Small Cap Value Report (Fri 3 August 2018) - RDL, TSLA

Morning. May II second Keywords Studios (LON:KWS) please Graham!

Thanks for the update on Ranger Direct Lending Fund (LON:RDL), Graham. For the core asset underpinning the value of the current share price, it looks like the capital downside is reasonably limited given the strong exposure to USD assets (where economic growth is strong!)

I'm not sure big pharma is the right approach for vet drugs, they've had that sort of ceo before and it didn't really work, still if she keeps the development pipe line full it will do well

Re: Minds Machines (LON:MMX) My own view is that domain names were a good idea at the time, but that time has passed. It's basically just a cash grab now. Companies now have to register multiple times: .com, .co.uk, .dot.whatever. Now it's all a bit of a con.

This is not a criticism of Minds Machines (LON:MMX) per se, but of the whole internet infrastructure.

The alternative? Well, why not have the whole thing under one roof, or just letters of the alphabet? Or maybe scrap domain names entirely, and just go by numbers, like in the telephone book. We have search engines like Google, anyway, that solve the problem.

Tern....having been the biggest winner in the stock market this year, the share price is now crashing. Small cap stocks are dangerous! The secret is to jump off just in time I guess. This was up 25 fold at one stage....amazing what hype can achieve.

The Amazon tax story in the news this morning is interesting. I don't know for sure whether they have done anything unethical as I haven't gone through their books, but there is growing pressure on the Government to charge predominately online businesses some form of additional tax. The Government is searching around for ways to increase taxes to pay for more NHS funding (e.g. see here) and I wonder whether they might bow to pressure and apply some kind of tax to online sales or profits? I think this is a real risk - and possibly a good move to balance out online advantages. It's worth keeping in mind as a risk when buying highly-rated shares in retailers like Boohoo (LON:BOO) . Or maybe the government will focus on shared-based payments (which seems to be a way Amazon avoided paying more tax).

In reply to post #387859

Hey Gus, apologies for not covering Pets at Home (LON:PETS) today. Maybe when there are results! G

Ref Tesla - i am long having picked some up a while back when they were trading in in the low 270's.(missed my quick profit chance with this one when they hit 370 shortly after my purchase) The main logic being that the company was soon (July if they can squeeze out profit qe Sep) to be profitable. Note they are still to some extent heavily investing for the future so a breakeven figure qe Sep hides the fact that they are investing in things like their servicing network ($120 mill loss the last 3 months) which will take time to reach full efficiency.

One thing with Tesla is that they are very popular with the punters who use their cars and that's what matters - very akin to Apple in this respect IMHO.

Ok i would be happier with 5 Bill cash on the balance sheet and no debt but things like the Giga factory show that the debt has been used for reasonably sound investment that is starting to bear fruits now. It's a shame they are as cash stretched as they are as they need to get as many other products to market asap while they have the lead in this area - hey ho we can't have everything we want.

One just has to look at the pickup truck market in the US to see how many new product options they have that could literally destroy the opposition in a tick if they can get product to market.

Anyway owt i say isn't going to convince the doubters here so we will have to wait and see

Hi Graham,

I really enjoyed that US:TSLA deconstruction, good stuff. I don't have, and don't intend to have, any position in US:TSLA but it's pretty clear that all those principles, including the risks of shorting, are applicable to all companies.

I wholeheartedly agree that you (and Paul) should write what interests you, as it's a hell of a commitment you two take on.

Thank you again, and have a blinding weekend!

Chris

In reply to post #387949

Mark - best of luck to anyone in trying to persuade existing businesses to give up their web address in favour of something akin to a telephone number.

I have no idea what you do but lets say you are an architect. If the gtld "architect" were available you could have the web address markcarter.architect. This is memorable and when someone in the pub recommends me to look you up on that address I may remember and you will not be relying on my doing a search for what is not an unusual name and then hoping that Google presents it at the top of their listings behind everyone who has paid for their placings.

No doubt this has been said before but how about changing the name of the blog? I for one would love to hear more of your thoughts on the bigger companies and the likes of Tesla are neither small cap or value! There's plenty to learn from you and Paul writing about large caps and growth companies.

In reply to post #388004

Pleas don't change the name or focus of this forum.
I too am delighted to hear views on some big caps that are of interest to the writer and many thanks to Paul and Graham for their insights in these stocks. But these stocks are comprehensively covered in many other sites around the net - in fact Tesla is not just covered, but smothered.
But small caps in the UK - and pretty much everywhere else-(Australia I am looking at you), are underresearched and following the shambolic MIFID 2 the situation is getting worse. SCVR is a key resource and we would hurt by having it weakened or redirected.

