Small Cap Value Report (Mon 12 April 2021) - TET, BLV, CBOX, VTC, INS, CNC

12th Apr '21 by Paul Scott

61 comments 12405 reads

Good morning, it's Paul & Jack here, with the SCVR for Monday.

Timing - today's report is now finished.

It's re-opening day today, with retailers & outside hospitality opening up again. It will be interesting to see if we get a boom in spending, or not. The problem is, that many share prices seem to have already priced-in a full recovery. So where's the upside going to come from?

I've been stranded in Bournemouth, going slowly mad, over the last 4 months. So I'm looking forward to strolling into the town centre this afternoon, to see what's occurring. I'm not holding out much hope of getting a crisp, cold pint anywhere, as I expect it's likely to be booked up everywhere, but we'll see.

I'm wondering what there is, in town centres, that I actually need? Just Primark really, and that's about it. I now buy everything else online, or from small local shops. Hence I'm a bit sceptical that High Streets and shopping centres would just return to normal.

Mello Monday

Is tonight! Full details here. It starts at the earlier time of 5pm today.

Star of the show is the Queen of Tech, Vin Murria.

I'll be doing a brief results update on Saga (LON:SAGA) (I hold) near the end, in the charity pledge section. As you know here, I jump at any opportunity to promote the wonderful little humanitarian aid charity, ZANE, helping many good causes in impoverished Zimbabwe. Thank you to all the subscribers here who have also shown an interest in, and made donations to ZANE. I tend to bung over a bit of cash whenever I bank a nice profit from something on the stock market, on top of some standing orders. What ZANE needs more than anything, is regular income, as it has regular outgoings, helping destitute individuals often for the remainder of their lives.

Agenda

Paul -

Treatt (LON:TET) - trading update - an in line update, but hints at possible further upgrades. Lovely company, but shares look expensive now (as lots of things do)

Cake Box Holdings (LON:CBOX) - trading update - in line with expectations. Rapid roll out underway, of franchised cake shops. Looks good.

Belvoir (LON:BLV) - Final results - for FY 12/2020. I'm impressed with all…

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kbkb

12th Apr '21

The other attraction, of London, Cambridge and Oxford, is learning English, and the history. Paris can provide culture and history, but not English

I am a big fan of Treatt and live relatively nearby to Bury St Edmunds. I think you make a great point, and they have managed to deal with building the new HQ and covid and lockdown without any disruption to their financials or performance. Quite the opposite in fact. I really think they are just going to keep growing.

Bluesky Ventura

Hi Poker111,

I've updated my evaluation based on today's finals below, if of interest.

https://www.stockopedia.com/co...

BVS

Paul Scott

As I repeatedly state in these reports, I have absolutely no idea what share prices will do, because that's down to market sentiment. I just examine the fundamentals. By flagging up that a share is expensive, the idea is to stimulate debate & thought. Today, and previously, I've flagged that despite Treatt (LON:TET) looking expensive, the market must believe it will beat forecasts. Hence there could be a good reason why it is expensive, and we've discussed the various points you mention before. For example, I've repeatedly questioned why broker forecasts showed such a small uplift for the new factory coming on stream, which didn't look right.

If readers do your own research, and come to the conclusion that the company's prospects are good, and that it is likely to beat broker forecasts, then that justifies taking a different, and more positive view about the company's valuation.

Your comment reads as if you think this site is a tip sheet. It isn't. We're just looking at the fundamentals, and giving a view on them. Readers then agree or disagree, as you see fit. Also readers can spend more time researching, in more depth, than we can in these reports, because we're trying to cover about 500 companies!

TET shares are expensive, and they were also expensive at 800p. Although the positive update, and big broker upgrades in Jan 2021 reset things, so any opinion I expressed prior to that was obviously no longer relevant, because the fundamentals had sharply improved.

Anyway, you've been very clever, so have a pat on the back.

Paul.

P.S. We're all geniuses at the moment. You could have picked practically any small cap stock 6 months ago, and be crowing about how right you were now, because the entire £SMXX index is up 50% in that time!

