Small Cap Value Report (Tue 24 Nov 2020) - MCB, CARR, TRAK, CBOX, IGP, TET, CWD

23rd Nov '20 by Paul Scott

81 comments 13232 reads

Good evening/morning, it's Paul and Jack here with the SCVR for Tuesday.

I'm putting up the first few sections late on Monday night. The reason being that something has cropped up, and I have to spend c.4 hours travelling on Tuesday (essential), hence won't have much time for writing about shares. So as not to short-change you, I'm doing the work beforehand to catch up with some loose ends.

Timing - Today's report is now finished.

Agenda -

Mcbride (LON:MCB) - AGM trading update (Paul, done)

Carr's (LON:CARR) - Final results, FY 08/2020 (Paul, done)

Trakm8 Holdings (LON:TRAK) - Interim results 6 months to 09/2020 (Paul, done)

Cake Box Holdings (LON:CBOX) - Interim results (Paul done)

Intercede (LON:IGP) - Half year report (Paul, done)

Treatt (LON:TET) - FY 09/2020 results (Paul, done)

Countrywide (LON:CWD) - Update on strategic options & board update (Jack, done)

Mcbride (LON:MCB)

Share price: 61p (down 7% on Monday)
No. shares: 182.2m
Market cap: £111.1m

AGM Trading Update

McBride (the "Group"), the leading European manufacturer and supplier of Contract Manufactured and Private Label products for the domestic household and professional cleaning/hygiene markets, provides the following trading update ahead of its 2020 Annual General Meeting to be held later today.

It’s a 30 June 2021 financial year end.

Different product categories are performing in a varied fashion. Overall;

Total revenues are broadly flat after the first four months and are expected to show modest growth for the first half of the year.

Profits and outlook, it says;

Earnings growth is expected to be weighted to the first half of the year, reflecting weak comparatives in the prior period and improved margins from efficiencies, lower operating costs as well as lower input costs for certain raw material and packaging items.

Whilst all factories are currently operating as normal and the supply chain for inbound and outbound materials is functioning well, the Board's full year view is cautious in light of the potential for future operational challenges resulting from Covid-19, the uncertainty arising from the Brexit process and the unknown impact on consumer demand from renewed lockdowns in our principal markets.

Our full year outlook…

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JohnEustace

24th Nov '20

They are too fuzzy for me to read on my 32" 4K monitor and that's opening the images in a new tab. They come up better on my iPad. No idea why.

Susan123

Hi Greensiax/Ed

I would like to create my own heat maps for mid and large caps. How do I do this? I asked the Stocko helpdesk bc I did not want to trouble you and the helpdesk said it did not know the answer.....!!!

I am using new site so need some pointers.

Tks and great maps

Phil Dunphy

I would love to know to:) Great work!

GrahamF

I've been in IQE (LON:IQE) for quite a long time. Watched them go up and up when it emerged that the VCSELs in the FaceID on iPhones used their tech and watched them go all the way back down again.

One trouble with this stock is that people are generally not willing to invest sufficient time and effort to really understand what they do, hence they are frequently talked about as if their whole business is iPhone related, or as if they are making chips so should be compared to other semi-conductor manufacturers, or they have an unquenchable thirst for capex when in fact these are very much step costs for new machines that have a relatively short pay back. It is also a bit ironic that some people who complain about the capex are perfectly happy to hold shares in companies with an unquenchable thirst for marketing expenditure as if marketing costs are somehow virtuous but capex is a black mark.

The company has been on a rollercoaster. They became too closely associated with Apple and FaceID, which never took off at the pace people hoped for. Then the FD sadly died in an accident on holiday and there was a mostly nonsense short attack from Muddy Waters. Then an unexpected tax bill relating to an acquisition and to top it all the US/China trade wars with the US ban on Huawei kit. And so on and so on.

