Small Cap Value Report (Mon 22 Feb 2021) - FNX, SLP, OTMP

22nd Feb '21 by Paul Scott

106 comments 20041 reads

Good morning, it's Jack & Paul here with the SCVR for Monday.

It's Mello Monday again tonight and Jack's on the BASH. Lots of popular stocks being discussed, including Sylvania Platinum, Intercede, Tandem, Image Scan and Open Orphan. There's an interview with IHT fund manager Stephen English and a great session on 'How to get the most out of Twitter'.

As ever, Stockopedia readers get half price tickets if they use this code MMStocko21 and it will be just £10.15.

You can find more info from David here.

Jack’s section

Good morning all. Yesterday, PIs were blindsided by the news that IG is increasing margin requirements on more than 1,000 stocks. Clients have until this Friday to put up 100% margin on said stocks, at which point positions will either be forcibly closed or kept open for another 30 days. (Edit: Michael has written a very handy breakdown of events on his website, here)

It’s partly to do with this crazy GameStop story almost single handedly exposing structural weaknesses in a rather opaque financial trading system. RobinHood scrambled to raise funds a week or two ago. Now it seems IG’s prime brokers are also demanding more capital.

It’s remarkable that a barely coordinated campaign by WallStreetBets redditors provokes this reaction from key players in the financial ecosystem. These are not all sophisticated professional investors. Many of them are investing for the very first time. It does make you wonder about the robustness of the markets.

What’s more, I reckon this era of coordinated retail campaigns is only just getting started. So how will the industry and regulators react to these rapidly evolving habits? If you do go on these subreddits, it's almost like a millions of people have discovered a new toy: the stock market.

As for IG in particular - its handling of this situation leaves a lot to be desired. I hope those that use the platform haven’t been too badly caught out.

There are a couple of updates out today. First on the list is Fonix Mobile (LON:FNX) - a recent IPO that appears to be highly cash generative.

Fonix Mobile (LON:FNX)

Share price: 160p (+2.24%)

Shares in issue: 100,000,000

Market cap: £160m

Fonix Mobile (LON:FNX) is a UK-focused provider of mobile payments and messaging services for clients across media, telecoms,…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Bouden54

22nd Feb '21

PLUS doesn't seem to have any small caps - much smaller range of shares, mainly all large and mid caps.

grumpy5

or you could try monitoring £XRHO (an ETC).

mammyoko

Re IG Group (LON:IGG) - another thought. Removal of the ability for a PI o go short on those shares that IG no longer trade will surely come as a relief to the management of many of the companies listed. With consequent adverse impact on the price discovery mechanism

Rusty2

You could be right, just a thought. I can understand IG doing this on some small caps but that list has over 1,000 shares on it, some are even FTSE100 companies.
The problem is in the future you don't know if your shares will be added to the list.
Seems like market manipulation by the brokers.

vprt

One correction, jonno: Air Partner (LON:AIR) guidance is that underlying PBT for the current year will be in line with FY20, which ended a bit more than a year ago (rather than "just ended"), and was £4.2m.

I confirmed with the company that they had underlying PBT in mind, rather than the much lower statutory profit, as their RNS only said "profit" without specifying further.

£4.2m is much better than the recent 2H runrate, but obviously well below the massive covid windfall from (the first half of) the most recent full year (FY21).

Bonitabeach

Air Partner (LON:AIR),

Jonno, I view Air Partner as just another of those cigar butt small caps that get an awful lot of unwarrented column inches in the SCVR. I also smile when it has a Quality Stock Rank of 98.

I look at the face of the Stockopedia Report and cast my eye along the EPS row and the "Normalised" EPS row - it says an awful lot to me about quality of earnings.

They raised £7.5M in June 2020 at 75p a share which the directors effectively swerved. I wrote at the time that the directors saw no value at 75p a share so why should anybody else? Those directors were right.

Sorry to upset you but if I were holding I would be rather upset to be told that:

The Board's current base-case expectation for FY22 is to deliver profits in line with the financial year ended 31 January 2020,

In the Y/E 31 January 2020 Air Partner delivered a net profit of £300,000.

Good luck with your holding.

doug2500

Can't be good for liquidity in the UK small cap sector.

Does spread betting really aid aid liquidity? I can see that short selling physical shares might (although I remain to be convinced it's that helpful) but how would a spread bet help?

Gromley

I certainly agree Herbie that the IG list seems somewhat arbitrary. In fact contrary to what I wrote earlier I note that I do actually have a Long position impacted by this change also (down 4% on the day, bucking the recent trend).

I'll be "moving" this position to one of my other SB accounts this week. One of my reasons for having multiple accounts was to afford a degree of flexibility. One of the reasons for retaining my IG account had been the breadth of their coverage, with this largely gone I will need to consider whether there is any point keeping IG on my list.

As you rightly say, it is difficult to have confidence that other stocks won't be "blacklisted" in future. To some extent though that risk has always been there to some degree; in the past I have had the margin requirements dramatically increased in stocks undergoing a period of volatility. For anyone managing their SB account prudently (ie not going anyway near maxing overall margin and having some portfolio breadth) a single stock does not present a particular issue. So assuming this is just a one-off big bang then perhaps IG can again become a 'trusted-partner'.

