Small Cap Value Report (Thu 28 Dec 2017) - Part 2 - AVN, TCM, ONEV

28th Dec '17 by Paul Scott

16 comments 11582 reads

Good morning, it's Paul here.

Apologies - I had a brainstorm, and totally forgot about the placeholder article that I set up last night, which has no content, but does have reader comments. Sorry about that. I was watching the Red Bull Soapbox Challenge on TV at the same time as writing this report. So in all the hilarity of splintering plywood, and wheels falling off on impact with hay bales, and go-karts jettisoning their human cargo, I totally forgot about the placeholder article put up last night. Anyway, I'll rename the 2 reports part 1 & part 2.

As usual for this time of year, it's very quiet for the announcements that we report on here (small caps trading updates & results statements). However, there seems to be plenty of reader appetite for SCVRs, judging by yesterday's reader count, and thumbs ups. So I have resisted the urge to stay in bed until lunchtime!

This is probably my last SCVR of the year. It's been another fantastic year for most of us. As Chris Boxall of Fundamental Asset Management quipped - "If you didn't make money in 2017, you probably shouldn't be in this game!". Chris's roundup for the end of 2017 is on a video here, and is very interesting. I know him well, and he's one of the top small caps fund managers out there, a walking encyclopedia on small caps, and a thoroughly decent chap, so is well worth listening to.

My own portfolio had a sparkling year too, with BMUS (a distilled version of my real portfolio) up 62.7% on the year, and up 221.3% over 2 years. Obviously I'm delighted with that, but can't promise to repeat those returns in future - I think the last 2 years really does need to be seen as something of a one-off.

My performance in the UK Stock Challenge in 2017 was poor, only up 8.3% for the year. Although looking at my stock picks from a year ago, I'm scratching my head as to why I picked 3 out of 5 of them, and in real life had changed my mind & sold them by about March. So I think this demonstrates the need to regularly re-asses one's portfolio, and if the facts/outlook deteriorate, then ruthlessly ditching things before they head further south is vitally important.

Anyway, I've picked 5…

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emmettsmith

28th Dec '17

Hi Paul

You have some fascinating stock picks for 2018. Out of the 5, only RBG has a good Stockrank. Is there something missing in Stockrank? Or are you identifying stocks ahead of a good Stockrank?

Kind Regards
Emmett

FREng

Paul, I would be really interested to understand your reasons for disagreeing with Stockopedia's computers about Cloudcall (LON:CALL) which they label as a momentum trap with very poor quality and value. What are you seeing that the ranking algorithms are missing?

monzo

Hi Paul. There appear to be two small cap reports today. There's the placeholder with a dozen messages and then this one. Just pointing it out so people all come to the right place and avoid missing out

Paul Scott

Hi billy,

Thanks for pointing out. My mistake, I totally forgot about the placeholder, so will rename them Part 1 & Part 2.

With my apologies, Paul.

vik2001

Hi Paul
out of your picks I only like the following:

Revolution Bars (LON:RBG) - I believe its a matter of time before the price goes up above 200p again. A number of insitutions have bought in also, because it is good value. The prospect of another bid happning like you said is high also.

Wey Education (LON:WEY) - im holding also. they doing something niche, its volatile but if it takes of to the next level can do extremely well. The naked trader once said some of the best stocks are niche stocks that do something different from the rest.

Sosandar (LON:SOS) - im in this one also, more of a small punt for me. I will follow and if they do well I will top up in due time or exit.

Cloudcall and Best of best are not for me. I remember once in your BMUS best of best was up 200% - does this make you think its best to at least top slice when your over a certain % , to lock in some gains?

My personal 2 favourites for next year is £GFM and Somero Enterprises Inc (LON:SOM)

Once again thanks for your reports, very informative and educational. Wish you all the best for next year.
If Graham reads this also, it be great for him to do a fantasy fund portfolio to join in the fun.

Hi Emmett,

The 5 shares I picked above are for a share competition, so they tend to be more speculative ideas, as I'm looking for potential multibaggers mainly. Some might work, others might not. So it's certainly not a suggestion, or a portfolio.

Focusing on internet disrupters (e.g. Boohoo.Com (LON:BOO) and Gear4Music ) has really supercharged my portfolio in the last 2 or 3 years, so I'm still concentrating on that theme - hence my picks of Wey Education (LON:WEY) and Sosandar (LON:SOS) - both of which I think could have good potential, IF management execute well.

For small growth companies, I don't think the StockRanks are very relevant, other than to flag up that you're taking more risk. So a low StockRank is something that tells me to do my research very carefully, and to only buy if I'm very confident that the company has an exciting future.

I've got plenty of high StockRank things in my portfolio, e.g.

Cenkos Securities (LON:CNKS) - StockRank 94

Vianet (LON:VNET) - StockRank 87

Harvey Nash (LON:HVN) - StockRank 95

Although I think we do have to be a bit careful that we're not sucked into value traps - CNKS and HVN are both very cyclical. Also, I don't see the above having multibagger potential.

