Small Cap Value Report (Tue 12 Sep 2017) - TAST, VANL, MIDW, GOAL, XLM, SEE, PEN, CALL

Tuesday, Sep 12 2017 by
81

Good morning, it's Paul here!


Market musings

Confidence seems to be returning to the US markets, after a wobble last week before hurricane Irma. I do wonder if anything can stop this bull market? A commentator wryly remarked yesterday that because everyone is expecting a pullback, he thinks it's unlikely to happen. So an expensive market just keeps getting more expensive.

Historically, when markets reach the euphoria stage (which is where we are now, in my view), then it always ends in tears. Absolutely always. It's just that we don't know when. Meanwhile the good times can keep rolling. This does feel similar to 1999 though, in terms of market sentiment, in my view - i.e. getting very toppy, especially for technology & other growth stocks.

The complicating factor now is ultra-low interest rates. In the past, a decent, growing company, on a PER of 20 would have seemed quite expensive. However, now that interest rates are close to zero, then a (growing) earnings yield of 5% (the reciprocal of a PER of 20) actually looks quite good. Mind you, that assumes earnings keep growing forever, which of course they won't. As we're seeing in the hospitality sector, once demand drops, then the operational gearing kicks in, and massacres earnings (more of that below, re Tasty (LON:TAST) results today).

On the bull side of things, I am mindful that once-in-a-lifetime (or maybe one off, irrespective of timescale) changes are occurring to whole sectors, due to internet disruption. So you could argue that companies like Amazon , Google , and others, are becoming so dominant that nothing seems likely to stop them, other than Government intervention to break them up. Trump has already made complaints about Amazon destroying competitor businesses which previously paid taxes. Since Amazon barely even tries to make much profit, it pays little corporation tax. Hence Government tax incomes are hit by the company's relentless march to global domination. Surely, sooner or later, these dominant (arguably monopolistic) US large companies are likely to face forced break-up? Maybe that could be the trigger to eventually end this long bull market? I don't know, but it's all fascinating.

I was looking at the valuation of Shopify Inc ( $SHOP ) yesterday. It's on a forward PER of 837.8. That might seem like insanity, but when you look at the growth &…

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Tasty Plc is a United Kingdom-based company engaged in the operation of restaurants. The Company operates through operating restaurants segment. The Company operates in the United Kingdom. The Company operates approximately 50 restaurants, including over seven DimTs and over 40 Wildwoods and Wildwood Kitchens. The Company's restaurants are located at Plymouth, Hereford, Telford, Chichester, Taunton, Yard, Worcester, Port Solent, Brentwood, Whiteley, Kingston and Liverpool. The Company's trading subsidiary, Took Us a Long Time Limited, is engaged in the operation of restaurants. more »

LSE Price
35p
Change
7.7%
Mkt Cap (£m)
20.9
P/E (fwd)
n/a
Yield (fwd)
n/a

The Fulham Shore PLC is engaged in the management and operation of The Real Greek, Franco Manca and Bukowski restaurants in the United Kingdom. The Real Greek food centre serves dishes of Greece and the Eastern Mediterranean. Franco Manca serves Neapolitan sourdough pizza, which is baked in a wood burning brick oven. Bukowski is a London-based, charcoal-grill restaurant and bar, serving breakfasts, burgers and grills. The Company operates 45 restaurants, comprising 32 Franco Manca, 12 The Real Greek, and one Bukowski Grill franchise in Soho. The Company’s subsidiaries include Kefi Limited, FM6 Limited and Souvlaki & Bar Limited. more »

LSE Price
12.38p
Change
-1.0%
Mkt Cap (£m)
70.7
P/E (fwd)
18.4
Yield (fwd)
n/a

Shopify Inc. (Shopify) provides a cloud-based, multi-channel commerce platform designed for small and medium-sized businesses. The Company offers subscription solutions and merchant solutions. The Company's software is used by merchants to run their business across all of their sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts and marketplaces. The Shopify platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships and leverage analytics and reporting all from one integrated back office. The Shopify platform includes a mobile-optimized checkout system, which is designed to enable merchants' consumers to buy products over mobile Websites. Its merchants are able to offer their customers the ability to check out by using Apple Pay. more »