However, the investment case at IQE has always been around 5G, both handset components and infrastructure as well as VCSELs for sensing applications like FaceID and automated vehicles. Around a year ago, it looked like for whatever reason they were not able to take advantage of the roll out of 5G in the way that had been expected. So, it became very much as case of don't believe anything about the tech being great or the surrounding story, only believe the real numbers from them.

Now it appears that the real numbers bear promise. I note the dramatic drop in debt. The other thing to know about this business is that a major part of the costs are pretty much fixed until capacity is exceeded so incremental growth should be quite profitable. But as I say, only believe it when you see it.

My conclusion is that I am happy to continue to hold as I think they are well placed for growth on the back of 5G in particular. The component suppliers who are their customers are generally reporting very good growth. They are not dependent on Apple. Margins should be good for quite a while.

I am not expecting stellar returns however but believe that they will be good enough to be a good place to be.

Robert W

I hold but am beginning to think they look fully valued - if they get back to "normal" profit levels that would put them on a p/e of circa 10. Current 2021 forecast has them at 18.4. That looks like a lot for a company in a cyclical industry which isn't showing a great deal of growth. I have added a tight stop loss.

Harry Hindsight

Cake Box Holdings (LON:CBOX) - saw a market stall type set-up in the entrance of a shopping mall (Surrey Quays) with a branded van presumably to bring the stock in each day. VERY attractive looking cakes, but not for me. Egg free. Have seen a couple of private type cake shops - no way the same presentation/quality but popular all the same and 'home' businesses with ebay sales etc. So a weak moat in my view. But then others say the next Domino's.

SundayTrader

re IQE (LON:IQE), I have been quite impressed by the new CFO as well. I had been under the impression they could see revenues up to £250m from current facilities. At that level they should be able to finance quite a lot of new capex out of operational cash flow.

Gromley

IQE (LON:IQE)

One trouble with this stock is that people are generally not willing to invest sufficient time and effort to really understand what they do,

I can't really agree with that graham. There are plenty of people who know in mind numbing detail exactly what the company does. What they don't know though is if and when they can start making money out of it.

It could be argued that the company has been serially unlucky over the last couple of years (I prefer companies that don't need to rely on luck).

I actually do that they could be a substantial success story but that time is probably 3-4 years into the future. 2 years ago it looked like it was maybe 2-3 years away.

Having said all of that I do currently have a recently bought small position in IQE for the first time in about 18 months, but this was just based on an hope/expectation of short term technical bounce.

The fact there was only a muted reaction to today's upgrade, suggest that I may have misjudged that.

Personally I think they need to show some sustained earnings momentum before I would start to get interested in a longer term investment again.

davidjhill

hey Gromley - broadly agree, though Graham also has a point.

You are right that investors do know in mind numbing detail the tech Iqe (LON:IQE) has......BUT.......there were definitely a bunch of investors who got on board the "we're supplying Apple" train and nothing else mattered. What this translated into was an exponential rise up to 150p and then as people worried about Face ID uptake and iPhone sales dropped quickly as the hot money exited. At this point they found it very hard to dispel the idea they were not just an Apple supplier even though a number of us pointed out regularly that it wasn't the case.

Whilst you are correct that it could be argued the company has been serially unlucky I think those events mask a reality that investors got way ahead of themselves with regards to when demand for their kit would start to grow consistently. I think management did a really poor job of guidance around this period and failed to understand the timings of the demand growth and that's probably where I have my biggest issue with the company. That coupled with the unlucky events that we know about elongated that demand curve even further out and thus investors lost confidence. At that point there was a lot of huffing and puffing about CAPEX. As Graham points out there is nothing at all wrong with CAPEX but the real problem in my view was that investors didn't think management could make the required IRR to justify the CAPEX.

Where I am somewhat encouraged by todays update and this market in general is that at a macro level I can now see a path to 20%+ consistent compound growth for a few years in 5G and the like. If (and this is of course the million dollar question) Iqe (LON:IQE) can capture that then the company could be viewed as good value, but previous hiccups will temper investor enthusiasm until they see it come through more regularly in my view. The problem for investors will be the timing.

