Small Cap Value Report (Fri 30 Dec 2022) - BARK, IES, NEXS
This week's podcast is now up here (recorded on 31 Dec). The mystery share is Rotala (LON:ROL)
Good morning from Paul.
Welcome to the last SCVR for 2022. This has been a dreadful year for small caps. However, things are now so cheap that I foresee tremendous investment profits in the future, once the economy and earnings start returning to normal. The only question is timing of the next multi-year bull market.
In the meantime I think we've got to be very careful, trying to avoid profit warnings, and heavy dilution or even insolvency for companies with problem levels of debt, and/or cash burn. So we certainly can't start getting complacent, there remain major obstacles ahead. I'll write in more detail over the next few days, about my reflections on 2022, and the things I'm focusing on for 2023. Depending on time, I'm also planning on listing everything on my watchlist, plucking out the most interesting share ideas that we've covered in 2022.
Today sees shortened hours on the UK stock market, which closes at 12:30 - it usually takes me until about 13:00 before I realise that the prices have stopped moving, and I can turn off the computer! I'll be working here until a similar time, and will both review today's news (if there is any), and do a few more backlog items from the reader requests earlier this week.
I should add that, despite it being one of the worst investment years ever for me, it's been a great pleasure (most of the time!) writing these reports here on Stockopedia, and interacting with the terrific community we have here.
The glass is always half full for me, so I'm confident that those of us with thumping great losses recorded for 2022 will learn from our mistakes, and we'll make the money back in the next bull market. In the meantime life goes on, and there's plenty of enjoyment to be had in many other ways, so try not to dwell too much on a disappointing investment year. We have to take the rough with the smooth with investing, and bad years are a good opportunity to refresh strategy, and sharpen our skills for the next bull market.
Agenda
Barkby (LON:BARK) - (8.5p - mkt cap £14m) [quick comment] -
Publishes audited accounts for y/e 2 July 2022 just in the nick of time (AIM companies have 6 months to publish audited full year accounts), so avoids its shares being suspended. This is a peculiar group, doing small-scale property development, operating, 9 pubs, and a bunch of loss-making non-core businesses that it’s trying to sell. We’ve not looked at Barkby before, so I’m only writing this to get something into the archive, and save you spending time researching something that is very unlikely to be a good investment. Barkby is not of interest at all. The balance sheet is shot, with negative NTAV of £(7.7)m, and it’s dependent on an increased loan facility. This is essentially a private company with a listing, and I cannot see why the major shareholders (individuals) would be interested in continuing with the costs & hassle of a stock market listing, so de-listing risk looks very high. It also says today that it’s consulting with supportive major shareholders about raising fresh equity, so dilution risk is also high. I would avoid this with vigour, to borrow a marvellous phrase Graham coined here recently! (no section below)
Invinity Energy Systems (LON:IES) - see this thread in the reader comments below, where welwichia sees the glass half full, and I reply with a glass half empty view, on this heavily loss-making, cash-burning energy storage company that looks to have run out of cash again, and is now drawing down on a loan facility, implying massive cash burn in H2 of 2022. Be careful, I think this seems very high risk.
Nexus Infrastructure (LON:NEXS) Nexus (up 23% to 188p at 09:01 - mkt cap £85m) [quick comment] - a highly significant announcement, that it’s disposing of its TriConnex and eSmart Networks businesses for £78m cash - which is more than last night’s £69m market cap! A tender offer of £65m will be done in early 2023, to give most of the cash to shareholders (at what price, is the key question?). Tamdown will be the principal remaining business within Nexus (key question 2 - how much profit will the smaller group make in future? Is it viable as a listed company?). CEO (22% shareholder) & CFO will leave with the sold companies (but the CEO will become a NED at Nexus). Internal candidates at Nexus promoted to become new CEO & CFO. Trading update says in line with expectations for FY 9/2022. Q1 trading also in line (Oct-Dec 2022).
