Small Cap Value Report (Thu 2 Nov 2017) - FEVR, BOO, EGS, NXR

Wednesday, Nov 01 2017 by

Good evening, Paul here! I'm getting into the routine of putting up a placeholder article the night before, and I think it's working quite well - meaning that we can swap RNS ideas on trading updates & results, from 7am in the morning (tomorrow).

Talking of which, see you in the morning! Regards, Paul.

Good morning! It's Paul here.

The roaring bull market continues. Although I've noticed that a lot of UK small caps seem to be wobbling. Take Fevertree Drinks (LON:FEVR) for example - a previous high flyer, it's dropping sharply again today. Peaking recently at 2500p, I've just picked up a few (more as a trade than an investment) at about 1900p - that's a 24% drop from the recent high, quite a considerable retracement. A lot of other high flyers have done the same - e.g. Boohoo.Com (LON:BOO) is down 26% from the recent high (roughly 196p now, versus recent high of c.266p). It's interesting how so many companies have similar charts.

My broker has just flagged up to me that there's been a broker downgrade for FEVR today apparently. I probably should have checked out why it was falling before buying some! Oh well. It does reinforce though, that highly rated shares don't leave any room for disappointments.

The trouble is too, that I think so many market participants are now following Mark Minervini-style momentum trading, that once a stock breaks through the 50 or 200 day moving average, then a stampede of selling occurs. Could it be a buying opportunity? Who knows - only time will tell.

eg Solutions (LON:EGS)

We bid a tearful goodbye to this little software company, and its bizarre CEO, Mrs Gooch. The shares are suspended, following a scheme of arrangement to sell the company. We should get through 112.5p per share in cash fairly soon.


I saw an interesting article yesterday, saying that major brands are signing up for a new service which will offer cheaper groceries direct to consumers. Apparently the idea is to use blockchain technology to cut out the middlemen (supermarkets), and offer groceries direct to consumers at wholesale prices.

This sounds fascinating, and could spell the end for supermarkets.…

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Norcros Plc is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. The Company's segments include UK and South Africa. The Company has six United Kingdom businesses, including Triton Showers, Vado, Croydex, Abode, Johnson Tiles and Norcros Adhesives, and three businesses in South Africa, including Johnson Tiles South Africa, TAL and Tile Africa. The Company is focused on showers, taps, bathroom accessories, tiles and adhesives. In the United Kingdom, the Company offers a range of bathroom and kitchen products both for domestic and commercial applications. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. more »

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Fevertree Drinks plc is a United Kingdom-based holding and investment company. The Company is a developer and supplier of premium mixer drinks. The Company's premium mixers consist of a range of all natural carbonated mixers, including Tonics, Ginger Ale, Ginger Beer, Bitter Lemon and Lemonades. The Company sells a range of products under the Fever-Tree brand, which include Indian Tonic Water, Naturally Light Tonic Water, Elderflower Tonic Water, Mediterranean Tonic Water, Ginger Ale, Ginger Beer, Naturally Light Ginger Beer, Bitter Lemon, Sicilian Lemonade, Lemonade, Spring Soda Water and Premium Cola. The Company caters to hotels, restaurants, bars and cafes, as well as supermarkets. The Company sells its products to a range of markets, such as the United Kingdom, Europe and North America. more »

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Boohoo Group PLC, formerly plc, is an online fashion retail group. The Company is based in the United Kingdom and has a strong presence in the United Kingdom, the United States, Europe and Australia, selling products to almost every country in the world. The Company owns the boohoo, boohooMAN, PrettyLittleThing and Nasty Gal brands. These brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-30 year old consumers in the United Kingdom and internationally. more »

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61 Comments on this Article show/hide all

herbie47 2nd Nov '17 42 of 61

In reply to post #235838

Thanks but it was a google warning. The problem seems to have gone now.

I was getting the message on my ipad which does not have addblocker.

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Howard Marx 2nd Nov '17 43 of 61

In reply to post #235818

Too true, Richard

I remember getting excited by the prospect of 3G mobile telephony back in 2000.. but had to wait for years before it became a commercial reality!

Gartner publish an annual 'technology hype cycle' to illustrate how expectations get ahead of the implementatiton of any new technology. From their latest chart, it would appear that expectations for Blockchain will soon begin to plummet:


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Graham Ford 2nd Nov '17 44 of 61

In reply to post #235853

And then of course we have the hype cycle hype. Not criticising your post Richard, just rather wary of these types of charts from consultants and analysts.

What is the evidence that these individual technologies are actually on this shape curve for expectations at all? And how do they know where they are on this curve? Has it been tested in some way to actually verify that it has predictive power? Are the techniques to measure level of expectation comparable one innovation to another? Is this something as crude as measuring frequency of certain keywords appearing in the media?

Who’s to say that expectations of autonomous vehicles have now peaked and that people are becoming disillusioned with the idea?

