Small Cap Value Report (Fri 21 May 2021) - ELTA, HEAD, GATC, CARD, STAF

21st May '21 by Paul Scott

89 comments 12363 reads

Good morning, it's Paul and Roland here, with the last SCVR of this week.

Timing - I've got to finish by 12:30 today, due to more zooms, and travel arrangements. Today's report is now finished.

Yesterday was a bit of a nightmare, with so much to do (including 4 zooms), and very tricky accounts to decipher from N Brown (LON:BWNG) (I hold). This is just to flag up that I finally published my section on BWNG at about 7pm last night, so many subscribers may not have seen it. Here is the link to yesterday's report, with the BWNG section, to start you off today.

Agenda -

Paul's section:

Electra Private Equity (LON:ELTA) (I hold) - really good news today. The planned disposal of its 2 main investments (restaurant chain TGI, and Hotter Shoes) will now be through demergers, and separate listings. I think this could maximise value for ELTA shareholders. NAV has shot up 46% in 6 months, to around the current share price, but still looks well below possible sum-of-the-parts disposal values. So plenty more to come, in my opinion, even after a strong share price rise of late.

Headlam (LON:HEAD) (I hold) - a reassuring, in line with expectations AGM trading update. Revenues now almost back to 2019 pre-covid levels. Shares have risen a lot, but still look very good value to me. Bulletproof balance sheet includes c.£100m freehold property. Generous divis should resume. There's lots to like here, for value investors.

Gattaca (LON:GATC) - "Improved outlook" - a positive update, although forecasts have been slashed to near-zero, so not madly exciting to be beating such a low forecast. Good signs of recovery. Share price has already tripled, and I don't see obvious immediate upside on the current valuation. Balance sheet looks OK, so probably little to no dilution risk.

Roland's section:

Roland:

Card Factory (LON:CARD) - this indebted retailer has now released details of the refinancing package it agreed in April. Shareholders seem likely to face dilution as the company needs to secure additional cash to fund accelerated debt repayments.

Staffline (LON:STAF) - this recruiter has just launched its second refinancing in 12 months. Existing shareholders face big dilution, but this could provide a more solid foundation for a recovery. However, the stock still looks quite…

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Rusty2

21st May '21

I will have a look at iDealing account.

Re FSCS compensation limit, I think you will find it is different on share dealing platforms.

I had a look at at iDealing, fees not cheap and many additional fees such as for transfers etc.

timarr

Re FSCS compensation limit, I think you will find it is not £85,000 on share dealing platforms.

I believe it is:

https://www.fscs.org.uk/media/...

Mostly that would only apply to any cash in the accounts. Typically investments should be ring-fenced, although if the firm goes bust then the administrators may sell client assets to fund the administration, when the FSCS limit would apply (I believe, it's complex, best not to need it if possible, don't use small providers).

Yes and administrators can charge their fees to the clients as in Beaufort, where in the end, they were capped at £10,000 per client.

mammyoko

Hi
I have had a similar experience transferring some funds from Psigma to HL. The Financial Ombudsman recommends that cash transfers should take no more than 30 working days. I have submitted a complaint to HL and set out a consequential loss claim that amounts to over £13k based on a simple calculation of the loss I have suffered from not being able to invest my cash in increasing existing holdings. I have spoken to the office of the Ombudsman and they have confirmed that they can consider consequential loss claims.
If a sufficient number of people claim compensation and refer brokers to the Ombudsman they will soon work out that it is in their interests to staff their transfer departments properly. It is unacceptable that a cash transfer between ISAs takes even a week let alone 30 working days but for periods longer than that I can't see the broker has any defence.
I will post when I hear back from the Ombudsman and am available to help anybody who wishes to draft a watertight case for consequential loss. I am not a lawyer but I have sufficient legal experience to write a letter that a broker will know they have to take seriously!

Boon

On Northern Bear (LON:NTBR) - looks like they've created themselves a bit of wiggle room for disappointing margins (and potentially delays to top line revenues too) this year:

"Assuming no further significant disruption or margin impact from COVID-19 or supply chain pressures, our current expectation is for a resumption of more 'normal' trading and profitability levels, closer to those seen in financial years prior to FY21."

