Small Cap Value Report (Fri 27 Sep 2019) - FTSE/Interest Rates, ESC, SONG, EQLS

Friday, Sep 27 2019 by

Good morning!

Sorry for the late start today.

Personal Note (feel free to skip)

This is irrelevant, but I think it's worth saying that this has been my busiest month, probably ever. The stream of work assignments been extraordinary. Finding a spare 10 minutes has sometimes felt impossible.

I knew that September was going to be like this, several months back, and tried to prepare for it, but it was always going to be hectic, because of the things I had agreed to do.

Thankfully, I have learned my lesson and will not allow my calendar to get so crowded ever again.

Anyway, there are still a few more days and a few more assignments to get through, so I'm still run off my feet. But from next month, I am going to have more time and am going to have to be more careful with my time, too. Thanks for your patience.

FTSE/Interest Rates

Many of you will have noticed that the FTSE is up 350 points, or about 5%, compared to a month ago.

I was thinking about doing some more FTSE trades a few days ago, but the pricing wasn't quite right. If I had pressed the button, I'd be sitting on nice profits already. It turns out that there are BOE bankers who are inclined towards loosening again:

If growth is weak for a while, below potential, spare capacity rises and down the road inflation undershoots.
"Our remit encourages us to steer against that,

His remarks bashed the pound and boosted the FTSE, as you'd expect.

As Peter Schiff would say, Western central bankers are in the monetary equivalent of a "roach motel" (a place where you can check in, but you can't check out). Large parts of our economies and especially our governments are now accustomed to low interest rates, they like low interest rates and they can't imagine suffering high interest rates. Borrowers have more clout than lenders, and going "back to normal" is not something that many people really want to do.

Indeed, low interest rates are "The New Normal". Someone who graduated from university in 2010 has never known anything but low interest rates during their…

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All my own views. I am not regulated by the FSA. No advice.

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Escape Hunt PLC, formerly Dorcaster Plc, is a provider of escapes the room experiences. The Company’s escape room is a physical adventures game in which players are locked in a themed room and have to find clues and solve puzzles in order to escape against a countdown clock. Its games typically require players to solve a crime story or mystery, which has been tailored to the location of the branch, within 60 minutes. It operates in approximately 50 cities and 30 countries worldwide. The Company also offers its own brand of indoor and outdoor entertainment from Sydney to Singapore, Bangkok to Brussels. more »

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Equals Group Plc, formerly FairFX Group Plc, is a provider of foreign exchange (FX) payment services to both private clients and corporations through prepaid currency cards, travel cash and international money transfers. Its segments include Currency cards, FairPay, Dealing and Central. It sells foreign currency through technology platforms offered on the Internet. It has a cloud-based peer-to-peer payments platform that enables personal and business customers to make multi-currency payments in a range of currencies and countries, and across a range of FX products through an integrated system. It offers prepaid currency cards, including Euro Card and US Dollar Card. Its travel cash service offers delivery of banknotes directly to customer using Royal Mail. Its international payments service includes FairPay, which offers a solution for payment of property maintenance and mortgages; payment of expenses abroad; buying goods or services, and sending money to family and friends. more »

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Hipgnosis Songs Fund Limited is a Guernsey-based investment company. The Company is engaged in investing in Songs and associated musical intellectual property rights. The Company will seek to acquire 100 per cent of a songwriter's copyright interest in each Song, which would comprise their writer's share, their publisher’s share and their performance rights. It will acquire interests in Songs which are sole authored or co-authored. It may also acquire interests in Songs jointly with another purchaser. The Company's investment adviser is Hipgnosis Songs Limited. more »

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50 Comments on this Article show/hide all

cafcash49 27th Sep 31 of 50

In reply to post #517251

Thank you Simoan for pointing me in the direction of Howard Marks books and Newsletters. I have spent the last 30 minutes exploring him on Google. Which do you think is his best book, Mastering the Market Cycle or The Most Important Thing (Illuminated or otherwise)?  I can only find these two. I have just re read both of Jim Slaters books and am getting back to growth investing. I always read your comments on the SCVP. Your response will be much appreciated. If you do it on this thread others may benefit. Thanks Charles

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JohnEustace 27th Sep 32 of 50

In reply to post #517271

Yes, but Graham is also correct. Roach Motel is a brand of cockroach trap. From Wikipedia "the widely known tagline of the Roach Motel was, "Roaches check in, but they don't check out!" In Hotel California "You can check-out any time you like. But you can never leave!"

