Small Cap Value Report (Thu 22 April 2021) - G4M, SOLI, TRI, SFR

22nd Apr '21 by Paul Scott

50 comments 9548 reads

Good morning, it's Paul & Jack here with the SCVR for Thursday. Sorry I forgot to put up the placeholder at 7am, so we're running a little late.

Timing - TBC

Agenda -

Paul:

Gear4music Holdings (LON:G4M) (I hold) - another positive trading update, and brokers upgrade forecasts again. I explain why this is one of my favourite "coffee can" (long term hold) investments.

Trifast (LON:TRI) - positive year end FY 03/2021 update. Lots of interesting detail. Looks a decent company, but as with so many things at the moment, recent share price rises mean the price looks up with events.

Jack:

Solid State (LON:SOLI) - full year results to be 'ahead of the recently upgraded consensus forecasts' for this maker of rugged technology parts. Shares currently at near all-time highs.

Severfield (LON:SFR) - full year results expected to be comfortably above management's previous expectations.

Paul’s Section

Gear4music Holdings (LON:G4M)

(I hold)

835p (up 5% at 08:07) - mkt cap £175m

Year-End Trading Update

Gear4music (Holdings) plc ("Gear4music" or "the Group"), the largest UK based online retailer of musical instruments and music equipment, today announces a year-end trading update covering the 12 months to 31 March 2021.

To recap, this online business has been putting out a series of ahead of expectations updates over the last year. No doubt a beneficiary of lockdowns, but also a focus on margin improvement has seen a step change in profitability in the last year.

I reported on its last, and impressive, update here on 25 Feb 2021.

Today’s update - is another “ahead of expectations” update.

Two things strike me from the sales table below -

Firstly that Europe & RoW has now inched ahead of UK sales. Is the stock market really valuing this share as a European eCommerce business (and potentially global)? The market cap of £175m doesn’t strike me as aggressive at all, and there could be scope for a re-rating possibly, once people factor in that it’s growing into becoming a potentially global business.

Secondly, these numbers below are really quite small. £78.7m sales in the UK, and similar for Europe/RoW, must only be a smallish market share of large markets. Hence I see much more growth potential - a long runway for continued growth for…

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Philbabe

22nd Apr '21

Hi Paul & Others,

Regarding your comment in Gear4music Holdings (LON:G4M) - It's interesting to see on the 3-year chart below, how the StockRank system began to move from red, into green, well before the big move up in share price.

Is there any way to monitor this sort of change over time? The only solution I can find is to create screens that compare the current stock rank with the previous days.

Thanks

Phil

Leebod

No surprise that the only time my 16yr old daughter has asked about the stock market was for Gamestop despite me trying to get her interested in her ISA and SIPP which is actually real. Bloody Gen Z ('shutup boomer' as she would say).

Terry Dickens

Thanks, Bouden54 that's very reassuring, so we do not take profits we just hold on.

Love it when a plan comes together.

Gromley

Gromley - not madness, but reversing into a shell as a cheap way of getting a listing. Back in 2013-4 I was one of the few holders of Aurum Mining - that didn't end too well!

Well maybe, but David Williams was involved for some time whilst they were a miner. He increased his shareholding back in April 2015 when he became chair. I can't find reference to when he originally acquired shares but the April 15 announcement refers to him as long term shareholder.

I might be reading this completely wrongly but it puts me in mind of Active Energy (LON:AEG)

(formerly Cinpart, formerly Buckland Group) which is on at least the third iteration of what type of business it is. Which has not been a good journey for it shareholders over the years.

Paul Scott

Hi Oaktree,

Re Touchstar (LON:TST) (I hold) after today's drop, the market cap is only £6m, so I thought it would be better not to write up a section in the main report, on something so small & difficult to buy/sell due to lack of liquidity, and below our usual very low cut-off of £10m market cap.

