Small Cap Value Report (Fri 7 Feb 2020) - CWD, CVSG, DPP, TED, INTU

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7th Feb by Paul Scott

62 comments 6879 reads

Good morning, it’s Paul here, with Friday‘s SCVR.

As usual on a Friday, it's quiet for news. So once I've covered today's news, I'll use the spare time to do some general market ramblings - I've been jotting down points of interest throughout the week, so have plenty of material.

Estimated time of completion - should be well before 1pm , the official finish time (when the emails are sent out).
EDIT at 13:06, sorry I got bogged down in something else (preparing for a company conf call), so am running a bit late. Should be done by 13:30
EDIT at 13:24 - today's report is now finished.

CloudBuy - cancellation - we bid a tearful goodbye to this absolutely hopeless micro cap, which burned cash and delivered nothing to shareholders over many years. Its incoherent boss is remembered by me & several of my friends for having given the worst investor presentation in living memory. He couldn't even explain what the business did. Nice enough chap though, but quite obviously uninvestable.

I can think of a couple of hundred similar companies on AIM that should de-list. When are brokers going to actually float some decent companies? They're killing the UK small caps market by floating far too much junk. A fresh approach is needed.

Countrywide (LON:CWD)

A rather concerning announcement has been issued this morning. Struggling, highly indebted estate agents, CWD announced late last year that it was selling a non-core commercial property division, called Lambert Smith Hampton, for £38m. This would have considerably strengthened its very weak balance sheet (NTAV was negative, at -£141.8m as at 30 June 2019).

The buyer, John Bengt Moeller (described as a Monaco-based property developer, from a google search) hasn't come up with the dosh. Hence completion has been delayed,

"... due to logistical difficulties relating to the transfer of the requisite completion monies"

That's a very unusual, and worrying turn of events. It might all get sorted out, or it might not, who knows? I would expect to see the share price take a tumble today, as the risk of the deal falling through needs to be priced-in.

Cvs (LON:CVSG)

Share price: 1234p (down 1.2% at 08:50 )
No. shares: 70.65m
Market cap: £871.8m

Trading update

CVS, one of the UK's leading providers of integrated veterinary services, provides…

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Steves cups

7th Feb

Paul

Accesso accesso Technology (LON:ACSO) was discussed yesterday by Graham Neary and Paul Hill (very enthusiastically) on a Cube investments podcast yesterday. I should think that this as much as director buying has put a rocket up the SP today

fwyburd

Hi Trident,

I don't think we are 'peak virus' yet. I am no expert but the 2009 Swine flu pandemic lasted over a year so I suspect we are nowhere near the peak.

However, as my wife, a Ward Manager in the NHS reminds me, it's a flu virus, so nothing to be overly concerned about given flu kills so many people already every year. Yes millions of people caught swine flu and hundred of thousands died but normal flu does this every year.

My daughter (aged 14 at the time) was one of the first people in the UK to contract swine flu but all she suffered was a very high temperature for less than 48 hours and recovered very swiftly. The biggest problems we suffered at the time was not the illness but the media attention and the extraordinary behaviour of our neighbours and wider community as they got caught up in irrational hysteria, fuelled by the media. But it all blew over within a few weeks and life went on as usual.

So personally, I am not really concerned at all about my family and their well-being but can quite understand how others feel given how contagious fear is.

In 2009 the stock markets had much larger concerns to deal with. This time around I think some industries will suffer more than others (as Paul points out) but for most of us, live will go on pretty well as normal.

Have a great weekend

Cheers

Francis

purpleski

James

Phil Oakley is excellent, dry straight forward and measured and always think he is good on the IC podcast.

I would agree John Rosier prompted me to tweet this morning:

“Becoming a little more cautious like @JohnRosier, I am 11% cash, 9% physical gold & 17.5% £AAZ.L . I am inclined to believe we are in the greed or delusion stage of the bull market & one unknown unknown away from a pull back“.

sharesurfer

Was tipped in Small Company Sharewatch.

ken mitchell

paraic84

Yes. Mpac was tipped several months ago at around 150p by Simon Thompson and he has updated a few times since.

Trident

Hi fwyburd

Happy to hear about your experience. As ever, there are different takes on it.

I remember when I last had flu, when I was in my thirties. I sat down to lunch with some relatives feeling fine, felt a bit peculiar after 10 minutes. Said I had to go to bed, and was out of action for four days.

So flu is pretty dangerous in itself. Hopefully I have a few antibodies or general resistance to flu in general now, but it can be quite shocking how quickly it can take you out.

cmpeckham

Just to be clear, what I said above was: "This might indeed be the peak of panic regarding the virus in China". I wasn't talking about the number of infections.

The total level of infections will continue to climb for a while yet, we can be sure of that, although there is some initial evidence that the number of new infections is starting to fall. What I was talking about is the level of panic which is a different thing. Stock markets will respond more to the level of panic than the number of infections.

I agree with Paul's comments today about Simon Thompson.

As for the other tips and buy, sell, hold advice in Investors Chronicle it pays to check out who wrote that article. Some of their writers are young and inexperienced and sometimes it seems straight from University. So they have not yet made or learnt from the many mistakes more experienced investors (including some of the excellent posters on the Small Company report threads) have made and learnt from over the years!