While this curve may be a very general illustration that is often true, it is far from being a universal truth. Take the iPod and iPhone for example. They created new product categories. Where was the trough of dissolution for those?

To me it is a nice picture but pretty much an arbitrary view that has little usefulness for investment decisions for any specific innovation. It does however serve as a reminder that pretty much anything new may be clouded by hype. That can go for a new fashion retailer as much as a bit of tech.

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Gromley 2nd Nov '17 45 of 61

In reply to post #235458

I didn't get very far looking further in to Water Intelligence (LON:WATR) as I was looking at other things and I see that Paul hasn't got to it yet either.

However there is an excellent little thread on ADVFN (it turns out that is not an oxymoron) kicked off by "Effortless Cool".

Just a few observations from that thread :

  • For those wondering, despite being a largely US business it ended up on AIM as the result of a reverse takeover.
  • The business model and claimed 'moat' seem very compelling and quite a few thoughts immediately came to me as to how this business could scale up through several orders of magnitude. This being the case I struggle to understand why the business went nowhere from listing on AIM in Jul-2010 and the middle of 2015. Although the share price is now up 5 fold in the last three years, it is still 'only' double the floatation price.
  • An exchange of views around the trading statement in September "Massive sales growth but doesn't seem to be going to the bottom line." - "Exactly what they told us in the last trading update, in fact"
  • That reinforces my earlier (slightly tongue in cheek) view on the aggressiveness of the language.
  • That feeling is exasperated by learning that there is something of a governance red flag - Patrick DeSouza (the 'voice' of the RNS) is Exec Chair, but he is also CEO of "Plain Sight" - Effortless Cool describes them as a "related party" and elsewhere in the thread as a "shareholder". DeSouza is also quoted as the biggest shareholder (with 24.8%) [ I have no idea if that is related  to the Plain Sight Shareholding or even if he has an equity stake in plain sight].

I have completely lost interest at this stage and will not be looking at this any further -who knows that could well be to my loss, but I cannot get the two words that often proceed 'plain sight' out of my head.

Actually I lied, one further observation : on 7-September two senior managers simultaneously retired and on doing so excercised options to buy 80k shares (between then) at 67 cents - which the company immediately bought back from them at $1.24  (admittedly this was c. 10% below the then market price - although with such an illiquid stock who knows what the market price actually means.)

There is probably a good logic to those transactions, but I am obviously not smart enough to interpret ANY of the above, so I will stay well away.

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FREng 2nd Nov '17 46 of 61

In reply to post #235788

I shall give a free public lecture on Blockchain next January at the Museum of London (Gresham College). Details are here: and the video, slides and transcript will be there after the lecture. It will be live streamed on the Gresham College Facebook page.

It's part of a three-year series to demystify computing and to explain just how badly written most software is (and why, and what we can do about it), and how vulnerable we are to cyberattack as a consequence.

Some of the safety consequences are here:

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Effortless Cool 2nd Nov '17 47 of 61

In reply to post #235873

Thanks, Gromley.

There is a similarly excellent little thread for Water Intelligence (LON:WATR) on this site, too .....

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abtan 2nd Nov '17 48 of 61

In reply to post #235873

I had my finger on the trigger for Water Intelligence (LON:WATR) several times in the past but resisted purchasing. Some thoughts:

  1. The remuneration for ONE director last year was c.$0.5m. This seemed rather high for a company with a market cap of £15m.
  2. OCF didn't seem overly impressive over the last few years, despite the increase in revenues.
  3. I didn't understand what their USP was.

Hopefully I won't come to regret not buying as the price has rise significantly since I first came across this share...

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Gromley 2nd Nov '17 49 of 61

In reply to post #235898

Thanks Mr Cool - sorry I didn't recognise the moniker so I didn't realise you were here too!

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Richard Goodwin 2nd Nov '17 50 of 61

In reply to post #235858

Thanks @Graham Ford and @Howard Marx. It's a fun exercise that makes an excellent point but I don't think it's meant to be the basis of investment decisions except in the most general sense. As you say, there are practical issues!

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LeoInvestorUK 2nd Nov '17 51 of 61

Hi, I just thought I'd mention Best Of The Best (LON:BOTB) - they gave a trading update this time last year and then declared a special dividend a week later. However they did update us only 2 months ago which they didn't last year.

Profit forecasts have been affected by a deliberate increase in marketing costs and the price has been drifting recently. As a result Stockopedia currently categorise them as a "Falling Star" (low value and momentum).

I've done some quick research (Alexa, Google Trends, Facebook followers) and I can see no evidence that marketing investment is paying off with Alexa / Google Trends around or below this time last year and Facebook followers only up 13% since January (which I fear equates to stagnant or falling active interest).

