Small Cap Value Report (Thu 16 Dec 2021) - RWA, MCB, SMK, BMY

16th Dec '21 by Paul Scott

53 comments 11470 reads

Good morning, it's Paul & Jack here with the SCVR for Thursday.

Agenda -

Paul's Section:

Boohoo (LON:BOO) - trading update - too large for the SCVR now, so I've posted my comments on the BOO thread, which is here. Please would you post your comments using that link there, rather than cluttering up this article, which some subscribers get uppity about! Many thanks.

Mcbride (LON:MCB) - oh dear, another profit warning - with continued input price inflation being the problem. It's trying to raise selling prices again, but that takes time, impacting profitability. Now trading at a significant loss, and in talks with the bank over covenants, makes this too risky for me to want to consider investing.

Jack's Section:

Earlier in the week I had the pleasure of talking through some small (and large) caps with Paul Hill and David Thornton. Great guys, both full of enthusiasm for the markets and their own investment ideas. Here's a link to the YouTube upload - have a watch and let me know if you have any thoughts on the stocks covered.

Robert Walters (LON:RWA) - another upgrade for this recruiter. The stock has rerated and is close to all-time highs but, with wage inflation across a number of countries, the near-term outlook continues to look positive. The StockRank of 96 and Quality Rank of 98 are positives, so it looks like a good candidate for those looking for exposure to labour shortage and wage inflation themes. Broker estimates are behind the curve.

Samarkand (OFEX:SMK) - I hold - H1 business disrupted by supply chain challenges for its customers, although an improving trend has been reported from October onwards. The stock itself has a lot of growth priced in and there’s not much trading activity, so there’s downside risk. Of more interest is the read across comments on supply chain.

Bloomsbury Publishing (LON:BMY) - acquisition of US-based academic publisher. Bloomsbury says it should be able to use its Digital Resources division to scale ABC’s digital offering. There have been a few acquisitions here recently, and BMY still has cash, so it’s worth taking a closer look at the growth strategy IMO.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates &…

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JASPERTHEDOG

16th Dec '21

Paul,

We don't seem to hear much from the expounders of 'The New Monetry Theory', these days. I wonder why that is?

abtan

Bloomsbury Publishing (LON:BMY)

Hi rmillaree

I'm afraid that I generally don't look at profit or EPS (too many funnies for me with accruals, deferrals, depreciation, etc...), and when it comes to cash generation I prefer calculating it myself and then looking at it relative to the EV.

With this particular company, I think cash generation is excellent, even after capex, and supported by legacy Harry Potter revenues and their growing BDR platform.

Good luck whatever you decide.

Cheers

jwebster

Yes, good. And also cease the QE programme at the end of this month. Although they have accumulated 895 Billion in mainly govt bonds, which looks sticky.

Jack Brumby

Hi Dick,

Many thanks, I've definitely found management to be an important differentiator at the small cap level and it can be quite a hard thing to determine. Some have ambition but a lack of regard for shareholders, some think like shareholders but are too cautious, and others can simply not be up to the task.

Centralnic (LON:CNIC) is an interesting one, I first started looking at it when there was a more obvious valuation gap with Tremor International (LON:TRMR) . But there's plenty to dig into even after the recent rise. Mgmt continues to acquire and integrate, revenues & cash flows are quite resilient, and the new CTO is a promising new hire.

jonno

Funny you should mention annuity type income. Harry Potter would appear to be the archetypal form of annuity income. The books have become a children's classic and will be enjoyed by children for many years to come, just like Thomas the Tank Engine for example. Not my original thoughts, but borrowed from one of PI World's interviews with Richard Leonard.

Silver Moon

This is a heck of a percentage increase from 0.1%.

Michael Tee

REACT (LON: REAT)

I promoted this stock here in the past. I am writing now to say I have sold out entirely. It has taken a long time to sell.

I had a chat with management which did not impress me. It seems to me that they promoted the stock a lot so their options would kick in and haven't bothered much since. I am concerned that future updates aren't going to be particularly good and I prefer to invest where I have confidence.

