Small Cap Value Report (Fri 26 April 2024) - LGRS, DARK, CAR, REC, BRCK

26th Apr by Paul Scott

91 comments 8102 reads

Good morning from Paul!

Today's report is now finished.

Quarterly doom & gloom report from Begbies Traynor (LON:BEG) is published today - saying that insolvencies are heading upwards, particularly in consumer facing sectors. It calls the UK economy "troubled". Expects "thousands of businesses failing in the coming months...". I'm sure they're right, but remember BEG only focuses on the small minority of companies that are in serious financial trouble. It's not necessarily a good indicator of the future outlook for the economy as a whole, in my opinion. The overwhelming number of companies we report on here are hitting, some even beating, expectations.

I've been a little distracted this morning, watching company webinars, here are my brief impressions -

Tortilla Mexican Grill (LON:MEX) (I hold) webinar on InvestorMeetCompany -

New CEO comes across a lot better than I was expecting. Former CEO felt it was time to step back, at 60, and after 10 years in the role. So looks like it was amicable handover to former CFO as new CEO - who seems energetic & full of good ideas/strategy I think.
CFO confirmed that it should move back into profit this year, due to consumer recovery and fixing a lot of costs (energy & food) favourably in H2 last year, helped by increased scale.
Big operational gearing when demand recovers.
Funding roll-out from own cash (so hopefully no placing!) with focus now on capital-light franchising deals (5 new stores this year), and intention to expand into Europe via franchising route.
Little good competition, MEX is way ahead of competition in UK & Europe, and purchase of Chilango has done well -took out the best competitor, and a good way to grab some decent London sites at lower cost than doing from scratch.
More effective marketing to be done this year, as brand awareness is way too low - opportunity.
Revised delivery strategy is working - negotiated deals with Uber Eats and JustEat only, dropped others (mostly overlapping customers).
"London is coming back strongly".
Customer loyalty system, and kiosk ordering both working well, opportunity to expand both.
Labour deployment being improved.
Supply chain & inflation easing.
Food is no.1 priority - best food at best price - good to hear from a bean-counter!
CEO has taken up running, completed a marathon in under 3 hours (wow!), and did a run round all…

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Revs8

26th Apr

Averaging down = Almost always a bad idea. Averaging down is a way of refusing to admit a poor trade. Cut losses unless you know something the market doesn’t. Be an assassin as they say.
If you are determined to hold on then wait for a bottom to form. You might pay a little more but you will have more certainty.
Are you sure there aren’t better places to put the money?

Samsgrandad

Don't. You have to buy the same quantity as you hold to halve your average, hence the expression doubling down. There are many opportunities for your money, pick one that is going up steadily with a rising 200 day average and good value, momentum and quality metrics unless you have super powers which you probably don't.

Rusty2

I have been watching Argentex (LON:AGFX) for a while, l will watch for a while longer, l don't hold. I note Harwood have reduced their stake, maybe they know something, think that is why the shares fell again recently. Believe Harwood have increased their stake in Titon Holdings (LON:TON) . There is also a former director with a large holding who maybe selling.
Averaging down can work, I find it is better on US shares. The more Alphabet (NSQ:GOOG) fell, the more l bought.
UK small caps it is more hit and miss.

JCPr

Latest fall has been because Harwood reduced their holding a little. They didn't say why. That follows on from the CEO & CFO leaving in short order without any real explanation. CEO was a founder and had a large shareholding. CFO had built up a stake when another founder sold out his holdings a year or two back. So potentially their both reducing their holdings. So all in all there's a real lack of information on what is going on.

I hold and am hanging on for now.

Up to you whether you want to invest more good money in this one or put it somewhere else. There's lots of good shares out there at the moment.

ken mitchell

turbo.

I don’t agree with the rather dogmatic definitely don’t average down advice.

There is wise averaging down and unwise averaging down.

Wise is when a quality share (e.g one issuing regular better than expected updates) falls even lower. e.g I averaged down Aviva (LON:AV.) at about 250p in 2020, and Legal & General (LON:LGEN) at 155p. Both are way higher now and the dividend yield at those prices is around 15%.

