Small Cap Value Report (Fri 22 Dec 2023) - POS
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 (usually) between £10m and £1bn. We usually 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. OR it's such deep value that we see a good chance of a turnaround, and think that the share price might have overshot on the downside.
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. Sometimes risky shares can produce high returns, if they survive/recover. So again, we're not saying the share price will necessarily under-perform, we're just flagging the high risk.
Companies Reporting:
- Chill Brands
- Plexus (AGM)
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140 comments
Happy Xmas and here's to a great New Year one and all.Just adding my voice thanking Ed, Paul, Graham, Meghan, Roland and everyone else on the team plus all the regular SCVR fellow subscriber commenters, as a new 're-subscriber'.I do wish i had explored this website and stuck with it now, when i first did a trial sub a few years ago, and off other bulletin boards.And especially in a bear market!But in any market to be honest.I feel like i'm learning a lot and quickly.. i hope anyway!!
I've definitely changed my stratgey and decided to stay away from all the hot, blue sky companies popular on another free bulletin board and trying to time trades in there (well randomly guessing and hoping!).Great value for money too!
P.S.I must be an addict now.Listening to Paul on Spotify right now!
Congratulations Logical David and WoSS on your outstanding 2023 returns.
Very interesting to read your list of holdings Logical David and thanks for sharing.
Makes me almost feel embarrassed by my +9.75% return.
Snazzy
Sopheon (LON:SPE)
Looks like another delisting will be happening in Q1 2024, from the RNS issued after close of business on Friday:
RECOMMENDED CASH OFFER
by
IOPS BUYER INC.
(a wholly-owned subsidiary of Wellspring Worldwide Inc.)
for
SOPHEON PLC
to be effected by means of a Scheme of Arrangement
under Part 26 of the Companies Act 2006
Summary
· On 31 October 2023 the board of directors of Sopheon plc ("Sopheon") (the "Sopheon Directors") announced an agreement in principle with the board of directors of IOps Buyer Inc. ("Bidco"), a wholly-owned subsidiary of Wellspring Worldwide Inc. ("Wellspring"), on the terms of a possible cash offer for the entire issued and to be issued share capital of Sopheon. That announcement set out that Wellspring were awaiting receipt of a regulatory clearance.
· On 21 December 2023, this regulatory clearance was received and accordingly Bidco and Sopheon are now pleased to announce the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued share capital of Sopheon (the "Acquisition").
· It is intended that the Acquisition will be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (although Bidco reserves the right to effect the Acquisition by way of a Takeover Offer, with the consent of the Takeover Panel and subject to the terms of the Co-operation Agreement).
Given that it was trading in a band between £5 and £7 in the last year or so until the offer was mooted, I expect most holders will be more than happy with the £10 offer (myself included).
As 2023 heads for the exit, I would like to acknowledge the quality of the posts on this website from the many knowledgeable, informed and helpful retail investors. The exchange of information, views and opinions while occasionally robust is with very few exceptions undertaken in a polite, amicable and business like manner.
Congratulations to Wolf of Wall St on a 46% return for the year. Phenomenal in what has generally been an awful year for UK shares, especially small and mid caps. I would be ecstatic with 50% of that. To paraphrase Michael Caine 'you were only meant to blow the bloody doors off'
The SCVR would not exist if it were not for the superb coverage of UK small cap shares by Paul and Graham, ably assisted by Roland. So a very big thank you to all three. Your analytical skills and hard work are very much appreciated.
I would also mention as others have done, Paul Hill. I have really enjoyed his excellent interviews with investment managers and company management. I especially liked his interviews with Richard Staveley, Paul Jourdan and Christopher Mills. Irrespective of whether you take the view that they are promoting their own agenda or not, one cannot deny that they 'eat their cooking' and provide plenty of ideas for further investigation.
Last but not least 'Chapeau' to Ed and his team for an excellent investment website and the educational material provided throughout the year.
I couldn't conclude without contributing to the theme of the shares that have got left behind that featured in today's 'conversation'. I hold and much of the following I have posted before.
Palace Capital (LON:PCA) 221p
This REIT has been consistently returning capital to shareholders by means of share buy backs. By my reckoning it has bought back close to 20% of its shares in the last 12 to18 months. From the recent interims:
"During the half year period, the Company purchased 6.2 million shares for £15.2 million, contributing an additional 8.0 pence to EPRA NTA. Since July 2022, cash returned to shareholders through the share buyback programmes to date totals £21.9 million."
15th November - Notice of General Meeting
"In line with the Company's strategy to return cash to shareholders, the Company has made purchases of its own shares under the authority given at the 2023 Annual General meeting (for the purchase by the Company of up to 10% of its then issued share capital). As the Company has utilised that authority in full, a special resolution will be proposed at the GM to authorise the Company to purchase a further 15% of the Company's own shares in the market."
15th November continuing reduction in administrative costs
"In terms of managing our own costs, Palace Capital continues to reduce its level of administrative expenses in line with its strategy, with measures implemented in the period saving £0.5 million and £0.9 million in the year to date. This includes reducing headcount and relocating its head office to a smaller office in Victoria, London on expiry of its current lease term on 1 December 2023. Annual occupancy costs of the Company's new premises will be £0.25 million lower than those of its former offices in Bury Street, SW1."
15th November - amicable departure of CFO in line with cost reduction programme
"Today, the Company has announced further progress in the delivery of its strategy to focus on maximising cash returns to shareholders. In light of this, Matthew Simpson, CFO and the Board have agreed that now is the right time for Matthew to step down as a Director and from the Board. The Company's financial circumstances (including cancellation of bank facilities and reduced portfolio size) mean that the CFO role is significantly reduced and therefore no longer requires the level of expertise and skillset that Matthew contributes.
Going forward, the financial operations of the Company will be managed by the Financial Controller and Financial Planning Analyst with operational oversight by Steven Owen, as Executive Chairman and by the Audit and Risk Committee on behalf of the Board. After a short handover, Matthew will leave the Company at the end of this month.
Matt's CFO report for the Half Year is contained within the Half Year Report.
