Small Cap Value Report (Fri 27 Dec 2019) - UVEL, NMD, SOM, BKS

27th Dec '19 by Paul Scott

43 comments 8286 reads

Good morning, it's Paul here.

EDIT at 12:40 - today's report is now finished.

I hope all subscribers had a wonderful Christmas break. I rather like having the one day today, when we can re-engage our brains, and have a small adrenaline shot from the market, before the weekend!

There were no results or trading updates today, at 7am. Then an AIM minnow called Univision just released interims;

Univision Engineering (LON:UVEL)

Share price: 2.0p (up 8% today, at 10:01)
No. shares: 383.7m
Market cap: £7.7m

Interim results

UniVision (AIM: UVEL), the Hong Kong based Group whose principal activities are the supply, design, installation and maintenance of closed-circuit television and surveillance systems, and the sale of security related products, is pleased to announce its unaudited interim results for the six months ended 30 September 2019.

As regulars know, I very rarely invest in overseas companies listed on AIM, because so many of them seem to go wrong, sooner or later.

Interim profitability is down on last year, at £178k vs £1012k in H1 LY.

Revenues have fallen from £6.4m to £5.0m in H1 vs LY H1.

Outlook - It expects a better H2 though;

For the reasons outlined below, the Company has experienced a downturn in both revenue and profit for the six months ended 30 September 2019, when compared to the same period last year

Nevertheless, the second half of the year has started better and the Board anticipates that the performance of the Group's business will be improved in the second half of the year.

Major contract - this looks quite interesting. This tiny company had previously won the contract to replace the CCTV system on Hong Kong's railways. It mentions that orders have recently been received to replace equipment damaged in the recent riots.

This must provide a helpful backdrop, with probably numerous other organisations looking to improve their security in Hong Kong. With a big reference project in the bag, then Univision might be in the running to win more business potentially.

Balance sheet - there are 2 unusual items within non-current assets;

£922k - deposit paid for life insurance policy. I've not seen this before on a balance sheet.

£3375k - amounts due from related companies. Normally any such receivables (or creditors) would be cancelled out on…

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Paul Scott

28th Dec '19

As we move towards 2020, can I air one small grievance?

Nearly every day, between 1-3 people give these SCVRs a thumbs down.

Regular as clockwork.

WHY???

If you're going to demotivate the writers, then couldn't you at least leave an explanation for the thumbs down?

We're not mind readers. If we're doing something wrong, then I'm happy to look at it, and try to rectify or improve whatever it is that is upsetting or annoying 1-3 people most days.

Suggestion for 2020 and beyond - if you must leave a negative trail behind you, then please leave a comment to explain why.

I'm very open to suggestions, and will try my best to fix/improve anything that perturbs subscribers.

Best wishes, Paul.

Laughton

Paul - you can't please all of the people all of the time - nothing wrong with being a perfectionist but 146 to 2 (today) is a score most teams would be over the moon about.

PS - it wasn't me.

Mark Halliwell

I am 100% with Paul - it must be very demoralising being rubbished all the time - we all need to know why readers are displeased please - and then it has some relevance or the criticism can be dismissed totally - as I suspect is the real answer ......

jonesj

29th Dec '19

Hi Paul,

A score of 140-2 is a pretty good. If no constructive comments are provided, ignoring the 2 is probably the best way. There will always be a small minority of whingers.

Also, they keep reading the reports, so presumably they find them useful.

I find the reports are interesting, educational and sometimes rather amusing.

So thank you both very much for all the fine reports in 2019.

iwright7

Nick,

Interesting point you raise about factors stopping working for most of 2019. Your 2019 observation more or less reflects the losses/stagnation/rise in my own portfolio even though I am not selecting or re-balancing for factors per-se.

I recall that the factor rot seemed to set in in late summer 2018 and have been trying to work out why. Could it be that factors/biases work best in a generally rising market and stop with a drop in confidence/market stagnation?

If so the next question is how best to measure when factor on/off is happening?

simoan

Paul,

I can't believe a few mean spirited subscribers vote down the SCVR every day, but such is life on the internet with it's built-in empathy chasm. I would have thought Stockopedia HQ would know who these subscribers are and could then have a polite word in their ears?