I did a positive review of the trading update from Xpediator (LON:XPD) here on 29 Jan 2021, concluding that it was worth a closer look, with strong trading & a positive outlook.

I'm not interested in low margin haulage type businesses, so it's not something I want to spend more time on again today, with more interesting companies reporting, and we're out of time now too.

Sorry about that.

Regards, Paul.

Hi CamRaid,

There's not really anything for me to say about Surface Transforms (LON:SCE) results.

It's still loss-making, and the figures are poor. However, as everyone knows, it's apparently winning big orders to kick in for future years. Plus it recently raised £19m (after fees) to fund production ramp up.

Therefore valuing the share is all about digging into the future potential, estimating what contracts might be worth, etc? That's beyond the scope of these reports, which are mainly about reviewing results. There's no point in doing that for SCE, as it's all about future growth, not historic figures.

Nick Hewett

Just a little local reconnaissance feedback from a walk around my "village" (area on the edge of London). Local Indian which has a small garden is fully booked. The men's hairdresser has a huge queue and has had all day. At least one of the pubs has a full beer garden (cannot see into the others from the road). Weather is nice now if a little chilly so that will be encouraging people. The large M&S at Brooklands was very busy this morning with all of the floors now open.

So people seem very keen to get and and buy stuff / do things.

UK_Investor_8888

"P.S. We're all geniuses at the moment. You could have picked practically any small cap stock 6 months ago, and be crowing about how right you were now, because the entire £SMXX index is up 50% in that time!"

I'M NOT CROWING OR PEACOCKING but

I've made more than 30% (I guess) of my 50 year's lifetime's wealth in the past 16 months.

This doesn't add up.

It is not genius. I think this is an "anomaly" and a statistical aberration.

We were here. Others were not.

It was NOT like this for the first 48 and 3/4 years. It used to be hard to make a 5 figure profit and quite easy to lose 6.

We are not in heaven. There is no free money. Money does not pour down from the Central Bank and Market unending without some counter reaction.

Somebody tell us when the music stops playing.

Town Centre where I'm lodging is also very busy and bustling.

People appear to be unlocking themselves. Older people are about but with face nappies on. Its good that the youngsters have their jobs back again. Great to see outdoor bars, restaurants and cafes open with patrons again.

Maybe retail and civic amenities will return?

I wasn't meaning that I was clever, or you had somehow made a mistake, so apologies if that is how it came over. Not my intention at all. I was just adding a vote of confidence in TET really.

ISAallowance

Re. Concurrent Technologies (LON:CNC) , I believe the £1m prior year "other income" was an insurance payout following the death of a director, so very much one-off, and quite material as an adjustment.

dtg46

Sounds about right to me! I fear free money means less valuable money.

Michael Tee

Instem (LON; INS)

Jack, thanks for your write up.

The director sales were into the placing. 2 directors were sold some shares as part of their retirement plan whilst a third sold as his options were soon to expire, a close period was likely to ensue due to potential acquisitions and the tax due when options are convert into shares in the US is due immediately.

There is a very good note on Progressive website which shows the significant increase in forcasts the 2 acquisitions in March are expected to make.

I hold

I shop at Asda... and walk! ;-)

Gromley

Thanks for that ISAallowance re Concurrent Technologies (LON:CNC)

I had gathered that the £1m (last year) was insurance, but wasn't aware what for. I totally agree though that is is a substantial one off that should be adjusted out.

My point though was rather that the cost of closing the Indian R&D facility in the current year was also one off and should be adjusted out to give true 'underlying' performance and on this basis they managed to increase profits, despite some headwinds.

And on the subject of headwinds - I speculated that the increase in expensed (as opposed to capitalised) R&D costs might just relate to projects delivered in the year. In fact reading back to the interim results, I find this in relation to covid :

Our engineering group has generally been able to continue with its current projects whilst working at home as necessary, although our Indian site has proved to be a more challenging environment in which to achieve this. This has resulted in reduced productivity in the design group where our capitalisation rate of engineering costs is not as high as we might normally expect.