Matthew leaves with the Board's best wishes and gratitude for his eight years with the Company, latterly as CFO and prior to that as Financial Controller. He has supported the Board in reshaping the Company over the last sixteen months including returning cash to shareholders and reducing bank debt.
Commenting, Matthew said: "After eight years, the last two years of which were as CFO, the timing is now right for me to explore new opportunities and pursue a fresh challenge. I leave Palace Capital in a robust financial position, having deleveraged the balance sheet with debt and LTV significantly reduced and the Company is well placed to deliver on its strategy of maximising cash returns to shareholders.
"I have enjoyed working with the current board and the wider team over the last two years and wish them all the best for the future."
From the interim result published on 15th November -potential tender offer
"Since July 2022, we have returned £21.9 million of capital to shareholders through share buybacks. It is expected that further progress regarding disposals and options for returning capital, including a potential tender offer, will be announced in a Trading Update during the first quarter of 2024."
In conclusion, despite the above Mr Market is completely uninterested and unless I have missed something, the shares just seem too cheap. Logically any tender offer to be successful must be at close to NAV. The current share price of 221p is at a 25% discount to NAV.
I draw confidence from the holding of Peter Gyllenhammer in particular and am happy to ride on his coat tails and those of Harwood Capital.
Time will tell!
All the best
Many thanks for highlighting Palace Capital (LON:PCA) that had fallen off my watchlist so will take another look at that. Also in the property sector CLS Holdings (LON:CLI) might be worth a look - on a more than 60% discount (reflecting its mainly office exposure and fairly high debt) although operationally seems to be performing quite well and has a solid long term record.
Many thanks Jonno for the very kind words
I hold and bought more a few months ago as the discount looks too high. I am reasonably sure shareholders will see reasonable returns next year for the reasons you mentioned.
I found yesterday's comments on GlobalData (LON:DATA) very interesting, suggesting a vastly undervalued company. It's outside small cap territory with a m/cap of £1.6bn but I thought I'd do a bit more research. I don't hold.
For what it's worth here are my comments.
Company / Founder Backgound
Mike Danson (CEO) founded Datamonitor Plc, an online information company, in 1990. In 2000, Datamonitor completed its flotation on the London Stock Exchange and was sold to Informa Plc for £502m in 2007.
GlobalData acquired the Datamonitor Financial, Datamonitor Consumer, MarketLine and Verdict businesses from Informa Plc in 2015 and floated on AIM in 2016.
CEO holds 59.6% shareholding so ought to be aligned with PI's but this still comes with the usual potential risks of having a dominant shareholder on the register (and the Board).
Valuation
I would argue that the projected valuation of £3.2bn is flawed for two main reasons. Firstly, and most importantly, this valuation is based on share of LTM revenue (to 30/6/23) for the Healthcare division but should really be based on share of adj EBITDA. Secondly the net cash proceeds of £434m haven't been deducted but should be as future profits from the 40% share of the Healthcare division will no longer accrue to the company but will accrue to the Inflexion minority interest.
So I would re-calculate a revised projected valuation as follows;
Start point is the £1115m valuation put on the whole Healthcare division in the 40% sale. This is based on 22 x adj EBITDA which implies a divisional adj EBITDA of £50.7m. Hence the retained 60% share of the Healthcare division contributed adj EBITDA of £30.4m. Apply the 22 x multiple to give a valuation for the retained 60% Healthcare division of £669m (or more simply 60% of £1115m).
Total company adj EBITDA for LTM was £100.9m. Deduct £50.7m Healthcare contribution to leave adj EBITDA for the other two divisions (Consumer and Technology) of £50.2m. Apply the 22 x multiple to give a valuation of the Consumer and Technology divisions of £1104m.
This gives a total valuation of £1773m against the £3.2bn above (less £434m proceeds).
Cash proceeds of £434m will clear the debt and provide £200m+ net cash to fund future acquisitions so will be of considerable benefit but cannot be included in the overall business valuation as future profits will no longer be accrued from the 40% of the Healthcare division that is being sold.
Initially the Enterprise Value will reduce to the extent of the net sale proceeds and thus lower the EV / EBITDA multiple but will have no impact on a valuation based on adj EBITDA multiples.
Margins
Adj EBITDA margins in Healthcare are approx 53% and only low 30% in Consumer and Technology. Are Consumer and Technology divisional margins similar? Can Consumer and Technology margins improve to Healthcare levels?
Share Based Compensation
Recent H1 results showed a substantial increase in share based compensation to £9.7m (£1.4m previous H1). This increase was due to a rather alarming change in compensation targets in November '22 from Total Shareholder Return to Adj EBITDA.
Adj EBITDA is calculated excluding share based compensation which is questionable at best. Such payments represent staff remuneration and should really be excluded. H1 results show adj EBITDA of £53.5m (£39m) but if you exclude the share based payments they would be £43.8m (37.6m).
Conclusion
Global Data has a fine track record, a very experienced founder / CEO and has plenty of positives with a good track record of successful acquisitions.
Balance sheet has been weak, carrying arguably too much debt and with no tangible asset backing (NTAV negative £338m due to £380m intangibles) so the cash proceeds will certainly improve matters.
Yesterday's 20% share price increase to 193p gives a M/cap of £1.635bn set against my revised valuation of £1.773bn. So although there appears some upside, I don't think it is to the extent of a £3bn valuation as things currently stand.
Certainly one to watch though.
Snazzy
Actually they don’t Snazzy
The GlobalData (LON:DATA) business is capable of operating the same margin across the divisions. Therefore a like for like revenue comparison is realistic. If the founder does any other deals they will not be done on your imputed metrics.
So in effect the £3.2bn potential valuation was based on 2* £1.15bn + £700m (60% share of healthcare) + net cash of £200-250m.
You are also missing the interest element which changes cash flow by a positive c. £20m p/a and you haven’t accommodated that.
However, this all completely ignores growth which is in the region of 20%+
So realistically you have a business that on a breakup valuation would likely yield in the c. £3bn range if done tomorrow but is growing at a significant clip and should therefore be more valuable tomorrow.
