Small Cap Value Report (Mon 31 Jan 2022) - STAF, CBOX, BLV, STU, TND, PURP, STEM, SLP

31st Jan '22 by Paul Scott

73 comments 13481 reads

Good morning, Paul & Jack here.

Agenda -

Paul's Section:

Staffline (LON:STAF) - a reader request from last week. The latest trading update shows a greatly improved position, with better trading, and an equity raise having fixed the balance sheet debt overhang. So it's now a regular investment, rather than a distressed situation. Despite these improvement, it wouldn't be my sector pick.

Cake Box Holdings (LON:CBOX) - I've been through Maynard Paton's damning report again, in a fair bit of depth. Most of the accounting issues he's unearthed don't seem too important. However, the CFO selling 5% of the company 2 days before the auditor resigned with a critical departure letter, is outrageous. Entrepreneurial management was previously a strong attraction of this share. I don't trust them now, so am steering clear, despite the steep fall in price.

Studio Retail (LON:STU) (I hold) - oh dear, another problem. STU has warned on profits again - not a big deal given supply chain problems. However, far more concerning is that a working capital shortfall has emerged, due to over-stocking. This is such a basic lack of financial control, that I have no confidence in management, so have decided to sell. It's not a very good business, and now we know it's not very well run too. Although this is all reflected in a now ultra-low PER, so it could be a recovery share once working capital has been sorted, maybe?

Purplebricks (LON:PURP) - a catalogie of problems has smashed the share price here. I take a quick look at interim results. Bad - but mainly due to one-off charges. The key point is, it still has £58m cash in the bank, and the market cap is £64m. Could be an interesting one for special situation investors maybe?

Sthree (LON:STEM) - I quickly review the FY 11/2021 results, and am impressed. This looks a good company, performing well, with a decent outlook, and priced sensibly. Also a sound balance sheet. Very good! This is the type of thing we like best here at the SCVR - a decent company, reasonably priced.

Jack's section:

Belvoir (LON:BLV) - full year profit before tax to be comfortably ahead of expectations thanks to a strong sales market. While this has since shown signs of normalising post-stamp duty holiday,…

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Doug2b

31st Jan '22

In order of size: Fort, ScS, LGEN, Boot, CAML, Plus500 and Bellway. Note, Bellway is a very strong business selling cheaply. I took the decision to sell most of my Bellway holdings the week before last while the negative noise on house builders continues. I will build back in to BWY, RDW and Berkeley Group in time, but I just think that the cladding issue might hold them back a little, for no reason other than the negative noise, the cladding issue does not threaten these businesses at all.

Other investors that I know with a similar approach to me and similar long term returns, do not agree with me here, they feel that to sell Bellway when it is so cheap is daft. They may be proven right, but the outlook for Fort and ScS, where I moved the money into, is just so strong at the moment and they do not face the same negative noise over the next few months. At the end of the day, all of the above are all very strong businesses selling far too cheaply.

MichaelFBS

Thx Jack for the review of Sylvania Platinum (LON:SLP) which I hold.

Falling Paul’s recommendation of Dr. John Campbell’s YouTube channel, I now watch this almost daily as reasoned and a non hysterical take on where we are with Covid.

From his presentation yesterday :

“We are at the end stage of this pandemic”

I post here for people to make of it what they will.

The source documents that he has used to come to his conclusions are linked to in the descriptions on the video. I have not read them.

Regards

Michael

BnB

Deleted

“our resident sector expert BnB”

Paul, you are too kind. Or perhaps I have just been fortunate with my estimates. In any case, thanks for the coverage of Sthree (LON:STEM) in response to my request.

The point I would add is for investors to stop looking at this name as cyclical. Like Staffline, demand for its specialisms may wax and wane, but, unlike Staffline (or Gattaca, or Empresaria, or even Page and Hays), the level of demand for STEM skills remains above the level of supply in all but the most extreme circumstances. In other words there is a structural shortage of skills which keeps the phone ringing at SThree when the tumbleweed is blowing through the offices of its listed equivalents. To be clear, we are nowhere near this point today despite the downward trajectory of the sector shares of late.

That’s not to say that the market understands the extent to which SThree is a gilded outlier and any perusal of the chart and revenues over a long period will show a steadily increasing top line but a cyclically performing share price. There is a possibility, however, that the market eventually gets its head around the fundamentally different revenue profile of SThree, based as it is predominantly (75%) on contract revenues. The extra certainty and visibility that this provides of future revenues ought to be valued at a premium in the same way as SaaS revenues carry a premium valuation, all the more so since the average contract placement is worth three times as much as the average permie! I certainly can’t be sure that the market will ever wise up, but it at least provides a bedrock of confidence when the share price dips in concert with its more vulnerable sector bedfellows.

johnmhughes

Thank you for your insight and also to Zipmanpeter, for taking the time to comment. It is much appreciated.

