Small Cap Value Report (Tue 8 Dec 2020) - REDD, JOUL, BEG, GMR, ZYT, PRV, IDEA

8th Dec '20 by Paul Scott

105 comments 14453 reads

Good morning, it's Paul here with the SCVR for Tuesday. Many thanks to Jack for covering yesterday.

Timing - I should have the whole day free to concentrate on this. Update at 12:31 - I've spent most of the morning on Redde (I hold) because I think it looks excellent on a risk:reward basis. So that's the best use of my time. This afternoon I'll be focused on shorter sections for lots more companies. Likely finish time is about 6pm. Update at 20:06 - I'm still plugging away, should be done when it's done. Update at 21:57 - I got there in the end! Today's report is now finished.

Agenda

Redde Northgate (LON:REDD) (I hold) - Interim results & my notes from the analyst call (done)

Joules (LON:JOUL) - Trading update (done)

Begbies Traynor (LON:BEG) - Half year results (done)

Gaming Realms (LON:GMR) - Trading update (done)

Zytronic (LON:ZYT) - Final results (done)

Porvair (LON:PRV) - Trading update (done)

Ideagen (LON:IDEA) - placing at 215p (done)

Anything else that there’s time for, and looks interesting.

Redde Northgate (LON:REDD)

Share price: 252p (up 2% today, at 08:17)
No. shares: 246.1m
Market cap: £620.2m

(I hold)

Interim results

Redde's market cap is now above my usual upper limit of c.£400m, but I like the share (and hold personally), so I would be analysing the figures anyway for myself. So might as well share my work here too. Also an arbitrary upper limit on market caps is crazy really - because it means that we stop covering the winners, and carry on reporting on the also-rans!

Several readers nagged me to look at this group - a combination (all-share merger Feb 2020) of accident management (courtesy cars, etc) group Redde, and Northgate - a white van hire company. Here are my notes from 29 Oct 2020, which are worth re-reading, to set the scene. I felt the share represented an excellent investment proposition at 178p per share (on a PER of only 6.5!), and added some to my own portfolio afterwards, when funds permitted (I tend to be fully invested most of the time). The share price is up nearly 40% since then, although so have lots of other cyclical…

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Paul Scott

8th Dec '20

Hi JCPr,

Re insolvencies, you say;

...so potentially there will be a surge caused by these when that support is removed

I question that narrative, because all the evidence I can see is that the Govt seems averse to withdrawing support, and keeps extending support schemes. E.g. furlough was meant to stop at end Oct 2020, but now seems to have been extended to 31 March 2021, with the sliding scale of reduced support largely reversed.

Time to pay looked likely to cause a cliff edge of overdue VAT payments in March 2021, but one company I covered recently said ( Staffline (LON:STAF) I think) said that had also been extended, to March 2022, with instalments allowed, interest free.

I can see why BEG would get more work from CVAs in the retailing & hospitality sectors, but outright insolvencies seem quite rare. How many notable companies have gone under during this crisis? Very few. With interest rates at zero, it makes more sense for banks to continue supporting many businesses, if they can at least operate at or around cashflow breakeven, then force them into fundraisings once the economy has got back to normal, maybe in mid to late 2021?

How can there possibly be a recession in 2021, when the UK Govt is currently running a deficit of about 20% of GDP, costing it nothing, because interest rates are zero (negative in real terms), and the Bank of England is literally buying ALL new Gilts issued this year (check the BoE website)?! The reality is that cash is piling up in household & company balance sheets, which is likely to be spent in a deluge of pent-up demand, once restrictions are released next year when enough people have been vaccinated.

The data suggests to me that a "roaring twenties" post crisis boom is more likely than a recession, as at least some of this surplus cash is released, but time will tell!

As modern monetary theory points out, the Govt's deficit, is someone else's surplus cashflow.

Regards, Paul.

taumu

'After all who saw the arrival of the Pfizer vaccine' actually I believe many did.

It was common knowledge there were many groups working simultaneously on a vaccine and the fact humanity's focus was on developing one and accelerating the approval process meant it was going to be here sooner rather than later.

kuronagi

Ben, You are the muppet for criticising Kendal for making a reasonable point. We all appreciate Paul's sterling efforts. But why list shares that you may not comment on? Better to under-promise and over-deliver. Anyway, I am missing updates on Boohoo which I reprimanded Paul for covering in too much detail and I regard as "uninvestible". But each to his own. I am a Vianet man myself which Paul dislikes. In the spirit of consolidation, Paul has a standing invitation to lunch here in Edinburgh with me and my mate KingMcKong (who some may remember from Motley Fool days). Kuronagi

Jesus wept. The agenda is to set out what I'm going to try to cover each day. That way people don't drive me mad with requests, as they can see what I intend covering. I may or may not get through the list, because I'll focus my time on things that look most interesting, as in we can make money from (e.g. Redde today).

It'll save me time not to bother putting up an agenda. After wading through all this crap, I won't bother reading the comments for a few days either.

Just leave me alone to write the damn reports, and stop bothering me with these type of crappy comments. By all means comment on the companies.