Risk to this of course is in the multiples paid. Whilst this deal was done at what is likely to be multiple lows given the interest rate environment and stock market sentiment there is no guarantee those values will hold even in an upturn to market sentiment, but I’d say the odds are pretty good.
So I think your imputed £1.7bn valuation is well short of the mark and even if you came up with an enterprise value of say £2bn now, then given the growth rates on offer you are buying fair value at a decent discount and getting great growth levels for free.
Thanks for your response davidjhill. I respect your more optimistic view.
I accept that my figures were conservative and did not have growth built in but that's because I haven't seen any evidence that the Consumer and Technology divisions can actually achieve the margins achieved by the Healthcare division.
In the absence of any breakdown of comparative margins by Consumer and Technology and rationale as to how they can be improved, I simply can't assess. One or both of those divisions may be operating at depressed margins and struggling to improve them.
The 22 x multiple has been achieved for Healthcare but unless the other two divisions can achieve similar margins and profitability then they wouldn't be able to command a similar multiple in a sale. If that were to be the case the resultant break up valuation may even be less than my estimates.
The likely outcome has a very wide variance hence our diverging views. I just don't have the information to be able to share your heightened optimism and guess the correct figure, in time, will be somewhere between our two valuations which still produces good uplift from current M/cap.
The cherry on the top would be further future successful acquisitions. Time will tell.
It's a good business. Congratulations on getting in early.
Snazzy
yep - GlobalData (LON:DATA) is an interesting business and I'd back the CEO. Having done it before he knows what he is doing and wants to make money and build a successful business which is what investors want.
I agree no trade is risk free and people will value things differently. I just think it is trading intrinsically below what other businesses are willing to pay to get a slice of the action, and as such that hopefully limits my downside considerably but exposes me to high potential reward. As with most businesses not for everyone and to be fair I would probably consider an exit at 50-60% up from here win the absence of any additional info, so that's probably mid range between our valuations. However, if growth and acquisitions come in as expected my target may change.
GlobalData (LON:DATA)
Agree.
I guess our fundamental disagreement is whether the basis for valuation should be on a 22 x adj EBITDA multiple or based on divisional share of revenue. You are comfortable that the Consumer and Technology divisions can achieve similar margins to Healthcare but I'm less convinced. Hence the large discrepancy in our respective valuations for the Consumer and Technology divisions but I respect your view.
Are you comfortable with the increased level of share based compensation (£9.5m in H1 so perhaps £20m in FY) and this being adjusted out for adj EBITDA purposes? This is a red flag for me.
Snazzy
May be something happening over at Ocean Wilsons Ocean Wilsons Holdings (LON:OCN) , whose Brazilian subsidiary port operator Wilson Sons has just called an EGM for January 24, seeking approval for a management retention and non-compete package.
See General and Board Meetings - Wilson Sons (Management Proposal) dated 21 Dec 2023.
This in response to OCN's disclosure of an approach by MSC in the summer, prompting a strategic review being carried out by the Company's indirect controlling shareholder, Ocean Wilsons Holdings Limited (“OWHL”), which "..has the potential to result in an operation involving the transfer of its direct or indirect equity interest in the Company (“Potential Operation”), as disclosed in the Material Facts released to the market on 12 June 2023 and 14 November 2023, the management has structured, with the assistance of specialised advisors, as a way of preserving and maximising the Company's value in a Potential Operation, as well as compensating and retaining the Company professionals, a retention and non-competition plan for the management...."
I hold.
NAI, DYOR etc etc
And echo thanks to the team and Season's Greetings to one and all.
James Halstead (LON:JHD)
A beaten up quality share that has not budged off the bottom since falling from 52w highs in July. I wonder if the valuation has rebased permanently lower. It's not as though it is cheap today. I only see about 20% upside in a re-rating on improved trading. What does anyone else think?
great business, very solid
but paying 20x earnings and getting 4% revenue/sales/top line growth is not very attractive from an investment POV (point of view)
BnB - since you asked James Halstead (LON:JHD) (no position) I keep half an eye out for a read across to tiddler peer commercial flooring company Airea (LON:AIEA) where I've been topping up as recently as this week at lows.
Yes. I'd have to agree with you. James Halstead (LON:JHD) everything I've read and seen leads me to believe its a decent well managed company. The numbers look to be the kind of thing I'm looking for, with plenty of cash, consistently profitably even through covid. Revenue growth is not inspiring, profit even less so? But ROCE and operating margin are right up there, very high quality, so not clear to me why its not compounding more. And there can't be much more headroom to increase them further can there? I can't quite put my finger on it. Seems to be motoring along like a Ford Cortina with a 1.6L but actually has a Cosworth thats not quite geared right? Seems to be priced for the Cosworth, but needs to find the right gear?
Something I don't get here - perhaps there is a detail I'm missing, not having done detailed research. But I'd need to find something compelling at the current price?
By comparison Airea (LON:AIEA) is valued more as I'd expect for a tiddler commercial flooring manufacturer Mcap 11.3m (today) valued at 9x ttm earnings (no fcst figures and no analyst coverage) and 0.66x TNAV (and that is largely comprised of cash and a £4m investment property). Unyet at the interims Yoy revenue growth was around 15% with modest ROCE and operating margin allowing plenty of room for improvement - if growth continues. Seems this might also have a Cosworth thats about to find the right gear- but its being valued on the tarnished paintwork? It's a complicated story and turnaround which for a tiddler is probably why the share price is so low. Of course it may not prove to be the start of a long growth trend, but at the current TNAV and cash-pile, it looks like the opportunity is in for free?
James Halstead (LON:JHD) did look at making an offer back when Airea (LON:AIEA) was trading at much higher prices. Didn't come to anything as the Airea board thought the offer didn't reflect the value of the company. Not sure that their crystal ball was working too well at the time. But then, mine wasn't either to be fair. :-)
With James Halstead (LON:JHD) it seems like it needs to step up a gear just to justify the current price? So for upside I can't see it? But I've not looked in detail - just my top level opinion - so maybe I'm missing something?
