Small Cap Value Report (Tue 9 June 2020) - CER, SOS, VLG

8th Jun '20 by Paul Scott

56 comments 10166 reads

Hi, it's Paul here with the SCVR for Tuesday.

Today's report is now finished.

To get you started today, I wrote 4 more sections to yesterday's report in the afternoon, covering:

Tt Electronics (LON:TTG)
Solid State (LON:SOLI)
Actual Experience (LON:ACT)
Speedy Hire (LON:SDY)

It's good to see the first 2 companies in that list trading relatively well, despite covid.

Cerillion (LON:CER)

Directors sold a hefty lump of shares yesterday;

2.74m existing shares, or 9.3% of the company sold to institutions
255p per share, a deep discount to the 319p share price
Guy O'Connor is selling his entire holding, of 2.39m shares (retirement-related)
Oliver Gilchrist is selling half his holding, and retains 1.2% of the company

Graham introduced me to this share, ~~and we both think the company is very good~~. This disposal of shares by Directors is mainly retirement-related, which seems a reasonable explanation.

EDIT: Just to clarify, Graham's just messaged to say that he doesn't have a strong view on CER, and that "it doesn't particularly stand out to me at all". So my apologies for putting words into his mouth which were inaccurate as it turns out, hence the strikethrough above. End of edit.

I'm a bit concerned at the placing price, being only 255p, which suggests that the market price of 319p could be a bit toppy perhaps? Although when buying an illiquid stock, I understand why instis want a discount, as they're locked in for the duration.

Sosandar (LON:SOS)

Share price: 8.75p
No. shares: 192.3m
Market cap: £16.8m

(I hold a long position, at the time of writing)

Trading & COVID-19 Update

This online ladieswear brand provides an update for FT 03/2020, and on current trading.

Current trading (April & May) - this section reads well. Key points;

Revenue up 62% vs LY - although bear in mind this is up against soft comparatives LY. It demonstrates that the heavy marketing spend late last year has continued to benefit sales this year, which is what the company indicated it believed would be the case.
Growth achieved despite marketing spend down 69% on LY
Returns down to c.33% - that's a huge reduction from c.50% in the past. Explained by selling more stretchy fabrics (e.g. focus on denim), and other styles which are…

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Bluesky Ventura

9th Jun '20

Hi Patrick,

The City Of London Investment (LON:CLIG) imply that the transaction should be earnings enhancing. I suspect there on some overhead savings and KMI will take profit in the future as Dividends, Still plan to hold until the next reporting event.

BSV

Ben1

After some thought I decided the report for Sosandar (LON:SOS) was on the side of bad. Probably another fund raising and dilution on the way. So I have lost patience and sold out. A bit of loss, but so be it.

JohnEustace

Call me cynical but having 60% of the staff furloughed strikes me as a bit off for an online growth business with no physical stores. Doubtless there's a perfectly innocent explanation.

RDHOWARTH

Ive been trying to get some research for a few weeks - if I find something I will post. I can tell you IL tracker around late Feb March was +2-3% YTD. It is now +10% and peaked at 13%. Since the market moves recently imply higher inflation expectations ... the market has sold off. Make of that what you will, but basically inflation is good but not higher rates.

ezlifeme

Morning Paul, re Sosandar (LON:SOS), what a mature (Another year beckons) informed and well measured piece from you

Amazed that you make it clear you never TIP ANYTHING but a 35% rise today on huge volumes "May" have something to do with how well your views are received

(YES I can hear you saying it already DYOR)

Text book analysis, well worth a long w/e

barnetpeter

Yes the markets seem to have got a bit nervy today after day after day of going ever higher with the Nasdaq hitting another all time high last night. Dire economic figures, company after company announcing job cuts...investors just taking a bit off the table today I think.

HollandSmith

No news out today, and trading on very thin volume; but does anyone have an opinion on Nucleus Financial (LON:NUC) ? I see alot of asset management stocks recovered from their march lows to go to all-time highs (£LIO), so wondering if this is next on the radar?

EV - £100M
REV - £50M
NETP - £5M

Do these clients have a high retention rate to platforms like this?
And if so, is it hard to win new business from other "sticky" platforms?
Would these clients stay if the prices rise to organically grow profits?

