Small Cap Value Report (Mon 23 Jan 2023) - SAGA, PAY, DTY, IGP, TBLD, BOOM

23rd Jan '23 by Paul Scott

45 comments 8987 reads

Good morning from Paul & Graham!

Today's report is now finished.

Podcast - covering last week's SCVRs went up on Saturday morning, here (and on podcast platforms). I'll type up a separate article about the macro news/views section of my podcast, but for the individual companies, all you need to do is refer to my weekly summary spreadsheet (I'll put the link in at the end of this report, and if of interest, please bookmark it).

12 more value/GARP shares ideas for 2023 - I published this new article last night, as a follow up to my previous article from 8 Jan 2023, listing my favourite 20 value/GARP shares. Readers seemed to like this format, hence why I wrote another article - we do like to give you more of what you vote for with your online thumbs ups. Incidentally, wasn't it a great idea to remove the thumbs down facility - the site's so much better without all that negative energy, and the kerfuffle it used to trigger!

In a similar vein, Graham wrote up his best ideas for 2023 here on 16 Jan 2023, in case you missed it. As always, we've just flagging up share ideas for you to properly research. As we covered 533 companies in the SCVRs last year, it stands to reason that we can't possibly do all the research into every one - please remember our reports are just initial reviews, so you need to always do your own, much more detailed research. That's what we firmly believe, it's not just a disclaimer.

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…

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SundayTrader

23rd Jan '23

re Getech (LON:GTC) , this must be one of the longest Trading Updates I have ever seen, but there is no mention of profit, or even EBITDA, for the year which has now ended. That said, conditions are now favourable, and more revenue growth seems plausible. I hold.

Rusty2

What are Saga (LON:SAGA) underwriting that is not retail?

chris2021

The Saga (LON:SAGA) underwriting subsidiary, Acromas, is based in Gibralter, so not regulated by the Financial Conduct Authority (FSC), and underwrities 70% of Saga's motor insurance policies. That percentage may cause difficulties with the FCA, including its Fair Treatment of Customers https://www.fca.org.uk/firms/f...

Potentially any purchaser of Acromas will have to factor in a lower percentage of Saga's motor business going forward.

Boon

This is the worst time to get a good valuation for an underwriting business! The whole industry for motor and home has been struggling with the surge of claims, turbulence of the new pricing regulations for new/existing, and then just general inflation.

I suspect that Saga (LON:SAGA) is selling off part of the family silver on the cheap. It is not easy to build an underwriting business. And this is almost the equivalent of a "sale and leaseback", as they'll still need those underwriting services to do the sales and marketing of their insurance products, only now they are going to have to pay up annually to a third party for accessing underwriting.

Update from Chapel Down (OFEX:CDGP) today, no surprises in the FY Dec22 numbers to what I was expecting. Wish they would have also included profit numbers, not just revenue, but easy to work from their easy business model.

+10% Net Revenue YoY.
Second half was +14%, so an acceleration of growth is happening.
This despite a decline in the volumes of still wine sold, due to poor harvests in 2021 meaning supply was constrained.
Ability to drive through price increases this year, and increase volumes sold in their sparkling wine product, suggests a solid brand and good amount of customer demand.
They managed to grow market share from 27% to 31% in English sparkling wine

It would have also been good if they could quantify the supply-side growth possible in 2023, since 2022 sales were constrained by supply. 2022 harvests were phenomenal (both quantity and quality). That will translate immediately to more still wine supply in 2023, and more sparkling wine supply from 2025-2026. Harvested grapes were +42% YoY, but would be nice to see what translated to barrels increase YoY.

For those that want to dig further, there's good visibility on future supply, by calculating the acreage planted in the last few years, and applying a vineyard maturity curve. I make it that 2023 potential grape volumes could be almost +50% from 2019 (normalised for weather), and another c+25% at least by from 2023 to 2025.

The big downsides, I see, are:

Not listed on FTSE or AIM, so highly illiquid
Weather dependent
Capital intensive; requires land, and lots of working capital tied up in product while it matures.
Currently expensive compared to Champagne, Prosecco, etc. Depends on brand marketing, as well as enhanced customer perceptions and desirability of English wines (look at what the craft gin industry is going through now, for a possible view of boom and bust of customer fads)

(I hold in the Boon Fund)

topvest

Yes, all effectively over on the APP bid. I've taken 42p a share for my Appreciate shares in the market today, along with the 0.8p dividend as its xd. The 44p bid value assumes a 580p Paypoint price so the bid is worth about 43p at the moment given Paypoint is 10% lower. There remains some market risk on the 43p value on offer. I think that there may be some further selling of Paypoint shares when APP shareholders get a small allocated holding. I do think that Paypoint looks interesting, so I have that on my watch list if it goes below £5 or so. A disappointing end to APP really caused by poor management under the previous CEO and Chair. Well done to the new Chairman and Harwood for at least creating some return to weary holders over the last 6 months! Any thoughts from other holders?

littledavesab

Not a holder in Dignity/Hornby but took a look at the castelnaugroup.com link out of interest. Couple of observations - it talks about Hornby as if its part of its family so Graham;'s point is well made. It seems to be buying some well known AIM names.

