Small Cap Value Report (Mon 13 Sep 2021) - TST, GMR, STEM, SCE, XPD, BIRD, LUCE, WATR

13th Sep '21 by Paul Scott

37 comments 10672 reads

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

Agenda -

Paul's Section:

Touchstar (LON:TST) (I hold) interims. Brief comment, as it's very small.

Gaming Realms (LON:GMR) - strong interim results, moving into profit. Potentially interesting, could be worth readers taking a closer look. 2021 outlook is in line with expectations If forecast growth in 2022 happens, then the shares could end up looking cheap. I don't know enough about the business model to be sure either way, so am neutral.

Surface Transforms (LON:SCE) - another set of poor results, to add to a 20 year track record of poor results. However, big orders in the pipeline mean things look set to dramatically improve in 2021 and 2022.

Blackbird (LON:BIRD) - interim results don't impress at all. It's still loss-making, and needs to at least double revenues just to reach breakeven. There's enough cash to keep going for several years. I've no idea why the market cap is so high.

Luceco (LON:LUCE) (I hold) - my notes from today's interim results webinar on InvestorMeetCompany. I've taken a small opening stake, because the share price has fallen 30% on worries about supply chain problems. That might be a reasonable entry point maybe?

Water Intelligence (LON:WATR) - strong interim results, but the top dollar valuation & lack of divis rules it out for me.

Jack's Section:

Sthree (LON:STEM) - strong trading continues and FY profit is expected to be significantly ahead of consensus. The shares have been strong recently so there's a question around valuation and also around how long the market remains buoyant, but the group is investing in headcount and it's not hard to envisage continued strong trading.

Xpediator (LON:XPD) - recently upgraded guidance for at least £8.5m of FY profit before tax is maintained. Big increase in receivables and swing to net debt due to restructuring and Brexit complications. It's a buoyant market for logistics, but it's also low margin and costs could rise to so overall I'm neutral.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our…

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lpreidster

13th Sep '21

Anyone know why RBG has bounced 6% today on no apparent news please?

bryans1311

“I suspect this has been done to death - i think the fans of the old site have been pretty vocal in their opinions…”

Agree, it has been done to death! I imagine they expected people to get used to the new site over time, and eventually prefer it. Well, nearly a year later I still think back to how good the old version was, compared to this. I avoid all the data pages and stockreports now, and get my data and screening elsewhere. The SCVR is the only reason I’m here.

davidjhill

Mobile Streams (LON:MOS) I agree. It is definitely not one for widows or orphans but the Live Streams product looks interesting, has been growing quite rapidly and looks like it may just be a decent long term business. This new Live Scores product appears to me to be an entrepreneurial use of previous tech and recent partnerships and if they can do £1m a year on that across Mexico and Argentina then worth having, particularly if there is no currency risk.

At a £7m market cap it is tiny and will be relatively illiquid. I did buy some around .23p but as you say a bit of a mad money punt so quite small size. Not one I'd usually go for but strikes me that the turnaround by the new management and new product appears to have momentum.

abtan

Revolution Bars (LON:RBG) (I hold)

I would guess that it's something to do with confirmation over the weekend that no vaccine passports will be required in the near future.

BnB

I've now parsed this morning's report from Liberum with its 12% upgrade to the price objective. I find their upgraded revenue and EBIT numbers for FY22 and FY23 far too conservative. The broker is modelling growth in gross profit of only 3% pa over the period when I would confidently expect, and the company's own history in the recovery from the GFC points to, sustained growth in double figures for some years. On a less bullish note, I do not count on, and the broker does not anticipate, a material increase in operating leverage. It's simply not part of the business model.

Final point. I should have noted earlier that I am a long-term holder of Sthree (LON:STEM) and Robert Walters (LON:RWA) and backed up the truck for plenty more in March 2020. Despite the healthy gains I am not trimming either. They are no longer a true value proposition but, as my picks from the secular growth market of recruitment, they have potential to run for some time, paying a growing dividend to boot.

ken mitchell

rmillaree

I largely agree with your reply and agree that it’s time to move on and also that the new site is OK overall, and I make use of it and not just the Small Company Reports. Those using Stockopedia only for the SCVR are missing out on a wealth of information. I also realise that Stockopedia made the change with the best of intentions. My problem is that I find it much harder to navigate which probably reflects my competence rather than failings on the new site.

I posted because of the problem superb poster Mr Contrarian had today after having to switch from the old site. Stockopedia staff are incredibly helpful so no doubt will help him sort whatever the problem is.

Dieselhead2

Hi Paul, very interesting reading regarding your comments on freight costs. I wonder how much they will affect SCS figures on 5th Oct? I decided to taken some profits on SCS and leave a few on the table just in case of a shock! I am sure I read somewhere in a previous report from SCS that they were looking at setting up some manufacturing in the UK to combat the issues with high transport costs? We will see...

I shall be looking out for DFS' results soon, to get some idea of the potential direction of SCS' share price...

Rusty2

Dunelm (LON:DNLM) reported good figures recently and few supply issues.

sharw

Paul - thanks for looking at Surface Transforms (LON:SCE)

I did some research on this last week following the Stockslam when David Thornton of SCSW talked of Richard Sneller being a shrewd investor (in relation to Totally). I looked him up and he holds 12.45% of SCE.

