Small Cap Value Report (Mon 16 Aug 2021) - MWE, AVON, TEK

16th Aug '21 by Paul Scott

44 comments 10410 reads

Morning all, it's Paul & Roland here, with the SCVR for Monday. Welcome back Roland!

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 opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Agenda -

Paul's Section:

Avon Protection (LON:AVON) - profit warning from Friday seems temporary/fixable supply problems, rather than a lack of demand. So might be worth a closer look? Probably priced about right.

Roland's Section:

Mti Wireless Edge (LON:MWE) - this radio technology group has reported a strong set of figures today. It’s an overseas AIM stock, but it’s ticking quite a few boxes for me.

Tekcapital (LON:TEK) - This Oxford-based intellectual property specialist has released record results today. There’s a history of dilution, but profitability appears to be impressive.

Paul’s section

Avon Protection (LON:AVON)

2132p (down 28% on Friday) - mkt cap £661m

Shareholders here have had a rough time since AVON shares peaked at about 4635p in Dec 2020, having more than halved since then - opposite to the general market, which has done well over that period. It’s dropped back into our under £700m market cap territory here at the SCVR. As there’s not much news today, this profit warning from last Friday looks more interesting to cover.

Trading Update

Avon Protection plc ("Avon") today provides the following trading update for its current financial year ending 30 September 2021 ("FY21").

Positives -

“Good commercial progress” in H2
Order intake over 10 months to 31 July 2021 up 13%, at $221m
Order book currently up 21% on LY, at…

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Jeffvshepherd

16th Aug '21

Hi Roland, thanks for helping with the SCVR again!

CheshireUK

Hi Roland, Thanks for the review. I hold Tekcapital (LON:TEK) after a recommendation from Investors Chronicle a couple of months ago. Now showing a healthy profit, but Chairman Dr Clifford Gross did announce on an investor call on the 3rd August 2021, that we would see more good news before the end of September 2021. I continue to hold :-) .

Ned Kelly

Re Mti Wireless Edge (LON:MWE) there is possibly a bit of confusion over the EPS as ALLENBY'S note on Research tree shows EPS of 3.2p versus Stocko showing 3,2c for 2021. Not sure which is correct but I think it is probably Allenby. I hold.

Silver Moon

Hi Roland, I held Mti Wireless Edge (LON:MWE) from almost exactly to today in 2017 adding more twice until getting stopped out 3 years later in 2020. Had I held on I would easily have a double-bagger under my belt today. I didn't go back in because I was concerned about the company helping China with its irrigation control systems. Normally I wouldn't blink where ethics are concerned but viewing Google Earth and zooming down to village level in many places in north-east China such as at Bamianchengzhen district and seeing thousands of collective farms I wonder what kind of life the workers have. I'm more than happy with the 80% profit I made.

Silver

BnB

TSE:BOS is a terrific recommendation for the rear view mirror but it looks as though growth has topped out. Maybe a cautionary sign for new AVON shareholders like me of course. Thanks for the pointer.

cmpeckham

The number of companies that don't help China in some way is probably near zero. Whether it's selling to them or buying from them, it will be hard to find any that don't participate. In your daily life, you will also be helping China. Just in posting your comment, you probably used several bits of technology that had some involvement in China. Taking a stand on irrigation systems seems rather curious and I can't see it benefiting the people you feel sorry for.

Andy Sav

Best Of The Best (LON:BOTB) (I hold): Down another 10% today, however, have spotted that MI Chelverton UK Equity Growth Fund have taken up a 5% interested in Best Of The Best (LON:BOTB) this afternoon (477,772 shares). Possibly a small glimmer of hope?

Paul Scott

Hi Andy,

Having pondered things over the weekend, I'm coming round to the view that the market has probably overshot on the downside re £BOTB. The business model isn't broken, they've just run into a bump in the road - revenues down 15%, which with hindsight shouldn't really have been a surprise given the ending of lockdown. It's still a very good business, and management have lots of levers they can pull.

The problem with BOTB's business model is that cost of sales are semi-fixed (being cost of cars given away). Hence every £1 of extra or reduced revenues, feeds through almost directly to higher or lower gross profit.

That said, most other costs are variable, and marketing spend can be tweaked up or down as required.

There is more competition now too, and Omaze in particular seems very well funded, and presumably running at a loss in the short term, whereas BOTB has a 20 year track record of being self-funding.

