Small Cap Value Report (Fri 22 Dec 2017) - Bitcoin Pt 2, CLLN, MOS, AHCG, RGD

Friday, Dec 22 2017 by

Good morning everyone,

The RNS stream today is not exactly fireworks, but you've made a few suggestions in the comments so I will have a look at:

I'm also making a short comment on Bitcoin, adding to Paul's comments yesterday, so I hope you don't have Bitcoin fatigue!



Bitcoin (obligatory comment)

Firstly, bear in mind that I am a nocoiner (someone who doesn't own any crypto-coins). So perhaps I'm bitter about never buying any, despite being aware of them for longer than most people? I don't think I am bitter. But maybe it's unconscious?

Anyway, I did consider the investment merits of bitcoin, and rejected it.

The practical argument

In simple terms, my reason was as follows: while the supply of bitcoin may be limited, the supply of crypto-currency in general is unlimited. There are over 1,000 crypto-currencies, and more are being created all the time.

So buying bitcoin as an investment is not a bet on crypto-currency in general succeeding. It's a bet on that specific crypto-currency succeeding.

Based on my limited reading on the subject, litecoin appears to be a far superior currency than bitcoin. And as things currently stand, the size of the bitcoin network has resulted in transaction fees running into the tens of dollars. This makes bitcoin impractical for micro-payments and effectively renders it useless as an everyday medium of exchange.

There are plenty of other currencies to choose from, so why should bitcoin be the best? It's quite reasonable to think that some other crypto-currency will eventually overtake it in popularity, despite bitcoin's first-mover advantage.

Maybe I should have bought a crypto ETF, to hedge my doubts about bitcoin and my lack of ability to predict a crypto-winner? Perhaps. That's a much stronger argument versus buying one coin in particular.

The economic argument

But there's something else holding me back.

I've made no secret about the fact that I'm a goldbug, and have always had an interest in the gold standard.

There's a thing in economics called the Regression Theorem (by Mises). My understanding of this, which I developed before bitcoin was invented, explained that money gradually emerged as the…

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All my own views. I am not regulated by the FSA. No advice.

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Carillion plc is an integrated support services company. The Company operates through four business segments: Support services, Public Private Partnership projects, Middle East construction services and Construction services (excluding the Middle East). The Support Services segment includes its facilities management, facilities services, energy services, rail services, road maintenance services, utilities services, remote site accommodation services and consultancy businesses in the United Kingdom, Canada and the Middle East. The Public Private Partnership projects segment invests in Public Private Partnership projects in the United Kingdom and Canada. The Middle East construction services segment includes its building and civil engineering activities in the Middle East and North Africa. The Construction services segment includes its the United Kingdom building, civil engineering and developments businesses, together with those of its construction activities in Canada. more »

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Mobile Streams plc is a United Kingdom-based mobile media company. The Company's principal activities include the sale of mobile content through Multi-National Organization's (Mobile Operator Services); the sale of mobile content over the Internet (Mobile Internet Services), and the provision of consulting and technical services (Other Service Fees). The Company's geographical segments include Europe, North America, Latin America, and Asia Pacific. The Company sells digital content, primarily for distribution on wireless devices. The Company licenses and distributes a range of mobile content, including games, applications, e-books, music, pictures and videos that are retailed around the world. Its browser based games service works across various devices, including Android, Apple, Tizen and Windows Phone. The Company distributes a catalog of over 200 thousand e-books from over 600 publishers in various languages. The Company also has operations in Argentina, India and Nigeria. more »

