Small Cap Value Report (Thu 29 Dec 2022) - BIDS, SOM, FNX, SLP, SAGA, TSLA, RM.

29th Dec '22 by Paul Scott

61 comments 9712 reads

Good morning from Paul & Graham. Today's report is now finished.

Many thanks for your suggestions yesterday. Although I had to laugh at some of the suggestions! But we'll see what we can do, based on the number of your thumbs ups.

Agenda

Here's an initial list (below) of yesterday's reader requests, with the number of thumbs ups in brackets. It's not realistic to ask us to look at most of the mid/large caps, as that would take too long researching things from scratch, but I've noted below the small cap ones that I can give a relatively quick view on. Graham's looking at Tesla, as he knows it well and it got a lot of thumbs ups from you (sorry if this triggers anyone, having a mega cap US stock in a UK small caps report LOL! Look at it this way, It's Christmas, and rules are made to be occasionally broken!) -

Paul’s Section:

Bidstack (LON:BIDS) (2.8p - mkt cap £37m) [quick comment] - announces that its Managing Director is resigning, but staying on as a Strategic Adviser. Also, a 13.5% shareholder Irdeto BV, which made a £5m “strategic investment” in Oct 2022 is seeing its CEO become a NED at BIDS. Does this all hint that things might not be going so well, possibly? COO Camila Franklin is joining the main board, and the comments sound as if she’s more experienced than the CEO - maybe he’ll be stepping down next?

CEO comments eulogise on the outgoing MD, and claims that the “business has never been in better shape”, and “...our pipeline of revenue for Q1 looking stronger than ever…”

BIDS raised just over £10m in a 2.85p fundraise in Oct 2022. It raised a similar amount in 2021, and burns cash prodigiously.

My opinion - I’m keeping an eye on BIDS, as it sounds an interesting concept (selling ads within computer games), and there’s been lots of bullish jam tomorrow news from the company, although nothing of commercial substance so far. H1 results in FY 12/2022 remained heavily loss-making. But at least it’s not likely to run out of cash again for now, and probably has enough cash to keep going through 2023. Could be interesting, if the product takes off, but there’s no firm evidence of that happening…

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The Boon Fund

29th Dec '22

I take a more cautious view of tnav at RM (LON:RM.) . Can't remember off the top of my head what I discounted in my calcs, but after the sales, and assuming further losses and cash outflow from the warehouse and IT projects, my tnav is coming out close to zero.

I still feel amnequity fundraising is on the cards. They've done a good job getting the SP up from the crazy low levels, and now would be a good time to get another £10-20m raised to repay debt, to get to a more sustainable debt position.

abtan

RM (LON:RM.)

Hi Boon

I just went by the column header - "$/address" - and then used $50 for my own rough calculation - which seems like a good average when one looks at all the other figures in the same column.

Or perhaps I'm reading it incorrectly?

JSLDUK

What I really don’t understand about Tesla and EVs generally is they require so much raw material to make in metals for batteries, they are far heavier than a normal petrol / desiel vehicle of similar size. The amount of mining required to mine for batteries is significant. If moving to EVs is seen as saving the planet I don’t see it. Then on top of this is the infrastructure required to charge / power the EVs.

30th Dec '22

You are reading it right, all the recent auction results are quite similar pricing. But I remember a few years ago, when I was learning about IP addresses, that some blocks were more valuable than others. Like Google had paid a massive premium at some point to get a specific block? So it has stuck in my mind that not all ipv4 addresses are the same value. However, it isn't clear if the remaining RM ones are high or low value.

A_Private_Investor

I think it was Volvo who said that compared with a conventional car, their cars break even on the CO2 front after about 80,000 miles due to the high embedded CO2 in producing the vehicle I.e. the battery.

However, after 80,000 miles, a conventional Lithium battery is about shot, so needs replacing, so up goes the CO2 emissions again.

Totally agree.
Somehow musk & Tesla have persuaded the world / governments and other car makers that batteries are the answer which for Tesla and their mega battery factories is good for them.

MiserableJacktPotato

Sorry to break it to you, you’re exactly the mark the stock pumpers we’re looking for as they become dumpers, now you’ll likely be a ‘bag holder’.

Solar panels. They buy them.

Solar roofs. They buy them.

Battery storage. They buy them.

Clustertruck. Doesn’t exist. Years late.

Semi. Is a joke, only useful for delivering crisps.

Affordable car. Not even announced, let alone revealed. Keep dreaming.

