Small Cap Value Report (Wed 6 Dec 2017) - Bitcoin, IGE, EZH PLA, RHL, NUM, MAI
Good morning! It's Paul here.
I have to complete this report much earlier than usual today, because I'm heading up to London for a lunchtime meeting with the Directors of Vianet (LON:VNET)
Please note that I finished yesterday's report in the evening, so it now covers: Vianet, FreeAgent, Character, Fulcrum Utility Services, and PCI-PAL. Here is the link to yesterday's completed report.
Bitcoin
Firstly, as it's a quiet day for interesting news, I have to comment on Bitcoin - surely the hottest topic in the financial world at the moment. People ask me if it's a currency, or a speculative bubble? Actually, I think it's both!
Currency? - as a friend pointed out to me recently, literally anything can become a currency if enough people decide to use it as a currency. If enough of us decide to use seashells as a currency, then seashells become a currency!
Bitcoin does seem to be gaining traction as an acceptable currency, although it's still very much on the margins as a niche thing. Also, I think a lot of the press articles about so and so accepting bitcoin, look like publicity stunts.
Why would anyone use Bitcoin? Possibly for experimental reasons, but mainly I think it seems to be a mechanism to by-pass the conventional financial system. Hence it is apparently the currency of choice for criminals, drug dealers, etc, seeking to launder their money. It may be the case that many, even most bitcoin transactions are legitimate. However, just using common sense suggests that a main motivating factor to use bitcoin is to bypass laws & regulations. Apparently it's popular in China as a way of hiving off money overseas, thus avoiding exchange controls.
This to me seems the obvious catalyst for bitcoin's eventual, inevitable collapse - that Governments are likely to ban, or regulate its use. It seems almost ridiculous to expect Governments to sit back and do nothing, whilst their control over the financial system slips away.
Only last week the UK Government announced that it was intending to regulate use of bitcoin. The UK might be insignificant overall to bitcoin, but it can only be a matter of time before big Asian economies like China and Japan also introduce regulation or outright bans on the use of bitcoin. The Chinese shut down a bitcoin exchange earlier this year, causing a sharp (temporary) fall in the price of bitcoin.
Blockchain technology - several technical & financial wizards have explained to me how exciting blockchain technology is. It seems to have potentially extensive uses, in many sectors. It could lead to a new wave of disintermediation, as conventional business models of stock exchanges, banks, etc, may be undermined & even replaced by blockchain-based systems.
That's all great, and it sounds exciting. However, that doesn't mean Bitcoin is worth hundreds of billions. It doesn't mean bitcoin is worth anything actually. Just because it operates through an innovative technology, does not in itself create the vast value which the market is currently attributing to bitcoin.
Store of value? One of the key requirements for something to be considered a currency, is that it must be a means of exchange, and a store of value. Supporters of bitcoin claim that, because it is limited to 21m bitcoins in total that can ever be issued, then it is better than conventional fiat currencies, as it can't be debased. That's a good point, and one of the things that is so clever about bitcoin.
However, this ignores the fundamental flaw that bitcoin is not backed by anything. So it's ultimately worthless. Just because people are currently willing to pass the parcel, at ever increasing valuations (the greater fool theory very much in play) seems to me a temporary aberration - a speculative bubble.
Aren't fiat currencies also backed by nothing? No. Currencies like the dollar, Euro, sterling, etc are all backed by Governments, which have tax-raising powers. Certainly, if Governments or arms of Government (central banks, etc), or bodies regulated by Governments (e.g. commercial banks) debase a currency by issuing too much of it, then they can destroy the trust that is essential to their own currency.
In such circumstances, the population usually switch to transacting in cash, in US dollars - still the world's main reserve currency. That's what happened in Zimbabwe for example - where is own currency was debased so much by the corrupt & incompetent Government of Robert Mugabe, that in the end the country simply abandoned its own currency altogether, and people use US dollars instead. Apparently there has also been interest in bitcoin in Zimbabwe recently.
Why would people prefer bitcoin to US dollars? I don't think it has anything to do with fears of the dollar being debased. That happens slowly, and isn't a problem, as people can buy assets with the dollars. You might be worried about debasement of the dollar if you just intend stuffing dollars under your mattress for 20 or 30 years. Who does that though? Cash deposit interest rates are deliberately set low, to push people into buying other assets with their dollars. So if we have surplus cash, we might buy shares, or a property to let out.
