Small Cap Value Report (Fri 4 June 2021) - SAL, POLX, CREO, TUNG, CDGP

4th Jun '21 by Paul Scott

35 comments 8735 reads

Good morning, it's Paul and Jack here, with Friday's SCVR.

I'm getting my 2nd AstraZeneca jab this afternoon, so am looking forward to that. The NHS App is very good, I downloaded it onto my phone last night, it keeps a record of your jabs, which could be useful in future to prove you've been vaccinated (for travel, etc), so you might want to look at downloading it yourself, if you haven't already done so.

Timing - we're making good progress, so should all be done by 1pm official finish time, or earlier. Today's report is now finished.

Agenda -

Paul's Section:

Spaceandpeople (LON:SAL) (I hold) - too small for the SCVR, at only £3m mkt cap, but seeing as I've looked at its 2020 results out this morning anyway, might as well post my brief notes. It's a speculative punt, but has survived the lockdown, and sounds like there is some potential here, with (previously announced) new contracts. High risk warning.

Polarean Imaging (LON:POLX) (I hold) - highly speculative, but several shrewd friends tell me this MRI scanning company looks to have interesting potential. High risk warning on this one, so won't appeal to most readers.

Creo Medical (LON:CREO) - another highly speculative jam tomorrow medical devices company, issuing results for FY 12/2020. Prodigious cash burn. I've got no idea how to assess companies like this, so am neutral.

Tungsten (LON:TUNG) - some signs of life here, in today's year end update for FY 04/2021.

Jack's Section:

Chapel Down (OFEX:CDGP) - perennially loss-making, cash-burning UK wine producer. Disposal of non-core beer business and a strong performance in ecommerce and direct to consumer are positives, as is the strong market position, but there's still plenty to be done to show that this can become a sustainably profitable business for investors.

Paul’s Section

Spaceandpeople (LON:SAL)

(I hold)

* High risk, extremely small *

14.25p - mkt cap £3.0m

Only a tiny position, which got through to my Spreadex account due to a clerical error. It’s too small for the SCVR, at only £3m mkt cap, but seeing as I've looked at its announcement today anyway, might as well quickly post my notes below.

FY 12/2020 results, out this morning.

It’s still in business, and has survived the pandemic,…

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ezlifeme

4th Jun '21

Paul Re Chapel Down (OFEX:CDGP)

The industry seems to think it is worthy of awards https://blog.chapeldown.com/ch...

For the second year running we are delighted to have been awarded 2 Platinum medals at the Decanter World Wine Awards.

Out of 16,518 wines judged from 56 countries, just 178 from 24 countries were awarded a Platinum medal. First deemed ‘Gold’ in the first weeks of judging, these wines were re-tasted by panels made up of Regional and Co-Chairs, awarding Platinum medals to the best wines.

As you say with share valuation DYOR - we don't all come up with the same conclusion from the same data !

Aislabie

I am happy to say that I very much enjoy many of the £CDGP wines, not all, but they cater to number of different preferences. The roster of awards also shows that they are being taken more seriously in the wine world. As a holder of over 2000 shares I get to receive a significant discount to the retail price. I am long past the point where the discounts have paid for all of my still very modest shareholding! Shareholder benefits are usually not a consideration when buying but this one very much works for me.

The beer and cider business would I believe have worked too, but for the pandemic. It’s original rationale was to provide a steadier source of cash flow to a wine business that had modest acreage and size to support the “down” years of crop failure. But there have been several years now of excellent harvests, and with greatly increased acreage combined with increased stocking to cover the down years, the wine business can probably now prosper on its own. But getting bigger is still a more reliable way to go and today’s fund raising will ensure that they can put the exit cost of the beer venture behind them while continuing to expand.

While I wait for them to grow the share price I can enjoy sipping a fine glass of sparkling wine.

Funnymoney

£polx I looked at the house broker forecast which was based on what appeared to be very low machine sales and the risk reward was not worth it. If you ignore that forecast and listen to the guy running the company he says that he doesn't see why every hospital would not have a machine. If that's true then the upside is immense. I'm still put off by the broker though.

Helvellyn

Paul,

I have also been to the restaurant, it was very good. Although it was a few years ago now i remember we had a bottle of their Flint, which i enjoyed, however if Chapel Down relied on me for revenue they would have closed years ago.

Richard

RCTurner

Paul, thanks for your comments on £CREO. One important point I would make is that they did £9m revenue last year but they have already issued a TU stating they are ahead of next FY revenue guidance of £20m. So clearly something is going well as they already know they have more than doubled revenue YOY.

JohnEustace

Re Chapel Down (OFEX:CDGP) Jancis Robinson has generally been supportive, eg saying in 2019

“I am delighted for the success of British wine-makers, Chapel Down in the USA. Their award winning Three Graces has a good balance, is well made, and overall a very good effort; It’s no surprise that it won the Chairman’s trophy. Chapel Down are showing no doubt that the quality of the wine produced from vineyards in England is better than it has ever been.”

I wouldn’t ask her about small cap account numbers but I will always take her word on wines.

Antehelion

however, Without wanting to sound too flippant, where those awards : "best English wine" with an entrants list of 1?

exaggerated for effect, but you get what I'm suggesting i hope.

16,518 wines judged from 56 countries
Being proud of what we can do is not fashionable, but I think we can can hold our head up here.

Jack Torrance

Yes, I thought Chapeldown wines were overpriced, compared to overseas wines. Wasn’t impressed enough to buy again.

Diversification 99

Polx (I hold) have a leading position in the technology they have developed and there is no comparable device providing the same level of detail in imaging with the the same safety profile.

Other alternative uses were suggested by the CEO for medical drug development trials and how costs could be significantly cut.

