Small Cap Value Report (Thur 13 Dec 2018) - Portfolio update, BON, PURP, RTHM, KOOV, OCDO, TON, PZC

Thursday, Dec 13 2018 by

Good morning!

How are your portfolios doing at the moment? Mine has certainly taken a few hits. 

The great thing about the sell-off, of course, is that it opens up all sorts of new buying opportunities.

I've been doing quite a lot of work on my watchlist, keeping it up to date and looking for those spots where a value opportunity may have opened up for a company that I previously liked, but wasn't willing to pay for.

Most recently, two such companies caught my eye: 888 (LON:888) and Gocompare.Com (LON:GOCO). I now have long positions in both of these.

This has been at the expense of my fixed income holdings. Bonds are now just 10% of my portfolio, with 3% cash and the rest in UK equities.

And if the FTSE stays around current levels (or gets cheaper), I'll continue to make that switch into equities. I imagine that I'll be 100% invested in equities if the FTSE gets back to the 6000 level.

The political uncertainty seems very extreme at the moment, and it could become even worse, but this makes for pleasant conditions in which to buy shares, in my opinion. When others are heading for the exits - that's when you get some good value. But you do need a long time horizon, so you won't be forced out of your position before the value shines through.

VFTSE - the UK's VIX

One of the barometers I keep an eye on is the UK's volatility index, with ticker code "VFTSE".

I got this chart off


With a reading of 19, this shows that traders are pricing in above-average levels of volatility.

It could get much worse, however: peak readings have been seen at 30 in 2015/2016 and over 40 in 2011.

My interpretation is that we are still a long way from peak bearishness and peak fear, so it makes sense to keep some powder dry.

Ok, let's see what's on the newswire today:

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All my own views. I am not regulated by the FSA. No advice.

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Bonmarche Holdings plc is a multi-channel retailer of womenswear and accessories. The Company offers clothing and accessories in a range of sizes for women through its own store portfolio, Website, mail order catalogues and through the Ideal World TV shopping channel. The Company's subsidiaries include Bluebird UK Topco, Bluebird UK Holdco and Bonmarch Limited. The Company has approximately 310 stores across the United Kingdom. more »

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Purplebricks Group plc is a United Kingdom-based company engaged in the business of estate agency. The Company operates through the division of providing services relating to the sale of properties. The Company uses technology in the process of selling, buying or letting of properties. The Company operates in the United Kingdom. more »

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RhythmOne plc, formerly blinkx plc, is an online advertising company that connects digital audiences with brands through content across devices. The Company is engaged in offering online advertising through a range of formats and pricing options that include video, mobile, social, display, native, text and media covering brand, and performance advertising campaigns, sold both directly and programmatically. The Company offers RhythmMax, which is an integrated programmatic trading platform. The RhythmMax platform offers a common point of access to RhythmOne inventory across owned, controlled and extended supply sources. The RhythmMax platform includes specialized brand safety technology, RhythmGuard, which combines third-party verification methodologies with filtering technology to ensure quality inventory. The Company works with advertisers, publishers and content providers to offer integrated, cross-screen advertising solutions. more »

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64 Comments on this Article show/hide all

Ian field 13th Dec '18 44 of 64

Thanks Graham.

On PURP note online competitors eMoov and Tepilo went into administration and struggles at traditional estate agents Countrywide, Foxtons etc suggests there will be some consolidation in the UK atleast, which Purplebricks may be able to take advantage of in the long term?

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purpleski 13th Dec '18 45 of 64

Just to add my pennyworth on the likes of Bonmarche Holdings (LON:BON), French Connection (LON:FCCN), Superdry (LON:SDRY) and Laura Ashley Holdings (LON:ALY) to name a few; I am incredibly negative about the prospects of these type of retailers unless they are able divest themselves of almost all their real estate and morph in to solely online retailers. I think the decline will be faster that anticipated.

Look how quickly Amazon killed the book stores, Blockbuster died out etc. Look at the chart of Reach (LON:RCH) (formerly Trinity Mirror) to see where the retailers are likely to be 10 years (pr less) from now. Reach (LON:RCH) is down 92% in 13 years.

Full disclosure I have held Boohoo (LON:BOO) for three years without interruption.

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kenobi 13th Dec '18 46 of 64

Re Purple Bricks, I have used them recently, and have sold a property with them, to think that they are anything beyond a listing service that gets you onto the portals, is just delusional.
They took pics, wrote details and listed it, being on their own site is worthless, getting on the portals is what sells your property, and specifically Rightmove. Now rightmove tried to block private sales, and sites listing private sales or online only agents, but someone took them to court and it was ruled they weren't allowed to do this. Since then several other companies have sprung up doing exactly this, my advice would be pick whichever gets you on the portals for the least money. The bigger threat, what if Rightmove decide that they've had enough of making money for all these companies, and instead decide to charge 299 for a single listing ? Now rightmove was started and is partly owned by estate agency groups, so perhaps this won't happen immediately, perhaps before that the agents will start saying we have an internet only package instead for 499 ??

