Small Cap Value Report (Thu 10 Nov 2022) - BME, TTG, NXR, SMV, PCF

10th Nov '22 by Paul Scott

50 comments 6759 reads

Good morning, it's Paul & Graham here! Today's report is now finished.

Agenda

Paul's Section:

CEO Interviews - people seem to be finding these interesting, so I've lined up 2 more companies to interview tomorrow. Please remember these are definitely not recommendations or tips. I'm just flagging up companies that seem to be trading alright in the current difficult circumstances, and seem sound on long-term fundamentals. Some will be right, and some will be wrong, inevitably, as I cannot predict the future. So please DYOR - remember we just flag up lots of ideas here, but it's up to each investor to apply your own filters to our ideas, and select the things that float your boat, with your own insights & more detailed research.

Virgin Wines UK (LON:VINO) - this has bounced a fair bit recently, so the opportunity might have passed. But I did flag it here on 28 July, and again here on 1 November, as a share that looks potentially interesting. The key question I'll be exploring, is whether it can weather a recession whilst still keeping its subscribers?

Norcros (LON:NXR) - perpetually cheap, but with known issues. Is it too cheap now? See section below for my review of its interim figures. I think NXR shares are looking attractively cheap now, and providing a nice dividend yield. Although a large recent acquisition has increased net debt significantly. Overall though, I think the low valuation means it justifies a thumbs up on valuation grounds.

B&M European Value Retail SA (LON:BME) [no section below] - one of the mid-cap retailers I keep an eye on. Interim trading update today for 6m to 24 Sept 2022 looks pretty decent. Profit guidance is maintained for FY 3/2023. Q2 much better than Q1, and current trading in Q3 is good. Divi maintained (decent yield of c.5%), and net debt seems reasonable. Profits down on pandemic-boosted period, but still strongly up on pre-pandemic. As a value products retailer from large sheds, I think this company should fare well. The shares have bounced strongly recently, but still look sound value. [no section below]

Graham's Section:

TT electronics (LON:TTG) (£263m) - a solid H2 update from this provider of electronic components. Revenues have shifted higher, as anticipated, but the important book-to-bill ratio remains over 100% as old customer orders are replaced with…

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mjfgs

10th Nov '22

Due to too much wine..or boredom? Serious question btw as never been to one, but was considering it...

davidjhill

agree. If investors start to believe the US can hit a soft landing there could be a very big risk on rally - wouldn't surprise me if that were the case to see a 50% retrace of losses for the indices to end the year maybe circa 10% down. A single reading unlikely to make that happen but if the data consistently starts to support the narrative it could.

BnB

We could see a huge relief rally, perhaps even like we had when the first vaccine was announced

Powell will stamp on that, albeit more rhetorically than with another 75bps. The Fed needs financial conditions to stay tight for a while longer

Paul Scott

PCF is one of Graham's, not mine. Paul.

RDHOWARTH

Obviously a lot to get excited about in the number. In the short term I imagine a fair bit of hedging still needs to come off. Expect VIX to continue to fall. Importantly MOVE (bond vol) which has been extremely elevated all year can also continue to fall. What does this mean?

Don't expect all the price moves to make sense... as shorts rush to close now since the scope for meaningful negative surprise has vanished short term. However this is an opportunity to square your book... if it suits... we have all made mistakes this year. If you haven't positioned yourself for next year then the net week or two is a great time.

In the first week or two of January there will be a fair amount of volatility as companies come clean about earnings. In fact, I would be rushing those statements out now... there is even probably a little window to raise some money for decent businesses. There is no point starting the year with stocks you want to be out of.

Furthermore you could easily find some of the very sensible stocks actually comes under pressure. Dependable earnings will remain attractive next year... as we speak eg Imperial Brands (LON:IMB) under significant pressure.

For me personally the weaker Dollar is what Ive been hoping for... but it does mean big $ earners come under pressure and favours 250 over FTSE. Its pretty good news for metals, precious metals and emerging markets.

Crazy day...best of luck out there.

planetx

Container rates are certainly reducing back to normal levels so that’s another pressure point in inflation reduced .

gmtrader

Try to stay positive and not drown your sorrows!

peterg

Shares in the WIne Society also accrue value. A notional profit in all your purchases gets added to it (not clear on the detail). So the more you buy (drink) the more it's worth. The catch is that you can't cash it in. It's only repayable on your death. So your heirs may be able to inherit not only your fine wine cellar, but a bit of cash to go with it!