Volatility - bitcoin is simply too volatile to be taken seriously as a currency. A currency that routinely swings in value by 10-20% in a few minutes is obviously unstable, and hence an unreliable store of value.
Of course, during the massive, parabolic run up in value, bulls will scoff at comments such as mine. They won't be quite so euphoric when it collapses in value, at some point in the future - I have no idea when, but as with all speculative bubbles, it will inevitably burst. It never is "different this time", because human nature never changes, and few people learn from history in the financial world - strange, but true. Some peoples urge to speculate overcomes any such lessons from history in the short term, during speculative bubbles.
Speculation - the main reason people are buying bitcoin is to speculate! It's more than 10-bagged this year alone, and the percentage gains from earlier back are absolutely stellar. The South Sea Bubble pales into insignificance, as it was only a 10-bagger before its evential collapse. Bitcoin has been much bigger than that. I see the latest news is that 2 brothers in America who "invested" $11m into Bitcoin are now billionaires. Good for them - but I hope they remember that a paper profit is not a real profit until you sell.
Galbraith - I have recently re-read a marvellous little book by the late renowned economist, Kenneth Galbraith. It's called "A short history of financial euphoria" - highly recommended. Whilst re-reading it, I kept muttering to myself, that's bitcoin!
Some key points that Galbraith makes;
- Free-enterprise economies are given to recurrent episodes of speculation
- He describes these as, "flights into what must conservatively be described as mass insanity". This book is insightful, but also amusing in his utter disdain for the people who participate in speculative bubbles.
- Speculative bubbles start when people, "wonder at the increase in values and wealth", which then causes a, "rush to participate that drives up prices", leading to an eventual crash.
- People who warn about the bubble - Galbraith comments that there are, "few matters on which such a warning is less welcomed ... it will be said to be an attack, motivated by either deficient understanding or uncontrolled envy, on the wonderful process of enrichment". Sounds familiar? That just about sums up the reaction to any less than bullish post on advfn bulletin boards! It also clearly applies to bitcoin.
- Galbraith says that a key feature of a speculative bubble is usually, "Some artifact or some development, seemingly new and desirable..." - yup, bitcoin ticks that box too.
- The price goes up exponentially, due to price rises sucking in more & more buyers.
- Then when the buying frenzy finally exhausts itself, everyone rushes to exit at the same time, causing a crash.
- Some participants genuinely believe in the new thing, and its wondrous properties. Others don't believe in it, but are happy to join the speculative frenzy in order to make money, believing that they can sell at the top. Everyone thinks they can sell at the top, hence why there is eventually an inevitable crash.
- "The eventual and inevitable fall ... cannot come gently or gradually. When it comes, it bears the grim face of disaster".
- "Something, it matters little what ... triggers the ultimate reversal. Those who had been riding the upward wave decide now is the time to get out".
- "The speculative episode always ends not with a whimper, but with a bang".
- There's much more fantastic stuff in Galbraith's little book, but that gives a flavour. Bitcoin literally ticks all the boxes for a speculative bubble. So in my view, it is doomed to eventual failure.
Proliferation - whilst bitcoin itself might be limited to just 21m units, there are numerous other crypto-currencies popping up on a daily basis. This makes sense. After all, people observe how bitcoin has wondrously created hundreds of billions of dollars wealth, out of thin air. Unsurprisingly, copycat variants, with new & and improved features, such as Ethereum have popped up. I note that even the Venezuelan Government has decided to launch its own crypto-currency, to get round American impediments to its economy.
Again, this is all classic behaviour one would expect in a speculative bubble. Remember the dot.com boom, when there was a rush to IPO all sorts of worthless junk. Gullible punters lapped up these issues, and they usually went to substantial premiums on listing. Investors were selling good assets, to fund purchases or speculative junk. Like all bubbles, eventually the buyers dried up, and prices crashed. First there was the 90% (fall in share price) club. A year or so later, that had become the 99% club. The bear market lasted from 2000 to 2003, and a huge amount of wealth vanished.
Conclusion - bitcoin, and other crypto-currencies are a fascinating thing to watch, but it's a very obvious speculative bubble, that is destined to ultimately burst.
Image Scan Holdings (LON:IGE)
Share price: 8.0p (down 14.7% today)
No. shares: 136.0m
Market cap: £10.9m
(at the time of writing, I hold a long position in this share)
Preliminary results - results issued at 08:11 - incredibly annoying! Please always issue future results at 07:00 like (almost) everyone else, so that we can read the figures before trading starts at 08:00.
