KFC, Pizza Hut, and Taco Bell weren't the only fast food outlets in their categories in China when they started, plenty of local shops and chains. Yet, now market cap $24bn+.

How would you explain these two successes then?

AnonymousUser1948090

22nd Jul '23

I agree with that Rusty2 that's why I don't take too much notice of salesmen in suits, however plausible they come across, as they always have their own agenda, and it's never in my interest the best thing always is DYOR.

Just to be clear I have held React (LON:REAT) from when they acquired Fidelis as I know the company and potential as I am involved in the industry (not the company)

Re React (LON:REAT) and Chris Mills…

Market abuse is being implied (or least dishonourable behaviour). This is really silly perspective. I don’t hold a torch for Mills. I generally avoid listening to the great and the good (…all you Simon Thompson tip chasers annoy the f out of me!). If any fund manager talks up a holding publicly I’d assume it’s probable it’s a mature holding for them and perhaps one they are exiting (so fluffing their liquidity). Druckenmiller is the champ of this imo.

I listened to Mello on Monday as I hold React. The sequence of events were React had been on before Mills (good presentation, particularly as the wet behind the ears CEO seems to have found his voice more assuredly than ever…I think showing matured into role). David Stredder asked Mills re React as it had been on the show. Mills said that they held a non notifiable position for a while but then started buying in more meaningfully after Laddersfree related raise…and particularly as the share price went to lows. He was clear he liked the biz.

It definitely wasn’t any fevered oversell front run of a dump…overall it’s pretty close to a ‘neutral’ comment in the circumstances. What if he had said I can’t talk about React? What sort of crazy stuff would be inferred from that?

Mills has got a very large portfolio of many illiquid things to run. He’s made a nice positive return on his React investment to date. On Thursday it seems he sold down from just over 10% to just less than 9% holding in company.

From his perspective nice portfolio management as shares that spike higher normally don’t carry on like that. Simple gravity. Obvs I hope React does carry on its recent spike as as a minnow I’m more sit and hold and don’t have his liquidity creation requirements. If the spike up continues it won’t be a surprise if Mills sells a bit more…and if it falls back he may buy back. Classic big portfolio fund manager behaviour.

Is there a smoking gun here? I’d suggest it’s the tendency of many PIs to chase tips…and a vehicle like Mello that broadcasts about micro cap stocks is going to sometimes create liquidity effects. If you chase micro caps post tip or Mello etc you put yourself at risk. I love live event Mello. I’m not a fan of the Monday night event as I think it creates too much funnelled interest in tiny stocks …and I don’t like that even for things I hold as imo it can create an unhealthy liquidity and volatility binge/bulge that can lead to hangover (sometimes long lasting). There are many reasons why React became lowly valued and one of them is likely a hangover from excess promotion

shopping365

JPMorgan had a note out saying hydrogen is pivotal for global energy transition and tipped ITM Power (LON:ITM) , Plug Power (NAQ:PLUG) and Bloom Energy (NYQ:BE) . I suspect other hydrogen plays also rose on the back of this. For transparency I own ITM Power (LON:ITM) .

Paul Scott

My weekend podcasts are now up.

Mystery shares this week, just FYI (my best ideas that I hold back for Stockopedia readers) are -

Brickability (LON:BRCK) - very good webinar induced me to go up to GREEN (Monday)

Concurrent Technologies (LON:CNC) - very impressive update (see Monday's SCVR)

Cohort (LON:CHRT) - really impressed me, see Weds SCVR.

I hope you're enjoying the rain, it's good for the garden LOL! :-)

Also my SCVR summary spreadsheet is now fully up-to-date, for people who find it useful (if you don't then ignore).

Small Cap Value Report (Fri 21 Jul 2023) - DPP, THRU, DWF

Paul’s Section:

DP Poland (LON:DPP)

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