Small Cap Value Report (Mon 15 March 2021) - HEAD, ITS

15th Mar '21 by Paul Scott

106 comments 12014 reads

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

Timing - update at 12:52 - I'm downing tools here for a while, as there's a webinar from Somero Enterprises Inc (LON:SOM) (I hold) about to start at 13:00 on PIWorld, that I want to watch, having recently opened a starter size position again in this share (I've held it on & off for years). There's hardly anything else of interest going on today, with very few results or trading updates from decent companies published today.

Agenda -

My latest market thoughts

Headlam (LON:HEAD) (I hold) - a few points from the webinar last week

InTheStyle (ITS) - an interesting new float on AIM, of another eCommerce fast fashion brand. The next BooHoo (I hold), or an opportunistic float after 1 profitable year?

Paul's Market Thoughts

So many shares in our small caps universe (and mid caps too) seem to have soared in price in the last 6 months. I can understand why - massive Govt stimulus has kept the economy mostly afloat, and we’re about to see lockdown phased out due to a successful vaccination programme.

Will this lead to a coiled spring of spending, as bulls reckon (and to be fair, that includes Andy Haldane, the respected Chief Economist at the Bank of England)? Or will it just lead to people shifting their spending from lockdown type things (revamping the home, buying a Pelaton), to returning to more normal spending patterns (holidays and eating out)? Answers on a postcard please (that’s my code for saying I don’t know!)

All I would say is this - I find there’s lots of scope to do your own forecasts, and work out that some current broker forecasts could be wrong on the downside - in some cases brokers could be too cautious, because businesses have stripped out a lot of costs. Therefore the leaner, more efficient businesses that emerge from lockdown, maybe could surprise on the upside? Especially if some competitors have fallen by the wayside giving them more market share.

We’ll see, but severe economic downturns are often the times when the best management shine.

Over-paying - lots of smaller growth companies are now looking very expensive. So I think it’s time to be really careful. We all feel great when something goes up in price by 50-100%, but that’s…

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KevinS1

15th Mar '21

Surely if you hedge then you are simply pressing the pause button - losing any further growth but knowing if it all pops you minimise your losses. Obviously there are degrees of hedging.

Sounds great, but what if we have another 5%, 10%, 15% or 20% to go. You will potentially miss out on that growth.

If you are in quality companies then you might drop the same 20% (or whatever the crash brings us) but hopefully these will be the first to recover and possibly the strongest and therefore you can hopefully pull a lot of it back over a period of time.

I may move a little towards cash (5-10%) in the short-term in case there are bargains to be had. BUT....to date, every week I have done this, by cutting my least conviction shares, I always find either new opportunities or want to top up my highest conviction shares eg. Headlam (LON:HEAD) today.

Currently less than 1% in cash, but will try again on a couple of low conviction shares later this week.

Martin VT

I generally hate rebranding as expensive marketing speak. But in the case of Boohoo (LON:BOO) I do wonder now if there is a case for a new name for what has become an extensive group, which will have boohoo the brand diminishing as a % of group activity. Probably not, but potentially a better case than many.

doublelutz

What bubble? The FT100 hasn't gone anywhere for years!

Gromley

It all depends how you hedge.

Ideally you want to look for a hedge that will underperform your portfolio when the markets are going up and do significantly worse in the event of any downturn.

The best I personally have got to so far is a short portfolio that tends to actually go down when my longs are going up but unexpectedly (to me at least) falls slightly less than my longs in a downturn. It's quite hard work (and IG Group (LON:IGG) made it harder recently) but it (so far) works for me.

A lot of people seem to use index hedges (eg short the FTSE 100) , this has a similar failing to my approach - because the indexes are dominated by the mega caps they are generally more resilient in a downturn than a portfolio of small/mid-caps.

UK_Investor_8888

For me, dear Gromley, holding Plus500 (LON:PLUS) and IG Group (LON:IGG) shares has been very lucrative, being two of the meltdown winners last year.

Hedge early, hedge often.

Dojosan

Quiz (LON:QUIZ) and £RBGP too I think

and Gattaca - and no Paul - I don't have a written list - just from recall.

gus 1065

On the subject of upcoming IPO‘s, Parsley Box have just announced that there will be a retail leg to the offer available through Primary Bid. Already open for subscription to registered PB users. Issuing docs on the PB site. Minimum subscription amount £500. I believe the deadline is next Monday, 22/3.

https://primarybid.com/home/pa...

Gus.

For Morses Club (LON:MCL) , Baroness Finn's involvement as a NED for nearly 2 yrs (she is stepping down soon BTW due to another imminent appointment) also provides a certain degree of re-assurance that Morses Club (LON:MCL) 's procedures, policies and practices have been professional. She must have carried out a DD prior to her appointment.

I think the question should be viewed in regards of risks to rewards. Given

- Provident Financial (LON:PFG) 's unfortunate current situation the consequential potential additional market share for £MCL

- Morses Club (LON:MCL) 's shift towards higher credit quality during 2020

- £ MCL 's SP

- Most recent Morses Club (LON:MCL) 's TU

- CFO 's recent purchase of Morses Club (LON:MCL) 's shares at 65.XXp

I have made an investment in Morses Club (LON:MCL) which justifies the risks.

I love bargains, so a part of my pf comprises of cashed up value plays. I hold £PGH , £CAPD (seller holding back SP) , Tharisa (LON:THS) (seller holding back SP) , £RST (return to office trend, a bit geared tho) , Morses Club (LON:MCL) , £EQLS (change of biz model) , and snap H & T (LON:HAT) .

I've also noticed that also in my pf - I have a lot of former Woodford stocks - no idea why!

it's logical to have FOMO!

St noking ly good job title !

xcity

I have noticed though that visits to the web pages of Boohoo, PrettyLitteThing and NastyGal have fallen in each of the last three months. Assuming the tracking site I used is accurate.

Tommy H

Hi Tony

How much money are you offering???

Tommy

Fellow of the Institution of Civil Engineers (I Hold)

AstonGirl

Absolutely, though I suspect that I’ll need my Peloton even more now if I’m to get back into lunches & holidays

ISAallowance

16th Mar '21

Although the blockchain bubble may be valued at $1trn or so (I don't know, just taking your figure), I would assume that nowhere near that amount of net real fiat money has actually been put into crypto. My understanding is that a huge part of the bitcoin ecosystem is essentially untraded, probably much of it in accounts that have been lost for one reason or another, and a lot more has probably been mined much more cheaply in the early days and simply never exchanged for cash. Therefore the $1trn total valuation is probably set by real crypto<-->fiat transactions of a fraction of that amount, only touching a fraction of the total possible coins out there. And just as I assume that far less than $1trn fiat has ever been put into crypto, I assume that far less than $1trn could ever be taken out - the price would collapse as soon as significant redemptions were attempted IMO.

I agree wholeheartedly with what you say about a bubble and how it's going to end.

mark1308

Can I assume you dont watch much TV ? The very annoying Ads are on a lot !

Primark produce goods of very poor quality ( but cheaply !) IMHO but they are normally doing just fine !

Obviously one must balance out the risk - e.g FOS , FCA , claim contingency companies drumming up biz by looking for potential MCL complainants.

Small Cap Value Report (Mon 15 March 2021) - HEAD, ITS

Paul's Market Thoughts

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Paul Scott

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