Small Cap Value Report (Mon 6 Feb 2023) - EXR, TPFG, HVO, XLM, CYAN, PRES

6th Feb '23 by Paul Scott

29 comments 8400 reads

Good morning. It's Paul & Graham here, raring to go! Well, slowly coming round with a strong coffee is probably more accurate for me (Paul), here in London this week! Already I'm missing the tranquility of seaside life in Bournemouth, with London so far serving up its usual heady mix of antisocial people (eg. a loud girl facetiming at full volume on the bus, whilst stinking it out with a kebab), intermittent & slow internet, and unfortunately both my dogs are now incontinent (well they are nearly 16), and I've already got one wet sock this morning. Never mind!

Anyway, on to today's stock market trading updates & results shortly.

This weekend's podcast just went out on the main podcast platforms (search for "Small Caps Podcast with Paul Scott" and you should find it). My own personal website isn't working, but I hope to have that fixed later today. It's getting almost 1,000 listens each episode, enough to make it worthwhile making them.

Mello Monday - I'm delighted to say that renowned investor David Stredder's early evening webinars are back! It starts at 5pm this evening. I think it's important to support ventures like this, on a use it or lose it basis - especially during lockdowns and recessions, or bear markets. I tend to put on my bluetooth headphones, and potter about doing other things, zoning in & out depending on how interesting I find each section of the webinar.

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…

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grumpy5

6th Feb '23

In my view perhaps what has spooked the market is 1) the reshuffle of the board, with the CEO effectively being demoted, and a new CEO being sought.; 2) the prospect of large (and unquantified) exceptionals being charged in 2023. Nothwithstanding that, the reaction seems overdone, given that the price had been sliding beforehand. Sniffy!

Rusty2

There was a RNS this morning. See MrC post #2.

truegent

They were down 10% on Friday so someone already knew about todays trading update !

Seems to be the board changes that have concerned the market rather than the trade update.

sharw

EKF Diagnostics Holdings (LON:EKF)

This morning's drop has to be added to the slide of the last two weeks on no news (so leaks?) giving almost down 40%:

There is quite a lot in this morning's RNS. The results for the year to 31/12/22 will have revenue in line and adj. EBITDA "slightly below market expectations".

There is then some detail on the four divisions. I think the main cause of the reaction is in Life Sciences' delays with the South Bend, Indiana expansion and in particular the 14,500 litre fermenter. This was seen as key to profit growth in the presentation given in June 21 and this slide shows the scale of the expansion:

The potential of this is also discussed between Paul Hill and Christopher Mills (on EKF Board) here - go to 32m29 in :

I actually see the demotion of the CEO as positive (and it sounds amicable - he hasn't walked off in a huff). Christopher Mills says how expert he is in the enzyme business. I think he is very much needed to sort out South Bend having been distracted from that while trying to run the rest of the business as well.

davidjhill

hVIVO (LON:HVO)

Paul - there is plenty of capacity. Current operations support just over £70m of revenues. Once they get close they will add. The benefit they have is that this is a hub and spoke model. The Hub is difficult to replicate and very costly - which offers a moat to competition. The spokes are relatively cheap and can be added quickly (months) to support expansion.

The other 2 moats to competition are (1) credibility - pharma want guarantees. An incumbent doing the job very well, on time and with good results is very hard to dislodge given the implications to a drug program of a screw up by the challenge partner and (2) the volunteers are hard to procure/replace. Worth checking out Mo's explanation of this on his recent results presentation.

Good to see more Asian pharma contracts come on board too. That's a clear growth focus area so nice to see it working.

Michael C

planetx - Pressure Technologies (LON:PRES) - the new CFO (starting end of this month) has an impressive and relevant CV: https://tools.eurolandir.com/t...

BTW Stockopedia says 28 million average shares in the TTM column but that doesn't seem right, however you calculate averages, because there was a placing on 15 November 2022 - 'The Fundraising has conditionally raised aggregate gross proceeds of £2.28 million.... Following completion of the Placing and the Retail Offer, the Company's issued share capital will comprise 38,667,163 Ordinary Shares, and the Placing Shares and Retail Shares will represent approximately 19.65 per cent. of the Enlarged Share Capital.'

