Small Cap Value Report - Friday 15 July 2022
Good morning! I'm running a bit late today, so please check back later. Sorry about that.
Agenda - to follow.
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.
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48 comments
Unbound (LON:UBG) just having a browse at this this morning as there is so much talk of it.
what is the actual debt? Stockopedia lists it as -25.3 which can’t be right?
Also looking at the sales gone through yesterday, there are a couple of large sells which look to big to be pi sales yet there seems to be no RNS for ii selling. With only a small float of shares this obviously makes movement of the sp more dramatic.
First ever comment here on SVCR as I’m still fairly new to investing and the more I learn the clearer it becomes that I have more to learn. I find Paul and Graham’s in-depth reviews to be an incredibly useful learning resource. I suspect that for people like myself, who fully adhere to DYOR philosophically but aren’t yet fully proficient in the science/art in practice, the deeper dives are a very helpful complement though not a substitute. I fully understand the point about shorter sections to uncover more under-the-radar companies, but at least for those investors near the start of their learning journey such as myself, I think the detailed reviews are far more useful. That, and the raw honesty of the writers and the knowledgeable & respectful community are what sets the SCVR apart from most other investing sites/blogs I have come across. I actually find it hard to put into words how grateful I am that Paul and Graham do what they do ! Thank you
Thanks very much for the kind words - and good luck! G
What a great post!
Unbound down 7percent today
Now sub 10 million market cap .
The new “multi brand platform” is going live soon.
I’m a doubter of the management but it can’t keep falling like this and the floor must be soon.
If it stays lower than 10 million market cap it has to be a bargain especially with that anazing 4.5 million database of customers .
Just selling 1 pair of shoes to 10% days f it’s database is say 450k times say 20 quid = 90 million turnover
90 million turnover has to be 10 million profit .
Ooops forgot - that database number might be somewhat unrealistic .
Surprised to see £UBG in the Technology sector.
Now now. No need to rub it in. We could all pick a stock and poke fun at the losers.
I hold Unbound (LON:UBG) and have decided that it’s not worth selling now. Tang book is more than double market cap.
Forecast sales are £60M. Just wish management would give us an idea how the sales are going instead of talking about email addresses!
Paul, I really like your small sections. Ideally I'd like to see more of these and detailed analysis of those that have the biggest potential upside. A detailed analysis of something that is heading south and therefore I will not buy, is a waste of your time (for me). Many thanks for your excellent work too.
"A detailed analysis of something that is heading south and therefore I will not buy, is a waste of your time (for me)."
I disagree, these are the very reports I want to see to ensure I don't invest in a lemon.
i vote for in-depth coverage of less rather than brief coverage of more. Thank you
Entirely happy that resources are missed. Just about the worst area to share views and risk is in small resource stocks with super embedded optionality (disproportionately to the downside for obvious reasons)
Entirely happy that resources are missed. Just about the worst area to share views and risk is in small resource stocks
Interesting that we agree on this. Maybe a first :-) In times of inflation and recession IMO you really want to be invested in “price makers”, not “price takers”, and resource companies are the very worst example of the latter. You're really just gambling that the underlying commodity price covers the cost of production. And the latter will increase with inflation.
Resource companies 'make' the price of commodities.
Times of inflation are actually very good times to be in what you justifiably call "price takers" e.g. see this:
But times of inflation and times of recession are really very different things. Once the slowdown starts and inflation starts falling, resource sectors typically start underperforming.
Hi cmpeckham, I am a bit uncertain about the chart. My interpretation ... focusing on energy and metals/mining: both are likely to deliver similar (relatively high) levels of return over 12 months during a high inflation period; but metals/mining stocks are much more volatile, meaning that energy delivers more dependable returns from month to month.
Is that correct?
I can understand the argument that both sectors and, more especially, metals/mining are price takers. That must be the case more or less by definition for undifferentiated commodity producers.
I would put it slightly differently. I would say that, rather than being a month to month phenomenon, there have been some inflationary episodes where "Precious metals & mining" have made bumper gains and some where they haven't, while the energy sector has always outperformed.
As to why this is, I'd have to dig in to the detail to be sure, but I would expect it's because (1) we know that the US inflation rate is highly correlated with the oil price, so saying that there is high US inflation is basically the same as saying that the energy sector is enjoying boom times, while (2) metals prices aren't anything like as correlated with US inflation as the oil price is, and (3) the mining sector is much more diverse, including both gold miners and industrial metals, which respond to economic conditions in different ways e.g. stagflation is good for gold but bad for industrial metals.
I guess its more or less inevitable that resource stocks' SPs ... at the bottom of the economic food chain ... are going to be hard hit during a recession. But what about resource stock dividends? I'd expect them to be squeezed. But is there any hard evidence on the likely extent of this?
I've been digging around trying to find evidence on dividend resilience (or the lack of it) during periods of recession. So far I've drawn a blank. Are you perhaps aware of any research on this topic?
{EDIT} For clarity, I'm aware of evidence that dividend payments in general tend to hold up relatively well in a recession. What I am not aware of is the extent to which this varies across sectors. How strong, relatively, has dividend resilience been in the resources sector as opposed to other sectors of the economy?