Both the song and the product seem to originate from 1976 so I don't know which came first. (it's a quiet afternoon here)

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FREng 27th Sep 33 of 50

I have a small holding in £SONG and will probably subscribe for the C shares, but every time I read this RNS it reminds me of “For carrying-on an undertaking of great advantage but no-one to know what it is".

(c) South Sea Company, 1720

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jonesj 27th Sep 34 of 50

In reply to post #517316

Thanks for enlightening me.......still much to learn.

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Andyin 27th Sep 35 of 50

In reply to post #517156

RE £MLVN a glance at the stock rank would seem sufficient to put it on the bargepole list

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sharmvr 27th Sep 36 of 50

I understand Hotel California is you can check out, but never leave.

For those that haven't, just finished reading The Only Game in Town - very interesting read given it is a book by a bond manager about central banks (I should be in sales!) and speaks to how central bank hands are somewhat tied in the absence of sound policy management.

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sharmvr 27th Sep 37 of 50

In reply to post #517346

Didn't get to the end before I posted - sorry John.
Perhaps a lesson for me

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Roland Head 27th Sep 38 of 50

In reply to post #517236

Hi raykirby,

I'm not Graham (!) but as a Renewables Infrastructure (LON:TRIG) shareholder in my SIF portfolio ( I do have an interest in the changes at TRIG.

I note that TRIG shares are down about 3% today, but having read through the statement I don't see anything sinister. My impression is that the trust is adapting to changing market conditions in the renewables sector in order to be able to continue developing its portfolio.

There are two changes announced today:

1. TRIG's portfolio will now be able to contain up to 65% mainland Europe assets, up from 50% at present.

This is a response to changing market conditions in the UK and Europe. In the UK, changes to subsidies mean that the majority of new renewable development is now restricted to offshore wind. These projects are too large and expensive for TRIG to take majority stakes.

In contrast, onshore solar and wind developments are taking place in Europe that are unsubsidised - i.e. they are commercially viable without government support. TRIG's management believes these offer a greater quality and quantity of choice than UK renewables and would like to increase their exposure to such projects.

My view: Assuming that unsubsidised projects are priced to reflect the lack of an underwritten income, this seems reasonable to me. Indeed, it seems good news that renewables are now less dependent on subsidies, which were only ever intended to provide transitional support for new technology.

2. Issue of new shares: Since its flotation, TRIG has maintained a largely debt-free balance sheet. New acquisitions are financed with equity and project debt, which is non-recourse to the parent company.

Cash from today's £228m share issue will be used to repay £80m of short-term bank debt used for earlier acquisitions and to provide funds for further deals.

This has always been TRIG's business model and I don't have a problem with it. So far, shares have been issued in a quantity and at a price that have avoided diluting existing shareholders. If you check the Stocko history, you can see the book value per share has gradually risen despite regular share issues.

My view: This issue will take place at 123p, which is roughly midway between Thursday's closing share price of 130p and the last-reported NAV of 115p. That seems reasonable to me. Indeed, I think it's mildly encouraging that investors are willing to pay a premium to NAV for new shares. I guess the reason for this is the 5%+ 'green' yield available from this stock.

I hope this all makes sense!


Disclosure: I have a long position in TRIG.

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simoan 27th Sep 39 of 50

In reply to post #517266

Hi Martyn,

I think that I recall that a year or so ago a stockbroker became insolvent ant the cash held by their investors wasn't securely segregated against creditors. Have I got that right? If so, is cash in an ISA or SIPP safe? If it isn't, but shareholdings are safely held in trust, how do you protect your cash holdings?

I see timarr has already answered this point far more eloquently than I could manage. As he mentioned, pay the fees and go big with your broker, and then spread your cash and holdings across more than one of them to reduce risk further. 

It's a false economy to try and minimise fees when they represent such a small percentage of your pot. It's much better to sleep well at night and forego the occasional bottle of wine :) If  all four of the brokers I use go to the wall it probably won't matter anyway because the world will likely have ended! 

