Small Cap Value Report (Fri 26 March 2021) - VLG, RNWH, IQE, DPEU, AFS, SPSY

26th Mar '21 by Paul Scott

111 comments 12523 reads

Good morning, it's Paul & Jack here with the SCVR for Friday.

Timing - today's report is now finished.

Agenda -

Paul -

Venture Life (LON:VLG) - impressive 2020 results, and stuffed with cash for more acquisitions. Potentially interesting. Investor presentation next week should be interesting.

Renew Holdings (LON:RNWH) - A very good acquisition is announced, I have a rummage through the acquisition's accounts at Companies House, and like what I see. Also we get a reassuring, in line, trading update for the group as a whole.

Iqe (LON:IQE) - FY 2020 results published yesterday. I dig into the cash generation - looks like a one-off, with very low capex in 2020, but capex is guided to shoot up again in 2021. I'm not convinced the business model is any good.

Jack -

Dp Eurasia Nv (LON:DPEU) - still in business and with growth picking up, but events beyond management control are a concern

Amiad Water Systems (LON:AFS) - encouraging set of FY results and optimistic outlook, but high spread, small free float and lack of historical growth.

Spectra Systems (LON:SPSY) - solid growth from and exciting longer term prospects from this innovative small cap.

Venture Life (LON:VLG)

85p (up 4% yesterday) - mkt cap £107.0m

Final Results

Venture Life (AIM: VLG), a leader in developing, manufacturing and commercialising products for the international self-care market, announces its audited results for the year ended 31 December 2020.

Record revenues and profit, amidst unprecedented global circumstances

This is quite a striking statement -

Since entering the public markets in 2014, the Group has achieved a compound annual revenue growth rate of 27% (up to and including 2020), which has come from a combination of organic and acquired growth. In 2016, 2018 and 2020, the Group acquired interesting assets that it could leverage with its operational base, and each of these assets has shown meaningful growth in revenues and profitability since acquisition. This strategy will continue to form the basis of future growth, making selective earnings enhancing acquisitions to utilise capacity and improve margins, alongside organic growth from our consolidated business.

Whilst that sounds impressive, I note that the share count seems to have gone up from 26m to 125.8m over that period, almost a five-fold increase.…

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Covid-19: Lateral flow tests

The World Health Organization’s performance standards require that tests correctly identify at least 80% of infected people (test sensitivity) and exclude infection in at least 97% of uninfected people (test specificity). The Cochrane analysis found that test sensitivity in symptomatic people ranged from 34% to 88%, with an average of 72%. The figure for the Innova test used in the UK was 58%. The tests worked best in the first week after symptom onset.

In people without symptoms the tests correctly identified an average of 58% of those who were infected. However, the number of samples from asymptomatic people was around 10 times lower than from symptomatic people in the studies analysed, limiting the conclusions that could be drawn, said the authors.

In uninfected people the tests correctly ruled out infection in 99.5% of people with covid-19-like symptoms and in 98.9% of those without.

The performance of the Innova lateral flow test in asymptomatic people was not included in the analysis, as studies have yet to be published.

MiserableJacktPotato

27th Mar '21

ah, we’re back to arguments because people don’t use the new site with its far superior threading system for comments, or aren’t reading the thread as a thread.
Why we’re expecting posters to spend time rewriting something that’s already written a small scroll away is beyond me.

I think you need to look harder at what Germany is doing. We only need to look at Nordstream 2 to understand Germany’s continued ‘beggar thy neighbour’ approach to trade.

It’s broadening it’s ties with China and Russia, so all talk of human rights abuses are second to its economic aims. Further, I don’t see how Germany can control tariffs/barriers as the single market is controlled centrally.

And if it is able to control tariffs and barriers outside the single market, surely this is just further evidence the single market is a sham.

They’re also rubbish.

Well, I might be being unfair there. The hotels I go to with the massive Nespresso capsules tend to provide poor quality coffee. But I find that to be American culture generally, never mind the quality, look how much you got.

Whitbourne

Spectra Systems (LON:SPSY) in a SIPP

That's a top tip by dahokolomoki, I bought for the first time a month or so ago via A J Bell. To be honest I didn't even realise there was an issue with it being a US security, the deal went through as it would for any other share. Even the spread wasn't too bad (or more accurately the deal was inside the quoted spread, not too far above the mid-price). Perhaps that's because it was a starter position (<£5k).

