Small Cap Value Report (Tue 17 Aug 2021) - ELTA, FUL, GATC, VANL

17th Aug '21 by Paul Scott

53 comments 9138 reads

Morning all, it's Paul & Jack here, with the SCVR for Tuesday.

Today's report is now finished.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Agenda -

Paul's Section:

Electra Private Equity (LON:ELTA) (I hold) - update mainly focused on the smaller constituent part, Hotter Shoes. All sounds promising. I continue to believe this share looks an attractive entry point (i.e. cheap!) into the two forthcoming floats of TGIs and Hotter Shoes.

Van Elle Holdings (LON:VANL) - lacklustre results for FY 04/2021, but signs of recovery in current trading & outlook. Decent balance sheet. Overall it doesn't excite me, and is probably priced about right (already factoring in a recovery in trading).

Jack's Section:

Fulham Shore (LON:FUL) - final results of a Covid-disrupted year. The easy rerate has happened, with shares now above pre-Covid levels, and there could be more attractive reopening trades out there from a valuation perspective. But the company now finds itself in perhaps the most favourable market it has ever seen and is led by an experienced team that is well-placed to take advantage.

Gattaca (LON:GATC) - positive momentum continues. The company has cut costs and is investing in headcount, so could grow profits further with a fair wind, but the shares have now rerated considerably. These are exceptional conditions though with high demand for technical staff.

Paul’s Section

Electra Private Equity (LON:ELTA)

(I hold)

585p (pre market open) - mkt cap £228m

Realisation…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Andy Sav

17th Aug '21

Shield Therapeutics (LON:STX) (I hold), is one of my larger holdings. Registering a half year lost was expected. Since July they have hired a new sales team in the US, to get the product moving, so this is still in its infancy. This should generate a lot of upside as Shield Therapeutics (LON:STX) will gain a higher margin, from selling their own product, rather than going through a third party (like they have in Europe and China). No reason why sales shouldn't be good going forward, given the moat the company has with its Iron Deficiency product. I am no expert, but thinking the upside here could be excellent

I see the UK Consumer Price Index (CPI), Retail Price Index (RPI), Producer Price Index (PPI) and Consumer Price Index (EU) are due to announce their updates tomorrow. This should give a view on how inflation is progressing. Does any one have a view (either way) on how these updates could impact the UK markets (Up, Down, Indifferent)? Thanks, Andy

chelsea

Any informed ideas as to the US manf? Curious (I Hold)

davidjhill

I think the bit missing is that they decided to shut the loss making Mexico and South Africa business so those would not be "continuing" in the revenue line. Agree it is slightly confusing and more helpful if they also showed how much NFI that reduces by.

But primarily the beat is in the PBT numbers which appear to be now expected around £3.2m versus previous analyst expectations of £2.9m

dcon85

Gattaca (LON:GATC) trading update looked ok to me – Thanks for the writeup Jack! I added some more as the drop seemed excessive but this one does go up and down a lot.

While Gattaca (LON:GATC) is on the cards for discussion, does anyone have a view on MMGG Acquisition Ltd’s stake? They increased in May up to 20%. In June, founder and NED George Materna increased his stake to 25.01%

Boon

Surface Transforms (LON:SCE) definitely building a nice pipeline of future revenues. Key question is margin - can't infer from historic results as their BAU production facilities coming online now.

And then there's always the risk of product quality, especially something like brakes. When it hits the mass market and ramped up number of installs, will any flaws or defects be found, therefore setting back revenue growth curves and requiring expensive remediation? Always a concern with first generation of products hitting the mass market.

Paul Scott

Hi kenobi,

Just ignore the stuff on the Stockopedia page for Electra Private Equity (LON:ELTA) (I hold) because it's a special situation - an investment company that is floating its main 2 investments, and giving shares in them to existing ELTA shares, at some point later this year. So what we need to do is value the 2 companies which it will morph into.

Regards, Paul.

