Small Cap Value Report (Thu 27 Jan 2022) - SAGA, RBGP, WIL, COG, KETL, EYE, CALL

27th Jan '22 by Paul Scott

121 comments 12963 reads

Good morning, Paul & Jack here. Today's report is now finished. I'm heading off to mystery dine Revs again, as it's the last day of their 50% off mains promotion.

Agenda -

Paul's Section:

Saga (LON:SAGA) (I hold) - quick summary (pre 8am) is in the comments section below. I've now written up a full section. It's a small miss against profit forecast for FY 1/2022, but that doesn't really matter, because covid has impacted travel operations so much, as you would expect. The forward bookings info for the 2 cruise ships looks excellent - high level of occupancy already booked for Feb-July 2022, at increased selling prices. So it's got that vital pricing power, needed in a higher inflation environment. I'm very bullish, with a long-term view - as you would expect for my largest personal position.

Cambridge Cognition Holdings (LON:COG) (I hold) - a positive trading update for FY 12/2021. I really like this turnaround under more commercial management, and things are panning out as I hoped. It moved into (small) profit in 2021, has plenty of cash in the bank, and a bulging order book provides good visibility. Valuation still looks reasonable to me, given very good sector tailwinds. Small and illiquid though - so it's one to buy between updates, when people get bored and the price drifts down.

Eagle Eye Solutions (LON:EYE) - another positive trading update, with strong, organic top line growth. EBITDA is shown as the key profit measure, but remember that last year all the £4.2m adj EBITDA disappeared once development spending, and share-based payments, were deducted. Profit after that? Almost nothing! There's no doubt about strong organic growth though, and impressive customer list & wins though. So I like the company. The only question is how to value it?

Cloudcall (CALL) - de-lists today, on completion of the 81.5p cash takeover bid. I rake over the coals, to ponder what I've learned from following and having bouts of owning shares in, this small growth company.

Jack's Section:

Rbg Holdings (LON:RBGP) - I hold - adjusted FY EBITDA to be 10% ahead of market expectations. Wage inflation is a concern, but an industry-wide one and RBG trades at a discount to a few of its peers, even before today’s upgrade. Another dividend takes the total payment to shareholders up…

Unlock with Email

Unlock with Google

Already have an account?
Login here

davidallen77

27th Jan '22

Lookers (LON:LOOK) with some big late trades a takeover possible nice breakout

TheFloatingInvestor

Watched that...was hovering at buy at 88...did not go through with it

FederalReverse

Incredible how people can have such vastly different perspectives. But I'd say there are many more people that seem to believe there will never be a big bear market, and that the big indices, SP500, Nasdaq, are completely devoid of risk.

I've said it before but I think if you have another 10 years (the scope of time I am interested in as an investor, not a trader) of returns like the last 10 in these indices then you are really stretching all historical precedence. What causes Amazon to grow another say 5-10x over the next decade for example, where do you find all the additional revenue required, never mind profits? Same applies to Apple, Google, Microsoft etc etc, all the huge stocks that need to perform to drive the market higher. A lot of this seems fanciful to me. GDP growth just won't support it. They would need to cannabalise huge volumes of revenue from other companies.

smegster

Take Forterra. Fort has a tangible surplus of about 7, strong, but about the lowest of all my holdings, which average a tangible surplus of around 10% of MCap.

Forgive me if I'm being thicker than the offspring of a village idiot and a TV weather girl, but what is tangible surplus?

I thought this might be referring to the free cash flow yield but the FCF yield I've calculated for Forterra for 2020 is around 4% (so not close to 7)

ridavies

Good afternoon Paul and Jack. Paul, I join with all the others in thanking you for your additional General Market comments. I am a regular here but I dont read every single comment by readers! Therefore my next comment may have been covered several times over. It is this.

The SP of many shares doubled, trebled in 2021. Therefore, given the considerable uncertainty that was building before Christmas and has certainly hit us since then about inflation, delivery issues, it would not be surprising if many people took some of their gains off the table.

Without any other effect facing a given stock, that could generate a sharp fall in the stock even if he fundamentals have not changed (and some have of course). I surmise that many investors will now be partly or significantly in cash and waiting for the bottom / near bottom to return to the market - in some cases, even to the same stock they sold out of earlier.

I wonder if you think my theory has any merit, and even more important should lead me not to ditch a stock where I may have paid too high a buy -price towards the year end? Thanks in anticipation.

Caduceus

I missed that one :(

RichardK

Just catching up on taday's comments, and haven't read all, so this point may have already been made.

Re Saga (LON:SAGA) and other travel and hospitality shares, the bull case seems to assume that the pandemic is over as Omicron fades. But what happens if another COVID variant appears? That has been the pattern so far. It is not just a UK issue - cruise ships usually dock in ports in foreign countrie which may not accept them (has happened before). I am happy not to hold.

