Small Cap Value Report (Mon 20 June 2022) - STEM, CBOX, RNK, SYS, FTC, PIER, NWT

20th Jun '22 by Paul Scott

28 comments 7783 reads

Good morning, it's Paul & Graham on duty this morning.

Agenda -

Paul's Section:

SThree (LON:STEM) - an impressive update. Profit guidance is raised, with trading at least 5% ahead of market expectations for FY 11/2022. This share looks excellent value now, and I think 319p looks an attractive entry point, providing your macro view is not too gloomy.

Cake Box Holdings (LON:CBOX) - updates on timing for FY 3/2022 results, and reiterates they're in line with expectations. A minor technical issue re distributable reserves has arisen during the audit, but it doesn't look to be a worry. Previous accounting/audit problems have left a lingering question mark over this share though, and major holders nearly all seem to be selling, which could leave a prolonged overhang in the shares maybe? Stays on my watchlist though, as I do like the underlying business model.

Filtronic (LON:FTC) - a positive, ahead of market expectations update. Although updated broker forecasts show a drop in profits next year. I'm not keen on the business model, and erratic historic performance, so not of interest to me. It's difficult to justify the current valuation, when the market is throwing many bargains at us.

Graham's Section:

Rank (LON:RNK) - this casino and bingo hall operator issues a nasty profit warning. The main problem appears to be lower-than-expected overseas visitors to the UK. But there are other niggles too, and inflationary cost pressures are also hitting the company. The last-seen balance sheet (December 2021) showed net cash and the company is still forecasting a respectable underlying profit for the current financial year, given the reduced market cap. An interesting but risky value opportunity.

SysGroup (LON:SYS) - this managed IT services company reports lower revenues but succeeds in maintaining profitability. Looking to grow through acquisitions and achieve success through increased scale. But for now the share appears to have few attractions. The cash balance has been spent on its two most recent deals.

Brighton Pier (LON:PIER) (no section below) - (£30m). This is a Luke Johnson company (Mr Johnson is Chairman and owns 27% of the shares). PIER owns Brighton Palace Pier, along with some bars, mini-golf sites, and a theme park. Revenue and adjusted EBITDA for the current financial year are tracking in line with expectations – a nice result for a domestic hospitality business!…

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danjamesbaker

20th Jun '22

What do readers use to track their portfolio, diversity, performance etc? I'm currently using Sharesight which is using given the range of reports available but it's relatively pricey so just seeing if people use Stock, Excel, their broker portals or something else to track.

MattH

Google sheets. I have it set up to show prices (obviously), but also other things I find useful to see at a glance; % on average volume, MA levels etc, a little 6 month chart. I also have a watchlist page and an ex-holdings page.
Adding and removing cash and getting a true yearly return figure takes a bit more work with another excel sheet, but I rarely add to my portfolio now and it gives me a ballpark figure even if I do.

RDHOWARTH

Thanks for market backdrop comments on Friday Paul. I tend to agree that its too late to sell ... especially the most bombed out areas.

A while back I looked at past bear markets ... 2007 2000 and 1929. I don't think we are back in 1929..... but the initial fall in the S&P 500 was 36% followed by an 18% rally. In 2001 the initial fall was 11% ...followed by a 12% rally... and in 2007 the initial falls was 18% followed by a 12% rally.

At the moment the FTSE 100 is only down 7% ... the 250 -20.4% so the UK has been more resilient in this first phase. The Nasdaq is down 30% and S&P 24%. The US must be close to a level it can rally. Whatever happens though by Autumn the debate will be all about the length and depth of recession... it could be mild, not happen, or be severe. We don't know, its pretty complicated at the moment....but at the moment the economy has been a little hot...and the Fed behind the curve. I think we follow this with Fed no longer behind and/or Fed has gone too far. So we worry about the slow down.

