Small Cap Value Report (Wed 10 May 2023) - ECK, HVO, ASC, HAT, TET, JDW, CTO, VTU

10th May '23 by Paul Scott

103 comments 8770 reads

Good morning from Paul & Graham!

Today's report is now finished at 12:14

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

I don't suppose we'll get through everything on this list today, but we'll have a good go at it!

Update - that's it for today. I think we covered the most interesting, and price-moving announcements.

Summaries of main sections:

(more detail below)

Eckoh (LON:ECK) - 42.5p (£124m) - FY 3/2023 trading update - Paul - AMBER

A good update, slightly ahead of expectations. Although strong growth seems to have come from an acquisition. Is there much underlying organic growth I wonder? N.America is doing well, but how about elsewhere?

hVIVO (LON:HVO) - 16.5p (£112m) - FY 12/2022 Results - Paul - AMBER

Very impressive organic growth, and a breakthrough year into significant profits. I like the bull case, but also have some questions & reservations below.

ASOS (LON:ASC) - down 6% to 598p (£598m) - H1 Results 2/2023 - Paul - RED

Paul is seriously unimpressed with poor H1 numbers, and a rapidly weakening balance sheet with too much debt. If its turnaround plan works, then Asos might recover, but it looks a tall order to me, so I'm steering clear.

H & T (LON:HAT) - down 1.5% to…

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Pat W

10th May '23

Rotala has an interesting story and an amazing stock rank for such a tiny company. I have a very small holding and I've top sliced some profits but I'm wondering if the recent dip provides and opportunity? Thanks

ACounsell

There seems to be a great deal of misinterpretation with respect to my earlier comment. To clarify:

I am aware that the analysis provided by Paul, Graham and Roland when he is helping out is not intended as a recommendation of any shares. I can read the disclaimer that is at the top of every SCVR and as I said earlier ' I appreciate the DYOR mantra and accept all the investment decisions are ones own'.
As I noted in my comment I recognised that the four shares that I highlighted were 'small and admittedly speculative positions'. There are also a very small part of my overall portfolio and are part of what I see as my 'fun' portfolio where I take a bit more risk with the attendant good or bad performance that come with that approach.
I also said that the positive reviews were in the 'relatively recent past'. I perhaps should have said in the last 3 years (!) but then I have been a subscriber to Stockopedia for about c.10 years!
Some responses advised using stop losses to avoid these type of meltdowns. My experience with that is mixed. Even with quite deep stop losses (-25%) I have been stopped out on shares that have subsequently multi bagged which again damages confidence in the approach.
My comment was a factual statement and not intended as malicious in anyway. It was more concerned with my personal lack of confidence in my ability to interpret the SCVR analysis and make profitable investment decisions following further research. My final sentence was intended to illustrate this lack of confidence in investing in small cap shares 'I am sure I may be missing out on opportunities highlighted in the SCVR but given my past record I just don’t have any confidence in investigating them further' and doesn't belittle the SCVR in any way.

Many responses to my comment were constructive and supportive and thanks for that. Maybe once I recover some confidence my future investment efforts in small cap stocks might be more productive!

ken mitchell

Astonished to see follow up criticism of the incredible high quality analysis done by Paul and Graham here. Have any of those so quick to pull their analysis to pieces given even a moment’s thought to the time it takes just for starters. Go and look at the updates on all the Companies they’ve covered today. Just look at the wealth of detail, and that’s after having to go through updates and the figures before they can write anything. And then consider the time it takes to write it all. It’s beyond my understanding how on earth they manage to do it, day after day, and not get completely exhausted! Then Paul adds extras like his fabulous podcasts too. Aren’t some folk ungrateful.

And then to see those posts today rubbishing their work must be so dispiriting. It’s our fault and not theirs if our investments go wrong and we hang on to them when the story changes for the worse and even after major profits warnings all the way down to 90% or whatever losses. . Cut our losses when we get it wrong and don’t blame somebody else and certainly not superb analysts! Look again at their analysis just today. If that’s not high quality what is?