I've been looking at the various operating divisions and they do seem to have some speciality engineering capabilities (if you want perfectly spherical balls they will supply them). Today's RNS says the new contract is 'underpinning current market expectations' - so that's a loss then?

planetx

This is from the Sheffield steel mafia -

“I understand they are struggling but I’m surprised as they have a strong UK defence programme. The change to hydrogen should be right in there ball park too bits that’s a bit of a long play.”

Paul Scott

Hi Michael C,

When looking at the average shares in issue row on the StockReport, you always have to check further down, to see the bang up-to-date share count, as that will pick up any more recent fundraises. So this bit is vital to always check too -

Cuddlesticks

Thank you davidjhill.

I've (clearly wrongly) hesitated buying (LON:HVO). Part of what held me back was I couldn't find much reference to hVIVO's capacity was to grow volunteer numbers i.e. how quickly can they recruit 'volunteers' for new research.

Whilst the CEO's focus on increasing the productivity of volunteers makes sense from an efficiency perspective, would multiple inputs muddy the test data for some clients?

iamflimflam1

There's a transcript of the podcast here: https://modal-labs--whisper-po... I think it's chopping off the last couple of sentences - so you won't get the usual cheerful "byeeee" from Paul - but it's pretty good.

Hi - short answer is no. The challenge studies look for specific immune response to the condition being tested. Thus someone who doesn't qualify for an RSV study might well qualify for something else. The dataset built up by hVIVO (LON:HVO) means the cost of recruitment gets significantly cheaper the bigger it gets. As they've been doing this a long time now that bank of volunteers and associated dataset acts as a significant barrier to competition. Why? Because one of the biggest risks to any trial is lack of available participants in sufficient quantity. hVIVO (LON:HVO) have now built that trust with pharma that they can consistently source volunteers and have a big databank to reference in negotiations. I don't think there is any other entity in the world that can give the pharma anywhere near the same level of comfort and that should act as a major competitive advantage. To compete with that a new entrant will have to spend a lot of money upfront before they would even get a chance to bid for the work, let alone win any.

The dataset is now of sufficient size and variance that it also allows hVIVO (LON:HVO) to start increasing margins towards that magic 20%; by scheduling a balanced set of challenge studies the cost per recruit goes down significantly.

Thanks!

Super insight, thank you.

Roger Baron

Coincidentally I have just listened to a recording of a Gervais Williams portfolio update where he mentioned Cyanconnode Holdings (LON:CYAN) favourably, saying it is the 2nd largest holding in his Microcap Trust. Logged on here to see what Stocko had to say and was surprised to see Paul had mentioned it this morning.

Harry Hindsight

EKF Diagnostics Holdings (LON:EKF) - looks like crypto to me - sorry

Gervais obviously thinks that CYAN might work out well in the future. Maybe he'll be right?

I'm just looking at the facts & figures as they stand now. Which look poor. I have no idea what the future holds, I'm not a fortune teller.

Bluesky Ventura

7th Feb '23

Your write mainly about small-cap stocks and what happened to them in the past and what might happen in the future. So in some way, you are a fortune teller of sorts, as is every stock picker with an opinion on a stock. Possibly it is better to say 'My fortuning telling is no better than anyone else'.

BSV

I just meant that I was surprised that it happened to be that I was looking up the share on the same day you happened to have commented on it Paul.

jonno

27th Feb '23

Morning planetX

Pressure Technologies (LON:PRES) trying to get a better understanding of the business. Looks potential interesting as a turnaround and/or bid candidate. It is covered in some detail by Richard Stavely manager of Rockwood Strategic in his review of the latter last December.

Worth a watch on the investormeetcompany platform. He discusses Pressure Technologies (LON:PRES) at about 50 minutes in the Q and A with a useful graphic. Rockwood Strategic, which is part of the Harwood stable own quite a chunk of the equity.

Small Cap Value Report (Mon 6 Feb 2023) - EXR, TPFG, HVO, XLM, CYAN, PRES

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Paul Scott

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