Small Cap Value Report (Tue 14 Jan 2020) - FLO, MCB, BOO, GTLY, WJG, D4T4, BOKU, DFS, GAW

14th Jan '20 by Paul Scott

76 comments 11701 reads

Good morning, it's Paul here with Tuesday's SCVR.

Please see the header above, for the list & order, of small cap trading updates/results that I'll be reviewing today. I've also included a couple of mid caps that are particularly noteworthy, and interest me (BOO and GAW).

Estimated time of completion - I'll have the bulk of the report done by 1pm, but as there is so much to report on today, I might need to carry on further into the afternoon, after lunch.
Update at 12:55 - I'm taking a break for lunch now, and will carry on writing this afternoon, as there's loads more I want to cover. the main bit's done, so the 1pm readers have got your money's worth! Look at the extra stuff this afternoon as a bonus. 5pm revised finish time.

Update at 17:24 - today's report is now finished.

Profit warnings

It seems to me that there is a potential opportunity at the moment. The fact is that 2019 was dominated by political uncertainty, and once a general election is called then it is only sensible for businesses to put investment & hiring decisions on ice, and await the result.

Therefore, it could well be the case that some businesses might have had a poor Q4, due to this factor, yet be fundamentally sound businesses which should quickly recover in 2020. There could even be a bounce back effect, with Q1 2020 being better than expected, because;

The general election result is by far the best outcome for businesses - i.e. a business-friendly Govt with a large majority, also committed to increasing public spending (hence stimulating the economy at least in the short to medium term)
The Deloitte survey (mentioned in yesterday's SCVR) shows a huge recent rebound in business confidence - suggesting that some investment decisions which were on ice may now be implemented
Consumer confidence should also rebound strongly, in my opinion, because we have full employment, and good wages growth (above inflation), prolonged low interest rates, etc. Plus minimum wage is going up by c.6% soon, and it has a domino effect upwards as higher paid staff demand that pay differentials are maintained. Therefore, I'm expecting a strong recovery in consumer sentiment & spending in 2020

Put that all together, and I think shares which put out profit warnings now, caused by a soft Q4 2019, could (as always, only very selectively) make…

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andrea34

14th Jan '20

I am a long term holder of Tp (LON:TPG) since before the open offer in 2017 and have accumulated over the last year. IMHO, the Sapienza acquisition is a major step forwards, opening a host of new avenues for them, with good cross-selling opportunities too.

I don't see the lack of dividend as a negative point at the moment, as they have been going through an acquisitive phase at the moment - Tp (LON:TPG) did not exist in its current form only a few years ago.

The 52wk+ ATH is great news and, as you say, a break above this ceiling should be very positive.

Whitbourne

I completely agree on City of London Investment (LON:CLIG) Greyinvestor. I was actually thinking of selling, having held for several years, because of the modest growth prospects compared to other opportunities. Today's update reminded me of just what a quality outfit this is. Crystal clear, transparent, honest communications and a sensible strategy - not things to be taken for granted. I changed my mind and will continue to hold.

davidjhill

Also worth noting with RB that he reports seemingly small trades on his site but actually trades in his own real account in much larger size, so wouldn't read anything into trade sizes unless he says specifically that he is taking a very small position. As an example he recently really liked Kape and on his site bought 5k or so but said in reality told readers he had bought over 50k worth for himself! Just worth noting

OldSchool05

I hold City Of London Investment (LON:CLIG) too, they have done well for me just by re-investing the dividends over a period of time. I'm not sure if you have seen Maynard Paton's coverage of CLIG through his investment blog- it is extremely good.

Rusty2

Thanks for that information I did not realise that, I did wonder about his Kape Technologies (LON:KAPE) holding which did not seem to tie up with his comments. He made a killing there.

Matt1953

Reports really appreciated by me. Keep up the great work please.

Equity Development

You can meet Watkin Jones (LON:WJG) at Equity Development's next forum if you're interested in ascertaining the quality of management for yourself. https://equitydevelopment.co.uk/2019/11/26/meet-tatton-upgs-and-watkin-jones-investor-forum-february-2020/

goronwy

Thank you Paul. Would have liked a little more on Games Workshop as I have shares in that but understand getting a large company. I hope you are enjoying a well deserved large G&T this evening.

MichaelFBS

What a mamoth and awesome SCVR. Thank you.

Paul Scott

Ooh no G+T, it's Dry January!