Note too that a lot of small company shares have done very badly for a good while. That won’t last for ever. Meanwhile if the focus of a portfolio is mostly just UK smaller companies why not widen it to a much more diversified portfolio?

e.g for investors with limited investment skills, consider pooled investments like Investment Trusts that enable us to invest all round the World. There are some exceptional bargains there too with the average discount to NAV having widened from 3% to an unusually wide 17% and some sectors (e.g Commercial Property) are seeing discounts over 40%.

kando02

Further to A Counsel's bit, it would bit sometimes informative input from Paul/Graham if their sentiment changes on shares they've had high conviction (so called Coffee Can shares- ie hold and forget ( Saga , Boohoo etc) - S me of us don't have the skills t do in depth research and take the lead from SCVR

Here’s Paul’s analysis on Unbound (LON:UBG) last January. It speaks for itself. Anyone who read that and still decided to hold should NOT be blaming Paul’s analysis fir their losses. “Complete Bargepole stock I’m afraid” alone was surely warning enough? AND note the reminder he was warning about Unbound AGAIN!

“3.7p down 42% at 08:46 - mkt cap £3m)

Probably my second to last comment on this share, to warn people off again. Bad profit warning today, together with excessive debt, means I think the equity is now probably worth nothing. It struggled to raise fresh equity at a deep discount last time (well short of the original amount it tried to raise, I know as a friend was inside on the deal). So next time, I doubt there will be any appetite at all to refinance it. Hence the bank probably now calling the shots. Small shareholders can at least salvage what’s left for a few pence, whereas bigger holders unfortunately are probably facing a wipe-out, sooner or later. It all now depends on what the attitude of the bank is. I imagine they’ll probably want a sale of the business, to recover some of their debt, which would probably leave trade creditors and equity holders with nothing. Who knows though, it could stagger on for a while, but the balance sheet looks insolvent to me. Management misled me previously, so I don’t believe anything they say. Complete bargepole stock, I’m afraid. I flagged, in strong terms, the likelihood of a 0p outcome here in July 2022. Previously, it had looked quite interesting, but subsequently turned out the forecasts were fantasy.”

bohenie

no - Bloomsbury Publishing (LON:BMY) - Bloomsbury - but they seem to be out of favour this week!

That's a lot of work for SCVR to keep track of! Just look at the new spreadsheet and the number of green stocks they have covered. Recently, when any of my shares have dropped 7%. I re-evaluate it. This share is now on my naughty step! Does it still pass my checklist? If it drops another 5% I do another re-evaluation and I generally sell but I have sometimes held. Its my re-evaluation that's important.

Funnymoney

It's been shockingly hard really for the last 2 years. I would say though that I luckily sold my Boohoo (LON:BOO) very early, based on the price action. Paul Tudor Jones (trader, worth $7bn) says that nothing good ever happens below the 200 day MA, and I try to stick to that if the position is substantive. That's why I got out of Boohoo; when the 200 day is like it is, you have to wait until it has flattened and is increasing again.. Having lived through quite a few bear markets I know how brutal it can be for small caps so I'd rather take the feeling of losing 25% than be worrying about the one of losing 90% and act accordingly. It's never easy, even in the good times we are still riding a wall of worry. I especially take notice of what Paul says when he finds a problem in the accounts and then I won't hold or buy them. Over the years he has made some cracking calls, starting with QXL in the dotcom era. Twenty three years later he highlighted Card Factory (LON:CARD) to us (when I had taken my eye off the ball).

yiannos1

Hi Paul,

I am shocked that you haven’t gone back into Vertu Motors plc. It is very very rare to find a listed company that in 4 years can manage profits equal to their market cap. I think your valuation 100-120p is a too conservative as its properties should be valued at least over 400m (considering the recent sale of 50% over book value). In addition the business is and will be profitable yearly, will pay a dividend of 5% and the share count will decrease. One to add and hold for the next 4-5 years for a target of over 200p.

Also , although I do hold hVIVO , I have to agree with you being a bit sceptical about it. Although I totally disagree that this is or might be another WANdisco , I was disappointed that their special dividend was only £3m after eagerly announcing that their cash balance has increased to over £25m.

Thanks

WDWombat

Tweedy Browne is a very well-known, conservative US investment manager. It manages around $9bn which is indeed small by US money management standards but managers, employees past and present have a lot of 'skin in the game'.

cheeky_minnows

Thumbs up to this. I have learnt alot not only from Paul & Graham over the last couple of years, but from alot of the other posters here - so thanks to many of you for making this a sane and balanced discussion forum.

From a personal perspective I have found the warnings from Paul and oaur Graham (thanks Cilla), more useful than their endorsements.

I cant help admit that I am relieved to hear that others are finding this a difficult period, by chance my investment journey started in mid 2021.. so a bit of a baptism of fire.

