Small Cap Value Report (Fri 4 May 2018) - TSLA, GAW, NUM, DPP, MMX, CTR

Friday, May 04 2018 by


Thanks for the early suggestions.

I've just been catching up with the latest Tesla (US:TSLA) news.

Elon Musk wrapped up his latest call with Wall Street analysts by refusing to answer a couple of questions. Now perhaps there is a larger context which explains it better, but I've listened to an excerpt and it's quite extraordinary.

Analyst: Where specifically will you be in terms of capital requirements?

Elon Musk: Excuse me, excuse me. Next, next. Boring bonehead questions are not cool.

After the next analyst tried to ask a question about car reservations, Musk said "Sorry, these questions are so dry. They're killing me." And moved on to talk to retail investors, instead.

Ben wrote a nice article on Stocko looking at Tesla's red flags. All of the Stocko metrics have deteriorated since he wrote that article:


What's particularly interesting about Musk's attitude to analysts and to "bonehead questions" is that Wall Street has, overall, been good to Tesla. Even today, with the stock being one of the most heavily derided among the professional investor community, there are still more Wall Street analysts with "Buy" ratings than "Sell" ratings on the stock.

The other point is that if Tesla needs to raise more funds (that's a point of controversy), it will benefit from friendly relationships with Wall Street. Musk appears quite sure that he can afford to step on a few toes. It looks to me like the pride which so often precedes a fall.

Is this of any relevance for UK small-cap investors, I hear you asking. Perhaps not too much. But it is a $56 billion dollar company (in equity + debt), and for me it's a barometer of the general levels of exuberance in the marketplace. It's one of the reasons I'm happy to keep some powder dry for now.

Incidentally, Tesla is one of the most shorted stocks in the market - 30% of the float has been borrowed. This makes it a consensus trade in the bear community. It could also make a bear squeeze incredibly painful. There is no easy way to make money!

Games Workshop (LON:GAW)

  • Share price: 2435p (-0.2%)
  • No. of shares: 32.3 million
  • Market cap: £787 million

Trading Update

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All my own views. I am not regulated by the FSA. No advice.

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Tesla, Inc., formerly Tesla Motors, Inc., designs, develops, manufactures and sells fully electric vehicles, and energy storage systems, as well as installs, operates and maintains solar and energy storage products. The Company operates through two segments: Automotive, and Energy generation and storage. The Automotive segment includes the design, development, manufacturing, and sales of electric vehicles. The Energy generation and storage segment includes the design, manufacture, installation, and sale or lease of stationary energy storage products and solar energy systems to residential and commercial customers, or sale of electricity generated by its solar energy systems to customers. The Company produces and distributes two fully electric vehicles, the Model S sedan and the Model X sport utility vehicle (SUV). It also offers Model 3, a sedan designed for the mass market. It develops energy storage products for use in homes, commercial facilities and utility sites. more »

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Games Workshop Group PLC designs, manufactures and sells fantasy miniatures and related products. The Company's segments include Sales channels, Product and supply, Central costs, Service centre costs and Royalties. The Sales channels segment includes Trade, which sells to independent retailers and includes magazine newsstand business and distributor sales from its publishing business (Black Library); Retail, which includes sales through retail stores, its visitor center and global exhibitions, and Mail order, which includes sales through its Web stores and digital sales. The Product and supply segment designs and manufactures products and incorporates production facility in the United Kingdom. The Central costs segment includes its overheads, head office site costs and costs of running Games Workshop Academy. The Service centre costs segment provides support services and undertakes strategic projects. The Royalties segment includes royalty income earned from third-party licensees. more »

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Numis Corporation PLC is a United Kingdom-based independent institutional stockbrokers and corporate advisors. The Company offers a range of research, execution, corporate broking and advisory services to companies quoted in the United Kingdom and its investors. The Company's services include research, sales and trading, investment companies, corporate finance, corporate broking, principle capital fund managers limited (PCFM), Numis indices and asset management. The investment company's research-driven approach focuses on specialist or differentiated mandates, including quoted equity, private equity, infrastructure, property, debt and other alternative assets. The corporate finance services include advice and transaction execution in relation to mergers and acquisitions, secondary equity issuance, convertible securities and bonds. The Company serves corporate clients and institutional clients. It is managed as an integrated corporate advisory and stockbroking business. more »

