Small Cap Value Report (Mon 27 March 2023) - BLV, NAR, TND, BVXP, Mello, EQLS, CML, ITS, SFR, DIA

27th Mar '23 by Graham Neary

58 comments 8056 reads

Good morning from Graham and Paul!

Today's report is finished (13:30).

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

MelloMonday reminder - tonight's online show starts at 17:00 - details here. I was chatting to Mello’s founder, David Stredder last night, and I managed to get 10 free tickets out of him, for SCVR readers who want to try before they buy! Our discount code is SHR100.

The highlight for me is David Cicurel, the long-standing CEO of Judges Scientific (LON:JDG) - so if you want to see what the CEO of a 100-bagger share is like, this is your chance!

I can still remember Cicurel first giving a talk about JDG at Mello Beckenham in 2008. He gave an interesting and quirky talk about his plans for JDG, all delivered with humour, and a wonderful strong French accent, hence why it was so memorable!

Other than being a nice chap, with a sensible business plan, there was absolutely no inkling at all that this share would be a 100-bagger! If only we could travel back in time & buy the shares again at one-hundredth of the current price!

Cicurel has just executed flawlessly over the past 15 years, making a series of shrewd acquisitions, and seemingly not putting a foot wrong. Could you have predicted…

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Rusty2

27th Mar '23

CMC Markets (LON:CMCX) have just issued a trading statement, does not seem that good, shares are down 12%.

abtan

Bioventix (LON:BVXP) (no position)

Hi Glorenfeld

There was a H2 weighting pre-2020.

Cheers

Glorenfeld

Hi Abtan,

The income statement on stockopedia shows very little weighting at EPS level

Bouden54

Really don't like it when companies do that - why can't they announce at 7am like everyone else? Not a fan of CMC either - they have a history of putting out nasty surprises. The spread betters do seem to be facing more challenging conditions generally, which I suspected would be the case as easy money is withdrawn.

timarr

I don't know if I'm misreading it, but at a quick glance it looks like operating profit will exceed forecasts. If so, presumably it was the following which spooked the markets:

"February and March posed a more challenging environment with lower equity volumes and a higher proportion of lower margin institutional trading activity."

Doesn't take a great deal to cause a sell off right now.

Yes particularly when they announce it at 4pm!

planetx

Graham

Not heard great things about new CEO , an industry journeyman who has no record of producing shareholder wealth let alone running a PLC.

In fact I heard the opposite of good things .

Industry is in meltdown .

Tandem is super cheap valuation so hopefully the cash losses in the next 2 years don’t eat into the balance sheet too much

Can’t see how that won’t happen .

Hard to beat a falling tide .

davidjhill

Equals (LON:EQLS) Seems to be a lot of angst today about capitalisation and the relevance (or lack of) to an ebitda number.

The company capitalises about the same as the depreciation number so the incremental effect going forward is no more than marginal.

The more important thing to look at in my view is the cash. Company now generates £1m p/m of FCF and this is growing. By year end it will also have circa 15p of net cash. Even if we conservatively assume no further growth in cashflow this year then the company is actually trading on circa 10* generated cash (if we strip out the net cash position).

I think that is a better way of looking at whether the share price supports the valuation since it's pretty clean. Then you can more easily factor in growth and its impact on forward earnings.

alison ruggles

CML? Thoughts on JNEO?

I don't look at EPS, but from the screenshot it looks as though it only includes 2 pre-covid years:

2017-18 was a funny year due to H1 including £770k of revenue relating to prior years, which someone mistakenly didn't pay them.
Excluding this anomaly, revenues, and probably EPS, were H2 weighted in this time period, as per my screenshot.
2018-19 shows a H2 weighting (0.534--->0.606)

From your screenshot, EPS from 2020 onwards also seems to show a H2 weighting.

You could be right, I did not have time to study it.

Very poor form, issuing it at 3.50pm. I thought it was a profit warning.

Shares closed down 21%, will see what happen tomorrow.

Dragon

CMC Markets (LON:CMCX) I thought I remembered them doing this before. They issued one in 2019 at 14:21. Same reaction.

CMC Markets (LON:CMCX)

Very poor form, issuing it at 3.50pm. I thought it was a profit warning.

According to a friend, it is, I was skimming.

I've been told that some companies do these late RNSs to avoid internal leaks - i.e. they announce as soon as they know, even if late in the day - but it doesn't inpire confidence.

On the IMC presentation this evening I asked why the deal was funded in shares. Basically CEO wanted to lock in the sellers and tie them to performance of the group, particularly as there is an European e-money licence involved, Belgian regulatory approval required and strong European expansion rationale.

The dilution is less than 3% so on balance whilst they generally prefer to do the deals in cash this one was a little different.

ACounsell

I have first hand knowledge of a multi bagger which is staggering. A £400 holding of the Danish medical devices company Coloplast A/S (CPH:COLO B) bought 40 years ago in February 1983 and if held continually through multiple bonus issues would be worth at todays closing price in excess of £750K. At its recent peak in August 2021 the value would have been in excess of £1m.!! . That is many times more than a 100 bagger. Sadly I have only held since 2013 and have top sliced since then leaving me with a holding of c. £10K. In that time it is only up c. 3x.

Hi Abtan, yes it is only two periods pre COVID. You may well be right that H2 weighting is the more usual position for Bioventix (LON:BVXP) . The market certainly seems to have reacted well to today's update.

Paul Hill

28th Mar '23

Spot on David. Cash is King.

Hi trueagent - please read davidjhill's comments above for a better perspective. Cash is King

Harry Hindsight

Podcast 'The Fund Your Retirement' with Lee Cleasby, chatting to Chris Boxall of Fundamental Asset Management and director of Investors Champion (yet to look it that up so not plugging).

Interesting comments on bullish CEOs, some of whom are more city promoters and financial engineers rather than know having worked at the coal face. Those that have are worth listening to.

Also that AIM are not mega cap global IT cloud $b in the making - pretty much all that is known is known, and if have a niche or new spin then will get hoovered up by a bigger beast, venture capital etc. So maybe no longer 100 baggers or less out there, maybe 10, but something that actually works and someone will want to add to their existing IP.

Noted Somero and Wall St perhaps not interested in a concrete levelling gadget so ended up on AIM.

Podcasts are great - just got into thanks to Mr Scott - a mine of information. At least half dozen quality pods on the mining space and amazing insights. Some selling their wares but you can learn a lot on the free stuff.

Bought my first gold coin from Hattonsoflondon - a 2023 King Charles III Accession One Eighth Sovereign for £69 (apparently worth £149 - gets you in the door of course and immediate ok box sets, but hey ho, happy to start the bullion journey. One per household so don't get greedy. Gold will be higher at some point so to me a no brainer when cash is becoming a bit less robust, shall we say.

Agree Mr ACounsell posted and then read. But I'm of an age where I need some big wins now and can transfer onto those left. There must be ways to put into early starters for the early starters - and protect it from their parents meddling - and one day they get the letter through the door and - OMG Grandpa/Grandma - Grump for short - not there to see it but - that is not the point.

Small Cap Value Report (Mon 27 March 2023) - BLV, NAR, TND, BVXP, Mello, EQLS, CML, ITS, SFR, DIA

Paul's Section

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Graham Neary

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