All the best, Si

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shanklin100 27th Sep 40 of 50

In reply to post #517276


As I posted on ADVFN on 12-Sep-19, following some contact with the company, "because of the exercise of options RNS'd on 30-Aug-19, AIUI H1 results will be issued on 27 or 30-Sep."

So, hopefully Monday.

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simoan 27th Sep 41 of 50

In reply to post #517311

Thank you Simoan for pointing me in the direction of Howard Marks books and Newsletters. I have spent the last 30 minutes exploring him on Google. Which do you think is his best book, Mastering the Market Cycle or The Most Important Thing (Illuminated or otherwise)?  

The former is his latest book which is probably more relevant currently, hence the timing of it's release, I guess. However I regularly read a chapter from "The Most Important Thing" before switching the lights out at night.  I don't know what it is but I find there's something comforting about his prose that helps me sleep well :) 

FWIW I have the non "Illuminated" version... whatever that is?

All the best, Si

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doug2500 27th Sep 42 of 50

In reply to post #517311

I've not read the first one, but The most important thing is excellent.

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cafcash49 27th Sep 43 of 50

In reply to post #517381

Thanks Si for responding, I will get the book. I hope it doesn't send me to sleep :-)

Maybe meet you at Mello in November. The only problem is none of us know who is who in the real world. Maybe we should have badges with our 'tags'. All the best, Charles

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JohnEustace 27th Sep 44 of 50

In reply to post #517321

Hipgnosis give investors a QR code for a Spotify playlist of their music. Spend the weekend listening on repeat and boost earnings by a penny or so - the South Sea Company never thought of that trick.

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simoan 27th Sep 45 of 50

In reply to post #517291

Therefore, I wouldn't measure Warren Buffet's performance over just 5 years. Particularly if measured against the S&P500, which includes mega-cap FAANGS mostly on some very fancy PE ratios. In some cases, to justify those PE ratios, continuing high growth would be required for many years. Historically, that just hasn't happened for mega cap stocks. This time might be different, but I'm thinking mean reversion is more likely.

Well, even if you make the time period 10 years, guess what the result is for S&P 500 against BRK.B? I'm sure Berkshire will outperform when the next downturn hits, particularly with a large cash buffer, and that the cash will be invested wisely. However, I am always reminded of Buffett's baseball analogy about watching pitch after pitch go past without swinging and waiting until you get one that's right in your sweet spot. I'd rather hold cash than BRK.B right now.

With regard to FAANGs... I'm not sure they are all expensive. On a forward P/E basis, Facebook is 20, Apple 18 and Microsoft 27. Given the profitability of these companies I will be happy to add on any significant pullback. When you consider Greggs (LON:GRG) is on 23 they actually look pretty good value :-)

All the best, Si

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dpshares 28th Sep 46 of 50

In reply to post #517126

Thanks for putting the time and effort in to make and post these. They make for interesting watching/listening for people who can't get to the meetings in person. I like to enjoy a large fry-up when watching the (LON:JDG) presentations.

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FreakNomad 28th Sep 47 of 50

> Borrowers have more clout than lenders

Thomas Cook

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xcity 29th Sep 48 of 50

In reply to post #517286

'Broadly, if you're with a large and reputable firm then you should sleep soundly at night. If you're not you should be considering either moving providers or buying a better mattress.'

Size may tip the odds, but my advice is to keep an eye of the efficiency of back office functions. And evidence of inefficiency or error should produce doubt about the accuracy of what they are keeping in their (your) black box.

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raykirby 30th Sep 49 of 50

In reply to post #517361


Thank you very much for that.....much appreciated.



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Funderstruck 30th Sep 50 of 50

Graham thanks for your notes on EQLS clearly not too many folks interested in this one , i considered it was worth a Toe after the Mello pitch & did OK but sold in early August as it faltered and Cash flow was limited. I have their three cards which are imperative for foreign travel , saves carrying a lot of cash and very low fees for cash m/cs and purchases, never been refused anywhere, unlike Amex. I keep it on my watch & news list ; but of course that is not much help if it gets an offer. On a different firm I would like to see a report from you on Urban financials UEX; I bought on Results day & again today .It links in nicely with Gov Housing policy together with their stringent credit rules.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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