Small Cap Value Report (Fri 28 Sep 2018) - TSLA, NUM, SAL, TND, SPSY, NFC

28th Sep '18 by Graham Neary

33 comments 11542 reads

Morning folks,

There are a few interesting bits of news out this Friday morning. Once I've covered them, I'll endeavour to make a few comments on things I skipped earlier in the week.

Before that, though, let me direct you to Paul Scott's catch-up report for last Friday. He has written an overview of retail stocks together with specific coverage of Card Factory (LON:CARD), Moss Bros (LON:MOSB) and Tasty (LON:TAST). So that's definitely worth a read - here's the link.

Onto today's report. Stocks which have caught my eye include:

Numis (LON:NUM)
Spaceandpeople (LON:SAL)
Tandem (LON:TND)

And then stocks which were requested earlier in the week:

Spectra Systems (LON:SPSY)
Next Fifteen Communications (LON:NFC)

Tesla Inc (US:TSLA)

Share price: $272 (-12% in after-hours trading)
No. of shares: 171 million
Market cap: $46.4 billion

Elon Musk Charged with Securities Fraud for Misleading Tweets

(Please note that I currently have a short position in TSLA.)

Not a small-cap, not even British, but I feel compelled to mention Tesla again.

Today was the day I finally opened a Tesla short, something I've been thinking about for some time.

The trigger was the news that the SEC has officially launched proceedings against Musk. If you follow the link above to the SEC's website, you can read the 23-page court filing at the US District Court.

It all relates back to Musk's tweets last month that he was thinking about taking Tesla private at a share price of $420, and that funding was secured.

When I saw those tweets, it was my opinion that he had probably committed market abuse. Even if it was true that funding was secured, tweeting the news during market hours without any sign of having taken legal advice would be a very strange thing to do.

Given that the "news" was released in such a manner, I suspected that any hypothetical deal was flimsy. Musk has been battling with the short-selling community for some time, and the tweet looked like it had been written with them…

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ken mitchell

28th Sep '18

And another request for Numis please Graham. The share price usually moves slowly, so sudden big falls 2 days running leaves a nasty taste. I sold yesterday as seemed obvious bad news had leaked.

But with share down 440p to 350p and with a lot of positives in the update, in a sector prone to bids, are the falls overdone?

Key reason for profits warning seems to be the "unprecedented period of senior level hiring," and so staff costs "materially higher," so profits lower. They do explain why they've done this - to strengthen and diversify the business. And they conclude that they have a strong pipeline and are excited about prospects.

So tempted to buy the shares back again but am keen to know Graham's views first.

btw..Numis have been buying back their shares for ages including recently.

SundayTrader

Another vote of thanks to Mr C for highlighting the splendid tale of kitchen sinking from IDE Group (LON:IDE). It looks interesting as a turnaround. Of the major shareholders, I know nothing about MXC Capital (LON:MXCP), but Kestrel have some previous form.

dfs12

I look forward to reading Graham's analysis - but my quick read prior to the market open this morning didn't set my "profit warning" alarm ringing. Maybe I need to read more carefully - but what they seemed to say was that profit would be below last year. If you look at the estimates on Numis (LON:NUM) then they were already predicted to be below last year. So although not rip roaring good news I don't see it as a "sell out now profit warning". Also if you compare with the recent Cenkos Securities (LON:CNKS) results these are terrific. If I'm kidding myself please tell me! On an aside I've noticed that anything hinting towards a profit warning gets hammered these days - perhaps everyone has read the stockopedia "Profit warning" book.

Vsihv

Graham et Al,
Does anyone have any thoughts on the funding circle IPO (I didn't subscribe) bit too rich for my blood and there has been so much private money piled into fintech, not sure who the winner might be (my guess is there would be only one or two) because of regulation.
Concerned that they might start using listing as an acquisition currency and buying some pretty rich valuations.
I am sure I remember reading some thoughts from Graham or another thread on this?

Howard Marx

dfs12

I've been attempting all year to build a risk-on/risk off model, with limited success so far.

I don't think any individual measure (eg VIX) will unfailingly guide the investor - instead a multiple of inputs are needed. The CNN Fear & Greed Index is a good example, with 7 inputs:

https://money.cnn.com/data/fea...

I've backtested it's efficacy over the past 20 years

below 5 is a clear 'buy' signal
above 95 is a clear 'sell' signal

Unfortunately, these two extremes are rarely hit, hence the CNN model is of limited use to 'fine tune' a portfolio

sharw

Dialight (LON:DIA) is down 6% after being down over 20% in early trading after issuing an update at 18 05 last night.. The previous management decided that outsourcing production was the best thing for the company. That all went wrong and the new management are bringing it back in house. One day this company might get its act together!

danyou

Any chance you could revisit NFC? Good results and market down. Not sure why

Impvesta

Graham, re Spaceandpeople you say:

"The StockRank today is 97, and the ValueRank is 98. So quantitatively it still looks ok."

but surely those Stockranks don't take account of today's disastrous results and will be trashed once the updated information is incorporated?

