Small Cap Value Report (Mon 8 Oct 2018) - ramblings, FCCN, AMO, QUIZ, SPE, ANG

Wednesday, Oct 10 2018 by
87

Good morning, it's Paul here!

The first couple of sections were posted last night. Today's news follows below.



Brexit

I've tried to avoid commenting on this, as it's polarised, and political.

I've come round to the view that most people (including me) believe what they want to believe. Therefore it's completely pointless discussing these issues, now that most people have formed fixed positions, largely based on defending how they voted in the Referendum (not in my case though). We'll just have to see what happens, and most people are talking rubbish, in my view.

Looking through the politics, and engaging our common sense, what is most likely to happen? The bottom line for me, is that the UK is a large net importer of physical goods from the EU. Therefore it is ridiculous to suggest that the EU will try to impede trade. One way or another, trade will continue very much as before, possibly with some short term disruption.

As regards services - companies in the EU don't use London for their financial services out of the goodness of their hearts. They use London because it's competitive for their needs. The feared exodus of jobs from London, in preparation for Brexit, simply hasn't happened, or only in tiny numbers.

Last week, I had drinks with some European bankers, who told me that German & Dutch clients are terrified about losing easy access to the UK. Some are setting up UK subsidiaries as a cautionary measure. That's the mirror image of scare stories going the other way - of UK companies setting up a nameplate subsidiary in Dublin, or Frankfurt, just to be on the safe side.

Bottom line - it's all going to be fine. All these issues will get ironed out, probably quite soon, as it's in everybody's interests to reach agreement. Therefore, I am coming round to the view that Brexit is probably far less of an issue that I previously thought. It could even be an opportunity to pick up some bargains maybe?

As usual, this is just my personal opinion, and please feel free to agree or disagree. I think we'd all prefer that the comments section does not fill up with a load of strident, partisan, political comments - that's best done on Twitter!


Corbyn Government risk to share prices

The far bigger worry for share prices (which…

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French Connection Group PLC designs and supplies branded fashion clothing and accessories for men and women. The Company operates retail stores and concessions in the United Kingdom, Europe, the United States and Canada and also operates e-commerce businesses in each of those territories. Its principal brand is French Connection, which designs, produces and distributes branded fashion clothing, accessories, such as toiletries and fragrances, shoes, watches, jewelry, eyewear, furniture and homeware through its distribution channels: retail stores, e-commerce, wholesale and licensing. Its other brands include, Great Plains and YMC. The Company operates in approximately 50 countries around the world. The Company's subsidiaries include French Connection Limited, French Connection UK Limited, French Connection (London) Limited, Contracts Limited, French Connection Group Inc., French Connection (Hong Kong) Limited, French Connection (Canada) Limited and YMC Limited. more »

LSE Price
58p
Change
10.0%
Mkt Cap (£m)
55.9
P/E (fwd)
70.9
Yield (fwd)
n/a

Amino Technologies Plc is engaged in providing Internet protocol (IP)/Cloud video software and device solutions. The Company develops a range of products and solutions designed to help broadband network operators deliver entertainment and associated connected home services to the consumer. It operates through the development and sale of broadband network software and systems segment. The Company and its subsidiaries specialize in Internet protocol television (IPTV) software technologies and hardware platforms that enable delivery of digital programming and interactivity over IP networks. It is also engaged in the sale of IPTV set-top boxes and associated customer support services. Amino Communications is a wholly-owned subsidiary of Amino Technologies PLC. Its other subsidiaries include Amino Holdings Limited, Amino Communications LLC and Amino Technologies (US) LLC. more »

LSE Price
122p
Change
-0.8%
Mkt Cap (£m)
88.8
P/E (fwd)
8.6
Yield (fwd)
5.7

QUIZ plc is United Kingdom-based global women's wear brand company. The Company is focused on providing occasion wear and dressy casual wear primarily for 16 to 35 year olds and offers clothing, footwear and accessories. The Company’s occasion wear provides maxi and mini dresses, matching tops and bottoms, and footwear, bags and other accessories that are designed to complement a particular outfit. The Company’s dressy casual is designed to provide the latest on-trend clothes, shoes, bags and accessories that have a glamorous edge. In addition, the Company’s products includes denim, playsuits, shirts, tops and skirts. The Company also provides a range of outerwear such as faux fur jackets, parkas and biker jackets. Footwear offers dune River Island, missguided and ASOS. The Company’s brand operates in 19 countries through 65 international franchise stores, concessions and wholesale partners. more »

LSE Price
49.75p
Change
-0.5%
Mkt Cap (£m)
61.8
P/E (fwd)
8.1
Yield (fwd)
3.1



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117 Comments on this Article show/hide all

Fegger 7th Oct 1 of 117
78

Unacceptable and sad you tarnish your work in this way sometimes: Remember that McDonnell and Corbyn are admirers of the Cultural Revolution in China, where millions were killed - including landlords being murdered, so that property could be given to the people

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shine66 7th Oct 2 of 117
9

'I've come round to the view that most people (including me) believe what they want to believe. Therefore it's completely pointless discussing these issues'.