My opinion - a very unusual transaction, which raises the point that private buyers, in some cases, seem to be prepared to pay more for businesses than the public market values them at. Hence we might see more takeovers, which is good news if a decent premium is paid. NEXS is now a special situation, which could be interesting for experienced investors to research more thoroughly, as there might be additional value in the share, if you work out the sum-of-the-parts valuation. A lot of it hinges on what level the tender offer is priced at, which we don't currently know. It sounds like the CEO and 22% shareholder intends taking up the tender offer, which I imagine would motivate him to price it generously! For that reason, if I held this share, I'd be inclined to sit tight for now (because this deal means the share should be almost entirely cash-backed), or maybe top slice a few in the open market to hedge my bets? Any holders here? If so, I'd be interested to hear your take on it.
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.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
58 comments
Paul and Graham,
Thank you for your input and insightful commentary this year. I have enjoyed reading your comments on a daily basis, both about specific companies and about the macro-economic and political outlook in general.
I look forward to reading them again in 2023!
Happy New Year to the both of you.
Thanks to Paul and Graham for your insightful words of advice throughout the year. Also, best wishes to everyone for a better 2023, in all sorts of different ways. Only been a lurker up to this point but I will retire this year with two key aims: more time to research the great information that is shared here and a lower handicap. I can guarantee the first, not too sure about the second!
Many thanks for all the kind comments, much appreciated :-)
I had a look at Traders Cafe and Novacyt SA (LON:NCYT) was mentioned in 22nd December.
Like many other subscribers, I want to say a big thanks to Paul and Graham, for putting out a daily post which has given loads of inspiration, 360 opinions, and immensely added to the way I analyse and look at companies.
But also, thank you to all you other lovely subscribers who have contributed great comments, opinions, and answers to my many questions over the years. I've enjoyed contributing to the SCVR comments thread as well as writing my own articles, and I always look forward to reading the comments from others, especially all the other regulars.
For 2023, my goal is I hope to meet some of you in person! Maybe at a Mello event, or maybe at a Stockopedia event...? :)
I'd just like to add my thanks and best wishes to Paul and Graham for their sterling efforts throughout 2022. Paul, how you were able to stick your head over the parapet day after day, whilst the rest of us were hiding behind the sofa, I will never be able to comprehend. True professionalism.
It's been a tough year for sure, but I can see a lot of positives for the small cap market going forward. Good luck to everyone and best wishes for 2023.
Thank you Paul & Graham for your super efforts during the year reporting on all these small cap stocks; The depth of coverage for most companies that you provide clearly takes a lot hours ,which is recognised and saves us a great deal of effort so we can home in on the more promising companies.
Wishing you a Happy and Rewarding year throughout 2023 that will leave this year behind.
Paul and Graham
Thanks for your excellent commentary all year.
Increases my understanding and knowledge - no better place in my opinion.
Happy New Year!
Michael
Maybe 2022 will turn out to have been good for us. In a Bull market we can become a bit too cavalier with our investing. I have suffered like many but I now believe I have become a bit better at what I do. I have also taken more notice of some of the basics of Stockopedia. If value has a low score, do I really want to overpay for a stock? My screening has become better.
A big thank you to Paul, Graham and all of the other contributors. The SCVR reports and the expertise of regular commenters is great value. It is a great community and generally polite and respectful with little to no 'ramping'. Love you all. Here's to a better 2023 for us all and thank you.
I wanted to float an idea. Given we are all in this together I would be interested in a community portfolio. A portfolio of shares decided on by majority vote to use as a reference point. I see several advantages to it 1) it would free Paul and Graham of the moaning few who seem to think they have a monopoly on picking losers. 2) It would keep at the forefront those shares which we all believe are runners. 3) It would be educational in terms of portfolio structuring, rather than just share picking. 4) I think it would generate more focussed discussion. If there is interest I defer to you Paul/Graham.
I wanted to float an idea
I like the idea but I fear a portfolio consisting entirely of small caps would not be a trustworthy guide to portfolio construction since it lacks defensive qualities owing to the inherent volatility of small issues. I propose that if split quality/growth vs value approx 50/50, the educational aspect would be enhanced.
Hi Paul.
