Small Cap Value Report (Tue 4 Feb 2020) - ZYT, NMC, XLM, PEG, K3C, ALU, TSLA, ESC

4th Feb '20 by Paul Scott

47 comments 14180 reads

Good morning, it's Paul here with Tuesday's SCVR.

Estimated completion time - 1pm

Update at 13:05 - today's report is now finished.

I've got a few minutes to kill before the 7am RNS starts beeping into life.

I'm delighted to see that we're coming to the end of that part of the year when it's still dark at getting up time. The first glimmer of dawn is appearing to the east.

I woke up with a start, very early this morning, wondering why the listed company D4T4 decided to call itself D4T4. Then it dawned on me - D4T4 looks a bit like the word "DATA" in capital letters, but with the letter A replaced with the number 4. The company's slogan of "All about the data" hadn't previously been obvious enough to enlighten me! Which made me realise that I'd been rather thick.

In fact, I've got form on this. When the Ceefax teletext service was introduced in 1974, I just thought it was a modern-sounding name. It was only when Ceefax was finally discontinued, in 2012, that I realised the name was a pun of "see facts". For 38 years I'd been blissfully unaware of this strikingly obvious fact.

Right here we go, the 7am rush hour in RNS-ville has started!

Initial list

This is what has caught my eye on the first scan of the RNS;

Zytronic (LON:ZYT) - Trading update

NMC Health (LON:NMC) - response to 20% share price fall yesterday

XLMedia (LON:XLM) - business & trading update

Other companies I cover in less detail are: Petards, K3 Capital, Alumasc, and Escape Hunt

Zytronic (LON:ZYT)

Share price: 192.5p (down c.4% today, at 09:41)
No. shares: 16.0m
Market cap: £30.8m

(I don't currently hold this share)

Trading update (AGM)

Zytronic is a world renowned developer and manufacturer of a unique range of internationally award winning optically transparent interactive touch sensor overlay products for use with electronic displays in industrial, self-service and public access equipment.

Background - as you can see from the chart below, the share price here is already bombed out, following lacklustre results, and cautious outlook comments, which I reported about here on…

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Albertos

4th Feb '20

NMC Health (LON:NMC)

After being up 8% in the morning they are now down over 10%

davidjhill

hi Paul - if you didn't see the interview today on TSLA by Ron Baron (billionaire investor) and Tesla early investor its interesting. He reckons they can be doing $1tn in revenue in a number of years time and is not selling any of his shares, even at these levels !! Wow!!

I'm like you, I can't help thinking this is all bonkers but there are a lot of much wealthier people who consider it cheap.........interesting indeed. I've avoided all temptation to go long or short as my head says to sell and my gut says it is going much much higher........phewee

Another tweet from Muddy Waters apparently Edward.

mammyoko

No optimism from Matt Hancock that the spread of the virus has peaked - statement in the Commons yesterday:

"We will take a belt and braces approach that puts public protection as the absolute top priority for a virus that is increasingly spreading across the world."

The issue for the markets is, initially, to what extent trade will be impacted by government responses to try and curb the spread. If their efforts completely fail to contain the spread, the issue will be to what extent orderly business prevails in the face of hysteria by employees and consumers.

Snoo

On the other side of the pond, Tesla shares continue their incredible rally. But if a short squeeze, surely there is has to be riches on the other side if one could time it right and afford to ride out further losses. VW shares went up to 1,000 dollars but ultimately fundamentals drag it back down.

Schlumberger are down 25%, can anyone add any information to this? They are a $50bn company so this surely isn't going to be small amounts of trading moving the price. Doesn't seem to have affected BP/Shell.

Reuters reporting that Foxconn stopped almost all production until at least 10th February

https://www.reuters.com/article/us-china-health-foxconn-exclusive/exclusive-outbreak-to-hit-iphone-output-if-china-extends-foxconn-factory-halt-source-idUSKBN1ZX1ZH

doublelutz

Xlmedia (LON:XLM)

Paul with reference to your comment below:

"Management expects this to represent a monthly reduction in Group revenues of between c$1 million and c$2 million (assuming only a minor fall in its repeat revenues) [Paul: no idea what this means!]".

The demotion of the websites is estimated to cost between $1 and $2 million per month but that assumes that repeat income holds up. When a punter went from the XLM website to open an account with a bookie XLM apparently become entitled to a percentage of the future profits made from that punter. There were some people who thought that meant they would be earning income from that punter for the rest of his life! I don't think they have such loyalty. I suspect they are opening and closing accounts with bookies all the time. Certainly on the few occasions I have a bet it is with a different bookie each time usually to take advantage of a special offer with good odds.

I made very good profits on this one but I use charts to determine when to get out. It has been clear from the high 100's that this was a risky share to hold. At the present price it is a binary bet. Either you will double your money (or more) or lose it all.