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Action Hotels plc is a hotel owner, developer and asset manager of branded three and four star hotels in the Middle East and Australia. The principal activities of the Company and its subsidiaries are owning, developing and operating hotels in the Middle East. The Company operates through four segments: Middle East hotel operations, Australia hotel operations, Hotels under construction and Undeveloped land sites. It has completed properties offering approximately 2,000 guest rooms in over six countries. The Company's property portfolio includes 1,050 square meters development land Sharq, ibis Sharq, ibis Salmiya, ibis Styles, ibis Seef, Premier Inn Sharjah, ibis Amman, Tulip Inn Ras Al Khaimah, Development land Dubai Healthcare City, Tulip Inn Modon Jeddah, Mercure Riyadh Olaya, Staybridge Suites, Mercure Sohar, Holiday Inn Al Seeb, ibis Muscat and Development land Dubai Media City. The Company operates in the United Arab Emirates, Kuwait, Oman, Bahrain, Jordan and Australia. more »

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  Is LON:CLLN fundamentally strong or weak? Find out More »

31 Comments on this Article show/hide all

tic_tac_toe 22nd Dec '17 12 of 31

graham, here's a bit of light christmas humor & only because I caught your quote 'For example, it's not easy to sell air in normal conditions and at normal altitudes. It has an infinite supply in normal conditions, so even though it's useful, it has no economic value.'

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shanklin100 22nd Dec '17 13 of 31

Consistent with tradition, one company, this year Real Good Food (LON:RGD), has issued a real stinker of an RNS after the market closed on the last business day before Christmas, to wit...

I see from the trading statement issued on 23-Oct-17, they had previously guided that results would be issued in early December...

So everything is going to plan at the company.

Bah Humbug. Cheers, Martin

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SmallCappy 22nd Dec '17 14 of 31

In reply to post #258218

I was an early buyer of Empiric Student Property (LON:ESP) but have recently sold out. What I came to realise is that their assets are largely sub-optimal. 60 70 even 100-200 bed units just do not compare with the 400 plus units that the big players hold. This affects not only the net rental stream but also the capital values. By way of comparison (not strictly the same model I know) check out the units that £WJG build. Their understanding of market dynamics far superior to #ESP

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Graham Neary 22nd Dec '17 15 of 31

In reply to post #258158

Thanks for the suggestions, Francis and others. I have covered Mobile Streams (LON:MOS).

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FREng 22nd Dec '17 16 of 31

With the completion of the demerger yesterday, Oxford Pharmascience (LON:OXP) has become Alba, with the (re-used) ticker ABA. It's now a cash shell (which I hold). I hope it announces that it's moving into blockchain next week!

Stockopedia hasn't updated for the new name yet. It's going to be a pain transferring the portfolio data across if it isn't automatic.

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Graham Neary 22nd Dec '17 17 of 31

In reply to post #258303

Haha, thanks for that tic_tac_toe! G

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Julianh 22nd Dec '17 18 of 31

On bitcoin:

1. It has no intrinsic worth

2. It is possible to make a lot of money investing / gambling on it


1. Could I recognise the bubble forming early enough to buy cheap?

2. Could I recognise the top  to get out before the bubble bursts

If Yes to 1. And 2. Then buy

For me the answer is no. I would have no idea how to time this. So Charly Munger is right. Don't even think about it.

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andrea34l 22nd Dec '17 19 of 31

Thanks Paul & Graham for all the valuable reports this year.

Happy Christmas to all   :-)

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Graham Neary 22nd Dec '17 20 of 31

In reply to post #258343

Real Good Food (LON:RGD)

Well-spotted, Martin! Thanks.

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andyfwwrench 22nd Dec '17 21 of 31

Graham - Better explained here than I ever could, but barter has never been anything other than an insignificant part of the economy, and isn't the source of money. Even today the conventional non-money transaction between friends is "I owe you one", not, "here have my shoes and coat." Barter simply doesn't cope with the asynchronicity of supply. So debt and money are the same thing.

Anyway, thanks to you and Paul for your commentaries through the year, very useful reading. Have a good christmas and new year.

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cholertonandrew 22nd Dec '17 22 of 31

Thanks for all the great reports this year Graham. Have a good Christmas.


