Small Cap Value Report (Tue 17 Jan 2023) - QUIZ, RBG, MCB, UBG, RFX, NWOR, DPP, EQLS, THG

17th Jan '23 by Paul Scott

67 comments 9345 reads

Good morning from Paul & Graham.

Today's report is now finished.

In case you missed it, Graham published his own watchlist of interesting shares for 2023, which stand out as the most interesting ideas he's covered in the SCVRs. As always, we just throw ideas at you, for your own more detailed research.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review 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 are analysing the company fundamentals, not trying to predict market sentiment.

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

This is the final tally. I think we covered all the main above, or below expectations updates, which is the idea. Obviously we can't cover everything!

Do post a comment below if there's anything significant that we missed (that isn't just an in line with expectations update).

Paul’s Section:

Quiz (LON:QUIZ)

(16.75p y’days close - mkt cap £21m)

Trading update looks reassuring. Stores traded well over Christmas (revenues +19% in Dec 2022). Online revenues down -14%, due to reduced third-party website sales (in line with strategy). Own website revenues were flat vs LY. Gross margins good. International revenues good, up +20%.

Cash position healthy at £9.2m, plus headroom of £3.5m from unused bank facility (safe, with no covenants, and it’s not needed in my view, Expires June 2023, but has renewed without problems in the past).

Outlook - confident at least in line outcome for FY 3/2023, same wording as last update. "Well positioned" longer…

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Boon

17th Jan '23

I know you're dripping with sarcasm, but there are easy investment strategies. Doesn't mean they're profitable though!

Ironically, we're on a website where one of their key customer props is to make investing easy - StockRank. One of the Stocko propositions is that you can just invest in the top StockRanks (90+) and it should outperform the market. Easy right? :)

I've held Medica (LON:MGP) for a while, and tracked it for even longer. Am pleased with the SP reaction today of course. Had a quick skim of the results, will do more detailed analysis in the next day or two.

For me, several things jump out:

Key worry in the past was whether competition was forcing margins down. This update doesn't mention that threat (but doesn't mean its still there?)
Great to have a business where Demand isn't the problem, but the ability to supply. Their growth was bad in H1 because of this, but pleased to see they have managed to ramp up recruitment in H2 to deliver a solid growth. Can they continue? Key investment question.
RadMD looks like getting some momentum now? Was muted growth in H1 and last year H2, from what I recalled
Tech - they oversold it a bit in the last two years, and it looks like now it has realistic spin to it. Not going to be a big driver of growth in next 1-3 years IMO
They don't have the cash firepower I think to make another acquisition in H1, but can see it on the cards for H2, now that RadMD has been bedded in. Could be a nice twin driver of growth, 10-20% organic yearly, and 10-30% through acquisitions.

I don't quite have the broker optimism of 220p fair value, but definitely think 200p is achievable (in a bull market).

This along with Begbies Traynor (LON:BEG) are my two defensive plays, that will do well whether recession or not in 2023. But I would also say that the current pricing isn't cheap, but I don't think it is expensive either (otherwise would not be a holder).

(I hold in the Boon Fund)

FREng

Check out the view buttons on the RHS of Shareholder Activity on the Stock Report.

Sharewallah

Directors’ holdings should be stated in the annual accounts and if you then track directors’ sales and purchases since the last accounting date you should get an accurate picture of their holdings.

Neil P

Same here, I also got caught on this one. I failed to act. I have had several previous successes with investment trusts winding up, and I treated this one the same, when in fact it was different - the assets were floated off, whereas in all the others the assets were sold, and the proceeds distributed to shareholders, which is a huge difference. Lesson learned the hard way (albeit within a managed risk model)

sharw

nettle - it should not be difficult to get this from the annual report. I randomly picked Medica as it has been discussed here today. Click on the link to the plc website on the stock report and then on 'investors' when you get there and then on the annual report. It was in the renumeration report:

The above is as at 31/12/21

Thence click on dealings in the stock report as you have found and add or deduct those - in this case just one deal:

Rusty2

Surprised Equals (LON:EQLS) closed down 7.5% on the day. Seems to be a big fall just before the close.

davidjhill

Hi - I'm not sure why you think a PER of 13 for next year makes Medica (LON:MGP) not cheap? It's at a discount to peers and with a PEG of below 1 on a 17% expected eps growth I'd say it is undervalued for a stock with structural tailwinds.

How big are those tailwinds? Yes - population is aging. But is that single-digit or double-digit growth yearly, in terms of radiology scan required? FY22 and FY23 is going to be backlog-driven growth, but may not be from FY24 onwards.

