Small Cap Value Report (Tue 16 Feb 2021) - BWNG, NEXS, CLX, BLTG, SYME, Virgin Wines

16th Feb '21 by Paul Scott

105 comments 17169 reads

Good morning, it’s Paul & Jack here with the SCVR for Tuesday.

Agenda -

Paul's section:

N Brown (LON:BWNG) - Substantial Director buying.

Nexus Infrastructure (LON:NEXS) - very vague trading update, looks like a veiled profit warning to me.

Blancco Technology (LON:BLTG) - interim results, not up to scratch in my view. Lots of costs capitalised into intangibles, as usual.

Supply@me Capital (LON:SYME) - vague statement about delayed relisting. I cast my eye over the admission document (it's not pretty!)

Virgin Wines - intention to float.

Jack's section:

Calnex Solutions (LON:CLX) - recent IPO continues to exceed expectations. Shares are expensive but there's good growth here.

N Brown (LON:BWNG)

71.3p - mkt cap £328m

Jack flagged some Director buying here last week, so I’ve had a quick recap.

Here are my notes on 15 Jan 2021, from the Q3 trading update. This showed an improving, albeit still negative revenue trend. My conclusion was “potentially interesting”. It’s been on my watchlist, so the Director buying RNSs got automatically emailed to me recently, with Jack also jogging my memory to look at them.

Lord David Alliance is the major shareholder here, with 40% (he’s a billionaire, according to Wikipedia), and cornerstoned the recent fundraising (and move to AIM).

15-Feb-2021 - Joshua Alliance (a NED) increases from 3.88% to 4.61% on 12 Feb 2021 (21,213,800 shares now held). That’s a purchase of 3.365m shares at 64.65p, costing £2.175m

This change was announced twice, in a Director shareholding, and a Holding in Company announcements.

12-Feb-2021 - Joshua Alliance (a NED) increases from n/a to 3.88%, and now has 17,848,800 shares. This is an increase of 7,848,800 shares, bought at 65.0p, for £5.1m. The original 10.0m shares were bought in the placing in Dec 2020, at 57p, costing £5.7m.

The internet says that Joshua is the 31-year old son of 88-year old Lord Alliance.

Doing a bit more googling suggests that they got a whitewash as part of the last fundraising, which ensured going over 30% did not trigger a requirement for the family to launch a takeover bid, under Takeover Panel rules.

My opinion - with the Alliance family now owning 52%, and Joshua having just spent £7.3m buying shares in the open market, it’s probably safe to assume that the…

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Tommy H

16th Feb '21

Hi John

With N Brown (LON:BWNG) you need to check how they are accounting for the loan book to customers, as similar to Next (LON:NXT) they are very much trying to sell the clothes for credit, so it does some slightly different things with the finances and balances. Probably best to look for one of Paul's historical write ups on either company as he will explain it a lot better than me!

Tommy

peterg

Apologies if you're sick of explaining this, timarr, but am I wrong in thinking blockchain is enormously energy-intensive (eg for 'mining' cryto-currencies)?

I'm not an expert here, and hopefully timarr will correct this if needed, but my understanding is that it is bitcoin mining that requires vast amounts of energy, as a result of the systems that make mining increasingly hard as it's produced, to limit supply. However, I don't think that block chain technology itself is particularly energy intensive.

Boon

Playing devil's advocate, there's two way to interpret this statement from Calnex Solutions (LON:CLX) update today:

"capitalise on the growth of the telecoms testing market as the industry transitions to 5G"

Glass Half Full View: The first is that Calnex will have more selling opportunities, as telcos have big capex plans for 5G rollout.

Glass Half Empty View: Telcos don't necessarily have to chose Calnex, if there are new/alternative vendors, and/or their 5G tech providers can provide the tech for performance monitoring. Also, their existing tech is in 4G and 3G networks, of which when load starts to drop due to 5G taking up most of the data flows, then do telcos really need monitoring tech anymore? If 4G networks are running at 50%, 30% capacity in the future, then spending tech to monitor performance is not really required.

