Small Cap Value Report (Mon 11 Jan 2021) - JD., CALL, IDP

11th Jan '21 by Paul Scott

87 comments 11852 reads

Good morning, it's Paul here with the first of this week's SCVRs.

Mello - tonight!

It's Mello Monday time again - David Stredder's very popular investor evenings, now on Zoom.

This evening Ed will be presenting a review of Stockopedia’s Stock Picking Challenge 2021, and reviewing the leaderboard for 2020. It’s a great way to find out what stocks the community is looking at, so tune in to see the breakdown.

Jack will also be there later on, to take part in the Mello BASH (Buy, Avoid, Sell, Hold), with 4 new investment opportunities up for discussion alongside renowned investors Leon Boros, Alan Charlton, and Kevin Taylor. Find out more here.

Message from David Stredder;

"There are at least another 17 Mello Monday evening webinars already planned for 2021 and if you would like to make the most of these during lockdown then I really would recommend buying an annual pass for just £95 (or £85 with the early 2021 discount until 11th January using the code APXMAS10 when buying one here https://melloevents.com/mellom... Alternatively if you want a half price ticket just for this show on Monday and maybe want to 'try before you buy' the annual pass then please use this code MMStocko21 and it will be just £9.75"

Timing - Update at 12:22 - I'm taking a break now for lunch, and some exercise. I'll do some more sections from mid-afternoon onwards, so please do check back later. Update at 18:14 - sorry I've been busy with other things, so didn't get round to looking at any more companies today. I'll put them into tomorrow's report instead. Today's report is now finished.

Agenda -

Jd Sports Fashion (LON:JD.) - not a small cap but: remarkably good trading update

Cloudcall (LON:CALL) - another recruitment sector integration

Innovaderma (LON:IDP) - profit warning

Jd Sports Fashion (LON:JD.)

850p (pre market open) - mkt cap £8.3bn

This company has clearly emerged as the big winner in the sports retailing space, in the UK, and increasingly internationally.

Trading Update - this morning is strikingly good, and clear. Here it is in full -

JD Sports Fashion Plc (the 'Group') today announces an update on performance following the Christmas trading period.

Against a backdrop of further forced temporary store closures in…

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Antehelion

11th Jan '21

agree,

for me the director loan (why not a covid-business loan?), booting out of the chairman and likely placing were more than I was expecting to see, so have sold.

Hopefully some better news for them in ~6 months with the H2 figures also.

Vsihv

Held Venture Life (LON:VLG) in 2020 on trading update & sold on half year results.

Clearly some capable investors like it a lot but they do capitalise an awful lot of development spend for a company that buys heritage brands that are ready to go to market. Not to mention receivables - pretty easy to increase sales if customers don't have to pay you.

Mid market fund raiser after a rampy CoVid announcement (study sponsored by Venture Life (LON:VLG) ) & from my untrained eye Dentyl wasn't doing much that other mouthwashes don't do just creates more doubts.

Maybe I am being overly cynical or just an embittered ex holder - reading financial statements seems to be hazardous to your wealth in this market.

But if shareholders are happy to finance ever higher adjusted EBITDA, who am I to judge.

UK_Investor_8888

Is January 2021 going to repeat the history of January 2020?

A market peak followed by (3 month) bear market?

The virus news in the short term, including purported death rates, is grim,

I am not going to get into the rights and wrongs of this today, merely to say that it is what it is, and Lockdown III is most certainly is happening, and the political and media narrative is grim. The World Wide virus picture also isn't great, and there is some US uncertainty too.

mojomogoz

Vivek, facts or boundaries of reality seem optional at the moment

I thought this what quite a good general summary of conditions (US specific but I think applies to AIM to some extent)

https://theirrelevantinvestor....

My criticism of it is that bubbles are usually always narrow-ish and often pop without infecting the whole market beyond short term volatility and drawdown.

Bubbles with longer term and more sustained impact tend to be linked to bank exposures (eg 2008) or when value/cyclical drives the bubbling process (again 2008 was an example)

So I am simultaneously bullish and bearish right now. Schizoid environment IMO

Branoc

Good luck with the shorts Paul. I don't go short often and always keep positions fairly small as I've been burnt in the past but today the triumvirate of Tesla, Bitcoin and Trainline all paid off. With Tesla and Bitcoin I'm very cautious as I'm always reminded of the quote from Steve Eisman "You can't short something that's a cult". And indeed having a made a few quid I'm now stopped out already of both BTC and TSLA.