Cheers
Mark
Thanks for the reply Mark. James Halstead (LON:JHD) reminds me of the lift manufacturers, Kone and Schindler. Different business model - no service revenues - but very stable revenues and reliably growing dividends plus high ROCs with high valuations. These have also fallen hard without recovering - unlike other industrial quality compounders. My hunch is that they were very highly valued for their steady yields and that just doesn’t cut it any more with treasury yields over 4% until this month.
The valuation still isn’t low but I don’t find it intimidating. I own a lot of quality compounders and they are mostly 25% pricier. But they grow their earnings more efficiently. I think perhaps the way to look at JHD might be to ask whether its dividend yield exceeds its earnings yield. There’s a good definition of attractive value and we’re not quite there yet - though I’m not sure we’re going that low. I think fair value in a bull market is probably around 240/250 which isn’t the upside I’m looking for in a cyclical rebound. Excellent company and safe haven though it might be.
hi mark,
you have or more less arrived at the right conclusion re James Halstead (LON:JHD)! that is: 20% returns on capital are pointless if you're only growing at 4%!
A G Barr (LON:BAG) suffers a similar problem; returns on capital & returns on equity well into the double digits, BUT more or less flat/low single digit growth for the best part of a decade (and the dreaded growing assets faster than revenue). it has increased revenue growth the last year or so due to acquisitions i.e inorganic growth
on a much greater scale, see Coca-Cola Co (NYQ:KO). flat, even slightly negative revenue growth over the last decade, rendering their ~15% return on capital & 40% return on equity moot (they also have the small issue of their debt tripling to keep up their vaunted dividend, but that is a separate issue...)
Hi Mark
James Halstead (LON:JHD) I think a key issue with JHD (and several other AIM stocks) is that it's been seen as a safe port for IHT portfolios where, possibly, the focus has been on IHT avoidance and capital preservation rather than growth.
Andy
That's a terrific point, thanks
My thanks to Paul and Graham (occasionally Roland) for the great work, early mornings and podcast laughs.
Have a good Christmas everyone .
Cheers
Card Factory (LON:CARD) I was walking up Bognor Regis high street this morning (where the in-laws live) and opposite a very busy Card Factory (I hold) was a very busy Cards Direct. I'd not seen this brand before but after a bit of research I see they have a extensive store network spreading out from the South East. Definitely a direct competitor and a decent on-line offering.
I hold Card Factory (LON:CARD) that is a concern, they do have a shop near me. Seem to be selling exactly the same sort of products. Do you know what their prices are like?
Card Factory (LON:CARD) Prices were a little bit more expensive but nowhere near Clinton Cards prices. The store had a more upmarket feel than Card Factory.
Ok thanks. Cards Direct are smaller than I thought, 2022 accounts, around £20m turnover and just under £1 profit. Family owned business. Growth in 2022 was around 20%. Their online prices look expensive.
Maybe they will replace Clintons, who I can't surviving much longer, but I thought that 15 years ago.
Card Factory (LON:CARD) could probably take Cards Direct over.
I don't think it would be possible for a shop to have a downmarket feel compared to Card Factory.
Some of the pound shops try quite hard.
Card Factory (LON:CARD) Well that's the downside with this business - must be fairly easy to set up a greeting card business with few barriers to entry. Unlikely ever to get a premium rating for that reason, although think undervalued at current price.
Given Card Factory design and print their own cards they have an enormous advantage over those that don't. Also worth considering their economies of scale are advantageous which means they can undercut the competition. I went to the store in Honiton and bought 4 large helium balloons, a balloon weight and 7 cards for under £16 quid. Unbelievable value. Their pricing power and self manufacture of cards is what makes it a very attractive proposition.
I agree CARD have competitive advantages because of scale and vertical integration, but the fact that remains that it's fairly easy for a generic competitor to set up next door and take a good chunk of their business.
Although the barriers to entry are low, people said the same about Greggs (LON:GRG) and it has continued to take market share. I think Card Factory (LON:CARD) could follow suit in that has recently started to get the brand recognition where customers go there by default. As Gimmers explains, I imagine new entries will struggle to compete with their pricing power. (One of my highest conviction holds)
hi 33smile
Card Factory (LON:CARD)
Thanks for that, very interesting. I hadn't heard of Cards Direct before either. Seems to be a much smaller outfit and privately owned.
They have 57 stores versus Card factory's 1000+.
Snazzy
Would also like to add my thanks to Paul and Graham for the great content and hard work.
In addition thanks to Paul Hill for the great interviews. The ones with Richard Staveley were brilliant, it was so interesting to listen to Richards insights on the Rockwood holdings which he knows inside out.
Here's hoping for a prosperous 2024.
Cheers Andy
Many thanks Andy for the very kind words
What are peoples views on housebuilders, if Labour do get elected?
Conflicted.
Imo the root of many of this country's problems is that houses are too expensive because we have not been building enough over the last 40 years or so.
This is well known and understood, so there should be a massive boost in building - but that is not happening.
Not being party political, but this is a deeply political issue. Generally, people who own homes don't want many or any new homes built and people who do not own homes want decent homes at a much lower price near where they grew up.
In the uk renting is severely lacking as you can be asked to leave at (pretty much) the whim of the landlord. Which means people who cannot afford to buy are less likely to form families. Then we wonder why there is a shortage of new young people and consequently a need to import workers (flameproof suit hopefully not needed just pointing out less young people entering jobs market = economy contracts or we import people).
Getting to the point
As such I am very nervous of housebuilders as they are overexposed to short term political sentiment at a local and national level.
All things being equal
If planning controls get more strict, would expect big housebuilders (regulation) with large landbanks (land go up) to benefit most
If planning controls are relaxed a lot would expect small housebuilders to benefit (less regulation) and land should get cheaper.
Personally
I am with building materials suppliers as there does seem to be a drive to build new houses from this current low base and also refurbish the current stock to a higher standard to save on gas bills etc.
Scotland has very different laws now which protect renters from being asked to leave at whim of landlord -can only be asked to leave for a strict set of conditions. It will be interesting to see how this affects the supply of rented homes.
