Small Cap Value Report (Mon 14 Nov 2022) - Last Week's Summary, JOUL, MEGP, CBOX, WYN, SRT

14th Nov '22 by Paul Scott

70 comments 7350 reads

Good morning from Paul & Graham.

Agenda

Paul's Section:

Weekly summary - I've typed up episode 20 here, of my weekly podcast, for Stockopedia subscribers only, I hope you find it interesting - it's a quick way to see what we covered in the SCVRs last week, if you don't have time to read them all. This also gives you something to get stuck into first thing today, whilst Graham and I sift through the RNS, and decide what news to cover.

Joules (LON:JOUL) - a sorry end to this share, with refinancing talks having failed, and administrators being appointed. Shares are now worth nothing, and are suspended. We've been flagging here the recent high risk nature of this share, due to financing problems. However, I still want to apologise again for having got this share wrong previously. It always looked a good brand to me (and it is), but has been so badly run in recent years, that they managed to blow it up. What a pity. Still, let's have a discussion about all the warning signs, so we can avoid things like this in future.

Cake Box Holdings (LON:CBOX) - H1 profits have reduced sharply, due to a big increase in admin costs. Confirms full year expectations though, which is a 29% fall in profit compared with last year. Balance sheet is solid, and there's a good divi yield. Plus new store openings are proceeding quite rapidly. I do have some misgivings though - previous accounting problems, where exactly does the profit come from, and why did costs surge so much in H1? On balance, I could see this going either way, so am neutral.

SRT Marine Systems (LON:SRT) - a fantastic-looking P&L, with interim revenues up 300%, and a swing into decent profits. Although cashflow is negative, since customers haven't actually paid yet. The balance sheet looks weak, with heavy reliance on private bond funding. Commentary includes spectacular pipeline numbers, which if they come, could be transformational. I'm neutral, because it's impossible to judge whether the talk will convert into sustainable profits & cash, where it hasn't done for the last 17 years.

Graham's Section:

ME International (LON:MEGP) (£374m) - an ahead of expectations full-year trading update from this operator of photo-booths, laundry machines, food vending machines, etc. Strong consumer demand is seen across all of its services,…

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wolfspirit

14th Nov '22

Any news on the takeover speculation?

Paul, Have I missed your secret shopper experience on Cake Box Holdings (LON:CBOX)?

Bouden54

At least Trade Desk shareholders were rewarded with a very high share price (not sure if that's still the case, but it had been on a very high multiple). Tremor has always been lowly rated, probably justifiably so.

muzmano

Wouldn't any property be subject to the bank's charges?. Unlikely that they would want to reduce their security without additional security to replace it.

ken mitchell

Good and helpful post on Tremor International (LON:TRMR) mojomogoz; thanks.

I don’t agree with this bit you wrote about buybacks though:-

” Note, buybacks do work....with time...eps will be materially higher than otherwise and at some point that is recognised (particularly if a growing rather than static biz like abdrn/scs etc”

Yes. Buybacks do increase eps. That’s a clear fact. They also btw reward Managers if bonus payments etc are based on eps!

But I don’t agree that “at some point that is recognised.” It certainly isn’t when that Company bust. And there’s nothing to stop eps rising but share price and PE ratio falling. e.g as often happens in a sector bear market.

And as today with the poor update from Tremor not a thought is given to their buybacks as the share price gets hammered! It’s down 25% today.

Some Companies that used to spend multiple Billions on buybacks, especially so Mining Companies like RIO, eventually realised as their share prices crashed in Mining sector bear markets that they had been a waste of money. So now they go for big dividends and big specials on top instead. RIO paid around 20% in dividends and REAL CASh last year.

Buybacks theory is convincing but those who just swallow that theory never seem to follow up what if anything they achieved.

There are odd exceptions. E.g Next who will only buyback at what they think are good value prices have almost halved their share count. But they are an exception. Most buybacks are done without considering at what price and often peak at the peak of bull markets, with far fewer when the case is stronger, after big bear market falls.

ridavies

More on iEnergizer (LON:IBPO) to add to what I already said above. I went into HL this morning and to the iEnergizer (LON:IBPO) page. Rarely do you see a history of total blue. Last 6 months as a selection +22%; last 12 months +54%; last 5 years, 963%!!!!!

This really is an extraordinary company, and yet despite truly great results, the SP has risen by around 1%. I guess there is a certain amount of distrust because of the huge shareholding of the CEO. On the other hand, where would he put his money and get such terrific returns, plus presumably he gets quite a lot of satisfaction both from his work and his achievements. Some people still do enjoy their work, don't they?

Thanks for that. Missed that.

Of what, wolfspirit?

Paul Hill

#CBOX
More encouraging director buying at Cake Box , after COO Jaswir Singh purchases 50,000 shares at 117.28p each (worth £58,640).

Re SRT Marine Systems (LON:SRT), the SP has risen hugely recently anyway!

Effortless Cool

That's just the start, ridavies, there's hopefully a lot further to go if it is finally delivering on its potential.

There have been false dawns with SRT Marine Systems (LON:SRT) before, so I don't know if I would be buying in big now, but as a long-term and long-suffering shareholder, prospects do at last seem very exciting.

tic_tac_toe

£CBOX
I tried my first at a childrens party. Was given a good wedge. Rank. when nobody was looking I actually slyed off to the nearest bin and scraped it in. The risk of being caught outweighed the gut-wrenching prospect of having to actually try and swallow this absolute monstrosity of a dessert.
Cream, syntehic and weak. Sponge, fluffy and full of air. From a foodie/taste standpoint there is nothing to like about the cakes, imo.
great for childrens parties as you can play it safe and suit those who have lactose intolerance, and get a fully colour printed design on top, and as much blue icing as you can ever hope to throw away.

run on numbers, not by artisan food principles. shoot me.

