Small Cap Value Report (Wed 6 April 2022) - SOS, AVON, MOTR, EPWN

6th Apr '22 by Paul Scott

78 comments 9437 reads

Good morning! It's Paul & Jack here for Wednesday's SCVR.

StockSlam - I was really sorry to hear that tonight's StockSlam (register here) is to be the last for a while, due to lack of interest from private investors. What a great contrarian signal though! People were queuing up to enthusiastically talk about their favourite shares last year when they were over-priced, but now many shares have dropped in price by half, or more, people are in hiding! In my experience, when investor sentiment is this negative, it lays the groundwork for excellent future gains. Remember BLASH (buy low, and sell high) - easier said than done of course.

Director buying - something I've noticed of late, is that lots of smaller caps are putting in strong rebounds, often after some Director buying. There have been lots of examples recently. Just yesterday, Victorian Plumbing (LON:VIC) (which is on my watch list) shot up about 17%, after a Director bought a decent amount of shares. It was immaterial to his total holding, but seemed to trigger a stampede of buying from other investors. I reckon this is a nice theme right now, and worth taking note of. Buying on the opening bell, after a big Director buy, could be lucrative, either as a trigger for a possible turning point, or just for a short term trade, whatever floats your boat & makes money! So it's worth scrutinising the RNS for Director buys right now, as they seem particularly price-sensitive, more so than usual I think.

Agenda -

Paul's Section:

Sosandar (LON:SOS) - a cracking trading update, ahead of expectations, moving into EBITDA profits in H2. Plenty of cash, so another fundraise looks unlikely. I think this is looking very good as a long-term hold.

Motorpoint (LON:MOTR) (I hold) - an in line update for FY 3/2022. This car dealer is differentiated, in operating online, and from physical car supermarket sites, selling nearly new cars only. Fwd PER pf 12 looks cheap, considering its ambitious expansion strategy.

Jack's section:

Avon Protection (LON:AVON) - another hit to investor confidence with a profit warning today as a result of weaker sales mix and increased manufacturing costs. The Ukraine conflict is leading to more customer enquiries, which could boost FY23, but FY22 will likely come in below expectations. I view the shares as uninvestable…

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Lochinver

6th Apr '22

Personally, significant Director sales or purchases are a big marker for me deciding to buy or sell. This comes from experience of what I see before my own eyes with the share price movement after a large sale in particular.

Its totally fine for Directors to want to cash some in to buy a property/pay tax/ convert paper to cash/fund a divorce etc etc.

What interests me is the timing they decide on when doing that. That timing one would expect would be totally under their control. Why would you sell any of your shares ( for any of the above reasons) if you thought the prospects for those shares were particularly good over the next few months and you would knowingly miss out on more gains ? Answer : you wouldnt.
So my conclusion is that there is always a reason for a Director to sell at a particular time - and it is never because he/she thinks the share price will be shortly rising.

Just my take - Im sure I could be wrong !

dfs12

Re: future stockslams cancelled.

I think the reason for lack of private investor interest is not because the market conditions have killed them off - I think it is because the online format is unappealing. In the days of covid being a dangerous threat it was great. But things have moved on.

I think it is time to reinstate a real live event with an actual venue and meeting real people. So much more fun.

I haven't done the online version - but I'd sign up in a second to the real life event. Just my thoughts.

It's like the doctors only giving telephone consultations.... it's probably time to change back to face to face.

Just my opinion : )

KevinS1

I have a new car on order (and has been since early Oct), but no sign of its arrival yet. The garage tells me that the factories are no longer providing one-month-order-plans, but deciding a week at a time as they get parts.

This made me decide to sell my holding in Vertu Motors (LON:VTU) as I feel that without a regular flow of new cars the 2nd hand market will dry up. We will all simply stop buying until the taps come back on.

As another aside, a fiend of mine works for a big manufacturer and is used to getting a new company car every 6-months. It's 18mths now since the last change as every new car goes to customers (they don't have enough supply to furnifsh their staff), which again leads me to believe the peak must be some point soon. If the industry cannot keep liquid (and high resale prices) going then the conveyor belt must stop at some point.

hayashi22

Re £BOO...wouldn't the Shein valuation give a favourable read across for BOO? One argument that never seems to be aired with regard to pressure on disposable incomes...doesn't it mean that many will trade down to the cheaper end of the retail spectrum thereby boosting sales. Suppose the key issue at present for Boohoo (LON:BOO) is margin pressure.

