Small Cap Value Report (Wed 6 Dec 2017) - Bitcoin, IGE, EZH PLA, RHL, NUM, MAI

I’m very bullish bitcoin. That said – I currently own none. It seems that many sensible and successful investors simply don’t understand the bull case. This isn’t a blanket argument against criticism of bitcoin – it’s simply stating that many of the arguments against bitcoin I see seem to be from people who don’t understand it. By all means criticise the current mania, but please argue from a point of understanding first.

Couple of quick rebuttals to Paul's points:

Currency - Euros, dollars and pounds are all used by criminals, bitcoin is no different.
Governments can try and ban but how would that work – I can’t see a global agreement between all major countries of the world to work in unison to ban. Also, imagine the outcry if governments tried to ban say, gold? But regulation…that is a good thing. Regulation means growing use, awareness and adoption of a technology – in this case Bitcoin. It’s no longer confined to the geeks – its moving closer to mainstream.

The point that’s missed here is actually that people are using and buying bitcoin as it’s better at being money, then traditional money. Think about that. It’s money taken to the next step improved using technology.


Blockchain technology – Bitcoin is the first ever inimitable digital asset. Think about this – the first ever digital asset that cannot be copied or duplicated. That’s why some people call it digital gold. Think about this as a useful and inherently trustworthy unit of exchange. I’d argue this has enormous intrinsic value.

The price of Bitcoin in Zimbabwe was at a premium to the prevailing rest of world price recently too – people couldn’t get enough Bitcoin. I agree people do switch to US Dollars in a crisis -but they haven’t always. What would people have sought beyond the last 100 years of human history? Did I mention bitcoin fulfils the properties of money better than US dollars

In reply to shauniekent, post #48

(part 2 of my comment)
Volatility – bitcoin has been volatile but that’s looking in the rear mirror. Can we imagine a price in the future which the market decides is fair value and volatility reduces?

Proliferation – Bitcoin in terms of development effort, computing power and community is so far ahead of any other crypto currency. It is a little like comparing Google to….. I don’t know ‘Ask Jeeves’. I’m sure they both did well in the dot com boom, but only one was ever worth owning.

Speculation – I agree Bitcoin has all the hallmarks of a bubble.

In summary, I totally understand people’s scepticism. It looks and feels like a bubble. But I really believe there is a bright future for Bitcoin as the first and best cryptocurrency in existence. It has a huge first mover and network advantage. It fulfils the ‘properties’ of money brilliantly.
It may crash from these prices, it may not, but I am a strong believer that Bitcoin is here to stay, it will only grow in adoption and awareness which ultimately is positive for a higher price. Don’t forget those people who quite earnestly and honestly argued in the 1980’s that the internet was of no use and wouldn’t amount to anything. For what it’s worth, I think Bitcoin and certainly the surviving crypto currencies are here to stay.

In reply to shauniekent, post #49

Great post, the point about Bitcoin being better at being money than existing currency is is a really important point. Thats why we don't use Seashells.

We are still making Simoan grumpy though by not posting in the seperate thread, feel free to repeat your post there if you can be bothered to!

In reply to Carey Blunt, post #43

Which is why we moved it to another thread.... https://www.stockopedia.com/content/the-bitcoin-and-blockchain-thread-pure-hype-vs-investment-opportunity-250178/ 

Great, thanks. You can all fill your boots on that thread safe in the knowledge I will not be reading! 

On Numis (LON:NUM). I guess it is one of lifes great ironies that a £327m market cap brokerage firm does not have any broker forecasts... Is that for real?

All the best, Si

In reply to simoan, post #51

Doesn't strike me as odd:

- I'll assume they can't be a broker for themselves.
- The other brokers are their competitors - If they use another firm - arent they giving that company free advertising for their customers?

In reply to JamesrWilson1989, post #52

Doesn't strike me as odd:

Sorry, I thought I said it's ironic, not necessarily odd.  