Image Scan (AIM: IGE), the specialist supplier of X-ray screening systems to the security and industrial inspection markets, today announces preliminary results for the year ended 30 September 2017.
There have been a series of positive trading updates from this little company in recent months, so the decently improved results today were expected.
The company is small, but had a much improved performance;
Outlook - this is the most important part. The question investors are asking, is whether this was a one-off good year, or whether this is the start of something bigger?
The Company starts 2018 with a robust order book, although we need to finalise the extended delivery dates on a proportion of those orders. The Company has an encouraging sales pipeline and a product range that allows a wide range of customers and markets to be addressed. Further portable X-ray product launches are planned during the year and these should allow the company to continue to extend its customer base.
The security equipment market continues to be very active, reflecting the continuing high level of the terrorist threat, as portable X-ray systems are important tools for early detection/identification of a threat and often one of the first security technologies to be deployed after a threat is detected. We expect continuing healthy demand for these products.
Note the more cautious tone about phasing of deliveries - I think this has caused the wobble in share price today.
Placing - an interesting situation developed recently. A large shareholder wanted to sell some shares, but as with most small caps, the market was too illiquid to take them. So the shares were placed through a broker, I think it was Cantors. I took some stock in the placing, at 8p, to add to my existing position. This price was well below the market price at the time (which had been around 12p at the time the deal was initiated).
Now clearly, person or persons unknown must have taken some stock to flip it for an instant profit. That's very annoying. So the open market share price has been dragged down to the 8p placing price, at which level flippers stop selling, because there's no profit to be had.
This highlights the big problem we have with liquidity in micro caps. The market price is set by small trades between private investors. However, that may be very different from the price that big buyers are prepared to pay, if there are any big buyers at all, which clearly there are not in this case - the market cap is too small for most Instis, even if they do like the company.
We saw a similar mismatch between market price, and the company's value, with EG Solutions, which was sold to a trade buyer & delisted, but at a price which was about 10% below the share price at the time.
I suggest that any similar holders of illiquid stocks engage the services of Primary Bid, if they want to liquidate a block of shares. That seems a much more natural market to fragment an institutional holding, by dispersing it to private investors who are bidding up the price in the open market. So far, the quality of companies using Primary Bid has been lamentable. However, it's a good concept, and I would like to see it succeed, as it increases the options available to companies and investors. So hopefully in future, Instis who want to liquidate illiquid positions might use Primary Bid instead, rather than selling to flippers through a conventional broker.
My opinion - new management at IGE seem to have improved the company considerably. I like that there is growing demand for its security products. It all hinges now on whether management can continue growing the company & profits. As a speculative growth company, I quite like it - at least it's profitable.
There's a brilliant video here of the Chairman giving a presentation at Mello, in Sep 2017. Many thanks to PIWorld for producing this video to help investors get a better understanding of this company.
easyHotel (LON:EZH)
Final results - for y/e 30 Sep 2017, for this small group of hotels.
These results look rather poor to me. I cannot fathom why this company is valued at £120m, at the current 120.5p per share - that looks far too high.
Net assets are £70.2m. However, given that the assets only generate a poor return, then if anything those assets look over-valued to me.
Based on these results, I'd struggle to get to a valuation of even half the current share price.
Adjusted EBITDA was £2.3m, but there's an £831k depreciation charge to take into account, so that reduces pre-exceptional profit to only £1.47m.
Overall then, unless I've missed something, the valuation looks far too high, so I wouldn't touch this one at the current price. To my mind, little value is added by adding the word "easy", and painting everything orange.
The company says it may raise fresh equity & loans to fund further expansion.
Plastics Capital (LON:PLA)
Unimpressive interim results today.
Profit is down, and the interim divi is suspended.
Talk of H2 being stronger, but full year expectations now "marginally below" market consensus.
I don't rate this group. There seems little point to it owning a collection of plastics businesses. The central overheads don't add any value, arguably they destroy value with unnecessary costs, mainly group Director salaries.
Redhall (LON:RHL)
Results for y/e 30 Sep 2017 look OK, showing some improvement in profits - £1.43m profit vs £856k last year.
The company has restructured, so debt interest costs should reduce in future.
Has a pension scheme.
