Small Cap Value Report (Fri 22 July 2022) - UBG, SGI

22nd Jul '22 by Paul Scott

116 comments 8144 reads

Good morning, it's just Paul here today (as Graham does 4 days, and Friday's are usually quiet enough for me to manage on my own). There's hardly any company news today, so I'll work on some backlog items instead, hence a full report should be up by 1pm.

Podcasts

Tomorrow I'll be publishing the 4th episode of my SCVR summary podcast, on my personal podcast website here. It's a Stockopedia thing really, I just publish it myself so as not to create any admin for the busy team at HQ. The audio can be downloaded on wifi very easily (click the 3 dots, and select download) for listening on the move. I'll look into how to get it onto a proper podcast platform at some stage, but want to keep it as simple & quick to do as possible for now, to get into a manageable routine.

New podcast (today) - I've just interviewed renowned investor Richard Crow, who talks us through his favourite share ideas, his stock selection process, and his surprisingly upbeat current market overview.

Doing podcasts is good fun, and feedback from listeners has been positive. With the SCVRs, the information is already fresh in my mind, so it makes sense to recycle it into a podcast at the weekend. Also, I do enjoy making podcasts, and am much more relaxed about it now, having done quite a few. It's not life or death, so if something goes wrong, it doesn't really matter!

Agenda -

Unbound (LON:UBG) - a shocking announcement last night, of a large discounted placing, and a huge hole in the forecasts, despite previous (now clearly false) in line trading updates. I feel very let down about this one, and let rip about it below, in detail. Apologies to readers, we've been led up the garden path it seems, although I don't think current events could have been foreseen (wildly wrong forecasts from the company/broker).

Stanley Gibbons (LON:SGI) - announces it is delisting, at the request of the 58% controlling shareholder. An exit price of 1.5p is offered, which looks fair. In a bear market, delisting risk increases considerably for micro caps, as liquidity dries up. So that's something to think about, for holders of the tiniest companies' shares.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to…

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ridavies

22nd Jul '22

Robbie, especially about Unbound (LON:UBG), you could have said so many truer words. They would have helped me with my Unbound (LON:UBG) holding some time ago.....and I would not have been tempted back in at any price.

Reading here about views of this whole dreadful saga ( no offence meant to Saga (LON:SAGA) ), no mention has been made about the dreadful what might almost be regarded as 'theft' of £12m by apparently one of the country's finest brokers - yes, you guessed it, Numis (LON:NUM) - for handling - mismanaging....I'm struggling for the right words and I cant find sufficiently critical ones - the 'translation' of £ELTA into first £HOST and then even worse Unbound (LON:UBG) efficiently and economically.

That £12m is best put into context by comparing it to the current ombined Market Cap of around £50m for the two, although market factors will have played a significant part in their decline in value, given that most parts of the market have been hit in recent months.

The failure of Electra Private Equity and Numis (LON:NUM) to cPE investors into a couple of decent businesses has been discussed, especially by Paul and others here on a number of occasions. The choice of Numis (LON:NUM) was probably the wrong one by Electra Private Equity in the first place. I haven't seen any offer by Numis (LON:NUM) to replay some of that £12m on a goodwill basis, despite the fact that it is difficult to understand how they could justify that. Have Unbound (LON:UBG) ( formerly Electra Private Equity until 23rd Jan 2022, even after the spin off of £HOST ) indicated they will be making a claim against Numis (LON:NUM) I wonder?

yiannos1

I believe it was the right thing to do as the two companies were the last two left from Electra and both covered by Edison. Also , Hostmore’s recent announcements have been contradicting as well.

Whether it is a bargain or not it is easy to answer. If all figures and earnings estimates are correct for the next three years , then this will at least 4x from here.

Are they though?

Thanks

Silver Moon

Totting up at the end of the week; the last month has been pretty grim but now I am back where I was, in spite of Morses Club (LON:MCL) which I still hold.

KevinS1

A very good reminder and one I really should use more.

Luckily I did that with Hostmore (LON:MORE) but it was too slow/late, but I have saved myself a lot of pain.

I couldn't believe initially that they could keep on dropping - their offering was good, their management team seemed talented from the videos I had seen and they had a great business plan. I'd have saved many thousands simply by having a simple stop-loss.

I feel many of us get too attached to the story and hang on too long - and as you say we can always buy back in.

Utilising strong SL rules along with the Stock Ranks (see todays recent article by Ed C) I am sure I could become a better investor and generate better returns.

