Small Cap Value Report (Tue 26 April 2022) - LGRS, CNS, TUNE

26th Apr '22 by Paul Scott

27 comments 7082 reads

Good morning! We should be back up to full strength again today, with Paul & Roland on duty.

Roland's Section:

Loungers (LON:LGRS) - this bar / cafe operator has reported full-year sales and profitability ahead of consensus forecasts for the year ended 17 April. I’m impressed by the quality of this operation and its growth ambitions, but I’m wary of the impact of rising costs and capex.

Corero Network Security (LON:CNS) - this cybersecurity firm has reported a maiden profit. I think it may finally be starting to deliver on its potential, supported by favourable market dynamics. I’d want to do further research, but I’m definitely encouraged by today’s numbers.

Focusrite (LON:TUNE) - I think this musical equipment supplier has delivered a solid set of half-year results in somewhat trying circumstances. Although I expect more measured growth in the future, I remain a fan and do not think the current valuation is excessive.

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

Roland’s section

Loungers (LON:LGRS)

Share price: 257p (+4% at 08.30)

Shares in issue: 102.7m

Market cap: £253m

Trading update

“Record sales for the 52 weeks ended 17 April 2022”

Loungers is a fast-growing cafe / bar operator with two brands, Cosy Club and Lounge. Both formats are all-day offerings that appeal to a wide range of customers. The business is highly-rated by us here at the SCVR. While the shares don’t…

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Viz

26th Apr '22

It was the take up of rights @ 20p. Could always short them to make the money back in bucket loads?

joshwood976

Pci- Pal (LON:PCIP) - I Can't tell from the RNS if the max damage PCI Pal would pay if they lose the case is £1.3m? or if this only covers the court costs?

Fool Hardy

I wonder if it is worth a look at Immotion (LON:IMMO) . A company specialising in "immersive entertainment" mostly at major locations such as Zoos and Sea Life parks etc

"Group revenue increased 230% to £9.4m (2020: £2.8m)" but from a very low, covid impacted base. Nevertheless, it has done well to survive the last 2 years with relatively little debt and a very simple business model. Today announces that it is is going to "spin out" its home based entertainment and Ivisan divisions

It only has a market cap at just over 18M and it is not really in its stride yet so wont suit everybody . ( I hold )

Funnymoney

I remember looking at this at the time and deciding that the £3m was not material to him in terms of his absolute wealth - even if he lost it all he would never have to work again.

simoan

RE: Corero Network Security (LON:CNS)

I've never looked at this company before but the thing that sticks out to me like a sore thumb is the 10% shareholding of Juniper Networks. IMHO you should never hold a share based on hopes of a takeover but I'd be interested to know the history behind Juniper's involvement.

All the best, Si

MiserableJacktPotato

Warpaint London (LON:W7L) audited results out, nice improvement in profitability and a strong outlook statement. Decent dividend of 6p for the year too. Happy holder.

RichTea

Today sees the inaugural results from Light Science Technologies Holdings (LON:LST) which floated last year raising £5M. It's main/original business is in Contract Electronics manufacture, mostly printed circuit boards and there is also a new division developing and installing Controlled Environment Agriculture (i.e. vertical farming) equipment. The market cap is about £12.5M, although the stocko report still does not have the basic details.

Despite the market cap being well below what I would normally look for I have taken a small starter position, mostly due my interest in the CEA division. Today's results were fine, revenue of £7.4M and a post tax loss of £2.35M, the outlook was a little cagey. I see it as a medium/long term opportunity in an attractive market that could do very well.

I would be interested to hear any other views.

Boon

On Begbies Traynor (LON:BEG) they don't handle or make much money from CVLs. It is the compulsory liquidations and administrations that these insolvency practicioners make most of their money from, as they are complex and messy and sometimes acrimonious amongst stakeholders.

Those are rising too, but not as much as CVLs to date. So the key would be the trend over the next few months.

(I hold)

Brookeda

Hi Mark

I have a small holding in this and agree that things are moving in the right direction but just slowly. The catalyst to this getting much higher is seeing overall revenue growth rather than the SaaS replacing historical revenue.

