Small Cap Value Report (Thu26 Jan 2023) - BOTB, SPEC, ROL, FNTL, AGFX, ANCR, AXS, EMR, FOXT, ECEL

26th Jan '23 by Paul Scott

67 comments 9955 reads

Good morning from Paul & Graham!

Today's report is now finished.

Agenda/summaries

A huge list again today, so we're only going to be able to cherry pick a few items (Graham's unwell, so might not be able to do his sections, but says he really wants to cover them at some point, as marked below). Therefore, no reader requests today please, unless you've spotted something exceptionally good, in which case do shout!

I'll keep going until about 15:00 today, as there's so much left to look at. Update at 15:19 - all done for today!

Quick comments (no sections below) -

Accsys Technologies (LON:AXS) - TU £182m - too complicated & lousy track record. But upbeat signs in today’s update - strong revenue growth, and “We remain on track for sales volumes in H2 to increase by 50% compared to H1 and, as a result, we continue to target our previously stated ambition of nearly doubling underlying EBITDA for the full year.''

So it might be worth readers taking a fresh look, possibly?

Empresaria (LON:EMR) - £29m - up 10% to 65p - FY 12/2022 results in line with exps. Net debt £7.9m, signif better than exps. Growth eased in Q4. “Some caution” for 2023, but also seeing “strong demand” in many markets, due to skills shortages. Medium term plan to double operating profit is reiterated. My view - a strange group of international staffing businesses, but it performs OK, and could be cheap maybe?

Foxtons (LON:FOXT) - £110m - down 4% to 36.6p - FY 12/2022 ahead of exps. 2023 more challenging. Net cash £12m. 65% revenues are “non-cyclical” - lettings and financial services (I would have thought fin servs is at least partly cyclical?). New CEO’s operational review says investment in people, etc, will be mostly self-funded from cost savings. Expecting a softer H1 2023 for sales, but lettings should be resilient. My view - probably priced about right for now, on 11.8x PER, but I suspect 2023 forecasts might need to come down, given macro conditions.

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.…

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Dave787

26th Jan '23

Hi Paul, with regards to your comments on Argentex (LON:AGFX) the brokers reduced their estimates following an upbeat trading update in December which was strange but I put that down to the adjustment for the year end change, so wasn't, in reality, a change to their previous estimate. The upgrade today, I feel, catches up with what the company and CEO have been saying for a while and continue to be very bullish. (I hold)

Regards

BenHazz

Looks like it was tipped by Regency Capital, could have kickstarted the jump.

davidjhill

Seeing Machines (LON:SEE) anyone follow this one? I see the CFO has been buying regularly last few weeks - now 4,000,000 shares so he's spent £250k at around this price. I presume he has good visibility over prospects given his position. Interesting anyway.

Raleigh4343

Yes. Good posts. I hold and added more this week. Not breaking pasts 12p at the third attempt in recent months. Waiting to see what news comes in March. Yeah, the bids situation was weird.

shipoffrogs

The performance fees at Record aren't about the company earning interest on cash as such. It's about the "carry trade" whereby clients buy a currency with high rates funded by selling a currency with low rates. Years ago it generated fantastic returns at Record, but the dramatic fall in rates killed the trade - it now seems to be back on.

They never SEEm to make a profit. But, yeah,, lots of director buys. Hmm…

hawkipa

They don't actually compete with banks. The banks allow them to exist as the cost of running big client lists at banks is now excessive. So the banks are happy to effectively outsource the reg risk, compliance and RWA usage that comes with servicing the smaller end of the FX mkt. They still get the flow but let these little shops earn good money for the pleasure of it. Plus banks wouldn't pay the sales staff as well. Its effectively a regulatory arb business.

cdm1

Paul, thanks for a brilliant effort today. Impressive.

Paul Scott

My pleasure! Thanks for the pat on the back :-)

Rusty2

But a lot of retail must be going to these companies instead of their banks?

Much is done online now, so staff are not sitting in shops.