I sometimes buy half stakes so that I’m “in” if the share has bottomed, but with the intention of averaging down if it hasn’t.

Averaging down mainstream oversold Investment Trusts at much wider discounts than usual and high dividends often works very well.

Unwise averaging down is throwing good money after bad with a failing or iffy share. Why risk more on those ahead of quality that looks way oversold?

So what about Argentex (LON:AGFX)? I don’t follow closely but have just had a quick look at comment from Paul or Graham and a couple of their updates. Does it fall very much in to the unwise averaging down category?

NeilS

Yes Tesco bought Willie Lowes after they opened a flash new store as far south as Loughborough!

davidjhill

Could be worse…..you might have just got off a flight where they served you a can of some cheap lager and no food!!! Only direct flight alas….oh well……

turbo

Re: Averaging down Argentex (LON:AGFX)

Thanks for all your replies. In the end I decided not to buy more Argentex, perhaps better to wait for some clarity and signs of an uptrend.

Instead, I ended up buying Brickability (LON:BRCK)

ShoeShineBoy

27th Apr

Thanks for covering Record (LON:REC) Paul, much appreciated.

Good write-up on Record (LON:REC) by Roland Head.

https://tinyurl.com/yw8cr95j

I like seeing the split of hedging activities, the "dynamic" is almost certainly higher margin but difficult to tell exactly versus the "passive". Feels like the new CEO doesn't like the additional businesses the old CEO (who keeps selling shares) wanted to add. Nice stats on the Record (LON:REC) Stock Report.... net cash, margin and ROCE.

I don't hold but would buy for the yield. No need to rush though.... FY results and hopefully some clarity on future activities in late June, and goes ex div mid July for an August final payout.

daviHard

Plum Porter

slopsjon

Hunt calls Dorneywood summit to boost flagging UK stock market. The chancellor and London Stock Exchange officials will use the May 16 event to court technology companies amid growing concerns about a City exodus, Sky News learns.

https://news.sky.com/story/hun...

KBR

28th Apr

Hello Samsgrandad

Trying to work on this. Followed what you said and my OWN COMMENTS came up. I have made no POSTS to date. You say POSTS made by OTHER contributors can be found in a similar way - can you please expand on this??

Thankyou KBR

You just click on the profile, then go to Activity, you have 7 posts or comments.

Paul Scott

Thanks for flagging this, slopsjon.

I've jotted down my initial thoughts on reforms for the UK stock market (GoogleDoc link below), let me know what you think. Maybe I should collate views from SCVR readers, and submit them to Govt?

https://docs.google.com/docume...

Here's the web link for this weekend's podcast. Sorry it's so long, but there's masses of stuff for me to cover!

https://shows.acast.com/paulsc...

StrawberryDreams

Well done to Darktrace (LON:DARK) holders.In there last online meeting hosted on London Stock Exchange (LON:LSEG (first time i've been on one outside of investormeet!), post last update, management came away as very competent imo.Shame they might be leaving as cybersec has massive headwinds, as we increasingly digitalise in all sectors with national and international threats constantly evolving and obviously they have the right product.Thoma Bravo will most probably make out longer term.SentinelOne (NYQ:S) has similar products i think.Currently underwater there especially with the current huge selloff of some megacap favourites and associated indices and US worries about inflation data.But hoping to more than bag longer term if things work out with the company.

Oversold?Ceres Power Holdings (LON:CWR) and ITM Power (LON:ITM) are heavily played by shorters under the reporting limit i reckon and both traded on any spikes so far in current market conditions,As they both have massive IP potential imo but green hydrogen is still a way away like EVs were both economically and infrastructure wise.

Were they planned sales?

WarrantStar

29th Apr

Yes Paul. I think it's a great idea for you to forward your ideas on reforms for the UK market to the Government. And I see from your Google document that you have made a good start. I am a member of Sharesoc and will encourage them to do something similar, if they are not already doing it.

Great ideas Paul, and I think you and the likes of Sharesoc, should have some input on behalf of private investors.

Small Cap Value Report (Fri 26 April 2024) - LGRS, DARK, CAR, REC, BRCK

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Paul Scott

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