Small Cap Value Report (Fri 28 Feb 2020) - Carnage, VRS, FOXT, NCYT, AVAP, VTC

28th Feb '20 by Graham Neary

62 comments 11526 reads

Good morning!

I hope everyone is ok out there.

As I type, FTSE futures are changing hands at 6550.

It has been an extraordinary week in the stock market.

In the immortal words of Clive Dunn, "Don't panic!"

In today's article I'll be taking a look at the newswire, as usual, and talking a little about what's going on more generally.

Some small-cap announcements today:

Foxtons (LON:FOXT)
Novacyt SA (LON:NCYT)
Avation (LON:AVAP)
Vitec (LON:VTC)

Rightmove (LON:RMV) has published results, too. I have a long position in that one, and it's relevant to OTMP, so I might say a few words on it.

Finished at 13:30. Got as far as VTC.

Carnage

I should address the fact that the FTSE is down by 800 points, or over 11%, in the space of five trading sessions.

What I've been doing - very little!

As long-time readers will know, I don't trade very often. I can go many months without buying anything new, or selling anything.

It is true that since December, I disposed of around 1/4 of my entire portfolio, to help fund a house purchase. Yesterday, I got rid of my tiny stake in Property Franchise (LON:TPFG), to help fund this purchase.

The rest of the sales took place in mid-January, long before the panic over the coronavirus.

So my share portfolio has not been reacting to this news.

If I had been more clever, I would also have sold my entire stake in Burberry (LON:BRBY) last month, when it was trading at £23 (now £16). But selling and buying back cheaper is not a game that I play.

The total returns for my largest holdings so far in 2020 are:

Volvere (LON:VLE) (+6% YTD) (21% of portfolio)

This is a cash-rich, counter-cyclical holding which would benefit from a recession. It's been holding up as I hoped it would in these circumstances.

Burberry (LON:BRBY) (minus 27% YTD) (12% of portfolio)

Burberry has…

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timarr

28th Feb '20

Yep. In a low interest rate environment my yardstick would be Unilever (LON:ULVR) on a > 4% yield. That would tell me to go all in. How do you measure the fat pitch?

Hi Si

Not so far away then ... I keep track of a basket of companies but I also keep an eye on the drawdown of the FTSE 250. If that gets to 20% then I'm a net buyer but I'm greedy enough to want to see it down 30% before going all in. Currently only down about 12% since January so we have a way to go before I go all in.

Roughly we see that kind of fall about once a decade, and normally it takes about 2/3 years to see a full recovery. So, in general, there's no hurry ...

mojomogoz

Hello Ambrosia, I know Kyle Bass (a little from past)...he's been saying this for a long time. I met a spin out investment business from his about 8+ years ago and one of their funds was out of the money options on HKD breaking peg. That fund had a 5 years life before it burned thro their capital....which it must have done! I also know a HK based short seller (mainland Chinese so always amazed that he short sells) that has been betting on this for best part of a decade....

So, I am very well aware there is a peg...and that is partly my point...it served a purpose once for HK but not so much now particularly to fulfil Chinese desires of more fulsome integration.

In history pegs don't last when big stuff changes. I'm not saying its the end if USD hegemony...I'm not that mad....but it could look a bit like this

IMO this is time to keep your hindsight glasses in their case and look forwards. If we'd all sold everything a few weeks ago we'd all be better off. There's no point beating yourself up about the past - nothing would've told you even this time last week we'd be where we are now!

Absolutely correct.

In terms of Ramsdens Holdings (LON:RFX) there's no particular concern - the company is in good financial shape and the pawnbroking and gold components of value will likely do well in a downturn. My point was that the price fall is somewhat rational because of the near 40% of gross earnings from FX and that the read across to H & T (LON:HAT) isn't really valid, even though the two companies are often grouped together.

