Small Cap Value Report (Mon 19 June 2023) - BKS, SNX, CNC, BPM, CREO, MMAG

19th Jun '23 by Paul Scott

65 comments 7629 reads

Good morning from Paul & Graham (back today after a week off)!

Today's report is now finished.

I woke up very early today, after having a weird dream about being interrogated/gaslighted by Ant & Dec, then Ed turned up and rescued me, only to get me involved in investigating the death of a busker. Maybe I should stick to writing these reports, as I don't think my subconscious is displaying much talent for fiction!

I used the spare time to do some investigation of my family tree - a relative made us all do DNA tests on 23andme, and it's throwing up some amazing results!

Weekend podcasts - it's good to see the audience gradually building for my weekly audio output. Part 1 is a summary of the SCVRs, popular amongst the dog-walking community, I'm told. Part 2 is my macro news/views roundup, and is new content (so not in these written reports), which people might find interesting. Or if not, then just ignore. I like doing them, as it helps me collect my thoughts after the blizzard of news & work every Mon-Fri.

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 £1bn. 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.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green - means in…

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MichaelFBS

19th Jun '23

Your opening paragraph is hilarious and made me smile, which I needed after a pretty awful (non-investing) start to the day.

Thank you.

Regards

Michael

Phil P

Hi all, does anyone know why tinyBuild (LON:TBLD) (I hold) share price is taking a huge fall at the moment. Down 25% over the last two trading days, on no news as far as I can tell. I know their COO & co founder Luke Burtis announced he was leaving on the 7^th June, though this seems a bit delayed for that. Could it be him selling a large portion of his shares? It seems strange to do that at the all time low share price, unless he needs the funds for his next venture. But they did state he was leaving to spend time with his family. “announced his resignation with immediate effect to spend more time with his family.”

I just wanted to check I'm not missing anything obvious. As I see it the stock is now ridiculous value on a PE of around 5/6. Even if profits were to halve it would still be great value for a growing game development / publisher company. Hello Neighbor 2 didn't review well, and I assume didn't sell well either. Though in their annual report they state:

“A material portion of the Company’s revenues have historically been derived from products based on a relatively small number of popular games. These products are also responsible for a disproportionately high percentage of its profits. For example, in 2022, revenues associated with the top five games collectively accounted for approximately 45 per cent of the Company’s total revenues.”

So Hello Neighbor 2 being one of these five games can't be more than 15-20% at a guess. They have a large back catalogue of games, providing a strong base revenue, so they aren't reliant on one game as much as a developer like Frontier is.

I'm trying to find a reason not to load the boat, but at the moment I can't find one. Any opinions or insight would be greatly appreciated. I may well have missed something glaringly obvious.

Wolf of Small Street

Apologies everyone... too many charts made stocko overheat, forcing it into emergency recovery mode. Plug it back in if you wouldn't mind Paul:)

The Boon Fund

Careful on this. Barclaycard Apr & May stats have shown that department store spending is doing decently OK, which I suspect includes Next (LON:NXT) ? But clothing retail category is having a horrid time.

I'd wager that Next is doing well, because it is a high quality company. But I wouldn't be too quick to extrapolate to clothing-only retailers, unless they were high quality too.

Albertos

tinyBuild (LON:TBLD)

There were chunky sales of 250k shares going through today and this is a pretty ill-liquid share.

There is a general wariness around the impact of AI in the games development area.

Personally I'd like to see what's said at the AGM/Interim accounts. They said cash would dip in H1 and then increase in H2 - I'd like to see that is still the expectation. The increase in headcount was eye-watering in 2022, with the corresponding increase in capitalised costs.

Just my thoughts.

(Don't hold but watching)

https://youtu.be/AuN5dhKaXrs

Good little insight here.

KevinS1

Interesting that ME International (LON:MEGP) dropped 6% today on below average volumes (353k today vs avge 383k).

Whilst it was announced today that it had joined the FTSE250 I am sure that was probably known well in advance so did that cause Fridays spike in volume & price (over 4m shares traded on Friday).

The fundamentals haven't changed, but in the current markets I really don't want to see another company I hold hand back its gains. Its happened too often this year.

Bronstein

Shouldn't MP Evans M P Evans (LON:MPE) still be on the backlog list or did I miss it?

abtan

Litigation Capital Management (LON:LIT) (I hold)

"I like the fact that they are revealing these case win"

I really like this too.

