Good morning, Paul & Jack here with the small cap value report (SCVR) for Friday. Today's report is now finished.
Market uncertainty over Ukraine was removed last night, as the Russians invaded. I am sure we can all agree that the scenes on TV were upsetting, but we're not here to discuss issues like this, these reports (and the comments you leave) are focused on the small caps end of the UK market. So hopefully we can try a little harder to keep comments on topic. Nobody is interested in hearing some half-baked views on WWII for example, which uselessly cluttered up the comments the other day! I did a degree in International Relations, so you can imagine it's quite difficult for me to bite my tongue and not respond, but there are plenty of other places on the internet to broadcast your views to people who don't give a damn about them! ;-) Let's stick to shares, and markets here please.
Market conditions - obviously things are very difficult at the moment, especially in small caps. In some sectors I can see why share prices have fallen sharply - it may be the case that smaller companies suffer from inflationary pressures more badly than larger companies. If you can't raise selling prices easily, then facing big increases in raw materials, and higher wage demands, can crush profitability. I didn't get round to writing up a section on it, but Mcbride (LON:MCB) recently reported "rapid and massive input cost inflation" - wording which leaves us in no doubt that cost inflation & the ability to pass it on, is the biggest issue that investors need to think about. There are likely to be lots of profit warnings from companies which make products at low margins. The good news is we can just avoid those type of companies & sectors.
Pricing power - arguably, retailers are in a good position, in that they can set their own selling prices, in real time. But the problem is, customers shop around, and as Next (LON:NXT) said, it can put through price rises, but doesn't yet know what the customer reaction will be. Demand can be quite elastic (i.e. an increase in prices can have a larger, negative impact on volumes, in the clothing sector, from my experience). This is where the strength of the brand, and the uniqueness…
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