MichaelFBS

Can you explain why Boohoo (LON:BOO) is “uninvestable” for you? Like Paul it is my largest holding at 12.5% of PF and for the five years I owned the stock to March 2020 it returned a CAGR of 44%. (I sold in March but that is another story!)

Is the “uninvestable” thing from a ESG perspective?

Thanks.

Regards

Michael.

MiserableJacktPotato

Alice now has more time to sell her wares to Dave and Rachel who realise that Alice is actually quite rich and now Bob has stopped coercively controlling her, they can work together to simplify how they do business.

Bob already sells Dave and Rachel as much as they can take and Bob, being the control freak doesn’t really want Dave and Rachel hanging around talking to his family.

FUM, lol. The very definition of sucker stock.

Antehelion

9th Dec '20

Paul, we see occasionally that some new folks here don't understand some of the unwritten 'rules' that this blog tends to utilise - a few times there have been comments about having a template leader that explains the process, particularly for new joiners and so on, but I've not really see anything stick.

In this case, the join date isn't so recent so I'm surprised that nearly 7 years of reading this blog hasn't helped to tune into the general process, (assuming the comment hasn't been edited) perhaps there may have been some attempted humor here that didn't land so well. The internet is rife with comments that seemed funny to the author at the time but aren't appreciated in the spirit they were meant - I've been on the losing side of that a few times (generally later at night after a few whiskys).

In any case, would it be possible to have a permanent static header/template/link to a closed blog or whatever to help clear up any misunderstandings around how to interact with each other, set expectations for timings, what will be covered, what won't, what sort of constructive comments offering opinions and analysis/summary might tempt you to add to the list etc? I hope that this might help alleviate some of the unpleasant comments noise for you and the other authors, so help keep the positive mood and vibe that I've found on here over the last couple of years.

davidsmyly

Unjustified criticism, Paul. As a comparatively new subscriber, I think you do a fantastic job.

RKML

Thank you Gromley, LSE link was very useful. Thanks again.

Thank you, Greensiax.

Sharewallah

Before I retired I worked in an office on Oxford Business Park North that was rumoured to be built on top of thousands of buried Allegros.

ed_miller

I thought you were going to say Jack, but yes, Paddy too - go Paddy!

Yep - what Paul said!

10th Dec '20

Nice idea, but the people who post sh*tty comments here probably wouldn't read or take notice of it anyway. I just have to accept that sometimes people have had bad days, and want to lash out at someone, take it out on me, or are just complete a$$holes, so they post rubbish here.

I'm trying to ignore it, and just concentrating on writing the reports.

Best wishes, Paul.

I agree the Mark 1 Granada was a beautiful car. The essex 3.0 V6 engine also a jewel, although personally I love the turbine smoothness of straight sixes more.

The mark 2 Granada looked just like a large mk 4/5 Cortina, but the alloy wheels on the Ghia were so stylish, and who could forget the 160bhp fuel injected version, with the Cologne 2.8 engine (higher tuned) did look magnificent. Remember Cowley from the Profressionals, roaring up to a crime scene in one of those marvellous Granada Mk II? Just superb!

I'm never going to retire, but when I do, I'd want to be sitting in a pub, talking about shares, and cars from the 1970s/80s. My first car was a 1.9GL Vauxhall Cavalier Mk 1, automatic. It was a good thing I enjoyed taking it to bits, because it kept developing catastrophic mechanical problems!

It was such a pity that those 1970/80s BL cars were so badly made, and lacked basic rustproofing, etc. Some of the designs were really good, if they had been made better. OK the Marina/Ital was just a shed. A Moris Minor underneath, terrible.

The Austin/Morris 1100/1300 were good cars, the hydrolastic suspension gave a superb ride, and they were spacious inside. But dogged by stupid reliability problems, constantly breaking down. Sadly the Allegro was probably a backwards step on the 1100/1300 model.

We had a Princess 2.2HLS made in 1981, and it was a magnificent car to drive - I loved it, and used to thrash the hell out of it, when my father was stupid enough to lend it to me! Turbine smooth straight six engine, only 110 bhp, stifled by a 3-speed under-geared auto box, but it was almost silent & smoother than a Rolls Royce. HUGE inside too. What a waste. That could have been a world beater, if they had made it better.

What about SDi Rovers? When they came out, 1974/5, it looked like a space ship! A Brilliant design, with that punchy aluminimum V8 designed by Buick originally. I bought a 1981 Vanden Plas V8 in 1990, with only 50k miles on the clock, and absolutely adored it. That V8 burble was priceless!

I could go on! Shares and cars - my favourite topics!

Can you explain why Boohoo (LON:BOO) is “uninvestable” for you?

Anyone who thinks BOO is uninvestable, is handing a bargain on a plate, to the rest of us. Don't complain, just rejoice!

Not complaining but I always like to hear a bear case on my investments.

I think it helps strengthen my investment thesis.

Michael

Small Cap Value Report (Tue 8 Dec 2020) - REDD, JOUL, BEG, GMR, ZYT, PRV, IDEA

Agenda

Redde Northgate (LON:REDD)

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Paul Scott

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