PS. I was tempted to go back into Hostmore (LON:MORE) again recently, but the stench from Unbound (LON:UBG) is enough to put me off - they maybe a completely different bag, but I'll sleep easier by avoiding them and if I lose out so be it.......plenty more fish in the sea. They are too closely related to that POS Electra/UBG I cannot risk a similar experience.

On an aside, taking a leaf out of Ed's book I created a My Naps 2022 virtual portfolio 11 days ago. It is doing better than any of my real ones even with Unbound (LON:UBG) going down the pan but as anyone will imagine I stepped in and smartly swapped that for another prospect.

Hello Epsilon. Interesting comments. However, even tough I am a user and recent buyer of Hotter products along with my wife, your following point has little or no substance I am afraid.

3. The underlying business appears sound & is now reaching the inflection point from loss to profit

I have highlighted it because I think it is without foundation, but what do I know? It may bounce, as has Joules (LON:JOUL) in recent days on news, not that the business is gong to be better, but that the lenders will not imminently pull the plug.

I fear I have had a few of those in the last couple of years, and generally the optimism doesnt last. At least £HOST which unfortunately seems to have suffered today because probably there has been an unfair cross read from Unbound (LON:UBG) has a decent franchise, just suffering from having an over priced product in the current market conditions. I saw the Mello presentation from management at a Mello evening event some months ago and I thought they were quite good; I haven't heard the Unbound (LON:UBG) management speak but I have read the claptrap about what their hopes and aspirations were, and now they are in a sorry state to say the least.

To add to this, my Progress Report Graph has , at last, leveled off.

Wishing All a very Happy Rest of Year- Silver.

Robbie Burns

The problem with losing money on a dud is the temptation to "get revenge" and go back to it to win back the initial losses. I reckon the best thing is to remove the share from your screens, ignore anyone's positive comments on it and pretend it doesn't exist at least for three months. You've become emotionally involved. And then there's all the wasted time you spend watching it, thinking about it. The moment you get angry and blame the management or others or whatever for your losses you've got emotional. That's bad news for an investor/trader. Got to be cold hearted and clinical with shares and learn to move on.

peterthegreat

Hi Paul,

With reference to your last paragraph, it used to be the case that the 40% IHT benefit was not necessarily lost when qualifying AIM shares (held for 2 years) are sold, providing you re-invested the proceeds in other qualifying shares within 3 years. When re-investment occurs, the IHT benefit was revived without having to wait 2 years. Has HMRC changed this rule?

Regards,

John

GavSmith01

For anyone who uses stop losses - let me know when your stop losses trigger, and I’ll be there to pick up the pieces. Selling into in illiquid down market in any kind of size just makes your broker rich. Stop losses are no substitute for proper research.

I might just buy shares in your broker too.

If you'd picked up the pieces on stops in small ones recently, you'd be broke !

mojomogoz

Such bad advice. Supposedly you don't really need to know the companies you buy even when they are small caps that have variable liquidity and in volatile instruments you should sell on first sniff of down -> and that is a road to success?…

There’s some insight missing …

Nobody makes money that way beyond some temporary hot streak…but maybe if you have a following and promote your own picks and make a liquidity push behind it and then sell before you notify the followers?

I don’t follow your work so maybe I’m being unfair. But I believe my comment is very fair relative to what has been said here and damaging to PIs.

Most people make good money by knowing something and doing their work…and often buying weakness in stuff they know. Timing can be finessed and doubt, humility and intellectual honesty helping ‘stop loss’ errors which are commonplace for us mortals

PS my profession is assessing and managing professional investment managers. The number of simple formulaic non fundamental trade rules I’ve seen blow up is countless. I’m not anti stop loss but in isolation it always leads to destructive whiplash particularly if very tight…the only time it works is with CTAs (commodity trading advisors which really mean trend following in super liquid macro instruments, usually index and commodity futures) and even then it’s very sensitive to how short a trading horizon time frame is used and size of assets managed.

cheeky_minnows

I have bought and listened to two of Robbies audiobooks. I am not an experienced investor, having been investing for just over one year. Having also listened / read a number of other investment books, it appears to me that there is no 'right' answer. In any of the various investing 'paradigms' any number of examples can be found that suit the thesis.

I would only say that the advice that I have found the most useful from his books is to force yourself to admit when you are wrong. For an inexperienced investor like myself, the temptation to think that the initial perception of a company (particularly through webinars / presentations) is correct, and the emotional ties to that company are formed. I think much of the financial industry is based upon these 'narratives' (and I use Ben Hunt's term here), Unbound might be taken as a case in point.