NYQ Price
$104.89
Change
1.0%
Mkt Cap (£m)
8,934
P/E (fwd)
444.9
Yield (fwd)
n/a



  Is Tasty fundamentally strong or weak? Find out More »


67 Comments on this Article show/hide all

JohnEustace 13th Sep 48 of 67
3

In reply to purpleski, post #46

A simple strategy to preserve capital is to sell anything that falls below it's 200 day moving average and sit on the sidelines until it's back above.

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simoan 13th Sep 49 of 67

In reply to purpleski, post #37

For me his phrase is about not suffering permanent loss of capital over the long term (by investing in textile mills for example). 

Yes, that's my understanding of what Buffett was saying too, but many shares hit peaks in 1999 and 2007 that they have never returned to and many went to the wall. So in a proper market crash some of your losses will be permanent. If you think all the companies you hold will be immune from this end game, you are likely fooling yourself because in a real crisis there are second and third order effects that will cause problems to even the most financially solid looking companies.

BTW are going to keep the Zytronic (LON:ZYT) proceeds in cash and wait for the correction?

Part of the reason I had trouble selling was because I am holding a lot of cash in my accounts currently (38% in SIPP and 25% in ISAs). I must admit to not being comfortable with this and it's not a sign of a bearish stance. I find that when you are actively looking for new investment ideas for spare cash it is psychologically difficult to sell the good companies you already own, and it is especially hard to maintain your investment discipline in selling things that look expensive where you like the company. So I have no particular home for the proceeds because I am already struggling to find good situations to invest in and currently the only thing I am buying on a monthly drip basis is Fundsmith Emerging Equities Trust (LON:FEET). 

All the best, Si

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Howard Marx 13th Sep 50 of 67

In reply to Howard Adams, post #29

Interesting work Howard

I've only ever looked at the aggregate data - how did you manage to disaggretate the data by region?!

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Howard Adams 13th Sep 51 of 67
2

In reply to Howard Marx, post #50

Hi Howard

I subscribe to US, UK and Europe (including UK). Therefore I can select to focus on those markets individually, or 'Focus on all Regions'. As I change focus the underlying data changes to restrict itself to the market selected.

If you subscribe to more than than one region(I assume you have at least UK), then on the black bar at the top of the screen next to the Stockopedia logo you hover on the flag showing then on the drop down select a market you can access based on your subscription and then the Technicals section on the screen changes to restrict its data to the market selected.

I hope that explains things.

Regards
Howard

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Howard Marx 13th Sep 52 of 67
3

In reply to Howard Adams, post #51

Top man, thanks. Seems like there are problems beyond the US:


% above 200d ma / % below 200d ma

  • Australia  41 / 59
  • Canada  37 / 63
  • Europe  60 / 40
  • UK  62 / 38
  • US  49 / 51
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FoolishBen 13th Sep 53 of 67

In reply to simoan, post #49

Hi Si - May I ask what it is that interests you about Fundsmith Emerging Equities Trust (LON:FEET) ?

The reason I ask is I have been following it for quite a while but it seems to have done nothing since it was launched over 2 years ago. My interest it stems from two things. 1. To gain more exposure to Emerging Markets. I feel a good fund is the easiest way to do this rather than individual stock picking in markets I do not understand. 2. I was very interested in Fundsmith Equity Fund but because I live abroad it's much easier for me to access Investment Trusts than it is a UK based fund. I have read about Terry Smith and really like his investment philosophy but I think the counter argument to investing in FEET is that he is not an EM specialist, and there are plenty of other Fund Managers out there who are. One thing I have noticed about FEET is that he is rather contrarian, and has resisted temptation to follow the heard into Alibaba, Tencent, Baidu and the like, which is perhaps why it has under performed quite badly thus far. Anyway I would be very interested in your rationale as you have always struck me as being one of the more knowledgeable posters on here...

