Small Cap Value Report (Mon 28 Mar 2022) - LOOK, TED, BVXP, TND, PIER, LUCE

28th Mar '22 by Paul Scott

42 comments 9965 reads

Good morning, it's Paul & Roland here with Monday's SCVR. Bright & breezy, and braced for more market carnage. Today's report is now finished.

I'm reminding myself that sentiment can turn very quickly, and the market has already priced-in considerable downside for the economy. It's strange how we're all super-confident when shares are over-priced (as they were in 2021), yet we're in the depths of despair when they're cheap (which many seem to be now).

I keep reminding myself that my SIPP being down 20% year-to-date won't be a problem long term. That's because I'm confident all the shares in it are long-term winners. It's not geared, so I can ride out any market downturn. I wish the same could be said of my geared accounts, where once again I'm taking a battering. That's my problem - gearing. Hence people who don't use gearing are very wise I think!

I'll definitely need to move to eliminating gearing, it's too stressful as much as anything, as these lurches down in portfolio value, magnified by gearing, are a nightmare to cope with. It's feast or famine, rapidly alternating! Hence why I'm so relaxed about a 20% drop in my SIPP, which in comparison is a breeze. I keep making the same mistake over & over again. No comments needed on this, I know exactly what I'm doing wrong. Hopefully other people can learn from my mistakes, as I never seem to! There's no point in crying over spilt milk - I'll get it back again, as has happened the last 3 times! It's like a morning confessional here at the moment!

Anyway, on to today's newsflow of trading updates & results statements.

Mello is tonight, starting at 6pm, the first show for a month. David emailed me to say that the audience melts away in times of market turmoil, such as now. So it's important to support the people putting out great content, by giving them the viewing numbers they need to attract interesting speakers. As always with webinars, we don't have to watch everything. I tend to keep it on in the background, on my headphones sometimes, and zone in & out whilst preparing dinner, or feeding the dogs!

Agenda -

Paul's Section:

Lookers (LON:LOOK) - a very interesting sale & leaseback deal for one freehold property in Battersea. It's…

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Paul Scott

28th Mar '22

Hi Yusuf,

I find with Mello & other webinars, the 20-30 minute video format of companies presenting is ideal for me, even if I'm not interested in the company, it gives me a flavour for what they do, how management comes across. That's far easier than sitting down and ploughing through results statements, when my eyes are tired, and I'm struggling to concentrate.

Every now and then, a little gem crops up. The beauty of webinars, is that you can cover a lot of ground, hundreds of companies over time, for very little effort - just sitting back and listening.

I have a golden rule that I only ever buy a maximum of 1 in every 5 companies that I hear present. And also, having a 48-hour cooling off period is a good idea after presentations, because management will only ever give a heavily skewed, positive view of their company! Often I rapidly go off the idea of buying a share after doing a bit of follow up research work myself!

At times like this, when small cap markets are so grim, it's the time when we can buy future multibaggers at a great price. So well worth keeping engaged, and doing the research still. I'm building up a list of things I want to buy when the time feels right.

Regards, Paul.

Zipmanpeter

Struck this morning by how many of my small cap shares have zero or micro-volumes of shares traded so far. Real buyers strike. Does anyone have some aggregate insight into share volumes of small caps over several years to see where we are?

Obvious corollary is that big price swings are likely or semi-permanent collapses(!) depending on your world view. Personally, I am optimistic on a 2 year basis but this seems to a permanent personal affliction.

BnB

Bioventix (LON:BVXP) looks as reasonably priced as I’ve seen and for such astounding operating ratios across the share universe. But it remains highly reliant on Troponin uptake which, even at best predictions, will only reach c.35% of total turnover. Where else will the growth originate? To me, in its current manifestation, it looks more like an income play with some growth optionality than the outstanding growth stock it once was.

John Robinson

paul interesting to read Shed,s view of the Lookers aquisitiom

They seem excited

TheFloatingInvestor

I own a number of large caps as well and volume appears to be well down across the board would say, back end of last week...into today.

