Small Cap Value Report (Tue 9 Oct 2018) - XPP, MYSL, CNKS, VLE, YOU

Tuesday, Oct 09 2018 by

Good evening/morning, it's Paul here.

Graham and I are both short of time this Tuesday (I have to go to London for a meeting, and Graham is doing a CEO interview). Therefore we've decided to pool our efforts here, writing a couple of sections each. I'll be reporting on results from MySale (LON:MYSL) (in which I have a long position) and am meeting management this Weds. So I'll report back on my impressions from that meeting.

I decided not to report on Bioventix (LON:BVXP) results yesterday, because it's specialised, and I don't have any sector knowledge. Suffice it to say though, that the company is amazingly profitable - PBT of £6.9m, on revenues of £8.0m, that's a net margin of 86%. Remarkable indeed. Although the share price actually fell 5% on the results. I think we're seeing quite a bit of nervousness in the market at the moment, and some people taking money off the table - particularly with highly-rated growth companies. 

I note that Fevertree Drinks (LON:FEVR) peaked at 4000p under a month ago, and is now 2890p. This is despite there being no news from the company. Has the big momentum trade of recent years finally come to an end? Who knows. I'm certainly wary of over-paying for anything now - I think the market is starting to pay closer attention to valuation now.

Maybe equity valuations need to correct to more rational levels? Especially now that interest rates, and bond yields are rising, which usually pulls down equity valuations. Plus all the macro & political uncertainty of course, isn't good for confidence.

To get you started on Tuesday morning (I'm writing this on Monday evening), here is a reader request from yesterday;

XP Power (LON:XPP)

Share price: 3000p
No. shares: 19.2m
Market cap: £576m

Trading statement

XP Power, one of the world’s leading developers and manufacturers of critical power control components to the electronics industry, is today issuing a trading update for the quarter ended 30 September 2018.

  • Order intake for the 9m to 30 Sep 2018 was up 8% on a LFL basis, and 11% higher including acquisitions (18% on a constant currency basis).
  • Revenues for the 9m are up…

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XP Power Limited is a United Kingdom-based developer and manufacturer of critical power control components for the electronics industry. The Company provides power solutions, including alternating current (AC)-direct current (DC) power supplies and DC-DC converters. The Company's segment include Europe, North America and Asia geographical. It designs-in power control solutions into the end products of blue chip original equipment manufacturers, with a focus on the industrial, healthcare and technology sectors. Its product categories include high efficiency/convection-cooled, chassis mount/open frame, configurable, external, encapsulated and printed circuit board (PCB) mount, DIN rail, baseplate-cooled, through hole mount, surface mount, light-emitting diode (LED) drivers and distributed power/hotswap. more »

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MySale Group plc is engaged in operating online shopping outlets for consumer goods, such as women, men and children's fashion clothing, accessories, beauty and homeware items. The Company's segments include Australia and New Zealand, South-East Asia and Rest of the world. It operates with flash sales Websites in Australia and New Zealand (ANZ), South-East Asia (SEA) and the United Kingdom. Its Websites host time limited flash sales in each of its territories. These flash sales are focused on fashion, apparel, health, beauty and homeware categories and are undertaken on a consignment inventory basis. Its retail Websites also focuses on these product categories using drop-shipped inventory. Its flash sales brands include OzSale and BuyInvite in Australia, NzSale in New Zealand, SingSale in Singapore, and MySale in Australia, New Zealand, Malaysia, Thailand, the Philippines, the United Kingdom and Hong Kong. more »

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Cenkos Securities plc (Cenkos) is a United Kingdom-based independent institutional securities company. The Company's principal activity is institutional stockbroking. Cenkos provides corporate finance, corporate broking, research and execution securities services to small and mid-cap growth companies, and other companies, across a range of industry sectors, as well as investment funds. The Company offers its clients access to equity finance at various stages of their development. The Company's activities also include institutional equities and market making. It provides technical advice on all forms of corporate transactions, including initial public offerings (IPOs), fundraisings, mergers and acquisitions, disposals, restructurings and tender offers. The Company's subsidiaries include Cenkos Nominee UK Limited, Cenkos Securities (Trustees) Limited and Cenkos Securities Asia Pte Limited. more »