As the year draws to its finale, and along with that, my 24 month subscription to the Stockopedia adventure draws to a close ( i simply cant afford it anymore as i need to allocate the subscription money elsewhere), I just wanted to take the opportunity to say thank you so much for being my daily voice of reasoning/mentoring regarding the stock market during these times. Your (and the teams) daily insights have taught me so much and the volitility of emotion expressed, both highs and lows, have been both insightful and amusing at times. You are all doing truly great work in this forum and i will indeed miss it. I will continue to listen to your podcast so please dont give that up and I truly wish you, the team plus all members of this community a greatly improved 2023 and beyond. Genuinely, thank you for all you have done and continue to do.
Cheers Paul and Graham. Top job!
Novacyt SA (LON:NCYT) has jumped up significantly this week on no news but odd! Hopefully some good news around the corner
Covid testing kits needed in far greater quantities again as the Chinese resume world travel JSLDUK?
Is Beeks Financial Cloud (LON:BKS) under a cloud? I'm sitting on my holding as the price droops, waiting for the next big deal, but I'm beginning to wonder.
The Economist (December17th) says that "On December 12th, Microsoft announced a ten year deal to provide cloud computing and data analytics to the London Stock Exchange...... This follows a tie-up last year between...... Alphabet's cloud business and CME.......Weeks later, Amazon Web Services announced a similar arrangement with Nasdaq". Yes, it's a big market, but these are monster competitors for little beaks. And none of them has seen fit to snap up Beeks Financial Cloud (LON:BKS) for its technical expertise
The Economist goes on to say that Regulators won't want to see the big four taking over finance, but in the short term, can Beeks Financial Cloud (LON:BKS) really hold its own in competition for Tier 1?
On Beeks Financial Cloud (LON:BKS)
disclaimer:I may be wrong (do not hold, but looked into it a few months ago)
I do not think BKS seek to supply directly to the LSE. They provide hardware / services that allow organisations to trade _with_ the LSE (and other exchanges) - ranging from colo to renting servers to a VPS - Lots of people do that and, basic provision is fairly commoditised.
I think Tier1 refers to very large banks, not the actual exchange. (there are many other banks and bank-like organisations that need this service)
BKS (claim to) differentiate by offering faster / more reliable / more secure / lower latency links between exchange and datacentre and exchange-exchange than the commodity sellers.
I work with the 3 main commodity sellers and a couple of others (not in this business area) - they supply services to clients I work with and their standard offerings are ... just about good enough for what we do (as long as the reseller knows what it is doing) but not good enough when any failure for any reason for a few seconds (a human might not even notice) can result in an impact in £millions.
This is a specialised niche - and a lucrative one.
I decided to move on as the while the business is very lucrative, the sales process (from a small holding with another smallcap a few years ago) to a Tier1 bank is measured in years, so revenue growth is v. lumpy (though v.v. sticky) and so felt the price too high (at about 150p)
Best wishes to you all and that the new year brings us all health, wealth and happiness. I mirror all the many thanks expressed here towards the Stockopedia team for their excellent work on this invaluable resource.
Thank you for your brilliant advice over the year Happy new year both of you and all the stockopedia staff
Hi Paul As it is a quiet day could you take a few minutes to talk about the wide spread on many small caps and is it worth paying a traditional Stock Broker to narrow them or do you have any other suggestions to get a better deal?
Also thanks for you work this year specially for falgging up the Bargepole stocks
Yes, thanks Paul for all your entertaining and great commentary in 2022 and wishing you a much better 2023 on the markets.
I often think that the wide spread quoted on small and AIM stocks represent the sort of broad range you might expect a trade to fall in. In my experience, actual trades are often within a much tighter range (excepting very small and very large trades).
Novacyt SA (LON:NCYT) does anyone know what is going on? Shares yesterday were up 42% before falling back a bit at close, today they are up 25% on no news.
Not close to the share, but related to the end of zero-COVID in China and anticipated new testing requirements for arrivals in the West?
