Small Cap Value Report (Tue 23 April 2019) - ZIRP Absurdity, ANG, FRAN, KWS, TLY, FJET, SONG

Tuesday, Apr 23 2019 by

Good morning!

I'd like to thank you all for staying with us through the recent changes.

Let's see what's going on in the RNS:

  • Angling Direct (LON:ANG) - trading update. New store opened in Nottingham on Friday, Like-for-like sales growth very strong.
  • Franchise Brands (LON:FRAN) - AGM statement. "Overall, the group is trading well."
  • Keywords Studios (LON:KWS) - acquisition in Japan for JPY 120 million (£800k).
  • Totally (LON:TLY) - healthcare contract worth £13.5 million in Newcastle (not sure what the margins are).
  • Fastjet (LON:FJET) - small underlying loss in Q1. Might make a small underlying profit in FY 2019. Severe currency issues in Zimbabwe.
  • Hipgnosis Songs Fund (LON:SONG) - buys a major music catalogue including "Havana" (1.5 billion hits on YouTube). Price not given.


ZIRP Absurdity

I was thinking about putting an update out on the general state of the markets, and have been prodded into doing so by a comment in the thread below.

These two words sum up my thoughts: ZIRP Absurdity.

For those who aren't economics nerds, ZIRP stands for the "Zero Interest Rate Policy" favoured by so many central banks since the global financial crisis.

If the interest rate is close enough to zero that it makes it makes little difference, we can still refer to it as ZIRP. The Bank of England, for example, has inched up the Bank Rate only to 0.75%, and I would say that is close enough to zero that it makes little difference.

From the 1950s until the financial crisis, Bank Rate was in a range of 4% to 16%.

The USA recently escaped from ZIRP: the US interest rate is now within a 2.25% - 2.5% range.

With US government debt ballooning to $22 trillion, however (more than 100% of GDP), the prospect of much higher rates appears unlikely. Indeed, the Federal Reserve stopped increasing rates at the end of last year, and might even start cutting rates again over the next 12 months.

The Eurozone remains mired in ZIRP and only a few months ago finally halted its QE programme.

What it means

All of this easy monetary…

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All my own views. I am not regulated by the FSA. No advice.

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Angling Direct plc is a United Kingdom-based fishing tackle retailer company. The Company is principally focused on selling fishing tackle products and related products through retail stores and also online via its own Website ( The Company’s product categories include reels, terminal tackle, rods, bait and additives and bivvies and shelters. The Company fishing tackles products, including capital items, consumables, luggage and clothing. Theses all fishing tackle products sells under its own brand Advanta. The Company operates approximately 15 retail stores. The Company has developed angling superstores. more »

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Franchise Brands PLC is a multi-brand international franchisor. It has a network of over 450 franchisees in approximately 12 countries. Its brands include Metro Rod, ChipsAway, Ovenclean and Barking Mad. ChipsAway brand provides small to medium area repair technology repairs, such as bumper scuffs, paintwork scratches, minor dents and kerbed alloy wheels to the automotive industry. Ovenclean brand provides oven cleaning service to all domestic oven brands and models, including electric ovens, gas ovens, ranges, microwaves, hobs, extractor fans and also barbecues. Its Metro Rod is a specialty drain clearance and maintenance services provider. It offers high-pressure water jetting, drain or sewer lining, excavation, electro mechanical cleaning and fat and grease management. Metro Plumb offers a focused range of plumbing services mainly to the emergency insurance market. Barking Mad is a provider of dog home boarding services and pet care franchise, and also provides dog sitting service. more »

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Keywords Studios Plc supplies localization and localization testing services. The Company's segments include Localization Services, which relate to translation and cultural adaptation of in-game text and audio scripts across multiple game platforms and genres; Localization Testing, which involves in testing the linguistic correctness and cultural acceptability of computer games; Audio/Voiceover Services, which relate to the audio production process for computer games and includes script translation, actor selection and talent management through pre-production, recording and post-production; Functional Testing, which relates to quality assurance services provided to game producers to ensure games functions as required; Art Creation Services, which relate to the production of graphical art assets for inclusion in the video game, and Customer Support, which relates to the live operations support services, such as community management, player support and associated services. more »

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  Is LON:ANG fundamentally strong or weak? Find out More »

35 Comments on this Article show/hide all

Nick Ray 23rd Apr 16 of 35

I'm very dubious about Musk's claims but I see that Tesla have posted a video of "full self-driving". Admittedly the roads look fairly quiet, but it's the first time I've seen a Tesla cope with junctions and traffic lights without handing back to the driver:

It's only two minutes long so worth a quick look.

