Small Cap Value Report (Fri 26 Nov 2021) - SCS, MOTR, STU, DX., HEAD

26th Nov '21 by Jack Brumby

64 comments 11736 reads

Good morning! It's Paul & Jack here with the SCVR for Friday.

Agenda -

Paul's section:

Scs (LON:SCS) - I hold - trading update shows a sharp slowdown in order intake over the last 7 weeks. However, year-to-date order intake is still slightly ahead of pre-pandemic levels, and in line with broker forecast, which are unchanged today. So this is NOT a profit warning. Valuation now well below the company's cash pile, and a PER of 7. Seems crazily cheap to me.

Studio Retail (LON:STU) - I hold - a mild profit warning yesterday on completely predictable sector-wide issues (supply chain, cost inflation), with EPS guidance lowered 18%. Hardly a disaster, and the business looks adequately financed. Very low PER now.

Dx (group) (LON:DX.) - heavily marked down on a 'corporate governance inquiry' which will delay full year accounts and likely lead to a suspension of the shares. Hard to gauge the seriousness of the situation, but it's a low margin business in a tough sector anyway, so not of interest.

Headlam (LON:HEAD) - positive update given supply chain issues and labour shortages reported by others, with profit 'marginally ahead of expectations'. Self help initiatives are making for a more efficient enterprise, and the balance sheet remains strong, so the high StockRank looks well deserved.

Jack's section:

Motorpoint (LON:MOTR) - positive results yesterday from a vehicle retailer that is working hard on its online offering and appears to be taking market share. It is valued at a premium to more 'traditional' retailers in the space but it has set itself some ambitious growth targets and the PEG is just 0.5x, so there could still be upside. As with others, much depends in the short term on how long restricted new vehicle supply boosts used car margins.

Paul's section

Scs (LON:SCS)

(I hold)

186p (down 24%, at 08:18) - mkt cap £72m

Trading Update (AGM)

ScS, one of the UK's largest retailers of upholstered furniture and floorings, provides the following update ahead of the Company's Annual General Meeting….

Year to date performance ahead on two year like-for-likes

The PR message at the top is trying to put a positive spin on things, but I think the key message from this update is that order intake has slowed in the…

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Lion Tamer

26th Nov '21

Re: Off-topic Friday: Christmas book list

Thanks to everyone for all the contributions so far, there is plenty of choice for my list.

To reciprocate here a list of some of the favourites from my book shelf, hoping someone finds something useful in this list. Some have already been mentioned, but I'm including them as a +1 vote for anyone making their own Christmas wish list.

These behavioural economics books contain some great lessons of how the mind works, which I find useful when it comes to portfolio management. Recommended reading in my opinion.

Predictably Irrational, by Dan Ariely
Fooled by Randomness, by Nassim Nicholas Taleb
Freakonomics, by Steven D. Levitt and Stephen J. Dubner
Misbehaving, The Making of Behavioural Economics, by Richard H. Thaler
Thinking, Fast and Slow, by Daniel Kahneman.

This section are classic investing books, some are timeless, some dated but still relevant at many levels.

The Little Book of Behavioral Investing, by James Montier
One Up On Wall Street, by Peter Lynch
The Most Important Thing, by Howard Marks
Common Stocks and Uncommon Profits, by Philip A. Fisher and Kenneth L. Fisher
Intelligent Investor, by Benjamin Graham

Slightly off-topic

How to Fail at Almost Everything and Still Win Big, by Scott Adams (Very light reading from the author of the Dilbert cartoons, a bit of putting things into perspective type of book)
Influence, The Psychology of Persuasion, by Robert B Cialdini (This book I need to re-read, I can't remember it very well, but think I rated it at the time).

I hope Black Friday has not been too unkind to your portfolio. Let's hope the recovery will be swift.

jwebster

From their last annual report, SCS held 87.65m in cash of which 37m was customer deposits, so 50.7m net. Still fairly chunky.

ridavies

Good morning Paul and all on Scs (LON:SCS)
Thank you as always for your wide range of thoughts. I fear that my input is going to add another possible black cloud on the horizon. I cannot remember when it was ( Paul will remember immediately) but one Jan/Feb Scs (LON:SCS) put out a terrible RNS Trading Statement to say that versus expected orders, actual orders were horrendously low.

I note today that they are saying that lower footfall etc is leading to a similar but not so serious pattern currently. I am forecasting that middle Britain will feel more pessimistic as the winter goes on, and may consider a summer holiday with a predictably less dangerous C19 situation infinitely preferable to buy a new suite. The latest C19 variant is just the most recent of a series of threats to our sentiment as well as pockets.

I am a long time fan of Scs (LON:SCS) but having added to my holding some months ago, I sold out a couple of weeks ago. I remain a fan but believe there will be further falls before I reach the anticipated buying in point when some of these issues begin to fade.......

.......or am I being over-pessimistic about patterns of consumer spending in the New Year? It wouldn't be the first time.

portugull

Paul

I have only just realised that my post at 9.59 this morning on £Saga should have been posted to the Saga thread you opened on August 2nd.

Is there a facility to transfer the post?

Robert W

Plus as we know viruses tend to mutate to be more infectious and less virulent over time. The balance of probability, therefore, (N.B. not certainty) is that this new version will fall into that camp. Personally, I think there are some bargains out there this morning: I just need to engineer an hour's break into my working day to investigate them further....

Silver Moon

Get your 3rd now of you've not already done so. The next new vaccine will only come along if needed.

JonBirdy

Last month I ordered carpet from Scs (LON:SCS) (I hold) with it due to be installed early this month.