I'm with browndogwork on this question. I hold quite a few small caps and I'm really interested in commentary on them. But I also hold more traditional larger companies ... a small handfull of 'turnaround' cases for example ... £BT.A, Rolls-Royce Holdings (LON:RR.), Tesco (LON:TSCO), Marks and Spencer (LON:MKS), Barclays (LON:BARC). As a group, they are doing very well for me at the moment, are interesting/enjoyable shares to hold, but obviously risky. They amount in total to a good slug of my portfolio.

I would have greatly appreciated some examination of Rolls-Royce Holdings (LON:RR.)'s half-year report just a couple of days ago, for example. Mostly, the press seemed to be quite negative (the BBC quite astonishingly so) ... but the market has been very positive. The kind of commentary and analysis that Graham and Paul provide on the smaller stocks would have been really helpful to me here.

Sure, these larger stocks are (mostly not very incisively) discussed and analysed in many other places. But I am a subscriber here. I pay my annual dues. And I would like more focus and discussion on larger companies, if at all possible with a similar quality, interest and flair (thank you Graham and Paul) as offered on the small caps.

To be fair ... I'm not really saying rename or reposition the small cap discussion. I am saying that I think we are deserving of something equally incisive, interesting and informative at the other end of the size spectrum.

Glad you are interested in Tesla Graham.

In reply to post #388034

£RR
It's almost the rule that if a company is laying off staff that will be bad news in press and good news for the shareprice :)
I held RR shares until the middle of June - they have been on a downward spiral news wise pretty much since i bought back in the summer of 15. I thought i was quite lucky to walk away with a 20% profit bearing in mind the fact they seemed to be doing everything wrong (reported numbers wise now and near future). I note the price is up another 10% since i sold (typical of my timing).
It is all about the future though and i guess mr market believes that the current actions being taken are of the right type. Looking at current forecasts though even 2019 will still only be half the normalised EPS back when i bought in 2015. Although with major restructuring of this type one has to believe this is a more a 5 years plan than one of 18 months.

ref the general more small caps or large caps argument - i am all for more relevant large cap items as long as that doesn't detract from the quality of the small cap discussion. To me the small caps discussion is a fantastic resource now we have a few years of back articles. Sometime a past article will sum of pretty much where we are still are with a company so that being the case quick comment and something new and enlightening elsewhere (large cap wise) would be most appreciated. A good case in point was Superdy - i had never looked at the financials of this company comment here tweeked my interest.

I am immensley grateful to Paul and Graham for all of their wit and wisdom. I am also very much aware that SCVR is very much a labour of love. There is quite a high risk that it will become a chore unless you guys continue to be able to choose what to write about. Sure I sometimes wish that you would dissect some piece of large cap news but then I think back on all the small cap gold you have dug that is not available elsewhere. So I say keep running the site exactly as you want to!

For a $60B company, TSLA really does feel like a small cap sometimes. It's got a charismatic CEO and it perpetually makes a loss while promising riches tomorrow. So maybe it earns an honorary place in the SCVR as undisputed king of the "story" stocks.

As I understand it, Stockopedia is doing well in terms of subscriptions income......perhaps Ed and co. need to re-invest and give us a NEW and and EXTRA column - BigCap.. This could focus on big caps but follow a similar editorial style (columnist writes about what they like but in a forensic way that complements DYOR /Private investors and encourages use of Stokopedia !!).

Zipmanpeter I second the request for a Bigcapvaluereport! I do appreciate Graham & Paul's comments on the likes of Tesla and Next but agree that focus should concentrate on small caps here, primarily. Incidentally, when is Paul back? Graham is doing a wonderful job but I don't want him to burn out, and Paul's more adventurous style compliments Graham's ultra-cautious one. DYOR etc!

In reply to post #388149

Re: Rolls-Royce Holdings (LON:RR.)
I'm quite amazed by the continuing strength in the companies share price, given its current difficulties over the Trent 1000 engines which power the Boeing 787 Dreamliner. Initially only thought to be an durability issue confined to Package C engines its since been discovered that Package B engines also face similar durability problems. A total of nearly 500 engines are effected.

With associated costs currently expected to be in excess of £1.5 billion and with no guarantees that similar defects may exist in the later more powerful engine variants, this sum could considerably rise. This Trent 1000 fiasco could thus prove to be a long running and massively more costly affair, in monies and reputational damage. I'd be avoiding investing.