Small Cap Value Report (Wed 15 June 2022) - MOTR, IDOX, BMY, CGS, DWHT, WAND

15th Jun '22 by Paul Scott

45 comments 7930 reads

Good morning! It's Paul & Graham on duty again today. Thank you to everyone for the warm welcome back for Graham, and the kind words for Jack. All very much appreciated. Today's report is now finished.

Agenda -

Paul's Section:

Motorpoint (LON:MOTR) (I hold) - excellent results for FY 3/2022. Outlook is obviously more cautious for the current year, as everyone should have anticipated, due to consumer caution. However, this is a super-competitive business, offering low prices on nearly new cars, so I see it continuing to win market share, especially as new entrants (e.g. Cazoo) are now retrenching as they run out of cash. I think this is now a good entry point, for an ambitious, expanding business at a modest valuation. Sector consolidation very likely.

Bloomsbury Publishing (LON:BMY) - I have a rummage through its results for FY 2/2022. Looks a good business, at a reasonable price. So a thumbs up from me.

WANdisco (LON:WAND) - late 2021 results are out, the figures are mind-bendingly awful. Yet it's got another fundraising away today, at a premium! I just don't understand the valuation here, and why investors keep pouring in more cash, despite 10 years of heavy (worsening) losses & huge cash burn? Surely the clock is ticking now, since tech markets have plunged, and any more cash might be difficult to impossible to raise. Will investors pull the plug at some stage?

Graham's Section:

Idox (LON:IDOX) - Acquisitive public sector software group is preparing to engage in more M&A. Seems to be getting the balance wrong between shareholder reward and management incentives. Lacks organic growth. Has many of the familiar issues we have seen before with highly acquisitive organisations.

Castings (LON:CGS) - A dividend hero with a track record of profitability stretching back decades. Most Covid issues are now behind it, except for the lingering supply chain issues affecting customers. It’s also learning to deal with high inflation for raw materials. The company announces a special dividend today and is looking forward to the future with confidence.

Dewhurst (LON:DWHT) - this supplier of elevator components issues a profit warning for the full year. The main problem with this one is the share structure: are the non-voting DWHA shares much too cheap, or are they a trap? Perhaps the voting DWHT shares are simply overpriced.…

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cholertonandrew

15th Jun '22

Hi Graham,

Just wanted to say welcome back- it’s great to have you back writing- and congrats on getting married and the birth of your daughter.

Best wishes,

Andrew

Jamboreebop

SCS (LON:SCS)

There was a note at the bottom of today's RNS "In addition to this notification, there was a missed notification when the holding reduced from 5.1% to 4.98% in July 2020."

Probably this very small increase in percentage holding is due to SCS buying back shares recently, so possibly Stadium's number of shares is unchanged.

ThumbsUp

"However, if they’re wrong, and readers slowly drift away and return to their kindles, then who knows, the shares could turn out to be expensive. That’s a call we all have to make individually, when deciding whether or not to own this share. I don’t have any particular view either way."

On this, Paul. This is only a concern if people move to Kindles and pirate books rather than pay for them. Bloomsbury Publishing (LON:BMY) have the digital rights to most of the books they publish (though, unfortunately, not Harry Potter!). eBooks are also higher margin than print books (for obvious reasons) so a shift from physical > digital could well be a good thing.

Graham Neary

Thanks so much Andrew. Lovely to be here. Graham

Yellowstone Advisory

Re @Pauls comments on Motorpoint (LON:MOTR) and the disrupters Cazoo and Carvana - I was talking to a friend in the motor trade and the problem with the business model for the disrupters in his view was that as they are distance selling, customers have the right to return the goods within 14 days. Apparently this is happening a lot, sometimes after 2 week trips to the south of France in a new Discovery. This obviously has an impact on their profitability. I'm very happy to stick with Motorpoint having used their services and been very pleased.

cmpeckham

Paul, I agree with you that there are lots of tempting shares around now, but I think it's always worth looking at history for lessons. You mention 2008 and to me this has many hallmarks of the 2 bear markets that started in 2008 and 2001. If we take the point at which the S&P 500 had declined by 20% as being comparable to now:

In both 2001 and 2008, the market went on to decline ~40% from that point. In one case that took 9 months and in the other case 18 months to reach the low.

In 2008 it took the market 2.5 years to recover to the point at which it had declined 20%. In 2001, it took 3.5 years to recover to that point.

History doesn't repeat exactly and it would take a recession to for us to see anything like these scenarios, but we are almost certainly heading for a slowdown and a recession is quite likely. So, I think it's worth people bearing in mind that, if this is what happens, it could take 2-3 years from now just for the market to recover to current levels. It could easily take a lot longer before we saw significant gains. Hard truth: many, many people don't have that sort of patience and resilience, or unfortunately, find out that personal circumstances have overtaken them in the interim.

I hope this doesn't happen, but I think it's worth reminding people who haven't been active investors for decades of the kind of thing that can happen - and the kind of thing that in the old high inflation days, used to happen a lot more frequently. Conditions, and central banks, aren't always so friendly as they have been since 2009.

Best of luck to everyone.

grazza

The Peterborough Telegraph reported yesterday that an online start up called Carzam has appointed administrators, saying they were unable to raise new funding following the collapse in the share price of Cazoo. They raised 112m just last October and expected 40,000 sales with 500m revenue this year.

Bouden54

Also the Kindle must have appeared at least 10 years ago so if we were going to see a big shift this would surely have already happened.

yiannos1

This is just an investor reaching 5% due to the buyback and cancellation of shares.

This is definitely not a new investor.

Regards

The skier

Don't think you can return goods if you have had the benefit of them. They would know by the mileage. Not like wearing a dress for a night out.