Gross profit for FY23 (Y/E June 30th, 2023) should come in close to c.$53m AUD based on published wins.
I imagine there'll be higher than normal OPEX to account for a good year.
I've prudently I hoped assumed $30m AUD, which would include all costs before tax and an exceptional bonus of $5m AUD .
So PBT of c$23m AUD = £12.3m
The current market cap is £98m.

----

At December 31st, 2022, $120m AUD had been invested directly by Litigation Capital Management (LON:LIT)

This figure included the direct investment in today's case - a mere $2.3m AUD - which resulted in a direct gross profit of $14.6m AUD.

The $15.1 AUD performance fee from the fund was a nice bonus too and helped to lower my own doubts of the fund management side of the business.

There have been a lot of good results in the last 6 months, but that seems to top them all.

---

I remain a happy holder and hope that the company are able to rapidly reinvest today's proceeds into more cases.

20th Jun '23

Thanks for your thoughts.

Interesting point around AI, personally I would only see that as a tool to improve productivity. Games are a creative from of media, so I can't see how AI would hurt that. Though a great point and it only really matters what the market thinks, I'll do some more research on that. Also the other UK game companies haven't suffered the same recent fall (TM17, FDEV, DEVO), though still not doing great, so there's clearly negativity in the sector at the moment.

Yes they have been spending quickly haven't they. Probably a good approach to wait until interim results to see if they have things under control. They are good at generating cash, but also vey good at spending it!

Thanks for this, very useful.

The Jayman

Yes very much so

Graham Neary

Hi James - yes I think you may be right! There was a decent-sized discount when I was a shareholder a few years ago. A shame for me that they didn't try to close it back then!

Funderstruck

Creo Medical (LON:CREO) Paul , thanks for positive comments, i bought this stock some time ago ,being convinced by the creator, certainly seemed a life changer; however i sold in Sept 2020 but will now buy back in with this better news, but yes still very speculative.

Shame about our friend Somero Enterprises (LON:SOM) which i sold in April 2022 ,again i shall get back in but wait for better news; all that Biden dosh must have a considerable affect on the USA economy.

Thanks for ALL your detailed forensic analysis

Harry Hindsight

65 year old. Still working. Never claimed benefits. Still not financially safe/secure and supporting adult 'kids' and grandkids - so its not all fun cruises and open top sportscars. Just saying.

Paul Scott

24th Jun '23

Hi Bronstein,

I tend not to cover M P Evans (LON:MPE) (palm oil in Indonesia), due to agricultural groups, especially overseas, being really difficult to understand & analyse, and I don't think I could add anything to the pool of knowledge on this share.

I see it has a long history of paying decent divis though, so that mitigates the overseas risk (history shows that many overseas stocks that list on AIM have got something wrong with them, often very badly wrong! But this share looks OK).

Graham did have a look at MPE here in Dec 2022, hope that helps.

Regards, Paul.

Thanks HH,

That's a great point actually - inter-generational family support for households that are struggling is a big thing, for sure. This could be softening the blow of cost of living crisis?

I'll include that point in my next podcast, thanks for flagging it!

Rusty2

The blow was softened by the Govt. Paying households £400, for their energy last winter, doubt this will be repeated next winter. Also mortgagees will be soaring. The Govt./BOE seem intent on pushing us into a recession to tackle inflation. The only good thing maybe interest rates will be higher than inflation. I will be doing some fixed rate savings accounts soon, you can get over 5% easily now, maybe over 6% very soon. Considering rates were only around 1.2-1.5%, 2-3 years ago, that is a considerable difference.

Rents are also soaring, some younger people are moving back to the their parents, according to the news.

Higher interest rates won't tackle a lot of the inflationary factors, such as high energy costs, Brexit and a shortage of workers.

gmtrader

Have you looked at monthly savings accounts? I know you can’t put a good lump sum into them but you can open up half a dozen accounts via different banks with interest up to 7%. As they say, every little helps.

Not really, seems too much hassle, amounts are small and many lower than 3 year fixed rate bonds.

Small Cap Value Report (Mon 19 June 2023) - BKS, SNX, CNC, BPM, CREO, MMAG

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Paul Scott

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