Small Cap Value Report (Wed 25 May 2022) - DRV, ZTF, MAB1, ELCO, BOWL

25th May '22 by Paul Scott

73 comments 7600 reads

Good morning, it's Paul & Jack here again today.

Mello Update - Day 1 of the main show is underway as we speak. David has said it's sold out for today, but there are few remaining tickets for tomorrow discounted to just £40, using code: M2240 - here.

Agenda -

Paul's Section -

Driver (LON:DRV) - from 2 days ago, I give my view on the Middle East region restructuring. This share looks an interesting special situation, and I see more upside than downside, a thumbs up from me. Although the tiny market cap, and concentrated major holdings, mean liquidity is probably very thin.

Eleco (LON:ELCO) - a reassuring, in line update. However, the valuation looks much too high, given that profits are now falling.

Hollywood Bowl (LON:BOWL) - as expected, very strong interim results. Outlook comments indicate strong trading is expected to continue in H2, no sign of a downturn (yet, anyway). It looks reasonably priced, has plenty of cash, plus announces an entry into the Canadian market today. In normal markets, I would give this a firm thumbs up, but due to macro worries, probably a more tentative thumbs up today!

Jack's Section:

Zotefoams (LON:ZTF) - a reassuring update which sees the company using price increases to recoup inflationary costs. The group has invested significant amounts of capex into its operations and has IP-backed products, so it’s possible that future results look much better than historic figures. Given the shares have fallen by about 60% over the past year, it could be worth re-evaluating.

Mortgage Advice Bureau (Holdings) (LON:MAB1) - strikes me as a good company, highly profitable, with a strong Quality Rank. I do wonder how market sentiment might play on the share price in the shorter term, given rising rates and the potential impact on housing demand. But there are factors offsetting that, including high employment and inadequate supply.

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…

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Nanotrader09

25th May '22

hi revs, so I got a pay rise to tackle inflation, but it only adds 100 net to my monthly pay. Some companies have been more smart and given a fixed amount to each staff below a certain pay. This makes sense all round, for the employer it is a one off cost..vs the likes of Tesco who have given 6% permanent increase in pay, which they will be paying for in years to come.... It is what has put me off investing in Royal Mail

TheFloatingInvestor

Thanks Paul S and Mr Peckham. I read Naked trader saying the other day it might well be worth taking the Summer to enjoy the sun...seems a reasonable appraisal.

Sat in my hands, but shite its so hard as my watch list has plenty of bargins, but are they really bargins? It would appear perhaps not yet.

I note the S & P 500 is close to wiping off all the gains of 2021...seems a reasonable start of a staged ETF buy in to me, as perhaps a 10 year hold.

The Phoenix

I would be very grateful if anyone on here could give me a heads up when we hit that point.

ridavies

Well JimMcLad. That was worth waiting for - my single biggest holding, and not just for financial reasons. For reasons of Covid 19 and other factors, the benefits of the Angle (LON:AGL) process have been denied to many tens of thousands of people who deserve better diagnostic tools than have been on offer by the big providers. Lets hope they can go forward with their other offerings - in the fields of prostate cancer - a new study just beginning at Barts - and lung and ovarian cancers. The pay off is far less numbers of unnecessary invasive ops and far better targeted treatments.

rogerh

Could someone possibly recap the salient points from the Angle (LON:AGL) webcast? I'm out in the sticks with an extremely poor internet connection. Any sign of a fundraising? Thanks a lot

Philip999

If you extrapolate claim figures MCL should be loosing circa 1m a month. It sounds ridiculous as it's a huge increase from the medium figure. Until they clarify this MCL are on the barge poll list. Add in Paul Smith selling up and delayed results... It smells fishy.

Bouden54

Relentless fall continues at Luceco (LON:LUCE) - surely has to be overdone now. Yes we know yes this year's earnings will be poor, but still a good quality company with good growth prospects (for those willing to look beyond the very short term)

Camtab

Yes sorry I was sloppy there reading off stocko page. Your comments are helpful and I thank you for that.

RDHOWARTH

No worries - a vehicle like this will experience lumpy returns. That’s ok for me but obvs it gets frustrating when they do nothing. One day you will walk in and it will pop, and then u make your money. At the moment it’s reassuring to know u have a pretty cheap business and a load of cash.

rmillaree

Luceco (LON:LUCE)

The thing is we never know - each individual company might have some poor news that is leaking out ahead of that news being announced , or it just may be the dawning reality the future won't be as brightas previouly thought. Looking at the forecast eps numbers on stocky they have taken a decent battering recently so its not as if there is no bad news if the battering is real - and those numebrs are for calendar year 2023 . Luceco has pe of 7.3 per stocky - Norcros one of my holdings has pe of 6.3 (with steady stream of upgrades and they bear on earnings as recently as last month ) - so i would never say it cant get cheaper however compelling it looks now - at this stage i would probably be more after diversification rather than loading up the boat on any stock or sector. Hey ho sometimes having big kahunas gets its rewards and if you know the stock inside out then ..... . PS thanks for flagging up this one its nice to be slapped in the face when the price is looking compelling for populare (or unpopular) shares. Buy the dip just dont double dip perhaps ??