Clearly the inflation limits the Fed response in a slow down...so its likely to come late as inflation is a lagging indicator. We will see.... its worth noting that even in big bear markets, say 2001, the market rose 70% but this was offset by 5 periods of weakness..... you tended to get a fall of nearly 30% followed by a rally of about half the loss.... it was similar in 2007, but you only had four different phases. Things do seem to speed up. This sort of supports the idea that we can rally here ... and likely about half the fall.

Obviously a recession brings earnings downgrades... and these will likely reset in the Autumn. Some sectors like retail already seem to be discounting a lot. Others sectors still do not. When value starts to do better than growth this normally last several years. I would wait for a rally of approximately half the losses to restructure. Some of the areas like resources might not held up so well in the next phase if we worry about the recession but a lot depends on china and what type of policy they implement.

For now I think we have seen most of the losses in the first phase and a rally will inevitably come... and then you can kick some stocks out if you have changed your mind.

regards

Howard Adams

Hi RDHOWARTH

I suspect you have already seen this chart or others might be interested.

Regards

Howard

Trident

Kudos to Mr Contrarian for pointing out Brighton Pier (LON:PIER) are changing their year end accounting period.

This is one of my personal red flag alerts. Such a measure whilst it can be done for a fair reason, it can be used by management to rebase their results overview e.g. extending the year end makes revenues look stronger as a comparative superficially, or a reduction in the accounting year conveniently cuts off a period of under performance which will be merely aggregated into the next accounting year, conveniently kicking the can down the road to a period when they hope to have a stronger trading period.

Helvellyn

An interesting podcast of an interview of Mark Slater ( Slater Investments) by Johnathan Davies, done in late May 2022, probably worth 30 odd minutes of your time.

Is the bear market over? – Master Investors – UK Podcasts (uk-podcasts.co.uk)

rmillaree

Brighton Pier (LON:PIER)

For entertainment business that will be busier may-july than december january i think changing to december year end makes perfect sense - seems nonsensical for year end to have been somewhere near the middle of the peak summer season. So whilst red flags may exists for some this seems no brainer sensible decision - the only caveat i would have is that temporarily i would be more wary about newsflow and the potential for stuff being swept under short term if any vaccum of concrete numbers exists. Note the company have confirmed they are doing 12 months figures to 30/6/2022 and 12 months figures to 31/12/2022 - so seems like you are getting more rather than less here reporting wise !!

Silver Moon

Graham, you observations on Newmark Security (LON:NWT) are so astute and could fit quite a number of AIM outfits. I hold some of those myself but not this one. I'm learning all the time from Stocko's SCVR on a broad front impossible to do by myself. Best Regards.

Silver

donald pond

Perhaps the oddest thing about Filtronic (LON:FTC) is that a couple of private families own huge amounts of it and have been increasing their stakes: the Dixons and the Newlands have 9% and 25% (can't remember who has which). and they have been consistently increasing their position for a few years. I've heard of averaging down, but that takes it to a new level. More seriously, anyone holding that amount of a relatively illiquid AIM listed company has no exit other than through a takeover. The fact they hold so much suggests to me that there must be a takeover at some point. So I think it is worth holding on to. There's new management and they seem to be more clued in than the previous.

Boon

Interesting that the "time from peak to trough" has such a diverse range of values.

I wonder, how many of those previous times, did the 20% decline happen while GDP is still growing, and unemployment is still at a record low?

The re-rating of the Begbies Traynor (LON:BEG) shares over the past week has been very dramatic, and also interesting, based on almost no news/developments.

Gov stats on non-voluntary insolvencies haven't increased yet by much, albeit it is predicted to grow as 2022 progresses. However, compulsory liquidations is 4x higher in May 22 than May21, so clearly there's more work YoY in the industry.

I remember FRP released something recently, predicting that summer will still be a lull, before a surge in Autumn.

So it does look like momentum is building to an outstanding second half of the year for Begbies, and next year too. But the numbers aren't showing it yet.