UK_Investor_8888

A question from me, after my night time review of the day.

When to eject?

The breath-taking surge of November; when will it/we run out of steam?

For my big winners, I still see a potential 20% upside if one looks at the January 2020 peak, two year highs, Stockopedia valuation tools, and Analysts opinion data.

But the idea of "don't be greedy"...

I am starting to think about soon it will be time to "park up" and pause for breath, wait for reality to return.

XLMedia (LON:XLM) @ 46.5, doubled up what I picked up in July and September, overall +24%
EVRAZ (LON:EVR) +10%
International Personal Finance (LON:IPF) - my averaging down strategy puts me +40%.

I don't feel that clever!

Re IQE (LON:IQE)

Respect Gromley’s view that commentators understand the stock, however, I really think that there wouldn’t have been so many way off beam comments in the past about them being bought by handset makers, or them being in the same game as chipmakers, or being an Apple supplier etc. If that was really the case. But it’s water under the bridge so no matter and I pretty much agree with the forward looking comments.

David’s summarised it very well and more eloquently than me.

Where I am somewhat encouraged by todays update and this market in general is that at a macro level I can now see a path to 20%+ consistent compound growth for a few years in 5G and the like. If (and this is of course the million dollar question) Iqe (LON:IQE) can capture that then the company could be viewed as good value, but previous hiccups will temper investor enthusiasm until they see it come through more regularly in my view. The problem for investors will be the timing.

MiserableJacktPotato

I saw very little in that presentation that isn’t available for free from the two major identity providers - Microsoft and Google.

I should clarify “free” - I mean bundled in with other subscriptions that already utilise Microsoft and Google cloud services

Andy Sav

Hi IGotPoesJacket, but does Intercede (LON:IGP) offer there software as a service? I know of some companies that prefer to outsource the handling of customer identity to a third party, to minimise their risk and reduce internal effort around managing GDPR, even if internally they have invested in MS Azure or Google cloud services. Maybe this is Intercede (LON:IGP) s market? Thanks Andy

Boon

So are they a squeezed supplier in a middle of a long chain, or do they genuinely have the secret sauce (sorry, secret butter) that no one else can produce?

I think that, for me, is the key to understanding whether Iqe (LON:IQE) is worth its high rating or not.

penchrise

25th Nov '20

your analogy amused me, graham

If IQE (LON:IQE) were a single technology, single product and single market company that would be fairly easy to answer but they are not.

I suppose that your question is essentially asking does this company have pricing power in a growing market or not? You’ll find any number of opinions out there but I do really think that it is only the trend of actual financial results that can be relied on here. And that’s now looking quite positive as they seem to be more in an under promise and over deliver mode.

But to try and answer the question a bit more fully. They are one of a small number of companies doing expitaxy for compound semiconductors and while not unique they may be best in class in certain categories. However, historically compound semiconductors were too expensive. As cost has come down and the need for some of their special properties emerged for specific applications in sensing, 5G and defence, volumes have started to increase. So, high costs have thus far meant that the products have not been high margin. That is gradually changing due to lower costs and new markets less reliant on a small number of customers.

Right, but even if you outsource it, to access something like Office365 you’re going to need an identity in Azure, MyID doesn’t replace that and during the demonstrations in the video you see them land at the Azure Active Directory authentication page.

I have said before that this might be an example of my industry knowledge working against - you can’t argue against the reported numbers :)

gari en desti

Thanks everyone for all the very knowledgable posts on IQE (LON:IQE). I knew nothing about this company before reading your posts and now am hopefully up to speed. that's one of the wonderful things about the SCVR. thanks

Lolarose

26th Nov '20

Could not of put it better myself. Was there at 20p went in and out, sold out and rebought again North of £1.30. So just waiting - sadly no doubt it will be a long wait.

Small Cap Value Report (Tue 24 Nov 2020) - MCB, CARR, TRAK, CBOX, IGP, TET, CWD

Mcbride (LON:MCB)

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Paul Scott

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