Logical David

According to the American economist, Robert Schiller, once a Stock Market's P/E exceeds 30 then strange things can start to happen. I believe the American stock market is currently on a P/E of around 36. Hence, I am expecting some sort of potential correction in the near future or some time this year. When and how much it might affect the UK stock market I don't know but when America sneezes the UK catches a cold.

Tommy H

Hi If you subscribe to Mello they release a video of the event a couple of days afterwards to watch at your leisure.

I reckon trainers last about 6 months, but I am about 93kgs and they are designed for someone of 70kgs, I also have long term knee damage hence recommendation to always have good cushioning for pavement pounding (thank you to Michele for that lesson and the leave the work shoes under the desk every night that way you can have really nice leather sole ones and not worry about it raining outside!) and about 4 months in do a check and walk with the old trainers and new trainers straight afterwards to see if I can notice a difference, when I do, the old ones go in the Charity Bin at the local Co-op.

So good luck if you can make the last ages, I am just a high mileage non-standard model even if I class as vintage!

Rusty2

I bought some NBs about 3 years ago and use them quite a lot and they have lasted well, can't get the exact same ones but they are leather and were about £35.

These are the closest I could find: https://www.sportsshoes.com/product/new692684/new-balance-624v5-training-shoe-%286e-width%29-~-aw20/#sku-new692684

I get a sense the new ceo may be flushing bad news out of the way perhaps.

I was surprised that the hair removal product hadn't done better - I don't quite get why that is more of a physical retail product - and even so, I'd thought places such as Superdrug would have remained open during the various lockdowns so I'm surprised by the poor trading really.

Hi Paul,

I can see that and tend to concur with pockets of bubble theory.

My fear stems from fact that (without any knowledge and a great deal of speculation), the city / wall street work on the basis of FOMO (notwithstanding Citadel/Virtu front running retail) while the market makers are chasing their tail (short gamma for those who like their Greek), so the pockets maybe a little more crowded.

Pullback/rally/pullback/rally in a small group of (bubble) stocks as I understand is indicative of retail participation.

I managed to make 40% on Peleton in a month (I bought the vaccine dip and got lucky) - thought I was stupid buying on 800x earnings - clearly even stupider selling at 1,100x earnings!

Call me a cynic, but we will find out whether institutions are involved if "hype mania" pops and the FED put is written one more time.

Not wanting to be take John Hussman literally, but I do worry that it will be the passive funds/investors that will be left holding the bag. Had a great run with some thematic ETFs and really feel I should reduce (re-balance as a minimum).

I imagine like all things, passive / active also have cycles although I have no evidence to support my supposition. Nasdaq fell 70%, I can't trust buying the whole index, active didn't protect me in 2008 so why should I pay the fees. You probably have some real world experience / expertise to support/negate my assertions

But in the meantime, I take some shadenfreude in Robin Hood dumb money short squeezing the masters of the universe!

As far as the schizoid environment, this blog by Morgan Housel was a nice piece of inshite :)

https://www.collaborativefund....

You know, I used to buy work shoes with leather soles that used to be all shiny. Best pair of work shoes I bought were from Tesco. No leather soles, but the soles lasted a lot longer than the fancy ones and had grip.

I was able to buy two pairs for half the price of normal.

Maybe my wardrobe was a contributor to my career didn't work out as well as I hoped!

Think there is a video doing the rounds on twitter with the bull/fur guy from the Capitol incident. Maybe a conspiracy theorist, but like all jokes, conspiracies often have a kernel of truth.

Personally, I thought the guy was a Bitcoiner whether he knew it or not (No position). I would share but I don't want to be de-platformed :)

Gromley

Thanks Paul,

I'd quite forgotten that exchange re Innovaderma (LON:IDP)

Was it really 2019? Whatever happened to 2020?

Oh yes - THAT!

A useful reminder of some of the things to look for - as I commented at the time I wasn't too concerned about the points you raised and don't really think that any of them have played out negatively.