“Always thinking ahead”. No, they’re always spending money announcing products that they “can do today” (semi convoys cheaper than rail) that don’t exist 5,6,7 years later.

The cult of Musk is coming to an end.

Rusty2

I was surprised that Tesla has the second best selling car, in the UK, in November.
Still seen very few around here but there are 2 Hondas across the road from my house.

yiannos1

Hi there Paul,

Someone alerted me to your post.

So basically whoever gets it more wrong is popular here , but the person that tried to protect the community from another shambles of a plc company is not welcomed or not even thanked for his effort.

Ian33

31st Dec '22

Saga (LON:SAGA)

"The downward trend in broker forecasts stopped about 3 months ago. They’re now only expecting breakeven for FY 1/2023"

Analysts consensus forecast for 1/2023 EPS was recorded as "1.267p".

I had reason to ask the stockopedia help line to check that the decimal point was in the right place.

It has now been corrected to "12.65p".

It would seem that the stockopedia data provider made a typo and put the decimal point in the wrong place.

Regards,

Ian.

judywil

1st Jan '23

I am also a Tesla fan and own one.

I think the problem with most stockpickers evaluating technology shares is that they don't understand technology well enough to evaluate what they're assessing. My husband has been an extremely good electronic engineer for over 30 years, and I know from watching him work on some pretty complicated stuff (mobile networks) that to get something to work well technologically from an engineering perspective is hugely complex, especially when the technology is in its infancy and leading edge. I remember talking to some of his contemporaries about the complications of the new mobile phone networks in the 1990's and there were a handful of people in the world that understood the mathematics and physics behind these networks at that time (I am not one of them although I am a mathematician by background).

From what he has said to me, what's special about Tesla is the battery management software, and this is totally non-trivial in a way even he doesn't understand because it's way more complicated than we can begin to comprehend. This is not the battery itself, it's the software that manages it (although there's a huge interplay between hardware and software and I suspect that the two are inextricably linked).

To give you maybe a small example of this, although I suspect it's a trivial part of what the car does, in order to charge at a fast rate on fast chargers, Tesla cars make a decision to warm the battery up BEFORE you get to the charge station (this is particularly significant in cold weather like we've had recently). This relies on you having programmed into the mapping software in the Tesla car that you are heading to a charger. My husband read a whole article about why the software does this, and when I asked him about it he said, "I don't really understand it" - this is from someone who has 30 year's experience and read a lot about it and is insanely interested in this kind of stuff. Elon Musk is right to categorise Tesla cars as AI/Robots, and it's laughable that people would say to take him out of the equation, they may not like him, but have they not been paying attention to just how well-qualified he is to do what he has done to date?

I'm a Tesla fan because it's an amazing car. It just works extremely well, in a way that other EVs do not. And a lot of that is totally non-trivial.

I'm not some huge Elon fan, but IMO we should be thanking him for changing the nature of the game - especially in cars. I hope he keeps on doing it in lots of other areas. Petrol companies bought up patents for other car fuel/power designs for decades to make sure we all kept buying fossil fuels. Look where that has got us. Are lithium batteries the solution? Who knows. There are other technologies that aren't lithium batteries that are getting good investor interest now he's shaken things up. God knows we need him to keep on challenging the status quo.

I'm not sure where that gets me in adding to this comment, but I would be extremely cautious in trying to predict what will happen with Tesla shares. Will VW and China match the car's performance? (Tesla probably had at least a 10-year start, and in technology, that's huge). One thing's for sure, I wouldn't bet against it.

Wow, it knows that you're going to a supercharger because you tell it, and then it uses gps to work out an eta.

Sounds like magic. However would any other company achieve such wizardry?

If he can't grasp the concept that batteries perform better when they're warm, both charging and discharging, then I guess he's not as smart as you think he is.

peterg

2nd Jan '23

(Tesla probably had at least a 10-year start, and in technology, that's huge).

I'd very much doubt that. Others may not have developed the tech so far, or made so much of it, but I think we can be pretty sure that all the large car cos would have had teams working on electric car tech for a long time.

And what the big car cos do have, that Tesla don't, is decades of experience in building cars, that last, that are reasonably easy to repair ... I certainly wouldn't bet on VW or Nissan not being able to produce end user EV products for the masses efficiently and effectively.

iamflimflam1

I think the exact figure was 68,400 miles - however - and this is a big however, that's based on the assumption that it's being charged by the current global electricity mix.

If it's charged with renewable energy then it's potentially 16,000 miles.