In terms of the future for Ramsdens Holdings (LON:RFX) - yes, increasingly we'll see people shifting to cards but Ramsden's particular customer demographic aren't likely to be big credit or debit card users. They already offer a prepaid Mastercard and adding an app isn't hard either so I doubt that will be a major impact in the near future.

simoan

Interesting. I'm down 5.4% on a total return basis. I'm not an income investor but I still find it comforting that even in such a bad week I've received £600 in dividends, mainly Ig Group (LON:IGG) . I've topped up a couple of positions today and will look to add some stuff on a daily basis for the next few weeks. Unilever (LON:ULVR) is only down about 4% YTD but when it tanks I think it's a pretty good indication that people are capitulating. Then I'm going to get fat! :-)

All the best, Si

john652

Hi Graham,

Can i ask why you do a spread on an option on an index (i think thats what you are doing) rather than a cfd/spread against the index?

Both show real-time P&L so i just would like to know your thinking?

Thankyou
J

sparkler

I think you can take some notice of director buying at Vitec (LON:VTC), Graham. The Chief Exec has just spent £128,000 on shares. I would hope that this is rather more than one month's salary, or else he is being overpaid for a company with a £380m market cap!

Graham Neary

I checked his pay from the most recent annual report (2018).

It's a bit complicated to explain but I prefer the flexibility in options. With options, I can decide which level I want an outright position at.

And it was? Surely less than £1.5m per year?

Apocryphal Now

I presume this is Stephen Bird you're on about. The annual report for 2018 shows the following for him:

Base Salary £451,758
Benefits £33,212
Pensions £90,352
Annual Bonus £377,925
Long Term Incentive £1,383,287
Total £2,336,534

jonno

Timarr & Si

Regarding Ramsdens Holdings (LON:RFX) thanks for restoring a sense of perspective.

On the question of physical cash versus the use of cards/apps, my view is similar to Timarrs'. Ultimately there will be a commission/transaction cost that will accrue to the provider, so I don't think that the gradual migration from cash to cards will have a major impact on Ramsdens Holdings (LON:RFX) or £HAT.

All the best

Yes, fair point. Quick anecdote... I was recently in Chile and Argentina and met a couple of Brits who were having untold problems with Fair Fx cards and the app. I think they got the problems sorted in the end but it's not the kind of hassle you want when you're trying to enjoy a holiday. Neither were impressed. In Argentina at least, nothing talks quite like a $50 or $100 bill :-)

Don't know about you but I'm off for a stiff drink or several in an hour or so...

ken mitchell

Will Marsh
It seems you’ve misunderstood. Graham’s comments on Versarien were tongue in cheek. If you read his previous update on Versarien it will probably make you laugh. A joke Company (though some on other bbs seem oblivious). So you agree with Graham.

LongValue

And what about his "Expenses"?

Gromley

Re Versarien (LON:VRS)

To quote Dick Emery :

Graham - oh you are awful, but I like you!

(Younger readers may need to consult google)

raggedtp

I wouldn't laugh at you, Carcosa. I'd buy you a beer, as this is my third largest holding right now, I was hoping for a take-out at around 380p, and your 500p would make up for my hopeless performance on what used to be my largest position. I have read your previous, nicely considered, posts and also think it is well positioned to see out the COVID-19 episode for the reasons you describe. But will you really hold on for 500p? Did you listen to the webcast?

Beginner

There was recent comment here about the financial problems at the family-run Cordant Group, and comparison was made with Staffline (LON:STAF) . I have received an e-mail telling me Cordant has just been taken over by Twenty20 Capital, a private equity crowd. Read into that what you will.

Paul Scott

29th Feb '20

Err, that's fine.

smatthews1

Hi Carcosa, great comment as always. Would it be fair to suggest that selling the options at a premium is a safe way of ensuring investors that repossessed planes are in high demand, therefore are likely to be taken up quite quickly?

thats the only recent concern I have regarding current conditions.

aflash

28th Sep '22

https://viewpoint.bnpparibas-a...

Small Cap Value Report (Fri 28 Feb 2020) - Carnage, VRS, FOXT, NCYT, AVAP, VTC

Carnage

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Graham Neary

62 comments

Graham - oh you are awful, but I like you!

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