Small Cap Value Report (Tue 18 April 2023) - FRAN, VLX, TPFG, CPC, BILN, SPO

18th Apr '23 by Graham Neary

90 comments 8406 reads

Good morning! Graham and Roland here with today's report.

This report is now finished - 10.20am. Have a great day!

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.

Graham's Section

Franchise Brands (LON:FRAN)

Share price: 187.5p (pre-market)
Market cap: £244m

We already looked at this one two weeks ago - with the remarkable news that it was making a £200m acquisition, funded by £110m of new equity.

Today we have an AGM trading update. I don’t see many new numbers here; but there is lots of reassurance for shareholders that the overall group continues to trade well:

…the excellent momentum in the B2B Division that was a feature of 2022 has continued. Metro Rod experienced strong growth in system sales, achieving record levels in Q1. The integration of Filta UK within this division continues with the combined objectives of improving customer service and reducing costs in the medium term. The defensive, mainly essential services provided by this division have proved resilient despite the current macro-economic uncertainties.

Other points:

Filta in North America performed “robustly” in Q1
Car paintwork repair company Chipsaway has seen a recovery in franchisee recruitment, but “the loss of franchisees in 2022 and increased overheads generally have impacted income in Q1 2023”.
Acquisition of Pirtek Europe (hydraulic hose…

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MrContrarian

18th Apr '23

National World (LON:NWOR): "Within the total above, 4,432,177 awards to Vijay Vaghela, a director until September 2022...The VCP was put in place on Admission in September 2019 to support the delivery of the Company's strategy, to retain the lead executives and reward them for driving its successful delivery."

Well, it didn't retain Vijay Vaghela did it?

BTW the total is 5% of the co.

Paul Scott

Hi Michael C,

Very amusing! I have a similar reaction with some of my friends - I explained in detail to some friends outside the financial world, about all the analysis I do, and writing reports. They summed up by saying: so what you and your friends do is "posh gambling" then?

Of course I vehemently rebutted their view, but on the way home thought to myself that they do have a point!

As regards Wincanton (LON:WIN) it's the only 1 item out of 20 on my 2023 top small cap watchlist best value/GARP ideas that is significantly down. Here is the original list.

EDIT: and here is the live spreadsheet, that keeps track of live prices.

I put a lot of thought into the list, and was resigned to there being some profit warnings in 2023 on that list. WIN did surprise me as the first one to trip. But as you say, it seems to have been heavily reliant on individual contracts.

Although I deliberately picked things that would possibly be more appealing value, to buy more, if they had a setback. I'm tempted to buy some WIN, but don't have enough cash to spread around all the ideas I like, and want to keep quite concentrated, so that the winners move the dial enough to make it worthwhile.

The whole portfolio is up 12% year-to-date - very good I think, since small caps are flattish year-to-date.

The top 5 in my 2023 top 20 have done very nicely -

As for the bottom 5, out of 20 - surprisingly few disasters, especially since VLX recovered sharply today, eliminating a c.20% loss instantly -

I really should properly update the comments columns.

All the entries are static, so nothing is amended after original publication, as that would be cheating!

4 months is nothing in the overall scheme of things, but it's still a good start, in a static market overall for small caps.

The risers have been due to good announcements & performance, not due to their presence on a commentators list!

Regards, Paul.

Albm7

For anyone who is interested in Investment Trusts ( I hold quite a few as I like to get exposure to PMs or strategies I couldn't otherwise access ) interesting article in IC at the weekend about the implications of the Rathbone & Investec merger regarding the trusts they overlap on and the amount they would end up owning etc .

The trusts affected by a Rathbones-Investec tie-up

rmillaree

planetx

Trustpilot

" It’s extortion"

What tosh !!! no one is forced to signup to Trustpilot so i fail to see how it can be classed as extortion end of . Wouldnt disagree with the viewpoint that the fees are extortionate and their practices heavy handed but thats life with business and every business clearly has free choice whether to pay them or not - so i would take exception to that term (their legal department may too) and i am not even a holder of the stock.

Nanotrader09

How about the "we will give you a discount for a good review". I always fall for that one

abtan

Wise (LON:WISE)

Hi Howard and BnB

Yes, I saw the declining volume/personal customer figure today.
Volume/business customer actually went up YOY%.

Given the diversification into non-FX revenues, and all the positive metrics that drive this, I'm less concerned with volume/customer; it will come back as economies improve.