Of course technically doing it once for a video is not the same thing as solving it in general and resolving the regulatory requirements.

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jonesj 23rd Apr 17 of 35

In reply to post #471061

To achieve full redundancy, you need to tackle much more than the microprocessor. The failure modes of every single part of the system need to be considered & mitigating actions taken.

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andrewdb 23rd Apr 18 of 35

on £TSLA
" He has claimed that the net present value of a single "robo-taxi" vehicle will be c. $200,000."
... if that is the case, surely the right thing to do is to stop selling cars to people.
I eagerly await the Tesla that comes with a built in flux capacitor as that has an infinite NPV :)

on autonomous cars
I see fully autonomous cars appearing on British roads about the same time as we switch over to fusion power - in about 15 years time - which has been the time-horizon for the last 50 years or so.
The issue is not just processing speed and cost of sensors, it is that the real world is very complex and uncontrolled.

Some may call it AI but when an autonomous car can be tricked into changing lanes by 3 white stickers on a road and a person can fool an AI recognition system into not recognising them as a person just by holding a picture in front of their chest, I would not call it "Intelligent" enough to be used in the wild.

I do see driver aids becoming more widespread, and in highly controlled environments (Motorways possibly) can see some sort of 'hands free' mode becoming widely used - indeed I think some modern mercs can do that.

Underneath it all, when there is an crash (and it was the car's fault), the default is the person who is at fault is the person controlling the car, not the software that controls the car.

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pj8 23rd Apr 19 of 35

Graham. Great ZIRP analysis. The FT ran an article today drawing attention to the increasing debt in the UK in both the private and personal sectors, which supports the points you put forward. Increasingly it seems, as Mark Carney said, our funding requirements (and economic growth) depend on the kindness of strangers. It's good to see the attention that you and Paul give to balance sheet strength - the differentiator if there was a market collapse.

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Camtab 23rd Apr 20 of 35

In reply to post #470981

Thanks for that Mammyoko very insightful.

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BlueFrew 23rd Apr 21 of 35

In reply to post #471076


I just want to expand on this point:

"Some may call it AI but when an autonomous car can be tricked into changing lanes by 3 white stickers on a road and a person can fool an AI recognition system into not recognising them as a person just by holding a picture in front of their chest, I would not call it "Intelligent" enough to be used in the wild."

You'll see people making the arguments that people don't go around putting stickers on the road. No they probably won't. But what if you're driving down the road a minute after some recycling has just been picked up. A few bits of paper happen to have fallen out and have landed in just such a way that your autonomous vehicle ends up driving itself into a wall. Or into a head on collision with somebody.

But if anybody has been asleep at the wheel it is the authorities. I can't believe that $TSLA is allowed to update its Autopilot functionality over the air seemingly with very little oversight. So the driver has to be alert and ready to take control at any moment. So they use it for a few months and get used to its foibles. An OTA update occurs which results in the car trying to aim for a barrier where it has never did so before. The driver has to be alert to this and if he is momentarily distracted for any reason and doesn't react in time, then it is 100% the fault of the driver. This is regulatory capture writ large.

(Short $TSLA )

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Graham Neary 23rd Apr 22 of 35

In reply to post #470996

Thanks Paul!


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Graham Neary 23rd Apr 23 of 35

In reply to post #470966

Hi Camtab. Happy Easter to you, too and I look forward to meeting you at Mello!

Yes, we have to be aware of intangibles on the balance sheet. I don't mind buying a company with a lot of intangibles, but I'll always try to understand what they are doing there.


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Nick Ray 23rd Apr 24 of 35

In reply to post #471101


I think you have to draw a massive distinction between the current "auto-pilot" and what full autonomous self-driving claims to provide.

The currently available auto-pilot is little more than adaptive cruise control plus lane following. When a system can lose sight of where the road is and hand control back at any instant, then it is not autonomous self-driving. It would be like being driven by a partially-sighted driver who occasionally says "I can't seem to see the edges of the road any more." Anyone who takes their own eyes off the road for a second while being "driven" by such a system has more faith than I do!