Just had a look at AAL and RIO. You can see these on stockopedia. Certainly no dividends for some years and low some other years for AAL, RIO have been more consistent.
Dividends are less volatile than stock prices but they do get cut in deep recessions:
I don't have any data for resources sectors specifically, but I believe that they are among the most cyclical of all sectors and that their dividend history reflects that.
but when the slowdown starts and inflation starts falling, stimulus begins again and resources sectors typically start rising, don’t they?
When the stimulus taps are eventually turned on again, pretty much everything will rise. But that's not where we are now. Resources are "late cycle" assets that outperform in the late stages of an economic expansion. Right now, it looks like we are exiting that stage and going in to contraction. Accordingly, investors are selling resources assets:
Any thoughts on what asset classes do well in the next stage of the cycle Government bonds maybe ?
So what about times when Resource stocks are looking good - do you invest in them then?
That's the only time I do - I don't dismiss them out of hand automatically.
A Resource stock is for Christmas not for life - they can be very useful, as they were in Q1, when normal stuff is struggling.
I'm not interested in discussing pre-production miners - but there are a lot out there, producing with good cash-flows and at times they are worthy of consideration so I can understand why others might like to see some commentary on them.
Don't see why these cant be considered.
Phil
Anyone else having problems with ticker links, takes me to the home page not the Stockreport.
Yep, same here. Suspect the system can’t cope with the shock of some shares advancing and bombs out to the home page.
Pauls' interview on Vox Markets really excellent and worth watching.
I agree. Paul's Vox Markets webinar is excellent and strongly recommended. https://www.voxmarkets.co.uk/articles/q-a-with-paul-scott-of-stockopedia-15-07-22-64e99e1
I agree, well worth watching. I have a feeling I know where Paul's money will be deployed when his property sale goes through.....
Tremendous interview here with Paul today on Vox Markets, covering 26 stocks & much more.
For the first 24 hours, there’s restricted access for signed-up members, but it’s entirely free to register (re GDPR).
Happy viewing everyone.
https://www.linkedin.com/posts/paul-hill-a5994116_qa-with-paul-scott-of-stockopedia-150722-activity-6953641678859599873-N0yj?utm_source=linkedin_share&utm_medium=member_desktop_web
https://www.voxmarkets.co.uk/articles/q-a-with-paul-scott-of-stockopedia-15-07-22-64e99e1
Paul Scott posted the following last night at 5:45 pm. As he’s got things on this morning, I thought I would repost this, as I’m sure there are a lot who may have missed it.
“Just as an aside, we've got so many companies to cover, that we have to somehow try to pick things that are relevant, interesting, and that we can write about reasonably quickly (i.e. not complicated).
I know that sometimes people moan about, why haven't you looked at this, etc, and I do sympathise. So thanks to everyone who put up your own summaries here for stocks you like & own, it's very helpful, and often gets us interested (e.g. JDW & LGRS yesterday, which I wrote about today).
Sorry we don't have sector specialism in resources stocks. I know a bit about the sector, but not enough, and really don't want to start blagging it, and trying to sound informed, when I'm not. I did follow up the query though, and have floated the idea at HQ that Stockopedia could try to find some decent sector coverage. I think that was tried before, but didn't work out.
Anyway, here is today's GoogleDoc, where Graham & I tried to cover as much as we could, and to give you a flavour for things, which might be of interest - they go blue when published. Orange are want to do. There's rarely enough time to cover everything, but we try.
Do people like the shorter sections? Or would you rather we just focus on more in-depth reviews? We're not sure what to do, as not much feedback on that.”
I certainly find your initial summaries very useful as I can read these in full, whereas the in-depth reviews are only fully read when I’m interested in that company.
Keep up the good work, it’s all very much appreciated.
Regards Rodney.
I quite like the shorter sections because it allows me to quickly glance at companies that might be off my radar. However, I get the most value from the longer sections so I would rather Paul/Graham focus on that if they are finding the shorter sections are distracting them.
Agree with Patrick. A combination of both would be preferable but appreciate that requires more input and time from Paul and Graham.
I really like the short sections which can put off-radar companies into view and push me do some research myself.
Thanks as ever to Paul and Graham for excellent work and I shall be happy whichever format is chosen.
Mark
I have replied to yesterday's post from Paul as follows:
Paul
I find your insights and analysis really valuable. From some of your posts, it appears that you make notes as you go through a set of results or an update and then write them up into a detailed explanation of what you have noted. I'm greedy - I want both the breadth and depth of coverage! Would it save you significant effort to just publish your notes and your opinion but to omit the detailed write up? If there were things that subscribers found unclear, they could ask a question in the SCVR comments section.
Hi
Anyone have any insights into the large volume of trades and share rice rise of Sigmaroc (LON:SRC) this morning?
As I type share price up over +10%, and the Stocko volume report is showing 2.4 million volume versus an average of 816k?
Spread is 315bps and it can be tricky to trade £SRC.
I am not holding at the moment but have traded it in the past and following it for several years.
