Small Cap Value Report (Tue 31 Dec 2019) - EAH, BGO, End Of Year Review

31st Dec '19 by Paul Scott

85 comments 10368 reads

Good morning, it's Paul here.

Apologies for yesterday's report not getting off the ground. There wasn't any interesting news, and I had a case of writer's block unfortunately. I'll circle back, and write something about BigDish (in which I hold a long position) in yesterday's report, which also ties in nicely with the theme of investing mistakes!

EDIT at 20:49 - yesterday's report is now finished.

Note that the London stock market closes early today, at 12:30. This is easily forgotten. I remember one year, when I was still staring at my screen, monitoring prices at 1:00 pm, when it suddenly dawned on me that the market had been shut for half an hour! Too much eggnog probably.

EDIT at 14:11 - today's report is now finished.

I'll be watching out for any profit warnings that are slipped out today.

There are a couple of trading updates out today, so here goes;

ECO Animal Health (LON:EAH)

Share price: 215p (pre market open)
No. shares: 67.5m
Market cap: £145.1m

Half year report

ECO Animal Health Group plc ("ECO" or "the Group") researches, develops and commercialises products for livestock. Our business strategy is to generate shareholder value by achieving the maximum sales potential from the existing product portfolio whilst investing in Research and Development ("R&D") for new products, particularly vaccines, and seeking to in-license new products.

Results for the six months ended 30 September 2019

We can see from the two-year chart, that the price has been steadily drifting down, then a gap down in Nov 2019, which must have been a profit warning:

I reported on the profit warning here on 11 Nov 2019. My conclusion then was that this looks a potentially interesting recovery situation, with a strong balance sheet, good dividend yield, and problems specific to one particular market - China, its largest market (due to Swine Flu). Although I decided that this share was impossible to value at the time, due to lack of detailed numbers. Also it reported some accounting irregularities, which is usually a warning for investors to run for the hills.

Note how broker consensus earnings for this year, FY 03/2020, have recently been more than halved from 20.3p to 9.65p. This is a useful reminder…

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Benson

1st Jan '20

Hi Happy New Year
l love the article. Had I written about my younger investing life many parts of the story would have been similar

Most of learn as well we get older even with all of the faults that we start out with and to be honest looking back l loved it all “the good the bad and the ugly”

Love all of the daily reports and comments they really do make us think

Camtab

Paul, what can i say that hasn't already been said? You are a star! Have a mega 2020.

Fegger

Happy New Year! It really does help when a writer on shares is prepared to share mistakes as well as successes. I respect those who run a concentrated portfolio but could never do so myself having suffered shocks like Patisserie Valerie and 2 other wipe outs in my investing life.

I am really surprised that two of your concentrated portfolio are Sosandar and Revolution Bars. By so many measures I see other shares as much more promising. But very glad that you are present so much detailed and reasoned analysis on them. Even if not interested in the specific shares I often find points that you make useful to other shares.

mmarkkj777

Happy New Year Paul (and everyone on Stocko).

A fantastic report for its pure honesty and open heart approach. Very brave and refreshing.

People will inevitably want to give you advice, because they know you have stock picking talent and a lazer insight into a company's financial make-up and well being. They just want to see you succeed.

All the best for 2020 and thanks for the SCVRs in 2019 (Graham too).

Mark.

kkmea018

Thank you Paul for this fine honest article and for the many daily reports, much enjoyed. You bring a different dimension and a deeper knowledge to the mix when making my investment decisions.

A very happy ( and prosperous ) New Year to you and the Stockopedia community.

Monty9

What an excellent article. It takes some guts to put it all out there so transparently but I certainly appreciate the effort you made.
- Taking your last point first I definitely do appreciate your analysis and opinion; I bought BEG after reading your analysis as a virtually indestructible, counter-cyclical yield play, offering a free call option on what I thought would be an increase in interest rates. Turns out management were just solid and rather than flatline while zombie firms remained afloat made a number of well judged acquisitions to develop the business. I recently sold 30% as it had become too much of my total SIPP value at about 15%.
- What, for me, makes your work unique is the recognition of the many contradictory factors at play and their cycles. It would be rational to avoid small caps after your experience with Revolution Bars (LON:RBG) but also rational to stay in as they have NOW reached a price and position operationally where they should be held. It is your disclosure of what you actually did and the reasons that make for compelling reading as that resonates with my own doubts and second thoughts about actions taken (and equally, those not taken).

In my opinion 2020 will be good for those overlooked small caps and also those quality operations that, with the Brexit question answered, will earn a still higher rating. I doubt you will regret your decision to remain focused on the small cap space.

