Small Cap Value Report (Tue 15 Nov 2022) - G4M, RCN, DX., WIN

15th Nov '22 by Paul Scott

43 comments 7681 reads

Good morning! It's Paul & Graham with you today. Today's report is now finished.

Agenda

Last call for Mello Chiswick! This physical event is this week - tomorrow (Weds 16th) and Thurs 17th. Here's a link for a last minute special offer for tickets, when they're gone, they're gone! Both Graham and Ed will be giving talks. I've been booked in for 2 panel sessions, and will be generally floating around being affable. So I hope to see you there. We need to get these events going again, after the pandemic, as the risk is that they won't happen again if we don't, it would be such a pity to lose the social aspect of investing, if everything moves online.

Paul's Section:

Virgin Wines UK (LON:VINO) - Here's the transcript of my interview last Friday with Jay Wright, the CEO of Virgin Wines. The audio version is here.

Gear4music Holdings (LON:G4M) - no surprises in today's H1 results (to 9/2022), the numbers look exactly as disclosed in the last trading update. Current trading & outlook comments reassure, and it confirms being on track to meet expectations for FY 3/2023 (a modest PBT of £1.1m). The balance sheet has high inventories, and too much bank debt, but both are expected to fall. Overall, I think it's due a bounce, and c.100p looks a decent entry price to me, but I can also see why other people might see things more negatively.

Wincanton (LON:WIN) - I review its interim results in some detail, and am satisfied with everything, including the balance sheet (weak, but OK), and the pension scheme (still a worry, but seems close to being fully funded). It's bounced strongly in recent weeks, but still looks modestly valued, so a thumbs up from me.

Graham's Section:

Redcentric (LON:RCN) (£185m) - today’s update brings news of a higher-than-expected H1 net debt figure at this managed IT services company, due to a range of acquisition-related issues. Offsetting this, however, many of the issues are expected to reverse over the next six to eighteen months. Sales are strong and with cost reductions expected next year (FY March 2024), the company’s profit expectations for that year are now anticipated to be ahead of prior expectations. While personally I prefer to invest in companies with an organic…

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googlyeyes

15th Nov '22

exactly, and a very good trader at that

yiannos1

This is what markets do , they always fluctuate.

He said it did not work for Gold and did not work very well for the Nasdaq index but he also stated it would've saved investors from the worst losses. I don't believe he tested it on individual shares (linked article below)

https://www.investorschronicle...

Boon

That share price drop because Vodafone (LON:VOD) issued lower profit guidance today? You buy the shares not for this years dividend yield but the expected future csshflows. Which are now somewhat diminished.

TheFloatingInvestor

Carclo (LON:CAR)

Hi DarwinLad

Plastics is a tough place to be in with oil prices so high, although you would suspect the market they are operating in would give them the ability to pass on price increases.

I worked in Plastic injection, injection blow and extrusion moulding many years ago, and always found margins very tight with volumes produced being a key profit driver, along with the ability to quickly pass on polymer price increases. I note the down turn in revenue, which put margins under extreme pressure, 2019-2021.

It appears that revenue is the key driver here and the Stocko forecast seems to show revenues increasing, which makes sense as the areas they operate in recover from COVID.

I suppose we would like to think polymer prices will reduce next year or two in line with oil, but I guess the million dollar question is can they generate the revenue, in which case profits should follow, although they forecast to be at a much reduced margin, which would need to be investigated, either they are underplaying, or they are not passing on the costs......

Paul Scott

Fantastic, I'm looking forward to grabbing a pint with you hopefully! :-)

Hi JASVFS,

I'm always reluctant to review Braemar (LON:BMS) because I've never really fathomed what drives its somewhat erratic performance. Also the recent collapse in freight rates for containers might be a drag possibly? Although it says it is diversified.

Taking a quick look at the headline figures for Braemar's interims today, they certainly look excellent - H1 PBT more than doubled. Outlook comments sound really upbeat. Balance sheet is a bit threadbare, with only £2m NTAV. Could be worth readers having a closer look.

Ninety One (LON:N91) - I've not heard of this before. It's too big for us, at £2bn mkt cap. Seems to have dropped 5% on today's results.

Regards, Paul.

carmensfella

*MELLO LONDON*

This is the last minute deal Paul mentioned in his header but you need these codes...

You will then get your tickets provided by a sponsor for just £25 or £50 both days so long as you apply the codes below

Last minute deal for half a dozen or so lucky investors

A MelloLondon sponsor has provided 20 £25 DAY TICKETS and 20 £50 TWO-DAY TICKETS! First come, first served! Use code ML25OFFER and ML50OFFER at checkout to access these special prices!

