Small Cap Value Report (Mon 20 Mar 2023) - PBEE, TRB, TENG, SPSY

20th Mar '23 by Paul Scott

50 comments 7580 reads

Good morning from Paul & Graham!

Today's report is now finished.

This weekend's podcast went up on Sunday. Here's the link, or it's available through podcast platforms too (called "Small caps podcast with Paul Scott". I kept it down to 32 minutes this week, covering my thoughts on the banking crisis, budget, plus all the company updates from last week.

More turmoil with the banks. I see the weekend press is reporting that UBS has bought out Credit Suisse, combining Switzerland's two largest banks. Stock market futures initially reacted positively, but have since (07:08 today) turned ugly again, with the FTSE 100 futures indicating an open here about 100 points down, at around 7,210. So looks like we need to keep those hatches battened down.

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:

Tribal (LON:TRB)

43p (down 14% at 08:34)

Market cap £91m

Singapore Contract Update and Revised Date for Full Year Results

Tribal Group plc is a pioneering world-leader of education software and services. Its portfolio includes Student Information Systems; a broad range of education services covering quality assurance, peer review, benchmarking and improvement; and student surveys that provide the leading global benchmarks for student experience. Working with Higher Education, Further and Tertiary Education, schools, Government and State bodies, training providers and employers, in over 55 countries…

The current financial year is FY 12/2023.

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Wimbledonsprinter

20th Mar '23

I also hold Spectra Systems (LON:SPSY) and think the results are good. It is a bit of an idiosyncratic company with certain reasons why some people might not want to buy into it. It has not held an AGM for many years (can never reach a quorum, despite management encouraging shareholders to attend), it will be very difficult to organise a takeover - given that a high percentage of the staff and senior management need US security clearance and the CEO/ founder is not a natural salesman. Plus there is significant customer concentration (60% for the top two clients I believe) and no disclosure on clients, because of client confidentiality. In addition, you have to buy into the management's arguments that the core business of banknote security is not in decline. The management I think argue this quite well and the company has a number of potential exciting other authentication products (eg. TruBrand) which could lead to growth.

The move to polymer banknotes presents both a risk and an opportunity for Spectra as its Fusion product seems to offer potentially security features for polymer banknotes that others can not provide. AFAIK, the US Fed (I think it safe to assume a key client) has not (yet) taken the step of moving from paper to polymer notes.

Once one has overcome the negatives, the key positive is the long track record of the management underpromising and overdelivering and the steady cash generative business over the years, punctuated by periods of growth. The next key growth period should start in 2025 with a major new sensor contract. This should lead to a step jump in profits and revenues. Looking at the Allenby note, the big jump in FY25 is supported and dependent on this contract. The contract will be the third such contract from this client (the client basically buys a new generation of sensors every 10 years) and the last cycle was responsible for the step jump in revenues in 2014 and 2015.

Spectra Systems (LON:SPSY) is a good dividend payer but the dividends are subject to US withholding tax. Therefore it is probably not that efficient to hold in an ISA (where the withholding tax cannot be reclaimed).

ACounsell

I’m not sure the Stockopedia standardised accounts system works for Insurance, banks and oil & gas companies. The complexities of accounting for these type of businesses throws up all sorts of ‘funnies’ with respect to the metrics. I hold Aviva (LON:AV.), Legal & General (LON:LGEN) and Phoenix group (LON:PHNX) and topped up on Aviva (LON:AV.) last week (though wish I had waited until 1st thing this morning!). The yields are attractive and look to be reasonably well covered - the experience investor Lord Lee certainly likes them as Income plays as he frequently refers to his holdings in them in his FT Money articles!

shanklin100

Provided one completes the W-8 BEN form, there’s 0% dividend tax in a SIPP and 15% in an ISA.

Rusty2

But do all SIPP providers reclaim the tax?
Some don't allow you to buy these type of stocks.

JohnDoe2378

Hi truegent you think the bear market is over?!

Hi BnB i am certainly no trader! Thanks for your comments.

Michael Tee

Equals Group (LON:EQLS).

MMs playing their games.

I can't get a quote to BUY any, not even 10,000 shares.

I can get a quote to sell 25,000 shares for 73.35p

Mid-price only 72.5p

Can't even buy 300 Equals (LON:EQLS). Can buy 250, great.

galois

I agree Barclays or Deutsche look like riskier propositions, given ownership of weaker investment banking franchises. But what if their risk management is good? In other words, what if they saw the rate rises coming ( not too difficult given what the central banks were saying) and hedged accordingly? Then they will sail through these problems and come out looking very cheap. We just don’t know.

truegent

Would you have asked that question a couple of weeks ago when the FTSE was at an all time high ? The bear market ended a while back and this is a correction in the next bull market - all my own views of course ;)

jamesalastair

Agree .... or maybe Commerzbank. I am short both.

planetx

Results / update tomorrow I think .

On 27 March 2023, apparently, unless it has recently.

portugull

Many thanks to ACounsell for your helpful comments following my post at 2.21pm today.

I must agree there are certain types of Share were the Stockopedia metrics are sometimes skewed and Litigation Finance is another example.

Good to know the renowned Lord Lee holds the very 3 Insurers I have been watching closely.

I have held fire today because of the potential contagion from the Credit Suisse fallout.

Threepeat

I would have thought investec and Ninety One would have been on your list. Sometimes useful to compare their AUM (bn) divided by their market cap (bn), although Ninety One has huge Insurance assets and liabilities which tends to skew the picture somewhat

Happy pondering

There has been a lot of director selling at Investec (LON:INVP), there is some South African exposure, as well. I no longer hold.

RDHOWARTH

Quality is a reference to returns on capital which are poor at Aviva - complicated insurance accounting etc don’t help

Richard Goodwin

Premier miton perhaps?

Yes, I already hold Premier Miton (LON:PMI), so many to consider at the moment. Argentex (LON:AGFX) and Ramsdens Holdings (LON:RFX) , not fund managers have been hit with the banking fallout, are looking good value.

The Boon Fund

AJ Bell allows Spectra Systems (LON:SPSY) in a SIPP, and so far my dividends have been effortlessly tax free (had to fill in that W-8 form though at the start).

Small Cap Value Report (Mon 20 Mar 2023) - PBEE, TRB, TENG, SPSY

Paul’s Section:

Tribal (LON:TRB)

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