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Paul Scott 8th Oct 3 of 117
41

Dear oh dear! Let's hope we have some better comments in the morning :-)

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wilkonz 8th Oct 4 of 117
12

A very readable article, Paul. Thanks. Speaking for myself, I'm not too worried about the impact of Brexit on our investments. Share prices shot up after the Brexit vote albeit after a short lived dip. Europe has a lot more to lose from a 'trade war' with the UK than we do as we're net importers.

A radical left wing government is a more serious concern to industry. I'm not sure I agree with the Naked Trader with regard to selling up everything. My action plan is to shift 80% of my investments in UK companies to the US (which is where I already keep 50% of my portfolio) because over the last 10 years the US indices have risen twice as fast as the FTSE 100, and I expect that differential to continue, but more importantly, a future left wing government in the UK will have no impact on the US economy.

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gus 1065 8th Oct 5 of 117
5

Morning Paul.

Interesting topic for discussion which will probably hijack any news the small cap world throws at us today so probably worthy of its own thread. I agree with the overall hypothesis that Brexit will probably be disruptive to share prices in the near term but one way or another will muddle through via an eventual compromise to be less of a cataclysm/panacea than its critics/advocates fear/hope.  Perversely, the potential it has to further split the Conservative party into an unelectable mess and lead to a majority Labour majority /SNP coalition is perhaps one of the most far reaching consequences from the Brexit process. Whether a Labour government would be as bad for business is some fear, in my view, would depend on the extent of their ability to legislate as they wish. The party itself seems to be being sanitised into a Corbyn aligned entity via the much discussed de-selection of “moderate” MPs although even with a large majority in the Commons (unlikely in my view) they’d still have to get their plans through a more reticent Lords.

One observation. Corbyn is largely a creation of the TU votes/active party membership that won him the leadership contest. Recent stats show the TU membership is now about 6.3m and less than 24% of the working population (and even less of the overall voting population).

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/712543/TU_membership_bulletin.pdf

One of the fears of business is presumably a radical resurgence in TU influence on government policy - yet their membership is a small minority of the overall population, and if you dig into the demographics predominantly older U.K. born I.e. exactly the profile that voted overwhelmingly for Brexit in the referendum (which Corbyn may now be trying to reverse). Gordian knots spring to mind ....

Back on business, French Connection (LON:FCCN) press release re. Press speculation.

https://www.investegate.co.uk/french-connection--fccn-/rns/response-to-press-speculation/201810080700052038D/


Gus.

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jonny71 8th Oct 6 of 117
39

Paul nothing wrong with giving your views, if people don't like it, put up a balanced counter argument, or read it dismiss it and move on. However right now there is a trend to suppress peoples views and ability to express opinions freely, regardless of political leaning, debate is being driven away, I find this most alarming as it is eroding democracy, let's not do that here.

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runthejoules 8th Oct 7 of 117
14

'Again, forget the politics, I'm talking about the economics.' [then goes on to talk about the politics, because of course they are inseperable from the economics, possibly turning the board into a sh*tshow for the rest of the day].

If we are going to talk sensibly about the possible economic effects of a Labour govt we should talk about what industries might benefit, too - which consumer industries, from rising wages and a more educated workforce? Constuction, given more council housing will be built, and Green industries? What buying opportunities might there be after an initial shock, when we realise that they are not actually Maoists and that, like Brexit and 2008, the sky isn't actually falling on our heads?

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MrContrarian 8th Oct 8 of 117
14

My morning smallcap tweet: finnCap whacks Ackers.

French Connection (LON:FCCN), CAP XX (LON:CPX), Hydrodec (LON:HYR), Akers Biosciences Inc (LON:AKR), Sopheon (LON:SPE), Amino Technologies (LON:AMO)

French Connection (FCCN) confirms it is up for sale. I hold.
CAP-XX (CPX) Giant component co TDK will licence a family of CAP-XX's patents for supercapacitors. Joins Murata and AVX.
HydroDec Group (HYR) £10m placing and £2.8m open offer at >=75p post 100:1 consol. A 42% discount. Cash needed for working capital, R&D...
Akers Biosciences (AKR) finnCap gives the wobbly biomedical co 3 months notice and cracks the whip. finnCap will resign immediately unless whole Board of Directors attends an 'AIM Rules briefing' hosted by finnCap. Never seen that before. CEO resigns, replaced by non-board consultant. Agrees to pay $930,000 to US co Pulse Health to settle lawsuit. Will focus business on Particle Immuno-Filtration Assay.
Sopheon (SPE) expects FY to exceed market expectations from finnCap and Progressive.
Amino Technologies (AMO) warns FY adj pretax only $11.5m = £8.8m (£11.2m). Blames disappointing orders and and higher than expected component prices.