Greedo

I have gone the opposite. I used a kindle a number of years but found the text at times difficult to read ( could be due to my old age :smile ). I returned to physical books don't regret it one bit. I find books personal more readable and easier to flick pages back and forth.

Interestingly, my new found hobby is now board games and this is coming from a person who played a lot of video games.

abtan

Bloomsbury Publishing (LON:BMY) ( I hold)

Hi Shanklin100

I'm not sure if you can see the above image clearly, so here's the source info:
https://www.bloomsbury-ir.co.u...
Slide 19

You're right that the Adult-Consumer and Special Interest divisions individually are not very profitable this year, but they dis generate decent Contribution Profits, £17.78m and £8.06m respectively.

These effectively cover a large chunk of the admin expenses - £15.73m and £7.98m respectively - much of which would presumably still need to be paid for.

---

I think it's also worth pointing out that Children-Consumer revenue had a boost in the last month in each of the last 2 years due to publication of Sarah J Mass books, which are ridiculously popular (they were published in Feb 2021 and Feb 2022 respectively.)

We can see as much by the large jump in H2 revenue here over the last 2 years.

These sales won't appear in FY23 and accordingly I expect the profit in this division to drop in FY22/23.

I appreciate that a small amount of the H1 to H2 jumps over the last 2 years could be seasonal/covid related, but I find it hard to tell from looking at previous years.

TamzinPiworld

Idox (LON:IDOX) H1 2022 results are covered by Graham above. Here's David Meaden, CEO & Anoop Kang, new CFO, presenting these results to analysts, this morning video & podcast. They acknowledge the H2 weighting 'as anticipated' and feel the transformation is very much on track. All the analysts' questions are included, which is always helpful.

FREng

Heroic work today chaps! Don't overdo it!

MrBeak

I think I might make a small Investment initial investment in this one

Paul Scott

Thanks to yiannos1 & Jamboreebop for pointing out that this Holding in Company RNS for SCS (I hold) looks like a technical change in % due to buybacks, with Stadium actually being an existing shareholder.

Much appreciated - we always want to get the facts right, so it's very helpful when readers point out something that needs correcting - many thanks!

Best wishes, Paul.

Thanks FREng! It's very difficult to write about individual companies, when markets are so depressed & nobody is interested. However, selectively, that's the time when the foundations are laid for future multibaggers.

I'm both depressed about the terrible state of my own portfolio, but also really excited about the future profits now in the headlights.

I'm saving for my retirement, but don't plan on retiring until I drop anyway, so on a say 20 year view, this year's drawdown doesn't really matter. I know "drawdown" is a polite way of saying losses. Look, it's horrendous for all of us. If I told you how much I've lost on paper since Oct 2021, we would both start crying (well I would anyway, it's about £2m).

It's been really difficult getting up every day, and looking at myself, saying "you fool! why didn't you bank the profits? etc".

But I cannot change anything that happened in the past. I've been a fool, with hindsight.

Life goes on. And it's good. There's been a recent health scare in my family, and we're OK now. The size of the portfolio doesn't matter at all, compared with potentially losing people we love.

We have to be strong, in difficult markets. Maybe I should write more about this kind of thing? But this year has thrown me up in the air like some fat idiot trying to ride a rodeo horse in America. So I'm still reeling. We knew all these issues were coming, and I recall talking about pricing power ad nauseam last year, and the risks of inflation & tapering, etc. So we knew all the risks, but they've hit harder than I ever imagined.

Equities are the longest term assets, and with nominal GDP rising so much, equities & property are the best places to be. Maybe not short term, but long term.

See you in the morning, I'm off to try to relax now I can't eat or drink anything I like any more!!! ;-)

Mark B

16th Jun '22

You are not alone. Focus on the long term and the important things is what keeps me going.

shanklin100

Hi abtan

Interesting post, thank you.

I guess a lot depends on whether those Bloomsbury Publishing (LON:BMY) admin costs occur in the individual divisions or are unavoidable central costs. If they largely occur in the individual divisions, rather than being allocated central costs, then we are seeing activity to minimal purpose in two areas of the business.

More detail on this would certainly be of interest.

illiswilgig

Paul,

thank you for your candid thoughts. Like you I have been deeply affected by the relentless losses combined with the negative global news. It helps to know that I am not alone - and neither are you. I admire your ability to write so clearly on a daily basis despite it all.

I remain fully invested. I have probably 'lost' a similar percentage on an unleveraged basis - for my smaller portfolio its about 400k right now - which as I live from my investments is hard to ignore - never mind 'almost an armful' its almost a house-full! But its only on paper.

Whilst I also chastise myself for being an idiot on a daily basis - the clarity of hindsight is seductive. Nobody 'knew' and very few predicted the current circumstances - expecting to have acted on knowledge that wasn't available then is being unfair on yourself. That said - I am always learning and the lesson I have learned recently is to redouble my efforts to improve my research - partlcularly for long term management quality and caution. There is no doubt that my better (less worse) investments correlate with quality and caution of long term management when compared with my worst investments.

I share your excitement at the sea of bargains that surround me. I have been rotating my funds gradually towards companies that offer the best prospects and away from those that have worsened in the long term.

I am reminded on a daily basis of the words of Charlie Munger - If you sell everytime things might be bad - it might prove to be a mistake and ctually there are three opportunities to make a mistake selling is only the first. The second is what you do with the funds while you wait, and the third is deciding when to buy back in.

Please keep up the great work,

cheers

Mark

Small Cap Value Report (Wed 15 June 2022) - MOTR, IDOX, BMY, CGS, DWHT, WAND

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Paul Scott

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