I/C readers here might not realise that the initials of the writer of Company updates are given at the end of the buy/hold/sell summary column in darker print a the bottom of the main comment. Then check out the full name by going to the I/C staff page (usually page 4) to get the full name of that writer. And from there Google to find out more about them. Can be an eye opener.

e.g the unfortunate I/C writer who tipped a wine retailer the Friday before it went bust on the following Monday! A quick check showed her lack of experience.

The same applies to newspaper tipsters. Aren't they journalists rather than skilled investors?

Also columns like Tempus and Questor cover hundreds of shares a year and how much time do journalists who have articles to write have to become more skilled investors? Presumably they rely to some extent, or possibly a lot, on broker advice....

... and there again it pays to be questioning! Armed with the same information brokers can come up with wildly different target prices.And again how do we know how experienced they are?

And only a week or so ago in The Tines was this headline:-

"WHEN TIPSTERS SAY "SELL" IT PAYS TO BUY."

The article below it reported research from AJBell which showed that for the 4th year in a row the shares analysts were most pessimistic about subsequently outperformed their buy recommendations.

The "best" sell performer last year was Admiral Group which nearly tripled.

And in 2018 THE most popular analyst buy, BATS ended up 2018 as THE worst performing FTSE100 share that year!

Comment here from Paul and Graham and some of the replies too I
find FAR more reliable and better quality than a lot of broker comment, and WAY better than most newspaper tips.

FREng

Purpleski, your beliefs suggest more caution than your actions reveal. Is the rest of your portfolio adequately protected from the pullback you ar almost forecasting?

I'm 28% cash, 18% bonds, some £PHGP and some diversified ITs plus equities. I find it's really tricky to achieve a balance that seems right, when the macro position is so unpredictable. Today's UK news about prioritising fisheries over financial services seems to me to make WTO terms a likely outcome for 2021, which doesn't give me confidence in the UK market. There must be a lot of investors, small and large, holding on until their nerve breaks ...

Thornabian

I can see why people wouldn't want to touch Ted Baker (LON:TED) but I took a small stake for the reasons above and that the brand and business is still strong and can easily sell. Operationally it is a bit of a mess and I do worry about potential accounting issues with the way management left (hope this isn't the case). As long as this is avoided, I think there is potential to be taken from the down-trodden business and its valuation.

It could be possible Mike Ashley won't be far from it given his recent escapades into Mulberry etc. and Frasers is one of Ted Baker (LON:TED) 's biggest outlets for sale.

I bought at 275p

Pretty much across the board but the big players take advantage with their economies of scale and huge land banks. Taylor Wimpey and Barrats particularly.

But there is also a play in the material sector which are looking awfully cheap but should receive some good revisions in growth such as Forterra and Kingfisher.

Interesting point on intangibles Paul, I agree the economic value is what matters so it generally makes sense to back out intangibles.

Particularly if it is a cash purchase - asset for an asset. However, if those intangibles have been acquired using equity (shares) or debt then it can be argued they are diluting returns per share in exchange for an asset?

I need to think about that more but it seems correct.

Anyone have any opinions on NMC healthcare and what is going on? The share price is crazy but little news and most large holders are buying except one selling a load. Very strange.

albert100

I agree to an extent. But some listings are for a variety of reasons, including diversifying founder wealth. Not too many complaints from IPO buyers of GOOG and FB. And as for Microsoft... Bill Gates owned c40% of the company at its IPO. If he'd held onto them (instead of drip selling over 3 decades), he'd now be worth c$500bn plus a ton of divi income when it started doing them in 2003.

As it is, he has to struggle on on $100bn or so (though he has given a big chunk away, maybe $40bn or so thus far). The $360bn difference went to people who bought the shares, including at IPO.

But some IPOs are more dubious - but the trouble is, it's not always clear which ones until further down the road, and as we know hindsight investing is totally marvellous, apart from being impossible. I don't recall too many people being down on the Aston Martin float, for example, though it's become clear what the problems are now.

Albert

bryans1311

Excellent comment regarding IC and tipsters in general, Ken!

smatthews1

9th Feb

Really enjoyed the quality and content of the SCVR's this week, keep up the good work!

RDHOWARTH

11th Feb

Volvere (LON:VLE) transaction announced on Friday.

They have bought Indulgence Patisserie for £1.25m plus taking on £1m of debt. The business has property of £3.2m and annualised revenue for 2020 of £5m. Back in 2017 it had revenue of £7m and made 0.5m. Being in receivership has clearly held it back. VLE have a strong track record so Im happy to back their judgement.

For 2019 Shire Foods, their existing food business could well do £21m and £1.3m profit if a strong H1 translates to a good H2. I have upside to £22m and £1.5m. Skipping 2021 and thinking of a full year 2022 including Indulgence, you could well have £30m revenue and an operating profit north of £2m. This makes Volvere look cheap even if it wasn't trading at a discount to book value, the majority of which is cash. As more deals follow there should be upside to these numbers.

dulciemo

Thanks for that....interesting stuff!

Small Cap Value Report (Fri 7 Feb 2020) - CWD, CVSG, DPP, TED, INTU

Countrywide (LON:CWD)

Cvs (LON:CVSG)

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Paul Scott

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