Small Cap Value Report (Mon 24 May 2021) - TED, CALL, ELTA, GLE, GHS

24th May '21 by Paul Scott

26 comments 10414 reads

Good morning, it's Paul and Roland here with the SCVR for Monday.

Timing - today's report is now finished.

Agenda -

Paul's Section:

Ted Baker (LON:TED) - delayed audit but confirms results will be in line with expectations. I review the situation, and conclude that risk:reward seems unfavourable, with too much (yet to happen) upside turnaround already priced-in. Also there has been large dilution, limiting the upside on the share price.

Cloudcall (LON:CALL) (I hold) - a reassuring "in line" update today, from this serial under-performing, heavy cash burning IT/telecoms company. Its main sector, recruitment companies, is in a strong V-shaped recovery. I haven't completely lost faith in CALL, so am happy enough to continue holding a small position after today's update.

Electra Private Equity (LON:ELTA) (I hold) - I re-crunched the numbers over the weekend, so a quick update on this very interesting de-merger situation. It looks an attractively cheap way into 2 upcoming IPOs for TGI Fridays, and Hotter Shoes, both of which I think are likely to be successful standalone shares.

Roland's Section:

Mj Gleeson (LON:GLE) - this housebuilder and land specialist is trading ahead of expectations. Gleeson has attracted some savvy institutional shareholders, but is there still value for buyers?

Gresham House Strategic (LON:GHS) - this small cap investment company has put its asset manager on notice and announced plans for a strategic review.

Mello - tonight

The regular online investor evening starts tonight at 18:00

More information here: https://www.stockopedia.com/co...

Ted Baker (LON:TED)

180p - mkt cap £332m

Change to Full Year Results Date

Ted Baker Plc, the global lifestyle brand, announces that its preliminary results for the 53 weeks ended 30 January, will now be published on 10 June 2021 (previously 27 May 2021).

The reason given is disruption caused by covid on the audit process.

Really? Practically everyone else seems to be managing alright.

Which does make me wonder if there might be an issue over the going concern assurances need by the auditors? Although checking back to my notes here on 11 Feb 2021, TED had plenty of liquidity, and undrawn bank facilities at that time. Its last balance sheet looks solid. Hence going concern probably wouldn’t be an issue now.

Most importantly,…

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greensiax

24th May '21

Here are my SCVR heat maps for today (prices as at ~9:20am).

I share these heatmaps with the intention of giving a visual indication of what is going on in the SCVR world: who’s reporting (and it's impact on the share price); and what’s moving more than 'normal'. There are no associated recommendations, implied or otherwise, just information. How, or indeed if, you choose to use that information is up to you. Please feel free to ignore them if you don't find them useful.

Please read my heat map thread for a great deal of explanation of how the heat maps are formed and how I use them to guide me with my research, and for a full key to the contents.

I very much welcome feedback so if you do have any feedback, not already covered in the heat map thread, it would be very helpful if you could post your comment in the heat map thread rather than the SCVR thread. The more specific and constructive the feed back is, the more that likely it is that I will be able to act upon it. Thank you all for the feedback so far.

Small / Micro Caps reporting today:

Big movers today in the SCVR world (moving more than a 20d EMA of the ATR against either yesterdays close, or today's open):

Warm regards, stay safe, and best of luck!

Silver Moon

Gus, I hold Rtc (LON:RTC) and have done so since my 2016 purchase, I'm underwater there and look forward to exiting in the hopeful near future. I don't know what the future holds for Rtc (LON:RTC) though I think it will be better without the present CEO and CFO. Over the weekend I looked at the situation with Pagegroup (LON:PAGE) and a very close look at the way two directors played the share option system while shareholders were denied dividends caused me to depart while still above water. Taking time out first to have my boiled egg however cost me the most expensive breakfast for quite a while!

Silver

Simmo1a

Just wondering if anyone has thoughts on the downward movement on Investec (LON:INVP) since last week?

ken mitchell

TThanks Roland for the excellent update on the weird goings on at Gresham House Strategic (LON:GHS).