Indie

Hi dfs12, Agree that it would be good if a live event was reinstated, and great if it was streamed too so that people who couldn’t attend the event in person could still be part of the buzz (I’d be one of them).

By the way, do you mean future ones have been cancelled? I haven’t seen anything about tonight’s.

Ooops - yes tonight's event is on - it's just the future ones. I have adjusted my post accordingly - thanks for pointing out my mistake!

Paul Scott

Tamzin just told me that 1,200 people have registered for tonight's StockSlam, which is pretty impressive, so hopefully they'll continue.

I also like real life meetings, but it takes up the whole day for me to travel into London, so online is vastly more efficient in terms of time & ease (and cost).

Lots of organisers of events are struggling with this issue at the moment. Most people find online so much more convenient, that it's unlikely to return to having physical meetings to quite the same extent as before.

Spot on Paul, live is totally impractical nowadays and incredibly inefficient

cheeky_minnows

I only looked at this company recently. It has to be bad for the shareholders that supported this company at £2 per share only to see their cash disappear. I dont know the answer to your question, but I suspect the answer to be no. From the little that I have gleaned on the internet, and from watching the presentations, and if it is true, then perhaps there are some positive prospects for the company. I do value the fact that a UK company is being paid to develop products for the german market - not a common occurrence in my experience.

On the note of research, I am still looking for pointers. Everyone seems to say - DYOR, which seems to me a little facile. Sure, the balance sheet and cashflow statement are good starting points, but they are only a very small part of the big picture. Your question (if it was to me) only reinforces my doubts on the ability to really be a true investor, rather than an informed trader.

Full disclosure - I exited my position today with FireAngel. In my very limited experience, I 'guess' that the market will be lower in the next few months than it is at the moment, and so any small gains should be taken awaiting the inevitable dip.

And yes... I have two holdings that I have watched from buying (inexpertly) at the peak and watched them dwindle. On the Shearwater (LON:SWG) website, it seems to be full of pictures of the directors enjoying champagne that I have paid for at their various awards.. (rant over !)

Ponzy Mad-Hoff

I hold Avon Protection (LON:AVON) and am pretty bullish about the outlook for this company. Granted, costs have sharply risen recently which will reduce margins for existing contracts but given the specialised and market leading product they sell (I’m thinking of the respirators here), the company should be able to pass on costs in future sales and recover margins. Given that chemical, biological, radiological and nuclear warfare is high on the agenda of military thinking at present, sales can only go North from here.

Rusty2

I’ve just watched the event and apparently the reason it’s ending is because of a lack people willing to do the pitches rather than lack of interest from attendees. There were 1200 registered to attend today which seems pretty high. Face to face is ok if you live or work near the event but that will never happen for me unless I move areas.

I think there are timing issues of when directors can sell. Also they always get it right, I have followed some directors sales years ago only to see the shares go up and up. I have found that they tend to sell too early. Buying is probably a better indicator than selling. Some selling is shares options which some directors treat as bonuses. As I said if several directors start selling I will take more notice. I also top slice some of my shares, too many have peaked and fallen back. There was a study about directors selling, it was not clear that the shares did underperform what what I recall. Solid State (LON:SOLI) was the only one that saved me by selling after several directors did.

Harry Hindsight

A tough gig especially after a hard day at the real job.

Mr Thompson is maybe licking wounds.

All fish comes from Billingsgate Market not Russia.

The Phoenix

Hi Donald any chance of your podcasts with Dave returning at some point ?

ISAallowance

I think it would really rejuvenate the Stockslam to have a few overseas pitches, particularly US. I think part of the problem is that most of the regulars must know most of the UK small caps by now.

7th Apr '22

Mello Monday are doing a 3-day live event in May. Trusts & Funds 1-day and small Co's the 2nd & 3rd day (those are not the dates). The website has the details, but think it is in West London.

Tortoise investor

I would be interested in doing a pitch in future if there is a change to them being held. I'd try and do it more around a particular investing theme as my one bit of feedback on the stockslam is some of the pitches seem a bit random rather than linked to an individual's investing strategy. I've held off from volunteering before because I am a bit shy about exposing my ignorance to a mass audience, but with some additional company research beforehand I'd hope to be OK!

Small Cap Value Report (Wed 6 April 2022) - SOS, AVON, MOTR, EPWN

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Paul Scott

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