Far more important for me was:

1) the accelerating growth in active customer numbers, indicating continued adoption of Wise's services (and hopefully future cash deposits into the Wise ecosystem).

2) Increasing customer deposits, where the growth here is remarkable and which will hopefully continue to drive non-FX revenues:

(NB: customer deposits shown as negative in my screenshot)

3) and the increasing revenues coming from usage of Wise Accounts and Debit Cards (and interest, though this will come down in % terms as the company attempts to return this to customers).

This table shows % revenue splits, especially the decline in FX-derived revenues since 2020.

To put some numbers to the Non-FX Revenue % in the table above (eg Wise Debit Card usage), these have increased from £85m in FY22 (the 15.2% figure in the table above) to £178m in FY23 (the 18.5% figure in the table above).

----

So yes, volume/customer is down...but there's far more here to drive revenues going forward as they showed with today's update and kept repeating in the call this morning.

Now to wait until June to see profitability levels. Given the lack of debt, positive cash generation and what I see as pretty average competition, I haven't seen anything yet to concern me about the long term future of the company.

Maybe before responding with “what tosh” take the time to talk to sone business owners who have been subjected to these tactics .

Pretty easy to make “what tosh” with an exclamation for effect but you are so wrong .

- if you sign up you have a clear pathway to get 99% positive reviews

- if you do not sign up this is not open to you

Furthermore the sales team of trustpilot explain this .

So in this case you speak out of ignorance and are incorrect .

Sorry

https://medium.com/@ryanbadger/how-trustpilot-extorts-businesses-91ca4b6a6f62

Read that - explanation much better than mine

No worries i fully understood what you said and have stated my point of view and i fully stick by it (no one is forced to sign up end of - infact you chose not to sign up yourself) i am happy to disagree here - plenty of room for alternative viewpoints in my world. No need to apologise if you feel you are right and i am wrong.

Worth you reading this , it’s very detailed and then you can make an informed choice of whether to stand by your view .

https://medium.com/@ryanbadger/how-trustpilot-extorts-businesses-91ca4b6a6f62

His words “extort” this time not mine , and it’s pretty damning .

ken mitchell

bohenie.

We only have to look at the lack of recommendations for your post and my reply to you to see that readers are MUCH more interested in knowing more about Investment Trust opportunities ( lots of ticks for those posts today) than comparisons with open ended funds.

So suffice to say that which are the better can’t be decided on the basis of just one Open ended Fund against a similar Investment Trust! Also there has been plenty of research showing that Investment Trusts often outperform Open Ended Funds, including parallel Funds and Trusts.

An exception is times like now, when Investment Trusts are out of favour and going to sometimes huge discounts. Then Open Ended Funds that always trade at NAV will have won based on PAST performance. BUT for anyone looking to buy a similar Unit Trust or Investment Trust right now it’s not rocket science to realise that the Investment Trust on a 40% discount at 60p is a better buy than the Unit Trust similar alternative with a £1 buy price!

I don’t buy Investment Trusts trading at premiums to NAV. So then a similar Unit Trust alternative might be the better choice.

Note that if buying a Trust at a premium and choosing to pay more than it is worth, a big problem is if the sector goes out of favour as then there’s the double negative of the falling share price being made MUCH worse because at the same time that premium goes to a big discount. And this is exactly what has happened in the Commercial Property sector where Trusts have gone from overvalued to extreme bargain prices.

Conversely now that so many Trusts are on big and often undeserved discounts to NAV, the reverse happens. As they come back in to favour, the rising share price is given a big extra boost as the big discounts fall towards NAV.

Note this too. Tritax EuroBox (LON:EBOX) was £1.20 in August 2021 and then at a premium to NAV. Today the share price is down almost 50% to just 65p and that fall is largely because of the Premium going to a very big 45% discount. There are so many similar examples. AND it’s also why short and long term performance figures have taken a hit too.

So big discounts are often great buy opportunities. And there are buy opportunities across the Investment Trust sectors right now.

Howard Adams

Hi abtan

Many thanks for this detailed analysis of some of the Wise (LON:WISE) stats. Very useful.

As I'm sure you have noted, Wise (LON:WISE) had nearly 6m in volume today versus an average of just over 1m. Further, its share price had a low of 490.0 (10:29am) a high of 543.8 (1:18pm), nearly an 11% low to high journey. Closed at a clean 540.00.