Doesn't interest me, I dislike small contracting businesses like this, as something expensive usually goes wrong.
Numis (LON:NUM)
Impressive results for y/e 30 Sep 2017 out today.
I note the big profit margin, and EPS up 17% to 27.4p. Divis flat at 12p for the year.
Smashing balance sheet, with £127.5m net current assets, of which £95.9m is cash.
Has a good repuation, and their research notes are usually good, in my view.
This type of broking business is very cyclical, but the outlook comments sound positive.
My choice in this sector, on valuation & dividend grounds, is Cenkos Securities (LON:CNKS) (where I hold a long position).
Maintel Holdings (LON:MAI)
Profit warning - shares down 13%.
The Group had expected to recover the reduction in gross margin in the first half of this financial year, but it is now evident that this will not happen for the following reasons...
An upbeat outlook section is probably what has limited the share price fall today, to considerably less than the usual 30% that a profit warning triggers. Well done to the company for quantifying revised guidance. I think that also helps limit share price falls, as investors are properly informed, rather than having to guess;
The Board now expects adjusted EBITDA for the year ended 31 December 2017 will be in the range of 12.5m to 13m.
Reflecting our confidence in underlying cash flows and the longer-term prospects for the Group, we remain committed to our progressive dividend policy. It is our current intention for the total full year 2017 dividend to grow 10% year on year, in line with existing guidance.
We will provide more detail on expectations for 2018 at the time of the preliminary results announcement in March, however, at this juncture, the Board remains confident in delivering substantial growth in revenue and EBITDA in the full year to 31 December 2018. Growth will be driven by improvements in trading conditions, a recovery in Avaya installations, continued growth in the ICON cloud business and additional cost cutting and synergy realisation across the business. The Board expect this recovery to accelerate into the first half of calendar year 2018.
My opinion - I'm avoiding any businesses that do telecoms or cloud services. There was a very interesting note recently from Kevin Ashton, the renowned tech analyst, currently at Cantors. He points out that Amazon is aggressively reducing prices for its cloud services. This is putting the cat amongst the pigeons with smaller competitors, squeezing their margins.
I'm not keen to invest in anything which is in Amazon's cross- hairs, as it has a track record of destroying margins for the incumbent competition.
Sorry that was such a mad rush, and please add your comments below. I will respond to comments this evening, after the meeting with Vianet (LON:VNET) .
Regards, Paul.
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69 comments
I'm really looking for current info, all I can find so far is written in 2017
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
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.
Many thanks, Modform. I will follow up your lead.
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.
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
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
(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.
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!
Thanks Rambridge ( I always enjoy your posts)
Chris Dillow wrote a really good article on 'bubbles' recently. This was the gist of it so not verbatim;
In 1997 a stock was trading at $2.50. In 1999 at about $70 and in 2001 at $6.
Today the stock trades ai about $1150 ...........it is called Amazon!
So much for bubbles!
I find the only thing longer than the length of the blockchain since the beginning of Bitcoin are internet discussion threads about it. It's a shame that such discussions end up obliterating the reason we all come here in the first place, especially when there have been a few interesting, profitable growth oriented small caps report this morning e.g. Oxford Metrics (LON:OMG) and RWS Holdings (LON:RWS).
My thoughts:
Image Scan Holdings (LON:IGE) - results at 8;10 am? - Sell! the management are disorganised and don't care about shareholders. Long term misery almost guaranteed for holders.
easyHotel (LON:EZH) - Zzzzzzzzzzzz
Plastics Capital (LON:PLA) - Zzzzzzzzzzz. Where is the capital of Plastics?
Redhall (LON:RHL) - 10 seconds looking at the StockRepport is enough to tell it ain't for me.
Numis (LON:NUM) - Interesting. I've never invested in a broker before and this and Paul's suggestion of Cenkos are worthy of further research. I guess you really need to take a view on the IPO market in 2018 and beyond, and I'm not sure I have one!
Maintel Holdings (LON:MAI) - I've not come across this company before, but like Paul, I'm not interested in the sector.
Sorry, please forgive me, I'm sick of hearing about Bitcoin and in a grumpy mood today, Si
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/
:-)
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
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?
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
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).
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
Si
If you have access to Research Tree, Edison has published research on Numis (LON:NUM) today.
