Small Cap Value Report (Thu 26 May 2022) - PURP, BOOT, MORE, SUS, ADF, RAI, NWOR

26th May '22 by Paul Scott

70 comments 9172 reads

Good morning, Paul & Jack here.

Agenda -

Paul's Section:

Purplebricks (LON:PURP) (I hold) - from yesterday. A gloomy trading update. Market cap isn't much above the company's own net cash, but it's loss-making, and instructions are down. Looks like some cost-cutting is necessary. Not really a regular investment, so this is only of interest as a special situation (possible takeover target?)

Hostmore (LON:MORE) (I hold) - a very predictable profit warning, which I've been expecting. It's not as bad as I feared, and the roll-out of new sites (on attractive rents) continues. Medium to long-term, I think this share should do very well. In the meantime, profits are down, but not horrendously by any means. Although sceptics point out that competitor RTN has recently issued a much more positive update - a fair point.

Facilities by ADF (LON:ADF) (I hold) - strong results for FY 12/2021. It floated at 50p in Jan 2022, and is currently 36% up on IPO price - remarkable in a bear market. I like this company a lot on fundamentals. It's in a lucrative niche, and raised £13m net at IPO to expand its fleet of TV/film production vehicles - a booming sector in the UK. Looks attractively priced too. Thumbs up from me.

National World (LON:NWOR) - I've previously liked the figures at this small newspaper group. Today's update is reassuring, in line with expectations. Valuation looks about right on a PER basis, but that ignores a substantial cash pile. Hence it's cheaper on an EV/EBITDA basis. Overall, I can't get excited about this share at the moment.

Jack's Section:

Henry Boot (LON:BOOT) - solid trading so far this year and the outlook is buoyant. Henry Boot is a good operator that has been around for a long time, and there is value in that kind of track record. But the shares have held up well amid a wider cyclical sell off, so I wonder if at some point we might be presented with a better entry point.

S&U (LON:SUS) - I hold - performance is ahead of budget here and, while issues such as the cost of living, low consumer confidence, and inflation could have an impact, the group is investing for sustainable profitable growth. The forecast PE ratio is less than 9x and the forecast yield is…

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BnB

26th May '22

Re Angle (LON:AGL) - you are right on most counts, particularly on the future benefit to those in potential need of life-extending treatment. I'd just be wary on the speed of the commercialisation process. Shares now look very expensive next to liquid biopsy counterparts like GH and EXAS, with similar FDA approval but much higher revenues, which have been crushed under the boots of the US growth wreck. At the slightest delay relative to forecasts, contraction could be severe and my instinct here would to be to bank some or all the investment and wait for a pull-back. I wish I had followed my own advice in respect of multiple biotech names that once showed good gains yet ended up being sold much lower.

raggedtp

I agree it's great news, ridavies, and well done to holders. I thought I had some in a fund, but just found out no :(. I know it's been a huge journey and looks like it could be a big success. If it hadn't risen so much I'd have gone in. Will look at it thoughtfully at this level.

TheFloatingInvestor

John Doe stocko has it on a 22E P.E of 24.8...is that down for 2023 (12ish)? I don't have access to further broker notes.

Cheers

Paul

Epsilon

Angelos

Re Hostmore (LON:MORE) s asset backing.

If you look at the Balance Sheet of the last full year accounts, you'll see the largest assets are both intangible:

1. goodwill

2. right of use assets.

These are of questionable 'value'.

Yet if you remove these, there is no tangible asset backing at Hostmore (LON:MORE) .

brads13

In the RNS yesterday "ANGLE believes this FDA classification is only the third liquid biopsy product clearance ever granted, with the other two being limited to a single gene in a single cancer using ctDNA (fragments of dead cells) and a system for counting cells that does not allow downstream analysis of the cells. ANGLE's clearance is the first and only FDA product clearance, considered the gold standard regulatory clearance worldwide, for a liquid biopsy solution to harvest intact cancer cells for subsequent analysis."

From my limited knowledge Angle (LON:AGL) has bigger potential than GH and EXAS, but as ever with biotech, it is difficult to really know until commercial deals are made.

RutlandRam

Just my take on Luceco (LON:LUCE) (I hold). Personally I hold a lot of sway in Directors share dealings in these smaller caps. There have generally only been share sales over recent times in this company. Even the present price, down over 70% from highs last year, hasnt been enough to entice any of them to put their hand in their pockets.

The founder and CEO has made two very significant share sales in recent years. In November 2017, not too long after listing, his sales were swiftly followed by a 75% collapse in the share price after bad news subsequently was released a month or two later. . And in February 2022 they have been followed by a 60% fall in share price after the more recent profit warning.

Absolutely no suggestion of any wrongdoing at all, the team there seem very decent and honourable. But its really not a great look. So for me, investing further now is out of the question until certainty comes back, which they themselves have suggested may be quite some way away.

I agree on the potential for the company and its technology. I’m only talking about the future of the share price. My experience in biotech investing is that you will get another look at a lower price. NTLA is a good example of a genuine and important medical breakthrough in July 21 which has not brought further gains. In fact quite the opposite, for which the reasons are well understood and to which Angle (LON:AGL) is very vulnerable at today’s valuation.

JimMcLad

Raggedtp & BnB

My view, FWIW, is that there will significant progress in other areas Angle has already progressed and that the sp will be much higher in 2 years or the company will have been taken over at a significant premium. It's my biggest holding by far so I'm not at all biased. We're all hoping to buy various stocks at the lowest point of this market but we'll likely be too late.

JohnDoe2378

Hi Paul,

Cenkos has 5.9p EPS for FY'23.

Regards.