I would take with a pinch of salt and do more digging in the stickiness of Calnex revenues, with the transition to 5G.

Strangemartian

This comment has been moderated

timarr

Apologies if you're sick of explaining this, timarr, but am I wrong in thinking blockchain is enormously energy-intensive (eg for 'mining' cryto-currencies)?

To ed (and si)

No. This is a reference to the "proof of work" consensus mechanism (aka "mining") used to commit transactions to the Bitcoin blockchain. In essence it's the way that Bitcoin blocks double spending (a Bitcoin is just digital - in theory I can spend it twice and be long gone before anyone knows. The consensus mechanism is the way that this is dealt with on the Bitcoin blockchain).

Blockchain isn't predicated on proof of work - there are plenty of other consensus mechanisms, which use other methods that are less energy intensive. And if we get technical, blockchains can be divided into unpermissioned (such as Bitcoin) and permissioned (where a bunch of agreed actors get together to approve transactions).

As a takeaway - Bitcoin is energy intensive but blockchain doesn't need to be.

On N Brown (LON:BWNG) one thing to watch out is the FCA investigation into BNPL credit in the eCommerce area, which is where they play in.

The investigation is mostly into the "wild west" at the moment, of the likes of Klarna, Clearpay, etc that aren't really regulated and potentially getting lots of people into expensive debt.

BWNG is fully FCA regulated already and above board. So in theory any new FCA rules will impact them the least. However, you never know what will come out. For anyone looking to take a sizeable stake, I would read the latest FCA consultation documents to see potentially where the rules are headed.

Phuntt

lol si, you have reminded me of a certainty every publican knows. If you want to know what is going on in a city, take a taxi and start talking to the guy. The stuff you can learn is amazing.

I was in Dublin last March 6th for the Ireland - Italy rugby match on my birthday. We were supposed to be 3 couples but the match was cancelled and the other two couples cancelled so me and the wife headed on our own. The city was deserted despite 5,000ish Italians estimated to have still made the trip. We got in a taxi to take us to the restaurant. The (obviously racist) driver said “you aren’t Italian are you?” We told him no, we were from Belfast. ‘Thank feck” he said “you looked smart (I think he meant well dressed) so I couldn’t be sure”. We chatted about what a disaster was looming for the Dublin taxi trade on the way to the restaurant. The line I couldn’t forget came just at the end “How do you say feck off in eyetie anyway?” What struck me was the almost total terror the man displayed.

The restaurant owner told us business was a disaster and he didn’t know what he would do. I had been taking profits all through March (CV terrified me from January) and was at 40% cash already. That week I sold everything (including half the pension funds - never done that before). Thank god for taxi drivers.

Hey Wilbraham, I’m not an expert and will happily be corrected.
As I understand it:

1) The concept of mining was introduced because there had to be a reason for blockchain when the thing was invented. Blockchain basically adds all the transactions before it in a list so therefore if there are a number of people running PCs with the entire blockchain on it in the world, everyone knows it is trustworthy and no-one can steal/ hack/ invent bitcoins as all those PCs have to agree on the chain. If one PC is hacked and tries to connect to the network all the rest immediately know they don’t have the same information and it is excluded. This gives surety for holders. However, there has to be a reason why people would run an ever increasingly huge program that holds this information. The reason was mining.

As people’s computers held the Blockchain, they were also paid (in Bitcoin) for that by solving increasingly more difficult math problems. The limit of Bitcoin was capped at 21m in the hope that by then there would be enough people owning valuable Bitcoin that it will be worth it for them to run the blockchain themselves. In the meantime, there was an ever increasing network of computers that held the chain.

The “they“ you refer to is interesting. Bitcoin is actually really totally “decentralized” - the owners can vote by forking to change the rules but it is probably unlikely that big active owners (miners) would vote for a change that put them out of business. We’ll see.