Thanks to all for such an excellent debate on Spectra Systems (LON:SPSY) this really does show the breadth of knowledge in the Stockopedia community. And thanks as ever to Paul and Jack, the quality and quantity of analysis this last week has been phenomenal. I truly don't know how you do it.

timarr

And if it [Germany] is able to control tariffs and barriers outside the single market, surely this is just further evidence the single market is a sham.

Well, as it's not true does that mean that the single market isn't a sham?

What Germany has done is introduce a law that means they can fine German companies up to 2% of their global annual turnover for labour or environmental abuses in their global supply chains:

https://www.metals-hub.com/blo...

In the context of the EU trade policy is an exclusive EU competence - so the EU, not member states, legislates on trade matters and handles international trade agreements. Which is why, despite attempts by the UK to negotiate directly with Berlin and Paris, the Brexit withdrawal deal was eventually negotiated by the EU, with Ireland's interests put front and centre. And that, of course, is now causing serious issues for the UK government.

However, in general, the EU is seeking an expansionist trade policy post-Brexit - the Japan and Mercosur deals and mooted cooperation with China being the most visible signs of that. Quite how human rights fits with the latter is an open question for all Western liberal democracies, ours included, as we struggle to balance the need to maintain trade relations with the world's second largest economy with protests against the human rights abuses that are rife there.

The UK, of course, faces a unique issue over Hong Kong. But no doubt sending our aircraft carrier to float around the China Sea carrying Union Jacks and US planes will make China think twice about that.

timarr

sharw

re Venture Life (LON:VLG) director interests - not so - that December RNS is supplementary to the 20th November one and shows the same interest (that includes spouse) %. Here is the November sale:

Following exercise of the EMI Options and sale of the Sale Shares, the Sellers (and their families/ pension plans) will retain the following interests in the Company:

Interests as the date of this Document Interests at Admission

No. of Ordinary Shares % of issued share capital No. of Ordinary Shares % of issued share capital

Jerry Randall 3,769,729 4.5% 1,884,865 1.5%
Sharon Daly (née Collins) 2,019,953 2.4% 1,009,976 0.8%
Gianluca Braguti 7,085,459 8.4% 3,542,730 2.8%

Edit: I spent ages getting that table properly spaced but Stocko will not have it and every sequence of spaces has been reduced to one space. Grrrr.

Brothersinarms

Not really. It’s the same requirement as for any of the Lateral Flow Tests that have been approved (Excalibur, Innova etc.) and they all quote the sensitivity / specificity figures from 400 clinical samples (150 positive / 250 negative) with different viral loads as required by the MHRA. They were running a live trial in February in The City looking 400 people and then checking them with PCR tests. I’d be surprised if they went ahead with registration if that had hadn’t given at least acceptable results, particularly after the media backlash in September.

rmillaree

A bit OT - but to carry on the conversation sometime back with regard to the subject of whether the new covid mutations will be an ongoing issue and whether there is any possibility that covid could be wiped out in the next 2-3 years (i would love it if that happens - said in the best kevin keegan voice) - Dr John's Capbell's latest video sort of touches on these questions to a miror degree - he is does have some hope we could eradicate or get down to background levels covid within 2-3 years - he isn't exactly nailing his flag to the mast here - and i don't blame him as the truth is its all speculation as to how long covid will continue to be a thorn in our side.

https://www.youtube.com/watch?v=h9irEbq43Qc

The single market is a sham and applies solely to goods. Services are explicitly and deliberately excluded, though now that London is out of the way I expect Paris and Berlin will be more amenable to forcing through alignment.

I can give you a real world example. I had to do some consulting work near Paris in 2019. It took over a month for the company’s agents and the French authorities to clear all the paperwork to allow me to work short term in France.

The EU hasn’t put Ireland’s interests “front and centre”, it has put its own short term revenge plan “front and centre” and is using Ireland as a pawn as evidenced by the humiliatingly badly handled partial closure of the Irish border when they didn’t even bother to do the courtesy of phoning the Irish government to let them know.

But in the end though, the original premise that Germany are raising tariffs and barriers is false, and I was responding to a misleading argument. Thank you for clarifying that (although they are in effect increasing non tariff barriers but only for their own companies - I guess as long as they don’t enforce the same standards on all goods they can act unilaterally).

