Small Cap Value Report (Mon 8 April 2019) - Market Comment, KWS, IPX, LSR/THAL, TLY, AUK | Graham Neary

9th Apr '19 by Graham Neary

33 comments 10070 reads

Good morning!

Let's see what the RNS has in store today.

A few announcements worth commenting on:

Keywords Studios (LON:KWS) - final results
Impax Asset Management (LON:IPX) - AuM update
Local Shopping REIT (LON:LSR) / Thalassa Holdings (LON:THAL)
Totally (LON:TLY)
Aukett Swanke (LON:AUK)

Graham

Market comment

I thought I'd take a step back for a moment and point out that the FTSE-100 is up by over 700 points this year - what a result! Up by 10.7% so far in 2019, or 12% including dividends.

During this period, GBP has actually appreciated against the US Dollar and the Euro.

So the gains have been spectactular and not caused by currency depreciation.

Also worth noting that retail fund flows have been weak/negative in the first couple of months of the year. This suggests to me that the buyers have been big, institutional money. Retail investors will follow later.

As for the rationale behind all of this bullishness, markets seem to be pricing in a long delay to you-know-what. Since big money loves certainty, I think they are taking the view that nothing is going to happen for the foreseeable future, and maybe never. As far as they are concerned, then, it's "safe" to pile in to UK equities again and return the FTSE to its pre-referendum trajectory.

Please note that this is just speculation on my part! - but I have seen broker notes expressing a lot of confidence that there will be a long delay and/or a second referendum. So I think this is what institutional money currently expects. They have been wrong before, of course!

There's also the small matter of interest rate expectations collapsing, bond yields tightening again, and other major equity markets rallying hard, too. The S&P 500 Index has gone up almost in a straight line over the past three months. According to Stocko, it's now on a (median) trailing P/E ratio of 21x and a forecast P/E ratio of 17.5.

As usual, the US markets carry a significant premium to the FTSE, whose forecast P/E ratio is just 14x.

Life has been tougher in…

Unlock with Email

Unlock with Google

Already have an account?
Login here

MrContrarian

8th Apr '19

My morning smallcap tweet: Debbie's stalker still hot and sweaty

Safeland (LON:SAF), Yourgene Health (LON:YGEN), Debenhams (LON:DEB)

Safeland (SAF) proposes cancellation and nil premium tender offer.
Yourgene Health (YGEN) guides FY rev up 45% ,ahead of mkt exp. Profit ??
Debenhams (DEB) Mashley offers to underwrite placing if lenders wite off £148m. And with all Sports Direct special offers recently, Mashley becomes CEO.

runthejoules

Keywords Studios (LON:KWS) - profits up about 65% but only 10% like for like. Worth a look or already bounced enough at c 1/3 up off recent lows?

Camtab

In support of your comments Graham I read an article a few weeks back and for the life of me I can't remember where, it might have been the FT. But they were saying big money was moving back into UK. They gave 3 reasons, 1) sterling undervalued, 2) underperformance of market relative to other markets and 3) belief that hard Brexit wouldn't occur and therefore business as normal for the foreseeable. Your piece reminded me of it.Let's hope AIM can catch up a bit, but I think Pat Val and Goal have reminded investors of the risk reward balance.

jonesj

To focus on Brexit ignores other major risks to the UK economy.

Such as the dreadful balance of trade deficit & whether we have a government which keeps a business friendly environment or wants a central state controlled economy, Venezuela style.

FREng

I'm holding a lot of index-linked bonds at the moment. RPI linkage gives a return above inflation and it's a hedge against a no-deal Brexit and a change of Government that could change inflationary expectations.

Howard Marx

"As for the rationale behind all of this bullishness, markets seem to be pricing in a long delay to you-know-what. Since big money loves certainty, I think are taking the view that nothing is going to happen for the foreseeable future, and maybe never. As far as they are concerned, then, it's "safe" to pile in to UK equities again and return the FTSE to its pre-referendum trajectory."

Graham, I don't think there is much evidence that the rally in UK Equities so far in 2019 is due to a possible long delay in signing the Brexit Withdrawal Agreement.

After all, UK Equites have been amongst the worst performing of the major indicies in 2019 to-date:

The FTSE-250, which would be a major casualty of a hard Brexit, has underperformed the S&P-500 by a whopping 10 percentage points so far this year (!)

I think the 2019 rally in global Equities is just a bounce back from 4Q18's sell-off.

Yes, interest rates may well have peaked, but so has economic growth. Equities will struggle to make much further progress this year, in my opinion.

rpannell

Index linked bonds - and of course the capital gain of an index linked gilt is not subject to Capital Gains Tax (CGT). They should be the bedrock of any personal portfolio outside an ISA or SIPP in my opinion.

laurie

Here is a ray of good news for those who have not noticed. I checked it with the FSCS this morning, as their website was not clear. This is the response I received in reference to execution-only brokerage firms:

If the investment firm you conducted business with has failed and was authorised by the Financial Conduct Authority, you would be eligible for compensation for up to £85,000 per person per authorised firm.The compensation limits for investments have increased on the 1st of April 2019. This increase in limits will only affect customers of financial services firms that fail on or after this date.

Graham Neary

Howard,

I take your point but I hope you'll acknowledge that I did take care to mention the FTSE-100 and small-caps separately, and I acknowledged that small-caps have done poorly!

I also acknowledged the currency appreciation which is a drag on UK equity performance. E.g. if you add on the 4% EURGBP appreciation to the FTSE's performance, it has matched the EUROSTOXX.

Ramridge

Howard -
I have to question your YTD values for AIM-100, and FTSE-250.

For FTSE 250 , on 2/1/19 it was 17587, and on 5/4/19 it was 19538 . That is +11% , not 5.6%

I think the AIM 100 is also around 10% and not 6.2% .

Happy to be corrected.

mammyoko

The following is a good article on index-linked gilts

https://www.investorschronicle.co.uk/funds-etfs/2018/09/20/the-hidden-risk-in-inflation-linked-bonds/

I have been looking for a time to buy them cheaply for years but always failed to do so. When they look cheap, it always feels as if there is a good reason for them doing so!

Laughton

laurie - you're right, it's not very clear. But isn't that compensation only in respect of money or investments where the claimant has received advice?

So, on that basis it would not cover the vast bulk of investments held in nominee accounts with execution only brokers (which by their very nature do not give advice). Which is what is going to be of interest to the majority of people on this site.

Yes, I appreciate that the nominee system is supposed to give protection but it's not cut and dried.

Or maybe I've got it wrong and the FSCS now covers holdings as well as cash??

sharw

MrContrarian's ever welcome morning report highlights the proposed delisting of Safeland (LON:SAF)

I do not hold and feel sorry for those who do because the offer for those not wishing to hold shares that cannot be traded is at the current price which is 0.3 x NTAV.

A quick glance shows 3 directors - the Lipmans and a solicitor (age 75) with these holdings:

L G Lipman 261,128 E A Lipman 692,442

Mr L G Lipman and Mr E A Lipman each own one-third of the share capital of Safeland Holdings (2008) Corporation (“SHC”), a corporation incorporated in Panama. SHC owned 10,854,386 (2017: 10,854,386) ordinary shares in the company, representing 72.81% (2017: 70.63%) of the Company’s shares in issue as at 31 March 2018

This really is the rough end of AIM!

Small Cap Value Report (Mon 8 April 2019) - Market comment, KWS, IPX, LSR/THAL, TLY, AUK

Market comment

Unlock the rest of this article with a 14 day trial

About the Author

Graham Neary

33 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...