On the other hand, true autonomous self-driving is intended to allow there to be no other driver in the car. That is a hugely different proposition. As to whether Tesla can get there next year, or even in the next five years with systems "in the wild", I'd say it seems unlikely (notwithstanding the video that I linked earlier.)

(And by the way, many other manufacturers now have adaptive cruise control plus lane following.)

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LongValue 23rd Apr 25 of 35

If only to remind me of the extraordinary times in which we live, the chart below (Produced in 2015) is well worth another look. In essence, it demonstrates just how low current interest rates really are. And by low, I mean really low. Although the chart goes to 2015, interest rates since then have risen only marginally. It shows that rates were at their lowest levels in the developed world for some 5,000 years; since the time of the Pharaohs. Just what this means is anyone's guess. But it does not seem to bode well for asset prices. How and when “Normal” levels of interest rates will return is still unclear. And, as Graham points out, this is some eleven years after the financial crash that triggered the move towards ultra-low rates.

As a slight aside, I have attached a link to an article produced recently by Bloomberg. It demonstrates the financial strain felt by many Canadians. The sub-text seems to be that it will be very difficult to increase interest rates any time soon.

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Trident 23rd Apr 26 of 35

The FT has noted with amusement that most forecast TSLA makes are normally in units of 500,000 for sales, manufacturing targets etc.(whilst reality differs). I guess it helps not to have to adjust the template announcements?;-). However, for this one they seem to have upgraded the unit to 1,000,000.

Obviously the new hype needed extra hype to get over the ennui reception of previous hype!!

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JohnEustace 23rd Apr 27 of 35

In reply to post #471141

Coincidentally (or not) Tesla are due to release quarterly results after the close tomorrow. The self driving hype tells me that Mr. Musk may be looking to divert attention and the results may not be great. Call me suspicious.

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Edward John Canham 23rd Apr 28 of 35

I really, really, really don't want a self-driving car. Am I unusual ?

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Lordyjordy 23rd Apr 29 of 35

In reply to post #471001

I read an interesting book about this from Thomas e woods (meltdown). Well worth a read. It may change your mind on wether what was done in 2008 was justifiable? In it they talk about the Austrian school of economics, the Fed, Fannie Mae Freddie mac etc. At the heart of it though was our current fiat currency and the central banks ability to control interest rates. It's seems intuitive that this system would cause a misallocattion of resouces as it does today. All in my opinion of course......

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Camtab 23rd Apr 30 of 35

In reply to post #471161


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Graham Ford 24th Apr 31 of 35

One of the biggest issues regarding autonomous cars is the significant proportion of the population who will demand a far higher standard of driving from the AV car than the general public currently manage themselves. Huge numbers of imaginary scenarios where the AV may fail will be rolled out as objections but seldom contrasting that with the carnage caused by the lorry driver who falls asleep at the wheel, the car driver who causes carnage when distracted on the phone or trying to change his music selection, or the huge number of collisions caused by the human drivers’ visual blind spot (the AV having no blind spot).

The tech will be capable enough long before humans are ready to accept that it is capable enough.

I believe that all new cars are soon to have automatic emergency braking. Perhaps we will wake up one day and find that 95% of the driving is being done for us anyway (auto gear box, auto parking, auto braking, auto lane guidance, etc.).

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peterg 24th Apr 32 of 35

The tech will be capable enough long before humans are ready to accept that it is capable enough.

I agree, but that's no surprise, and it's something autonomous car manufacturers  and investors need to take on board.

None of the issues of acceptance are helped by people like Musk continually puffing up what Tesla currently or may produce, since every failure to deliver just increases scepticism and distrust.

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shipoffrogs 24th Apr 33 of 35

In reply to post #471291

Wish I could fail like Musk.

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smatthews1 24th Apr 34 of 35

In reply to post #471046

I would enjoy seeing the outcome of an autonomous vehicle attempting the Swindon magic roundabout without creating chaos.

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bobsandy12 26th Apr 35 of 35

Hi Graham and thanks for your thought provoking piece on ZIRP

See you soon.

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 Are LON:ANG's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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