Small Cap Value Report (Wed 24 Oct 2018) - ramblings, CAKE, ANG, YU., PHTM

Wednesday, Oct 24 2018 by

Good morning, it's Paul here.

I rambled a bit off topic last night in the placeholder (Tuesday is stroll along the beach, followed by pizza and beer night), but seeing as it has 56 thumbs up this morning, I'll leave it in place. Sometimes I like to spice up the placeholder a bit!

In case you missed it, Graham kindly emailed me a piece about PCF (LON:PCF) after noting some reader requests here. So I copy pasted that into yesterday's report here. Apologies, but I didn't get round to looking at McBride yesterday. There seemed little point, as the markets were in freefall at the time, but later recovered in the USA with a strong late rally.

I see the American markets are all over the place at the moment - volatility is back.  I've no idea what's going to happen to markets overall. All I can say is that I'm seeing some potentially nice buying opportunities in UK small caps - good companies, reporting decent figures & outlook, that are now 20-30% cheaper than they were a few months ago.

Eurozone crisis

On the other hand, I can understand people being worried about macro factors. To me, by far the biggest worry right now is a potential breakup of the Euro. The so-called single currency is of course, not a single currency. It's actually 20 different Euros, pegged at parity.

All currency pegs eventually snap, because economic imbalances build up over time which make artificial currency pegs impossible to maintain. The Euro is no different to the Gold Standard, Bretton Woods, or the ERM. It's only a matter of time until it breaks.

The capital flows under the Target2 system look close to breaking point. I'm not an expert on this, but I can see a big problem is emerging. 10 times the size of the Greek Eurozone crisis, as Italian national debt is over E2 trillion - although much owned domestically, apparently.

Who knows how it's all going to pan out? The EU has a knack of cobbling together temporary fixes for these problems.

My worry is that, if/when the Euro peg snaps, then 20 years of economic imbalances would instantly reset. So the Greek Euro would instantly devalue maybe 50%? The Italian Euro might devalue say 25%? The German Euro would revalue say 30%.


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Patisserie Holdings PLC is a United Kingdom-based cafe and casual dining company. The Company offers cakes, pastries, snacks, meals, and hot and cold drinks across the United Kingdom. The Company's segments include Patisserie Valerie, Druckers, Baker & Spice, Flour Power and Philpotts. It offers products, such as coffee, dairy, fruit, packaging, cocoa and wheat items. It offers cakes in various categories, including celebration cakes, gluten free cakes and wedding cakes. The Company operates under various brands, including Patisserie Valerie, Druckers-Vienna Patisserie, Philpotts, Baker & Spice and Flour Power City Bakery. The Company offers a range of cakes, such as Gluten Free Flapjack, Gluten Free Chocolate Chip Muffin, Cortina, Chocolate Box, Carrot Cake, Cheesecake, Blackforest, Exotic Fruit Tart, Pecan Tart, Citron Tart, Choc Mousse, Mixed Berry Mousse, Raspberry Tart, Madame Valerie Slice, Mille-Feuille, Gluten Free Chocolate Brownie and Gluten Free Marble Cake. more »

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Angling Direct plc is a United Kingdom-based fishing tackle retailer company. The Company is principally focused on selling fishing tackle products and related products through retail stores and also online via its own Website ( The Company’s product categories include reels, terminal tackle, rods, bait and additives and bivvies and shelters. The Company fishing tackles products, including capital items, consumables, luggage and clothing. Theses all fishing tackle products sells under its own brand Advanta. The Company operates approximately 15 retail stores. The Company has developed angling superstores. more »

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Yu Group PLC is a supplier of gas and electricity focused on servicing small and medium sized enterprises (SME) businesses throughout the United Kingdom. In addition to the supply of gas and electricity, the Company offers certain ancillary services. The Company operates approximately two information technology (IT) systems for the gas and electricity sectors. The Company's subsidiaries include Kensington Power Limited, which is a gas and electricity supplier, and KAL Energy Limited, which is a holding company. more »

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

52 Comments on this Article show/hide all

peterthegreat 24th Oct 33 of 52

In reply to post #411314

Hello pka. With reference to your post relating to Euro banknotes, I believe that although these notes superficially look the same, there is a code letter on some, if not all, notes which identifies which country's central bank commissioned the note. In other words there are Greek euro notes, German euro notes, Italian euro notes etc. If the worst came to the worst it would therefore be theoretically possible for these euro notes to trade at different values according to which Central Bank issued them. For example, if it became apparent that Greece was about to crash out of the euro system then perhaps the value of notes commissioned by the Greek Central Bank would fall in value in anticipation of them being converted into drachmas. In practice I do not think this would be likely as I am sure the European authorities would somehow manage to issue a guarantee of some kind which would stop this happening.