Fact is, performance has been good with GHS in the top quarter benchmark quartile AND GHS has outperformed the sector for many years. And the discount has narrowed from 30% to 7%.

That reflects well on the Investment Manager so putting him on notice reflects boardroom antics and not GHS performance. The Manager deserves praise.

A lot of Investment Trusts, including some that outperform their benchmarks, trade at discounts to NAV. The Managers control and make the investment decisions but they cannot control the share price.

One of THE big plus points for investors of Investment Trusts over the much more popular Unit Trusts/Open ended funds, is that sometimes very successful Trusts can be bought at big discounts, This time last year many Trusts could be bought at 20% discounts and some as high as 45%.. Even the now roaring Mining Trusts were at very big discounts.

If there is a winding up vote the discount is far too small for it to be worth buying GHS, I don’t hold but if I did I would sell on the news today.

For an Investment Trust winding down where the returns ARE likely to be very good then consider ELTA and for reasons why start by reading Paul’s recent updates; one was last week and the previous one on May 4th.

The AIC website is very good on all Investment Trusts. This link for finding and comparing Trusts:-

https://www.theaic.co.uk/aic/find-compare-investment-companies?sortid=Name&desc=false

And this one for the home page:-

https://www.theaic.co.uk/.

Two TRUSTS with very good performance records and still on big discounts to NAV are North Atlantic Smaller Companies Investment Trust (LON:NAS) on a 27% discount and Canadian General Investments (LON:CGI) on 30% discount.

Thornabian

It is hard to extrapolate like that.

I went to the O2 recently for some shopping and Nike were limiting people in the store but did look busy and had a big queue (not sure how much was the store capacity limit) which is expected of Nike. However, Ted Baker and Calvin Klein were not limiting people in the store and it was busy with a fair few buying too. Ted Baker was actually busier than Calvin Klein.

It is all a matter of judgement. I bought Ted at the 75p placing because I really like their clothes. My wife and I have a lot of it because the detail is just better than most normal high street stores.

They don't have the purchasing power of the US majors but they have trimmed inventory way back and focused on being profitable, rather than volume.

Retail does tend to turn around quickly with the right management and Ted do seem to have that now.

I'm not expecting miracles and they have gone up a lot but I do see upside because the business appears to have made some solid subtle changes. E.g. packaging has completely changed to cheaper materials and less inked colours but still looks good, online sales and marketing have improved significantly (online mix up ~30% if my memory serves me right), they have brought out new ranges "Made in Britain" and they have signed new licensing deals to sell in Middle East and China in the past 6 months. Also a deal to sell in Next was signed at some point last year and I have seen a lot of Ted Baker in Next and in their online store - which is a huge customer base of £10bn in sales p.a. to tap into.

I see good progress from what was a low base and I dont see any issues at all with the balance sheet or liquidity. They have long term financing and it seems solid.

People will have their own judgement on what is the right price but it does seem to be making good progress.

gwilli68

I notice that they last few RNS's for Electra Private Equity (LON:ELTA) dont appear in the News section on Stockopedia. I always rely on Stockopedia for my RNS's - is that an unwise move? Why dont they all appear? Thanks

bohenie

Thanks for this update - Had not realized that they are now selling via Next - or indeed that they now have clothes Made in Britain. Agree - at 75p a good punt !

Kieranj077

I recently raised a ticket about Serabi Gold (LON:SRB) not showing up but that didn't progress very far. There's most certainly a bug to be fixed.

Ben1

Just come off the Cloudcall (LON:CALL) presentation. It could well be that with their record they are reluctant to promise too much again, but they sounded less confident I thought than the last time I saw them present. Plus the news of another fund raising at some point in the future, before they can reach breakeven. Not sure if I still believe this story?

rmillaree

Cloudcall (LON:CALL)
It could well be that with their record they are reluctant to promise too much again, but they sounded less confident I thought than the last time I saw them present.