For me the bigger concern (that I don't think anyone has touched on) is whether other providers may consider following suit.

I will probably be looking to open a couple of other SpreadBet accounts in the near term to spread my coverage.

ISAallowance

"So if you have £1,000 in your account you can 'buy' positions in up to £5,000 of shares - you put up the 20% margin and the rest is effectively the risk.

If the share price were to fall by 20%, you get a "margin call", the SB co will ask you to put more funds (margin) into your account. If you don't your position will be closed and you lose the whole £1,000"

That's not entirely correct. If you have £1,000 in your account and 'buy' a £5,000 position at 20% margin, then you have used 100% of your equity for margin. Any drop in the position, even £1, will then result in a margin call. A £1,000 decline equals wipeout, not a margin call.

Alternatively, if you have that £1,000 cash in your account, and 'buy' a £2,500 position at 20% margin, then you have used 50% of your equity for margin, and are 2.5x geared. Your position can then decline by more than £500 before you receive a margin call (At that point, your equity will be £500 (initial £1,000 minus the £500 running loss), and your margin requirement will be 20% of running position size of £2,000, i.e. £400 so still £100 away from a margin call.

I'm sure you know this really, but hopefully those examples may be useful to others reading.

For most of the small-caps on the IGG list, margin will be at 25% rather than 20% BTW.

Re IG Group (LON:IGG) this article is useful in terms of understanding

https://www.shiftingshares.com/ig-announces-100-margin-requirements-on-1000-stocks/

Silver Moon

I recognised that manikin straight away.

It must scare the pants off unwelcome visitors!

mikebianchi

Brilliant well done many thanks, its hard enough making a honest and straight buck without as I would say the black arts muddling affairs. Bad news though for us that only invest what we have in the till, leveraged gambling a dangerous game

samanddee

Paul - many thanks for the Mello reminder!

simoan

According to the StockReport Air Partner (LON:AIR) also generated 12.7 pps of free cashflow in FY 2020. If it did the same again at a price of 65p it'd be on a pretty attractive free cash flow yield, I'd say. I don't understand the level of negativity. It's not an exciting company that's going to shoot the lights out but OTOH it's not like some of the basket cases that get discussed here either. Today they confirmed a 3.7% dividend yield to be 3x covered and it's a decent way to play a recovery in air travel going forwards - can you imagine how many furloughed pilots are going to need some retraining? It also has a very strong balance sheet compared to some of the dross that gets discussed here.

All the best, Si

Thanks ISAallowance,

You are absolutely correct I was over-simplifying to describe how the Spread-bet effect can bleed out into the wider market.

it wasn't intended as a guide to using spread-bets (leverage).

For anyone considering using Spread-bets for leverage extreme caution is for sure vital.

Something like 70-80% of people who use spread-bets lose money.

Many of those of course are inexperienced folk chasing the massive and unrealistic returns that others claimed to have made. (Robinhood traders will probably mostly fall in to this bucket.)

But others might have been following an essentially sound investing strategy, that might be proven correct in the near term; however if you over-leveraged and end up getting stopped out on volatility you lose even if you are right.

Leverage will destroy you without adequate understanding and risk control.

Phuntt

Yeah Gromley, I posted here over the weekend on how I use 3 spreadbetting accounting generally. In summary:

1) IG offer width, a great platform, expensive fees

2) SpreadEx offer width, medium platform, medium fees

3) Spreadco offer no width, medium platform, extremely cheap fees

If IG remove width and the ability to trade small caps, they have no place in my future. Even worse this move (both making preferred traders aware of the change before me and giving me limited time to adjust my positions) means they lose me as a customer. I am personally absolutely disgusted at the way they have handled it. I haven’t actually been affected today or Friday - my positions are actually up - but the nature of the move is just totally unacceptable from someone I want to trust with my money. I should never have to find out on the SCVR at 7am 5 hours before my actual broker sends me an email detailing the changes they have decided to make...

Damian Cannon

Where else would a dividend come from if not from money held in the business? That's why shares are generally marked down on ex-dividend date. It's also why, barring a huge special payout, the shares usually go back to where they started. This is just part of returning value to shareholders.

Boon

You would have thought someone named Peter Foot would have been the perfect fit at Shoe Zone (LON:SHOE)

AnonymousUser997423

23rd Feb '21

As you mentioned Paul Calnex discussed Calnex some time ago.

Since then it has dropped from 124 to 112.

You cant win them all. Keep up the good work.

John

Harry Hindsight

6th Jun '21

If 80% lose money of CFD/SB then presumably Ig Group (LON:IGG) gain said %. They probably didn't want a Wallstreet Bets type gang up event. When I've dabbled with Spread Betting it is heavily weighted in IG favour and sometimes the SP acts unusually and wipes out the obvious stop loss areas, and then returns to normal. Certainly a shark pool. I win on the demo account though lol.

Small Cap Value Report (Mon 22 Feb 2021) - FNX, SLP, OTMP

Jack’s section

Fonix Mobile (LON:FNX)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

106 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...