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purpleski 24th Oct 34 of 52

In reply to post #411124

Yes I think that this (the Euro surviving) is much more likely for reasons (only my opinion) which I wont go into here because to controversial and I havent got the energy to discuss as I am on holiday in the South of France.

And certainly if it has gone in three decades it won’t go at all. The EU morphs and adapts and compromises but it has been around for nearly 70 years if you include the ECSC. Nearly a quarter of the time the US has been an independent nation.

I personally think it will survive because at the very top in most of the major nations there is a will for it to survive and at the grass roots level amongst the young there is a strong desire for it to survive. They WANT the EU to survive.

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Mark Carter 24th Oct 35 of 52

Today I learned something completely new: the Euro is a series of pegged currencies.

I am surprised that the Euro has lasted this long.

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purpleski 24th Oct 36 of 52

In reply to post #411344

So well put pwozzy

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purpleski 24th Oct 37 of 52

Interesting that the Stockopedia algorithm had £YU classed as a “sucker stock” with a Stockrank of 16. Whether I would have bought it is moot but with a Stockrank of 16 and a Sucker Stock class, I would have needed some convincing. That is what I really like about Stockopedia. It makes me stop and think before pressing the buy button

That said for my two biggest duffers IQE (LON:IQE) as a High Flyer with SR of 54 and XLMedia (LON:XLM) a Super Stock with an SR of 97 when I bought in!

I think it would be great to be able do research on where stocks were in terms of Stockrank and class x years ago. For example did all stocks that have doubled in the last 2 years have a stock rank of over 50 two years ago and did the stockrank never drop below say 25? Yes I know about the PDF’s but it is a bit laborious.

I am sure the daily Stockrank and class is in the database I wish we could have access to it or is that information too proprietary?

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pka 24th Oct 38 of 52

In reply to post #411399

"I personally think it will survive because at the very top in most of the major nations there is a will for it to survive and at the grass roots level amongst the young there is a strong desire for it to survive. They WANT the EU to survive."

If that is the case, the irony is that in the Eurozone countries of southern Europe, the Euro and the consequent inability to devalue their currencies are the main causes for the huge percentage unemployment levels amongst the young.

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slopsjon 24th Oct 39 of 52

Another food outlet goes for CVA Gourmet Burger Kitchen

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timarr 24th Oct 40 of 52

In reply to post #411404

Today I learned something completely new: the Euro is a series of pegged currencies

It's not. The currencies which the euro replaced were abolished when it was created.


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Jimbonambo41 24th Oct 41 of 52

regarding a potential 'snapping' of the euro peg - this feels like a fear that on an intuitive level has some logic to it but in reality doesn't. I am not a fan of flying so when there is turbulence during take-off it feels like the plane is going to get blown into a spin and break up but this is not realistic. of course the euro has constituent members and in their own jurisdiction they legislate that the Euro is the legal currency with successor language in place to grandfather contracts featuring pre-Euro currencies. they could in theory leave - and would have the legal ability to change the currency within their own jurisdiction. so - for instance - spain could legislate that at some point and later all Euro contracts would be peseta contracts with a fixed exchange. they would then be able to print away but with all the dangers that that poses (and they are considerable - we are just too used to looking at USD or GBP or JPY which have much bigger status in the world) including but not limited to catastrophic losses in the banking sector which in turn would prob lead to massive capital and trade controls.

I guess what I'm saying is that as tempting as it is to picture the Euro as something that can shatter apart the reality is really otherwise. hence why Greece didn't leave even when most thought they were about to when Syriza got elected..

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cousinjack 24th Oct 42 of 52

In reply to post #411384

"I understand the UK has enough amunition to last a week (notwithstanding post brexit border delays!)".

Astonishing that, if true, the information was made known. How did you learn this ?

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dahokolomoki 24th Oct 43 of 52

On Image Scan Holdings (LON:IGE), the trading statement makes the right noises, but what is glaring is the omission of the order book ££, which has consistently featured in previous updates.