Forked a new thread for Blockchain and Bitcoin discussion....
https://www.stockopedia.com/content/the-bitcoin-and-blockchain-thread-pure-hype-vs-investment-opportunity-250178/
Given the interest this morning in the Blockchain technology, I decided to submit this post. I never have nor will I ever invest in cryptocurrencies however as Cary says in post 25, Blockchain is different and to ignore it could be a mistake for investors. I began researching Blockchain a year or so ago and subsequently have, not a great deal of knowledge but more than most.
The standout company for me is BTL which is listed on the Canadian ventures exchange. My shares in BTL are held in ISA's and my gains are already considerable. BTL have already run successful trials with Visa Europe, BP and various energy companies. Anyone considering an investment in a Blockchain stock might do well to consider BTL. I offer this post only because the subject of Blockchain has been raised. DYOR.
A happy and profitable 2018.
Backdoctor
Well done, backdoctor. I started looking for blockchain companies to invest in about a month back. Not surprisingly, I have drawn a blank in the UK listed companies.
BTL is new to me - will have a good look at it later today.
The US is clearly in the lead with the venerable IBM seeing a bright future here.
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
Thanks dustyie. You will find the first reply in the stockopedia link you have provided has comments from me. :)
i would second Carey's recommendation of Patrick O'Shaughnessy's podcast for an enlightening primer on crypto-currencies and blockchain. His father Jim, wrote What works on Wall Street, and both of them run quant funds.
Its worth remembering that Bitcoin and other 'cryptos' are just software, controlled by developers, which can be amended, duplicated (see the number of forks) etc
Clive, the crypto currency that is Bitcoin (others vary) is not anonymous.
From what I understand, a record of every previous owner of that bit of Bitcoin is in the blockchain.
Of course, there may be issues matching up the equivalent of an email address with a person
But there is nothing to stop a govt saying that Bitcoin is illegal and all Bitcoin belonging to its citizens is forfeit at its intrinsic value ($0).
Hi Andrew, Bitcoin is kind of anonymous. Coins are associated with wallets, a wallet may contain coins and the coins can be exchanged between wallets. However, the wallets aren't associated with people, they aren't tied to email addresses like you suggest.
I can buy a bitcoin and put it in "my" wallet and that fact that a coin moved from one place into a wallet is recorded but the fact that the wallet is owned by me is not recorded.
I can give you the wallet (or you could steal it) and the coin is now yours and there is nothing I can do about it just like if I had given you (or you had stolen) a lump of gold from me.
Just like the government doesn't know that I own a lump of gold I am using to evade taxes then it doesn't know that I own a bitcoin to evade taxes. It can't take that gold away from me if it doesn't know I have it.
cheers
Carey
p.s. I don't actually evade any taxes! :-)
Blockchain sounds good.
When the natwest database gets my record wrong, i call natwest and then the ombudsman and then can sue.
But
When blockchain says I have 100 Bitcoin - or seashells - and I think it is 200
What do I do?
The point of Blockchain is that it can't be got wrong. Every one of thousands of distributed computers all have a copy of the chain and if someone hacks one of the computers then the others know and refuse the transaction. If someone changes any link in the chain the chain is broken and everyone knows.
Think of a blockchain database like a hand written financial ledger. If a transaction in the ledger gets written in wrong then the accountant has to journal out the entry by adding in further transactions to balance them out.
So all your purchases of seashells are recorded in the ledger and can't be changed and can be verified by everyone. So you will always know how many you have and can prove it and everyone else can see what you have and can prove it.
... so if 51% of the block chain recorders say 100 and not 200, that is it?
As soon as I hear 'can't be got wrong' I append '...yet' or '...just like papal infallibility'
or maybe I am just old and cranky :)
and (!!!) bitcoin is the leading article on R4/Moneybox at 3pm today (!!!)
You never get to a point where more than 1 of the recorders disagrees. In order to cause any sort of disruption you would have to simultaneously hack and force a fake transaction into 100's of thousands of seperate computers all over the world within nanoseconds of each other.
Such a massive disruption or disagreement within the blockchain would also be massively obvious and cause everyone to look into it and so it could never really suceed. It would be like a lot of tipex on the ledger.
I appreciate that "can't be wrong" is a dangerous thing to write down. I should have better explained it as "beyond the current or imaginable future capability of anyone to pervert".
Hi Paul
I note you have dropped IQE from BMUS. Are you feeling bearish about the following and other similar articles?
http://fortune.com/2017/11/30/apple-iphone-smartphone-chips/
I can see IQE taking a hit in the medium term, unless I have missed that might effect its short term prospects?