Nanotrader09

This lower inflation rally is messing up my entry points. Having to pay 5% more than when I researched the companies on my buy list the day before!

oliver elliott

It's not the shares I worry about....It is the diminishing supplies of Rioja that concerns me. They have sold out, I will have to start on their extra strong Gin.

On a positive note the markets have just gone bonkers .

TheFloatingInvestor

I was buying this morning before all of this hype and I must say it was a pretty painful experience, not sure whether the last few weeks were the end of the dead cat bounce, and I was buying at a high....I had to go and walk the dog to get some prospective.

Keep some powder dry, take some profits along the way, one swallow does not make a summer.

Michael C

Me too, almost everything on my watch list is on the first page of Market Advancers this afternoon and the one I have been dithering about the most Integrafin Holdings (LON:IHP) is up 9.9% today. Travis Perkins (LON:TPK) was down 5% at one point on Hargreaves' screen, as I type it is up 6.9% so an intraday swing of about 12%. If this is a sign of a sea change I need to scrap my dividend screens and go back to growth. We shall see.

carmensfella

Just a reminder that the two day Mello London conference is next week and the companies presenting and speakers including Ed and Graham from Stockopedia are listed here https://melloevents.com/mello-...

eParo

It's a bear market rally. CPI still too high, so FED will raise rates again although maybe not sharply.

Time to selectively take profits imo in the next few weeks. I'm only looking at companies with a decent cash balance and negligible debt.

Public sector strikes are doing enormous damage to the economy and the shock to companies is still to be revealed. Yes some inflationary pressures are coming down but energy likely to go up substantially next April as will mortgage rates with BOE likely to hike next month again.

I cannot understand why an extra bank holiday was declared next May. Surely another day without GDP contribution is unaffordable in the current climate?

Some Prefs mentioned here a few days ago are looking tasty and I've added a couple of them.

GLA

lightningtiger

Nasdaq now up over 6%, not sure what it will finish up at. Some good news for a change.

Snowbum

Split Government in the US could also mean tighter fiscal policy over the next two years though, giving the Fed some leeway.

jonno

Cheers Howard,

As you say Youngs pubs are well maintained and very pleasant places to enjoy a pint and a bite to eat. Like Fullers they tend to be a little more expensive than other operators, but as with most things in life, you get what you pay for.

All the best

The Boon Fund

Just because inflation momentum looks to be petering out.. The next question is how low can it get? Can it go back to the norms over the last few years, of 1-3%? Or will it stay stubbornly high at 4%+?

Investors are celebrating today as though inflation has just been struck a fatal blow and on its way to dying. But that's not a given... In one scenario it could decrease but then due to second order inflation stay stubbornly high at 4, 5%. Which will mean rates need to stay 4-5% for longer, maybe past 2024, 2025. And surely equities will go cheaper if that is the assumption.

All that is true and in the short term the Fed will want to avoid the risk of “doing a Volker” and easing too soon, only to have to push rates higher still if inflation resumes. Today’s exuberance is understandable and even justified to a limited extent. But we are still some way from a definitive pivot and only a week or two from Powell’s “rates will have to stay higher for longer”, which I’m guessing they still will.

The question of course is whether markets are prepared to look sufficiently far into the future to see beyond the eventual pivot. And will the Fed even allow that to happen? I fully expect the various Fed governors to come out in force over the next week or two to try to dampen spirits.

what you should remember about inflation is that it rises very quickly but also falls very quickly. That is why investors generally care about it rolling over. Bond markets are generally quite good and they are peaking at 4.6% in the 1Y and down to 4.2% in the 3Y now. 10Y back to 3.8%.

Markets have not been going down because of inflation in recent months particularly. They have been going down because investors think the FED have been too aggressive and will cause a major recession, possibly global. Signals that this will ease pressure on rates significantly increases the chances of a relatively soft landing. It's the shape of the recession people are generally worried about.

Todays numbers will make the FED re-analyse. Not because the numbers came down but because they were way better than consensus. If that data is accompanied by softer jobs data the FED will know they are at the aggressive end of the strategy, predominantly because the data they are looking at is a lagging indicator.

I doubt markets go up in anything like a straight line from here but the signals are that the current pricing of impending doom is likely to have overshot a bit so markets should retrace some of those losses before find equilibrium.

Small Cap Value Report (Thu 10 Nov 2022) - BME, TTG, NXR, SMV, PCF

Agenda

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Paul Scott

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