Small Cap Value Report (Tue 4 Oct 2022) - CCT, WJG, NMRP

4th Oct '22 by Paul Scott

55 comments 7501 reads

Good morning from Paul & Graham.

Agenda -

Graham's Section:

Character (LON:CCT) (£94m pre-market) - a profit warning from this designer and distributor of toys, games and giftware. FY August 2022 has been impacted by freight rates and the strong dollar, as the company makes purchases in dollars but does not earn in dollars. As a consequence, results will only be “broadly” in line with expectations. FY August 2023 is shaping up to be worse, again due to the strong dollar/weak Sterling but also due to the expected cost-of-living crisis. This perhaps should not come as a surprise but CCT shares are likely to dip further into bargain territory as investors wonder how long they’ll have to wait for trading to recover. I view this as a decent company with a strong balance sheet and I suspect that the shares will offer good value over the coming months, until economic conditions start to normalise.

Watkin Jones (LON:WJG) (£258m) - an awful sell-off for this developer, builder and third-party manager of new homes for rent (purpose-built student accommodation and built-to-rent). FY 2022 finished with disappointment as some forward sales were delayed and higher borrowing costs for buyers hurt the margins achievable by the company. Watkin Jones is sensibly expecting this softness to continue, as there is no reason to believe that borrowing costs are going to reduce in the year ahead. The business model of forward sales and high visibility has served the company well over the years but I’m taking a neutral stance due to the risk that interest rates continue to increase and given the fact that Watkin Jones shares still trade at a high premium to their balance sheet value.

National Milk Records (OFEX:NMRP) (£23m) (+4.7%) [no section below] - please note that this company is listed on the Aquis Stock Exchange, not on AIM, which can have some tax implications. It also indicates that this is a particularly small company with even less liquidity than you would normally expect from an AIM stock. NMRP provides data services for farmers, vets and milk purchasers and as far as I know has very little competition in this micro-niche (50% of the UK cattle herd is tested by NMRP). This would explain its historically very high ROCE and ROE: for such a small company, it has a great track record of profitability. Today’s…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Graham Neary

4th Oct '22

Thanks Indie, will mention that. G

You're very welcome, JASVFS, markets are indeed unforgiving with few buyers out there now to mop up any profit warnings. Good luck. G

Deegee Eff

Sounds from what you are saying that these LDI's are harmless, which presumably means the Bank of England over reacted when it felt it had to manipulate the gilt market ?

The consequence of the BofEs intervention is that instead selling £80bn of gilts, it bought £65bn. I assume that the Bank is compensated for the consequential losses of the actions it took to help those LDI funds by them or their promoters.

simoan

Really useful information for AJ Bell account holders - I am one. However much I applaud Primary Bid for being the first mover on this, my experience of using them (three times) has been consistently poor. While their Trustpilot rating looks good, it is based on only 180 reviews. I suspect that if other, much better funded platforms muscle in, Primary Bid may be toast

Of course, the other big benefit is that you can take part in placings where there is no Primary Bid offer (not the case with the H&T placing). I believe Hargreaves Lansdown also have the same facility now for retail to take part in placings. I assume it should be possible to take part in placings for companies you don't already hold also, but have not looked at this yet. Good news for all of us but most likely the end for Primary Bid. And I agree using them was a real faff.

All the best, Si

JCPr

And wind turbines and solar panels aren't exactly that green either. There's a lot of green hypocracy about and biomass is not the worst - albeit those that peddled it were probably not top of their respective classes in maths back in their school days if they thought there were enough trees to go around.

Albertos

Watkin Jones (LON:WJG)

FWIW Progressive have put out a note on RT.

"We have cut our FY22E EBIT from £60m to £54m and, taking a prudent stance, for FY23E from £80m to £55m. Our adjusted PBT goes from £55m to £49m for FY22E and from £75m to £50m for FY23E. Our dividend expectations are unchanged."

For 2023 this translates to an EPS of 15.8p - a reduction of @29% from consensus on Stocko - seems to be along the lines the market is thinking.

Phil

(No holding)

Wimbledonsprinter

Thanks for your comment and the link to the twitter feed.

Camtab

Cannot use PrimaryBid for a SIPP at Hargreaves Lansdowne.

TamzinPiworld

Judges Scientific (LON:JDG) interim results presentation from last week. Geotek their largest acquisition to date has been a step change. Lots of questions on Geotek. Order book 21 weeks v 17.5 (H1 21). Trading ahead of expectations notwithstanding the challenging economic environment. Excellent explanation of their business model and how they achieve their excellent return for investors. Video and podcast.

stpalm

I think biomass got off the ground with a lie that it would be made from our waste much of which has energy. If Drax are burning good timber they are only converting it to biomass to hide whaT it really is. Which is a bit of joke, I cant believe burning logs wouldnt be miore efficient from most angles

Cannot use PrimaryBid for a SIPP at Hargreaves Lansdown.

