Small Cap Value Report (Thu 2 Mar 2023) - VTU, HSS, PURP, BIDS, TLY, SAGA, ALFA

2nd Mar '23 by Paul Scott

49 comments 8416 reads

Good morning from Paul & Graham!

It's going to be an early report today as I have to go into the city for a company meeting, then an investor lunch - exciting! I'll let you know tomorrow if the company meeting was of any interest.

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 what company you are referring to.

Paul’s Section:

Vertu Motors (LON:VTU)

61.2p (pre market)

Market cap £214m

Trading Update

Vertu Motors, a leading UK automotive retailer with a network of 191 sales and aftersales outlets is pleased to announce the following update with regards to the five-month period to 31 January 2023 (the "Period") ahead of its preliminary results for the year ended 28 February 2023 to be announced on 10 May 2023. The Group continues to trade in line with management expectations.

Trading Update: Group trading in line, Helston integration on track, cash generation better than expected

That’s all straightforward, and not likely to move the share price, because it’s in line. Although forecasts for next year have been raised by 10%, so that should move the price up.

I won’t repeat all the other comments in today’s update, other than these 3 points below, which are interesting for general read-across -

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The big question is whether new car supply easing is a good thing or not?…

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Snazzytime

2nd Mar '23

hi Jayman

You now use the @ symbol instead of £ and then select the stock in the pop up box.

Snazzy

yiannos1

Plant Healthcare is indeed a little company , but I do not think it is a nice one.

Camtab

Thanks yiannos1. Looks like my holding is going to be a disappointment. 1 for 2 against.

The Jayman

Thanks for the helpful steer Snazzy

rmillaree

weird infact bizarre - surely the benchmark should be with regard to sales not inventory

i have business a sales 1 mill reduction in inventory from 200k to 100k this year

business b sales 1 mill inventory 200k this year as last year

clearly buisness a is the better run business if it has lower stocks or have managed to lower stocks - yet this linked nonsense seems to be saying a is struggling - back under the duvet for me.

Metro Bank (LON:MTRO)

Is it not easier to add branches when you make no money. I can see the long game here that it could work out - but you are basically giving them credit for opening branches that are presumably losing money or not making any !!

You might be onto a winner here though - their market cap is a fraction of say virgin - so on sales multiple its looks alot cheaper - perhaps on sales multiple we should expect it to be more expensive if it doesnt have the legacy issues of virgin. Tricky one though i much prefer my banks to be making decent money to offer some downside protection - although i am always aware that profits can evapoarte in a heartbeat. If sales do keep growing rapidly and they morph into decent profits i do see good upside here which did surprise me somewhat.

Bristolian

Watkin Jones (LON:WJG) investor presentation today via IMC. I tried to watch/listen but my day job kept interrupting. It sounded positive overall and student accommodation development seems a strong growth area with little risk with their forward selling model. Paul I know that you've recently reinvested in this, as have I, so I look forward to any thoughts you may have on this. I'll view again and update when the presentation is accessible via the Investor Meet Company website.

The Boon Fund

As a whole industry, I think its inevitable that retail banking goes to a model with almost no branches. There are many successful retail banks that are purely digital, and their current account customers are happy. I am one of them.

However, there is always a niche in an industry as big as retail banking. I treat branches as a "customer value add service" rather than a P&L channel nowadays. Comparing it to things like free insurance, cashback, etc that banks are offering as goodies. I treat it as a cost, but one that brings in subset of the market.

However, my main investment case in Metro Bank (LON:MTRO) is not the branch strategy, but as you mention, their big discount to peers on P/B, P/S, etc. This was because they were unprofitable, and the market did not believe in a path to profitability. That is now moot - it is profitable, so the valuation gap should close. Albeit maybe always still at a discount, since in its sub-scale, branch-heavy strategy it will never make the same margins as the bigger banks.

Finally, I do see credible M&A potential. Either one of the PE houses that were circling, or even one of the USA banks that have dipped their toes in the UK - Chase, Marcus, etc. Or even one of the neobanks, flush with cash. One could buy into an established branch network, existing deposit base, a brand with value, and then strip out all the central overlap costs to justify the acquisition price. USA banks are flush with cash, having also seen their fortunes massively improve over the past year too.

Sorry Snazzy Plant Health Care (LON:PHC) Paul was absolutely right in 2015 and Graham was absolutely right in 2017 as in the end the share price is the only true judgement. I am hoping I will be absolutely right in 2023. You are correct it definately is a jam tomorrow share but you know sometimes they become a jam today share. Another point I would add is I like shares like Beeks Financial Cloud (LON:BKS) and Cerillion (LON:CER) great companies but will they be good investments? They trade on sky high multiples and the world has just changed, could be argued they are also jam tomorrow shares. But i do understand what you mean. All the best.

Rusty2

Still 37 on my screen. Should not move during the day, from what I understood. Of course Stocko is based on the previous results, when these are updated then the scores will change. Value and momentum will change based on share price.

proffittpar

Metal Tiger (LON:MTR) has today announced intention to delist on AIM and move to ASX. This has led to a near 25% fall in the share price which exasperates an already large decrease in the share price over the last year. Could anybody please advise if the shares if held within ISA's with the likes of A J Bell, Interactive Investor are still eligible to be held, if not, maybe this is the reason for the drop with potential forced selling consequence?

PeterW

As long as they are traded on a recognised stock exchange they should be eligible

I thought they were moving to Specialist Fund Segment of the Main Market (the “SFS”)?

Some brokers may not want to deal on that market, you should ask AJB.

Brokers don't deal with all listed companies and some are excluded from ISAs.

Paul Scott

Hi Bristolian,

I've been out & about, so missed the Watkin Jones (LON:WJG) (I hold) webinar, but see that it's already up in recorded video here: https://www.investormeetcompan...

I'll post here if anything of interest comes out from it.

Regards, Paul.

Thanks Paul, appreciated. Hope you're having a good day.

portugull

I have received an email from my broker this afternoon, Hargreaves Lansdown, advising me that they will no longer provide research on Saga (LON:SAGA) which I hold.

I wonder if Paul or any subscriber has any views on the reason for the brokers decision.

ridavies

What is missing in the space above this? Im intrigued!

National Express (LON:NEX) is an interesting company

Phil Mc

When I posted, there was a huge white space underneath. I thought about trying to sort it out but had 15 mins left to sort myself and 2 children to be ready for school (they attend, I teach ) and get out of the house. Note to self, maybe leave reading and posting about RNS to weekends.

Quilleron

I too have recently opened a position in Plant Health Care (LON:PHC) as having watched the presentations and done some research I do believe they address some of the future challenges of food production: increased drought or rainfall and the consequent increased suceptibility of plants to disease. If their products can address these problems and increase yields by 5-10% it's a win win for them and the farmers.

The have fully outsourced production, a very high margin product and extensive distribution arrangements so the operational gearing they'll enjoy is phenomenal. Do watch the most recent IMC presentation in which they answered my two questions.

As ever with these companies the timing is everything and I've been too soon in a number of cases recently but with these guys it does seem that it's upwards to their stated target of $30m of sales by 2025.

Small Cap Value Report (Thu 2 Mar 2023) - VTU, HSS, PURP, BIDS, TLY, SAGA, ALFA

Paul’s Section:

Vertu Motors (LON:VTU)

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Paul Scott

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