It has been well reported that there are big supply issues at the moment with building supplies in general, and roofing supplies in particular, along with price increases. As a small customer, Northern Bear is not going to have it easy vs the big construction companies...

Laughton

I could well be wrong (must be age finally catching up with me) but didn't that mean that the FSCS ended up covering the £10,000 per client?

If so, clients didn't end up losing money but had to go through the torment of initially thinking their loss would be substantial and still having to wait a long time for things to get sorted out and control of their holdings.

Chris1011

I have to say that Interactive Investor (ii) do everything they say on the tin - no access or fund delay issues plus, they offer all the products and services that have been mentioned in this thread.

MichaelFBS

Have not read in full but re:

“Yesterday was a bit of a nightmare, with so much to do (including 4 zooms), and very tricky accounts to decipher from N Brown(LON:BWNG) (I hold). This is just to flag up that I finally published my section on BWNG at about 7pm last night, so many subscribers may not have seen it. Here is the link to yesterday's report, with the BWNG section, to start you off today.”

I just amazed at your output and your ability to turn out these reports and that you are able to focus for so long each day. It is extraordinary. I hope you are looking after yourself.

Thank you.

Regards

Michael.

Don't forget there's a Department of Justice investigation to Gattaca (LON:GATC) in their role of circumventing Iran sanctions and supplying telco contractors.

Gattaca to spend £3m+ in 2019 on legal fees and £1m+ in 2020 (from my foggy memory). I remember being struck by the amounts, for a £40m market cap company. If one is willing to "fight" by spending such huge sums on lawyers, that means that the fine or current settlement offer demanded from the DoJ must be much higher amounts... thinking maybe 8 figures?

Hence why Gattaca (LON:GATC) is on my bargepole list pending the outcome of the DoJ investigation.

I also note that no directors have bought in 2019, 2020, 2021 after the DoJ investigation has been announced. Not much insider confidence on their shares being worth something in the worst case scenario...?

I have just looked into that, it. Seems the FSCS did cover the PWC fees, so yes they did not lose money. My understanding is the FSCS covers cash and fees if your platform goes bankrupt. Shares and other investments should be ring fenced, so you should get them back although this could take many months. So you are not limited to investing only £85,000 in shares etc. due to the FSCS compensation limit?

JohnEustace

An article in the Evening Standard today is headlined TGI Fridays set for £275 million stock market listing. I guess that's an opening ask. They estimate Hotter at £45m.

"Shares and other investments should be ring fenced"

Until they're not.

GN100

I have used iDealing for some 20 years and I really like their platform. It's bare-bones and simple and exactly what is needed by a trader. Also they don't appear to mess about with the platform as so many other brokers seem to do. They were my first broker and I have tried several others since. Charges for day-to-day operations are very reasonable and I have no experience of their other charges. My one concern is that they are a small boutique type of broker without the backing of a major finance house but so far - so good over a reasonable time period.

Metatron

I have had an Idealing account for many years and have found their customer services very good.The main problem i have with them is that they do not do W-BEN forms this means if you buy a share like Somero you will pay more in USA tax on the dividend than if you buy Somero with a broker who offers a W-Ben form like AJ Bell .

Wilbraham

Mildly relevant article and comments on the broker risk point https://www.finumus.com/blog/w... Author seems quite risk averse in suggesting < 10% of one's trading accounts on any one platform but, yes, the Beaumont thing was a shock to the complacent.

I'd also understood there's a (remote) potential issue with broker cash. Eg if my shareholdings are correctly identified by the nominee/custodian yet I have £200k cash with said broker, fine because broker would normally spread his overall client cash over say 5-10 reputable institutions. So the £85k cap shouldn't intervene..........except that I have outside the broker £85k in Northern Rock and Northern Rock is the one that suddenly fails, then I potentially am at risk for the proportion of my £200k held with Northern Rock as I've already reached my compensation limit. And you won't of course know how your cash holdings with the broker are allocated. This is a fairly extreme risk I agree.

