Small Cap Value Report (Fri 9 Dec 2022) - CTA, LOAD, TET, D4T4, K3C, LGRS, RBN, AFRN, PDG, BKG, PRV, PROC

9th Dec '22 by Paul Scott

74 comments 8022 reads

Good morning just from Paul, with it being a Friday.

It’s got to be a fairly quick report today, as I have to travel into London for an investor Christmas party at a posh club, so will be spending most of the day eating, sampling lovely wines, talking about shares, and being generally affable. So I prepared some sections last night, to get today's report off to a flying start.

Agenda

These are all quick comments, with no sections below, to save time & cover lots of ground -

CT Automotive (LON:CTA) [quick comment] - dropped 16% to 102p in late trades yesterday, after a profit warning was issued at about 4pm. Supply chain problems (including semi-conductor shortages, and China lockdowns), and operational problems, plus a delayed order, mean FY 12/2022 revenues will be lower than expected at c.$120m, and higher costs, resulting in a thumping great adj loss before tax of $11m. Cost-cutting is being implemented. Net debt at 11/2022 was $11.6m, about half of available facilities. My view - I’m not familiar with the company, but it looks problematic to me, so I’ll be avoiding this.

Crestchic (LON:LOAD) - Sky News says that larger rival Aggreko (now privately owned after a bid from TDR last year) has agreed a 400p per share takeover offer with Crestchic. This is only a 12% premium to last night’s closing price, and looks far from generous, given how well Crestchic is performing. If the story is true, I think shareholders will be up in arms about having the upside snatched away from them. I would be inclined to reject the deal when it comes to a vote. If they want it, they should pay a proper bid premium! Stockopedia shows at 356p price yesterday, the forward PER was only 12.5, so a lousy 12% bid premium seems disappointing. EDIT: here's the announcement this morning, it's 401p cash, recommended by LOAD's Directors (why???). Big shareholders (including Harwood) holding 38.5% have agreed it.

Treatt (LON:TET) - a backlog item, I’ve had a quick look at FY 9/2022 results, published on 29 Nov. Adj EPS was down 27% to 19.8p, not very good really, and at 644p the PER looks toppy at 33x. This share is really all about the growth potential from its new factory, with much greater production capacity, and more efficiency. Balance sheet…

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9th Dec '22

Crestchic (LON:LOAD) is a verified cash offer, K3 Capital (LON:K3C) is a possible offer only. Hence the disparity. It should be remembered that the possible offers for GB (LON:GBG) and Darktrace (LON:DARK) both fell through, leading to instant reversal of the SP. The market is simply trying to discount the probability of a cash offer eventuating.

As a holder, I’ve sold a third at a 10% discount to the potential sale price. In that I’m mirroring (and part of) the market attempting to discount the probabilities.

Helvellyn

David,

I too listened to Christopher Mills talk about Crestchic (LON:LOAD) and was very surprised that he told Paul Hill he was being optimistic @500p , now we know why. :-))

mammyoko

Unless trading is worse than forecast, the risk reward on £k3c at 315p is pretty good. Downside only likely to be 10% if Sun pull out and longer term upside (subject to trading) likely to mean a SP in excess of 350p. If Sun don't pull out a guaranteed 10% in six months isn't too bad. Can't understand why anyone would sell at 315p

cholertonandrew

Enjoy your party Paul.

Best wishes,

Andrew

Rusty2

Thanks. Just surprised the K3C, share price fell today, so not such a done deal as I thought.

I did hold GB (LON:GBG) and did sell, can't remember if there was a bid price, anyway I managed to get out with a small loss.

Thanks. Not thinking of selling at 312, maybe 340+, I was actually looking to trim my shares, as it's one of larger holdings, if not I would probably be topping now.

eParo

You definitely deserve your downtime Paul. Enjoy your bash. Cheeese

Badgersbrook

I wish I could say my thought processes were as intelligent as this, but unfortunately my analysis is based on things like 'DS Smith? I remember I picked them randomly for my Telegraph Fantasy Fund Manager portfolio and they did ok then' and 'it's to do with cardboard, cardboard is boring, I read that boring stocks are where it's at'.

Every day's a school day. Thanks Tommy!

rjh7777777

Either way 401p is only 16 times this years earnings, which are already in the bank given the year end is in 3 weeks. With a new factory coming into play, 4 upgrades already, and tailwinds in the industry for a vital product, it’s hardly a generous offer.

Silver Moon

Badgersbrook, to add more to your question you could use the Stocko comparison tool pitting £SMDS against Smurfit Kappa (LON:SKG) which is in the same line of business, sort of. I do hold Smurfit Kappa (LON:SKG) and have seen it perform in better times and take note that DS Smith (LON:SMDS) wins on points.

Silver

Tommy H

Here is my next meander for a Friday afternoon...