There is a useful talk with an analyst about what he calls the transformation from R&D House to volume supplier here.

I think that you, Paul, would be a good person to check out the product (carbon ceramic disc brakes). Perhaps you would like to start with this model which has them fitted.

ken mitchell:

" My problem is that I find it much harder to navigate which probably reflects my competence rather than failings on the new site".

No, it is not just you. There are some better features on the new site but it is the dreadful navigation that has kept me on the old to the bitter end.

I am taking my last look around today at those lovely drop down menus from the top bar. Hover the cursor over and you get a list of your portfolios to choose from. In the new it automatically goes to your first alphabetically and you have o wait for that to load before you can choose the one you want. I'm going to have to rename my main and most-used tomorrow with a 1 in front of it.

As for screens they are no longer in one place - now it is yours in one, gurus in another and when you call up the latter you can't get the complete list in order of performance with an option to look at different time frames.

For newer readers who have been denied access to the old site and for the rest of us for whom this will be just a happy memory from tomorrow this is what I have just described:

I agree about the old site. On folios on the new site you can move them up and down just by dragging into the order you want, on a pc, just left click with the mouse, so the one you want to show first is your main one.

Many simple things missing from the new site and it's much slower.

Edinburgh Investor

Ig Group (LON:IGG) up 20% on no news??

Just a blip it seems, ignore me.

gus 1065

Relatively big (more or less doubles the company’s size) after hours acquisition of ExpressVPN and equity raise announced by online security specialist Kape Technologies (LON:KAPE) . Includes a retail offer via PrimaryBid.

https://www.stockopedia.com/sh....

It has been acquisitive in the recent past and did a substantial fund raise last October at par so this seems a pretty aggressive buy and build company. Presumably it’s current 60%+ shareholder is onside* and will take their share/potentially underwrite the whole thing. No position but looking.

Gus.

* Edit: Reading into the RNS, the equity raise is fully underwritten by the lead shareholder.

Paul Scott

Hi Dieselhead2,

I've got mixed feelings on the current supply chain issues, freight costs & delays, and input cost inflation - these are issues that are now absolutely widespread, even ubiquitous. Also very widely known.

The question is how (if at all) should we be reacting?

These seem temporary issues, that will get resolved, but nobody knows how long. So logically, it shouldn't really affect the valuation of shares very much if at all. The trouble is, so many market participants these days are short-termist, that they do move in & out of shares (thus moving the prices) on short term factors.

So what are we meant to do? Mostly I want to sit tight, and just ride out short term volatility. But the other part of me wants to take some money off the table, so that I have a pot of cash to buy bargains. After all, you can't buy if you're fully invested. Luceco (LON:LUCE) was a good example - I was able to buy a few today around 380p, when it was nearer 500p just a couple of months ago, despite superb interim results. Wobbles over supply chain issues seemed to cause a stampede for the exit amongst short term traders presumably? Or people (understandably) wanting to bank profits on a price that had clearly become over-extended in the circumstances.

I think Volex (LON:VLX) might have seem some read-across selling recently too, maybe?

The other question, is whether companies benefit from, or are hurt from these issues? Car dealers, and James Latham (LON:LTHM) for example, are raking in the profits from supply constraints - if the customer can't buy the product anywhere else, then they'll complain but pay up, if the price rises by 20%, say. There must be other companies in a similar situation - able to raise prices, as smaller, weaker competitors suffer from supply constraints.

It's all very confusing, and difficult to predict. I suspect this could be a time when scuttlebutt could be very useful. So if you have specific industry expertise, do let us know what's going on in your sector here.

Best wishes, Paul.

Paul - on the subject of shortages there is an article worth reading here on the building industry:

https://www.bbc.co.uk/news/uk-...

Paul, I agree about Volex (LON:VLX) Which is similar to Luceco (LON:LUCE), I have sold most of mine and will back if it falls some more. I was thinking of taking some profits in both of those anyway as they were looking a bit high. I’ve also sold out of a few others which have had a good run. I think these supply issues will be around for at least a few months. Halfords (LON:HFD) is another one that has fallen back because of these issues.

I enjoyed the Aston Martin video, thank you.

14th Sep '21

Hi Paul, thanks very much for your indepth reply. I believe that at some stage shipping costs will lower, especially if companies start looking for cheaper options such as air freight (if indeed they are cheaper, although air freight companies may well see this as an opportunity to raise their prices too and have a 'piece of the action'. I find it very interesting to try and work out who on the stock market are the beneficiaries of these types of change. It's trying to get there before the 'herd arrives'. On the subject again of SCS and other retailers and in other industries, they won't be able to pass on cost increases immediately to those who have paid deposits I wouldn't have thought, but will probably look to as soon as possible on future orders by adjusting their ticket prices and protecting their margins. Sometimes I have held a share for too long and not taken profits and others I have sold too soon. Hindsight is great of course and it will continue to happen to us all....

All the best Paul.

DH2.

Small Cap Value Report (Mon 13 Sep 2021) - TST, GMR, STEM, SCE, XPD, BIRD, LUCE, WATR

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Paul Scott

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