Richard

rmillaree

Saga (LON:SAGA)

I don't think the Bull case is totally reliant on Covid going away - they are broadly breakeven this year with covid issues. Would it be the end of the world if they were breakeven again next year with similar issues probably not although the debt does ned servicing. There is huge debt here so its not for widows and orphans - anyone investing should be doing so on the basis they know they could be wiped out . if a more mutant strain of covid re-appears and hangs around for a while it will be bad new for saga for sure.

MiserableJacktPotato

It’s basically shareholder return of physical things. Like cash, hard assets such as buildings and plant.

Doug thinks IP, brands, patents and software are worthless. He will tell you that Disney’s back catalogue has no value, but a brick factory is a wonderful asset to have on the books.

Haha, he told the intern reporter on the Daily Telegraph she’d overpaid for Microsoft at ~$150 less than two years ago.

Doug2b

Wrong. I don’t see intangibles as worthless, but at the end of the day, the business must ultimately create tangible wealth for its shareholders.

Investment4Adam

Hi Paul. I dont get chance to read the SCVR & subscriber comments until night due to work commitments so you probably wont see this…. But just wanted to say how much I enjoy them - and the recent “ramblings” have been a Brucey bonus. I am too contrarian to “copy” & never blame others if things don’t work out. It’s only me who can hit the buy button - I am also very LT- eg it might be fair enough for #BOO (I hold) to drop now but I am trying to guess the SP in 3 to 5 years not tomorrow. The SP movements in #SDG (I hold) are a great example of this. 3 upgrades; positive licensing etc. Yet the price today is same as 20/7/22 before those upgrades came. As an MD of a good sized business (qualified accountant & did Economics at Uni) I wouldn’t underestimate how useful your posts are (and Jacks & other posters - well most of them….). I think business leaders should spend more time looking at what investors deem to be Bull & bear. Finally for what its worth I think the reaction to interest rates increases is ridiculous. So what if we have 4 x 25 bps increases in the US this year. Yes if we are going to see base rates of 5%++ within 24 months thats a worry. FWIW I think inflation will be at the top end of ranges (7%+0); prices will “re rate”. Lots of people retiring early. Wage inflation. But then it will settle. I am an optimist but i think thats all positive in the long run. Wages rebase. Interest rates (say) 100bps higher. Inflation back to c3%. Property will continue to be a strong “currency”. Thanks again, your work is always top quality. Whether people agree or not is irrelevant. It’s takes 2 to make a market & at the end of the day its only money. Thanks!

Disney bought Marvel for $4bn.

Disney bought Lucasfilm for $4bn.

You would’ve told shareholders of those two companies that management weren’t generating anything for their shareholders because they hadn’t bought a factory.

KevinS1

Hi Trident,

I seem to recall they had an appearance on a Mello Monday a couple of months back (or maybe it was on another You-Tube video).

It all sounded very good on the presentation with lots of potential, but the more I looked into it the more I saw that they didn't have a moat, and there were a lot of other similar products out there.

Seemed like a very high-risk proposition and the risk/reward ratio was not going to be heavily enough on my favour.

Best wishes. K

abtan

Cambridge Cognition Holdings (LON:COG) (no position)

Thanks for your comments here Michael.

Below is a small table with some brief notes I try to keep updated for anyone interested:

Thornabian

28th Jan '22

That is the age old argument people have been making for decades.

The world economy is $88 trillion. $88 trillion increasing each year at a compounded rate.

Apple surely can double again.

RCTurner

I think the answer to that is that the growth comes from areas that you do not expect. You have listed the current big players like Apple and Google, the future stars will be companies you have never heard of. There are massive gains to be made, for example, in two very easily understood areas: healthcare and energy. In the next 10 years I can say with a very high level of certainty that there will be $10bn+ market cap companies who as yet you have never heard of.

Dojosan

30th Jan '22

I didn't look.

Michael Tee

Hi Abtan,

Cambridge Cognition (LON:COG)

Thanks for this table.

Some delays in contracts are mentioned in the update. I think most companies lose some contracts but it is important to keep track of this. I actually view this positively as revenue targets were met in spite of the apparent loss of orders and would have been higher were the contracts not lost.

Micheal

Gilgamesh_Investor

31st Jan '22

Very interesting. I was an early holder of @KETL at around 130p I sold out at 300p a while back but it continued to grow to higher 300p territory. Price has been offset by pandemic; my concerns are also towards a slowing Chinese market, Strix does hold around 30% market in China but I can’t remember what proportion of revenues are generated overseas from the top of my head - one to keep abs eye on: gearing percentage and liquidity ratio is why I sold. That being said, if it has consistently raised its dividend, has good operating margins around 25% and a dominant market share. I would prefer it if the cash position was a little stronger; Also it’s very expensive from book value perspective. 30% drop over last 6 months is unwarranted, however, it wouldn’t surprise me if it fell another 10% or so before FY results are released - I’d wait for the results before buying back in as it may create further value.

Thanks,

Small Cap Value Report (Thu 27 Jan 2022) - SAGA, RBGP, WIL, COG, KETL, EYE, CALL

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

121 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...