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35 Comments on this Article show/hide all

MrContrarian 4th May '18 1 of 35

My morning smallcap tweet:

Games Workshop (LON:GAW), Anglo African Agriculture (LON:AAAP)

Games Workshop (GAW) YTD slightly ahead
Anglo African Agriculture (AAAP) Anglo African Agriculture (AAAP) believes there is no reason in terms of the underlying business for recent SP fall. "Dynamic Intertrade, the main trading operation of AAA, is trading in line with the expectations of the Board." It hasn't moved much for a sub penny sub £1m serial disappointer lossmaking tinpot. What did they expect?

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Reacher 4th May '18 2 of 35

Hi Graham, Minds Machines (LON:MMX) have released final results for Y/E 31/12/17. They provide top level domain names. Whilst the results themselves are mediocre there was on-going discussion of a strategic review which many had interpreted as the sale of the company. However, the result has actually been the acquisition of another business. There is a separate RNS about it. They say it will be earnings enhancing from FY 2019.

I would be interested in your thoughts.

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mfhmfh 4th May '18 3 of 35

Hi Graham would appreciate you covering Minds + Machines (MMX) if you can:

Maiden year of profitability achieved with retained profit for year of $3.8million compared to $4.5million loss in 2016;

Operating EBITDA of $5.3million delivered compared to operating EBITDA loss of $1.3million for ongoing operations in 2016;

Renewal revenue grown 100% to $4.8m (2016: $2.4m) with renewal billings growing 50% to $5.6million (2016: $3.8million)

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gus 1065 4th May '18 4 of 35

Strong set of half year results from broker/corporate adviser Numis (LON:NUM) this morning. All major indicators positive, including EPS up 98%.

Feast and famine sector but seem to be doing well despite costs and potential disruption caused by MIFID 2.

You may also want to comment on the after hours announcement from DX (Group) (LON:DX.) on their placement/loan note cancellation flagged up elsewhere on an earlier thread.


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tomps3 4th May '18 5 of 35

Final company presentation from Mello Derby18: Zoo Digital (LON:ZOO) with CEO Stuart Green, just published, with subtitles courtesy of ZOO!

Introduction – 00:17
A brief history of video home entertainment - 00:33
The importance of localisation - 6:54
Subtitling & Dubbing - 8:58
Localisation preferences - 9:58
Traditional localisation workflow - 11:08
ZOO business environment & workflow - 13:00
The ZOO software platform - 15:44
The dubbing opportunity - 16:33
Traditional dubbing environment - 17:47
ZOO dubbing workflow - 20:07
The market size - 22:47
ZOO business growth - 23:17
Investment summary - 24:20
Q&A - 25:44

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clarea 4th May '18 6 of 35

Hi Graham

Any chance of Numis (LON:NUM) profits and net cash storming up, plus they will be handling the A J Bell IPO from memory some retail big shot also hold north of 10% and they have been under taking a lot of share buy backs recently.

Also Morgan Sindall (LON:MGNS) I held previously and made a turn ticks all my boxes mostly with good balance sheet all be it wafer thin margins and I just wonder if the Carrillion fall out has truly settled yet or if there's still a knock on effect to be felt.

If your pushed for time Numis (LON:NUM) would be the preferred option for the Neary deep dive thanks in advance.

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InvestedGeordie 4th May '18 7 of 35

Good Morning Graham!

I wonder if you'd mind having a look over Charles Taylor (LON:CTR) ? They carried out a £17M+ placing to acquire 'Inworx'. They also announced a contract win: London Market. I note this is currently held by Lord Lee.



Disclosure: I don't currently hold.