Hi Rusty2,
If you pop over to the Vox Markets website and click on the 'Traders Cafe' link at the top of the page it will take you to Zak Mir's page. He does a feature most days called 'Bulletin Board Heroes'. He tends to follow smaller, more illiquid companies although he does also comment on indices and Bitcoin. He uses technical analysis (trend lines etc) to assess stocks and their potential future price targets. Whenever you see smaller illiquid stocks shooting up on no news its always worth checking to see if Zak has mentioned it. Hope this helps.
Thanks for the link Derbion.
I had a quick look at Zak Mir's 'Traders Cafe' and see, amongst others, he gives a positive mention to Invinity Energy Systems (LON:IES) which is given the bargepole treatment by Paul today.
Strikes me that 'Traders Cafe' might be little more than a ramper's charter. Beware.
Snazzy
I do miss Tip TV a bit... fun while it lasted!
Thanks, did not know about Zaks Mir being on Vox. Ive heard he is someone to be very cautious about. Maybe it is to do the Chinese travelling agin soon. Strange policy in China, with cases soaring they are now allowing people to go abroad, from 8th January.
Thanks for great reports through the year they are greatly appreciated and very useful. All the best to everyone and a better new year for us all!!
I have added UP Global Sourcing Holdings (LON:UPGS) recently. Paul did an excellent interview with the company some time ago. Their products should do well in the current climate as they are affordable and they do not plan to increase prices. And with freight costs tailwinds, FX hedging and input inflation abating, I'm hopeful of further progress in 2023. Decent yield too.
I would like to pass on my thanks to Paul/Graham/Jack and the rest of the Stockopedia team for their hard work and insights throughout the year. Keep up the good work folks. All the best.
I agree. I have a long held position in UPGS - it's misunderstood by the market in my view. The business model and management team are fantastic. It's not valued as a brand owner but as a distributor. Simon Showman is a fantastic founder / manager - it would be great if Paul could interview Simon as well as Andrew Gossage next time. Andrew is also really good (as the rest of the management team), but Simon is the main man. Except for Salter which is a No. 1 worldwide brand, every other heritage brand was purchased for nominal consideration from the receivers and relaunched. This is a fantastic business model which is now being rolled out into Germany with Petra. The shares are at an interesting technical point and have appeared on my trend 2 Mark Minervini screen which is encouraging.
UP Global Sourcing Holdings (LON:UPGS) so why, with a Stockrank of 87, Qual 83, Val 51 & Mom 86 is it ranked as a Neutral? Should be a SuperStock or High Flyer at very least? Feel I'm missing something here....
UP Global Sourcing Holdings (LON:UPGS) agree a high flyer. Don't know the answer but carrying lot of debt which we've been warned about going into 2023. Maybe stocko moved the needle a bit today :)
Value is too low for a Superstock and too high for a High Flyer. There are a few high QM stocks that are classed as Neutral.
Paul / Graham
Thank you for your superb commentary throughout 2022.
I particularly value your (and readers’) bear points on shares. It is generally easy to find the bull point (investment case) for a stock as this will be well publicised in the company literature or commissioned research. By highlighting the bear points, I can save myself time deciding not to research a company or to decide that the share price is low enough that these bear points are fully priced in and I will research it nonetheless.
The SCVR is a fantastic filter for new investment ideas and ongoing commentary.
Happy 2023 to all.
Thanks Paul, Graham and Rolland. Your insight and humour keeps us going in difficult markets. It’s good to keep learning from you and everyone who takes the time to comment. Looking forward to reading your thoughts on 2023. Happy New Year all! Just think this time next year we could be millionaires!
Thanks Paul and everyone who contributes to make this group such a valuable resource.
I know there will be many of these today, but wanted to wish everyone a happy and (fingers crossed) prosperous new year, and thanks to Paul and Graham for all that you do - always interesting, often amusing, and oddly reasuring that we've all had a horrible year.
There does appear to be some green shoots - following you flagging them up, and Doing My Own Research, I've done quite well on Crestchic (LON:LOAD) and Warpaint London (LON:W7L) , just have to hope that some of the others recover in the fullness of time.
Roll on 2023!
Dave
Hi Paul,
You’re quite right; 2022 has been a terrible year for small caps. But it’s been made less terrible by your commentary and insights.