The more material risk as others have identified would appear to be the broker going titsup. Especially if they'd been struggling for a while - perhaps records aren't up to date. I'd like to think it's well nigh impossible for a broker to transact for a client without the nominee being updated but who knows how badly things can go? Then there's the potential risk of fraud if there's a bad actor(s) at the broker - false contract notes are issued and your funds haven't been invested where you thought? This would require collusion by multiple parties so hopefully a negligible risk except for the smallest, dodgiest brokers. Remember that dodgy brokers may also have client assets in unquoted securities, high interest loans etc, where there's greater scope for misallocation (part of the Beaumont problem I thought?).

I'm unsure where the spread betters fall in the risk spectrum but inherently feel there's a higher risk. Likewise with the recent 'commission free' set-ups like Trading212 which might be pushing their client trades onto bigger brokers (is this is what the industry calls 'flow'?).

Probably not enough to keep me awake at night, but I certainly won't be consolidating all my pensions into just one platform.

Would be worth hearing from the seriously rich with 8-figure sums how they mitigate these risks. I expect they're delegating to specialist asset manager institutions in most cases who will themselves have bullet-proof procedures.

22nd May '21

Hi Wilbraham

It's an interesting article.

Break accounts can go both ways, of course, brokers sometimes find themselves with an excess of stock rather than a shortage. The amusing idea, though, is that people might end up being left behind in a rush for the exit. Given the pace of most brokerage account transfers the chance of avoiding a broker meltdown by moving must be considered pretty small :-/

Back in 2008/9 the possibility of brokers going bust wasn't just theoretical, a lot of us were seriously worried that it might actually happen. After that shock I moved my holdings into larger companies - TDW, HL, AJB and Saxo. TDW subsequently got taken over by ii and I'll be happier when they're finally listed.

To my mind there are four benefits of being on the larger, quoted brokers. Firstly, they make lots of money, so if there is an issue there should be plenty of funds to solve the problem. Secondly, there's excellent visibility of the accounts, so that if anything is going wrong there should be plenty of early warning signs. Thirdly, the sheer size of them means that if there is a major problem then the political pressure to fix it will be enormous. And finally, it's one less thing to worry over.

The downsides of the larger platforms have been well testified to on these boards. Their systems aren't built to handle high levels of volatility and trading and so are apt to fall over at inconvenient times. The underlying point, of course, is that frequent traders are not at all their main customers, so if they annoy a few very active customers into leaving that won't worry them at all.

On the issue of spreadbetters - I'd say the same issues apply. For instance IG's spreadbetting business dwarfs its brokerage account side, plus it's an enormous company. It's hard to imagine nominee customers ever having an issue there. The risk might be that they sell the brokerage business off to some smaller, fly by night, company.

In short - I think investors should worry about the financial stability of their nominee account providers. It's a tail risk - a very small chance of a very bad thing happening - but if it does happen, it's catastrophic for the individual. Trading off the security of your investments for a small improvement in fees or occasional system performance is, in the words of Nassim Taleb, picking up pennies in the path of the steamroller. Great while it lasts, but don't slip, and hope like hell the operator doesn't fall asleep at the wheel.

Logical David

Hi Tamzin,

I was under the impression that the next StockSlam was on Wednesday 23rd June and not Friday 25th June.

Caper4

23rd May '21

I am a very satisfied customer of Flatexdegiro. Low fees ,excellent service and user friendly site. Not suitable for SIPP and ISA though

peterg

Agreed. I use iDealing, along with 2 others, and while the iDealing site is basic it does what I want, it's cost effective, and when I've had reason to contact them about issues or trades that proved hard to shift they've been excellent.

dahhad

4th Jun '21

Paul, sorry to trouble you but has something fundamental changed with Gattaca? It has gone up 40+% in the last 10 days or so and, as a relatively new member, I can't find anything to back up such an increase in such a short period. Is there anywhere within Stockopedia that notes such increases. Thanks

Small Cap Value Report (Fri 21 May 2021) - ELTA, HEAD, GATC, CARD, STAF

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Paul Scott

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