There are barriers to entry as they have a plethora of patents but also as it is a drug device combo then any new similar product for the medical market will need to go through the lengthy period of Pre clinical and Phase1, 2, 3 etc trials before it can reach market so not an easy task.

I expect in the next 2-5 years they may get taken over probably by Bracco who have a shareholding but also one of their people sitting on the management team who previously sold his own company to Bracco - Jonathan Allis of Blue Earth Diagnostics ( a Bracco company) and he is still the Executive Chairman there. Very strong signs in my view of what may happen in future. Good luck all.

peterg

I've never had any problem with the quality of the better British wines, but in general you pay more for a similar quality that you do from many other countries. A lot of that is down to climate, and the ability to produce good wines on a regular basis. Of course, that may well be changing with global warming and incerasing expericence.

andrewdb

On Tungsten (LON:TUNG)

I wish there was a way of filtering out companies as a few years ago I thought I knew better (despite advice from PS) and made a fairly _massive_ loss and any mention of that name makes me feel pain.

I still believe there is a good business in there somewhere and wish current holders the best of luck but no-one has found that business since well before OB10 was turned into TUNG - over 10 years now.

On Chapel Down (OFEX:CDGP)

You may not like the wines but a lot of people do. The decanter World Wine award is (I think) the largest in the UK and is widely published in Europe, US. It also has a far east correspondent.

They have leased / bought a lot of land in the area and are expanding

They are also starting up an "upmarket brand" called Kits Coty and yes it is rather expensive but pretty good - esp the chardonnay.

In a way it is a play on global warming as the land there will become prime wine country in the future and champagne may become too hot for good champagne

(I hold and do enjoy the 30% discount)

Edmund Shing

Hi Paul and Jack,

great article as always.

But Paul, I wanted to take issue with you regarding your excellent recent piworld video with Tamzin.

While you are of course entirely correct in mentioning that the SMXX FTSE Smallcap index has gained 27% year to date, I would like to point out one thing.

this is not an investable index! I would love to be able to buy an ETF of the FTSE SmallCap ex ITs, but one doesn't exist.

When I look at UK small-cap investable benchmarks, I tend to look at well-managed UK smallcap investment trusts such as Blackrock Throgmorton Trust (LON:THRG) , Standard Life Uk Smaller Companies Trust (LON:SLS) and Montanaro Uk Smaller Companies Investment Trust (LON:MTU) .

The average performance of these 3 YTD is under 12%! So a big difference to the SMXX...

(maybe just trying to justify my own paltry YTD portfolio performance, which has not been as good as yours - so far!)..

Tx Edmund

Phillip Arghebant

Dear Paul

I own shares in Brickability (Brickability (LON:BRCK)), having purchased a holding shortly after its flotation in August 2019. Part of the attraction was that the Directors bought shares in the issue which is unusual. Having met management at the time of the impending float, I was impressed by their knowledge of the industry, the robust financial controls in place and also by their wish to expand the business through acquisitions but with very strict payment criteria.

I mention this because you have quite correctly referred to the large share disposals by several Directors alongside the recent acquisition of Taylor Maxwell, so I wanted to put their part share sales into context. My understanding, incidentally, is that over thirty new institutional shareholders have come on board, in addition to existing holders who either retained (ie diluted) or increased their holdings. The acquisition is immediately earnings enhancing, resulting is anticipated double digit percentage earnings growth in each of the next two years following the company’s March 2021 year-end. Cenkos is the broker and, if you are interested, you will find a detailed note on Brickability on the ResearchTree website.

Kind regards

Phillip

Mbeaney

I have been a shareholder for many years and enjoy the shareholder discount on wines. the Fizz is excellent and in my view better than the cheaper champagne brands so with the shareholder discount is Good value.

I agree that the still and red wines are mediocre in my view. As for the company this is all about building a brand and they have some real heavyweights on the board and as shareholders. I have enjoyed the journey so far and think there is further to go.

regards

mark.

Indie

Thank you, Phillip, for writing about Brickability (LON:BRCK) . I have been very pleased with the way it has kept going up over the six months since I bought it - my first purchase. The Stocko metrics were good, I liked how the management came over in the results presentation on their website, and I thought building would be part of the Covid recovery. It does not get a lot of discussion on the site, so your in-depth knowledge has been reassuring. I will look out the Research Tree note you mention.

Regards,

Thornabian

I'm not much of a wine drinker but today's comments are making me want to buy a bottle of Chapel Down's wine :)

Phil O.

Winemaking? An old saying: ''How to make a small fortune running a vineyard?...start with a big fortune'' ;-)

WDWombat

Tungsten was or indeed is my short of the year. This is based entirely on its history of blindingly bad decision making, its presence in a market littered with dead bodies and its ability to hire incompetent management and waste shareholders' money. But that is history and we all know what Henry Ford said about that. Good luck if you believe and make me duly surprised. My last sale in 2015 was at £1.45 and I confess to having made a reasonable profit entirely through luck rather than judgement. I guess the Stocko quality ranking is a laggard?

Gareth Young

14th Jun '21

I share your enthusiasm with POLX. They are an impressive outfit serving a very important and under-served area of medicine. Have done my own DD they appear to have an extremely high chance of obtaining FDA approval at which point they will be in a position to offer clinicians something that nobody else has been able to do - accurately assess lung function in a quantitative manner.

In a peer-reviewed study, their drug-device combination has just been found to identify lung damage as a result of Covid that no other diagnostic approach was able to detect. Not only is this topical due to Covid, but pulmonary conditions are a major health concern globally and represent a huge need for reliable diagnostic technology.

I see this as a multi-bagger and hold.

Small Cap Value Report (Fri 4 June 2021) - SAL, POLX, CREO, TUNG, CDGP

Paul’s Section

Spaceandpeople (LON:SAL)

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Paul Scott

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