Tandem shares down 13% (a steal), but the spread is 10.9% making it difficult to buy in IMO...a spread over 3% is hard to justify, as you are projecting uncertainty further to cover the spread. The spread makes it very difficult for many small caps ATM.

Norfolk'n'Good

Cashflow
Op. Cashflow psp	0.965	8.93	-3.49	-2.36	9.60	15.3	20.3	73.8%
Capex psp	4.09	2.71	0.929	1.38	1.00	0.592	11.4	-32.1%
Free Cashflow psp	-3.12	6.23	-4.42	-3.75	8.60	14.7	31.6

Regarding Holders Technology (LON:HDT) Just looking at the Cashflow table on Stocko, there seems to be an error - unless it's me of course!! The most recent figure of FCF is 31.6pps but surely this should be 8.9pps? (20.3 - 11.4) How can you have Operational Cashflow of 20.3 pps and then add the 11.4 pps of Capex? Is anyone able to explain this, or is it simply an error?

Michael Tee

Cambridge Cognition (LON:COG).

Today's RNS announcing a £1m order over 3 years takes the order backlog to £20m, of which at least £8.5m is for this year. The most recent revenue forecast for 2022 I have seen is for £10.8m so this means a substantial proportion of this figure is now covered.

FY results are due any time which may update these figures. There is definitely upside risk potential.

The order announced today is to assist another top 10 pharma company in a phase 3 trial represents more validation for Cambridge Cognition's technology and reputation.

Matthew Stork (CEO) says:

"Phase III clinical trials are the large, final stage in drug development as pharmaceutical companies can use the results to seek regulatory approval. Cambridge Cognition is well positioned to deliver these pivotal, global trials with its gold standard solutions. Strategically, this contract sees the Company operate in a high growth space with a leading pharmaceutical company that is committed to tackling diseases in this therapeutic area."

Was also a tipped in the Sunday Times yesterday.

I hold

Investegate |Cambridge Cognition Announcements | Cambridge Cognition: £1 million contract for pivotal autoimmune trial

planetx

Tandem is fortunate in that it has good diversification away from bicycle .

Bicycle market is abysmal right now and is going to very difficult to navigate for many .

Tandem are fortunate as they have cash and will be able to ride out (excuse the pun) what is happening .

Briefly

- huge leadtimes

- all brands put down huge orders around 13-18 months ago

- factories couldn’t supply but orders kept stacking up (sone factories went to 2 year plus leadtimes )

- orders now trickling through but with huge freight costs on top

- demand has dropped off a cliff since and looks set to get worse

- when the avalanche of backed up orders start to land there will be a huge stock surplus

- then margins drop as everyone races to the bottom to clear stock .

Long term this might work in favour of tandem as a lot of companies not blessed with cash piles won’t make it and even less to potential acquisition opportunity for those sat on cash and with balls of steel.

So tandem is for me solid , With short to medium term headwinds but long term opportunity .

Thornabian

Agree with this, 137.5p is a joke offer for £TED. I bought in on their 75p placing and sold out at 202p, was very tempted to buy recently as it dropped to 85p again but bought something else instead.

I like Ted Baker (LON:TED) a lot but there must be a lot of holders who have been burned by the volatility and would want much more than 200p, especially Toscafund and Kelvin.

I don't see any offer under 300p being worth their time.

SundayTrader

Thank you Roland for the write-up of Tandem (LON:TND) - interesting times. It strikes me Tandem (LON:TND) could be in the eye of the storm this year - sells things which are going to be the first things cash-strapped consumers cut back on, and which are going to be increasing in price sharply.

I don't hold, but don't get me wrong - clearly management here has a good track record - I just feel it is one to go on the watch list for when things look really bad.

joshwood976

Hi Paul, Would be great to hear if you have any thoughts from the Saga (LON:SAGA) call from Friday

(I appreciate you've already covered a lot today!!)