Volvo estimated that an electric Volvo C40 needs to be driven around 68,400 miles (110,000km) to have a lower total carbon footprint than its petrol equivalent, if the former is powered by the current global electricity mix. However, it could offset its higher production emissions in only 30,000 miles (49,000km) if charged with wind-generated electricity. EV experts dispute the claims, saying the crossover will come after 16,000 miles

Breakout Trader

Polestar (an ev maker) performed a lifecycle analysis and confirmed that electric cars have a co2 deficit at the moment they role off the production line.

The point at which they become "green" is highly dependent on different factors, especially the methods used for electricity generation where they're used. Then there is the small issue of how to manage the increasing numbers of car batteries that need to be disposed of in an environmentally friendly manner.

The point for me, is that until green charging and recycling infrastructures are in place, to handle sufficient volumes, governments and other groups should not be incentivising people to scrap perfectly good petrol and diesel cars. Those vehicles have done the bulk of their emitting, and should be used until failure. That would be greener than replacing them with new electric vehicles, despite the propaganda.

Johnnycomelately

I thank you yiannos1 for your effort and please keep it up.

raggedtp

3rd Jan '23

While I agree that old ICE cars don't need to be thrown away for a while, I think it's important that people begin to understand the EV life cycle that is emerging.

1. No, there won't be lots of lithium batteries in landfill. Companies are wanting to re-use them for house energy storage and other less critical applications, e.g https://www.secondlife-evbatte..., but there aren't enough for an industry to be visible yet. The problem?

2. They aren't degrading as fast as predicted. For instance, our Nissan Leaf 40KwH has done 34,000 miles after 5 years, but has >95% capacity still. "About shot" at 80,000 miles is unlikely...

3. Our power is from renewables. Hardly any ICE cars running on chip fat.

4. Some people wish to highlight that the extra weight means you use more tyre tread. Perhaps, but not significant to us. And brake pads get less wear in EVs because of how regen braking changes people's driving style.

5. There's plenty of lithium; It's just the mining cycle issue. And it's disingenuous to think that fossil fuel mining has no environmental/health/political impact.

6. Like other technology disruptions, it's really about the value curve. As soon as those cars are the same price as ICE equivalents there'll be tabloids complaining about lack of supply.

I put this not as an evangelist but as an investor. This is the start of a disruption that will strand assets, and who the winners will be is unforecastable. I was in the digital imaging disruption. I warned various companies who didn't believe me and subsequently suffered. But predicting the winners is much harder! Which western car company is a good investment? Perhaps none of them, because the Chinese are coming. But I AM invested in copper miners. It's the most straightforward commodity that must grow in demand from EVs and the broader electrification of global life, and we're probably into world supply deficit by the end of this year.

I use lithium batteries in my cameras, they are generally fine for about 5-6 years then rapidly go down, many go from green to red in less than a year. Funnily enough the expensive original batteries are not always the best, prices are ridiculous now, over £100 for one.

Looks like car batteries are better than camera ones but I would keep an eye on it. Nissan give 8 warranty on batteries.

mojomogoz

The economics of EVs don't make sense

1) The resource input requirement is huge relative to current known reserves. There are many problems with this but the most significant is the energy requirement as input to make this happen before you arrive at the new energy paradigm of 'green' EV

2) Recycling is much harder than portrayed once the multitude of mineral inputs are considered. So can target getting a mineral out and recover a decent proportion...but then the process needs to be repeated for other minerals you want to target. Reclamation is a serial not parallel process. Reclamation is an energy intensive process. So the problem is very high energy costs to make a fully recyclable process as in the 'circular economy' nonsense some academics peddle and policy makers swallow. This is simple to see once a truly physical view of the world is employed rather than abstract finance and policy...recycling is an intense fight against entropy the most disruptive and energy sapping force in the world

Of course, we may make great breakthroughs. This will be in new materials and chemistries rather than the existing consensus. I note that progressing battery technology has proven a very hard slog

ICE is going to last a lot longer than people think and be much greater part of fleet than assumed (majority IMO for decades to come)...super energy efficiency leaps in ICE are probably more doable and net net that likely means less environmental destruction than mega mining earth for EVs

(As I've said elsewhere, EVs make sense in big dense cities from pollution control perspective...and that makes most sense on a car share/AV sort of basis)

4th Jan '23

The world's favourite drama queen geopolitical strategist on EVs and Tesla (NSQ:TSLA)

Small Cap Value Report (Thu 29 Dec 2022) - BIDS, SOM, FNX, SLP, SAGA, TSLA, RM.

Agenda

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Paul Scott

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