Also - https://www.phoenixassetmanage... - gives an interesting list of books

ryanc106

Agreed - seems a dumb move to me unless I'm missing something fundamental.

Is that the real reason why Saga (LON:SAGA) are divesting the underwriting business? Regulatory reasons? That would make more sense. Than what seems at the moment to be for raising cash to pay down debt.

Lordsdrive

Having looked at Acromas's accounts this morning, I reckon they lack scale to play in today's retail motor market. I suspect the FCA's recent rule-book changes are simply the icing on the cake.

zipstuck

IGP - I noted in the interims that were reported in November that the acquisition will add to profits next year. I suspect that PAT and EBITDA this year were impacted by acquisition costs and excluding these means a higher return going forward.

Aislabie

I have held Chapel Down since they went public (through SEEDRS). If you like their product, and I am a happy consumer of their better sparkling wines, then I have found that the 30% shareholder is a very handsome dividend!

darekn

(replied to wrong comment >_< )

I think it's good news re: Sosandar (LON:SOS) . They did say it'll be a limited range (or at least thats how I understood 'curated selection') which could well be cheaper items in the range, and then hopefully the quality is a gateway to customers buying more from them direct. I'd also wager that whilst many people are snubbing the high street during the spending crunch, there's no getting away from needing food - so might be some impulsive buys there too with a weeky shop. Let's see!

Sorry, that should of course have been “shareholder discount”

rogerh

Extra £2 million energy costs for SDG this year. That's a not insubstantial amount

Harry Hindsight

tinyBuild (LON:TBLD) - thanks and perhaps the name says it on the tin.

"CEO lives in the Netherlands and “doesn’t have any citizenship on Earth”. Headquartered in Washington USA - well resourced.

I hold and did not DYOR, just went on a story in Shares. No big holding just play money and so it proved - should have downloaded 'Secret Neighbour' and got more bang for my bucks. Have learned a lesson unfortunately not a positive one for small caps.

Jacxx

24th Jan '23

Thanks for covering tinyBuild (LON:TBLD), Graham. Not too much here to sink your teeth into. Full results released on 29 March.

Unfortunately the latest release of their biggest game/franchise has been a bit of a flop (Hello Neighbour 2) which is weighing heavy on their prospects. Personally I'm quite surprised it wasn't a more polished end product (it has a few bugs, and it's a pretty short game for a £30 price tag) with most reviews saying 'yeah it's alright but could be better' - very much in-keeping with the Franchises' first release, though that proved to be enduringly popular.

Will be interesting to see how it all plays out, which will provide clarity on how much they rely on one title (I suspect a fair amount, though nowhere near to the degree of Frontier Developments (LON:FDEV)) In many ways it might be a good learning lesson for the biz - they always bang on about Hello Neighbour so should encourage them to continue diversifying with different games, and give every release the care and attention it deserves.

I also wasn't a huge fan of the closing line "we are building something to outlive us as a generation." My initial reaction was get over yourself!! - But, at the same time, I don't dislike him fronting up as a leader with a clear vision, and not being afraid to make that sort of statement.

If anyone can stomach it, the CEO did a good interview with an Aussie game developer recently. It's long, but he delves into the latest in the Ukraine/Russia conflict, all the work TBLD have done (and continue to do) to keep staff safe - and you learn a fair amount about the man himself (he's very objective and logical, but seemingly in all the right ways - i.e. still cares about people, rather than being a cold and heartless something something.)

I did come away thinking - wow, if this guy can lead an organisation through a war, and through that process identify staff/leaders who you can trust to deliver under the most intense circumstances, then they're pretty well set to face any other challenges which come their way (those which a games company normally face, e.g. an underperforming title, rather than a war...)

Caduceus

I find myself wondering if Hello Neighbour 2 got as much coverage from Twitch & YouTube gamers as the first game did, hence the drop? I know my kids wanted to play the first game desperately because someone on YouTube that they like played it for a time. But my kids don't even know Hello neighbour 2 was released, or do i think, even care.

Interesting. Twitch tracker stats look pretty similar for both games, but that's just from taking a glance.

I know MrBeast (129m subscribers) is due to release a 'live action' version of Hello Neighbour 2. Perhaps that will have some impact when it does release.

Small Cap Value Report (Mon 23 Jan 2023) - SAGA, PAY, DTY, IGP, TBLD, BOOM

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Paul Scott

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