Cricketfan

Hi Jack

Thanks for the pointer to the Vox video. Lots of companies that interested me and I actually hold seven of them. A mix of long term holds (inc Somero) and a few more recent acquisitions (Vertu, Central Nic and Supreme). All above water except RBG. I entirely agree that honest, quality, entrepreneurial management is gold standard.

I will now take a look at Royal Mail and Airtel Africa. Not small cap but interesting comments from you and David Thornton. Thx again.

Mark

raggedtp

How about a little bit of 'abroad'? Some don't like mining, but I think the UK consumer is as least as tricky to predict. I don't understand the uninterest in some of my mining shares, and Wentworth Resources (LON:WEN) (I do hold) put out an operational update this morning to guide expectations up further on their gas output in Tanzania.

It won't double overnight, but goodness, dividends as good as guaranteed at nearly 8% over the next year from a company with half its market cap in cash now, doing what is demanded from a growing economy that needs more power. And it will offset more and more of its emissions. OK, it's not solar, but it's needed for the next decade. Wish I had more spare cash myself...

Boon

Or it's still overpriced and getting to fair value?

We'll see in a few months!

I know there's a Boohoo (LON:BOO) thread but this is not Boohoo related directly...

Saw that Quiz (LON:QUIZ) dropped -13% today, probably a read-across from Boohoo as they sell lots of partywear, and likely hit by the same huge increase in returns?

But the difference is that Quiz (LON:QUIZ) still does lots of retail store sales, which are less impacted by returns. I haven't looked at Quiz in a while since they rocketed above 20p, but it looks like it might be now getting closer to a good value to buy.

(I don't hold either)

DaviStoVest

I agree ... Stocko is neglectful to the point of abuse when it comes to resource stocks.

It's just crazy ... more especially because it seems to be deliberate and considered. I just don't understand Stocko's obsession with tiny UK businesses. I don't believe following that obsession will get me very rich (or even at the least a little bit rich, to which, hey ... I can aspire!).

Feels like a hobbyist approach, to be frank.

davidjhill

Yes, I think you're probably right. I wouldn't put them in the same demographic as Boohoo (LON:BOO) either

1) They have more sales from stores - returns will be less : plus they have introduced more loungewear so little less reliant on party scene.

2) It's a more expensive product so I suspect purchasers will just keep a purchase and wear it next time rather than return it. Whereas a 20 year old smack bang in the Boohoo (LON:BOO) demographic may well want the money even if it is a much lesser amount. I know mine would!

3) Rents are now revenue based so lower revenues will result in lower costs helping with margins.

I do hold Quiz (LON:QUIZ) for the longer term. I'd imagine there will be some level of impact on sales given this week, but hopefully not major.

Rusty2

17th Dec '21

Here you are: https://www.stockopedia.com/co...

sharw

DaviStoVest - I think you are confusing Stocko with the SCVR. Stocko provides data on all shares be they resources or anything else. The authors of the SCVR (Paul/Jack/Roland and previously Graham) have all said that they personally do not have any expertise in the resource sector.

There is nothing to stop you doing a daily "Resources report/discussion" should you so wish.

GloucesterBob

Jack has covered resource stocks on this report many times.

Paul Scott

You see what we have to put up with...

Dragon

Wentworth Resources (LON:WEN) has announced a share buyback of up to £2m.

18th Dec '21

Hi Michael,

I see that React (LON:REAT) has gone all the way back down again. It looked very much like a stock promotion, jumping on the bandwagon of covid, and making exaggerated claims about what it did (just a contract cleaning company), and the supposed potential.

This type of business should only command a very low PER, as there's so much competition, margins are not likely to be sustainably good. And why is something so small listed on the stock market? What a waste of money, with listing costs and management time, cost of NEDs, etc. So de-listing risk would be high.

I think the tiniest shares on the stock market are generally best avoided. De-listing risk is too high, there's little market liquidity, and they're generally rubbish businesses, with poor management. Occasionally a little gem appears and you get a 10-bagger, but it's so rare - even the ones that do ten bag, usually come back down again after a while because they were speculative spikes, not genuine value being created.

Regards, Paul.

JASPERTHEDOG,

Sorry I don't understand your point. What is this supposed to mean?

Small Cap Value Report (Thu 16 Dec 2021) - RWA, MCB, SMK, BMY

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Paul Scott

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