Except - I was comfortable with the intangibles (capitalising the cost of customer acquisition) :

1. Because even if excluded they were still modestly profitable during a growth phase and

2. Because the cost of customer acquisition (mostly via social media) was real and quite high but once a acquired repeat business could be generated at zero marketing cost (email). In fairness I think I only understood that second point fully a couple of months later when Kieran Callan spoke at MelloBASH.

This second point is interesting in that I believe they are about to write down these capitalised customer acquisition costs. Essentially, as I mentioned earlier it looks as though conclude that they will have to spend to "reacquire" these customers all over again once fake tans come back in vogue.

I'm not so sure on this point, so long as they have retained the right to contact these people (Data Protection and all that) then I think a "Hi remember us?" email might be quite impactful.

It will be interesting therefore to see the scale of the write downs and the market reaction to them. I think the market reaction will be adverse (particularly if the write downs are especially large, but I think that may be an over-reaction.

I watch with interest and thoughts about a possible second bite at the apple.

Dojosan

Paul - are the Mello talks recorded for viewing later please? Parts would be of interest to me but there is no way I can watch for 3 hours. I am too busy this week.

Yes - u get sent a link to rewatch it as many times u like - I think the next day

Mr Gromley, I confess that I looked in some detail at Innovaderma (LON:IDP) only in about 2017 so I'm out of date and can accept my perspective is mistaken (I'll shoot holes to partly see if someone turns my potentially wayward fire). The founder Chairman was still around and he seemed overly promotional to me and had listed a biz that didn't seem quite suitable/ready (and so he was trying desperately to work magic...spin stories etc) and the accounts were a bit questionable IMO in that they weren't as tractable as they should be. My view back then was that it would fall in price and that I would be able to get it at p/s <1...this was sitting on the fence in that I felt there would be a tougher period proving out product than was being expected.

Since then I've become a bit prejudiced against these small consumer products businesses with handful of products. They feel in a weak position to develop their products and prone to a negative surprise in sales. I struggle to see what gives them sustained traction beyond a truly hot product (whatever that is....bigger cos make it hot by really backing it). So they are always having to develop and spend to promote and never making escape trajectory.

I will probably watch what happens a little a bit...I can see it could become very cheap...but I worry about being able to see the sustainable runway for product. Do you have good comparison cases to shift my perspective? (I realise some will flag Venture Life (LON:VLG) but I think that's a highly problematic situation that could let investors down hard)

Mark Carter

Interesting times for Tesla shares. The stock has had a massive runup from about $650 in late December to $882 yesterday. It fell 7.8% today. Legendary investor (is it OK to call him "legendary"?) Michael Burry announced he was short in early Dec 2020.

So whatever happens, it will be interesting!

they offered me no transaction fees for a month in a similar 'retention effort' I suspect based on a similar complaint I raised when the first vaccine was announced, its fine up to a point (4.95 better off on each purchase/sale and when properly enthused I can do a few a day so maybe not quite £250 but not too bad).

Of course though, if their platform won't actually let me trade, I can't milk their offer properly!

hmm I wonder if they perhaps thought of that.... !

Mick Flynn

I’m very new to this type of investing but have recently bought some SIG shares. I worked for the company in the U.K. Sheffield Insulation’s division 14 years ago and they were very dominant in the market. They had a lot of clout with their suppliers and always bought better than the competition.

I couldn’t believe how low the share price had fallen. It seems since I left they’ve lost their way a bit. However they are still the dominant player in the insulation market despite this. If they turn things round I feel there is plenty of upside.

Given the huge upturn that I feel is not that far away in the construction market and the green agenda I think there’s every chance they’ll do very well over the next 5 to 6 years.

I’ve invested 100% in buy to let property up until now (I don’t want any more tenants) and my reading of the property cycle indicates strongly that shares in the construction market sector should do very well just like they did in the last housing boom from 2002 to 2007. I’m hoping 2022 to2027 will see a similar excellent performance if this current cycle plays out like the last one. So far all indications are that it is.

pieRsquared

12th Jan '21

Just in case you haven't encountered the following view on bitcoin:
https://www.linkedin.com/pulse...

Small Cap Value Report (Mon 11 Jan 2021) - JD., CALL, IDP

Mello - tonight!

Jd Sports Fashion (LON:JD.)

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Paul Scott

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