What do you do with Property Franchise (LON:TPFG)

I think that it is a sound company, that the house sales will slow but folks are going to continue to have to move for various reasons, and rental is going to hold up and carry it through the next year or two, and there is going to be the continued option to add more smaller companies into the franchise.

But on the checklist it is 20% down this afternoon which should trigger the sale thereof, this is a manual rather than an automated stop loss.

Looking at the chart a clear downward trend, and no obvious news upcoming that I can see is going to knock that the other way

But then is this a build a larger stake for the future, as it is currently ~1% (so small) of ISA, and there are the recent Truss/Kwarteng dance floor experiences in my mind of watch everything bounce straight after you sell... memo to self find my inner Vinney!

I also hold Belvoir (LON:BLV) which is moving around a lot currently too, a similar 1% holding.

Pearls of wisdom appreciated

Thank you

Tommy

I hold Property Franchise (LON:TPFG) Belvoir (LON:BLV)

davidjhill

hi rmillaree

The one thing often overlooked about inflation is that it goes down as quickly as it goes up generally speaking. The trick is to arrest it before it gets on an exponential upwards curve and the key to that (particularly with supply led inflation) is to ensure wages go up less fast. That is probably why the government and utility companies are holding so firm on limiting wage increases, despite strikes.

Bond market says that interest rates go up and come back down next year. I think pricing in circa 4% peak back to around 3% over next 2 years now.

DavidMcCabe

Hi Tommy

I am fortunate enough to be on holiday today and have been looking through my portfolio with a view to cleaning out the no-hopers I have been holding on to in the vain expectation they might come good.

My criteria was to look at each and try to answer the question, ‘Is there a good possibility that they could up by 50% in the next two years?’ This is quite ambitious, but I like to think is doable given where we are in the bear market and it focusses the mind. So how could this happen?

Company is on a growth spurt and profits have been going up a rate that suggests the share price should rapidly follow.
Company is in a cyclical business and is just beaten down in price due to this. Once the cycle turns then the share price should increase.
Company is in a turnaround situation as they are in a better market, or investments in machinery, people, products or marketing have paid off, and the share price is starting to recover.

So I have dumped some stocks which did not pass the ‘50%’ possible rise test.

However, I kept Belvior and Property Franchise as their previous longer term growth in profits and share price has been good, they are quite cheap and the letting side of the business is probably booming, so there is a limited downside. Also, as far as I can tell, their balance sheets look OK, and they are generating cash.

So I think 1 has applied until recently and 2 is definitely true, and hence if I see the share price going up indicating the bottom is finally in, I will probably add to my very small holding.

I hope this helps.

Happy to hear a contrary opinion!

David

TheFloatingInvestor

Property Franchise (LON:TPFG)

Worth checking the rental % for the business.

If it drops below the previous support of 230 its anyone's guess where that might end up...180? If I were to buy that share now, I would be on a tight stop at 227 maybe.

The share looks good, although increasing debt and decreasing margins going into a housing recession would worry me a bit, and of course the housing recession itself. Rent could offset if a big enough percentage of the business, but its a big if because rental availability is drying up.

I hold Foxtons of which rent revenue is a high percentage, and its under pressure on SP also, so short term I am not hopefully it will hold above my stops, although I bought at the lows a month or so ago...

I tend not to deviate from my trading plan including stops as its rare I am rewarded with lowering stops, and you could' what if' yourself into an early grave.

If you have not read them Tommy, Naked Trader has great books, 'trading like a shark', a must read if you intend to do this full time (ditch construction mate its god awful this time of year, as I well know! ;-D). Naked Trader is no B.S straight forwards trading tips, and it has kept me on the straight and narrow, cutting losses and moving on. I could not recommend his no nonsense books highly enough!

Good luck with that share Tommy am afraid I could not call it, depends on the rentals and even then mmmm.

Paul

Kevin Holloway

anyone know why Quiz (LON:QUIZ) is down 10% Today?

JohnDoe2378

Paul, I could not agree enough regarding Robbie Burns books!

Boon

For inflation, this is what I'm looking out for next year:

- wage driven inflation. If too many people get pay rises, then that fuels demand driven inflation

- food driven inflation. This year has been bad. But with less fertilisers being used this year, and also maybe more climate shocks next year, we could see even worse food supply shocks, and that is going to be felt hard through inflation measures, globally.

Thefisher

Just because some people want to sell for £3 doesn’t mean the rest of us should be happy to sell for £3.5. I saw significantly higher potential long term so it is a disappointment.

12th Dec '22

Thank you David

Thanks Paul

This is the bringing in the rule on selling a couple of years back, and trying to control the emotion on what always seemed the inevitable bounce back, but this has been serving well the last couple of years overall, yes I invest but that does include the ability to take profit and cut losses.

Small Cap Value Report (Fri 9 Dec 2022) - CTA, LOAD, TET, D4T4, K3C, LGRS, RBN, AFRN, PDG, BKG, PRV, PROC

Agenda

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Paul Scott

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