I've held this share for about 3 years personally, and have been slowly watching it creeping back up, to within a whisker of my original purchase price. The company has always seemed to have promise, and it reminds me a bit of Crimson Tide (LON:TIDE) which makes similar products & software.

TST results today are OK - it's moved from losses to breakeven, not bad in a covid year. The liquidity situation looks OK, with a reasonable balance sheet for a micro cap.

My only disappointment today was the outlook comments, which seem to suggest that business won't meaningfully improve until 2022. I was hoping for a faster recovery & more encouraging signs of growth.

Also the commentary today from the Chairman or CEO was quite irritating I thought.

Overall then, I can't see anything to get excited about, so have parked my little shareholding back into the "forget about it for another year, something might happen" tray!

Regards, Paul.

noisyboy9

Hi Paul,

I think your Family comments re Gear4music Holdings (LON:G4M) are spot on, I'm a Professional Sound Engineer by trade, Most of my colleagues are starting to shy away from Thomann as well, since Brexit in January I have heard many complaints re delays etc. Gear4Music provide very competitive pricing and great customer service. I have been using them over lockdown and very impressed. I do actually need to put my money where my mouth is and pick up some shares!

I had to google rugby player Maro Itoje, to find out who he is, after reading the Sanderson Design (LON:SDG) announcement (I hold).

I was delighted with my google search results (see below), and am now highly motivated to do some more research! ;-)

Hi noisyboy9,

That's great, thanks for confirming my scuttlebutt about UK customers deserting Thomann and buying from Gear4music Holdings (LON:G4M) (I hold) instead, since Brexit.

I've decided to bite the bullet, and dump some of my Bigdish (LON:DISH) to raise cash to buy more Gear4music Holdings (LON:G4M) . It's never easy to throw in the towel (partially anyway) on something that hasn't worked, but more important to focus on things with more reliable upside potential, in my opinion.

LongValue

Animalcare (LON:ANCR) I’m still a little perplexed why Animalcare seems to be unwilling or unable to present its investment case to the public. It has just gained EU approval for Daxocox, a drug with a European market that it estimates to be some £130m. At the same time, it has reached a distribution agreement with one of the largest animal health care companies in the world.

Considering that many businesses struggled to survive the COVID pandemic, it had a relatively strong 2020 and appears poised to benefit from the global trend of increased companion animal ownership. Yet it does not appear to use a PR company and rarely presents at any of the events designed to reach private investors. And, yes, I’m a shareholder.

rmillaree

Animalcare (LON:ANCR)

Yet it does not appear to use a PR company and rarely presents at any of the events designed to reach private investors. And, yes, I’m a shareholder.

I know some get wound up by this attitude , i for one find is quite refreshing that some companies simply get on with doing business and not spening money on self publication. You probably do have a point though if they have any need to raise funds for expansion - hey ho the recent chart seems to back up my opinion that letting the numbers speak for themselves should normally do the job (i will pretend i didn't change the chart date range from the default period to much longer timeframe.

oaktree

Thanks Paul, useful comments as usual.
It be nice to get our timing right, but thats just not how the stockmarket works much of the time.
Hold the right shares and good things happen though..........in time.

Thanks again
Oaktree

gus 1065

Looks as though Dignity (LON:DTY) has lost its. The Phoenix 29% shareholder resolutions to sack the incumbent Chairman and replace him with their own nominee were both passed today, albeit only with the backing of a minority of non-Phoenix shareholders.

https://www.investegate.co.uk/...

As a consequence the majority of the non-Execs have resigned and it looks as though the FD is also on the way out after a 3 month handover. An effective way of achieving a hostile takeover without having to pay for the company.

Only been involved in one similar situation when the Bowleven board were removed in an activist coup a few years ago and that hasn’t worked out too well for the residual shareholders. Interested to see whether/how Phoenix better execute this one (I hold a small position).