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  Is LON:XPP fundamentally strong or weak? Find out More »

34 Comments on this Article show/hide all

dscollard 9th Oct '18 15 of 34

we are already in a correction : all the UK Indices are down around 10% or more since the 2018 highs with the exception of the TechMARK

AIM was the last shoe to drop but it looks set to join the -10% crew today

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Nick Ray 9th Oct '18 16 of 34

In reply to post #405809

That said, AIM has had a stellar run since 2016 up 80% in 2 years so a healthy bit of profit taking is only to be expected.

Just a small correction. Your plot is of the AIM100 index. AIM itself is only up about 30% over the same timeframe.

Certainly AIM100 has been a very happy hunting ground for quite some time.

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Ramridge 9th Oct '18 17 of 34

We are definitely in correction territory with no clear line of sight.

Here is the Aim All Shares chart over a one year period. Notice how the index went through the 50, 100 and 200 EMA moving averages at the blink of an eye.


Similarly,  the US Russell 2000 index, which focuses on the US small to mid-caps, shows a similar precipitous decline.


I am near 100% cash, and do not consider the time to buy is right... yet.

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unwise2 9th Oct '18 18 of 34

Of the circa 1120 stocks I loosely follow only 39% are over their 200DMA. Difficult to know if this is a short term correction or the start of a bear market. I am currently 85% cash and I am more likely to go to 100% cash than add more shares at the moment.

Mark Minervini has been saying for a while that October is the most volatile month historically for the U.S market, appears to have affected the U.K as well this year.

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cidunn 9th Oct '18 19 of 34

Elektron Technology (LON:EKT) - anyone ideas why 15% drop today? seems excessive
Disclosure - I do not hold
All the best,

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Howard Marx 9th Oct '18 20 of 34

In reply to post #405854

October may well have historically proven to be a volatile month for US stocks, but since 1950:

  • October returns have been positive, on average
  • October preceeds the seasonally 'Best 6 months' for returns, the November to April period


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Graham Neary 9th Oct '18 21 of 34

In reply to post #405804

Thanks for the suggestion re: Cenkos Securities (LON:CNKS). FYI i did not say cash and assets were higher than market cap. They are significant, though. ATB. G

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dscollard 9th Oct '18 22 of 34

In reply to post #405839

AIMers are catching up: they do tend to lag the other indices often owing to liquidity and crowding (at exits)
I am probably not so moribund on support levels as there are a few in sight. This may be a very significant rotation so good to watch a few key sectors and correlations.

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dscollard 9th Oct '18 23 of 34

In reply to post #405869

same is true for UK (from memory) : There is a Stock Market Almanac produced each year by Harriman with tons of historical analysis

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vik2001 9th Oct '18 24 of 34

In reply to post #405839

I always use the moving averages to follow the trend. as long as the 50 is above the 150 and the 150 is above the 200 ma we are in a confirmed bull.
only when the 50 crosses down over the 150ma and they both pointing down would I say we have entered a full bear. until then this could be a good buying opportunity. only time will tell but I always wait for the 50ma to cross over the 150ma to confirm the downtrend.  Afterall we cant predict but only follow the trend.

you can see in your chart on the US Russell in Feb 18 the price bounces off the 200ma and continues its upward trend because the 50 is above the 150 and the 150 is above the 200 ma (all in sequence). In this case the 200ma is the last line of defence providing support, if it breaks well below this the trend could start to change. lets see

p.s ive actually used today to top up on a few funds, normally I end up topping up at the top when things look good, buy im trying to remember to buy low.

also just to add I follow the US Russell 2000 to understand the overall direction of the market,  as its normally a good indication of market strength.

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davidjhill 9th Oct '18 25 of 34

It does appear we are in that miserable phase of fear based illiquidity from a small/mid cap perspective.
Lot's of unjustified price falls on minimal volume. I see today that Somero Enterprises Inc (LON:SOM) has fallen 7.5% on £225k worth of shares trading. And that is after some great recent results and a burgeoning order book and growing dividend.