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dfs12 8th Oct 9 of 117
10

Well timed intro. It is on my list for this morning to try to work out probabilities of various events over the next 12 months. All of which will affect share prices. As I see it... good brexit deal is likely to strengthen pound and therefore make our exports more expensive. Ftse100 would fall. Terrible brexit deal or no deal, pound will plummet, exports cheaper and Ftse100 will do well. Complications are... US employment is at all time high and economy is being stimulated like mad by Trump. Therefore they risk significant wage driven inflation. So their interest rates are almost certainly going to rise. If US rates rise then there is a tendency for all worldwide rates to rise. Rising rates are likely to hit stock prices. 2 scenarios lead to a downturn. So on balance it seems likely there is a slightly higher probability of markets falling from where we are. But looking at historic levels the Ftse100 is hardly expensive at current levels. So I imagine the damage might be short lived. I hit 10 years old in 1976 and I remember being worried about the general state of the economy and country. Strikes, power cuts, and general discord. A return to that is not something I would like to see.

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Edward John Canham 8th Oct 10 of 117
3

Amino Technologies (LON:AMO)

Looks to have issued a quite severe profit warning after assuring at H1 that it was confident with the heavy H2 weighting.

Reach (LON:RCH)

In line. Interested in any comments - plan is to cost cut and this seems to be going to target but is this enough with falling revenues.

Phil

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Julianh 8th Oct 11 of 117
22

A few interesting small cap companies reporting today. Your thoughts would be much appreciated on:
* Bioventix (LON:BVXP) annual results - results significantly beating expectations but some caution on future growth. Troponin testing has not taken off yet - is this a bad sign or an opportunity for higher growth to come?
* XP Power (LON:XPP) trading update - good order intake and an inline forecast
* Sopheon (LON:SPE) trading update - results exceed expectations (again)
Your views on the recent sell off would be interesting. The start of a downward trend or a much needed correction?
And on the politics you are (sadly) completely right. Most people believe what they want to believe and protect their previous convictions with ad hominem attacks, name calling and strident assertions. In political debate there is not enough willingness to learn or to change our own opinions in the light of new information. If scientists worked like this we would still be riding around in horse driven carriages or banging the rocks together.
All the best to all of us on this bright and cold Monday morning

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dmjram 8th Oct 12 of 117
9

In reply to post #405224

"In political debate there is not enough willingness to learn or to change our own opinions in the light of new information."

And in investing - hence the literature on the anchoring bias and heated discussions over the merits or otherwise of stocks where holders buy into stories and ignore contrary evidence e.g. Globo, Crawshaw etc. etc.

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runthejoules 8th Oct 13 of 117
17

In reply to post #405209

dfs Many forget that in the seventies the 'Strikes, power cuts, and general discord' were triggered by the oil crisis resulting in wages not keeping pace with inflation. Everyone blames Labour but no-one blames OPEC or the Arab-Israeli war. Events have many causes.

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timarr 8th Oct 14 of 117
19

In reply to post #405209

The US market valuation would be my main concern, if I worried about macro factors. Rising interest rates will at least act as a drag on valuations.

On Brexit I'm sure there'll be a deal, but the main issue is whether May can get it past her block of Brexiteer MPs. Labour and the SNP will vote against any deal she brings back so it would only take a dozen of so of them to defect to cause chaos.  In that situation a fall in sterling might not translate into rising export earnings - a lot of exported goods rely on imported components and the net effect of tariffs and trade barriers is hard to compute.

On Labour, well there are more important things than the stockmarket. I'm currently subsidising one child's school because they don't have enough funds, another child's university education, and attempts to find somewhere to live, my parent's social care following an operation and the country's transport system via rail fares. A Labour government would probably see me have more disposable income, tax rises or no tax rises ...

timarr

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jonno 8th Oct 15 of 117
9

I am with Julianh and the three companies mentioned in his posting Bioventix (LON:BVXP), XP Power (LON:XPP) and Sopheon (LON:SPE) get my vote.

Look forward to your thoughts Paul

All the best

Jonno

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Beginner 8th Oct 16 of 117
3

In reply to post #405219

Regarding Reach (LON:RCH) , my local, privately-owned newspaper group has headed in the same direction. They are cutting costs (so each paper is in reality run by a single journalist/editor; and printing is centralised and put out to contract); and they are shifting to a subscription-based online model. It is a disaster waiting to finish! Local news is gathered by potential readers through various free websites, print sales have collapsed, and the only remaining relevant income stream is dwindling advertising revenue. This comparison may be most valid for Johnston Press (LON:JPR) , but the traditional press seems dead, and late adopters of online are really struggling to find a niche. Perhaps the ridiculously high dividend is an indicator of possible failings.

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RustySpanner 8th Oct 17 of 117
5

The economy works on confidence, it can be talked up or down. For example, my holding in Tesco share has lost massive value but nothing has really changed at Tesco that I'm aware of. The constant doom and gloom about brexit is damaging. Change means opportunity.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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