Small Cap Value Report (Tues 24 March 2020) - QTX, WYN, LTG, YOU, ESL

24th Mar '20 by Jack Brumby

52 comments 9091 reads

Morning,

Well, I think we'll all be talking about that address to the nation for some time. Historic stuff. Various monitors say footfall to retail, bar and restaurant sites have fallen by about 70% now. This will, of course, become closer to 100% over the next couple of days. Forecasts made as recently as last week might now be out of date as we face a more complete and, perhaps, longer shutdown than some initially envisioned.

The FTSE is actually set to open up 225 points at 5,130 - relief at signs of more decisive action? Or just volatile markets? It's funny how you get used to volatility - I remember when a 200 point move meant something. In fact we all do, it was only a couple of months ago!

The FTSE 250 is down by about 25% in the past two weeks alone. If you are looking at a double digit negative performance, know that you're not alone. Small caps in particular have been underperforming. The market is marking everything down, though, meaning good companies are cheaper than they were.

For anybody that hasn't seen, we've had a couple of useful articles so far this week that are worth reading. Yesterday, Alex wrote this historical perspective on the 'Corona Crash', and Graham has just published this piece on high margin companies that are better placed to ride out the storm.

I'm looking around for the day's news. Any suggestions leave a comment.

Edit: many thanks to MrContrarian for his excellent daily comments. Some of the companies I intend to look at so far include:

Thanks,

Jack

Quartix Holdings (LON:QTX)

Share price: 240p (-1.64%)
No. of shares: 48 million
Market cap: £117 million

AGM Trading Statement

Quartix Holdings (LON:QTX) is highly regarded by some canny investors, but I have never looked at it closely myself because I have been put off by historically high relative valuations. That has probably changed now: the company trades on a historic PE of 21.4 times.

That’s still expensive, but much more palatable.

Quartix is one of Europe's leading suppliers of subscription-based vehicle tracking systems, software and services.

Some of the positives:

High margin and cash generative,
Recurring revenues,
Well regarded management team,
Good dividend yield (although divi cover is low, and companies…

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timarr

24th Mar '20

Yet Ramsdens Holdings (LON:RFX) shares are up over 10%, I don't understand that.

Me neither, but I was happy to accept Mr Market's offer. I wouldn't be surprised to see government guidance reversed but rule #1 is avoid a total loss of capital.

But Ramsdens Holdings (LON:RFX) is very cheap at these levels. If the guidance had been to allow them to stay open I would have been buying even though profits will probably be wiped out this year. Such is the life of a long term investor right now :-/

Bluesky Ventura

Hi Asagi, Jack,

Yes, Wynnstay (LON:WYN) should get revalued at some point. the graph below provides a view of valuation with 3% growth. Although the share price is going down, the valuation is improving. Please DYOR, this is not a recommendation.

Blueskyventurer (long WYN)

FREng

@John652: ADVFN appears to show volume based on its trades data, which excludes some secondary trading and interprets buy/sell indications based on the current spread ratther than on the actual transaction. (All IMHO!)

Rusty2

Yes it's strange, I sold Ramsdens Holdings (LON:RFX) a few weeks ago, mainly because of their forex exposure. People won't be travelling for a while. Not buying much at the moment, trying to sell a few off still as I think this could get worse before it gets better.

LongValue

Ramsdens Holdings (LON:RFX) and H & T (LON:HAT) are not companies that I follow. But I am quite sure that their pawnbroking businesses are closely linked to the price of Gold. A rising Gold price is generally good for business.

There is more to it that the gold price, as you can see Ramsdens Holdings (LON:RFX) has fallen about 70% recently, H & T (LON:HAT) has less forex exposure and more gold exposure hence it has not fallen back so much. If the high street shops are shut then that will limit their trading.

But I am quite sure that their pawnbroking businesses are closely linked to the price of Gold. A rising Gold price is generally good for business.

That can't benefit them if their stores are closed and they can't accept pledges. They can't even take payments from existing customers or allow them to redeem their pledges. Add to that the FCA investigation into H & T (LON:HAT), the decision to exclude them from the Business Rates Relief program and the fact that significant proportions of their businesses are based on FX rather than pawnbroking.