Talking of odd things I see Walker Greenbank (LON:WGB) have had another mishap: https://www.investegate.co.uk/...  I bet their insurance broker are getting  fed up receiving claims forms from them!

All the best, Si

In reply to pbiom1, post #27

Re: IQE (LON:IQE)
I think it's alarming that one of their customers has sourced wafers from a different supplier because IGE didn't have enough capacity. This indicates that they might not be as unique as they suggest doesn't it?

Perhaps that's why the shorters increased again two days ago?https://shorttracker.co.uk/company/GB0009619924/

(I was long)
Francis

1pm (LON:OPM) gave a trading update today, here's an interview with Ian Smith CEO embellishing the RNS.

http://www.piworld.co.uk/2017/12/06/1pm-opm-h1-trading-update-december-2017/

c. 8mins

What can we expect with the interim results? – 00:21
Based on broker forecasts it looks like results are H2 weighted, is that the case? – 01:17
Can you explain the exceptional items – 01:48
Can you tell us more about the organic growth? – 02:23
How’s the integration of the acquisitions going? – 03:32
Are any of the divisions out performing? – 04:38
Are you concerned about interest rate rises? – 05:18
The new funding facility – 05:50
Can you tell us more about the use of FinTech – 06:36
What’s the outlook for 1pm going forward – 07:37

In reply to simoan, post #51

Simoan. Another irony, as you mention in another post, you need to have a view on the equity issuance market for 2018 and beyond to invest in Numis (LON:NUM). But in its outlook statement, even Numis says “we cannot predict the direction of the market or the health of th equity issuance environment”. If they can’t who can? And I bet they don’t say that to their clients.

On a more serious point, while the future may be murky, the income statement etc numbers are super clean. No “adjusted” income lines. (i hold).

In reply to fwyburd, post #54

Re: IQE (LON:IQE)
I think it's alarming that one of their customers [Lumentum] has sourced wafers from a different supplier [Epistar] because IGE didn't have enough capacity. This indicates that they might not be as unique as they suggest doesn't it?

Francis,

First off there is some debate about whether the story is actually true (Analysts at Stifel cast doubt on it  Quoted on Alphaville (scroll down to 11:57)

Bryce Elder at FT fanned the flames of this last week by citing "concerns" IQE may  lose the whole Apple deal - he cannot name anyone that actually had those concerns, but credit to him for somewhat correcting the situation by publishing the fuller Stifel response in the link above.

IQE had stated previously (November) that there were going to outsource some VCSEL wafer production to Epistar and that is most likely (imho) what this somewhat dubious story is actually about.

Even if the story has some veracity, then the backdrop is essentially  that demand for these wafers is so high that even running at full (current) capacity cannot keep up with current demand (and this is one customer - Apple - and one application).

I don't think that anyone believed that IQE are the only company capable of making these wafers ever, but (although I don't have the industry knowledge to test the view) there is a view that IQE are significantly ahead of the game in terms of quality & efficiency (and therefore cost).

My own discomfort comes from not being able to personally verify the extent of their market leadership (although I suspect with enough research maybe I could), but for me at the moment I am content to rely on the secondary evidence given what I see as the risk:reward balance.

There is a trading statement due from IQE in the next 3 weeks (potentially as early as next Tuesday) and I'd expect IQE will probably address some of the questions in that.

As to the slightly more medium term concern raised by pbiom1 of course, if you are a supplier to Apple (even one step removed as IQE are) there is a risk that they may "in-house" your activity at some point (  £IMG  is no doubt front and centre of people's minds) but I have three major thoughts on this :

1. The article pbiom1links to is not talking about the component that IQE support.

2. IQE provide the base component that another supplier use to provide components to Apple, how far do Apple's in-housing ambitions actually spread? Is now the time to short Silicon miners?

3. Apple are a big beast, no doubt, but there are other applications for IQE's product (going beyond obvious competitors to Apple) and whilst Apple is likely to be the IQE story for the next year or so, there is  a pretty decent chance that other significant stories will overtake this.

