Small Cap Value Report (Mon 16 Jan 2023) - KLR, AMS, RWA, SHI, MRK, GHT, SUP, STCM, TPT, QTX, BDEV, JSG, CREO, IQE, QXT, AT., MPAC

16th Jan '23 by Paul Scott

56 comments 9238 reads

Good morning from Graham & Paul. Today's mammoth report is now complete!

To start you off today, I spent some time over the weekend catching up on 11 company announcements we missed in last week's SCVRs. These are all short sections below.

Podcast transcript - here's the written version of this weekend's podcast. The audio version is here, and on podcast platforms. No mystery shares this week, but dozens of shares discussed, and lots of macro news/views too.

Graham's 2023 watch list

We thought that it would be a nice idea for Graham to write up his watchlist ideas for 2023 small caps, like I did the weekend before last. So he's been working on this today, and Graham's article is now published here.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review 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 are analysing the company fundamentals, not trying to predict market sentiment.

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.

Paul's Section:

Today's news

Iqe (LON:IQE) (49p [down 18% at 09:47] - mkt cap £395m) - it’s down a lot today, but in reality this has only reversed a spike up that happened in the last 10 days, in this somewhat frenzied market - reinforcing the point I made in my weekend podcast, that big rises at the moment look indiscriminate, and don’t necessarily mean a company is trading well. So it’s dangerous buying into price rises right now, unless you’ve got the safety of a positive recent trading update. I’m thinking that unusual spikes up might be…

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MichaelFBS

16th Jan '23

I agree. I cannot remember where I learnt it (maybe it was Middlesex Poly before I dropped out in year to. I was doing accounting) but in the law module it was emphasised how directors were stewards of the company on behalf of the shareholders. I genuinely think that with few exceptions (Buffett) that has been forgotten.

As an aside I would add Tim Cook at Apple (NSQ:AAPL). I was screening for reduced share count over the weekend and was amazed to see that in the universe of US shares Apple had bought back more shares in %age terms (and probably $ terms as well) than any other company. Share count is now 61% of the total 10 years ago. No wonder Berkshire Hathaway (NYQ:BRK.A) is still a buyer. Won’t be long and they will own the company.

Regards

Michael.

peterg

With regards to Interactive Investor web changes, I seem to be in a minority, at least amongst those posting here and elswhere, but I'm happy with the changes.

In answer to your question about where are current changes in SP etc, click on the 3 vertical dots to the left of Group By, and open the Column configurator. Then choose the ones you want

Oh dear I am yet to use it yet (just a quick look) but from the comments here it sounds a disaster. I hope it will not force me to move. Transferring SIPPS is a nightmare.

Why do these companies fiddle and do they ask the user before fiddling? Certainly not this one.

G Morris

Telephoned them. Very helpful and gave instructions on how to reconfigure layout, said to contact back if any problems.

I can’t believe this about the confirmation, that was something good about the old system but printing out Roger! This is the 21st century :-)

Meant in jest in case lost in the typing.

Rusty2

If anyone is wondering why Luceco (LON:LUCE) is up nearly 10%, it was tipped in SCSW apparently.

Silver Moon

So you bought or sold some shares on your iPhone did you? When I did on my desktop the confirmation pop-up didn't tell me the prices! Now I have to wait until ii can put out the contract notes for me to find out. Roger Lawson points out something else - no commission or Stamp Duty if applicable.

Guybrush

Tungsten West (LON:TUN) is looking like a multibagger candidate. Price jumped up 20 percent this morning on updated feasibility study but has since pulled back to 9 percent up. Stockopedia's price target is 100p. Expecting it to head in that direction in the next year or two. I bought in last week before todays RNS so in good profit already.

That wouldn't be the Drakelands Mine at Hemerdon by any chance? It was only a couple of years ago when my Wolf Minerals investment got severely stung. Wolf became QBS Flywheel Ltd and my money got lost along the way although I suspect mining never ceased, the ore being taken to Plymouth for processing. Naturally I am somewhat sore still. Unfortunately Google Earth's view hasn't been updated in recent years.