Paul Scott

Yes I think about £9m of the JOUL bank debt was directly secured on the HQ building. So maybe any sale & leaseback valuation was not enough above that to justify doing it? Although JOUL also had the wholesale receivables book, which could have been leveraged. I think they just left it too late to take decisive action, and got overwhelmed by events.

mojomogoz

All valid points re buybacks.

If I own a company and believe it has durable growth (nearly always what I’m looking for…at a decent price) with excess cash then I like buybacks more than dividends.

For Tremor International (LON:TRMR) I believe that acquisitions and buybacks are a better use of cash.

Of course you are correct re stock comp denuding the effect. At Tremor they‘ve bought back $75m ytd (I think…it could be £ but I think $ without referencing…on phone), and paid $40m stock comp (defo $). The stock comp is hard to swallow…but this is a US tech company and their successful competitors are doing more - The Trade Desk 9mths ytd $1.1bn sales (assume ex TAC) and $370m stock comp ($23bn mkt cap), Magnite $400m sales and $50m stock comp. Tremor has had coolers sales growth this year than both but carries better op cash conversion and seems to sustain a lower sustaining investment requirement (ie cash to investing activities). I believe this better cash performance results from them being more focused on providing an end to end marketplace for advertisers and ad real estate.

Anyway - fireworks always go off when it’s Tremor as very marmite with most people pulling yuk faces for some v understandable reasons…but I see great value (always with some uncertainty) and a mgt team that has executed really well to make a differentiated niche in ad tech

15th Nov '22

Tremor AGM in December and they are looking to grant more share options (another 4.6m shares) and to reprice current options more favourably for the directors. I had hoped that the worst of the sbc was behind the company but that was a little naive.

Ain't got nothing to say but its unpalatable. Its a clear negative. And I accept for some it's a deal killer...tho after the share price has fallen is after the fact hysteria IMO.

And without justifying it (..as it is an undesirable disease of modern corporate stewardship), if Tremor took a more calvinist approach then they would likely struggle for execs and talent in a US centric tech. Approx 1/3 of H1 22 incentive of c.$30m went to sales and tech teams. H1 20 to H1 22 saw spectacular growth in revenues and profit and comp was rich.

If one is in Tremor International (LON:TRMR) then the share comp isn't a reason to run out...it was clear before. If you aren't in and object then its understandable and above criticism IMO.

The question is has the Q3 22 slow in revenue resulted from combo of cyclical headwind and perhaps distraction in doing such a large deal for Amobee and also the vidaa investment (which has clearly led to a lot of bespoke collaboration with the FIFA+ media platform ahead of world cup - Tremor see this as a big proof statement of their private market place offering giving high ad/brand control compared to more open market programmatic)...OR is it a result of the loss of the Alphonso data partnership AND this is business critical and permanently diminishing?

I suspect its a mix of all the above...only more quarters will reveal in full. Alphonso and data is an issue...but I hugely doubt its structurally mission critical. This is an area where data providers and desirability comes and goes at a rapid rate and data inputs are being built and demolished all the time.

As they are selling something a bit different from the more established The Trade Desk or more 'conventional' up and coming Magnite its possible client attention falls away quicker as marketing budgets are trimmed and so they are front end of the cyclical down wave.

Funnymoney

One needs a non-fundamental/news reason for selling when the stock has not done what you expect. Holding with hope is the road to the poor house. Large funds take notice of the 50 and 200, so it is worth using them as a guide. Yes, you could use 189, 205 etc. The thing is to have a non-emotional rule and stick to it. I try to sell half at 10% from buy and sell the other half just below the 200 at the latest.

My Folios are stuffed full of thing that I thought would go to the moon and are now in the gutter. I noticed I had a "demo" account as an option on my main account and added £10k BOO at the same time as I bought it for real (Nov 2020). Sold the real below the 200 day and got out flat (my heart was telling me this was the wrong decision). On my demo account I have now lost £8000. I know I get a lot of things wrong so I need a safety net. If you are sure of your analysis then maybe it's not for you. My feeling is that things can go wrong with the best of companies, and it often shows up in the price before the RNS. If I still have most of my money after an "unnecessary" sale there are plenty more fish in the sea.

InkSky

I understand that is only the case if the shares are cancelled?

In the results call yesterday Toscana asked for explanation of negative trend in net revenue especially compared to peers. The answer was the advertising mix, a drop in dtc advertising due to macro economic factors and a focus on maintaining margin

Yes. Tosca own 10%. They last topped up in August. I know them from years back having met and interviewed/analysed a few times. IMO they are quite good/interesting...but also 'play rough'...often big stakes in smallish companies looking for turnaround. Can leave them trapped if they get wrong...

I laughed at the Tosca question and how it was asked and the rather gloomy tone/acknowledgement of questioner at end after Drucker had given an answer. I really can't know what Tosca's stance is...maybe they are annoyed and sellers...however my assumption is that they were deliberating putting on a show of disgruntlement and asking the obvious and tough Q that all the analysts dodged re Q3 revenue and Q4 outlook relative to competitors. Tosca obviously get their questions answered directly and promptly one on one when they want. So why crap on their own big holding by sounding annoyed in public meeting?...ummm...

Call me cynical but I think we'll see their share count go up in coming RNS

Small Cap Value Report (Mon 14 Nov 2022) - Last week's summary, JOUL, MEGP, CBOX, WYN, SRT

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Paul Scott

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