I'm tempted to top up at this depressed price, and given how negative investor sentiment is currently. I think it's likely to recover partially once the dust has settled, although previous highs now look very unlikely.

Regards, Paul.

rmillaree

Best Of The Best (LON:BOTB)

Perhaps one extra thing to worry about (as if we don't have enough) is that the more companies enter this space the more likely it is that the government will decide to treat this activity as most other gambling activities and tax it as such - kinda guesing such a change would probably hit the profit by at least 50% of what they currently have left. Unfortuantely IMHO a change in the law here is easy pickings for the government if they want to raise extra revenues. Practicably speaking there is very little difference betwen spot the ball and roulette and buying a lottery ticket. BOTB really don't need a kicking when they are on one knee but profit warnings do come in 3's as they say.

Hi Paul,

re Best Of The Best (LON:BOTB), I agree, I think the price has overshot the downside, as you say. I'm afraid, i'm not brave enough to top up currently, as I think the risks are now too high for me.

However, I am against selling around these prices and the purchase from MI Chelverton, backs that up to an extent. Also, summer is a naturally depressed sales period for Best Of The Best (LON:BOTB), so hoping for far better news with the next trading update.

I'm planning on holding on until the next trading period and selling around £15 (my average purchase price) or up to £20 (if momentum takes hold again) or will bale quickly if the next update is more negative news.

Thanks Andy

Hi rmillaree,

I think this is a really good point and only adds to the risk. I think some competition is acceptable, after all, the big betting house remain profitable even though there is quite a bit of competition, so hopefully, that would be similar for £BOTB. But, like you say, regulation could kill profit levels. There is quite a bit of chat now, on last Fridays SCVR around competition. Omaze seems to be more property based driven by a raffel. https://yiannimizecomps.com/ is far closer to £BOTB. They offer a monthly subscription, which reduces ticket prices. Definitely an idea for Best Of The Best (LON:BOTB) to replicate.

Thanks,

Andy

Best Of The Best (LON:BOTB): regarding director selling, one think I have noticed on the Yahoo Finance Insider Traders page: https://uk.finance.yahoo.com/q..., is that a Daniel Burns actually bought 20,833 shares (£691k) at price £33.19 per share on the 1st of April 2021 (same time as when the other directors sold). There is a Daniel Burns listed as NED for Best Of The Best (LON:BOTB), so I assume that's the same person. Not sure why Stocko doesn't pick this up as a director trade?

If this is true, he must be livid!

simoan

In view of the warnings about availability of new cars by listed dealers, what happens if they can't source any supercars to give away? I would assume the cost of those they do will have increased at the very least. Anyone considered that?

I should point out I have zero interest in Best Of The Best (LON:BOTB) as an investment.

All the best, Si

Yes, I do feel sorry for them, my dad was a farm labourer and we lived in a tied cottage. He hand-milked the cowherd twice daily 7 days a week until the electric came along and he did everything agricultural in between milkings but I'm not forgetting that the Chinese labourers collectively feed a huge military.

Tinner1

I am in same boat but I see no light at the end of the tunnel. Why?

1. Competitors like Omaze (+++++) have almost bottomless cash to push out rivals like BOTB. Endless advertising by these competitors (and I include general gambling brands like Gala Bingo etc in this, not just Omaze) must be, and carry on, eating some of BOTB's lunch.

2. Directors are not incentivised to fight back - they sold high and yeppo they knew what they were doing!

3. When households' spending is divided, this biz experiences a boost in lock-down but a paring back during re-opening time - as is the case now.

I don't agree it is oversold.

good spot

JohnEustace

@Silver Moon

I know what you meant but I did smile a bit at He hand-milked the cowherd twice daily 7 days a week

The cowherd is the person who looks after the cows......

Roland Head

Hi Ned,

I suspect you're right the Mti Wireless Edge (LON:MWE) forecasts + that would explain the discrepancy.

Roland

17th Aug '21

Hi Johns, I guess I should have left it at 'herd', still , it made some folk smile and that can't be bad.

22nd Aug '21

Well I am really looking forward to the next few months as I have now read Simon Thompsons analysis of the Tekcapital (LON:TEK) numbers. Simon originally suggested buying Tek's shares at 15.5p in June this year, with and end of year target of 25p. He has now raised his target to 35p and still therefore a BUY.

Small Cap Value Report (Mon 16 Aug 2021) - MWE, AVON, TEK

Paul’s section

Avon Protection (LON:AVON)

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Paul Scott

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