I dont think that stop losses are as easy to set in practice as in theory. If the market turns down for a couple of days and the share in question loses 10%, and the spread is another 10%, this means that stop losses should be 20% down before you even talk about whether the company is doing well or not.

All I can say is that what I have taken away from Robbie's books has more than paid for their cost, and from Benjamin Graham that I am an unintelligent speculator !

DWit199

Some general comments on the state of the market today. I think it is possible to provide some answers. As far as general sentiment is concerned then I have no idea. However, looking at the performance of individual companies can give us a clue as to whether price moves are rational, related to known predictive factors or whether they seem to be more or less random.

I have developed a simple technique to shed some light on the latter question. I take about 750 shares, sort them by a factor such as Stockrank and then look at the total return over the next 6 weeks. The chart below compares the 6 weeks up to 13 May with the subsequent 6 weeks up to 16 July. The left side represents the average total return of the 250 top ranked shares relative to the average return of all shares. Each point to the right represents the value of this window slid down the data by one point at a time until the extreme right of the chart represents the average relative return of the lowest ranked 250 shares. It is quite clear that during the early 6 weeks the Stockranks did a poor job of separating the good performers from the bad. The most recent 6 weeks shows Stockranks performing excellently. To me, this suggests a move to more rational share price movements although it doesn't tell us much about general market sentiment.

Whilst I can't predict a market rise or fall from here, I am much more confident that a factor based approach to a portfolio will outperform the average by a substantial margin in the immediate future, although I will of course be in a better position to judge the accuracy of that prediction in 6 weeks time!

Paul Scott

Hi peterthegreat,

Ah yes, sorry, I think you're right.

That point was mentioned in this week's webinar from my friends at Fundamental Asset Management, who specialise in IHT portfolio management, and they're very good actually.

The rules are quite complicated, so I shouldn't have made a sweeping statement about IHT, apologies!

Regards, Paul.

Logical David

Hi Dave/Planetx,

I have also noticed that the markets have recently started to turn positive. As gringo has stated, the UK market tends to follow the US market.

I remember reading an article which stated that a good time to buy back into the stock market is 7 months after it has fallen from its highs and under gone a correction. If you look at the US market it hit a high around mid November 2021, fast forward 7 months and that takes us to around mid June 2022 which is more or less when the markets bottomed out and slowly started to rise. Could this the answer to your observation??

The article stated that 7 months was a good time to wait because by then, most of the bad news is out in the open and priced into the market; and hence the stock market can start to look towards the future. However, I notice that the market is still in a longer term downwards trend and making making lower lows. Furthermore, I believe the market could see some volatility during the winter months if Russia restricts gas supplies.

Has anybody else heard about the 7 month timeframe and what are their views on it??

David.

dcon85

23rd Jul '22

Thanks Robbie, I have to say I've read your books many times over and they always bring a sense of grounding and common sense back to my investment practices. The above advice is golden and has saved me absolutely thousands (at a time when I had very limited means to replace my investing pot).

My stops aren't as tight as yours, and they are not automated (I often a buyer on those illiquid volatile days when the story hasn't changed) - however once it reaches a certain level - and it's clear I've got it wrong - it has to go. It's the very real difference between losing 5-25% Vs 65-80% on an investment for me, and as I've said it's saved me thousands. Thank you!

Harry Hindsight

The lack of time to look at holdings, plus AJBell cost and sign in system (since remedied), and no auto stop loss leaves me currently holding Boohoo (LON:BOO) THG (LON:THG) and Ferrexpo (LON:FXPO) in the "coffee can". Oh forgot £MCL - now look at them a lot more and drops below the 50dma then at least reduce exposure or just get out and set an alert in stocko.

As said above we will never have the information available to Mr Market so the trend is your friend.

Cameco CCO on Toronto stock exchange may be a long bet. Geiger Counter (LON:GCL) holds a stake. Have mines which can open up when economic to do so. Yellow Cake (LON:YCA) reliant on supply from Kazakhstan which is a risk and must be costing them to store it I think at Cameco’s facilities. Plus it takes a long time to build these things so demand a slow burner. Shame some bright kid can’t figure out a way to recycle radioactive waste stored at Sellafield - maybe too busy designing wind farm blades.

davidallen77

24th Jul '22

Have a plan set a target price and stop lost before hitting the buy button or better still listen when yourself moves out of small caps

Small Cap Value Report (Fri 22 July 2022) - UBG, SGI

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Paul Scott

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