Personally, I don't like the voting system as implemented by Stockpoedia and had rather hoped it would be be changed on the new site. Alas, all that's changed is the thumbs have been replaced by an up/down mechanism. I don't really see the point of the voting down mechanism which will demotivate not only you and Graham, but others from offering opposing views to the crowd. It's really just a way to shout someone down. I find views that oppose my own much more valuable than those that simply feed my own biases about investments. Besides, anyone that's familiar with the power of commitment and consistency will know that hitting that vote button on a post in the comments is a dangerous thing to do! I only use it as a way of thanking someone for providing information I was not aware of these days.

BTW I apologise that I sometimes forget to give a vote up to the SCVR.

Happy and Prosperous 2020! Si

andrewdb

WHY???
I was one of those 1-3 people one day in the summer iirc.

Purely due to manual stupidity on my part (not wearing glasses that day).
Sorry.

sharw

Parsley - thanks for pointing out that the new Directors listing is useless. It may be helpful if you duplicate it at:
https://www.stockopedia.com/content/released-discover-the-major-shareholders-recent-buysell-sentiment-in-any-share-538006/
where I have already pointed out what an utter shambles the institutions page is. Since my post there I have discovered another classic - according to Stocko institutions hold 101% of Revolution Bars (LON:RBG) so how Paul ever managed to buy shares is a mystery. Sandford DeLand and its associated Buffettology fund own over 34% between them - isn't a bid compulsory?

Jonathan C

Paul,

I greatly value your SCVRs, as it is helpful to read your approach to analysis even if I don't have an interest in the company under discussion.

Would I subscribe to Stockopedia without SCVRs? I don't know but well worth subscribing with them.

Thank you for your hard work on your readers' behalf.

Happy new year.

Jonathan

tony moxon

Honest and first class as always. Good stuff Paul.

Gromley

For me, it seemed that factors simply stopped working for much of 2019. It was hard to get any kind of performance better than choosing at random. But then factors turned back on with a vengeance in November.

Interesting Nick, I think it was also said that the factors (i.e. Stock Ranks) stopped working in 2018, but whilst there is some evidence of a change in performance profile, I am not sure I would go so far as to say they "stopped working" at any time.

I have refreshed a view of data available from the StockRanks performance charts measuring two theoretical long//short portfolios :

1. Deploying 50% of capital taking long positions in all stocks with an SR >=80 and the other 50% going short all stocks with SR <20.

2. Deploying 50% of capital going long on the same stocks and the other 50% on and Index short on the All-Share (FTAS).

Please see the footnotes for all of the technical details, but in short portfolio 1 is a macro proxy for my own current investment approach.

Here is the annual performance chart (measured quarterly) covering the entirety (6+ years) of data available.

5e0937107a43f20191229-SR_performance..JP

The first thing I would note is that there was some early exceptional outperformance from the StockRanks which has not been repeated. This may indicate that Stocko did find something exceptional that to a degree has been arbitraged away.

The second thing to note is that the amber line (my proxy) has never fallen below 5% pa and in fact has been improving since March-17.

Thirdly, the blue line (SR80+ vs FTAS) has been more volatile - negative during 2016 & early 2019 (this I guess is the "stopped working" thesis.)

Looking at the blue line (high SRs vs "the market") there is some evidence for SRs "stopping working" through 2018 & 19.

My personal reading of this is that the SRs are more reliable at identifying the "dogs" than they are at identifying the "stars". Even having said that, on balance, investing in high SR shares still looks to be a winning strategy.

The techy bit

The performance data in the chart is based on StockRank(QVM) peformance charts, Market Cap >10m, rebalanced Quarterly, measured in Quintiles.
There are therefore, notionally 400 stocks long and 400 stocks short - so it is theoretical in the sense that few of us have the resources to be so diverse,
Also it is in fact very hard to take out short positions in the very lowest SR stocks.
Dealing costs (2x) and "Stock borrowing costs" are a significant drain on actually enacting a Long/Short portfolio.
My capital Allocation assumptions are that the capital allocation of a short position is equal to shareprice x number of shares - but in fact there is no cap on the exposure (if the shareprice increases 10 fold, if you are short you are liable for 10x my notional exposure. I do not want to be patronising, but anyone considering 'going short' on any share needs to properly consider the potentially unlimited risk.
The returns for a Long/Short are probably too modest for many investors - but IMHO you have to do the risk vs reward calculations.