Shield Therapeutics (LON:STX) (I Hold). Its because no royalties were registered in the last 6 month period, whereas, prior to that, they received £8m from the licencing of their Chinese partner. This model makes income quite lumpy. Consider this statement from todays update:

"We announced a licence deal on 12 August 2021 with KOREA PHARMA CO. LTD to develop and commercialise Accrufer® in South Korea. The terms of the deal includes an upfront payment of £500,000 and will be entitled to a further £1.5 million on first sale in Korea, 15% royalties and up to £4 million in potential sales milestones. We are also in early discussions with potential partners in several other countries."

They have decided to handle their own sales in the US market, so this should help to create regular income and make it less lumpy

Surface Transforms (LON:SCE) (I Hold). Lets hope the 15 years they have spent in R&D and passing regulated quality control tests, ready for production release, go all the way to prevent such defects from occurring. There must be rigorous testing of products from any new manufacturing units before sales can be made :)

TomT

Gattaca (LON:GATC) . The first thing that I noticed was NFI 2020 of £52.8m and NFI 2021 of £42.5m . A 20% drop. I think that with COVID cases rising globally and more employee isolation will decrease company appetite to recruit staff.

Lordsdrive

Re Fulham Shore (LON:FUL)

"There is a train of thought that goes some way to justifying this: market shakeouts can be net positive for quality operators, as weaker players exit the market, leaving less competition and more sites to go for, often at more favourable rents and better returns on capital."

In my view, this is not right. Barriers to entry in the hospitality sector are fairly low. In my local market town every other vacant shop is currently in the process of being converted into a coffee shop/ restaurant or bar. As a result, I think we're likely to see an increase in competition over the next 12-months. Not a reduction.

wow - are you reading any market commentary on the labour market? Do you realise what a shortage there is with job vacancies at record highs?

Funnymoney

Gattaca (LON:GATC) - Founder George Materna buying circa £500,000 (the first time he has bought since 2015) and the MMGG stake is why I am so confident in holding.

Nebraska1977

Great observation, making money in sit-down restaurants is very tough because of just this fact.

Cleeve

worth pointing out that #AAA of which I am a long term holder and is the bidder for #boom seems to be being listed on Nasdaq with the ticker #aascf - I really think this is a golden share, I have been in it since less than 3p and it will fly very nicely in the states. I am very biased so you should DYOR

I should add you can get UK exposure but buying #ASLR which should be £ 1.50 not 39 pence they own a significant holding in AAA again I am super biased and long DYOR

JAG72

Hi Paul, many thanks for all the amazing daily reports you write for us. The quality and consistency of your work is unbelievable. I have learnt so much from your commentaries, including about company accounts.
I read your updated view this morning on Saga plc and remembered a while back about Carnival plc - that it had also created a favourable impression. Is that still the case, or do you think that Carnival (LON:CCL) has run a little ahead of events? Plus unlike £Saga, it doesn't have a diverse earnings stream as a hedge against further losses.
kind regards

I am also worried about wage inflation and raw material cost inflation for Fulham Shore (LON:FUL) but they didn't mention anything about this. They did talk about wage and raw material inflation in the FY21 just gone. Looks like they are purposely cherry picking good news to publish in their outlook sections, not providing a balanced commentary for investors.

Or maybe wage inflation and input inflation isn't applicable to them? Doubtful.

They did skirt the topic by this statement: "We are always careful about our menu pricing. We choose our quality ingredients from local suppliers where possible and intend that our customers will be served by motivated teams of incentivised staff." and they could have easily inserted commentary on what they thought about the current news on wage inflation, staff shortages, raw material price inflation.

I also just picked up something else I didn't like in the Fulham Shore (LON:FUL) results.

They mention they're 8% up in revenues vs the comparative 2019 summer period (21 June 2021 to 15 August 2021). Sounds impressive. But its not like-for-like, as they had ~69 outlets then, and now ~74 outlets! Which is about 7.2% more outlets.

It would have been easy for them to just take all their existing stores in summer 2019 that exist now and do a sum of revenues, and provide a like-for-like.

Sometimes, its what isn't said or the way things are spun that tell the truth about management and their attitude to investors...

You say that, but one look at Tesla autopilot... Doesn't fill me with confidence that regulators are on the front foot with new technologies !

Small Cap Value Report (Tue 17 Aug 2021) - ELTA, FUL, GATC, VANL

Paul’s Section

Electra Private Equity (LON:ELTA)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

53 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...