Actually I did want to make another point about Games Workshop (LON:GAW) - namely that this is a Peter Lynch style share, where the key skill for an investor was not to crunch the numbers, but rather to understand the niche that it operates in, and to know that its Warhammer franchise was developing into a seriously lucrative thing.

People who knew that, could have absolutely cleaned up on the shares, irrespective of whether they were financially literate or not. In fact, being able to crunch the numbers can be a disadvantage, as you worry too much about valuation, and sell too early!

Regards, Paul.

Mnomis

Completely agree. Tesla being a great example.

Gostevie

Awesome report today Paul! I was definitely the first person to give you the thumbs up today as I saw it at shortly after 6am as I was preparing for a day's wage slavery and thought ' **** me!', I mean 'Wow, that's dedication; even Graham doesn't normally post the placeholder that early'.

I salute you also for your Dry January discipline - which sadly I have been unable to emulate and thus will have absolutely no complaints if the early February ones have more of an afternoon bias, timing-wise. Shine on!

phoenixnight

Gostevie/Paul

Slightly off-topic this, and I'm not sure whether this is bending the 'rules' of a Dry January, but there are some excellent alcohol-free beers out there these days. The market has moved on somewhat since the days of Barbican Lager, if any of you can remember that.

I enjoy the taste of beer but, particularly as I get older, I don't like some of the side-effects of alcohol. I've pretty much ditched the full-strength stuff permanently now, as have other people I know. Great taste, fewer calories, no social stigma attached to not drinking 'real beer' and no hangover - is this a growth market for brewers?

Sadly, as a holder of Boku Inc (LON:BOKU) today, I've ditched all that low-alcohol nonsense. Pass me another, someone (hic).

As for today's report, if I could give it more than one thumbs up, I would do. Awesome report Paul.

davidelliott52

thankyou paul. You have outdone yourself today!

Thornabian

Boohoo (LON:BOO) topline is great but I can't help but think it is at the expense of their bottom line. Margins are quite weak, maybe it is due to their return rate?

The most impressive thing is that they have cracked the US but I do favour £Fevertree at current valuations considering their margins are about 3 times Boohoo and their ability to leverage operations is much easier. I would also prefer Team17 for the same reasons.

MarkOR

15th Jan '20

Boku Inc (LON:BOKU) looks way overvalued even after today's sharp drop in share price. This is a business valued on growth, and it isn't growing. At all. Once you strip out the provision release in 2H19, even after adding back the revenue recognised in 1H which otherwise would have been due in 2H19, the 2H19 group revenue is only up 3% relative to 1H19 in both divisions. So Boku is not growing its payments revenue despite the 18% improvement in transaction volumes in 2H. The payments business might have very high gross margins, but I think their customers might also realise this and demand large volume discounts. What's a bit odd is that identity volumes are down to 112m in 2H19 from 141m in 1H19, but revenues are flat between half year periods. I don't understand that piece. But anyway something is telling me that they spent $25m on a shiny fast car (5x revenues) and it has subsequently crashed it into a ditch. The Edison forecasts of $54m for FY20 at +15% yoy look optimistic in the spotlight of 2H19 performance. I have no position on this. I was looking to buy in after today's statement. I won't be now. It won't go bust, so it's not a short either. It'll just painfully trade down in fits and starts, and possibly get injections of optimism from mgmt statements, perhaps even another acquisition. DYOR.

mickemmanuel

Great report today Paul. In particular your thoughts on buying in Bull and Bear markets. Your overview of the markets is extremely useful particularly to a novice like me who believes that the experts in this field know nothing! It would be good if you could give your views on the markets once a month.

Micke

Henry55

Hi Phoenix,

If you get an opportunity try Adnams "Solestar". Similar to you I like the taste of ale but as I get older can't get on with the various side effects! It is 0.9% and tastes just like the real stuff.

bobsandy12

Great report Paul...thank you and keep em coming.

Could you/ Graham have a look at Kainos a 100% gainer in the short term but concerned to understand whether tis could be a multibagger or an overhype.... any comments welcome

Worry not about the alcohol, some of the best creatives achieved their best when uninhibited!!

But Boohoo (LON:BOO) is still growing around 35% per year, Fevertree Drinks (LON:FEVR) is virtually ex growth if you look at the forecasts. I don't think you can compare soft drink margins to clothing. Fevertree Drinks (LON:FEVR) was a great share in be in a few years but I sold out when growth slowed.

Small Cap Value Report (Tue 14 Jan 2020) - FLO, MCB, BOO, GTLY, WJG, D4T4, BOKU, DFS, GAW

Profit warnings

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Paul Scott

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