As ever DYOR.

Nick Ray

30th Dec '19

I generally use QM rather than QVM, and Mkt Cap > £100m long only, so I probably see a slightly different picture from the one Gromley sees.

A quick look at QVM/100 over the last two years from the Stocko performance page looks like this:

This is a much cruder picture than Gromley's where he has calculated the yearly return. But the fact that the green (90-100 QVM) line is not getting away from the blue (FTAS) line, and in fact many of the deciles are smudged on top of each other, illustrates that the usual fan-like appearance was absent for much of the last two years for this particular set of factors/sizes.

The descending red line is the (0-10) line, so a long-short portfolio would in theory have shown better performance (although going short FTAS would not have helped much.) Gromley's warning about short positions is well founded though. If you look at the 0-10 line it is much more volatile than the others and it can lurch upwards sometimes (e.g. May-June 2019 above).

It's true that computing the yearly returns and plotting those (effectively differentiating the graphs above) does help to see the picture more clearly. (I've got the code somewhere but I haven't dug it out tonight!)

As to the question of whether you can spot the factor on/off points (asked earlier), I did try to work something out but I came to the conclusion that the best strategy is to continue with a factor based approach all the time. When factors "turn off" all that happens is that you tend to get a return closer to the overall market, but by staying in the market you will be sure to pick up any benefit when factors turn back on (as they surely do).

Thanks simoan!

At this time of year, I mainly have the lamb, of Handel, spreading out nicely.

Also, we all like Gavin & Stacey.

Laa Laa laaa!!! Cheese! De daah daah dee dee!!!

Organ thundering bass..................

Cheese! Lovely ahahaha

Cheese, Paul.

I'm an open book! Always have been, always will be.

PP.

Hi Jonathan,

Paul,

I greatly value your SCVRs, as it is helpful to read your approach to analysis even if I don't have an interest in the company under discussion.

Would I subscribe to Stockopedia without SCVRs? I don't know but well worth subscribing with them.

Thank you for your hard work on your readers' behalf.

Happy new year.

Jonathan

Thanks! And he will give you rest ... and la rarararara cheese ahhh!! Ahh ye can find rest!!! Unto our god!

He can find rest? And he can find REST! Unto your soul!

Cheese,

Love, Paul.

I'm loviong this¬

Put the things in our harbour!!! cheese
1

111

Nick,

Interesting point about the Top decile (Green) QVM returns "bunching up" with the All Share Blue line over almost 2 years.

I too favour a QM style so I have run the same 2 year parameters as your QVM graph, but for QM below:

QM is not quite as bunched up as QVM and the Top Decile QM is is better defined. What both graphs do show though is almost 2 years of performance stagnation. Recently I began to question whether I had lost any investing edge I used to have, but these graphs show just how tough it has been to significantly outperform Mr Market, so I will stick to my QM style knitting

I note that both QM and QVM >£100M Top decile cumulative returns are close at circa +140% (vs. +26% for the Blue FTAS) since their inception in mid 2013 - So much for efficient markets and damn good for nil research systems. Ian

Ian

Yes - I should have plotted the thing I was talking about!

Anyway, you've reminded me why it's better to try to compute the yearly return. From the cumulative graph in order to spot when the factors are not helping much you need to see where the slope of the various decile lines are the same, and you really need a log scale to compare the slopes meaningfully (which Stocko does not do.)

However over a short time-frame you can just about do it. Although green gets away from blue in the first half of 2018 it is is matched for the rest of the year and performs worse briefly in last quarter. Then they are matched until about October 2019.

So with much hand-waving that is roughly the picture.

Certainly factors have done well cumulatively since 2013 provided you sit tight. But they do it in bursts.

TStubbs

it’s probably fat fingers whilst scrolling down the page, easily done, (and goes both ways I’m sure ;-o

catalogue

3rd Jan '20

There is nothing more helpful than bear chested, commentary from those you trust, epscially when it is based on accurate numbers and accountacy fundamentals. It also helps when it's in English that scans and amuses.

Small Cap Value Report (Fri 27 Dec 2019) - UVEL, NMD, SOM, BKS

Univision Engineering (LON:UVEL)

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Paul Scott

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