Probably neutral. Housebuilders have mastered the art of constrained supply v demand over the years irrespective of who has been in power.
Some social landlords who have a very poor record may find it more difficult. Also, some of the hopelessly run Build to Rent schemes in REITS etc may go to the wall.
Housebuilders will probably be OK - housebuilding however wil probably fall short of politicians stated objectives. No change in my view.
Housebuilders have mastered the art of constrained supply v demand over the years irrespective of who has been in power.
And there was me thinking our stupid planning rules are to blame
I think you will find that Housebuilders are sitting on landbanks with Planning Permission - so Planning isnt the constraint its made out to be.
Housebuilders will however use Planning argument as it deflects the criticism away from their own activities.
Labour need to show progress on resolving the housing crisis, which means more homes. They will continue the current support for the build to rent and build to sell house builders. If they give the councils more money for housing, some of this might also be directed to building new council stock.
If they decide to continue the tax and regulatory regime which has reduced the number of small private landlords, this will take longer but ultimately lead to some of the larger private operators getting to a size where they might list.
Agree with ansrewdb that lack of investment in training workforce has driven up labour costs and is a constraint. This is also an issue in the RMI (repair, maintenance and improvement) side for existing housing stock. It will particularly hamper their plans to retrofit and insulate Britain's elderly housing.
I recently opened a position in Vistry (LON:VTY) on the basis that mortgage rates and availability are improving and PRS Reit (LON:PRSR) as most larger rental operations index their rents and they have 99% rent collection (unlike the situation Home Reit (LON:HOME) ). Also added opening position in Watkin Jones (LON:WJG) this week as they seem to be on their way back to the land of the living after delays and profit warnings saw then drop 75%
In answer to Rusty2, my view on housebuilders if Labour get elected is that those producing lower cost houses, such as M J Gleeson, or social housing will benefit the most as these are the types of homes which Labour will want to build. I recently heard an interview with Angela Rayner in which she said her own main priority was to improve the availability of new housing.
Well, as another year comes to a close thought it worthwhile reviewing whats been a tricky but extremely fascinating year.
How has everyone else fared?
I actually kept weekly notes this year so have a few facts and not just blurred or selective memories.
Jan/Feb/start of March was very good until the SVS bank fallout hit shares. Scraped my way to +20% at the half way point.
Started the second half in a much more defensive position, not wanting to give back any more than 10% in the second half. Went 40% cash, mainly looking to buy midcaps rather then smallcaps. Better charts/earnings and easier to sell if need be.
The market was so negative at times it seemed to be anticipating profit warnings everywhere, so you could afford to wait for a decent update then buy first thing in the morning. This worked pretty well on the whole. I stuck religiously to stops losses and sold any which didnt respond, if in doubt get out. August was really terrible as was September which showed signs of capitulation selling.
After a false start end of Sept, and a quick retreat with my tail between my legs, I went all in end Oct/start November. Lots of charts were starting to show signs of trend reversals which is what I like to see, as well as better inflation/interest rate expectation figures etc. Sentiment was dire, which is helpful if youre of the contrarian mindset. Long S&P trackers/spreadbets certainly helped too, as well as a nice longer term short on Synthomer. Had a few slices of good fortune that everyone needs but thankfully no big losses this year.
Learned so much again this year. Books are great but actually 'doing' is so much better. Finally after 20 years have become more confident shorting and spread betting in general which definitely helped cushion at least a portion of the selloff in Aug-Oct. Since November I've only made a couple of trades so has been the most relaxed period in some time, long may it continue.
Scores on the doors today is +46% for the year.
What will 2024 bring? Is the bear market over or will interest rate rises/recession hit home hard in the months ahead?. Who knows! Just have to play it as we see it.
Wishing everyone a very Merry Christmas and a peaceful and prosperous New Year.
Here are the top 25 gainers + fallers since 1st Jan'23 (excl. loss makers)
Oh and a huge thank you to Paul and Graham. Both done some amazing work this year, its helped me and im sure many others hugely when it comes to decision making. Especially those of us who have the balance sheet reading skill of a toddler :)
Agreed - Paul, Graham & the whole Stocko team do a 1st class job
That's all well and good Wolf but my favourite comment from you this year was;
It's not like he's destroyed the Death Star......
Looks like you've had a very good year - well done!
Is it me or does Totally now look oversold??
Norfolk, it was one of my highlights too haha
As for Totally, I've no idea. Brokers have put forecasts under review and there was a large cash outflow H1. Chart is awful, newsflow poor and earnings forecasts withdrawn. + Bob Holt gone. Punt territory for me at best.
A +46% return for 2023 is an amazing achievement WoSS.
Huge pat of the back mate that certainly raises the bar for everyone heading into 2024.
BTW, what are your top 5selections for next year?
Paul im the wrong person to ask for long term predictions, im pretty hopeless at it.
Im mainly just looking for positive earnings, positive newsflow and positive looking chart on a 1-3 month outlook, then take it from there. Some wont have shown themselves yet but will become apparent I reckon 1st quarter 2024. Thats why I like to have a little cash waiting on the sidelines.
That said I like some of the beaten down names as recovery plays like Gooch & Housego (LON:GHH) Impax Asset Management (LON:IPX) GB (LON:GBG) Foresight group (LON:FSG) YouGov (LON:YOU) Midwich (LON:MIDW) CMC Markets (LON:CMCX) Focusrite (LON:TUNE) etc. Tho for most im just guessing until earnings momentum starts to show.
Thanks WoSS. Best of luck for 2024
Wolf that's a brilliant return so well done to you! Can I just ask how many stocks you typically hold? From the list above it looks like a lot!
Gimmers, I aim to hold 12-15 unless things are looking bad. Right now im holding 24 which is the most Ive held for a couple of years, and too many really. I went with the scattergun approach in November. Lots of ways to skin a cat tho.
Well done Woss, that’s a fantastic return for 2023. Would just like to say thank you for your great posts this year. All the best for 2024.
Awesome return Wolf
Well done Woss on your +46% performance for 2023.