(I hold in The Boon Fund)

I have used Sharesight in the past, but didn't think they really offered much more than Stocko portfolios to justify the extra cost of a subscription.

Do you rate Sharesight's portfolio tools much better than Stockos? In which case I might go back and give it a try again...

Barry5

I have 4 Folios at Hargeaves Lansdown with the Missus and I input the shares and costs into an HL Watchlist so that in order to see the current ups and downs (mainly downs recently!) and the accumulates gains/losses I only have to look in one place. I also run an Excel spreadsheet which contains the history of our Folios and then check that the two sources agree each evening. Sharepad and Stockopedia will allow you to set up Folios where you can input directly your trading actions, hence no need for Excel but I had already set up my Excel system before I subscribed to those two and it was too time consuming to have to re-enter all the trades. Hope that helps.

FREng

On Friday, I posted a list of the new large shareholders in Tern (LON:TERN) and asked if anyone here knew what is going on. One answer was "Pretty sure it's to do with the takeover of Pires Investments (LON:PIRI)".

Today, and RNS was published saying that one of the new investors, jonathan mark swann, who owns 2% of TERN, disclosed a short holding of about the same size on 13 June. Can anyone here offer a possible reason why someone would acquire 2% of a company and short it around the same time? Is it possible that he acquired the shareholding to cover his short position and that the other new shareholders were also covering short positions? I see that TERN is up over 10% today.

I have emailed Ian Ritchie, TERN's chairman, to ask if he can cast any light on what's happening.

Camtab

Donald that seems a very tenuous reason to hold a share.

Monty Carlo

I use Excel, with a combination of feeds from various sources so I can mix & match my pricing source for each individual security. Whilst I do use quite a bit of code/VBA, I'm not sure I'd need to if starting from scratch now as you can achieve a huge amount with Excel's StockHistory function (if you subscribe to Office365), together with PowerPivot. Much of what I used to use SQL for a decade ago can now be done with a bit of DAC and PowerQuery.

When I left the City I thought I would miss my Bloomberg terminal, but I've managed to replace much of the equity functionality without paying $20k a year. Yes, I do still miss the clean corporate action history and the reliable total return analysis. Fixed income is a different matter entirely - it is very difficult to replicate the professional tools as the data is much harder to come by.

Sharesight is a much better tool for tracking a portfolio than Stockopedia as it can do total return and it is vastly superior when it comes to handling dividends. I had a thorough look and liked the product, but I have more portfolios than their private investor pricing framework permits. They are Australia/NZ in origin, and I'm not sure they fully apprciate how many SIPPs, ISAs and Junior ISAs a UK family can accumulate.

Stocko is better for analysing companies, taking a quick glance at the historical accounts and comparing various ratios.

I don't really consider Sharesight & Stockpedia to be comparable offerings. I've not looked hard at Sharescope - I'm not a trader so technical charts and Level 2 pricing are of limited value to me.

BnB

Cake Box Holdings (LON:CBOX) - It looks to me as though the selling by major shareholders has normalised. I tracked this through the spring and came to the conclusion that the appointment of a new FD, an experienced troubleshooter, had settled the nerves. Shares have actually outperformed since. I also wrote at length why I believed the problems to be non-fraudulent, but I’m on a very slow Internet connection in Bohemia right now and can’t find my comment without tearing my hair out.

Cricketfan

Cake Box Holdings (LON:CBOX) (I hold). I agree with your thoughts. Also, I pass by my local outlet (Tolworth, West London) from time to time and occasionally look in. There seems to be a steady trade and the creamy cakes are doing nothing of any good to my waistline!

TheRaven

It was me on Friday. If the fellow is who I think it is, he trades Tern up and down on a daily basis.

Graham Neary

21st Jun '22

I appreciate the feedback, Silver. Thanks! G

Small Cap Value Report (Mon 20 June 2022) - STEM, CBOX, RNK, SYS, FTC, PIER, NWT

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Paul Scott

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