Cheers
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
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.
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.
Very interesting insights, thanks to all for responding.
Oxford metrics please
Paul,
A few points on Cryptocurrencies and Bitcoin......
I don't hold any cryptocurrencies and I agree generally with your points about it being a poor investment and a hype bubble, I think you have it about right. However, on the one point about government regulation....
The point of Bitcoin's distributed nature is that no one government can stop it and in fact its arguable that even if every government regulated against it it could be stopped.
You know how we laugh now when some old duffer MP says that if there is a riot then the government will just "switch off the internet" or something similar? Well I think there is a good chance that in 10 years time we will laugh at the fact that people said they were going to shut down cryptocurrencies.
The thing with technology is that it can't be uninvented, you can't put the genie back in the bottle.
I think its inevitable that some type of CryptoAssets (FYI you can have Crypto commodities and other crypto assets rather than just currency) are here to stay. Maybe not Bitcoin but we shouldn't disregard the whole subject.
You mention Blockchain (the technology underneith Bitcoin) and that is the real gem in all this. Blockchain has the potential to change the world like the Internet has changed the world.
Its highly likely that many of our future investing sucesses will be made on buying companies at the forefront of blockchain.
I know this is an enlightened investment community and so I would like to recommend a Pod Cast series called "Invest Like the Best" by Patrick O Shagnessey. He does a mini series within that Podcast called "Hash Power".
Regardless of what you think about Bitcoin its well worth a listen.
cheers
Carey
Carey, from what you say about crypto-currencies, it looks as if you believe that they're not going away, even if Bitcoin does crash. What then can be done about the wide-scale money laundering that is going on now, if as you believe, governments are always going to be powerless to control crypto-currencies? Apologies if I've misunderstood your viewpoint.
Clive
Hi Clive,
Thanks for your reply. I'm not saying that governments won't try and regulate and control Crypto currencies and actually I think they do need some regulation. I'm saying that they can't stop or ban them completely due to their decentralised and distributed nature.
I'm not clear on what you are asking about Money Laundering? Are you asking if money laundering could be fixed with blockchain or if the bad uses of bitcoin (for money laundering) could be stopped?
Carey
This stuff is fascinating to a crypto-currency ignoramus like myself. Thanks for your detailed explanation Carey. As to the money laundering question I had, I think Andrewdb (post 29) has answered my query there, so thanks also to him for that.
Regards, Clive
I suspect governments would regulate crypto currency exchanges rather than the currency itself.
Disclosure... not even with a barge pole!
Need to move it to the other thread but....there are two answers to this....
1) You only have to have one country willing to host an exchange and allow currency transfer for it to work. Where one country regulates, its neighbour will stick its hand up instead if it makes money.
2) You don't need a full exchange to have a market. There is an example in the podcast of how shutting down the exchanges in China has made very little difference to the use of Bitcoin in China. People just trade between themselves. As long as you have a buyer and a seller you have a market.
I don't want to be seen as the Bull case supporter of Bitcoin - I'm actually not a believer and don't hold any but I have done the research to understand the Bull and Bear case in order to give myself a balanced view which is what I am spouting back to you here.
What do people think will happen to the markets 'when' cryptos crash? Would be interested to get peopls thoughts.
I imagine there will be some liquidation when the margin calls go out.
An interesting question, initially I thought it wouldn't have a very big knock on effect to the market in general as it isn't directly tied to anything other than the spreadbetting providers. However it is tied to most currency's anyway, which leaves me pondering your original question (I am hoping somebody can help me answer this as well!?)
Thanks
Sean
Thank you, Paul, for your quality piece of writing on Bitcoin, So simply wrote and so effective in communicating so many of the pertinent issues. Worthy of a topic page on its own.
Great thoughts on bitcoin & Image Scan Holdings (LON:IGE) Paul. Bit hard to short Bitcoin via spreadbet unless you're willing to risk a lot. But also I'd be interested in reading recommendations frm fellow Stockopediaphiles for deciding on whether something is a bubble or a genuine paradigm shift. I mean, the thing is bitcoin could be a bubble (like the dotcom bubble) while the underlying tech could egenuinely be about to change the world. I have an interest given my large (in % terms) investment in Versarien (LON:VRS). It's obviously the best graphene co out there but having tripled in recent months (from artificial lows, it could be argued) will graphene really change the world *as quickly* as its advfn bulls are advocating. It too exhibits some of the bubble qualities Paul describes but I'm sure early railway investors felt the same way as I do now. How can you tell the delivery from the hype phase? (I know you're all going to say 'profit' but say that to Jeff Bezos...)