Tortoise investor

I am not sure potentially running out of money was already priced in.

lpreidster

Regarding $PURP they may an advantage if the market gets squeezed as they operate a fixed price model. I have, last week, put my home up for sale with Purple Bricks. The service so far has been excellent, photos taken within 2 days, schedule next day and on the market within the week from start to finish. I had a couple quotes from local estate agents, who were all charging a % of sale, plus marketing, photos etc. In fact the closest price I had for selling was average £5500 from 2 other agents (this could change depending on house sale value) and £999 all in from Purple Bricks. That's a difference of £4500 just for selling fees. Purple Bricks were definitely the best option and I love that everything is online - Potential buyers can book viewings, put in noted interests and offers. Sellers can amend the schedule, photos etc. Very flexible service.

FederalReverse

Am I missing something or is the Unbound (LON:UBG) AIM admission document not on the website as it is supposed to be? Anyone know where I can find it?

Aargh Aitch

A second hand copy of Tim Steer's book was the best value investment advice I got; after my Stockopedia subscription. Obviously. I am away from home today, so can't check but I think Quindell's had the ignominy of a whole chapter devoted to them... It would have been written pre Pat Valerie and the case studies used were all LSE or AIM listings and all recent to the publication date- so as to demonstrate issues with contemporary accounting standards- hence he didn't dissect Enron or Polly Peck for example, but plenty of others have put them under the microscope.

Copies on Ebay are much cheaper than Terry Smiths "Accounting for growth", which I haven't read but I suspect it is more relevant to the modern investor as "Accounting for growth" is now 30 years old or more.

marcusb

A large increase with microcap Digitalbox (LON:DBOX) today. There is a fair amount to like about this share. Jack covered it on the 6th Jan 2022 https://www.stockopedia.com/co...
And a great interview with the management today; on Martin Flitton's blog https://martinflitton1.wixsite...
I am tempted to build a larger position after reading this, but nervous as it is likely to be highly volatile.

sharw

Yes, you are missing something. (I am too polite to say what). The Unbound (LON:UBG) AIM admission document is there. Go to the website, then investors admission information and you can download all 188 pages of it.

Is it really necessary to be so rude??? Maybe just don't bother responding next time.

It isn't then at the location that was specified in the Schedule One that was RNS'd, which is actually why I didn't find it...

Aislabie

The key for Purplebricks (LON:PURP) would seem to be that they are only going to be effective where the property is low or tightly priced (a lot of similar houses on an estate where other sales are recent).

Where the traditional agents win is in realising a better price that more than eliminates the fee difference. My experience has been that the good ones can do this for fees, that on any international scale, are relatively low.

Helvellyn

Lee,

Almost always the SCVR ( Jack,Paul and sometimes Roland) write about some of the small cap companies that have issued RNS's on that morning, as you can see by the above agenda for today it is normally the ones that are reporting figures that are not in-line, if that makes sense.

Hope this helps.

Richard

Paul Scott

Hi Lee,

Good afternoon. May I ask, what is the source for what you are going to cover on the agenda for the said day?

Jack & I make a list of the trading updates & results statements of companies in our remit (typically up to £700m mkt cap, excluding some specialist sectors like oil & gas, biotech, blue sky).

So we just read the RNS, and compile a manual list. We try to focus first on shares reporting earnings beats or misses against expectations.

Source info comes from the RNS own website, or investegate, I also use the list on Research Tree because it puts the mkt cap & sector next to each results statement or trading update. Then we also refer to MrContrarian's brilliant morning snapshots, to see if we've missed anything important.

Paul.

David Dias

re Cake Box Holdings (LON:CBOX)

I was invested in it for about a year. Rode the share price all the way from £200 to £400+ just to see all profits wiped out. Sold my shares today before going on to negative, don’t plan to buy back anytime soon (never try to catch a falling knife). If and only If goes about 50% discount from here and CFO is replaced I could consider once again buying this share as I think the business is terrific. Such a shame, promising business and management, I’m truly sad.

davidjhill

yes - its a tiddler now at just over £1m market cap. I bought some at 0.4p a while back for precisely the reason that appears to have come to pass, ie a reverse takeover. I am speculating that management will only do a deal at something north of 1p so could be a nice return but at this sort of microcap level will be completely illiquid so probably not one for most people, and for that reason I'm not in there for any real size.

Thornabian

Completely and it was easily copied, which is what Yopa did and undercut them.

It is a big market but easy to replicate so valuations should reflect the lack of a moat.

James101

Hi Paul, Really like the new podcast format you are doing :)

Great stuff!
All the best

Tanglands

1st Feb '22

paul loved the chat on the podcast, please do again. Half an hour of golden nuggets! (Wasn’t that a sweet breakfast cereal??!)

Small Cap Value Report (Mon 31 Jan 2022) - STAF, CBOX, BLV, STU, TND, PURP, STEM, SLP

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Paul Scott

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