I listen to a few different podcasts each week, from various sources and most are business/money related, but your’s is the one I NEVER miss and always listen to first as soon as it pops up in my list.
So, thanks for all your hard work during a challenging year and let’s all look forward to more positive news coming down the pipeline in 2023.
Happy New Year.
Ed.
Thanks for all your insights and good cheer in a very difficult year Paul, Graham, Roland and everyone who has contributed to these daily reports.
I should add that, despite it being one of the worst investment years ever for me, it's been a great pleasure (most of the time!) writing these reports here on Stockopedia, and interacting with the terrific community we have here.
The glass is always half full for me, so I'm confident that those of us with thumping great losses recorded for 2022 will learn from our mistakes, and we'll make the money back in the next bull market. In the meantime life goes on, and there's plenty of enjoyment to be had in many other ways, so try not to dwell too much on a disappointing investment year. We have to take the rough with the smooth with investing, and bad years are a good opportunity to refresh strategy, and sharpen our skills for the next bull market.
And I have had great pleasure reading them! Well said and huge thanks for your massive out put this year, along with Graham. I'm an avid reader every morning. Let us hope for better things in 2023.
Happy New Year to all!
Morning all,
Yes, a dreadful year, glad to see the back of it!
A Happy New Year to all, health, happiness and maybe a few takeovers for our favourite shares!!
Cheers!
Interesting update from Invinity Energy Systems (LON:IES) :
"The 30 MWh of new business announced during Q4 2022, plus the deferred revenue relating to the above projects, combined with a significant number of further sales opportunities advancing positively towards close, has led the Company to now anticipate revenues in 2023 significantly ahead of its previous expectations.
"The prospects for our battery systems have never been more positive, buoyed by external developments including multiple global energy crises, challenges with lithium-ion battery performance and supply, government support for energy storage, and internal achievements such as our expanded manufacturing capability and the excellent performance of our delivered systems, particularly our projects in the UK which continue to unlock renewable energy on-demand and provide vital support to the UK electricity network during unseasonably cold weather.
"We are now able to project a very exciting 2023 with revenue greater than originally expected and announcements pertaining to the on-going development of our next-generation system with a strong and supportive partner."
I have a small position here and it looks like after what has been a very trying time for shareholders, this may be the start of a turnaround in fortunes for Invinity Energy Systems (LON:IES) ?
https://www.investegate.co.uk/...
Nice for directors with their TAKE on 13 March 2019 @2p
Indeed. Scott McGregor has made a pretty penny. Shareholders have not. But he has.
Good morning welwichia.
Sounds interesting, so I've just read the full announcement from Invinity Energy Systems (LON:IES) , not just the cherry-picked positive bits!
It seems to me that today's news is mainly about revenues slipping from 2022 into 2023, due to various project delays. That is not positive! They're trying to put a positive spin on a profit warning for 2022, in my opinion, although I've not looked at the company before.
The StockReport shows huge, multi-year losses, and cash burn. It seems to have done a big fundraise in 2020, but recently announced an initial $2.5m drawdown on a $10m convertible loan facility (with warrants), so it looks like the company must have burned through that last cash pile, and is now into last chance saloon type funding arrangements maybe?
It had £16.1m at 30 June 2022, so it looks like that must have been burned in H2.
This looks extremely high risk to me, I think you're crazy being bullish on something this high risk. You need to look at the numbers again, I think you're set up for a potential 100% loss on this, unless something spectacularly good happens. I reckon the convertible loan holders could end up owning the business in 6 months' time, with equity wiped out, so you need to hope & pray that it's able to raise fresh equity at a reasonable price. Who on earth would want to take that risk?
The products sound interesting, but equity looks super high risk, given the massive cash burn, and now a profit warning for 2022.
I'm sounding alarmist for a reason here, this looks absolutely terrible, and I think you're set up to lose most, or all of your money in this share in the next 6 months. Maybe revisit it, if and when they've done a fundraise in 2023 at a much lower price? But it's your money, so your choice. I just feel the need to warn you that this share is extremely high risk, based on the numbers I've just looked at.