It's most recent high was almost 100p in Jan 2022, now its just over 54p.
Any insights welcome.
Regards
Howard
Seems to be some momentum trading going on ATM. Look at what happened to Photo-Me International (LON:PHTM) last couple of days (I hold)...back down to where it was pretty much..no reason I could see.
Its frustrating but does present opportunity I guess, but for me its got to be a share I already hold or want to hold.
Photo-Me International (LON:PHTM) only rose at start of week as it was mentioned by a well known tip sheet last weekend.
Strange trades going through this afternoon, seemingly a lot of small pi sells. Odd with interims around the corner.
I hold.
Photo-Me International (LON:PHTM) IMO the sp isn’t reflecting the new growth story (laundrette facilities). I’m topping up at 75p. Might take a couple of goes to break 85p
Photo-Me. Yes I agree about the Laundrette side of the business. The recent H1 trading update says "We installed 53 machines per month throughout the period, with further significant international growth expected in the laundry division in the coming months and years." I just bought some shares ahead of the H1 results release due on Tues 19th July. Also "Furthermore, in order to expand the laundry range and better position ourselves in the market, we recently launched a new low-cost laundry machine, the "Flex", and have already successfully carried out several installations across Europe. Early trading results have been extremely positive, and so the Group aims to further deploy this new product rapidly across the continent in order to take advantage of the strong market opportunity."
Completely agree!!
Paul, you put DP Poland (LON:DPP) through the wringer last year: any change in you view, now that they seem to be growing a bit? Major inflationary headwinds, and lots of chat about helping refugees, but the growth seems real even if inflation is part of it. Much, I suppose, depends on whether its institutional investors (over 75%) are willing to put more money in.
Something for a quiet Friday, here's a link to Q&A with Paul Hill and Paul Scott
Q&A with Paul Scott of Stockopedia - 15.07.22 - Vox Markets
Have a great weekend (away from these turbulent markets)!
SCVR population getting bigger by the day
Fevertree Drinks (LON:FEVR) next up?
900m EV & 25-30x EBITDA & an inability to pass on price rises, I think this requires a lot of faith. 15% EBITDA margin.
Lowest margin in sector for highest multiple
With todays c. 30% fall probably the market agrees!
I see a director bought £1m of shares in Fevertree Drinks (LON:FEVR), @ 871p today.
Thank you Mr Contrarian, as ever. I don't know if you get any time to deal at the bell on anything you fancy. Heaven knows f you have time after compiling this wonderful daily report which benefits all of us.
Specifically, I note that you say you hold Angle (LON:AGL) where holders like you and me have been dealt a cruel blow this morning with a quick fund raising at a pretty hefty discount of over 14% to add 10% extra shares at 80p. Ir is always difficult to fully understand why a share which has an SP at 4.30 yesterday at around 92p then today has a price for ALL of its shares after the fund raising at the striking price for the extra 10% of shares. I guess it indicates that those supporting the extra funding value the whole company at 80p a share.
It is a pity too because as I remember the last time the company had a fund raising, then the SP stayed effectively the same or actually rose a little. Markets change pretty quickly, dont they and we are definitely in the 'jam today' phase whereas monetisation for Angle (LON:AGL) and its superb offering in health treatment development terms will be rather more gradual. At least the market seems to think so and the CEO/FD dont really seem to disagree with that scenario.
On the key subject of monetisation, in the prospectus and where the money is going to be spent, then I'm encouraged to see that quite a bit will go to funding extra sales staff in the different areas of clinicians and big pharma.
I wold personally like to see a listing on NASDAQ but I dont know how that works and how expensive that is. Certainly, in all the presentations the CEO emphasizes the size of the US market opportunity.
On the other hand, Angle (LON:AGL) is a great British company and has recognition in the UK - several studies at Barts Hospital including a current one funded by the prostate charity - a certification in the EU - where many of the research studies supporting the FDA case were carried out. Where is the support from the British government and the NHS, the largest buyer of drugs and medical services in the world, for this ground breaking, cost saving, treatment improvement, process speeding, process?
"It is always difficult to fully understand why a share which has an SP at 4.30 yesterday at around 92p then today has a price for ALL of its shares after the fund raising at the striking price for the extra 10% of shares."
It isn't the price for all of the shares. It's the price required to persuade the marginal buyer and seller to transact at normal market size. If, collectively, the owners were to try and sell all of the shares at once, the price would be significantly lower. Likewise, if a buyer comes in with a bid for all of the shares, the price will have to be significantly higher.
If every time a fund raising took place, the share price remained higher than that at which funds were raised (as you seem to expect) then institutions would be falling over themselves to fund it and sell immediately, realising am enormous risk free profit on an annualised basis. Such selling would of course drive the price down to the price at which funds were raised.
Specifically, I note that you say you hold Angle (LON:AGL) where holders like you and me have been dealt a cruel blow this morning with a quick fund raising at a pretty hefty discount of over 14% to add 10% extra shares at 80p.
If management knew they needed more funds why on Earth didn't they do it after the price bounce on the FDA approval in May?
timarr