Small Cap Value Report (Mon 22 Nov 2021) - ANG, CER, FDEV, CNIC, EMAN

22nd Nov '21 by Paul Scott

65 comments 10173 reads

Good morning! It's Paul & Jack here with the SCVR for Monday.

Mello - details of tonight's show are here. Cerillion (LON:CER) is certainly an impressive company.

Agenda -

Paul's Section -

Angling Direct (LON:ANG) - 2 more updates re cybersecurity incident were issued last week, so I recap on the situation, which now looks under control.

Cerillion (LON:CER) - tremendously impressive results from this telecoms billing software company. Profits are soaring, and the order book is strong, suggesting another good year is in the pipeline. Broker forecasts are up, but still look too cautious. Superb balance sheet & cashflows. This is a really impressive business, not without risk though. I think the valuation seems justified, there's a lot to like here.

Frontier Developments (LON:FDEV) - profit warning slams this computer games company down about 37%. This is due to disappointing sales of 2 games, but the company doesn't know if it can recoup this over the festive season. Lack of revenue & profit visibility worries me. Might be a buying opportunity, if you know more than I do about the company, and you like it?

Everyman Media (LON:EMAN) - trading ahead of expectations, helped by James Bond, which has led to a broker forecast increase today. I've heard good things from friends who have visited Everyman cinemas, with a differentiated offering. But is it a viable business model? That's not been proven yet, in my view.

Jack's Section -

Centralnic (LON:CNIC) - growing, acquisitive company dealing in domain name services and online marketing. Organic growth is picking up after a burst of acquisitions. The result could be an inflection point as a more complete platform drives further growth and margin expansion. Results remain adjusted and the situation requires a certain time investment due to the acquisitions, business operations, and growing markets.

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…

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Tortoise investor

22nd Nov '21

Re Angling Direct (LON:ANG) - thank you for flagging a potential opportunity there Paul. Do you or anyone else understand why brokers via the Stockopedia EPS figures suggest that EPS will fall from 3.45p this year to 2.6p in FY23? I have done no research here and couldn't see that flagged up previously, but I'd want to understand why profitability is expected to fall.

Some of the sell-off seems random. Braemar Shipping Services (LON:BMS) (I hold) is now down to 9x earning even though you'd think it should be able to take advantage of some of the issues with shipping right now and the most recent update didn't provide any cause for concern.

Helvellyn

Angling Direct (LON:ANG) . (No position)

Probably because of the withdrawal of Covid support. They have/had 35-40 retail units receiving Covid grants during a period when people could still go fishing so their website was incredibly busy, this is high unlikely to be replicated .

Richard

grb

Re Hochschild Mining (LON:HOC) - this kind of out-of-the-blue news is a perfect example of why portfolio diversification is important. I have a small holding in this (rather smaller now than yesterday, although it has bounced quite a bit since this morning). A similar thing happened to Acacia Mining (LON:ACA) a few years ago getting hit with a ludicrous tax bill in Tanzania. In this sector, it's sensible not to have too much invested in any single-country operation...

Trident

I recall someone saying in the comments some time ago, saying that EveryMan Media generated decent cash per site. Obviously not currently the position, but that seems a sensible way to begin a review of its future performance, perhaps?

shamusj

I would think that the read across from Frontier Developments (LON:FDEV) to Team17 (LON:TM17) is a buying opportunity as their strategy is much less risky than that of FDEV. i.e. Team17 produce 30 or so indie titles per year with a few bigger budget ones, as opposed to a one or two mega budget titles.

pj8

Without getting political, I don't think that speech belongs here. We know that you can't rely on anything Boris Johnstone says - he speaks for the moment and is likely to change track tomorrow.

JohnEustace

My goodness that speech was a shambles. I expect toe-curling from him but there's something really not right about him there.

ken mitchell

Presumably most know this and I should have done, but I’ve just discovered that a wide range of TGI Fridays food is being sold in Iceland stores. Some of it is described as “NEW.” Guess margins are fairly tight? Maybe this side of their business will get covered in their Investor Presentation tomorrow.

Signs now that the falls for ELTA and MORE shares might have hit bottom?

mojomogoz

Its generally pretty random...if possible to analyse it probably relates to the number of PIs (not the $$$ amount but number) who bought in as stocks shot up in the past on little work or follow the leader sort of thing and are selling out at a perhaps accumulating pace as prices carry on down. I've got no view on Braemar Shipping Services (LON:BMS) but would suggest it could apply.