Frankly I doubt they would be allowed to go bust in normal situations, but with the government operating at pace in an uncertain environment it's possible that it could happen as an unintended consequence of events. However, if they were allowed to re-open their stores that would allow them to trade on the gold price - and that would be an entirely different situation.

timarr

slartybartfast

ridaies No comment on the prospects of Avation (LON:AVAP) but the anouncement you are looking for is https://www.investegate.co.uk/... . The initial prospective bidder was not identified. Needless to say, nothing has developed from this.

Threepeat

Re Avation (LON:AVAP)
Carcosa has some time ago posted his thoughts on the various airlines that Avation have leases with. It on Lemon Fool if you care to look. He did it some weeks ago

sady

Which sectors do you think if went up will have the maximum impact on the economy, thus creating a momentum for the whole economy to pick up.Can we have a historical analysis of the sector that picks up first after the crash.Not the individual companies.

Thank you for the analysis.

Many thanks

PeterW

Hi, Avation (LON:AVAP)

I think the share price is reflecting the genuine fear that airlines, which are all going bust at the moment, will either stop lease payments or will be forced to share the pain with everyone as part of the deal of getting government or other rescue finance. At the same time the value of their assets, planes, are likely to be taking a hammering. Anyone want to buy a plane now, probably not. Sadly I still hold some.

ricardow

In fact, if you write AVAP in the Stockopedia search bar, and then go to “News” , you will see a number of Form 8.3 filings including ones today and yesterday from Oceanwood Capital Management Limited, disclosing 25.5%. I think they are from Malta, but have not discovered more.

BurglarBill

Thoughts are with Paul, hope he's OK.

CamRaid

WINE is worth a look. I’d welcome your thoughts.

ACounsell

Despite this extremely negative and frankly scary commentary from the the FTSE 100 is up c 9% today! Massive dead cat bounce springs to mind given the huge mismatch between reality and apparent market sentiment. The market roller coaster could be in for a very big and extended dip before too much longer. Coronavirus is going to be more devastating than the 2008 GFC. Some commentators are talking about it being worse than the 1929 Great Depression. Let’s hope that Central Banks and Govermnents can coordinate effective policy to mitigate the inevitable consequences of Coronavirus.

xcity

25th Mar '20

Coronavirus is going to be more devastating than the 2008 GFC. Some commentators are talking about it being worse than the 1929 Great Depression. Let’s hope that Central Banks and Govermnents can coordinate effective policy to mitigate the inevitable consequences of Coronavirus.

Anyone who says this depression will be worse than 1929, and means it, is daft. The 1929 depression was caused by a very different set of problems, and it was international governmental reactions in the years after that made the effects so horrendous. At this point we have no idea what government reactions will be in the future, but they will certainly be informed by what happened then and the understanding of the underlying economic and financial system is quite different.

I'd also point out that we don't know enough about the virus to be definitive about its effects. The study by Gupta from Oxford comes to very different conclusions from the Imperial study the government is using.

Certainly actions so far mean that there will be a depression. Long or short, there's no way of knowing at the moment. If the Imperial study is correct it will tend to long.

Jack Brumby

Thanks Asagi, Bluesky, your points on margin and valuation are much appreciated.

Hi Sady,

I haven't done any digging into this particular subject but it is worth pursuing. If I had to guess right now, I might say that in the event of a recovery the stocks that have been hit the hardest would also rebound the hardest - so pubs, bars, restaurants, airlines, hotels. I stress this is also the riskiest area to invest, though, with permanent loss of capital a very real threat due to the lockdown. The volatility seen in this sector right now is certainly not for the faint hearted...

In terms of kickstarting the economy, I feel that lifting the lockdown will be the catalyst rather than any one improving sector. I've really been focusing on the micro company analysis rather than the macro economic analysis so far though!

Hi Bill,

Paul has been unwell but is on the mend. The good news is he is back for today's report. I'm sure he appreciates your support!

skinner66

26th Mar '20

i do stocks sold most.. but i day trade over 20 times day and bullshit i hear from trump makes stocks go up , ,, does anyone believe easter usa be back to normal hope not as virus spread more its scary,i have info as many sites its getting worse and if china allow open it spread again watch.. cases are growing if china open borders and trump thinks easter open april 12 they on another planet or they want it !!!

Small Cap Value Report (Tues 24 March 2020) - QTX, WYN, LTG, YOU, ESL

Quartix Holdings (LON:QTX)

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Jack Brumby

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