Customer service was excellent, the identical carpet was more expensive everywhere else - I’ve see it in John Lewis. And I availed myself of 48 months interest free credit.

I was then informed the day before it was due that I would not have the carpet till mid January. Customer service still good, offering my deposit back and a printout of the quote so I could go and bargain down other suppliers, but they too had January delivery for the carpet I wanted.

I did find it elsewhere, but costing 50% more and no interest feee credit option. So decided to stick with the wait.

I was also told in store that they were bringing forward their last order-now-for-Xmas-fitting date due to supply chain issues.

Others who like me might have felt initially let down by SCS might also (like me) then see it’s sector wide and just stick it out.

But I guess I was already committed as opposed to new customers being told to wait for longer than normal. Hence poorer sales for now until supply chains get sorted out.

threeputt

rumour has it that a fund is liquidating their position in Somero Enterprises Inc (LON:SOM), no fault of Somero...

"From 13 October 2021, following shareholder approval of the Proposals
announced on 23 September 2021, Acorn Income Fund Limited (“the
Company”) entered into a scheme of reconstruction, whereby the Company’s
residual assets will rollover into the Unicorn UK Income Fund, an open
ended vehicle managed by Unicorn Asset Management Limited. The Company
was placed into members’ voluntary liquidation on the same day and
Benjamin Alexander Rhodes and Andrea Frances Alice Harris of Grant
Thornton Limited were appointed as Joint Liquidators.

RajPaulD

Hard to know ... buy today or wait a bit (next week?) for even bigger bargains as the market panic escalates ?

JohnEustace

There's a 2021 New and Expanded edition of Influence, The Psychology of Persuasion, by Robert B Cialdini so that's the one to go for.

cmpeckham

From what I understand, what you've said here is a bit misleading. While it's true that other viruses have mutated to become less virulent, it's not generally thought (so far) that this will apply to covid 19. It's all about what evolutionary advantage is conferred. Covid 19 will gain no benefit from becoming less deadly because most of the infection of others occurs weeks before the carrier's death. By the time of death, most of the virus has been neutralised and the patients die of organ damage and over-active immune response.

Indeed, so far what we've seen is that each new major variant is more deadly, rather than less. I don't know if there are any official data as opposed to estimates, but what I've seen said that Alpha was more dangerous than the original, and Delta twice as virulent as Alpha. That is why we've seen many deaths of young people who were untroubled by the original virus.

The increase in virulence appears to be a side effect of the mutation that confers other evolutionary advantages. Delta, we're told, produces viral loads up to 1000 times that of the original virus. These higher loads make it much more infectious, with the side effect that it also becomes more deadly.

All of the above is with the caveat that I'm far from being an expert in this field, but my understanding is rather different to what you said.

davidjhill

Interesting that Pfizer confirmed that they are already testing their vaccine efficacy against the new variant and will have results within 2 weeks latest. It may need an adjustment of the formulation if it evades immunity and spreads globally. They don't sound unduly worried about being able to control it.

Feels like a bit of market knee jerk reaction today, almost the inverse of the initial muted reaction when the virus first surfaced and the market ignored it. Recent historical memory playing a part here I suspect, which is unsurprising but worth keeping in the back of the mind that we are in a far different place now than last time.

JohnDoe2378

I will be waiting. I have no idea what the market will do, but safety first!

50% cash now...

Rusty2

This is in the Guardian: "The variant has more than 30 mutations on its spike protein – the key used by the virus to unlock our body’s cells – more than double the number carried by Delta. Such a dramatic change has raised concerns that the antibodies from previous infections or vaccination may no longer be well matched. Purely based on knowing the list of mutations, scientists anticipate that the virus will be more likely to infect – or reinfect – people who have immunity to earlier variants."

gmtrader

Well if you want to buy, maybe do it in 2 stages. Ftse looks like another 90 points to drop still to reach bottom of the trend channel.

there is a lot of non evidence based conjecture out there about what might or might not happen and there's nothing the media love more than a bit of fear mongering! Sells a lot of content..... I try and avoid taking too much from the media if I can, it's too biased but alas you do have to keep an eye as it does indeed drive sentiment.

shanklin100

Hi Paul

Re Dx (group) (LON:DX.) , I have no insight at all re the company.

However, its obvious IMHO purely from yesterday's RNSes, that the company directors who bought shares are completely unethical. I am not prepared to buy shares in a company where this is the case, however cheap they may appear to be.

bryaz

if you are a good golfer who wants to get better The practice manuel by adam young from amazon

So far reads like a normal progression through mutations. Keeping in mind Covid has 1,500 recorded mutations already, the vast majority fizzle out as evolutionary dead ends. This one is B.1.1.529 Sars-Cov-2 variant, which in Southern Africa has supplanted the Delta version as the dominant strain. The WHO is meeting and if it's deemed significant and expected to become the new dominant strain, give it a name, "Nu" or such like. Pfizer are busy checking if their existing mRNA vaccine is effective against this new version, expect this will take two weeks. If it isn't they'll release a new booster, their share price is up 7% on the news.

So it really depends on Govt reaction. timing's not great as we head into winter. Hopefully, continue on the current path of boosters, potentially a new one, and no lockdowns. Let's see. Such mutations are likely to continue, potentially for years to come, like Influenza.

mwjackson

unethical / borderline illegal

Small Cap Value Report (Fri 26 Nov 2021) - SCS, MOTR, STU, DX., HEAD

Paul's section

Scs (LON:SCS)

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Jack Brumby

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