I sincerely hope you are correct. Good luck and I'll be watching the name more closely in future.

ridavies

Thanks for that Paul. All that is really interesting. As you say 'needs must' and its also an appealing story to hear by what must be an increasing number of people watching what they spend and looking for best value for money. Interested to hear about Tortilla Mexican Grill (LON:MEX) too. Have put them forward to Mello team several times recently. Would be interesting to see what they have to say and to put questions directly to them.

An intereating take on the subject of Hostmore (LON:MORE) thank you Zipmanpeter. It may work if they are prepared to give up the assumed spend on that long haul flight or second ski holiday - a big if but a possibility, its true..

Hello Jim McLad and also BnB. Jim and I have identical thoughts re Angle (LON:AGL) and our shareholdings in relation to our portfolio are identical.

BnB's thoughts are probably accurate and I will be ready to add my holding again on a pull back. I also agree with Jim that Paul (and generally Im his biggest fan and follower) has a blind spot on this one, though like BnB he may be able to say I told you so in a few weeks / months time.

Sometimes there is no doubt you can get too close to a share - and jim and I could certainly be considered guilty of that. For some time I was very concerned about the time the FDA was taking until I fully understood that this is what is called a De Novo** application and as such a separate category has to be created, despite the fact that many consider GH and EXAS to be in the same category. They most certainly are not, and their position is truly threatened by the Angle (LON:AGL) technology.

**NB in a De Novo application the case has to be proven by a much more detailed review of research etc than will now be required for repeat applications to the FDA for say the other areas where Angle (LON:AGL) has detailed positive research from acknowledged research institutes in the US, UK and Europe, especially in lung cancer, probably the next application.

In the case of ovarian cancer application, the latest research is expected in some months time, and a new study for the process application in prostate cancer is due to start very soon at Barts in London.

The principles of the effectiveness and superiority of the Angle (LON:AGL) process are truly applicable to many forms of cancer - saving money on the 80% of cancer treatments which are proven to be ineffective in retrospect; saving money on the biopsies which prove to be unnecessary; saving money by helping direct the right treatment to the right patients - and I mention only MONEY here on this investing website, because I accept that all the unnecessary associated pain and suffering are perhaps for consideration another place.

The point about speed of commercialization is always a valid one and was referred to in the broadcast yesterday pm, which is available on the Angle (LON:AGL) website.

The company has been waiting longer than expected, because of Covid 19. It has not stood still with its labs established in the US and UK, pursuing additional research opportunities with relevant institutions.

It will also have spent time on how best to commercialize and how long it will take. On the webcast, it was acknowledged that some areas will take longer - up t 2 years was mentioned, but also there were other routes discussed where staging payments etc would bring in revenue along the way. For example other organizations could develop labs of their own matching the current Angle (LON:AGL) ones, which would give revenue for usage of Angle (LON:AGL) technology.

A long way to go, I acknowledge, but of the outcome I am more confident than I have been about any share for a very long time. I agree with Jim that the SP will be much higher in 2 years or the company will have been taken over at a significant premium. I hope it is the former, as the management stated for very good reasons at the Mello presentation some months ago. The principal reason given for wanting to stay independent was a comparison with a similar company which was taken over, and then sold on effectively for many time more after a relatively short period of time. We will see. Certainly my holding important as it is to me will not influence events!

But do couples with 2 ski trips a year really eat at TGIF? I find that hard to believe. The food is more mainstream and for less pampered (or discerning, depending on your perspective) appetites.

Boon

If I ever saw a bearish signal...

Three directors of On Beach group (LON:OTB) all with "Chief" in their titles, exercised their options and sold all. Total of £800k+ value.

The same trio sold similar amounts in Dec21, and also some in Jan22. Exercised options, sold all, kept no shares.

Replying to myself, and this is my final word on the matter (well probably!), I have been listening to the presentation which we finally got Angle (LON:AGL) management to give to Mello Monday, and guess when that was?

Yes, 1 year ago to the day to the announcement yesterday that FDA clearance had been granted - 25th May 20221 and 25th May 2022.. Do you believe in coincidence to indicate future success? At this point in time in this market and this world, I am looking for all the investor equivalents of rabbits feet and irish gypsy heather I can find! Just in case.

Hmm. Govt putting £400 credit on prepayment meters this Oct. Gonna hit PayPoint (LON:PAY) energy revenues for a month or two as no top ups will be done.

27th May '22

Cheers John Doe...good info

TamzinPiworld

Ra International (LON:RAI) following up on from Roland's comments here yesterday (when I was at Mello). On Monday 30.5.22 at 11am, we have a presentation with management followed by a Q&A, if you'd like to attend register here: https://bit.ly/RAI_FY21_results_webinar

Paul Scott

Hi Epsilon,

Yes you're correct, there is no tangible asset backing to speak of at Hostmore (LON:MORE) (I hold). I covered this point in the main article. NTAV is negative if you write off all intangible assets. However there is also a deficit on the (meaningless) IFRS 16 entries. So if you also write off all the IFRS 16 stuff, it returns the balance sheet to a positive NTAV position.

Does that matter though? I'd say not, because if you look at the balance sheet again, it has little to nothing in both inventories, and receivables. Restaurants turn inventories very fast, because they're perishable, and get paid instantly in cash. Then suppliers get paid on maybe 45 days on average, which means the inventories are only paid for, after maybe 4 or 5 batches have already been used! that's a lovely working capital model.

Properties are leased, and with negative working capital, bars/restaurants simply don't need any NTAV at all, to function fine. Although the pandemic showed that, in an emergency, it's best to have plenty of cash reserves.

Also, as I mentioned in the main article, MORE's balance sheet is strong in comparison with debt-laden Restaurant (LON:RTN), which has a large negative NTAV position.

Regards, Paul.

Small Cap Value Report (Thu 26 May 2022) - PURP, BOOT, MORE, SUS, ADF, RAI, NWOR

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Paul Scott

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