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paraic84 4th May '18 8 of 35

For Minervini lovers, the Numis (LON:NUM) chart has followed some of his chart rules over the last few months - perhaps a good case study.

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ken mitchell 4th May '18 9 of 35

Hi Graham

I’m also keen to know your thoughts on Numis. A slight disappointment was no dividend increase. Cash down £13 million since September but that excludes £12 million received last month from closure of Numis mid cap fund. Pbt up an impressive 86% though to £19.5 million. High Stockopedia ratings already, and 95 overall. 

I was wondering about negative impact of MIFID on Numis and Cenkos, which was implemented in January. Encouraging that though early days Numis say impact on their revenues has so far been limited. I hold Numis and Cenkos, but wondering now Numis has doubled whether more potential upside for rather bombed out Cenkos?

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Ajay_Gajree 4th May '18 10 of 35

Hi Graham

Any chance of looking at Bahamas Petroleum Company plc (BPC) which was up more than 200% yesterday after signing some sort of exclusivity agreement.

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Luthrin 4th May '18 11 of 35

In reply to post #360948

"Also Morgan Sindall (LON:MGNS) I held previously and made a turn ticks all my boxes mostly with good balance sheet all be it wafer thin margins and I just wonder if the Carrillion fall out has truly settled yet or if there's still a knock on effect to be felt."

Hi clarea,

I've added substantially to my Morgan Sindall (LON:MGNS) position this year. As far as I'm concerned, the fact that many investors have distanced themselves from this sort of low margin construction/regeneration company in the wake of the Carillion fallout presents a value opportunity. I like the fact that MGNS has a strong cash position and that it's unlikely to ever have a meaningful pension fund deficit as its small defined benefits scheme was closed to future accrual in 1995 (at end 2017 the DB scheme only had liabilities of £11m and was £2.6m in surplus).

I don't know whether you've seen the company's 2017 results webcast (available here), but in response to an analyst question at the end, CEO John Morgan made the point that since the Carillion bust many organisations (notably in the public sector) are now scrutinising any potential contractor's balance sheet very closely. As a consequence, a bidder's financial strength has become a key factor when awarding business, and this gives MGNS the opportunity to be selective with contracts and increase its margins.

Morgan Sindall (LON:MGNS) was in Ed Croft's 2017 NAPS portfolio and has retained its place in 2018.

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patrick00 4th May '18 12 of 35

Hi Graham can you have a quick look at Games Workshop (LON:GAW). The update today mentioned trading is slightly ahead of expectations, but the market reaction has been muted/ slightly negative. Is pretty much any upside already priced in?

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Graham Neary 4th May '18 13 of 35

Thanks for the suggestions, I will definitely be incorporating Games Workshop (LON:GAW) and Numis (LON:NUM). The others I will decide on afterwards. Cheers! G

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andrea34l 4th May '18 14 of 35

In reply to post #360913

My own humble (non-expert) view on Minds Machines (LON:MMX) mfhmfh is that the selective wording is a lot more frothy than the figures themselves - I posted this commentary on them on matylda's page:

I don't like the look of Minds Machines (LON:MMX) - they take pleasure in harping on about the maiden profit, but revenue is actually down (if renewals are +50% does this mean that new business is way down?), gross profit is down approx 20% (with margin down 10%!), and if one ignores the exceptional restructuring costs of last year then the EBITDA rise is maybe about 30%. Strip out the auction profit (is this a one off, unlikely to happen in future years?), and the underlying business looks like it is less profitable - I read note 24 to do with this auction, and got very confused. The involvement in China and ICANN scares me a bit too. The price is down quite a bit, maybe holders agree with my view on the figures... or are scared by the acquisition. I'll avoid. Perhaps the acquisition will transform them...

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andrea34l 4th May '18 15 of 35

I am wondering if Games Workshop (LON:GAW) are starting to reach the end of their strong growth curve - last year we were regularly treated to trading statements saying that results would be "above" or "well above" market expectations, now they are going to only be "slightly above". Or perhaps the expectations were just far to optimistic...

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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