Harry Hindsight

Don't beat yourself up. We all like a story and small caps should be a percentage of your portfolio on stuff you have some interest in - and hopefully divulge some of your deep diving. I'm specialising in mining at the moment and as usual its "the more you know the less you know" - and gold will go to 2500 - the Question is not if but when, and the way things are going not very long time.

Got into Boohoo and traded it up but did not exit in the clear 'dead cat bounces' on the way down. Hits say the 200dma then bale out whatever - strong willpower needed which is easy to say, hard to execute when in capital loss.

Trying Ichimoko now and hope to apply some discipline - at least the get out - gives four stop loss points so if not watching daily then have a chance of reducing losses. And if goes pear shaped only yourself to blame - but there are others of course, TradeView has loads of the things - all good fun.

Paul provides good macro as well which is very helpful at the start of the day.

Jef Warwick

Hi Paul
Don’t stop anything you are doing.

You will occasionally get those who wish to blame their lives issues and personal failings on others on a public forum.

However the vast majority of readers are highly appreciative of all the effort you put in, also the additional constructive comment it generates.

Having started my investment journey mid-2020, I have learnt from many sources - but by far the most informative are your and the teams posts and Stocko generally.

I’ve moved from jumping in and out of random positions in 2020, going with emotion to someone who increasingly is able to look at the bigger picture, DMyOR and come from a position of increasingly more knowledge.

I visit the site daily, and feel lucky to be part of a thought provoking positive community of many with much more experience than me to learn from.

As one quote from Warren Buffet that you use on the site says “risk comes from not knowing what you are doing” and it’s all our responsibility to ourselves to learn.

Up to you, but if someone posts that they have done “extensive research and found that someone else is to blame for all their lives issues” I wouldn’t.encourage them with a comment. They are only doing it for attention.

keep up the great work, learning is growing and I’m truly grateful for the growth I’ve experienced that has been prompted by your and the teams excellent work.

Regards
JW

Got no idea about perfume, handbags or expensive tipples, but like Watches of Switzerland (LON:WOSG) - new store opened in Canary Wharf with a couple of others in close proximity (clientele bankers, Chinese, Russian escapees etc - but probably less British). But is this a 'bubble' (see Sunak removed VAT reclaim duh!).

But its a watch, ok has some diamonds (small), gold (scared to wear it), worn by past Bonds (future unknown) and needs to be serviced every five minutes at huge cost otherwise doesn't er 'tell the time' - so only an investment which may or may not appreciate over time if can keep it safe an untouched - like Ferraris (in garage with trickle charger).

Ok Apple messed up making a cuboidal looking thing but suppose if want to read emails on it then at least has some function and ECG (scared to go there all that fitness stuff).

Maybe with ASOS and Boohoo the parents are closing off the money tap and suspect times about to get hard for the 'youf'. Have bought some great clothes from Amazon (but of course the little darlings don't like Sports Direct etc).

And 'trainers' - good lord in heaven - they don't even use leather anymore. Hence like Zotefoams (LON:ZTF) - but won't be putting in big bets.

Tommy H

I see that there has been an announcement of another 25% redemption by NB Global Monthly Income Fund (LON:NBMI) at 80p against a current price of about 74p, ex-record date of 16 May 2023.

I hold (small in Mum's ISA aka Pension

peterg

11th May '23

Not using Google Sheets here, but my bit of macro code that scrapped and entered Google prices in Excel just failed (completely) , after years of trusty service! However, as a result I discovered the Shares data type in Excel 365, which does a more seamless job, and covers a number of stocks and prefs that I used to have to enter by hand.

MichaelFBS

Hi tic_tac

This was actually in my son's SIPP now that I look (I wonder where it will be when he is able to cash it in at age 55?!) and that is with A J Bell but would be able to buy through the main broker I use Interactive Investor.

I do intend to buy I have just got to sort out what I am going to sell etc.

Regards

Michael

tic_tac_toe

IG do not offer CAC / french, hence asking

20th May '23

A 'social' organisation that Sillycon Valley Bank put a some of 'investors' money into. Maybe not your answer.

A market cap of 1.6m really with revenue of 6m. Do we need to waste our eyeballs on this stuff. Sorry off to the USA - life's hard then you die - but harder in UK.

Small Cap Value Report (Wed 10 May 2023) - ECK, HVO, ASC, HAT, TET, JDW, CTO, VTU

Summaries of main sections:

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Paul Scott

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