*UPDATE* There are ONLY 4 remaining £25 tickets and ONLY 5 remaining £50 tickets! Don't miss out on these limited discounted tickets!

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mojomogoz

For sure...I obvs know who you are and what you look like so will search out once the work is over

Snazzytime

Interesting observation by Paul on Gear4music Holdings (LON:G4M)

'......Which again calls into question the concept of holding long-term for
small caps. I’m coming round to the view that it’s better to trade in
& out, if you can time your entry & exit points well, which is
easier said than done........'

Over the recent past I have come round to the same view having held multi baggers which have hit the buffers and left me underwater e.g. Boohoo (LON:BOO) Avon Protection (LON:AVON) Iqe (LON:IQE)

Buying is the easier bit of investing. Selling or top slicing is the hard bit. I need to regularly remind myself that paper profits are vanity and selling for real cash is sanity.

Falling in love with a share can prove financially destructive once the shine comes off a share. Perhaps we should all try to leave a little profit on the table when selling rather than submit to the human instincts of greed.

eParo

UK loses over half a million work days to strikes and unions signal more to come

https://www.cityam.com/uk-loses-over-half-a-million-work-days-to-strikes-and-unions-signal-more-to-come/?utm_source=dlvr.it&utm_medium=twitter

Bouden54

One easy way round that is to keep an equally weighted portfolio (I run around 30 positions which seems to work well for me). If something rises strongly to say 5% then you automatically trim back to 3%. This keep emotion out of the whole process.

wolfspirit

at least the CEO answered the debt issue - it isn't a revolving credit - they are loan notes - once paid back they are cancelled. I guess they are short term to cover invoice gaps.

Gobbagvooar

Pressure Technologies £ PRES placing.

Email arrives from major retail broker at 10:28am today advising of it with url link. I actually see the email for the first time at 3.30pm.

Email advises " this placing offer will close no later than 11.30am today". The RNS Number : 3721G states the "REX Retail Offer is expected to close by 12 midday on 15 November 2022. Eligible shareholders should note that financial intermediaries may have earlier closing times."

Retail investor involvement in action ;)

Andy Astbury

M&C Saatchi (LON:SAA)
The Company was notified today that Gareth Davis, Non-Executive Chairman of
the Company and Lisa Gordon, a Non-Executive Director of the Company purchased
ordinary shares of one pence each in the Company ("Ordinary Shares").

Mr Davis purchased a total of 75,870 Ordinary Shares at an average price of
£1.33 across 10 November 2022 and 11 November 2022. Mrs Gordon purchased
50,000 Ordinary Shares at a price of £1.40 per share on 15 November 2022

rwh3ue

I contacted the CFO directly and he confirmed the issue of each loan note consumes any remaining headroom. When a loan note is repaid it does not restore the original headroom hence it’s not easy to reconcile the outstanding debt and the remaining headroom.
I think Simon Tucker made it clear that he believes SRT would have no problem raising additional funds from this source if required.
I hold SRT in case of doubt.

Richard Goodwin

Essentially you have your R&D expenditure reviewed and get a discount on your tax bill the next year.

Don't you usually wear bright shirts?

raggedtp

16th Nov '22

Agreed. I have about 40 positions, with some strict limits. But also target prices, with a reasoned minimum uplift of 25% possible. So if a share approaches that price, I have to look at it again and try to but something else with better prospects of a 25% uplift. It's hard to outperform a lot, but it does help me sleep nights, and I have 2 or 3 'lottery' win attempts without fearing too much if they fail. I have still lost capital value overall this year, but not badly, even thought I bought a 'falling knife' in Persimmon (LON:PSN) earlier in the year.

Hi DarwenLad,

I'd be wary about mgt suddenly departing at any company which is financially distressed, which Carclo (LON:CAR) definitely is. Check our archive here for more details - I've covered its onerous debt & pension deficit in detail there.

(for anyone new to Stockopedia, you can access our archive of comments on any company we cover, which is about 500 small caps, by clicking on the "Discussions" tab on any company's StockReport). Since I focus on balance sheets, debt, and risk, this is a quick way to assess key information on dilution/solvency risk. Plus of course the Z-Score on the StockReports is an even quicker way to check solvency risk (it's not always right, but is statistically proven to work on average, over lots of companies).

Overall for Carclo, I see a high risk of a dilutive (and potentially deeply discounted) placing I think. Or worse - administration, if the company can't raise enough cash to keep the creditors at bay. So be careful with this one!

Small Cap Value Report (Tue 15 Nov 2022) - G4M, RCN, DX., WIN

Agenda

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Paul Scott

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