Small Cap Value Report (Thurs 3 Feb 2022) - SCS, ACT, BMS, HYVE

3rd Feb '22 by Jack Brumby

148 comments 10440 reads

Good morning! It's Jack here. After a manic January, Paul is having a well deserved rest this morning so I'm putting up the placeholder. It looks like news flow might be quietening down a bit, ahead of full year reports in March.

The first port of call will likely be Scs (LON:SCS) - if anything else catches your eye then just leave a comment explaining why it might be worth a closer look.

Scs (LON:SCS) - I hold - a relatively solid update given the recent share price slide, although it’s light on detail and slightly frustrating in that regard. The order book has grown from £132m in November to £148m as of the end of January, but this is driven by ongoing demand and extended lead times. The key challenge over the next year is converting that order book into sales. There’s the net cash position to consider, as well as a nearly 6% forecast dividend yield, so the valuation remains attractive - although to be fair, the stock has always looked cheap so some kind of catalyst is needed.

Actual Experience (LON:ACT) - tiny micro cap, following dramatic slide in share price over multiple years. More of interest as a cautionary tale on low StockRank ‘jam tomorrow’ companies. Actual still needs to confirm that people are interested in the services it is now focusing on, and the longer than expected sales cycle casts some doubt.

Braemar Shipping Services (LON:BMS) - full year revenue to be not less than £101m, significantly up on FY21’s £84m. Conditions are buoyant right now due to global supply chain disruption, but there is a longer term growth strategy in place. £CKS has nearly 10x the market cap on three times as much annual revenue, so if Braemar can execute then there’s potential for both earnings growth and a rerating.

Hyve (LON:HYVE) - most events have run to schedule over the past four months, but there is still scope for further disruption. The balance sheet still looks precarious and a lot of money has been spent on acquisitions over the years, with not a lot to show for it right now. Trade could come roaring back at some point but I’m happy to sit on the sidelines here.

Explanatory notes -

A quick reminder that we don’t…

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doug2500

3rd Feb '22

I should add that neither XO nor iWeb offer AGM/EGM voting but AJ Bell Youinvest does.

Iweb certainly does. It's not slick but they post the documents out and you post them back. You have to ask for it and I can't remember if you can just tick a box online or if you have to contact them.

Happy with iweb and XO as cheap and cheerful brokers btw. iweb probably my first choice.

ExpectingValue

You haven't really answered my point. Net cash is cash minus debt. You have decided creditors are a debt-like item. Are long-term leases also a debt like item? Are long-tenured staff a debt like item? Is the board a debt-like item?

And if you are making up your own definitions of things, how can the rest of us know where you stop and who are you to say that we should all follow your definition?

Doug2b

Royal Mail - see today's article.

Norcros - if we look at the last 4 years, Norcros does appear to generate a decent net tangible equity. Add this to the divi and the net tangible surplus appears to be over 7%. The problem up to and including 2019, Norcros were compulsive share issuers, wiping out the entire tangible surplus on the basis of the past 4 year assessment. Go back further and the tangible surplus is very negative in a net sense due to the major share issuing.

No more shares have been issed since 2019. The period from 2014 to 2019 was hardly a crisis period for their sector and yet Norcros issued over 30% in additional shares in that period. Has Norcros kicked the nasty share issuing habit now? If they have then there is a moderate buy case perhaps, but I am not so sure that Norcros won't resort to issuing more shares for whatever reason. Yes there may have been acqusitions, but business with its acqusitions are not now delivering sufficent tangible equity growth to justify the dilution that the shareholders were subjected to.

yiannos1

You are wrong.

You don’t realise how SCS operates.

I will not comment again on this subject and i honestly hope that you all make good money on this one.

After all the market needs urgently more liquidity.

Good luck to all.

Time will tell who is right and who is wrong.

rmillaree

cheers doug great stuff pretty much bang on the money. Norcros did have one large acquisition around 2017 so as you say the results needed to be that much better after that date to stand still. They certainly did have a period of anemic organic growth. The bonus is now they seem to have returned to organic growth and they are kinda debt free so potential here for any future acquisitions to be more earnings accretive (or whatever it is) - there are potential items that may put you off like South Africa unit and the huge pension pot they would need to fill if that doesn’t generate sufficient returns. Hopefully another year or two of organic growth and acquisitions with few shares being issued may lift it above the magic doug level if the price doesn’t appeciate in the meantime. They do have goals to get to 500 mill sales annually so watch this space.