LeoInvestorUK

Regarding MPAC (LON:MPAC), since I presented this at Mello Stockslam and have been positive about it in various other places I feel I should disclose that I sold my remaining holding today due to revenue recognition concerns following an approximate £15.5m reduction in the forecasts for cash published today. I was also concerned to hear that the FREYR QCP contract appears to have been delayed another 6 months. I have gone into more detail publicly elsewhere.

That's the one. I just checked out a wiki of Wolf minerals, they went into liquidation I see! Not sure why TUN have acquired the Mine unless they saw something that Wolf Minerals didn't. Perhaps mine survey tech has advanced considerably since when Wolf had ownership.

It's alwas a good idea to postion size according to the risk though. Wouldn't want new buyers to follow the same ending as Wolf.

Robert W

You can copy and paste as a picture into the thread.

Re debt discrepancy: IFRS 16?

SundayTrader

A few bullet points re Iqe (LON:IQE)

It is not a chipmaker, it makes the wafer needed for compound semi-conductor chips. These are a niche product needed for various high-performance tasks. The biggest chunk of revenues comes from mobile phones.
The market for compound semi-conductor chips is expected to grow at double-digit rates for some time to come.
It supplies about 50% of the world market for such wafer, and nearer 100% of the traded market.
It has a high reputation for quality - critical in this business. Its wafer is specified by end-users such as Samsung and Apple.
Gross margins are currently growing, as the market demands more complex wafers which are sold at a better price.
The bear case is, as Paul has rightly pointed out, that the company has a poor track record of profitability. The current valuation is pinning its hopes on the efforts of the new CEO who came in last year, replacing the founder/entrepreneur who previously occupied the role.

RutlandRam

Will be very interesting to hear LUCEs update later this week

Three dots on left of screen can give option to bring up daily change on Interactive Investor screen. Use them and looking at changing with other news regarding the parent company ABDN today, through one of it's charities been sponsering the Resolultion Foundation that's pushing for a cap of £100,000 on ISA's. Sorry for off topic but talk of killing own economic model.

There's a very small free float and I would expect a cash-call being on the cards as the runway appears to be of less than one year. I think after liquidation in 2018 Wolf became a shell company until 2021. Personally I suffered a one for 66 share dilution followed by a one for 5 when QBS Flywheel surfaced. I must have some shares today somewhere. I wouldn't touch Tungsten west with a barge-pole and I say good luck to anybody who buys.

Boon

Thanks SundayTrader! That's really informative. But cutting-edge mobile customers seems to be a very difficult place to be a supplier... you only have two choices, Apple or Samsung...!

No wonder they can't turn a profit. Their customers have really squeezed them for margin, given that they know there's n-one else for Iqe (LON:IQE) to bring their products to.

davidjhill

Not really - their customer list is pretty big and far from reliant on either Apple or Samsung. Secondly both of those two have relatively little choice but to use Iqe (LON:IQE) so their pricing power is actually fine. But photonics are also used much much more widely than mobile phones.

Nonetheless the previous CEO for me was far too tech focused and not nearly enough commercial which has held the shares back significantly imo. He also took a lot of compensation for what I consider to be a frankly weak performance. Neither of those things sat well with investors understandably.

He has now moved aside for a very commercial CEO who knows the market well. He has already started to do the right things but it is unsurprising it will take 12-18 months before investors see those fruits. I'm neutral until I see that change start to bear fruit.

yiannos1

Although I am not a holder of Tungsten , it is clear that they will not need a fundraise as there is already an agreement for a 30m investment from a venture capital firm and with no dilution for existing shareholders( royalty fees ). This figure is more than enough for operations to begin.

However , the key issue is the remaining two important licenses that have not been granted. Without them operations cannot commence , and thus the collapse of the share price from its listing.

17th Jan '23

That's interesting insight, thank you!

Small Cap Value Report (Mon 16 Jan 2023) - KLR, AMS, RWA, SHI, MRK, GHT, SUP, STCM, TPT, QTX, BDEV, JSG, CREO, IQE, QXT, AT., MPAC

Graham's 2023 watch list

Paul's Section:

Today's news

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Paul Scott

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