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Howard Adams 13th Sep 54 of 67
2

In reply to Howard Marx, post #52

Howard

Thank you for your kind response.

To me this is but one of the great powers of Stocko.

You enlightened me and the community on a useful form of analytics. I did a build on that based my knowledge of the platform. You then asked about my approach which you will no doubt pick up from and do other things with which I'm sure will filter into these threads, and others will also read this discussion and pick out ideas for themselves.

It's a great learning community and a virtuous circle which I love. Long may it continue.

Regards
Howard

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cig 13th Sep 55 of 67
1

In reply to FoolishBen, post #53

There's plenty of UK/developed world stocks with emerging market exposure, you just need to overweight these if you want fundamental exposure to emerging markets. It's hard to think of a scenario where direct investment in local stocks or funds thereof, with all the frictions that involves, is useful.

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simoan 13th Sep 56 of 67
2

In reply to FoolishBen, post #53

Hi Si - May I ask what it is that interests you about Fundsmith Emerging Equities Trust (LON:FEET) ?

It's not a generic EM fund, so the investment approach is quite contrarian, as you say, which is the way I like my investments. The reason for under-performance is due to the wave of money going into EM ETFs which makes it more appealing to me because when the money is eventually pulled out it will not effect the NAV of Fundsmith Emerging Equities Trust (LON:FEET) as much.

The basic premise of the fund seems alarmingly simple - Invest in the almost inevitable trend of increasing prosperity and growth of the middle class in India and elsewhere in Emerging markets; only buy into franchise type companies with high ROCE and operating margins, and wherever possible invest in listed subsidiaries of well know western companies to ensure best possible corporate governance e.g. Hindustan Unilever. What could go wrong? :-) Still quite a lot I would think!

I have read about Terry Smith and really like his investment philosophy but I think the counter argument to investing in FEET is that he is not an EM specialist

Given my general thoughts of the fund management industry, I take this as a big positive! If I'm going to pay a fund manager I don't want him hugging an index on the sly and Terry Smith is under no pressure to get a performance bonus by doing so. I don't even mind the fact he does this whilst living in Mauritius...

All the best, Si

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herbie47 13th Sep 57 of 67
1

In reply to Howard Marx, post #52

Trying to get my head around this, if market is at or near an all time high it seems odd to me that more than 50% are below 200MA. In the case of US this is number of shares and indexes are weighted, so if the large companies such as Apple do well then it will move the index far more than a $1m mapcap. I think one reason could be Trump, many shares did rally when he was elected but so far he does seem to have delivered very much so I suppose many of those shares have fallen back. Technology is the best performing sector so that is a concern if the bubble does burst.
Canada I think is dominated by certain sectors and Australia I think is mainly commodities.

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Howard Marx 13th Sep 58 of 67
2

In reply to herbie47, post #57

Yes Herbie, you've hit on one of the key reasons to study market internals - the fact that indicies are market weighted.

Half of the S&P500's combined market cap is accounted for by the 49 largest companies (Apple, Alphabet, Amazon, Microsoft, Facebook, Berkshire Hathaway etc).

So the S&P500 will rise if these 49 stocks increase by more than the other 451 stocks.

Which to me is not a healthy market even though the overall S&P500 index is increasing.

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purpleski 13th Sep 59 of 67

In reply to simoan, post #49

Thank you Si.

Michael

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fozzie 13th Sep 60 of 67

Hi Paul, thanks for all the amazing stuff you do on here and elsewhere. Do you list anywhere your current portfolio and weightings? I am sure I could have a decent stab at listing them just from your comments on here but is there somewhere you show a definitive list? Keep up the good work.

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purpleski 13th Sep 61 of 67

In reply to JohnEustace, post #48

Thanks John. I don't think that is for me but if you have found it works for you.....