They are stubbornly sticking with the "it will be allright on the night in 2026 theme""

Per the company today

Furthermore, in 2022 we believe we can achieve revenue growth of ~25% to ~£17.5million, whilst limiting operating costs growth to 12% and are still targeting EBITDA break-even during 2023. Our ambition remains to achieve a £50 million revenue run-rate during 2026.

Ok lets look how that works out then based on 25% pa sales growth

year and revenue


2021	14
2022	18
2023	22
2024	27
2025	34
2026	43
2027	53

Ok note i reckon if they hit revenue run rate of £50 mill in 2026 it will be one year later when their actual turnover acheives the £50 mill level (does that sound right?) - so alll they need to do is hit the 25% per year each year from 2022 onwards.

Fairly simple metric here where they can be judged from going forward. Hopefully they arent relying on buying in £30 mill of revenues in 2025 by acquiring another company :)

I am 0.000000% tempted to buy back in at present.

gus 1065

Hi Ken.

I’m also a fan of Investment Trusts for the reasons you enumerate. Also, on the odd occasion when the s**t hits the fan they have the added benefit of being closed end so unlike OEICS there is still (usually) a market in the listed shares rather than a mass stampede of investors looking to redeem and thereby requiring the fund to liquidate (usually as a forced seller) its holdings and/or suspend itself.

One of the lessons from the Woodford funds meltdown was the different outcomes for investors in what is now Schroder Uk Public Private Trust (LON:SUPP) (orderly wind down, IT shares continued to trade, still an ongoing IT which may yet come back from intensive care under careful management by Schroders) compared to the Woodford Equity Income fund (mad rush for redemptions, fund suspended leaving holders in limbo pending liquidation of a rump of illiquid assets in a chaotic muddle and hoping for a bit of restitution via some ambulance chasing lawyers). With the equity income fund, holders wanting to pursue an orderly liquidation were unable to do this as those demanding an exit effectively forced a mandatory liquidation.

Big fan of the AIC site. It would be nice to have this sort of data integrated into Stocko. Another interesting big discount IT play is Hansa Investment Hansa Investment (LON:HANA) .

https://documentscdn.financial...

Currently at a discount of about 30% it has 22% of its funds in Ocean Wilsons Holdings (LON:OCN) (which itself is currently trading at a significant discount to its appraised NAV comprising an operating company and a large portfolio of tradeable securities) - it’s kind of a “discount squared” opportunity. Takes a bit of time to follow the threads through and there is some “hair” to be aware of but I think the risk/reward is pretty good. (I hold all the above mentioned).

Gus.

mepfish

thanks for revisiting Electra Private Equity (LON:ELTA) again. I had done the same comparison with Restaurant (LON:RTN) as I had wondered whether they might be a buyer ultimately (part cash, part Restaurant (LON:RTN) shares). Regardless the margin of safety is significant . It's very hard to value restaurants at the moment given earnings volatility and a separate listing seems like a sensible solution to this conundrum.

galois

Hi Ken, I'm also a holder of GHS, and agree the discount is too small to make it worth buying. If they do liquidate, they are unlikely to achieve quoted prices for their stakes as the market will see them coming. Reading the above, as well as a liquidation, two other scenarios are that a reconsituted board continues with Gresham, possibly with a rights issue (hopefully not a placing at a discount to market), or there will be a merger with another trust to get some scale.

Thanks gus 1065 for your interesting reply.

To follow up on your Woodford example, Investment Trusts are a very good way to invest in Property, whereas Unit Trusts are anything but! They are totally inappropriate for investing in Property for the simple reason that unlike Investment Trusts, Unit Trusts HAVE to sell properties once they run out of cash to pay their investors who want out. As they can’t sell properties at the drop of a hat they then have no option but to lock their investors in for months (or even more) sometimes.

Investment Trust Property investors will want to sell at the same time and for same reasons too. And they always can, and that Trust does not need to sell any of their Properties. All that happens is with heavy selling the discount to NAV widens dramatically. That’s an excellent BUY opportunity for those wanting to take advantage and buy.