It seems the market digested the data and decided that the bull case was the better option (today).

Let's see what tomorrow brings.

Regards

Howard

Following up my previous post and others too, here are just a few Investment Trusts and sectors to check out for starters, in addition to those already posted by other posters today.

Again the aic site is imo the best for Investment Trusts.

ASIA PACIFIC.

Note the excellent performance from Pacific Assets Trust (LON:PAC) . It’s a growth style Trust. Check out the performance compared with sector average (those figures are at the top).

https://www.theaic.co.uk/aic/f...

BIOTECH AND HEALTH SECTOR.

Sector has been out of favour….often a good time to look to buy.

e.g Worldwide Healthcare Trust (LON:WWH) and/or International Biotechnology Trust (LON:IBT) and Blackrock Floating Rate Income Trust (NYQ:BGT)

Obviously clicking on those brings up the Stocko figures etc. Good though those are for individual shares, they are far less useful for Investment Trusts with figures I never consider but lacking must know info like discounts. So check out the aic Biotech/Health section too.

COUNTRY SPECIALIST.

e.g VinaCapital Vietnam Opportunity Fund (LON:VOF)

Vietnam is being described as the new China. VOF is a solid performer and in a 17% discount, Do check out those monthly factsheets all 3 Vietnam Trusts provide.

GLOBAL.

e.g Scottish Mortgage Investment Trust (LON:SMT)

SMT has a fabulous long term record but short term anything but for reasons well covered recently. SMT usually trades at a premium whereas recent events have seem SMT go to a rare 20% discount. Could be a very good time to look to buy.

e.g the 4 UK sectors. Loads to choose from!

UK ALL COMPANIES

UK EQUITY AND BOND INCOME

UK EQUITY INCOME and

UK SMALLER COMPANIES

It could be that many here invest mainly in UK and then mainly in UK smaller Companies coveted so brilliantly here every day. BUT there’s then the negative of being very exposed when they are out of favour. So looking to invest worldwide via Investment Trusts csn be a great way to diversify and cash in when those markets are doing well while UK might not be.

jimrog64

FUM has for a long time been a 'jam tomorrow' share and Stocko has it as a momentum trap. I However,this was my choice at the start of this year for best investment. Their erectile dysfunction treatment gel is on sale in Boots as from today, FDA approval is almost certainly coming before the end of this quarter, and it is starting to be on sale in a number of markets around the world. If they can get a fraction of the Viagra market , then they will hit the analyst forecasts ( which are for a share price three times that of this mornings open). Up 10% today. Down to sales and marketing now. Good support from Dr Hilary and featured in most of the morning papers today.

jamesalastair

Totally agree and I will be selling this week.

mojomogoz

19th Apr '23

Haha. I don't know it well. Justing funning with the news

Rusty2

Hello Graham/Roland, I notice that most of the tags are missing on this report.

TamzinPiworld

Sorry, I have only just seen this! PIWORLD is a production company, so we handle the video production / live stream / webinar / filmed interview / on site filming / AV of any sort, for companies who want to engage with investors. Not all that we produce goes out on PIWORLD. PIWORLD.co.uk is the distribution platform for our content. Over our history we have done a lot of free interviews for investors, these are listed on the 'Education' part of the website. On the 'Companies' part of the website are investor relations videos which we have been paid to produce by companies as part of their investor relations, and on the events page, these are events which we are paid to run by the companies and we produce a video of these. Although I am an investor, when posting our material here or on social media, I try to remain factual, generally using the company's words used in their announcement. I'm not trying to pump companies. We started PIWORLD because at the time, back in 2015, there was very little opportunity for retail investors to meet companies. From my experience as an investor, seeing management present was very valuable, and we wanted to make that opportunity available to a wider audience of investors. At the time, there were almost no small cap company videos, thankfully there is now both the appetite of companies to want to communicate with retail investors and a lot of great content, which investors can access to aid their research. Going forward, I hope all companies, irrespective of market cap size, put a recording (video or audio) of their analyst presentations on their website. This is standard in the US.

Graham Neary

20th Apr '23

Fixed it, thanks Rusty.

Small Cap Value Report (Tue 18 April 2023) - FRAN, VLX, TPFG, CPC, BILN, SPO

Graham's Section

Franchise Brands (LON:FRAN)

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