Kind regards
Michael

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Paul Scott 14th Sep 62 of 67
2

In reply to sootysnipes, post #45

Hi sootysnipes,

I've held Cloudcall (LON:CALL) (formerly Synety) for quite a few years now, in my personal/family portfolio.
However, it was only a lukewarm hold for several years, as the company under-performed for a while.

As regards BMUS, that's only my highlights/conviction positions - so it will only be about a quarter of the stocks that I hold in real life, but will be the biggest small cap positions that I hold in real life, in roughly the same relative position size. Otherwise it would take too long to update it.

Regards, Paul.

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Paul Scott 14th Sep 63 of 67
3

In reply to fozzie, post #60

Hi Fozzie,

Do you list anywhere your current portfolio and weightings?

No, because it would take too long to keep it updated, and also would drive me mad with people questioning why have you sold this or that, etc.

I do however publish a fantasy portfolio which is pretty close to the largest positions in my real portfolio, in roughly the same size order. It's called BMUS (Beam Me Up Scotty), and is here.

We set up BMUS here because Ed challenged me, back in Jan 2015, to prove that I could out-perform the market. So it wasn't my idea, it was Ed's. But seeing as it's done well, I've carried on updating it from time to time, as it's enjoyable to bask in the glory whilst it's doing so well, lol!! Of course that level of out-performance won't last, but it does help concentrate my mind too on portfolio management. Also it's a really good way of shutting up advfn trolls who abuse me & say I'm a rubbish stockpicker. I just give them a link to BMUS, and they crawl back under their stones!

Regards, Paul.

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FoolishBen 14th Sep 64 of 67
1

In reply to simoan, post #56

Hi Si - Thanks for your response, which was as detailed and well thought out as I expected it to be. I must admit the impatient streak in me finds it hard watching money do nothing while shares like Alibaba go through the roof but it is clear that while his investment thesis is one that may take a while to pan out, it has a very good chance of being successful in the long term.

I also have very little faith in Fund Managers and only use them to gain exposure to markets that are hard to research (i.e Outside UK/US). My only other holding is Baillie Gifford Shin Nippon (LON:BGS) which focuses on Small Cap Japanese Growth Stocks. I probably couldn't articulate my rationale as well as you but I think this is potentially an overlooked part of the market. The Japanese strike me as being very creative and resourceful people and I can't believe for a minute that they will let USA and China have all the fun when it comes to innovation. I also think, as far as Asset Managers go, Ballie Gifford seem to be a pretty decent firm, with a number of high performing yet low profile/ego Fund Managers. It's done pretty well for me so far at +35% in under a year and definitely something I am happy to hold for the long term. After all, it would be unwise to have all of your money in UK Small Caps, however high your risk tolerance.

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vik2001 14th Sep 65 of 67

In reply to Paul Scott, post #63

Paul any chance you can have a look at the Franchise Brands trading update today, be much obliged for your opinion on this.

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Howard Marx 14th Sep 66 of 67
2

In reply to bestace, post #30

Bestace

It's not the % stocks > 200d ma that is interesting.

It's the combination of Equity markets at all time highs & the % stocks > 200d ma that is interesting.

It's fascinating to see Equities at peak levels with 50% constituents already in long-run downtrends.

When Equities peaked in 2007, the % > 200d ma was in the 80-90% range which was far more intuitive than today.

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gus 1065 24th Oct 67 of 67
1

Interesting RNS from perennial Sucker Stock Seeing Machines (LON:SEE) this morning discussing progress in public recognition by US and European safety organisations (NCAP and NTSB) of the efficacy and importance of their driver attention monitoring product.

https://www.stockopedia.com/share-prices/seeing-machines-LON:SEE/news/rcs-seeing-machines-ltd-euro-ncap-and-ntsb-driver-monitoring-systems-urn:newsml:reuters.com:20171024:nRSX3501Ua/

Clearly still highly speculative and possibly just a precursor to another equity fund raising. No position and unlikely to take one anytime soon.

Gus.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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