Cheers

peterg

I'm no expert on Sosandar (LON:SOS), but the 60% furlough comment seems more than slightly worrying to me. They are an online only retailer, so many of the restrictions caused by lockdown won't affect them. Of course, it's true that people are less likely to spend money on new clothes to stay at home, or appear on Zoom, and that will affect sales. Also possibly, their warehouses may be arranged so that social distancing is difficult or impossible, but that would not be good news, and some comment should have been expected if it's true, as it would clearly impact on possible sales. But 60% seems like a very large number. It would make sense for a company that's struggling and can see a useful source of short term support, but it certainly doesn't ring of the confidence of a rapidly growing retailer to me.

MightyPedro

I don't know whether this becomes official WHO guidance as more data come out but surely this is very important if true. Asymptomatic spreading has been one of the great scare stories and key differentiators with normal flu. I don't think this includes people who are asymptomatic in the incubation period and then develop symptoms later which would be the best possible news. Another reason to buy those "recovery play rentals" though of course the UK Government won't make any policy changes until the idea gets reflected back to them in a focus group mid-Autumn

https://www.independent.co.uk/...

rmillaree

Does anyone know why Sosandar (LON:SOS) are unable to give a more accurate revenue figure for a financial year that ended >2 months ago? Seems off/worrying.

I have always presumed sketchiness is due to the fact that the accounts need to be audited (can anyone confirm?) - they could end up with egg on their face if the auditor demands a revision to end of year returns provisions made which would likely be adjusted via sales(?) - do we give them a covid related cop out that the auditor may not have been able to do their thing or they internally havent be able to do do their thing to confirm the total if they need to check with auditor?. I do though see this as a mini red flag that they don't at least have the confidence to nail more specific number however it could be though to the nearest material number (100k?) that the number is simply 9 mill this year - it would be my guess that the sales fuigure will turn out to be my 9.0 mill.

swanhunter

The 60% furlough doesn’t totally surprise but feels a bit high. Marketing, PR etc could all have been furloughed without huge impact, but does feel like they reduced their numbers in buying and core commercial too. I know of a discount high retailer that remained open with a clothing offer and they reduced their headcount by 40%.

Surprised by the stock provision. Auditors must have had concerns and decided to be super cautious, no doubt inspired by Ted Baker’s overly aggressive stock accounting and subsequent write down.

Camtab

To try and play devils advocate. I appreciate that margins will be down on sales thru Next and J Lewis as they want a "heavy" cut, but equally won't their marketing spend be down as that cut goes to pay for brand recognition. Therefore won't these relationships reduce the liklihood of another raise given the significant cost is marketing spend.

Effortless Cool

Thanks for the Venture Life (LON:VLG) write-up, Paul. I think that you have summed it up nicely.

heron

My thanks to everyone who responded yesterday to my post regarding why the number of new virus cases in London has fallen to such a low level - now about 20 a day.. If anyone comes across explanations they are welcome to contact me at ires@dlmi.ie.

Sorry for going off topic but if the virus is dying out in the western world it helps explain the current strength of markets

SundayTrader

Hi Paul

I appreciate your caution re CML Microsystems (LON:CML) - this company is driven by industry specific factors, but I thought the tone of the 2020 report was fairly upbeat - much more so than over the past two years where they have been having to adjust to industry trends. This could be a situation where the tide is turning.

MiserableJacktPotato

They don't have a warehouse - they contract it out to Clipper.

They don't book returns as sales.

Paul Scott

No, I don't think my views affected the share price at all. It's not helpful to speculate on that anyway, as it could attract unwelcome attention.

I just tell it how I see it, on every stock covered. Because these reports focus on trading updates & results statements, these are by definition the days that the share prices move the most. My views have very little, if anything, to do with those price moves.

Well yes they would. If a customer returns an item previously sold, then the original sale has to be reversed out of revenues.

TheArb

guess you wouldn’t have bought Amazon then .

Small Cap Value Report (Tue 9 June 2020) - CER, SOS, VLG

Cerillion (LON:CER)

Sosandar (LON:SOS)

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Paul Scott

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