2) There’s massive innovation and a lot of competition on the transactional front. Right now, Bitcoin is really just a store of wealth. However, the lightning network and a host of stable coins are aiming to make this as fast as you want (basically they hold a store of “slow” Bitcoin and handle the individual transactions). I may be wrong but I actually don’t see this as a long term problem for Bitcoin - either one of the payment processors will do it or an up and comer will ‘steal’ the business.

3) Bitcoin is different from the rest of the crypto’s as they are effectively owned by individuals/ corporations. So even if they publish rules they can (and often have) change them to issue more. For me, there isn’t a good reason to hold anything but Bitcoin.

Despite above I don’t hold Bitcoin (sold last of my small position last week) and don’t plan to buy anytime soon.

Paul Scott

Of course, I'm happy to revisit the facts & figures on Supply@me Capital (LON:SYME) as things develop, that's what I do with everything. I just report on the facts. I went through the facts in the article above. It's a startup with nothing of any commercial substance at this stage, as I demonstrated with excerpts from the prospectus.

I've been in the UK small caps market for over 25 years, and have seen literally hundreds of blue sky promotions like this. They often attract a passionate shareholder base, convinced they are the next big thing. Do you know how many of this type of share succeed long-term? Virtually none.

Good luck with it, but this is bull market punting, not investing.

Regards, Paul.

Good luck, gambling on the jam tomorrow potential with Supply@me Capital (LON:SYME)

That's not what I do here. I look at facts & figures.

How kind, thank you Trevor!

nicobos

Supply@me Capital (LON:SYME) I have to say the spiel reminds me a bit of Eddie Truell's Tungsten (LON:TUNG) which was meant to revolutionise invoice discounting...yada yada. Needless to say I took a large loss in my more inexperienced investing days. I now like to see some real numbers indicating progress or otherwise just happy to trade speculatively off the chart only!

Btw Paul - I recently met the Virgin wines management team and after the presentation, despite it being a very well run business (metrics / profitability far better that Naked Wines (LON:WINE) ), I concluded that a large part of this years profit uplift has come from COVID (basically they've attracted a younger demographic than normal given lockdown) and I expect this to unwind over time. Note that there's been no Private Equity interest at the valuation and so they've decided to IPO.

ps. look out for the customer churn stats etc in the prospectus.

barnetpeter

Could not agree more on SYME. Took a bull mkt punt and it suddenly went from 0.03 to 0.86 in less than three weeks on "speculation". Now suspended and no idea where next (only have a small holding). Let us see whether it comes back and at what price. This is exactly why we need Paul.....to point out how bonkers valuations often are in these crazy times. Understand how difficult it can be to read if heavily invested!

Andy Sav

HL applied my entitlement today (this afternoon). I also received funds back for the extra I applied for, so just got the 1 for 38 allocation

Zoiberg

Seconded. I think it's much needed.

I have just read Blancco's interims. They seemed extremely positive until I followed up your comments on capitalising of costs !

As for Supply@me Capital (LON:SYME) , it reminds me very much of Tungsten which fell off a cliff a few years ago after their then chairman did a magnificent job of extolling the wonders of invoice financing.

TankerWeams

17th Feb '21

"Indeed. Bitcoin consumes more electricity than Argentina."

Indeed it does. Yet kids worldwide playing facebook and instachat on their smartphones use more than crypto-miners. Which is the better value for humanity? Developing and supporting the next worldwide currency allowing holders to regain their financial freedom and escape inflationary monetary policy? Or kids wrecking their eyes and social development while making the owners of big tech(who have the power to censor and ban the democratically elected President of the USA) ever richer and more despotic?

Keep mining 'em fellas.

CamRaid

Supply@me Capital (LON:SYME) sounds like a bag of spanners to me. The asset based lending arena is full of very competent and experienced lenders. They typically only consider inventory alongside debtors. This seems like a high risk business to me.

LongGame87

How about 165 Companies with agreed Terms, each paying a non refundable £16k Due Diligence fee.