JimMcLad

Rogerh

I didn’t make any notes but salient points included:

FDA approval will generate more work for Angle (LON:AGL) labs and will make FDA approvals for other cancer types much quicker

Stressing they want to work with big pharmas (ie no mention of takeover)

No mention of fundraising (but I wouldn’t dismiss the possibility)

My only minor disappointment was that is seems getting major deployment of the device and assays etc into the ‘real’ world could still take over 2 years. However, from a financial perspective, the company would still be increasing revenue during that period via the labs and involvement with drug trials .

If your broadband perks up there should be a recording of the session on the WEB site soon.

Zipmanpeter

Re Morses Club (LON:MCL) being on a barge pole list, I think as a holder, it is more serious. If the regulators fail to back MCL's interpretation of the regulations, and thus that relatively few claims are payable because they were doing nothing wrong and "following the guidelines", then the old Home Credit industry is toast (and a large group will swing back to having no credit, getting black market credit or getting online credit with an even higher incidence of non-repayment and thus, long term higher credit costs. The newer Digital business relies on the Home Credit as it it builds up and so might go under as well. I think the outcome is now binary: rebound and a multi-bagger or slow fade to closure. From previous utterances from the FCA, I thought they liked the interactive model of talking face to face and forebearance. Now I am not sure.

Revs8

Hi rmillaree

You shouldn’t make fun of what you don’t understand. Pay rise after tax was £120 pm but extra £60 to pay in NI. that is 50% by my maths.

Thanks a lot, Jim!

Revs

Who says i dont understand it - i fully understand how ni works - i was stating facts .

Facts are if you earn £1 of gross pay the most NI you can pay as employee normally on that £1 is 13.25% of that gross pay. talk of 50% ni charge is pure nonsense end of.

If you earn marginal £1 gross and pay 60p tax and 13.25 p NI net pay 26.75p you are most certainly not paying 50% ni in my books - 50% tax yes 50% ni most certainly not.

As i previously stated the NI increase this tax year compared to last year is only 1.25%

If i have a slice of cake give 80% away to fat bob who has eats his share immediately (apologies bob's) and give you 10% and 10% is left - you havent been given half the cake despite the fact it may look like that is what has happened to someone who hasnt seen bob eat 80% of the whole and turns up and sees two euqal slices of 10% each- hey ho.

Maths damns maths and statistics and all that happy to agree to disagree though if you still want to think someone is paying 50% NI - my piece has been said.

abtan

Purplebricks (LON:PURP)

Hi Patrick

That's an excellent point on Purplebricks (LON:PURP) not being a good option in London/Surrey.
It might partly explain why most of their business takes place outside of London, where presumably their services are more sought after, and why they have struggled to get a foothold in the South.
Strike have HUGE accumulated losses, which I imagine have only grown in the last 12 months.
Below is an extract from their last published accounts for the year ending March 2021.
Note the loss for the year of c£5m, which really should have been boom time for them:

Source: https://find-and-update.compan...

There's no P&L in the accounts, so presumably revenue is less than £10.2m (as per Small Company Account submissions.)
That's vs Purplebricks (LON:PURP) 's £70m announced today.

Who said anything about 50% NI?

Read what I said. Half her pay rise was taken to cover the additional NI. This is why the NI rise is significant.

£60 from £120 is simple maths.

There was no need to comment in such a way. My comment was purely to highlight that people are not feeling the benefit of pay rises and was accurate.

Now you have just made things ugly by defending your misunderstanding.

Mark B

26th May '22

My problem, which is why I got out, was this: although there is a need for such lenders - the success of the claims highlights the wider communities revulsion of the business as a whole. I cannot fathom any government coming to it's rescue with regulation until the reverse situation of unregulated lenders plays out to detrimental effect. Morse now being the number one is the primary target until it is eliminated and then those claim businesses will move on to the next until they are regulated fairly. The claim businesses, currently, have everything going for them.

In effect, and sadly, the consumers of the product are ultimately aiding their own downfall as they go for the short term win of writing off loans only to go into the arms of the unregulated money lenders, in the longer term.

I am not shorting this business - I am a long only investor.

We will just have to agree to disagree as per earlier posting not worth arguing over this spilt milk

When you said

Half her pay rise was taken to cover the additional NI.

i read that as meaning 50% - apologies if when you said half you did not mean 50%

Tortoise investor

28th May '22

Great research - thank you for sharing. As per Paul's update on Purplebricks (LON:PURP) (the day after this report for those coming to this later) - maybe Purplebricks (LON:PURP) will be the last man standing?!

Small Cap Value Report (Wed 25 May 2022) - DRV, ZTF, MAB1, ELCO, BOWL

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Paul Scott

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