Regarding your question: How has everyone else fared?
According to Stocko I'm not far behind you.
I'm sure there will be other subscribers in the Stock community who have performed better than both of us.
All the shares I own can be found by clicking on my avatar/name. I shall continue to hold all these shares as we enter 2024.
Merry Christmas to everybody David.
Well done David, nicely done. I love seeing private investors doing well and how they achieved it, especially when fund managers have been so poor. Would be great to hear from anyone with a 50-100% gain, there will be some I'm sure
I like your bio. Even tho you're probably a longer term holder, I don't mind trading in and out, we're fairly similar in the types of shares we like and goes to show different styles can work just as well as another.
The penny dropped for me over a decade ago when I looked at the relationship between forecast earnings and share price. Everything made sense then. It's easy to find now as there's so much data available to private investors these days. Apart from scvr of course, for me the EPS forecast chart is the best part of Stockopedia...a subscription to Stockopedia and research tree, some discipline and any private investor is half way there. I just wish there was more broker research available to private investors in mid caps. Relying on outlook statements without seeing the new numbers has become a bit of a minefield.
Hi Woss,
I agree with you - a rising EPS is the growth engine which fuels a rise in the share price. Hence, with the exception of Thungela Resources (LON:TGA), which I'm replacing it with Good Energy (LON:GOOD), all the shares I currently hold, I will continue to hold throughout 2024. Like you say, it appears we have a very similar approach to our style of investment, only our timeframes differ.
All the best David.
Goodness. Stellar returns Logical David and WoSS! Hats off. I managed a 4% return this year. Pretty disappointing considering the effort I put in but I did at least prune out a fair amount of death watch beetle. Still learning, I hope. Happy Christmas everyone. Your posts add enormous value to Stocko, which is a fantastic resource I'm valuing more and more.
Takeovers have been a theme for 2023 and I think this will ccontinue into 2024. I have started a list of UK names which have been suggested as possible targets and plan to put this online as a Google Sheet between Christmas and New Year. The snapshot below is what the spreadsheet looks like. I have kept it very simple. There are 51 names on the list so far but some are only there because of passing comments with no substantive reason given and I will probably delete those before publishing.
Ideas welcome. Please type "@" and use Stockopedia's prompt to select the ticker and name.
Looking forward to taking a look at this Michael, thanks for taking the time to produce and share.
Aviva (LON:AV.) multiple press reports, 6 Oct 23
@BSV the stocko account not the company :-)
Ps. Who killed Santa
Thanks Gloucester Bob, I've added it. I won't acknowledge every suggestion, I'll put up a general "thankyou" at the end of today.
For clarity Bury is a place in Lancashire. :-)
Famous for black pudding I think ?
Interesting RNS update from Tekcapital (LON:TEK) (I hold) with updates on portfolio companies. Also 2 new scientific advisers on board, with very impressive CVs.
https://www.stockopedia.com/sh...
Blimey I just realised what the date is!! Christmas Day on Monday. Happy Christmas everybody and I do hope 2024 is a good year for you all. £££££££££££££££££££££££££££££££££££££££££££££££££££££££££££
Many thanks to Paul & Graham for such great output over the year. Best xmas wishes to everyone !
A bit of lighthearted fun for those interested..
https://www.youtube.com/shorts...
Just want to say thanks to Paul & Graham for the SCVR everyday. It’s such sensible stuff and really appreciated. Have a great Christmas everyone, away from your screens!
Is anyone able to explain to me why when trying to sell shares in a more illiquid stock there are times where I can get a quote for a small number of shares (lets say £500 in value), and I can also get a quote (admittedly at a lower price) for a larger number of shares (lets say £10000 in value), but then I can't get any quote at all for something inbetween (lets say £2000 in value). This is on IG.
IG group (LON:IGG) platform has been a bit of a mess, in the last month, frequently no online trading, especially AIM shares. Sometimes can buy but not sell any in a stock. It is probably due to lack of liquidity. It is also very slow sometimes. Prices are sometimes outside the spread.
Are other platforms having the same issues?
Rusty, I spoke to someone at IG who acknowledged theyre having an internal problem with SETSqx stocks downgrading during intra day auctions ,when they shouldnt be. Hopefully they get this fixed as its a real pain in the arse. The quotes lately are terrible also. This seemed to start when there was a LSE outage a couple of weeks ago.
A few days ago I noticed a similar thread relating to James Cropper (CRPR). However, the day before I had no problems purchasing a small tranche for £750 with a very tight spread on the Halifax platform.
Secondly I would like to extend my thanks to those who work so hard to produce this platform also to those who post. It is a joy to read be able to access such an informative platform where people are helpful and good natured.
PS sorry for no link but I couldn't get the @ ticker to work.
Hi Rusty,
You asked "Are other platforms having the same issues?" yes - this is AJ Bell today. Oddly there are two different error messages - the top one for a small order and the bottom one when it is larger. This may be something to do with the EMS I guess. Anyway the result is the same.
I don't think it is the platform's fault. Just lack of liquidity and market makers not wanting any exposure (not doing their jobs, you could argue).
Paul, Graham et al, thank you for another year of fabulous small cap reporting. I remain in awe of both the quantity and quality of output you guys produce on a daily basis - it is incredible! Enjoy the festive break, you thoroughly deserve it.
I'd echo this - newly joined, but loving the detail in the reports and continue being an avid Podcast listener! Have a great festive break everyone!
Thanks BL! :-) We've covered nearly 600 unique companies this year, not bad, and easily a new record!
Amazing stuff, well done gents!
Have a great Christmas
Amazing work Paul, Graham and Roland. These reports are great daily reading and an invaluable resource for stock picking. I put Pauls podcast on in the car last week, and my wife who has zero interest in stocks, actually found it entertaining (she chuckled at least 3 or 4 times)... which I'd regard as an achievement to rank alongside a BAFTA - so well done Paul.
In the podcast Paul refers to a spreadsheet summarising everything covered, with colour-coding. Can someone send me the link to this please.
https://docs.google.com/spread...