That was up to December 2020. SYME only started onboarding companies in March.

This is about £2.13 Billion worth of Inventory from various international and UK companies held by these 165 companies to be monetised by SYME, with SYME taking approx. 1.5% of this in additional fees. Each company is tied into a minimum 3 Year Contract.

That is a decent return.

Once the Funder is released from the NDA SYME will really come into it's own and we will laugh at these bashing articles.

SYME are very much working away in the background putting the right people in places to make this 'Fly' as per the CEO's comments.

They have recently appointed Stuart Nelson as Head of Risk Management in the UK. I very much doubt he would have left his 18 Year Senior Director role with S&P Global to join a company with such little potential as the original article and some of these comments suggests.

nicobus - I think that Virgin are trying to take advantage of the sentiment behind Naked Wines. Naked are miles ahead with expansion in the US and their own infrastructure and wine producing partners.

18th Mar '21

Regards (LSE:SYME)

In the month and a half of the suspension of the stock from the London Stock Exchange, Supply @ ME was not idle, it kept the business going and worked alongside the regulators to better explain its service model and, consequently, the its accounting structure: “we have communicated a lot in the past weeks, we have managed to get to know each other better and to provide the Financial Conduct Authority with the information requested: all in all, the stop to listing was useful”, CEO Alessandro Zamboni told websim.it.

The Italian fintech that allows companies to immediately obtain the value of the stock can be bought again from March 9: the stock closed on Friday at 0.50 pence, a price that is worth 162.7 million pounds. In the first four days of trading, the daily volumes were in the order of seven million pieces, but this summer it had reached almost two billion: a whirlwind of exchanges that allowed Supply @ ME to arrive on one of the stages of importance of the great world finance: “we have been in the reel of CNBC for a long time, together with the big names of Nasdaq”, continues Zamboni.

Such interest is probably justified by the prospects for success of his business, the monetization of the warehouse. Supply @ ME has succeeded in building a bridge on the void that is created when a company ends the production of its goods, or, in the case of a wholesaler, when the purchased goods arrive in its warehouse, and the moment in which the goods and merchandise are sold. In this period, companies often need liquidity, "a need that the traditional credit system serves only partially, with loans that arrive after a long time and are worth a maximum of 50% of the inventory value", explains Zamboni .

Supply @ ME manages to quickly get the liquidity that companies need, using the resources made available by financial entities that have them in abundance and are desperate for profitable investment solutions.

Building the tube that safely brings the liquidity of assets under management to companies has not been easy, in fact there have been technological, accounting, regulatory and logistical complexities that have taken more than five years to resolve. But all this is behind us, because today Supply @ ME is able to value a warehouse, proceed with its securitization with the issue of a short-medium term financial security that is underwritten by asset managers: the latter are happy because they have a return, companies meet their need at a fair price (not being a loan). The circle closes when the goods from the warehouse are sold to the end customer.

Supply @ ME obtains commissions from all this: "on a warehouse worth 100 euros, we receive an income that is worth about 1.5 euros at the EBITDA level and one euro at the net result level", adds the number one of the group.

To date, Supply @ ME has come to analyze 165 companies, with a total inventory of approximately two billion euros. On the basis of these numbers, it follows that the next income statement could also reach a net result of 20 million euros, if all the companies analyzed were considered eligible.

These figures, however, are not seen, or are only partially seen, because it is as if we were in the year zero. Something will be evident at the end of the month or at the end of April, when the company will respectively provide a trading update and publish the 2020 financial statements, but the boom in revenues and profits should be seen this summer, with the publication of the accounts. in the first half of 2021. At this moment, at 0.50 pence, the stock is suffering a high “delivery risk”, but it is also an investment opportunity for those who do not want to wait to see certified results.

Small Cap Value Report (Tue 16 Feb 2021) - BWNG, NEXS, CLX, BLTG, SYME, Virgin Wines

N Brown (LON:BWNG)

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Paul Scott

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