So in other words the increase in non-capitalised costs was due (at least in part) to the Indian design team not being so productive during the pandemic period (but still being paid), this should also therefore be considered a one off, although I would need to check that it is not double counted with the stated costs of closing down the Indian operation.

Also in the interims they stated the expectation that the India closure would :

deliver a positive impact on profitability through an estimated annual net saving of £0.5m from the start of 2021.

Again there is the possibility that this may be in part double counted in the numbers above. It's not clear though if this is the case and I will see if I can get some clarity.

Taken together with the additional impairment related to slower business (during the pandemic?) (which incidentally has nothing to do with gambling group 888 holdings! ) I can potentially (if there are no double counts) a profit swing of up to £2m between FY20 & FY21 .

If that were true i would be hugely significant to a company that has just delivered annual PBT of £2,8m

I think there must be some degree of double count within that, otherwise they would surely be more ebullient, but I will see if I can gauge how much.

timarr

Hi Paul

We're all geniuses at the moment. You could have picked practically any small cap stock 6 months ago, and be crowing about how right you were now, because the entire £SMXX index is up 50% in that time!

That is true, but it was predictably true at the end of last year. With vaccines on the way, central banks helicoptering cash and bond yields near zero it was pretty much inevitable that lots of money would find its way into stocks.

Unfortunately, although it was easy to forsee this starting it's pretty much impossible to see how it ends. We do, however, know what happens when it does - a lot of people who've made easy money on the way up will lose it on the way down as they mistake luck for skill.

The trouble is it could take years for normalisation to happen. Or we could see inflation spike and governments forced to raise interest rates, which will make 2013's taper tantrum look like a stroll in the park.

In the end, though, what can we do? Watching markets run away while idiots make money isn't really an option so discipline in terms of balance sheets and real cash flows with the odd exciting side hustle seems to be the name of the game.

No idea how this ends, but presumably it will be spectacular when it does.

P.S. Usually at this point we start to see companies coming to market and, lo - today alone we have Darktrace, Pension Bee and Semper Fortis Esport. Suddenly PE and VC money is being cashed out, which is always an interesting signal.

vijayt

Thanks Paul and Jack, as always, for your succinct and value-add opinions.

I concur with your view that Belvoir is looking like a Coffee Can investment. I would also put Treatt into that can too!

Thumbs up Timarr,

Although it is not genius, our current winnings come to us because we invested and took risk with our hard earned.

I so wish all my friends had done the same.

Spot on about the ending:-

We don't really have the choice to sit 100% in cash and we certainly can not take our eyes of the data and news feeds.

At least we are prepared and thinking about the next phase and possible scenarios.

Mossad upset an Iranian nuclear facility over the weekend. It will be something nasty. Maybe China encroaches on Taiwan, Russia on Ukraine.

abtan

Concurrent Technologies (LON:CNC) (no position)

Hi Gromley

"1. They say the have no debt, yet the incurred finance costs of £84k (double what the faced in the previous year). Do the use factoring?"

I believe the finance cost is to do with lease payments. I recall seeing something similar with another company and after doing some digging it seemed legit, though I can't recall the logic behind it.

For added support of my assumption please find below the Concurrent Technologies (LON:CNC) 2019 AR Cash Flow Statement.

You'll see that there were no finance costs or lease payments in 2018, so it probably is to do with the new IFRS16 rules that came into play from 2019 onwards.

Cheers

Doh ! I really should have thought of that given how often I go on about IFRS16, but thanks for pointing that out abtan.

That also explains why the figure has doubled in 2020 when compared to 2019. The only seem to have applied IFRS 16 from H2 2019 (odd because the standard should have been applied for the full year 2019 under the regulations - not worth chasing back on that though I suppose.)

Small Cap Value Report (Mon 12 April 2021) - TET, BLV, CBOX, VTC, INS, CNC

Mello Monday

Agenda

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Paul Scott

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