I echo the above re. Paul, Graham and Roland and extend it to all the Stocko team. I would also include all the brilliant posters on the SCVR. I class myself as an relatively ignorant but enthusiastic "investor". Reading many of the posts on here is a thoroughly interesting and enjoyable education. So thanks all and happy hols.
While acknowledging the risk of confirmation bias, I am pleased to be in good company planetX and yiannos1.
I also see that shares in Brickability (LON:BRCK) have started to draw some attention. Still cheap in my view and would like to add, but difficult as my portfolio is held within an ISA, so excepting receipt of dividends one has to sell to buy.
I also see that shares in Brickability (LON:BRCK) have started to draw some attention
It had lagged the rebound in the likes of Forterra (LON:FORT) and Michelmersh Brick Holdings (LON:MBH and seems to be playing catch-up. Goodness knows if it will last. Happy to have bought recently and is it to you that I owe thanks for having brought it to the group’s attention just as I started hunting for high quality, high beta cyclicals? If so, thanks and happy holidays
Yes I bought Brickability (LON:BRCK) recently on the basis it had lagged other brick companies, as well as housebuilders.
I definitely think it's worth trying to identify other companies that have lagged peers - a couple that I've identified are Chesnara (LON:CSN) which has lagged the big rally in other life insurers, and Henry Boot (LON:BOOT) which has lagged housebuilders and REITs. Would be interested if there are any others out there?
Agree that Chesnara (LON:CSN) looks a bargain unless there’s something we don’t yet know to explain why it has been left behind in the recent rally. It has not only not participated in the current rally but at 259p is at a multi year low except for a short spell even lower in the March 2020 covid crash. 9% dividend AND they’ve increased it for 18 years in a row.
No time for more on these for now but the following mostly big dividend paying shares and these 2 Investment Trusts have also lagged behind…….for now!
Investment Trust Pacific Horizon Investment Trust (LON:PHI) 541p and only 6% above year low 512. Excellent performer until more recently. Only a token dividend though.
Investment Trust Schroder Real Estate Investment Trust (LON:SREI) 46p. Dividend 7.2%. Most of the Commercial Property REITS in my portfolio are up as much as 30% in recent weeks but not SREI …yet.
Polar Capital Holdings (LON:POLR) 458p. Low 397p. Up 12% from that. Sector consolidation possible? 10% dividend if held. Sector tends to outperform in bull markets.
Serica Energy (LON:SQZ) 224p. Only up 9% from year low. Dividend 10.5%. (Harbour Energy (LON:HBR) in same oil sector which I also hold and had also disappointed shot up on the news yesterday).
Ithaca Energy (LON:ITH) 146p and only up a tad from 141p. Dividend 15%. Looks too good to be true but is it?
I hold all these.
Thanks Ken - was just about to add Polar Capital Holdings (LON:POLR) - the last update said AUM was £18.9bn at 20 Nov but this should be around 5% higher given the move in markets since then (this is assuming flat net flows). However, the POLR share hasn't really moved. As well as the nice dividend, it's also a good way for me to get some indirect exposure to tech and healthcare, areas where I am lacking in my own portfolio.
Just started looking at Polar Capital Holdings (LON:POLR), noticed the shareprice suddenly went up 6p, a few comments on Stockopedia have moved the market? If so, shows how thin the market is.
They have a lot of exposure to technology? Technology stocks in the US have been flying this year.
When it comes to Polar Capital Holdings (LON:POLR) (I hold), I used to find its performance mirrored that of the Nasdaq, at least throughout 2022 - see figure below. However, more recently, this trend has dissipated due to the net outflows. I can't help but think that as sentiment changes and money flows back in, this gap will close once again, giving some pretty significant upside.
Seconded on Chesnara (LON:CSN) , Ken. We held already a fair chunk, but I don't understand the low, having been it for three years or so now and attending every presentation. So I bought more on Wednesday. Now a little oversized a % of portfolio, but surely safe.
The insurance consolidators work by buying companies, applying management actions to free up cash to pay dividends and then run-off the business. The majority of cash comes in the applying management actions part of this. You therefore need to pay attention to the run-off of the underlying insurance business they have and whether there are new deals being done to replenish the cash coffers for future dividends. Worth comparing to Phoenix group (LON:PHNX) which is the other large insurance company consolidator in the market. I'm not following / holding either.
Henry Boot (LON:BOOT) which has lagged housebuilders and REITs.
It has recovered some but I think there’s a couple of reasons it’s lagging a bit. It had not fallen as far in the first place, and it’s a hard to categorise business, being an amalgam of property developer, land promoter, plant hire business and building contractor. Can’t argue with the very long term performance and dividend record. But it still isn't cheaper than, say, Vistry or Gleeson, despite the strong recovery in both. I’d say the price remains more balanced, rather than cheap.
Agree there are a lot of moving parts with Henry Boot (LON:BOOT) but the bulk of the value is in its housing plots and its industrial portfolio , so should in theory be highly correlated with housebuilders and industrial REITs, both of which have shot up.
In terms of valuation, I'd say it looks a lot cheaper than other housebuilders - price to tangible book is the key measure here and BOOT trades at around 0.7 (used to trade at a premium). Most of the mainstream housebuilders now trading between 1-1.3x book value.
Henry Boot (LON:BOOT)
Plus to boot , boot tend to value their stuff very conservatively from memory. That might be the case with others too but wouldnt presume it is.
#NXQ
Phoenix Group PHNX seems to be a lagger too - may be of interest
Brickability (LON:BRCK)
Very kind BnB.
A happy Christmas to all and here is to an improving investment back drop in 2024.
M&C Saatchi (LON:SAA)
Positive developments as the the newish Executive Chair, Zilah Byng-Thorne starts to simplify the organisational structure of the company with the disposal of the Swedish and Hong Kong subsidiaries. No great financial impact initially, but both are currently loss making, so very much a step in the right direction with more to come.
I hold.
Jonno
M C Saatchi
Yes looking interesting .
Just started building a position there am hoping for a pullback to 150 level
Added this morning at 157 as just feels like SP is starting to move away from the 150 level .