Mark Carter

Paul! I'd just to say that this has been a very fascinating article for me to read. Thank you so much for sharing such a personal experience. Judging by the number of upvotes this article has, others have found it to be particularly illuminating and interesting.

I would definitely put you in a class above me when it comes to investing. Your insights into companies is much deeper than mine. In terms of our investing styles, I am a fox, you are a hedgehog.

Over the last year or so I have tried to disengage to investing. It's all too fascinating, and too easy for me to get caught up in it. Stockopedia is great in this respect. I can just update my portfolio once a month (with exceptions) and follow a quantitative approach. No hassle, all nice and smooth.

If I'm beating the index noticeably over an extended timeframe, then I'm happy. There are guys on here and elsewhere who will have Buffett jealous. I'm not one of them. I wish I was, but I know deep down that I don't have the perspicacity for it.

My favourites are mid-caps stocks. Reasonable spreads, more likely better returns on capital and debt levels, I prefer them to large-caps. Small-caps are a minefield.

Whilst I appreciate your greater insights into stocks, there's some things I would not do. Like, I wouldn't have bought into Sosandar (LON:SOS), let alone sink 60% of my wealth in it. It's not making money, so it's not for me. There's also some things that Graham likes (a fitness club whose name escapes me) that I wouldn't touch. This is despite the fact that I consider him a far better investor than me.

It's probably because I approach things from a slightly different angle to you guys. That's probably inevitable, as we each have taken different paths and have learnt different lessons.

A point of note about your fund: you seem despondent about your performance, but the chart clearly shows that you have trounced the index. Sure, your performance is highly volatile (crikey yes!), but you seem to be adding alpha, so why the long face?

All the best for the new year, Paul. And my regards to Graham, and Ed. And let's not forget the dedicated team of programmers our there, those unsung heros who have to realise the the grand visions of their captains.

Dec 2018: "Greenspan tells stock investors: 'Run for cover;"

There's a certain, shall we say, "inevitability", about the outcome after making such an announcement.

mwest555

2nd Jan '20

Happy New Year Paul!

Amazing article. Also thanks so much to you and Graham for your advice on the Small Cap Value Report. I'm new to investing and your insight really helps a beginner like me to understand how to analyse the market, and hopefully make more gains than losses. Keep up the great work.

betjeman

Thanks Paul for a brilliantly honest article - as always it is completely fascinating to read. Keep up the good work and be assured that your thoughts and insights are greatly valued. Best wishes for a successful 2020.

Cavendish1

happy new year to you Paul! I find your updates extremely useful and all credit to you for my first 10 bagger - Boohoo (LON:BOO) !! ;-) Thanks again and here's hoping for a most excellent 2020

Gostevie

I too would like to offer my sincere thanks to both Paul and Graham for the consistently informative, insightful and entertaining SCVRs, and to wish you both a very happy and successful New Year.

hendersb

Paul, your story paints a human side to the professional analyses you make. Am also enjoying your light and frank writing style - including where you admit you just don't know - how refreshing! Have a good 2020.

PeterW

3rd Jan '20

Paul, a really nice article. You and Graham make a great contribution to the Stockopedia site, many many thanks from me. See you at the next Mello and best of luck for 2020 and beyond!

catalogue

Thank you Paul for adding warmth to what is too often dry and cut throat stuff. I've met some horrible rich people and lovely people who have lost it all on great ideas, I know who I'd rather spend time with. Anyway, it's always the same people who win multiple raffle prizes. Scientists will flush them out someday. Really useful stuff, thank you and Stockopedia.

oaktree

4th Jan '20

Excellent, well written piece Paul. Huge thanks.
Ive only just got round to reading all this on 4th Jan, but do enjoy taking stock and thinking to what the year ahead might bring during this festive period.
All the best for 2020.

Desanj

awesome Paul. Thank you for sharing this with us all.

nquaile875

6th Jan '20

Happy New Year Paul and Graham and many thanks for all the effort you guys put in on this. There have been some great reports that have kept me away from some dodgy companies in 2019 so long may you continue. And a special thanks Paul for sharing your story, it's refreshing to see that even those with expertise and insight can get it wrong and admit it!

jules2k6

8th Jan '20

Hi Paul. Thank you for the review of your history, it shows there is always hope after a fall.
Have a great new year.

Meldrew

13th Jan '20

Thanks for your article Paul. It is a message of hope as well as caution for us all. Please keep your reports coming. They are invaluable.

Here's to success in 2020

Small Cap Value Report (Tue 31 Dec 2019) - EAH, BGO, End of Year Review

ECO Animal Health (LON:EAH)

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Paul Scott

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