So personally I am not "alarmed" at all by the possible story of Epistar etc. but I do understand why it makes / made people nervous.

And in fact the "good news" (for me as I'm playing with some short term "sentiment trades" and possibly for you as someone who "was long") is that if you unravel the reason for the recent price fall in this way (and of course believe what I have written) then there is another opportunity to buy at "bargain prices". I know that sounds rampy, hence the quotes.

I don't wish to steer anyone in either direction on what could be a risky trade, but it does seem pretty clear to me that the last few days price action are a classic case of how the market can respond to "fake news".

Of course on the other hand you have to consider whether the massive rise in shareprice of IQE over the last couple of years is just a BIGGER fake news story.

As they say : you pays your money you takes your choice - I've done that, but with precautions.

Disclaimer : Long IQE (no really!!) in fact now my 3rd largest position.

There's a free lecture on "Will Bitcoin and the Blockchain change the way we live and work" at Gresham College (Museum of London, 6pm on 9 Jan, no booking required). Details here: https://www.gresham.ac.uk/lectures-and-events/will-bitcoin-and-the-block-chain-change-the-way-we-live-and-work. It will also be live streamed on the Gresham College Facebook page.

In reply to fwyburd, post #54

Re: IQE (LON:IQE)
I think it's alarming that one of their customers has sourced wafers from a different supplier because IGE didn't have enough capacity. This indicates that they might not be as unique as they suggest doesn't it? 

Perhaps that's why the shorters increased again two days ago?https://shorttracker.co.uk/company/GB0009619924/

(I was long)
Francis

Yes, I had similar thoughts, so decided to bank my profits on IQE, and move on.

PP.

Ramridge, FYI I have a small holding in BTL but VELA has almost 3% stake in BTL in shares and warrants and is UK listed, no advice is intended.

Genuinely interesting thoughts on "currency" and its "legitimacy".

To add to those comments, and for anyone interested, there is an organisation called Positive Money, who are trying to educate people on how money is created. Here's a quotation that may interest some:

"The money that banks create isn’t the paper money that bears the logo of the government-owned Bank of England. It’s the electronic deposit money that flashes up on the screen when you check your balance at an ATM. Right now, this money (bank deposits) makes up over 97% of all the money in the economy. Only 3% of money is still in that old-fashioned form of cash that you can touch."

Some might also find the video at the top of the link below informative:
http://positivemoney.org/how-money-works/how-banks-create-money/

Finally here is a short highlights video of when the issue of money creation was debated in parliament a few years ago, which I personally found fascinating:
https://www.youtube.com/watch?v=s6a_0zJDsr8

Apologies for going off tangent; hopefully some will find the above interesting.

A

In reply to Ramridge, post #44

This might interest you, the links below are to a uk stock on block chain technology for diamond exchange
https://cedex.com/ own by techfinancials watch the youtube clip

https://www.stockopedia.com/content/tech-a-micro-cap-super-stock-now-in-profit-trading-with-brokers-across-the-world-249703/

personally I think the hackers will undermine bitcoin ,eventually they will succeed

In reply to dustyie, post #62

Thanks dustyie. You will find the first reply in the stockopedia link you have provided has comments from me. :)

In reply to Modform, post #60

Many thanks, Modform. I will follow up your lead.

In reply to Wimbledonsprinter, post #56

Simoan. Another irony, as you mention in another post, you need to have a view on the equity issuance market for 2018 and beyond to invest in Numis (LON:NUM). But in its outlook statement, even Numis says “we cannot predict the direction of the market or the health of th equity issuance environment”. If they can’t who can? And I bet they don’t say that to their clients.

Hi WS,

I'd not read the RNS at the time I posted and had only looked at the StockReport. As you say this makes it doubly ironic - I presume they won't even be giving a broker forecast for their own company then :)

All the best, Si

In reply to Paul Scott, post #59

Very interesting insights, thanks to all for responding.

In reply to simoan, post #51

Si

If you have access to Research Tree, Edison has published research on Numis (LON:NUM) today.