I have as well yesterday! Strange.
M&C Saatchi (LON:SAA) Me too I'm afraid.
An RNS this morning from IP (LON:IPO) this morning which smacks of desperation, announcing an upcoming funding round that hasn’t yet happened by a portfolio company that we cannot name and oh, by the way, the value of the rest of the portfolio is likely to have gone down.
My thoughts on that Sharewallah are the discount to NAV are overdone anyway.
LDG.
Logistics Development Group
Sold their circa 7% of Trifast yesterday (picked up by Rockwood )
I hold a few in LDG it looks very underpriced and is way below NAV with sone good companies and buying its shares back .
It seems to be controlled by Dbay advisors which I don’t think the market likkes
Some very smart investors hold .
Simon Thompson occasionally tips it and it spikes up then comes back .
Strange thing that is is so far below NAV and doesn’t move, has a chunk of alliance pharma tucked in there
I know DYOR but if anyone else has any daylight shedding detail would be interested on second opinion .
I hold. Seems very undervalued I agree. Waiting for a rerating in 2024.
I gave up on it a few months ago as the rest of the market improved and haven't really followed it since. I presume it's still mainly cash? I had a load on leverage thinking I couldn't lose when the buyback started but then had to watch it drift. It must trade at a ridiculous discount to NAV now. I do know that they annoyed a few investors when they completed the previous buyback with a big lump buy with the seller being DBAY! They have since started a new buyback but again sellers seem happy to continue selling. Tricky call, surely it has to rally at some point,
Hi planetx
Held a small position Logistics Development (LON:LDG) but after ST included it in his 2023 share tips and jumped 20% i got out as it went about 20/30% below its NAV and not 50% (where I bought it) which is the number they usually trade.
I haven’t looked at it again but it is one that you have to catch when it trades about 50% below NAV. It is one of those though that will not make you rich!
My morning smallcap tweet: Xmas cracker #2: What pie always leaves you hungry?
Versarien's one in the sky.
Graft Polymer (UK) (LON:GPL) R&Q Insurance Holdings (LON:RQIH) Bidstack (LON:BIDS) EnSilica (LON:ENSI) M&C Saatchi (LON:SAA) Plexus Holdings (LON:POS) EJF Investments (LON:EJFI) Lords Trading (LON:LORD) Guild Esports (LON:GILD) Webis Holding (LON:WEB) Chill Brands (LON:CHLL)
◄Graft Polymer (GPL)► £500k placing at 0.6p, a 'Happy Xmas' 45% discount, to keep the Christmas tree lights on. [SP=1.1 Cap=1m]
◄R&Q Insurance (RQIH)► Bermuda Monetary Authority has requested an independent review of the reserves of the remaining Group post the sale of R&Q Legacy. It must pause redemption of Tier 2 $20m floating rate subordinated notes and put on hold the approval of any new external legacy transactions to R&Q Re (Bermuda). [SP=11 Cap=41m]
◄Bidstack (BIDS)► dispute with Azerion settled. Azerion to pay €3m. Companies will enter a new commercial partnership. [SP=0.32 Cap=4m]
◄EnSilica (ENSI)► binding LoI for a telecoms ASIC. Exoected worth over $35m over 10 yrs. Contract terms to be agreed. [SP=37.9 Cap=31m]
◄M&C Saatchi (SAA)► sells some loss making overseas subsidiaries for nominal sum. [SP=157.5 Cap=193m]
◄Plexus (POS)► AGM stmt: "outlook is positive with a number of positive tender opportunities underway in relation to our recently re-entered wellhead rental for exploration drilling from Jack-up rigs." Sounds in line. [SP=21.39 Cap=23m]
◄EJF Investments (EJFI)► EJF Capital currently voluntarily absorbs 60% of the recurring operating expenses of co. Will reduce to 10% from 1 Jan. [SP=105 Cap=88m]
◄Lords Group Trading (LORD)► amended schedule for completion of property near Heathrow: only £0.9m of remaining sum to be paid on 1 Jan, rest on completion in January 2025. [SP=49 Cap=81m]
◄Guild Esports (GILD)► one-year renewal of UK sponsorship agreement with Subway. [SP=0.75 Cap=6m]
◄Webis Holdings (WEB)► renewed agreement to accept wagers on all Monarch-operated racetracks in 2024. Also enewal of WatchandWager's major regulatory licenses in the United States and the Isle of Man. [SP=1.09 Cap=4m]
◄Chill Brands (CHLL)► sale of Chill ZERO vapes to a prominent operator of UK petrol stations, trading under major brands including Shell, Esso and BP. "Substantial initial purchase order." [SP=4.7 Cap=21m]
Am I allowed to be happy to see a further sales agreement for Chill Brands (LON:CHLL) ? Another 265 stores - this time with a forecourt operator. Assuming that the upgraded sales of 2.1m is all sales to customer - my back of fag packet calculation indicates this is about £900k of revenue added since the launch of Chillzero in August (take out 20% VAT and assume that retailers want a 50% margin) . They still need to sell, but you do wonder why these large operators are buying if there's no record of sales anywhere else. Still high risk - but looking forward to see what the New Year brings.
Probably not a subscription to Shareprophets might be educational in respect of chill brands and its prospects
AGM statement from one of Paul 's favourite shares Plexus Holdings (LON:POS) reads more like a sales brochure than a report on the financial state of play.
Been watching from the sidelines, will visit the AGM statement later after my appointment with Specsavers.
Silver
Edit: a text cancelled the appointment, it's for Sunday 31st now, I must be a soft touch. Not to waste time though I went back through the Plexus Holdings (LON:POS) SCVR archives and can see what a great time bottom-fisher had with it if they bought post-Covid and stuck with it. Rinse and repeat before too long?
We await news on investing in capital stock and how this will be financed.... glad to see positive tender opportunities, negative tenders would be very worrying!! ha ha quite a lot of blah in this statement.
My initial take on the update from Plexus Holdings (LON:POS) is neutral - no particular news, so probably a 10-20% drop in share price from short term traders.
Seems to be holding up pretty well Paul!