I think some nice opps opening up. I think general negativity is overdone (I mean this at a global and macro level). It seems that only negative things are visible at the moment. My guess is that we are still early in a recovery cycle...tho that cycle is an odd one due to the covid V and the re-emergence of inflationary pressures (whilst not all transitory I think there is a high transitory element...we will have higher inflation than the 2010s...but we ain't taking off to mega inflation). I don't have a short term forecast for you as its possible sell off gathers a bit more pace...the market is made to do what you think it shouldn't and will surprise the most people so maybe Santa wont come this year. I dunno

Haha. Crazy price action IMO is Tremor International (LON:TRMR) (yeah I know...marmite stock so won't say more). When I wrote the above that was one of the 'nice opps opening up' I had in mind. Somewhat arbitrarily I'd set myself a buy sub 550p action point. Its cheap IMO before then (given margin, positioning within their industry and growth) but I wasn't rushing. Today its gone down 8% and then reversed to up a touch. Insane...IMO just price action driving price action

Boonboon

Seeing Machines (LON:SEE) announced a placing as an exceptional amount of RFQs in the pipeline. Results on Wednesday might be worth a look for the scvr.

abtan

Everyman Media (LON:EMAN) (I hold)

Hi Trident

That comment on cinema venue profitability might have come from me.

Pre-covid:

the Gross Profit per venue was £1.2m. and
the Operating Profit per venue, by my estimates, was at least £0.5m, though probably higher (I'd like to think I am quite conservative in my estimates.)

It costs £0.6m-£1.0m to kit out a new cinema venue, after which maintenance capex is then quite minimal, so the Pay Back period is probably around 1.0-1.5 years, with future year profit flowing straight to the bottom line.

---

Today's trading update was better than even I expected.

I agree with Paul that the company is benefitting from short term support, such as reduced VAT on tickets and food. However, in my opinion, Everyman Media (LON:EMAN) is a luxury good and it's much easier for the company to raise their prices in future years, without it resulting in a loss of business.

I have no idea what updated forecasts look like for FY22 after today, but after the last update in September my general feeling was that 2022 revenue forecasts would actually be missed.

Nonetheless I continued to hold. The company makes plenty of cash, is able to use this to expand without taking on debt, and cinemas do well whatever the state of the economy.

It's undervalued in my opinion, but as a holder of course I would say that.

Cheers

NeilS

I do wonder how much of the sales issue is down to the imposition of maximum 3 hours gaming per week by the Chinese government? Tencent is a large shareholder and reseller.

rmillaree

Frontier Developments (LON:FDEV)

Thats a pretty good point neils - it seems like they are running into a few headwinds at present. Probably doesnt help that there has also been a general selloff of software related stocks (do they qualify??) - think that is inflation related worries- don't quite get how that hits software stocks particularly but hey ho. Certainly dropbox is coming back on my buying radar in that area - shame i can't buy as many dollars as i could do a month ago.

slc72

for Frontier or GAW, or both?

Boon

Indeed, some steep sell offs that IMO isn't justified. Topped up on Time Finance (LON:TIME) today. TNAV at c30p and just released in a press release that invoice financing side of business is booming.

Revolution Bars (LON:RBG) is on my list as well to top up.

Last week bought into Fulcrum Utility Services (LON:FCRM) where they issued a solid update due to the share price collapse. And it hasn't recovered yet.

Many shares now just above my buy target price and I've got about 35% cash so as much as it pains me to see the rest of my portfolio take a clobbering, I'm going to take the opportunity to go more fully invested this week.

Leebod

Just looking at Time Finance (LON:TIME) myself and scratching my head as to the share price. Looks very decent value.

23rd Nov '21

Both

cafcash49

Thank you johnsmith and shamusj for responding. My 1st purchase of TM17 was Oct 20 and my 2nd was July 21, so it is not 'doing it' for me but I will be patient. When I look at the data it is good which is why I have hung on so long. I will bide my time a little longer. Thanks again for helping. Charles

Small Cap Value Report (Mon 22 Nov 2021) - ANG, CER, FDEV, CNIC, EMAN

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Paul Scott

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