Small Cap Value Report (Fri 3 Feb 2023) - BWNG, BBSN, NANO, TUNE, Paul's Portfolio Now

3rd Feb '23 by Paul Scott

73 comments 9108 reads

Good morning from Paul!

I've got a bit of catching up to do today, so you have my full & undivided attention until at least 13:00, possibly longer.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Agenda/Summaries -

I'll aim to look at some of the items in the backlog section from previous days this week -

Paul's Portfolio Now

This started off as a reply to a reader comment, but it's probably worth repeating here as a main section.

People might be interested in my current holdings, since I recently deployed some spare cash from a successful bid at BUMP.

As always, it might shock you that I'm taking a fair bit of risk here, but just because I write a value/GARP column, doesn't mean I have to invest my own money in the same way! So here goes (initially a reply to joshwood's comment below)

Yes good idea, I can do an updated list of my own personal holdings. It would be quite easy now, because (as mentioned numerous times here & in my podcasts), I capitulated with my spread bet accounts last year, and closed them. Now I'm just concentrating on ungeared investing, so smaller positions, and less risk. The plan being to just gradually rebuild, rather than shoot for the moon & the stars again, before burning up on re-entry, which is the story of my life to date!…

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Mikex1

3rd Feb '23

Works for me and shows latest version

https://docs.google.com/spread...

nitnia

HUI are delisting from AQSE on the 14th Feb having just got a listing on the LSE .

Monty Carlo

Oh no.....I was counting on Richard for a spare propellor for the model Avation ATR in my son's bedroom!

Postel1400

Thanks nitnia, HL do not make it clear where they are de-listing from, which I did think rather strange, as of course they have just listed on the LSE?! Thanks again :)

Helvellyn

You may well subscribe to Bloomberg's John Authers daily newsletter, if not it is usually worth a read, especially at times like this.

Although his take is more US centric I imagine the same scenario applies more or less to UK and Europe.

In answer to your question this is a section from this morning's offering.

Apologies for some reason not being able to just add a link.

How to Make Sense of This?

If risk assets have enjoyed a historic rally, it remains difficult to see exactly why. Even if traders are right to call central bankers’ bluff and bet that target rates will soon come down, after all, that still implies a slowdown in the economy — which would be bad for risk assets. If the economy isn’t grinding toward a halt noticeably, why would the central bankers cut rates?

As ever, positioning plainly has much to answer for. Across markets, this looks like a classic “short squeeze” as the stocks that had taken the biggest hit have seen the biggest rebound. For one nice illustration, this chart shows the performance of S&P 500 members for the year so far, on the vertical axis, and from August’s brief high to 2022’s year-end on the horizontal axis. The biggest fallers in the last downdraft of 2022 are the biggest gainers in this rally, with Tesla Inc. in the vanguard:

The short squeeze is particularly effective because there’s an abundance of liquidity to finance it. Arguably, this is the critical factor that had not been expected even a month ago, and that has turned market dynamics on their head. Some of the reasons for the turn in liquidity are counterintuitive, and include:

China, where a U-turn on public health and Covid has been followed through with a U-turn on liquidity. The sums involved are vast — in December and January, the People’s Bank of China released 3 trillion yuan (about $425 billion) through open market operations, a sum 3.5 times greater than its total injections for the previous two years.
Japan, where the Bank of Japan’s shift in its yield curve control target in December prompted many traders to bet that the bank would be forced to allow yields to rise still further. That prompted the BOJ to buy even more Japanese Government Bonds.
The US, where the impending debt ceiling showdown has forced the Treasury into accounting maneuvers to delay the day of reckoning. These mostly have the effect of counteracting the Fed’s attempt to tighten its balance sheet, and releasing more liquidity.

On top of this, the fall in yields creates its own momentum, making money cheaper and enabling more speculative activity. The liquidity effect in China has been most dramatic, as illustrated here by Mike Howell of CrossBorder Capital. The orange line shows the rolling three-month total of liquidity injections by the PBOC via open market operations, while the dotted black line is a NowCast of moves in global GDP:

Liquidity on this scale can keep markets moving for a long time. Howell tends to think this is the beginning of a new liquidity cycle, which could mean a long strong run for risk assets. Others expect it to be shorter-lived. Harry Colvin of Longview Economics said: “What we’ve seen for the last few weeks has been a short-covering rally, and then in the last few days an aggressive short squeeze.” With the economic data still pointing to an imminent recession, he suggests the short squeeze can’t last much longer, and that buying bonds is going to make far more sense than equities for the rest of the year.