Some minor corrections - one of our aircraft carriers, with UK aircraft.

Rusty2

Spectra Systems (LON:SPSY)

It is not just western countries, look what is happening in Asia, which has a far larger population.

Also with the new type of polymer banknotes these will last longer. I think part of the reason for a rise in banknotes is the issuing of new notes in recent times. Also there are probably many people like me, who have them in their wallets along with the moths, mine have been in the wallet for a year.

That is even before you start considering cryptos currencies.

Aviva (LON:AV.)
Thanks for your comments all , i guess i will probably just hang on here until the dust settles , or the price moves materially upwards or there is any adverse trading news.

I have always been aware that the quality metrics of the busines have not been rated by the market as being nay good, and i have been aware that i dabble at my own risk - i think when there were credit issues within the EC Aviva did seem to have some potential adverse nasties.

I have held Aviva a couple of times in the last decade and have been lucky enough to buy both times in the 300's when i thought the company was trading at a low p/e - so more bottom fishing in hope than any cunning plan here. I must admit this time i did buy back in for the dividend 18 months back and the plan didn't really go to will with the dividend being chopped. I did have sense to back 2 horses when i invested in Aviva and i also bought Legal and General the sme day - and that has turned out to be the better investment over the last 18 months - so it does kinda backup the last of quality or market faith that does exist here - lets just hope this dog has its day and soon :).

Elrico

timarr6:50 am

Exactly, as you say, western society may use less cash due to the growing use of digital wallets; cash is still king in many countries because there is a lack of banking access to so many people worldwide.

''If that's the argument for investing in Spectra Systems (LON:SPSY) I'd be a bit worried.''

You need not worry. I was merely agreeing on a single point.

Here is my reason(s) for investing in SPSY.

The EU hasn’t put Ireland’s interests “front and centre”, it has put its own short term revenge plan “front and centre”.

In terms of Ireland specifically - no, this isn't about revenge. It's about the impossible challenge of figuring out how to handle the UK leaving the EU while maintaining the Good Friday Agreement which assumed that the UK was part of the EU.

The last minute nature of the Brexit deal, in which Johnson and Frost agreed to put a border in the Irish Sea is politically unacceptable to Unionists. They either didn't understand the consequence of their deal or they never intended to honour it - the latter being the suspicion of the EU.

As for revenge more generally in the EU / UK context - well, if we allow that as a premise then why would we expect anything else?

The EU was never going to make it easy for the UK as that would open the gates for other countries to look to exit - not that most countries have any desire to do so after witnessing the fiasco in the UK. And of course, Johnson and co have made it very clear that they are seeking to compete with the EU - so why should the EU do anything to aid a competitor?

All this was discussed during the long-drawn out Brexit process, it shouldn't be a surprise to anyone. But as my friends in Switzerland have taken great delight in telling me for the last 5 years - negotiations with the EU never end. This is just going to go on and on and on ...

timarr

Momoko Miyamoto

The lateral flow tests are horrendously inaccurate in real world use, they miss loads of infected cases both symptomatic and asymptomatic and the only reason they're being used is because no one will admit they've been a colossal waste of money.

Wilbraham

Recent pop-science report that two Cambridge researchers found encouraging evidence that ongoing somatic hypermutation amongst our B-cells makes our immune system better able to identify and suppress new variants of the covid https://theconversation.com/co...

As an aside, I did several central London parks today. Came across many large groups of peeps, including many youngsters, and most takeaway outlets had queues. A marked contrast to last spring when there seemed a real element of fear and suspicion aboard. Perhaps 'the wisdom of crowds' is telling us the virus is well in retreat; after all, these front line people will be well aware how many in their friendship groups are falling sick (or not).

Gromley

Momoko

The lateral flow tests are horrendously inaccurate in real world use, they miss loads of infected cases both symptomatic and asymptomatic

Can you cite any sources to back up that claim?

Without such your comment is at best of no value and at worst dangerous disinformation.

One thing that may have been on you mind in making that assertion may be stories that a parallel PCR vs LatFlow study of tests at Birmingham University.

The Lancet, however looked at this in more detail in this article.

To attempt to precis what they found.