So imo Unit Trusts are an inappropriate way to invest in Property and Investment Trusts are a great way to do so!

Have a look at the Investment Trust REITS (Real Estate Investment Trusts) on AIC. (Links in my previous post).

Note that even now some are at big discounts, and still after share prices have recovered strongly, paying big dividends. AEWU one I bought almost at the bottom was paying 13% dividend then and it’s still 9%. At the bottom some of those REITS were at 45% discounts to NAV!! So even if there were no subsequent increase in NAV the share would nearly double just with the discount narrowing in time to near zero.

Edistion Property REIT (I hold) have increased their dividend from this month and they pay it monthly.

Paul (who recently and again today highlighted the excellent ELECTRA Private Equity Trust potential buy opportunity) admits to not being clued up on Investment Trusts. If someone with such exceptional overall investment skills and knowledge isn’t, there’s a fair chance that many other SCVR readers aren’t either. You are perhaps missing out on a great pooled Investment way to invest.

Harry Hindsight

Synairgen (LON:SNG) - a Netherlands lab confirms effectiveness of its inhaled antiviral agains CV19. I though their product was for ashma not CV. Could be an option for those who don't want the Vaccine, the booster or to have it every year in perpetuity. Also if get ill then can treat it at that point. Doesn't help herd immunity however. Stage III trials to start in India soon. Blue sky, pump, small moat, takeover target?

Sosandar (LON:SOS) placement on offer to retail this evening on PrimaryBid app. No discount, shares being offered at 20p. Don’t hold at the moment but thinking this might be a decent entry point. Details here:-

https://www.stockopedia.com/sh...

Quite a small retail piece (£500,000) so although no discount likely to be oversubscribed IMO.

Igotts

Good points. I find the Morningstar site good because it is clear whether the nav is updated daily, and shows the Z-score. https://www.morningstar.co.uk/...

Boon

Indeed, I think there is potential for some nasty results from housebuilders in the next 6 months due to cost increases, both material and labour.

The bigger builders will be OK - they have long term supply agreements, and can pressure their suppliers to not increase prices. But the smaller ones don't have that sort of purchasing power compared to the big builders, so will be the ones that lose out.

The problem I see is bottleneck in distribution channels. They need to develop integration with CRM systems first. Then, in partnership with those CRM platforms, upsell the existing CRM clients to add-on Cloudcall (LON:CALL)

They added a few more CRM partners last year, which should drive growth this year. But after a year or two of each new integration, they would have exhausted the base of customers to sell to, and only have "new" customers coming on board those CRM platforms.

So to support their 25% growth, they need to keep adding new CRM partners every year. Which costs development ££ to create those integrations.

This is not a traditional SaaS play where "if the product is good enough, it will sell itself and fly off the shelves and sustain a double digit growth rate ", as customers come knocking on their door.

I'm happy to be corrected but I think the fact that the CRM platforms are gatekeepers, makes Cloudcall (LON:CALL) growth somewhat out of management hands, and/or they need to spend loads of R&D (which you can see clearly by the huge cash burn in the last few years).

WDWombat

25th May '21

Gresham House Strategic has really performed rather well within its sector as defined on Trustnet - that is small cap IT of which Tnet lists 24 investment trsuts. The current discount, 7.5%, is pretty typical with some on much larger discounts such as Marwyn, Chelverton and Aberdeen. Frankly the investment trust sector is full of such anomalies - it tends to reward bigger names and bigger funds with smaller discounts though of course historic NAV growth is the third and probably most crucial factor (despite the warnings on future performance which are mere lip service). What really matters (I think) is the change in NAV over time which is not so easy to analyse as comparatives typically tend to be on price rather than NAV. But in this case I smell an internal battle between the current board of Gresham and Mr Potter who seems to have done rather a good job but whose motives may not be the same as the Gresham House board.

Small Cap Value Report (Mon 24 May 2021) - TED, CALL, ELTA, GLE, GHS

Mello - tonight

Ted Baker (LON:TED)

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Paul Scott

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