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matylda 22nd Dec '17 23 of 31

In reply to post #258343


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Paul Scott 22nd Dec '17 24 of 31

Hi Graham,

Many thanks for today's excellent report! Thanks also for the Charlie Munger video, it's fascinating & very entertaining, what a remarkable man.

It seems to have been a good day to bury bad news for several minnow stocks;

London Capital Group (LON:LCG) - down 47% today. Just 42 mins before the market shut, it announced plans to de-list from AIM. Although it's moving to a smaller exchange (which I've never heard of before) called NEX Exchange Growth Market. Looking at the companies listed on NEX, it looks like a reincarnation of the old Plus/OFEX market. So shareholders might still be able to deal. The largest shareholder in LCG owns 78.1% of the company, so can force through the shareholder vote (requiring 75% support).

Concepta (LON:CPT) - down 7% today - 60 minutes before the market closed, it issues a profit warning. Delivery of a big contract has slipped from 2017 into 2018. This is another jam tomorrow share from the Adam Reynolds stable of highly speculative stuff. The company says it has enough cash, following a recent £2m placing.

Integumen (LON:SKIN) - down 35% today - 83 minutes before the market shut, this company announced a small placing, and what looks like a profit warning - "some of the existing product lines are taking longer to generate the level of revenues expected by the Board whilst others, in the Board's view, have the potential to outperform. The Board is also reviewing its overall cost base ")

In passing, I note that troubled Accrol Group (LON:ACRL) is still languishing well below the mooted 50p placing, with the shares at 35.75p. I'm doubtful whether the placing is still going ahead at 50p, or whether placees might demand a discount? The company should have left the shares suspended until the placing was completed, in my view.

So the above announcements on the last trading day before Xmas have probably resulted in a few people's festive season being ruined. Such are the perils of micro cap investing!

Regards, Paul.

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xxx 23rd Dec '17 25 of 31

P+G, Thanks for all your efforts this past year !

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dominic higgins 23rd Dec '17 26 of 31

Paul, Graham, I'd just like to add my sincere thanks for all your highly valued and informative reports in 2018! As well as leading me to research some interesting shares, just as importantly, your comments have stopped me from wasting time researching not so good ones which on the surface looked interesting.
I'd also like to thank all those regular contributors in the comments section each day which is often very insightful and can add more 'flesh to the bone' to a stock's story or management..
I hope you both have a wonderful festive season and here's to a successful 2018 for all!

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sharw 23rd Dec '17 27 of 31

In reply to post #258478

Nex is the old ISDX. I found out about it because there are a large number of LSE traded companies that are also traded on Nex and if you make a trade you don't know where it has been traded until it appears on your contract note (or if you wonder why it hasn't appeared on lists of trades). More here:

Ironically London Capital Group (LON:LCG) is already dual-listed:

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alpha2 23rd Dec '17 28 of 31

Dear Paul and Graham,
I would like to add my thanks to all your other followers and wish you a Merry Christmas and a prosperous New Year.

I must however take issue with you on bitcoin and some of the other cryptos. A couple of years ago I thought that no matter how much I read about it in The Times or online I am not really getting any wiser. Consequently I decided to buy some, more to try and understand it than any other reason.

I am now a complete convert, not simply because of the profits but also because I have come to understand the sector a bit more.

How I see it is that BTC may well become the reserve currency, it may also be replaced ultimately with something with more utility, but in the interim it has been and will likely continue to be an appreciating store of value. To your point that it is not useful, it is as useful as gold, it is just not as decorative. Gold (of which I am a holder) is very similar, it is expensive to mine although the early stuff was cheap as one could just pick up nuggets where they lay but gradually as it got more scarce the value increased and the cost of extracting it became increasingly expensive. Bitcoin follows this pattern exactly and like gold has a finite supply, in fact probably a more easily identified amount beyond which there is no more. It is thus deflationary.