I also watched the Luceco webinar. The valuation relative to the excellent operating numbers is ridiculously low compared to other high quality industrials with PERs three times as high. And the firm is smack bang in the middle of the biggest trend of the decade, electrification, albeit at the very boring, commoditised end. The most impressive statistic was the level of sales growth relative to operational cost growth in 2021 on a ratio of about 30:1, which speaks to a huge capacity for self-help. But the confidence in raising prices to eliminate the effects of input cost inflation was equally reassuring.

I very much liked the management team for the lack of polish but easy command of numbers from the CFO. And the CEO I admired for his obvious battles with a speech difficulty, which must have made him fight harder than his peers for recognition - good on him - and I bet he’s earned his success.

So what’s the catch? China seems to be investors’ chief concern, from Covid outbreaks to unpredictable regulation to the accelerating trend for near-shoring production. Management were sufficiently touchy on the subject that it’s clear they share the same concerns. My other worry is over the moat, the weakness of which accounts for the balance of that huge valuation discount to the most admired quality industrials like Halma and Spirax. Any moat seems to lie mostly in distribution relationships and only weakly in brand. Just how much do you care about the label on an extension cable?

On balance however I am a buyer here (I hold already) for the high level of exposure to the theme of energy transition - with EV charging optionality now enacted via the recent acquisition - at a big valuation discount to its own history, let alone more fancied peers. I topped up last week at these levels.

Hi joshwood976,

We had a good back & forth, and a variety of opinions in the comments to last weeks reports here.

My view remains the same - I'm bullish on a 2-year view. SAGA (I hold) has confirmed it will be moving back into profit this year FY 1/2023, but they won't give guidance at the moment on how much profit, because there are a lot of moving parts (load factor on cruise ships is highly geared for profits, and also mentioned that only 2 months experience so far of new insurance pricing rules).

Next year it should be back up to full profitability. When you reverse the heavy losses in the travel division (due to covid) and replace them with profits, then the bull case is obvious. It's just a question of being patient, and hoping nothing goes wrong.

There are some headwinds for the insurance division, but overall I think this is a very good business, that should be worth a lot more once it's trading normally again, and debt reduction should see the upside flowing to equity holders in share price appreciation. that's the theory! As we know, markets often don't do what we expect, so your guess is as good as/better than mine, on what happens to the share price :-)

Graham Hacker

Hi Paul, so grateful about your comment on being 20% down, similar to me! It has reassured me as being human, each day I’ve reviewed my investments & reassured myself there is very little that’s negative in my selections - strong balance sheets, good growth prospects, comfortable margins, in the right markets (for today)….. except, they are all Small Caps & predominately growth companies with a technology biased! I look forward to more explanation on where you think gearing is your problem

Monty9

Commenting briefly on the reduced numbers attending Mello in times of market downturn; these are exactly the times when the PI community should be tuning in because, to state the blindingly obvious, it is in times of market carnage that the stocks that will make one proper money can be found.
The Mello format is absolutely brilliant for helping to unearth these situations. My first attendance included Nautical Petroleum, and, a few visits later, Judges scientific.
I'll be there this evening!

carmensfella

Chriskay.....What is it that you would like to exclude? The format is popular with a mix of company presentations and educational slots plus the BASH but happy to listen and can even have ten minutes on the show tonight asking for/ listening to new ideas if you are watching? David

JASVFS

Somewhat relieved to read your comments on Luceco Paul, we bought in at 310p so are well underwater, we'll watch too and average down in what appears to be a sound company.

Hi Graham,

I look forward to more explanation on where you think gearing is your problem

It's very straightforward. I went into a severe market downturn for small caps, with too much gearing. That multiplies the losses.

Cambridge Cognition Holdings (LON:COG) (I hold) is a terrific long-term hold, in my view. We've covered it here lots of times, all in the archive.

Small Cap Value Report (Mon 28 Mar 2022) - LOOK, TED, BVXP, TND, PIER, LUCE

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Paul Scott

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