I've bailed out of my very small holding today. That ends my second unsuccessful foray into owning shares in SAL and I don't expect to return for a 3rd bite!!

Rusty2

Yes I think that is correct, takes a few days for the results to be updated on Stockopedia.

Graham Neary

Yes, that's right. Quantitative analysis can't take breaking news into account unless you are feeding the live results directly into it. G

Bengalgooner

Hi All,

French Connection seems to have dropped a bit today - anybody have any ideas as to why?

barnetpeter

Real Food Group...RGD....highly dubious director "fees" in the past nearly sent this bust. Recent funding and results today. One for turnaround punters. Look at that chart!

"Last year was one which we will look back on with little pride or satisfaction. However, since the start of 2018, we have begun to take many of the remedial actions to turn around performance, continuing these steps beyond the financial year end. Moreover, we can now see the benefits of these actions in terms of having eliminated term bank debt, much reduced costs and a greater focus on our continuing businesses, all of which provide cause for optimism for the future.

"At the moment, underlying trading is in line with our modest expectations for the year, although the Christmas trading period remains a critically important one for Renshaw especially. Overall, the performance of, and prospects for, what is now a smaller and more focused Group, have improved considerably."

Wimbledonsprinter

On a different level altogether than Tesla, but it seems to me more companies are issuing “corrections” to their RNS - just seemingly due to sloppiness, poor proof reading. I notice today than Dillistone (LON:DSG) has come out with a replacement to its first half earnings report due to an error on its retained earnings line. I also notice that the RNS forShoe Zone (LON:SHOE) today shows the wrong price for the director,s dealing by a factor of 100 (no relacement yet issued). Such errors do not give a good impression.

mrosbiston

so did Boohoo (LON:BOO)

tagware

29th Sep '18

Graham,

We have £TESLA shares since 2014. So, it's got a long way to drop yet. :o)

A certain Apple CEO also expired and the company is still there.
Yes, if it had been 12 months back then I think you might have a point.

Elon, himself has stated that the share price was higher than he would have expected some time ago. The Bond pricing is still stable even now. So, it seems not everyone is as pessimistic as yourself.

Personally. he should stop acting like a 4-year-old and accept the SEC agreement in full. As a Chairman of the board and 2 independent directors would steady the ship whilst he gets is act together again.

It would also allow the share price to settle at a sensible place.

He has the ICE guys on the run and he can follow the manufacturing model forcing pricing down where the ICE crew is locked in their high price model. Dealerships, Maintenance. Amazon moment is arriving for the ICE crew. :o)

After all the Model T had its own issues. Which model 3 does not. :o)

Cisk

Unfortunately history shows us that early adopters rarely survive and remain leaders. It’s one thing showing flashy new concept cars and mockups, it’s totally different building them at a sustained rate, to a constant quality.

Even ardent Tesla supports I’m sure would agree that the company’s finances are perilous and rely on customer deposits for new models. Add into the mix an unpredictable CEO, then it’s a surprise the stock has remained above $200 in my view.

My biggest surprise is that it’s taken the other major manufacturers so long to catch up. Jaguar has a nice looking new model, which I personally would have over any Tesla (as personally I don’t like the style, or the image, but that’s a subjective view of course).

The next 18 months will see many new models being released that will put further pressure on Tesla.

JohnEustace

Musk has seen sense and settled with the SEC. I assume some key investors issued him with an ultimatum to settle or be fired. It seems a sensible settlement for Tesla shareholders and puts some more appropriate corporate governance in place. It removes one barrier to the fund raise they need soon.
Of course the real cost usually comes from the civil claims that will now be able to proceed all the more quickly.

https://www.sec.gov/news/press-release/2018-226

TheShareWhisperer

30th Sep '18

I would imagine TESLA will bounce higher on Monday. Not sure taking a short after the SEC announcement, and after the stock dropped, was the best time to do so.

seismo101a

Surely those Investment Trusts holding TESLA are reducing this exposure based on recent events.

The reason I currently have a short on TESLA is to act as a sort of hedge against the TESLA share holding within an investment trust I have.

.

Baillie Gifford are sticking by Musk so Tesla is likely still 5% of Scottish Mortgage Investment Trust (LON:SMT) for example - well I guess a bit lower now but driven by the Tesla share price falling rather than sales.
I did read that Fidelity has been selling down.
If I held Scottish Mortgage Investment Trust (LON:SMT) I would look at switching to Polar Capital Technology Trust (LON:PCT) which doesn't have Tesla in the top ten, preferring to stay clear of the mess altogether. They're both up about 30% over twelve months. But capital gains tax might complicate that outside an SIPP or ISA.

https://www.fnlondon.com/articles/baillie-gifford-the-fund-that-still-believes-in-elon-musk-20180928

Small Cap Value Report (Fri 28 Sep 2018) - TSLA, NUM, SAL, TND, SPSY, NFC

Tesla Inc (US:TSLA)

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Graham Neary

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