Plenty of others. Housebuilders trading at 5-6 PEs and 1* book, or in the case of Inland Homes (LON:INL) almost half book! Reach (LON:RCH) is trading on a PE of just over 1 and well covered dividend of close to 10%. Superdry (LON:SDRY) now on 8* PE fwd earnings and a peg of around 0.6.

Market has a very odd feel about it at the moment and I admit I am struggling a bit with it as it feels schizophrenic. Interest rates, Bond routs, Italian debt/gdp budgets, Brexit, China/US trade war and oil prices all causing fear but actually overall growth levels feel ok and sustainable, unemployment low, inflation under control, markets not stretched (aside from in some tech/growth stock pockets). I'm more inclined to buy at these prices than sell but headlines increasingly focussing on potential negatives.

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vik2001 9th Oct '18 26 of 34

In reply to post #405854

Minervini also said on the 5th October on his twitter, that this correction could setup a nice buying opportunity.

this is how I see the markets:

US/Japan in a bull market
Europe is moving sideways
Emerging markets in a confirmed bear.

the above is based on T.A on indices charts. the above can change at anytime. I actually think the correction is healthy and needed

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Graham Neary 9th Oct '18 27 of 34

In reply to post #405674

Hi Gary, thanks for the suggestion. Volvere (LON:VLE) is now covered. G

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Splode 9th Oct '18 28 of 34

Graham, I wondered in these pages last Thursday ( what shortish-term value there is left in Volvere (LON:VLE) now that by far the best company the company has held recently has now been sold.
The company has a colossal cash pile but makes very few investments and new investments take a few years to be turned around. So in the next, say, couple of years there seems to be little in the company’s stable to grow much and increase the value of Volvere (LON:VLE). But I guess you are a buy-and-hold-the-best-companies investor so are looking to the longer term.

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Graham Neary 9th Oct '18 29 of 34

In reply to post #405949

Hi Splode

re: Volvere (LON:VLE)

I have to agree that there is no short-term value in Volvere. It has a chasmic spread and deal transactions are rare, so the share price can do nothing for long periods. It's for people who buy into the management team and strategy and are happy to wait it out, IMHO.

It will be interesting to see what they do with the massive cash pile. Maybe some public market investing.

Best wishes


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paraic84 9th Oct '18 30 of 34

In reply to post #405919

Crazy isn't it? Sorry to add to yesterday's commentary but the QUIZ (LON:QUIZ) sell-off also looks silly. After another fall today it is trading at 8.7x *last year's* earnings and still said on Friday that it expects a 19% increase in revenue for 2019! Hardly a disaster!

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DJCP 9th Oct '18 31 of 34

This doesn't bode well for tomorrow, if you're a Patisserie Holdings (LON:CAKE) holder ... err, like me ! Ouch !
Patisserie Valerie shares face suspension over '£20m accounting hole'
Patisserie Valerie owner faces crisis 'over £20m accounting hole'

I imagine the shares would be suspended, but if not, then time to bail, or time to buy on any exagerated drop ?

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Paul Scott 10th Oct '18 32 of 34

In reply to post #406089

CAKE - what the hell is going on? How can a £20m cake hole open up?

I don't like the sound of this.


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eezymunny 10th Oct '18 33 of 34

Re Volvere VLE you say "Taxes weren't mentioned in the announcement and the vehicle is not very tax-efficient, so I expect taxes will also be due"

That's very unlikely to be correct IMO. Firstly I rather expect the Landers will be making sure VLE is as tax efficient as possible! Secondly, this has applied to all previous disposals and I can't see why it wouldn't this time, so there's not likely to be any tax on disposal.

The market cap looks to be bonkers here IMO - a discount to cash and Shire in for free...

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RDHOWARTH 15th Oct '18 34 of 34

In reply to post #406229

I also believe this is the case.

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 Are LON:XPP's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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