As for fiat currencies, why would you attribute anymore value to the digital keystroke that Carney, Draghi and Yellen authorise to create more QE than to the hugely expensive mining effort that goes into producing the digital keystrokes that create a bitcoin. The bankers will carrying on creating more devalued currency until inflation one day ensure that they all disappear up their own fundaments.

I am not sufficiently technical enough to understand if blockchain technology will be the new internet and it may be at a similar stage to that of the internet just before the .com bust but if that is so there may also be Amazon type businesses that have already been created lurking there. Factom perhaps may well be one of them.

To close your minds to it completely without at least getting involved for the purposes of experimentation seems unlike you and to my mind unwise.

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peterg 24th Dec '17 29 of 31

As for fiat currencies, why would you attribute anymore value to the digital keystroke that Carney, Draghi and Yellen authorise to create more QE than to the hugely expensive mining effort that goes into producing the digital keystrokes that create a bitcoin

Fiat currencies are backed by governments - which represent huge national assets. All the currency created as part of QE has failed to have the effects predicted - massive inflation, high interest rates etc - by the doom mongers. Of course all those things can happen, and have, but they don't where the central bank is backed by a reasonably stable economy and government. There is a massive difference between a currency that is controlled by a central bank, and that may involve printing money at times for reasons of monetary policy, and a currency that is based on an arbitrary  set of rules, whose main reason for existence, outside of speculation, is by those who want to be able to launder proceeds of illegal activity, or avoid tax obligations to the states that create the conditions in which they can operate.

As such they must be prime targets before too long for regulation. There may be difficulties with that, but in the absence of any underlying asset it's a bubble waiting to burst once anyone starts taking them seriously.


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kenobi 28th Dec '17 30 of 31

Paul, I completely disagree with you on crypto currencies, saying that supply is unlimited is like saying that the supply of .com's was unlimited before the dot com crash, yet didn't Amazon look like one of the winners then ? didn't google ? So when the market crashed, sure they fell in value, but how have they done over the long term ?

You may not be able to predict the winners now, and I'm not saying that bitcoin doesn't have some challanges, but I think I would predict that bitcoin would be one of the winners.

you also mention that bitcoin as no use or value as anything but money, and that's a bad thing?
How do you feel about , say, money ? what other uses do those paper notes have ?

as for the benefits of gold, I kind of agree with you, but what about if a huge amount of gold were found ?
would that not be challanging to it's price ? or if scientists find ways to extract it better, or create it ?
won't that put a lid on it's price or desirability (a bit like man made diamonds are getting better all the time),
where as there will only ever be that fixed number of bitcoins. I'm not ready to invest heavily, but as a punt, why wouldn't you spend a couple ok thousand to have some exposure ?


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timarr 28th Dec '17 31 of 31

In reply to post #289973

Hi kenobi

Hindsight tells us that Amazon and Google were winners, but if they were such obvious no-brainer champions then we would all have been invested. We weren't, for the very good reason that it was difficult to pick winners and losers - remember Yahoo? Hindsight is a lousy way of making investment decisions.

And, of course, the point being made about gold is exactly the issue - if gold was suddenly in infinite supply then its value would collapse. To make the analogy of gold and cryptocurrency you've got to establish the scarcity equivalence - and it doesn't exist.

True, standard Bitcoin is limited in its total volume (let's not even go into the politics around Bitcoin Cash) but even if we can somehow make the argument that that makes it valuable in its own right, which is difficult given the proliferation of cryptocurrencies, that very limitation puts a cap on its usability as money. Consider, if the total amount of sterling in circulation was capped at a million pounds in denominations of one pound notes, how much actual commerce could get done?

And as for the punt argument, consider this dotcom equivalent statement - as a punt why wouldn't you spent a couple of thousand in {insert name of favourite 1999 dotcom stock here} to have some exposure?

I disagree that crypto-currencies have no real value, but they will be regulated and the winners are likely to have the characteristics that regulators like. However, each to their own, I've no doubt some people will - and already have - make a lot of money out this mania. As ever, the challenge will be keeping it.


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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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