Tombholliday

If you are invested in this reading the book The Ugly Truth might be worthwhile education and the purchase price a small fraction of your rising losses Zuckerberg is not an executive you should be comfortable backing

Caduceus

I think I saw that you can't set stop losses on and IG isa. Is that true?

*an isa

Rusty2

You can on US shares. I stopped using limited orders on uk stocks because of partial filling, they can buy/sell just one share at a time which is useless on most uk stocks. On US it’s fine as no trading costs and many US stocks are much higher amounts, some are over $1,000 a share.

Yiannos - don’t see this as being attacked, I thought that this was a good discussion. Have a look at my last post, only about £15m is genuine ‘trade payables’ anyway.
Also, the ‘what happens if we liquidate tomorrow’ approach, is not necessarily the best way to understand the net cash position.

Boon

Thinly traded. Volatile markets.

Or the risk of equity placing. Won't be surprised as Dec and Jan wouldn't have been pretty for retail footfall and brand appetites for marketing and sales kiosks.

Yup, they're losing $10bn a year in that division, so we can all have great fun with Oculus headsets :)

Albertos

Lots of negative waves today.

Even when we disagree we normally keep it considered and polite.

I'd really like to keep it that way.

Wilbraham

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Dragon

The only thing good about ADVFN is their level2 as it includes the underlying markets, which means you can see the available price in between the LSE bid/offer on some stocks. I wish Sharepad would offer that, but they are stubborn as monkeys on the subject.

ed_miller

Thanks for the clarification, Doug. If there is an online tick box for voting with iWeb then I didn't see it, and I did look. As you know, many, and I think most nominee accounts will arrange voting rights even if they don't offer it online, though they don't usually shout about it.

BnB

4th Feb '22

Zuckerberg is not an executive you should be comfortable backing

Do you invest in oil and gas companies? I find deeply upsetting the enthusiasm on Stocko for companies that are literally destroying the planet for future generations. Next to that, I can live with an internet genius whose questionable moral compass is balanced by the enormous contribution made to the survival of small businesses the world over during the pandemic. I don’t like him but his company is incredible. And cheap.

Epsilon

"Show me a business anywhere in the FTSE or the AIM index that currently is a stronger buy than ScS?"

I've no wish to tamper with your golden goose Doug, but instead of looking backwards to the prior four years, have you considered using FY1 and FY2 to incorporate an element of looking forwards

e.g. for a December y/e company use 2018-2022 instead of 2016-2020.

Of course the risk is that analyst expectations are wrong and/or maybe not all of the Net Income generated will drop in company Equity,

But as Keynes supposedly once said "it's better to be vaguely right than precisely wrong".

In answer to your question above i present Serica Energy (LON:SQZ) which using 2018-2022 numbers generates a Tangible Surplus of 22%.

Epsilon - the first 4 years is the starting point. Several of my holdings would not shape up that well on a 4 year basis. In ScS's case the significant change occurred at the end of 2020 when the business moved to upgrade the online offering. The weakness in my case is that we only have one full year of the turnaround, but all indications are that ScS, although having a quieter 2022 than 2021, is going to pile up tangible equity at a remarkable rate. Last year and this could see a tangible equity build up of around 50% of MCap, incredible really.

So my approach is very much looking forward. But to assess the character of the business you must first look back with a very open mind and not an excitable or wishful mind. If I am going to invest a business that appears to have turned a corner within a relatively short time period, i.e. 1 to 3 years, then I am looking for compelling and plausible evidence of a change, i.e. results based evidence.

If this seems confusing, it is not, esoteric perhaps, different to mainstream analysis - I am pleased to say. Keep asking questions I suggest.

vprt

8th Feb '22

Update 8 February regarding wrong Spectra Systems (LON:SPSY) data I complained about: After I, in desperation, "red flagged" my own posts above, I did get a new dialogue with Stocko on this, with two outcomes:

(1) Stocko say they are not going to do anything about this error for months as they are busy with platform changes. Not great... But at least they responded.

(2) I now suspect that the underlying problem MIGHT be as simple as the SPSY valuation and stats running off the SPSC share price (which trades only once in a blue moon - one trade so far in 2022 - and with the price way off and static for weeks - now showing 135p. This - if the reason - could explain undervaluation and the numbers appearing to be completely "frozen". (The total share count is the sum of SPSC and SPSY, which I believe is correct, but the market cap and EV - also for SPSY, not just SPSC - appear to be using the SPSC share price - obviously the wrong choice among those two when it hardly ever trades).

Small Cap Value Report (Thurs 3 Feb 2022) - SCS, ACT, BMS, HYVE

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Jack Brumby

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