Its dropped on todays news and I wouldn't be suprised to see it drift more without any contract announcements or anything. I don't plan to see though but equally I don't plan to add at this stage also. There are probably better options out there at the moment with many bombed out shares.

Wol

Very quick reply.... Juniper are a major reseller of Corero's DDoS product (and maybe other products too). Having Juniper bundle Corero's DDoS into their hardware sales is a great sales route for Corero Network Security (LON:CNS) . Which does make a takeover a possibility. Having said which, you are completely right... "you should never hold a share based on hopes of a takeover". I hold because of the good growth and the increased importance of cyber security in a world in which:

1. We seem to be entering a second cold war

2. Countries hostile to the West (not just Russia) are increasingly using cyber criminality as an easily deniable way to damage their enemies (us).

Good question. I've just had a short look. Sadly it looks to me as if the £1.3 is the maximum that Pci- Pal (LON:PCIP) would have to pay in court costs (including the other sides court costs). There is no limit to the amount of damages that might be awarded. Except for this court case Pci- Pal (LON:PCIP) looks like a really good business. But how can we know how the courts will decide even if Pci-Pal's arguments are valid? I am holding off this one awaiting further developments in the court case

rmillaree

Pci- Pal (LON:PCIP)

Wording aint great but certainly seems to me that they are probably only talking about the court costs here - not what they may need to pay in addition ref damages etc.

I guess the fact they are sticking to their guns and have provided timely updates seesm to suggest they are doing what they need to from their side to defend what they do. Obviously the fact that one side is confident and the fact the other side is happy to splash the cash ref their funds going after Pic-Pal - suggests one party here may come out of this with the result they don't like or see as being right.

Thanks. Of course this holding is chump change for Juniper but interesting that there is a commercial reason behind their investment. I used to work in data security but have never come across the company or any of the management before. I know a few people that used to work at Cambridge Broadband though, so they will have some "colour" on the CEO. I agree it's an interesting product which is in the sweet spot for the world we live in right now.

Roger Baron

Thanks for the update on Corero Network Security (LON:CNS) Roland. Glad to read some positive support for my very overweigh position. Now one of my largest holdings having topped up under 3p a while ago. Originally brought to my notice by Gervais Williams' comments on a Smaller Companies report a few years back c7p.

doug2500

I'd missed that thanks. K3 Capital (LON:K3C) appointing a senior manager is mildly positive in my view with the caveat that I know nothing about the new man or his previous companies. Compared to a few years ago it's a much bigger, more business diverse and geographically diverse company so some help at the top seems reasonable.

Some googling after work on the new appointment seems in order.

Poker111

£CNS Thats quite some turnaround "EBITDA: $4bn (2020: EBITDA loss of $1.4m)"

TheFloatingInvestor

Why the recent decline in K3 Capital (LON:K3C)? I see the share dilution has been highlighted as an issue, and the ability to fund future acquisitions...but looks like good competent management who have a proven track record to deliver, and with the increase in companies going to the wall, this should help impact this companies workload? SP looks good to me.

Harry Hindsight

Took kids to Sea Life in Brighton who have eight pods with VR headsets with several programmes - deep dive wreck with giant octopus, swim with sharks etc. The pods tilted and vibrated - but without the gravity/pressure etc bad bits of the real experience, safer (don't actually swim with a shark) and considerably cheaper and quicker for our low attention span heirs.

Tortoise investor

Thanks for flagging. I haven't properly looked at Warpaint London (LON:W7L) before but on first glance at 16x estimated p/e for this financial year isn't it expensive compared to Creightons (LON:CRL) which is also showing good growth but is on around 10x for the year just ended? Cosmetics and beauty feels like the sort of consumer item that gets cut back on a bit during consumer belt tightening so I would instinctively feel cautious about paying a potentially high price.

BnB

27th Apr '22

Cosmetics and beauty feels like the sort of consumer item that gets cut back on a bit during consumer belt tightening

You’d think so. But historical data going back as far as the Great Depression suggests otherwise, although the mix might change. Currently skincare is running ahead of makeup.

Small Cap Value Report (Tue 26 April 2022) - LGRS, CNS, TUNE

Roland’s section

Loungers (LON:LGRS)

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Paul Scott

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