Regards, Paul.
Hi Paul,
absolutely agree with your take and I do appreciate your wise counsel! This is pretty much a binary bet and I have sized the position in such a way that I can live with the consequences ... also, I have bought at the lows so have a bit of a buffer now. There are partnerships with Siemens Gamesa etc in the background - so significant backers which to me signals that they see enough potential and differentiation in the technology. But as we know, the commercialisation is often a very different game!
So definitely a bit of a punt and firmly in the opposite bucket from my "grown-up" portfolio. I find that I need to allow myself these lottery ticket type shares occasionally as that then in turn helps me stay on the straight and narrow for the bulk of my investable funds. Of course, it also serves as a reinforcement occasionally as to why it is a bad idea in the first place! :-)
Many thanks again for all your efforts this year and all the best for 2023!
Best Regards,
Thanks for the reply, welwichia. I can stop worrying, now I know it's just a small punt you have on Invinity Energy Systems (LON:IES) :-)
"to invinity and beyond"
Hi Paul,
Many thanks to you and the team for your stellar efforts over the year.
Regarding Invinity Energy Systems (LON:IES) , I'm not quite so pessimistic. The news flow over recent months reflects considerable and growing orders in vanadium flow batteries and an ability to meet them from their facilities in Canada, China & the UK. I'd agree that careful handling of such growth is critical.
The delay in delivery of the Alberta order by 3 months is probably down to delay in site readiness due to adverse weather conditions.
Sizeable alternative energy projects are appearing at a furious rate all over the globe. Most of these will depend on high capacity, low risk energy storage to optimize efficiency. If Invinity can overcome its growing pains then its future should be bright.
Invinity Energy Systems (LON:IES) in August extended (free of charge) the maturity of warrants that had been due to expire in Sep 2022. I notice a number of AIM companies do similar extensions this year - eg £GUS
Personally, I can see no justification to do this and would be tempted to avoid managements who have allowed this. The warrants have generally been issued as an incentive to get a previous share placement away. If the warrants are going to expire out of the money - so be it. Allowing the maturity date to be extended is merely transferring value from ordinary shareholders to the warrant holders.
In this case the Invinity Energy Systems (LON:IES) warrants were issued together at the fundraise AND an open offer to existing shareholders back in December last year. By extending the warrants it seems to me fair that all continue to benefit
Aston Girl
I fully agree that if you extend the warrants for some holders you need to extend for all. I am a holder of the warrants in £IES myself - so I have “benefitted” from the extension.
But I still don’t think it can be justified and partly because of that I no longer hold any shares. I want all management to be focused on minimising dilution. I think extending warrant maturities is a bit like rebasing management options - although this can in sometimes be justified by the need to retain/ recruit talent (a justication that does not hold for warrants).
My morning smallcap tweet: Breakfast plate of disappointment
Harland & Wolff group (LON:HARL) Mobile Streams (LON:MOS)
◄Harland & Wolff (HARL)► FY-Dec monster miss. Surely it knew before today? Guides rev £29-31m vs £65-75m guided in sept. Blames contract delays, operational delay in M55 Regeneration Programme, Terminates fabrication of four wind turbine generator jackets for Saipem, by mutual agreement due to " issues with payments, delays and defective materials, with resultant cost escalations".Outlook "we will see a robust 2023 with deferred revenue from 2022 which will start getting booked during the course of H1". [SP=20.15 Cap=35m]
◄Mobile Streams (MOS)► delayed FY as promised by yr end. Rev £1m (£100k less than prev guided) and prtax losss £2.8m (£1.0m). [SP=0.11 Cap=5m]
Harland & Wolff group (LON:HARL) I notice the directors have been buying shares at a premium.
Thanks for your tireless efforts. Essential coffee time reading
Paul Harland & Wolff group (LON:HARL) and Griffin Mining (LON:GFM) with bad news out hardly a surprise a day to hide bad news!?
Seems an unforgiveably late RNS from HARL - they must have known of the revenue shortfall many weeks ago. A sign of untrustworthy management.