I know because I hassled them about it several times. There was a point when they told me in a secure message they were thinking about it but I subsequently read they had decided to give customers access to any placing directly on their own platform... although now I can't find where I read it, so that could be wrong. I thought they announced it around the same time as AJBell but maybe I was imagining things :)

Db47

great idea Primary Bid on the face of it, but having used them several times, I learnt the hard way it's actually a great way to lose money... if shares are on discount, the market corrects to that level and lower in the preceding days anyway (and if they're being offered on discount the company knows they're overpriced IMO - just look at Best Of The Best (LON:BOTB) Argo (LON:ARGO) Jarvis Securities (LON:JIM)) and as far as IPO offerings go I wouldn't go there anyway.

Silver Moon

Hi Bristolian, my pennyworth is that, as with most shares, a close eye is needed to be kept on investments because things can change a lot and positive actions must be taken either way, I no longer hold Watkin Jones (LON:WJG) but keep my notes, one from 2018/19 simply says "Best to Hold, Stocko likes it". A year or so later the share price crashed, much as has happened now, I held on till last November when the price had recovered but had I added in midsummer of 2020 my profit would have been all the greater, I don't have the funds at this time or else I would go back in.

Aargh Aitch

It was hardly a revelation. BC's temperate rainforests (Fun fact we have remnants in Britain on our W Coast, there is one near Calder Hall in Cumbria and last year we visited one near Porlock), have very little protection, as such things are delegated to Province level and there appears no genuine interest in Ottawa to reform the logging industry or make habitat protection more of a federal issue. Green Washing isn't just a tactic for publicly quoted companies, sadly. When Greta Thunberg told world leaders "How dare you" (Make the right noises and do nothing), I assumed she was aiming at noted halo-polisher Trudeau as much as Trump.

Regarding Drax themselves, they are a corporate supporter of reopening our railway from Skipton to Colne, as it will lop over 100 miles off the route that their biomass trains take, as they currently bring it down from the Firth of Clyde to Staffordshire and then do an about-turn up the Midland mainline via Leeds. Which tells me that they see logging imports as a long term strategy.

I doubt it will affect their share price, Drax's output is systemically important and people- in my experience- are very grudging about modifying their behaviour for the common good. This week I've had several people grumbling about the hardship of having to wear jumpers indoors. So Drax's product will remain in high demand at least as long as our politicians gently squabble about next generation nuclear and the Marie Antoinettes amongst us fret about having knitwear imposed on them.

The Jayman

Me 2,000 @100p.

back2value

5th Oct '22

475 gainers? I'm sure to have an up day for once... err .... Except Watkin Jones, for years one of my few winners, has been smashed and I am right back to the price where I first bought it. I originally bought Boohoo at 48p and sold out at around 200p. Genius! Then I bought back in higher and didn't bother with a stop loss.

I hate the irrationality of the market, how can Sosandar, now in profit and growing fast, be worth half what I paid for it when it was a tiny, money-losing start-up? Rhetorical question - of course I overpaid.

I take responsibility for all of my decisions, but I have concluded that it is practically impossible for me to make good ones. Whatever I do, I seem to always run into disaster.

For the record, I am now about 50 percent down this year, I have very little in cash and I am bereft of hope that anything I buy now will turn out to be a successful investment.

B2V

Epitychia

I feel your pain brother. We are all in the same boat.

GloucesterBob

We feel your pain this year and as painful as it has been it's a learning exercise.

Start of COVID, I sold everything, lost about 20%, but then trebled my original pot, how clever was I.

This time with more solid companies, Rio Tinto (LON:RIO) Persimmon (LON:PSN) etc I decided to hold everything incl Saga (LON:SAGA) now 30+% down not feeling very clever now.

I believe they will come back, however what I have learnt is, pound cost average every purchase over 10 months, and at the next sign of the next black swan, 20% stop loss everything, no questions asked, I'll sleep easier and you can always buy back in.

Chin up, get some cast iron rules in place, ala The Naked Trader.

ps. I thought black swan were once every ten years, how many have we had in the last two.

The Phoenix

I'm fast learning everything seems to revolve around the fed if they are cutting interest rates and doing qe invest if they are raising rates and doing qt get into cash and go to the beach until the first situation presents itself. An expensive lessons learned over many years but at times like Jan 1st 2022 to date maybe better to go and do something less stressful and just keep an eye on fed interest rate announcements.

Rusty2

27th Jan '23

Deleted

Small Cap Value Report (Tue 4 Oct 2022) - CCT, WJG, NMRP

Agenda -

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

55 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...