All these things are risks, and dangers for purple bricks, and reasons why they shouldn't have sky high valuation

Still they are the dominant name at the moment, but I don't feel they have a moat or protection, they're effectively reselling a service that any new upstart can resell


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grishas 13th Dec '18 47 of 64

Just wanted to say huge thank you to Paul - having read his November comment on BON I have agreed with reasoning and sold out of my position back in November. And very glad I did!

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FREng 13th Dec '18 48 of 64

Thanks for the intro text, Graham.

I notice that the longer end of index linked bonds has been doing reasonably well recently. presumably because wage rises and the falling pound have raised increased fears of inflation. I have held (and still hold) ISHRS INDX LINKED GILTS GBP DIST ETF (LON:INXG) as a balance to the rest of my (small cap) portfolio and it has worked well - I'm still just above break even this year (and 30% in cash).

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gbjbaanb 13th Dec '18 49 of 64

In reply to post #427323

If Rightmove decide to charge 299 for a single listing, they'll get a lot less custom, and a lot more will move to OmTheMarket or eMoov or Tepilo or Zoopla or... eBay Estate Agents or Amazon Realtors or whoever else decides to get into the game.

Rightmove is not about supporting estate agents as much as getting as many properties onto its site as possible as being a one-stop shop for people looking to buy is the sole reason for their continued success.

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millen 13th Dec '18 50 of 64

I wonder if Graham has any thoughts on Hipgnosis (£SONG) which reported its maiden interims on Tuesday? Their objective is "The Company's investment objective is to provide Shareholders with an attractive and growing level of income, together with the potential for capital growth, from investment in a portfolio of Songs and their associated musical intellectual property rights. The portfolio will be acquired by investing in Catalogues of Songs from well-known songwriters and recording artists; however, each Song will be considered to be a separate asset.

The Company will seek to acquire 100 per cent. of a songwriter's copyright interest in each Song, which would comprise their writer's share, their publisher's share and their performance rights. In appropriate cases however, the Company may not acquire all three elements of the songwriter's interest. The Company will acquire interests in Songs which are sole authored or co-authored. The Company may also acquire interests in Songs jointly with another purchaser."

Although old-style CD royalties are in decline it seems that streaming is in the ascendancy, given the blocking of the illegal file-sharing that plagued the music industry a few years ago. 'Synchronisation' is another earner - essentially 'performance rights' when a successful song features in a major film or TV series.

So far, they've deployed £40m of the £200m raised at the July 2018 IPO. They're rather vague as to how the NAV is calculated, ie no assumptions behind the DCF model. Plenty of risk factors highlighted in the Interims (largely repeated from the rather heavy Prospectus), but clearly there's potential for a growing revenue stream if they buy wisely. Targetting a 5% dividend yield over time. 7% premium to NAV - I'm not sure why but presumably there's faith in the management/ advisory committee. Not the easiest stock to buy from main online brokers. No Stockrank as it's classified as an investment company.

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xcity 13th Dec '18 51 of 64

I watched Mike Ashley at the Future of the High Street committee. Struck me that I'd buy Sports Direct if I was confident he'd be working on my behalf.

And it was a pity that he'd've made an infinitely better job of negotiating Brexit than Theresa May.

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JohnEustace 13th Dec '18 52 of 64

In reply to post #427348

I bought a small amount of Hipgnosis Songs Fund (LON:SONG) through HL without any problems. I like to have a few offbeat hopefully less correlated positions in my portfolio. At the moment I'm just holding to see what happens. I do like the fact that they have Nile Rodgers as an advisor. It's early days to draw any conclusions about performance.

Actually I do remember previously filling out a few questionnaires on HL to qualify to buy less mainstream investments, so maybe that's a factor in being able to buy SONG.

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dscollard 13th Dec '18 53 of 64

I track the VFTSE and the VSTOXX as well as CBOE VIX, AAII and CNN's  Fear & Greed ; been trying to pull together an uber market sentiment indicator or dashboard which looks a bit ugly atm but is work in progress. It uses data pulls from various providers to aggregate in a visual way

When the VFTSE spiked to this level in March 2018: the FTSE 100 fell to 6889, FTSE350 to 3854 and AIM All-share to 1008
Currently we have FTSE 100 falling to 6700, FTSE 350 to 3719 and AIM All Share to 886 . i.e we have sold-off much heavier for a similar metric of fear 

Either, we have sold too far or the VFTSE is lagging sentiment (which it shouldn't do as it is a futures contract options-based insurance so is intrinsically forward looking though can be lagging in terms of correlation to price action).
This might mean we have  put a bottom in...  WARNIING : Trying to forecast  market action  is a fool's errand and one of my mantras is monkeys pick bottoms but   we are probably overdue a strong rally

Dr Copper  also seems to be bottoming over the past couple of months  and gold hasn't rallied as hard as one would expect if the sky is falling down (though it has turned bullish and looks set to breakout)  .  Finally stalwart defensives  like Unilever (LON:ULVR) have been rallying and not selling which may hint at major rotations and changes in strategies (from growth to value etc). A co-orientated sell-off should see all boats sinking.