Gus.

abtan

Gear4music Holdings (LON:G4M) (no position)

Here are the updated year-on-year growth rates for those interested,

+18% growth in Q4 (January-March 2021).
Given the +10% growth in Q3, I'm assuming this higher Q4 growth rate is indeed Brexit-related, or maybe it's the pro's buying items before things start opening up again?

On a similar note some might be interested to see this post from Thomann.

https://www.thomann.de/blog/en...

From a little more research it does seem like the UK is ripe for domination unless Thomann deem it worth their while to set up a warehouse in the UK.

Given their size I can't imagine this being a problem for them and my only query is why they haven't bothered to do so yet.

Note that as of a few years ago Thomann claimed to have the largest warehouse in Europe.

https://www.musicradar.com/new...

Europe

Just +11% year-on-year growth in the EU in Q4, despite most of the area being in lockdown.

Q3 growth was a whopping +50% so that's quite a climbdown.

---

I'm personally still not sure what to make of this company. The last financial year has clearly been a good one for them, but those slowing growth rates and the re-opening of the UK make me wonder what will happen in the next couple of years.

I'll be waiting for more details when final results are published.

GLAH

Cheers

Surrey Steve

Given that Gear4music Holdings (LON:G4M) is looking to expand internationally and Thomann is their principal European Union competitor, it would be interesting to hear what continental European musicians think of both

Dojosan

Animalcare (LON:ANCR) Someone told me about working on stillness of your mind when I stated that having invested in £KOO , they are so quiet...there is no news, nothing from the latter until TU day and results day. Sounds like Animalcare (LON:ANCR) is in a similar boat. No IR, not much media (at the time), bulletin boards are completely dead.....just stillness.....so let's do it simultaneously ..."breathe and say "ohhhhmmmmmmmmmm with me"....

£BYOT - I expected them to do better in H2....which was probably underwhelming given they smashed H1 out of the park. Therefore rather surprised with the frenzy SP action. I don't hold.

Momoko Miyamoto

Re: Animalcare (LON:ANCR)

There’s little point in spending time, effort and money in drumming up the share price unless the company needs to issue new shares and raise capital or the management want to offload their own inflated shares. Lack of investor PR effort is actually a good sign, management have got better more profitable things to do. I hold Eco Animal Health (LON:EAH) which peddles similar wares and also makes minimal investor PR effort.

maybe the meme investing crowd will jump on board Gear4music Holdings (LON:G4M) as a trendy cannabis play. You heard it here first.

dcon85

Just to echo comments, I had a similar experience, was about to hit purchase on my order from Thoman.de earlier this year and noticed a small comment at checkout about VAT, I hadn't given it (Bexit) a second thought until that point.

This is what Thoman and their customers had to say about it

I found it easier to use a UK supplier in the end which ended up being GAK.co.uk (Vs Andertons & G4M - too expensive, PMT Online - no stock, DV247 - vague about delivery times - as an idea on the landscape on competitors)

Going on that blog entry - well it all gets a bit argumentative on there but it does seem for a large portion of people that Thoman is no longer a viable option.

WDWombat

23rd Apr '21

I am really pleased to see more references to RoCE in company notes. I am not sure as to why there are sometimes wide variations in company released RoCE and Stockopedia numbers (I noticed a big deviation yesterday, probably on TATE or ULVR) but I think this is a key measure of a company's profitability, if by no means the only one. Lots of fund managers simply don't look at price/earnings ratios now but if you want to understand why RoCE is so important may I direct you to a 16 March 2013 FT article by Terry Smith. I am sorry I can't give you a link to this but the main point is that the RoCE should exceed the cost of capital. And whilst the latter calculation is a little tricky, Smith asserts that 'as an investor you should only be truly interested in companies whose returns are so high that they exceed any feasibly cost of capital". This is not the philosopher's stone but it is extremely useful.

Small Cap Value Report (Thu 22 April 2021) - G4M, SOLI, TRI, SFR

Paul’s Section

Gear4music Holdings (LON:G4M)

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Paul Scott

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