UK_Investor_8888

I am deeply worried (and embarrassed) about my huge position in XLM @ -45%.

Doublelutz is spot on above.

According to Stockopedia, the Tangible Book Value (liquidation value) is presently 12.93p.

I would infer that the vulchers will come in @ <12p a share, and that would probably see existing shareholders wiped out.

If shareholders are very lucky, they may be able to turn around the company, but this incredibly hard to do, and many obstacles to this.

@ today's close of 24p, its only got half way to go to reach Tangible Book Value.

I'm staying in for now. Can't really countenance the loss.

Sailorboy

Hi Paul. Do you have any idea why the Revoulution Bars price has crashed down to round 70p recently. I have not seen any press releases. It looked reasonable value at 90p

TBH the turnaround looks hard, if we assume that Google will not budge.

It looks absolutely nailed on that there will be a massive profit warning as the intangible assets will have to be written down, even the ones currently untouched by Google now, because if there is a continued preference for genuine organic content they are going to lose out. Some of their poorer sites could be scrapped altogether.

For example, another of their sites: www.moneyunder30.com - bought for $7m. This seems an incredible price for a site which is just a collection of articles, but no doubt based on multiples of the earning potential at the time.

Writing real articles for syndication and monetisation is a much lower margin business than the spraygun method currently used.

I believe there is a nucleus of good sites here, but who knows at what level it might be?

I don't think Paul will be worrying too much about this. The share was in a very lengthy trading range and when it broke out moved up quickly as would be expected. Subsequently, you can expect unhappy holders to take the opportunity to sell and it is not unusual for the price to come back towards the top of that range before hopefully moving forward again. However, much more of a fall would tend to indicate that you will have to wait some time for any advance.

Thornabian

Today I plot it against bitcoin in 2017 and it actually rises faster. As we speak it is dropping back (probably to earth).

I was bullish Tesla at 180 but it is completely overdone and from what I read, the rally picked up on the back of a huge amount of out of the money call options which caused covering of positions by sellers of the options. Not sure if that is true but it would explain the ridiculous valuation of over $900 per share when it only made 0.56 cents per share in the last quarter - it's best so far.

To put it into comparison, Volkswagen delivers 11 million cars of all types and only generates c. 100 billion in revenue, so there is no way Tesla can generate 1 trillion in revenue, there isn't enough people to buy that many cars, let alone at 50-90k a piece!

Ron Baron is one of those hedge fund guys who no doubt has tonnes of out of the money call options riding on a pump and dump so he would say it is possible.

Paul Scott

5th Feb '20

Re Revolution Bars (LON:RBG) - I don't comment on day-to-day share price movements here. There's no point. Small caps are illiquid, and the prices move on a handful of small trades. Trying to make sense of the price movements is a complete waste of time!

The only prices that matter are;

A - the price I paid

B - the price I sell at

I'm relaxed about the timescales between A and B (normally I would only buy something if prepared to give it 2 years+ to gestate).

Therefore, the prices in between A and B don't really matter.

Regards, Paul.

Howard Marx

It would appear that Tesla's soaring share price is being driven by technical considerations (option covering or short closing) rather than fundamental considerations.

An analogous situation occured in the autos sector in 2008 when Porsche announced that via option & swap positions they had acquired 75% of the shares of VW Ordinary shares - short sellers scrambled to close their positions against a tiny free-float & the VW Ordinary price soared.

Lamb of Wall Street

I feel your pain, I’m currently at a 60% loss with this share. I will put in down as a lesson learnt and move on.

Banzii

One thing to consider about Tesla is that it is not just a car company. It also manufacturers solar panels and battery packs for use in buildings.

I'm not saying the valuation is correct but it shouldn't just be compared against straight car companies.

Mnomis

Yip, I guess that illustrates the point. How about incorporating some forward looking information i.e. brokers having very weak forecasts indicates drop in quality.

john652

Hi,

Back on the subject of Coronavirus and the comments above, my angle is the quarantining and impact to supply chains etc. China has shut down two cities so far with 18m people there are more reports daily of restrictions on travel etc, so as this escalates, it might be the older and ill who are affected but if the answer is mass quarantine, that's a big risk. An announced vaccine will solve it all however its definitely a watch and see where companies are dependent on china.

greenhat2

I note that non executive director Ian Mattioli has bought 40,650 shares at 246p today 5th Feb.

There is confidence in house on this one.

6th Feb '20

The XL Media CEO has brought 879,973 shares for himself @26.45p.

Small Cap Value Report (Tue 4 Feb 2020) - ZYT, NMC, XLM, PEG, K3C, ALU, TSLA, ESC

Initial list

Zytronic (LON:ZYT)

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Paul Scott

47 comments

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