Small Cap Value Report (Wed 18 Jan 2023) - W7L, ITM, SMD, BOKU, MIDW, HAT, TM17, ALPH, EYE

18th Jan '23 by Paul Scott

54 comments 8601 reads

Good morning from Paul & Graham!

Today's report is now finished.

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.

Agenda

Warpaint London (LON:W7L) - I've been impressed with performance last year, reporting on it here positively several times. So I approached the company about interviewing their CEO. This is booked in for 2pm today, so the audio will hopefully be up on my website late afternoon, I'll add a link here once it's published. EDIT: Now published, my audio interview with Warpaint's CEO.

Here's today's to do list. We're going to try something new, and gradually change these to one sentence summaries, once we've done each section below:

There are lots at the bottom that we didn't get round to looking at, sorry about that. I might check out a few later, for tomorrow're report.

Paul’s Section:

Firstly I did 3 backlog items last night -

ITM Power (LON:ITM)

89p - mkt cap £563m

Trading & operational update

I have to mention this update, published earlier this week, as there are some staggering numbers in it! It’s a profit warning for FY 4/2023, from the new CEO.

… it has become clear that the outcome for the financial year ending 30 April 2023 will be materially different from the current guidance, with lower revenue and a higher EBITDA loss.

Various problems have arisen, which is…

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planetx

18th Jan '23

GFRD

looks copper bottomed to me

3.5 billion of orders is a a decent order book

Share buybacks very good , 15 million I seem to remember

10 million pa payout is good

175-195 million cash is good

They are looking to increase margins to 3%

Looks easy to understand and I think it’s just looks too cheap given the order book .

Building myself too .

Mark B

The direction of travel will always relate to the fundamentals of the company, eventually. I like it when it is disconnected - that's where the opportunity is. My ideal would to be buy for the next year or two and then sit on it for the next 20. :-) Obviously, the future is never that clear cut - but that should signal my intentions.

Graham Neary

Alpha International (LON:ALPH)

Hi Kouremenous, you're welcome - Liberum's estimate of 2023 reported PBT is £70.9m. This is after £24m of estimated interest income. The revenue growth is indeed very impressive! G

I remember that! Well done Fred (edit: but maybe it was the Manchester Investor Show?)

Wolf of Small Street

Mark, as you consider yourself a part owner could you maybe give your CEO a call and ask them to use a Private investor friendly broker, instead of giving a large advantage to a select few?

ACounsell

I know the market can be a strange beast but can anyone explain how H & T (LON:HAT) share price has fallen by nearly 7% after reporting excellent results in line with expectations. Also Paul's analysis and Stockopedia metrics all seem very positive. In the current economic climate in line with strong expectations must be a more than reasonable result given that if you report a slight miss the share price gets hammered! Did investors think they should have been even better than expectations after the results reported by Ramsdens Holdings (LON:RFX)?

I have no problem with my broker Interactive Investor

TheFloatingInvestor

I have seen a fair bit on 'selling on the news' coming back into the market again (Knights group (LON:KGH) and Ashtead Technology Holdings (LON:AT.) ) , which is much better than just 'selling' which was the theme of last year.

I think Robbie Burns wrote an article on it on stocko somewhere.....worth a look. That would be my guess as H & T (LON:HAT) does look fully priced, where as Ramsdens Holdings (LON:RFX) perhaps is still not.

Rusty2

Yes I have noticed that quite a bit lately, "buy the rumour sell the news", is the expression. I think a good opportunity to buy or top up, if you are looking to buy, I did buy some Knights group (LON:KGH.

Warpaint London (LON:W7L) is another one that fell back after good news.

jonno

Galliford Try Holdings (LON:GFRD) Very much agree planetx, but I am biased. My purchase deviates somewhat from my usual criteria in that I tend to shy away from low margin businesses, but after some research the upside looks very positive, given patience.

If you are signed up to Mello Mondays, there is an excellent presentation from the CFO of the last interims to 30 June 2022. See Mello Monday 24th October 2022. It covers the company's approach to risk management, employee engagement, finances, plan for revenue/margin growth and recent acquisitions.

All three acquisitions have been bought out of administration and focus on the regulated water industry.

Kouremenous

Thanks Graham

BnB

Ashtead Technology Holdings (LON:AT.) - buying opportunity coming in the morning with 14% of the shares being offered in an accelerated bookbuild. Main seller is Buckthorn Partners selling down a third of their very large (35%) holding. But CEO is offloading GBP 1m worth so avoid if that's a red flag. Personally I would be adding if I didn't have a full position already.

Tommy H

I guess what people forget quickly is Knights group (LON:KGH) was down in the 67p range in November 2022, in two months it is up to £1.20... so yes if you bought at £1.20 it hurts to be at a £1 if you bought at 75p, you think I should have sold at £1.20, but still £1 feels good

Though if you bought back in 2020 at £4.80 you are still going OUCH!

On my watch list, I do not hold.

Tommy

bentimpson1991

ITM Power (LON:ITM) are the leaders in their field and areb a bloody good company, but hydrogen is a long way away from being even remotely comparable to battery only solutions in terms of efficiency. ITM's main value prop is the adoption of 'green hydrogen', and thereby the mass purchase of their main product: water electrolysers (you make hydrogen from just water and electricity with them). "Green" hydrogen is also dependent a renewable or nuclear energy supply. A dirty energy supply can still power an electrolyser but kind of misses the point.

Hydrogen is, basically, and unfortunately, an extremely cost inefficient way of storing energy for future use. Albeit with good "green" credentials.

Hi rmillaree

Regarding inflation you may well be right, but personally I have no idea where inflation will be in 9 months time, hopefully it will have fallen significantly.

My approach when investing is as best I can to focus on the facts and avoid predictions.

Insofar as Galliford Try Holdings (LON:GFRD) is concerned Andrew Duxbury said during his Mello presentation that inflation protection is built into contracts. He added that inflation has become more stable of late which has made this process easier and has enabled the company to lock in prices with suppliers. They pay suppliers promptly, my recollection is within 25 days

Your particular point was put to him by David Stredder who asked if the company might benefit if inflation decreased during the contract period. Andrew Duxbury replied that this was potentially possible, although he didn't expect inflation to disappear anytime soon.

fred9566

Could have been -is it more than 10 minutes ago !

Db47

I thought compounding only referred to a company that pays a dividend (now) ?

19th Jan '23

Have a look at Berkshire Hathaway for an example of how a company compounds internally and has never paid a dividend. If a company can re-invest its free cash flow at a greater rate of return than I can typically get, that's my sort of company.

hmmm I see your rationale but not sure I agree Berkshire a lot more successful then Team17 at it that we can agree on

22nd Jan '23

my apologies Mark B -after doing some research I now see what you are saying and what a quality compounder refers to - I'd always thought it referred to the effect re-investing dividends had... thanks !!

Small Cap Value Report (Wed 18 Jan 2023) - W7L, ITM, SMD, BOKU, MIDW, HAT, TM17, ALPH, EYE

Agenda

Paul’s Section:

ITM Power (LON:ITM)

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Paul Scott

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