And indeed, if this isn’t a short squeeze it looks an awful lot like one. John Roque of 22V Research points to a series of startling successes during this rally, which have all the hallmarks of an indiscriminate liquidity-driven rally. Non-profitable tech stocks are up 17% in the last five days, he says, and 27.5% in 2023. Meanwhile, high beta momentum is also up 17% for the week, and 28% for the year to date, while the most heavily shorted stocks have done better still, up 15% in five days and 29% for the year.

It’s dangerous, as ever, to try to get in the way of a wall of liquidity. But unless that liquidity succeeds in keeping the economy afloat, the risk is that asset prices will sink.

Paul Scott

Hi Jayman,

Yes sorry about that, my little website for publishing podcasts has got a problem with the SSL certificate. I've bought another one, but it isn't configured properly apparently. I don't understand all the emails I'm getting from the hosting company, so will have to try and sort it over the weekend. Sorry about that.

In the meantime, I'll put tomorrow's podcast on the main podcast platforms as usual (e.g. apple, google, spotify, etc). So it might be better to access it via that. I publish through acast, which then distributes my podcasts far & wide on the various platforms!

Regards, Paul.

Rusty2

Maybe it was not updated for a while, I looked yesterday and there was nothing fir a few days. Today it is up to date.
But anyway a link is useful. Tabs get cleared sometimes.

So how will new members find it, in the future?

Maybe we need a members only area?

planetx

As I said I sold half right away ,

Most of that went into Colefax at 620p so that’s had a big swing .

Think the strategy was ok , if anything jumped out as good buys I’ve been selling the Crestchic down as and when since (still sat on 40%)

I was massively overweight in Crestchic before the bid so no point selling everything and rushing to deploy .

I was also hoping it might not all crystallise till after tax year do CGT would split over tax year .

Eg today topped up Belvoir , Croma today on lows

Bought somero few days ago on the drop also Avingtans and Wynnstay on the drops in the past weeks

bought Finsbury half position at 90p and like Paul Watkins jones - so that’s where it’s been deployed .

Also titon at its lows . (67p) which is the company that I’m quite big on , found out last week their real estate in the accounts at 3 million level has a current market price of over 6 million so it’s a Benjamin Graham classic albeit a bit of a cigar butt in a tough trading space (it’s cheap now for a reason )

A lot of the gains are in the frothy shares that get bounced around not in the good solid long term companies I try to be involved with so would never have gone there anyway .

Colefax was a big win though .

laurie

I don't take seriously companies with funny names.

Google?

It is just a really big number: https://en.wikipedia.org/wiki/Googolplex It is a name that prompts me to smile, so maybe it is a bit funny…although I am more inclined to call it questionable spelling and (eventually justified) hubris.

Many thought Apple was a funny name in the early days.

Is there any reason you don't own Volex (LON:VLX) or Sosandar (LON:SOS) given you have written very positively about both of them recently?

Yes - not having enough money! LOL (I want to concentrate on about 10 shares at the moment, so that positions that work move the dial enough to make it worthwhile)

Hi wildshot,

I've got so many good share ideas, but not enough money to put meaningful money into all of them. So I've concentrated on the share ideas that I think could double fairly soon, about 10 shares, rather than spreading it 2-3% in 30-40 positions, lots of things that might do alright over time.

4th Feb '23

Weekend podcast - I've recorded it, and just published it on podcast platforms (such as Apple, Spotify, and others), just search for "Small Caps Podcast with Paul Scott", or any part of that.

I'm having temporary technical problems with my own little website, should be fixed on Monday, so I haven't been able to publish it there yet.

Michael C

I'm struggling to see the connection between increases in liquidity in China, Japan and the USA ,and the price of Boohoo (LON:BOO) on the LSE. But it appears the shorts are capitulating to some extent, whatever the reason may be.

That is nothing, ASOS (LON:ASC) is up about 90% in just over a month, many retailers are also strongly up. Some had good Christmas trading.

The Jayman

Thanks Paul. Always great to find an hour or so to listen and take stock.

Enjoy the weekend (perhaps better on the coast than here in deepest, darkest, rural North Dorset is grey).

Thanks for the colour Paul

TRADERWEEKS

5th Feb '23

As always, great podcast Paul!

Harry Hindsight

6th Feb '23

It is said it was because Jobs was a fruitarian. But according to Walter Isaacson's biography he came up with the name simply because “it sounded fun, spirited and not intimidating...plus, it would get us ahead of Atari in the phone book.” - oh the days when just had to trawl through the printed page of the FT.

Small Cap Value Report (Fri 3 Feb 2023) - BWNG, BBSN, NANO, TUNE, Paul's portfolio now

Agenda/Summaries -

Paul's Portfolio Now

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Paul Scott

73 comments

How to Make Sense of This?

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