Small Cap Value Report (Fri 23 Dec 2022) - SDRY, MSI

23rd Dec '22 by Paul Scott

39 comments 6401 reads

Good morning from Paul! Here's the last SCVR before Christmas. I'll pick up on a couple of items left over from yesterday, then look at the news this morning, which should hopefully be quiet.

New way to put in tickers - instead of using £TICKER, just type the "at" symbol, and then a box pops up, where you enter the company name or ticker. This seems to work better than the old £+TICKER arrangement.

Agenda

I reveal all the companies we've reported on here, in the last 6 months (more detail below)

Superdry (LON:SDRY) - news of a bank refinancing (with a specialist, higher cost lender) is excellent, and has greatly improved risk:reward. I'm not so impressed with the trading update though, and forecast profit for FY 4/2023 has been reduced to not much above breakeven. It's difficult to get excited about this share at the moment, but it could be a good recovery share at a later date, if the market sees more evidence of a consumer recovery - difficult to imagine now, but maybe later in 2023, who knows? (more detail below)

MS International (LON:MSI) [quick comment] - more good news for shareholders, with a big contract win announced today - overseas customer, buying an anti-drone gun. It’s £22.4m, expected to be recognised in calendar 2023, so straddling FY 4/2023 and FY 4/2024 by the sounds of it. Revenues in recent years have been between £50-80m, so this looks a material deal. I don’t know what the profit margin would be on this product. If it works well, there could be follow-on sales (this is the first sale of this new gun). Graham has mentioned MSI positively here twice, in June, and earlier in Dec, and from memory I think this one was a mystery share in one of my recent podcasts. After today’s announcements, I imagine shareholders will be holding tightly, with good reason. Thumbs up from me. (no section below)

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…

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Lefty99

23rd Dec '22

Good morning Paul and Graham, just wanted to say have a great Christmas with family and friends. Thank you for everything you do, and the changes you have made along the way to improve or add to the SCVR. Plenty of Malbec and Baileys and I’m sure we will think the next year will be a bed of roses.

rogerh

A Happy Xmas to Paul, Graham and Mr C for all the hard work this year. Much appreciated!

I must say I am gutted I didn’t reinvest my K3 Capital (LON:K3C) sale into MS International (LON:MSI) , which was on the list. I did reinvest some into Yu (LON:YU.) so I suppose I mustn’t complain too much. Both would have been a very nice end to the year. Good luck to MS International (LON:MSI) holders, just thinking if I would be too late to jump in?

davidjhill

Ha - I missed Yu (LON:YU.) at 360p which I felt was in a strong upgrade cycle so am kicking myself on the inverse to you!! That would have been a nice short term trade but not to be and I don't want to chase it.

With regards MS International (LON:MSI) - until the recent wins around defence I would have been happy at 600p to be honest. However, I think there has been a material change in future prospects with the recent wins that I expect to translate into some large eps upgrades. It is also verging on £100m market cap territory which in itself should bring more interest from institutions.

Before todays announcement it was trading on around 14* PE. Strip out net cash of 150p and it was around 11* earnings. So not particularly rich for a defence company in the right moment.

After todays announcement I suspect we are looking at sub 10* earnings again even after todays rise. Whether you think thats good value I'll leave up to you.

It is an illiquid stock though so persistent interest will likely see it trade much higher but equally if there is no news and there are frothy buyers looking for the next hot story then it could just as easily drift back a bit. I have learnt that with this stock you have to be patient - management say no more than they absolutely have to so don't expect any promotion.

Oliver Cooper

Hello Paul - Oliver here from Stocko HQ. Given your preamble, I thought I would take a look from my side at the number of companies covered in Small Cap Value Reports throughout the year.

Using tagged stocks as a guide for companies mentioned, I get the coverage to be an incredible 533 unique companies discussed, well in excess of your initial target!

I am sure I speak on behalf of the whole community here when I say thank you to Graham and Paul for your tireless efforts in providing us with your insights and knowledge, helping us all to stay informed about such a vast set of companies as well as the overall investment climate.

Safe investing in 2023!

Trio

Luckily I bought both MSI and YU earlier this month.

Good on you, nice Christmas present.

Thanks David, I will keep an eye on it.

planetx

Korean subsidiary has been historically profitable and does not suck any cash from uk and is asset rich . So if it sends profits across great, if it doesn’t perform then that’s not what I’m counting on and nothing comes across

Management focus on uk .

I think with Rockwood on board and with it being backed by cash and property it has prospects .

Don’t know too much about volutuon / genuit .

I invest in what I understand and I understand a company with cash making profits with its market cap covered by its real estate is a good buy .

Lack of liquidity doesn’t worry me. I have 25% of my shares in illiquid stocks that’s what I decided was my risk appetite .

BnB

I don’t doubt you’ve done your sums and wish you a successful investment. My experience with illiquid names has been that they are much easier to get into than out of - which has shifted my investment universe up the scale. Ideally you can exit on a profitable takeover.

55555

You should be congratulating yourself for keeping 2/3 of your holding

catalogue

I wish you both a well-earned break and hope you have a lovely Christmas. Thank you for the excellent work you do. Only yesterday I struggled to find out what was going on at Tekmar (LON:TGP) , and I was particularly grateful for your insights.

Harry Hindsight

MS International (LON:MSI) My newbie thoughts were:

1. dont' chase it wait up - FOMO etc

2. who will swoop to get the IP

3. what is the IP (suddenly found a new type of radar?) and a bit of good stuff on the side

Similar to WANdisco (LON:WAND) - great story and thanks for the SCVR for bringing it onto the radar.

Been burnt since starting this journey in March 2020 (furloughed for 8 weeks). Did not win big in the 'bull market' bought and sold like a lunatic where could have just bought 5 shares and gone to sleep.

Have a large 'coffee can' waiting for the gold blend to arrive. They are not bad just IPO's - market seems to have killed the golden goose methinks.

I think the 'elephants' will consolidate next year, which they can do, so the SCVR may become a better space for multi-baggers - but will need more than good stories and maybe making an actual profit (would be nice).

Best wishes to the Stoko crowd and lets hope the bears hibernate during January so can 'live the dream' in 2023.

Thanks, only when I sell. My December purchases are helping offset losses from the previous 11 months. Usually over trade, this year under traded until I became proactive.

jonno

Paul, Graham and not forgetting contributions from Roland and Jack, before his departure,

Many thanks for all your hard work and insight during 2022. I may not always agree with the consensus on individual shares but your hard work and analysis are much appreciated and invariably help my decision making process in relation to stock selection.

Best wishes for the festive season.

Jonno

WDWombat

Just to second all the good wishes, thanks and best luck to everyone for next year - but above all to those in real need.

anthonyburns1979

24th Dec '22

Fantastic section written by extremely knowledgeable professionals and is a really fascinating insight into small caps. Thanks to everyone who puts it together and merry Xmas.

Caper4

NewInvestor1972

26th Dec '22

Happy Boxing day everyone.

Awful year for my portfolio value but it looks like @polx will be having a nice end to the year, it just received FDA approval on its 2nd attempt.

Could be one to watch on Tuesday

Small Cap Value Report (Fri 23 Dec 2022) - SDRY, MSI

Agenda

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Paul Scott

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