On the plus side, the local newspapers (often operating on a skeleton staff nowadays) continue to be very happy to give them free advertising in exchange for a easy good-news story:

Blog: LeoInvestorUK
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Topicer 3rd Nov '17 52 of 61

If supermarkets are selling more own brand goods which is all shoppers can afford then a consequence is branded goods have to find a way to survive too. I think it is the branded goods which are on a sticky wicket.

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VegPatch 3rd Nov '17 53 of 61

In reply to post #235853

Look at the bottom category on the far left of the curve "smart dust".
Maybe the analyst has been smoking too much of it himself (or herself)?!

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timarr 3rd Nov '17 54 of 61

In reply to post #235983

No, it's a real thing:

But perhaps most mind-bending of all is considering what happens when sensors, antennas, and even computing equipment can be combined into information gathering devices on the microscale. This is a concept known as “smart dust,” and it’s been kicked around in science fiction and research communities for awhile.


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VegPatch 3rd Nov '17 55 of 61

I dipped my toe into Elektron technologies Elektron Technology (LON:EKT) yesterday. No broker numbers which is in some ways a good sign that this is an under researched company. My work colleague alerted me to this company.

The skinny is that the Bulgin business which is "widely recognised as a leading manufacturer of environmentally sealed connectors and components" is v profitable (gross margin over 45% and net margin 20%) and growing fast. It's been around for 95 years, so is not just a flash in the pan. These are connectors that are used in harsh environments and prevent say water getting in.

The company is reinvesting much of the Bulgin cash flow into a product called Checkit. Checkit automates the testing process for food industry e.g. Temperature testing in supermarkets or in cafes. It claims 1) reduces regulatory risk as it ensures the testing is done and 2) saves the client money. So a bit of win win if it can get enough clients to use it. Should someone like Compass or Sodexo use it then that would be game changing and a real validation of the technology. Anyway Checkit is loss making, eating up much of Bulgins profits. Thus optically the profitability doesn't look great but you have to look behind the numbers. Bulgin makes annualised c£5m of EBIT, Checkit lees nearly this much. Hence low EPS and a PE of 50x. 

But (and it's a big but)

If Checkit can get to profitability then this is a company trading on EV /EBIT of c7x. Ie cheap

If Checkit itself gets profitable then this company is going up a long way.

cash on B/S is £2m

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paraic84 3rd Nov '17 56 of 61

In reply to post #235923

That might explain some of the share price decline lately. I would much rather they focus on expanding internationally to help drive the SP. (I know they ship anywhere in the world but I can't see any evidence that they actively promote themselves in new markets). If they maintain the dividends it would still be a decent hold even if revenue remains flat.

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simoan 3rd Nov '17 57 of 61

In reply to post #235893

Hi FREng,

It's part of a three-year series to demystify computing and to explain just how badly written most software is (and why, and what we can do about it), and how vulnerable we are to cyberattack as a consequence. 

Some of the safety consequences are here:

I see your opinion of software engineers and the mess they are creating for the interconnected world in writing poor quality and badly verified software matches my own :) Of course, one of the main reasons for this is that no-one has the time to do anything properly these days such is the emphasis on time to market for new products. From reading your notes I assume you are familiar with the output of my favourite blogger, Bruce Schneier? 

All the best, Si

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herbie47 3rd Nov '17 58 of 61

In reply to post #235943

You could be right there, I notice in the recent results of companies such as £UNL they are struggling to grow. I rarely buy branded goods now, only if they are on sale, I find many own brands in Aldi are just as good or better (washing up liquid, washing liquid, cleaning products), why pay for all the advertising and marketing of big brands. Yes sometimes they are better.

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JohnEustace 3rd Nov '17 59 of 61

It's not just the supermarkets - I read last weekend that Amazon in the US now have 30 of their own private label brands.
"On any given morning, you could smooth out your Pinzon Egyptian cotton sheets before tossing on a Goodthreads poplin dress shirt, Franklin Tailored sharkskin-gray suit and a pair of Franklin & Freeman penny loafers. Breakfast might be a bowl of 365 Everyday Value organic quick oats and Wickedly Prime dry-roasted almonds with a cup of Happy Belly organic Fair Trade coffee, as you lean back into your Strathwood chaise lounge.

Despite not bearing Amazon’s signature arched arrow, they’re all part of an army of more than 30 private labels that belong to the increasingly ubiquitous e-commerce behemoth, a bounty waiting to be innocently discovered online as modern shoppers ditch old-school name brands and seek out stuff that’s cool but cheap."

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FREng 3rd Nov '17 60 of 61

In reply to post #236173


Yes, Bruce Schneier is always worth reading on cybersecurity. I get his monthly email.

Ross Anderson and his colleagues on are good too.


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extrader 4th Nov '17 61 of 61

In reply to post #236028

Hi VegPatch,

I value your insights eg re CLI, so had a gander at EKT.
The advfn board (I know, I know ;->) has some stuff that might give pause for thought....


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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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