If Trump ceases fire on China we may well see a late Santa run. 

These are just musings. I am sitting on a lot of  dry powder atm but selectively adding



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Edward John Canham 13th Dec '18 54 of 64

In reply to post #427308

Yeah .... but ......

Just look at the recent charts of Boohoo (LON:BOO) , ASOS (LON:ASC) , and Fevertree Drinks (LON:FEVR) .

The new economy isn't exactly setting the world on fire at the moment.

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millen 13th Dec '18 55 of 64

In reply to post #427358

Thanks John. I bought a small amount of Hipgnosis Songs Fund (LON:SONG) through DeGiro without problems - though they would accept only a limit order, not a market order. Barclays and Charles Stanley don't list it online, though Charles Stanley will trade less popular stocks like Primary Health Properties (LON:PHP) is another - commercial property, I know, but long term rentals on healthcare assets in UK and Ireland. I've had a nibble at Duke Royalty (LON:DUKE) as well. Presumably you've seen the CNBC interview with Hipgnosis Songs Fund (LON:SONG) on listing day?  

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Howard Marx 13th Dec '18 56 of 64

In reply to post #427363

The past few years have been a period of low volatility. 

This can be seen by looking back two decades, which gives context to the current low level of VIX (21) :


There have been 185 days in the past 20 years on which VIX hit 40 or more.

It would ideally need to get above 40 before being a reliable 'Buy' signal.

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Nick Ray 13th Dec '18 58 of 64

Interesting to see the VFTSE graph.  If this is based on "implied" (i.e. future) volatility then it does not look very different from a plot based on historical volatility:


As dscollard mentioned it does not seem to be very predictive.

I created my plot by calculating the volatility on each date over the previous 20 working days which seemed to match Graham's VFTSE graph quite closely. But twenty days is a really short period - we are well into trading territory with such short periods - and that maybe explains why it is not very useful. It tells us that the market is swinging wildly (which we already know by then!) but that does not tell us much about what happens next.

The plot for FTSE volatility  going back to 2006 looks like this:


As Howard Marx showed for VIX, the swings in 2008 make even 2011 look like a tiddler.

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mbdx7em21 14th Dec '18 59 of 64

In reply to post #427043

They paid $10mn out as a one off in respect of amounts due for a previous acquisition plus seasonally strong cash inflows. Seem now able to throw off a serious amount of wonga.

the fact they are doing a buy back and also looking at M&A opps ties with this.

big ticks..

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bluemosaic 15th Dec '18 60 of 64

why does Bonmarche still have such a high stockopedia ranking ? It has quality 84, value 99 and total rating of 73. Keen to understand this- whilst I understand that these ratings are a guide and pointer for further research, I do want to gain further understanding and confidence in them. Thank you 

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Edward John Canham 16th Dec '18 61 of 64

In reply to post #427798

Bonmarche Holdings (LON:BON)

Towards the top of the stockreport there is:-

"Home/Shares/Consumer Cyclicals/Specialty Retailers/Bonmarche Holdings"

Click on "Specialty Retailers" and you get a list of them with their various rankings. Go to Bonmarche and you can click on each of the rankings to see the various parameters being used in deriving the rankings.

In essence the "problem" is that many of the quality and value parameters are historic, not forward looking, so a recent profit warning does not have great impact until the next accounts are input onto the report. For example, the PE Ratio used in the value rank calculation is 3.89 which is calculated under the Trailing Twelve Month (TTM) column - this has Bonmarche making a profit which we now know is not the case.

The quality metrics are in some cases based on historical 5 year metrics - ROCE for Bonmarche is good, but if you look at the stock report the trend seems to be getting worse.

Based on the recent PW when the 31/3/19 accounts are input the overall SR will fall considerably - it just takes time for the data to catch up to a shock.

"The trend is your friend" in more ways than one - the momentum rank here of 7 tells the current story. Note this is even before the analysts cut their forecasts for the Y/E March 2019.

Hope that helps and apologies if I'm teaching my Grandma to suck eggs.


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Edward John Canham 16th Dec '18 62 of 64

In reply to post #427798


Meant to mention that I would recommend reading Roland Head's SIF Folio articles - this is a great practical way of understanding the various rankings because he analyses them against actual investment proposals.

(Going from memory he even did one on Bonmarche Holdings (LON:BON) about 12 months ago.)


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bluemosaic 17th Dec '18 64 of 64

In reply to post #427863

Thank you very much for taking the time to run through this. Very helpful and greatly appreciated

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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