Overall, my feeling is that, whilst we remain in a powerful bull market, then more exciting growth companies are where the best returns are likely to be found. If overall market conditions change to more bearish, then I reserve the right to rebalance my portfolio away from speculative, highly rated growth stocks, and maybe into more value-type situations, and/or cash.

For now though, growth stocks seem to be the best area to be in.

Regards, Paul.

Hi vik2001,

Re Best Of The Best (LON:BOTB) - no, I'm in that one for the duration, as I see potentially outstanding long-term value in it, e.g. possibly in a trade sale for multiples of the current valuation. So I wouldn't top slice that one at all, and I tend to buy more when it goes down. It took me so long to build up a decent sized stake in the company, acquiring numerous small parcels of shares over weeks/months, that it's not really something that can be traded - too illiquid, and with a ridiculous spread.

A 50% drawdown from the peak price on a stock like that doesn't bother me in the slightest, although it's obviously unwelcome. It's just a buy & hold forever type of stock for me. It's paid out cracking divis in the last few years too. I think there could be another special divi in the pipeline if they get the expected VAT refund.

Hi FrENG,

With Cloudcall (LON:CALL) I've done a lot of research on it, over the years, and have always believed that the product is good, and likely to succeed (having been a client myself for several years, it works well).

The key with growth companies is looking forwards, to identify a tipping point where the market stops fretting about historic losses, and instead looks with excitement at the compound growth rate, and the future profitability.

I think CALL is close to that point. It's similar to an early dotDigital (LON:DOTD) and has the same Chairman who previously ran DOTD.

StockRanks can be a bit behind the curve on growth companies, but they're brilliant for more mature companies. So in a sense, I'm looking for things which are likely to cause the StockRank to rise in future. It's an interesting strategy, to try to get ahead of the curve, and anticipate improving fundamentals. Let's look back this time next year, and see if it's worked or not!

Thanks Paul - a very interesting reply. It’s fascinating to hear your thoughts on multi-baggers and how they may not correlate with a high Stockrank and low Stockranks require more insight and research. Have a Happy New Year!

runthejoules

Probably worth repeating my request for a look at ITM Power (LON:ITM) and Westminster (LON:WSG) on this thread then!

The VAT refund was being sought but they were clear that they might not get it. Also I'm not sure share buybacks for a company with such lack of liquidity makes much sense. Spot the ball usage is in rapid decline from what I've read. Surely they should try and compete with traditional online gambling now they're not so present in airports etc. I have no position in Best Of The Best (LON:BOTB) but keeping an eye on it from the sidelines.

cig

Might be the case for Avanti Communications (LON:AVN) at some point. This update looks better than what we have seen in years: long standing CEO out, kitchen sinking, financial restructuring, remaining debt not unreasonable in size and structure ("pay as you can" coupons, nice if you can get it!). If the debt restructuring does go through as planned, and giving it some time to find its footing -- with the shares probably cheaper after the restructuring -- it may become interesting.

fwyburd

Judging by what investors said in my December sentiment research -https://www.stockopedia.com/content/market-sentiment-report-december-2017-255323/ - I think you're right about the bull market continuing for a while longer.

With low rates of interest expected to continue, a benevolent tax regime in the US and the UK economy doing ok for the moment, there seems little in the short-term to worry the markets. And investors, whilst more cautious and marginally bearish, have limited alternatives for making a decent return and so will continue to invest, albeit at lower levels, in the market.

But North Korea is obviously an ongoing concern and Brexit concerns will loom increasingly large over the course of next year which could damage sentiment further.

I suspect volatility will increase next year as investors, like a skittish horse, over-react to any sense of impending danger. Which of course provides lovely opportunities to buy oversold stocks with robust balance sheets...

Happy hunting to one and all in 2018.

Francis

PS: My December sentiment report is the fifth most popular article on Stockopedia in 2017. Thank you all for your votes, I think this provides me a mandate to run it again.

I was watching this news run on CNBC, where some investing guru was talking about the markets. His opinion was that the markets have never looked in such good health, and was saying that we are on the 2nd leg of a bull run which can continue for another 6 years, with some pullbacks along the way.
also he said if we have a smooth brexit, where a good deal is done between uk and Europe, that will shoot the UK shares back up, which at present is considered good value.
Japan is also where he reckons all the good value/growth will be for 2018 as they are on their 2nd year of a turnraround which is going the right way.

I think in general people worry a lot, so expect that everything will drop. theres always concerns. I wonder if this bitcoin mania will disturb the markets with its bubble looming.

me personally im 75% invested going into the new year, with the rest in cash. I will go with the flow of things rather than try and predict. everybody was saying this year 2017 will be a crash, so I entered the year being overly cautious which impacted my returns, as they could have been a lot higher.

grb

On a quiet day, Paul, you seem to be moving the market quite effectively, with those five picks up about 7.5% on average as I write. Good thing I'm also in three of them :-)
Thanks for all your analysis over the year.

Paul,

Thanks for the explanation. It's these insights (from you, Graham and some of the subscribers) that provide important context for the data and the algoithmic analyses that Stockopedia provides.

Best wishes for the new year.

Small Cap Value Report (Thu 28 Dec 2017) - Part 2 - AVN, TCM, ONEV

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Paul Scott

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