Then just because demand for scans have increased, doesn't mean the actual volume of work that Medica (LON:MGP) will get will increase correspondingly. I have a dim view that NHS care will increasingly become rationed, wait lists longer. Many people will have to make do with longer waits between scans, or not at all. Because we cannot increasingly fund what is needed out of a weak-growth govt budget.

Are the number of radiologists in the UK growing at double digit rates to recruit? I don't know.

Yes - 13x forward PE is a decent price. But my assumption is single digit EPS growth rates for FY24-26 (3 years) and a max PE multiple of 16-18x (rich for the growth rate, but enough of a premium for the predictability of revenues and for the high margin), I'm not sure I would class 13x as Cheap (If the scale is Cheap>Undervalued>Fair>Overvalued>Expensive). Would say Undervalued is my opinion, in the scale above, hence why I'm still holding for now, but only target sell price of 200p-ish.

Harry Hindsight

I agree the maths should have perhaps had at least one red out of four greys.

The point for me is 'learning' how to use the Stockreport better and screening. For me the ROCE, ROCE, margin, F-score (under 6) and Z Score would have made me 'unbound' from looking at this further bearing in mind the number of winning companies out there. A loose rule is nothing under SR75 but that of course is is above the GARP/SCVR looking for the plays of the future.

Maybe not outperform - but not be a dud. A safety net. If get timing wrong and it falls back then comfortable being patient and it should move back to mean. A viable going concern, not blue sky stuff.

But that saying a portfolio of 90+ would be a bit boring and may as well stick it in a few ETF's - no da.

Making notes on Freight & Logistics companies here and US. In London recently UK Mail have been dropping off owned by Deutsche Post AG (LON:0H3Q) and likely muscling in on International Distributions Services (LON:IDS). Clipper went to the Americans which leaves Xpediator (LON:XPD) and DX (Group) (LON:DX.

Competition is 'person in a van' but not sure these are all Redde Northgate (LON:REDD) vehicles.

Maybe a discussion blog poll on who see who where and in what location.

Once have that buttoned up will move onto warehousing Urban Logistics Reit (LON:SHED) etc.

As for physical shopping well I'm afraid Amazon.com (NSQ:AMZN) is my go to. SR38 worse than Unbound lol - not a cigar butt but possibly the whole box of Havanas.

Don't Wincanton (LON:WIN) and Logistics Development (LON:LDG) work in that sector?

BnB

I'm not sure why you think a PER of 13 for next year makes Medica (LON:MGP) not cheap? It's at a discount to peers and with a PEG of below 1 on a 17% expected eps growth I'd say it is undervalued for a stock with structural tailwinds.

Optically cheap IMO but customer concentration is a worry along with the resourcing constraints. Competition in the niche could hit margins hard and fast should a bunch of hungry me-toos come chasing after the same experts around the world. And don’t rule out the disintermediation potential of AI, though that is not a short term risk.

Counterintuitively I think it’s a business I’d rather own 100% and be engaged in the thick of the action than sit at a distance on 0.001% extracting a rent.

Bluesky Ventura

If you say so.

KevinS1

I do not use the Stockranks to make investment decisions alone. They will be the last thing I would check and purely to see if there are any "alarm bells ringing".

Way before the final check I'd have looked at profits, debts, forecasts, history of earnings, RNS's & annual reports, cash, shares in issues (and history) and loads of other stuff.

You've got to be wary of something that relies purely on a system calculation alone, and whilst statistically holding a bunch of high SR shares will perform better than a bunch of low ranked SR's its almost like saying I hold shares starting with A-M and expect them to outperform those starting with N-Z.

Use it as a guide only, and combine it with whatever other metrics you think work and hopefully you'll do fine.

JSLDUK

Keep getting burnt by RBG since floating they have kept going down, keep expecting a turnaround but seems to keep on failing to deliver. Buying Preach seems badly timed, getting a bit tired of the excuses, only decent trade was post covid for 12 months with no biomes rates, government grants, loans and a VAT reduction and the government paying for people to eat out.

18th Jan '23

Maybe a system glitch, upon opening today the price was around 92p, I was going to top up if still around 85p.

nettle

many thanks for this v helpful, and for the others who so kindly bothered. Quite heartwarming! What a splendid example of this area of Stockopedia.

jamesalastair

...and the Scotsman!

Small Cap Value Report (Tue 17 Jan 2023) - QUIZ, RBG, MCB, UBG, RFX, NWOR, DPP, EQLS, THG

Agenda

Paul’s Section:

Quiz (LON:QUIZ)

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Paul Scott

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