Something to hide there?

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shine66 24th Oct 44 of 52

Dreadful that there will never be a 'post-war' period in this country.

For anyone interested, there's a day by day account of WWI in letters and diaries at

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jonesj 24th Oct 45 of 52

Europe might be a large strong economy to counterbalance Russia, however European armed forces would be completely incapable of repelling any Russian attack, without the use of either nuclear weapons or with US support. All it needs is a slight change of policy by the US and we are back to 1939, where the US did not want to join in & the president could not get the backing to join until 1941, when the Japanese forced the issue.

As for currencies, I take the view that hardly any of them last for ever. Decades & hundreds of years, yes, but not for ever.

If Italy insists upon borrowing beyond its means, then their debt will just spiral out of control and they cannot use the typical government tactic of printing money to resolve the situation. That is why the EU had rules limiting borrowing. The borrowing may go on for a few years, or even a couple of decades, until it gets out of control

However, when taxpayers in another country are eventually asked to bail Italy out, they will start voting for parties that oppose this.   Tensions build unless there are EU rules that all parties are happy to follow.   

I don't see the Euro as a 500 year currency & doubt it will get to 50 years.  

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sharmvr 24th Oct 46 of 52

In reply to post #411514

It was on newsnight a while back when Gavin Williamson was asking for more money for defence - didn't verify but hopefully Beeb did.
My comment was somewhat sensationalist to be honest - the purpose of the military is very different to the 40s (when most British military bases were given to US anyway), and a lot of that responsibility is with NATO (notwithstanding trump!)
But if NATO (other allies) didn't help and Russia attacked UK would have to go down the nuclear defence or lose.
The story did make clear that other than US, China and Russia, not many armies would last very long in a traditional war.

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Fangorn 24th Oct This post has been moderated
Fangorn 24th Oct 48 of 52

In reply to post #411344

Eu has done little.

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brballs 24th Oct 49 of 52

The markets drop a few points, and everyone here is talking currency collapses, nuclear wars and Armageddon in general! Cheer up folks, it’s nearly the weekend :)

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Catstycam 24th Oct 50 of 52

In reply to post #411274

Good evening mrosbiston

"Anyone have similar stories?". Yes, just as an exercise this evening on the back of how poor the stock market is doing right now, I looked back at my trading since January 2016. Out of around 24 trades I bought only 4 are now trading above what I sold out at, despite perhaps a majority of them trading higher at some time. I find that particularly worrying, particularly those I sold out of earlier in that period. Luck?, judgement?, like you, a bit of both. What is clear is had I held all those stocks I would be significantly worse off. Things look pretty grim at present. Maybe there will be a Santa rally to help out, but from what level?. And when we come to open that box at Christmas.......will there be anything in it?, will it be an i.o.u.?.

Good luck all


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Gromley 25th Oct 51 of 52

In reply to post #411519

On Image Scan Holdings (LON:IGE), the trading statement makes the right noises, but what is glaring is the omission of the order book ££, which has consistently featured in previous updates.

Something to hide there?

A very good point - I don't find Image Scan Holdings (LON:IGE) remotely investable at this point so had rather skimmed over the announcement and not noticed that. 

It was the lukewarm comment on orderbook that accompanied the results announcement which alerted me to the likelihood of the February trading statement. Not mentioning the order  book at all is surely worse? 

I would conjecture this is linked to the very terse statement "the European sales manager is being replaced", that's so impersonal as to be effectively a direct insult to the person concerned.

That in turn leads me back to the preceding paragraph : "In order to return the company to the growth path seen from FY 2015 to FY 2017 a number of changes will be made". Future tense! The return to growth is still in the planning stage!

I would love for them to be able to turn this around,  but at the moment I cannot see any investment merits whatsoever. Stocko rates it as a "value trap" , but I'm sorry to say that the "value" only exists until they publish the results in December.

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Velo 25th Oct 52 of 52

Paul, I'm in accord with your analysis of Photo-Me International (LON:PHTM) .

Yes it does look attractive, but think you may have overlooked that it's working it's way through the first year of a company profit warning which it issued on the last day of May (I think) this year (notice how the net profit estimate for this year ending is out of synch with the prior 6 years of cumulative increases - due to a big miss with Japan) but is in line with the profit warning forecast issued earlier this year. So all ticking along nicely. Hence the 8% divi. But it's all genuine, I believe.

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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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