Argentex (LON:AGFX) aren't retail. Their core market are SMEs - ie businesses that need to hedge or make/receive payments in different currencies but aren't big enough to have their own treasury function. They offer a service helping these businesses manage their currency requirements at good spreads that are better than their banks will give them. Once example the CEO gives is that a customer can call up and within 3 rings will be on the phone to a person who can track their transaction. (Try doing that with your bank!). They have invested heavily in their tech so now as clients onboard they also have the ability to transact online - good spreads for the client and good margins for Argentex (LON:AGFX. There is no reason they can't offer this same online service to retail further down the line but that isn't their business.

Banks prefer large size so hawkipa's point around banks not being concerned about these guys eating a chunk of their market share is valid. Even a tiny increase in market share is very significant in revenue terms so there is no margin cutting frenzy going on to gain business.

Argentex (LON:AGFX) have global capability now (ie dealers / support across the 5.5 day * 24 hour trading period) and are actively growing their corporate clients in these locations (Holland and Australia) aside from the UK. They will start to use the regulatory passport they have from Holland to expand across Europe over time.

Thus -business opportunity remains very strong and growth can continue for a good period to come and margins are under no real pressure (there may be a bit of a race to the bottom in retail but thats not their market and the whole travel fx type business is small in comparison anyway).

The investment case for me about Argentex (LON:AGFX) specifically is the fwd PER of 10 and EV/EBITDA of sub 5. Compare that across the peer group range and they are on less than half the valuation of the others but appear to have a high quality business, regulatory approval moat and a good strategy where a lot of the investment has been done and we can see the proof of results (ie not blue sky). The valuation just looks anomalous.

Thanks, David for that information.

Harry Hindsight

Barrick Gold (NYQ:GOLD) (balanced superstock) tracks Newmont (NYQ:NEM) and hold as opposed to an ETF.

Shanta Gold (LON:SHG) as stocko says speculative so for you braver souls. Agree 12p technical resistance.

JCPr

Hi Graham, if you do get a chance to review IG group (LON:IGG) later in the week that would be good. One thing that puzzles me is that they seem to have up'd goodwill by £20m+ due to exchange rate differences, which does seem to be a bit of sleight of hand and about 5% of the PBT for the half year.

PS I hold.

timarr

RE: Argentex (LON:AGFX)

As I recall (and it was a while ago) the issue I had with Argentex was that it was quite hard to scale - i.e. attracting new customers and then onboarding them was a manpower intensive task. Because of that it looked like the business would be slow to scale up and revenues might be a bit lumpy.

Is that right? Has anything changed?

Otherwise it looked like a nice business.

I hold Record (LON:REC) and Wise (LON:WISE) in the FX area but all of these businesses are very different under the covers, to the point they're not really comparable. FX and cross border payments is so inefficient and so massive (something like $15 trillion in payments in transit and therefore unusable at anyone time) that there's plenty of opportunity for everyone.

PeterW

Inspecs (LON:SPEC) I'm a bit confused about intended dividends from Inspecs. They approved the board to pay dividends at the last AGM and suggested that dividends were to be paid but radio silence ever since....

hi timarr - nope, not difficult to scale. customers increased 12% in the period : you can see the potential to scale in the 54% revenue growth. I think Argentex (LON:AGFX) has now reached a size of client base and strength of brand that scalability is not an issue at all. I suspect in the early days it was probably harder as they were having to sell the benefits, concept was newer to FDs and they lacked size. Now they've way passed that inflection point which you can see in the numbers of clients that joined in the last trading period alone.

hi timarr - nope, not difficult to scale. customers increased 12% in the period : you can see the potential to scale in the 54% revenue growth.

Thanks, will take a closer look.

ryanc106

29th Jan '23

Great effort Paul!

19th Feb '23

Recently have tended to fast scroll through the SCVR, but listened to the podcast and actually peaked interest in Best Of The Best (LON:BOTB) which missed form the fast read.

So thanks for the podcast and also the "its only money" - made me feel a bit better. I suggest you sort out some stop loss rules or get a family member to manage in trust.

Got a small bet and holding in Manchester United (NYQ:MANU) - bidding closed on Friday with Saudi, Quataris and Ineos tendering so should lift the price above EV a little - a gamble no insider knowledge other than a boy who seems to listen to their podcast all day.

Small Cap Value Report (Thu26 Jan 2023) - BOTB, SPEC, ROL, FNTL, AGFX, ANCR, AXS, EMR, FOXT, ECEL

Agenda/summaries

Quick comments (no sections below) -

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Paul Scott

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