A (10%) random sample of 710 negative LatFlow tests who were also PCR tested found 6 positive PCRS.
Extrapolated to the whole population who were tested with LatFlow this would mean 60 false negatives in the full test pool where the LatFlow tests only found 2 positives. Hence the claim that LatFlow only found 3% of actual positive cases.
However, the study cited by the Lancet went further and examined the detail of the 6 cases that caused this projection. They found that in every case the actual viral load was extremely low, requiring 29 or more "amplification cycles" before they became detectable (I won't go into amplification cycles here it would take too long).
By linking to other research they concluded that these 6 cases were likely to be post infections - ie have had covid and still have some traces of virus but not sufficient to still be infectious.

To very much paraphrase, they concluded that the LatFlow tests are ideal to determine whether an individual has transmissible levels of the virus; whereas the highly amplified PCR tests that could detect a trace infection on Mars (my hyperbole!) is suitable to track the level of infection at a population level.

No doubt there are other studies out there, so I won't hold this one as Gospel, especially if you can provide an alternative source, but it seems to me that the evidence suggests that LatFlow tests are a valid and highly important tool in controlling the virus spread,

A rider to this however is that I having been doing twice weekly LatFlow tests and they are a little challenging to do; you have to tickle your tonsils with the swab to the point you evoke a gag reflex (if you have one) and stick the swab so far up your nose as to meet resistance. I am pretty confident that I have been doing this right and that most people who read the guidance properly will also do so.

However, were I a younger person, considering myself therefore to be invulnerable, having spend a fortune on a ticket to see my favourite band doing a test at the arena gates to allow me to walk in 30 minutes later - I wouldn't find it too hard to miss my tonsils and gag on thin air and then wave it in the lower reaches on my nostrils.

I am probably over cynical, but when in comes to a self administered test, you do need to consider the Freakinomic benefits of each outcome.

28th Mar '21

The lateral flow tests are horrendously inaccurate in real world use, they miss loads of infected cases both symptomatic and asymptomatic
Can you cite any sources to back up that claim?

this BMJ report (25/3/2021) had the following to say (test copied below) - based on these stats i would say the point being made by Momoko Miyamoto seems to be reasonably valid from my quick reading of the situation. Note hopefully the accuracy of these tests can be improved over time - you could perhaps argue this historical data may not reflect the reality on the ground now if tests have improved - and as this dataset includes non UK data it might be (i would like to think it is!!) that the tests being used in this country are of much higher quality than the sample data.

https://www.bmj.com/content/37...

News

It's only valid out of its proper context.

Lateral flow tests are a useful addition to a wider test and trace regime, as they allow us to catch asymptomic cases that would otherwise be entirely missed. Removing even a small number of cases from general circulation helps to decrease overall infection rates. Catching 50% of those cases would, in most circumstances, be enough to push R below 1.

For instance, in schools where teachers and children are operating in bubbles, a single positive test will lead to the whole group isolating and getting PCR tests. That's a very effective way to drive down community transmission.

Where they don't add much value is where they're being used to detect individual cases. For instance, if they're used to allow people access to nightclubs then the rate of false negatives is a problem, because a single case slipping through can lead to hundreds being infected, as was seen in South Korea.

It's horses for courses, but the generalised statement "the only reason they're being used is because no one will admit they've been a colossal waste of money" is, simply, wrong.

29th Mar '21

Amanda Blanc, the newish CEO, seems to be taking decisive action following years of inaction by her predecessors.

Since Blanc took over in July last year Aviva (LON:AV.) has sold subsidiaries worth £7.5 billion. The entire company was only capitalised at about £9 billion at the time.

You don't always have to invest in quality companies to make money on the stockmarket.

abtan

6th May '21

Spectra Systems (LON:SPSY)(I hold)

I've just read through the FY20 Annual Report and based on the below I'm wondering whether the G7 banking customer is the US Federal Reserve.

It surely must be as:

revenues outside the US aren't that great (and Europe even declined from 2019 to 2020)
I think I read somewhere that a G7 bank was their biggest customer.

If correct, that's:

a) quite impressive, and
b) a nice safety net to have when predicting revenues several years into the future.

Cheers

Small Cap Value Report (Fri 26 March 2021) - VLG, RNWH, IQE, DPEU, AFS, SPSY

Venture Life (LON:VLG)

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Paul Scott

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Covid-19: Lateral flow tests

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