Re bitcoins. Completely agree that bitcoins and cryptocurrencies are the modern form of tulip mania. It will end in tears.
But please don't throw the baby out with the bath water. The blockchain technology which enables cryptocurrencies is real and has tremendous potential. Its potential use is much wider than bitcoins. There are real challenges and obstacles at the moment (volume responsiveness and scalability being two), but they are not insurmountable.
Paul, thanks for sharing your Bitcoin thoughts. Very interesting.
Re Bitcoin
There is a, what I thought, brilliant Amazon Prime drama series called StartUp which followed the inventor of an unregulated crypto currency. It showed the murky world of why she wanted to set it up and the criminality that soon followed.
It did take me a couple of episodes to get into it and it's a bit violent in places but if you can look past that it's well worth a watch.
James
Re bitcoin - tulip bulbs had at least a modicum of intrinsic value. Kindleberger's Manias, Panics and Crashes is also a good read on the same subject.
Richard
+1 for 1pm (LON:OPM) & Image Scan Holdings (LON:IGE). Although I guess you might have more to say about 1pm (LON:OPM) once the actual results come out in mid-Jan.
Would be interested in your thoughts on Maintel Holdings (LON:MAI) -ebitda hit and a couple of legacy contracts 'migrating away' earlier than expected, but very positive comments for next year. Thanks
I would appreciate your thoughts on Numis Numis (LON:NUM) and add my voice to the Oxford Metrics (LON:OMG) requests
1PM 1pm (LON:OPM) trading update today. It's a lender to SMEs and revenue and profit up about 75%. Is it turning a corner?
1pm (LON:OPM) is growth by acquisition, so dilution will always be a problem. The figures look good though. For anyone in Walker Greenbank (LON:WGB) there was a serious fire at their Loughborough paper works last night.
Apparently it's Anstey's wallpaper machine that was on fire. Might not effect Walker Greenbank (LON:WGB)
Anstey belongs to Walker Greenbank (LON:WGB) :
http://www.anstey.uk.com/
Good morning Paul,
I hope you don't mind me posting here but I have just written up my research report into Trading platform providers. The link is here:
https://www.stockopedia.com/content/quick-n-dirty-report-trading-platform-relative-satisfaction-249308/
Francis
Image Scan Holdings (LON:IGE) - just released their TU late at about 8.12am and it's a bit disappointing. Still have a small holding I should have ditched, I know you did from BMUS anyway?
RWS Holdings (LON:RWS) and Tricorn (LON:TCN) please
+1 for Oxford Metrics (LON:OMG) thanks!
RWS Holdings (LON:RWS) the AIM Blue Chip for me please...
My morning smallcap tweet:
Vernalis (LON:VER), Plastics Capital (LON:PLA), easyHotel (LON:EZH), Billing Services (LON:BILL), Maintel Holdings (LON:MAI), Avon Rubber (LON:AVON)
Vernalis (VER) gets £1m fee from Servier on the achievement of a pre-clinical milestone.
Plastics Capital (PLA) Bearing disappointment. H1 in line but exp FY pretax marginally below consensus market expectations due to delays in ramp-up of two significant bearings projects.
Easyhotel (EZH) FY rev up 39% but pretax down 21% due to increased costs associated with the expanding development pipeline, the £0.24m net book value negative impact of the closure of two floors at easyHotel Old Street and the absence of any capital gain this year from disposals (2016: £0.28m). Adj EBITDA up 48%. "With our current development pipeline we are only able to finance one further owned hotel...the Board is considering its financing options, which may include new equity and debt, to fund these opportunities."
Billing Services (BILL) to tender for 42% of shares at 4.25c (3.17p). Tuesday close 2.375p.
Maintel Holdings (MAI) FY trading. Warns adjusted EBITDA will be £12.5m to £13m. Blames two legacy contracts that have 'migrated away' more quickly than expected. Also hit from Avaya Chapter 11 bigger than expected.
Avon Rubber (AVON) gets mask order for $14.3m from the US Department of Defense.
Eco Animal Health (LON:EAH) as well if you have the chance
Oxford Metrics (LON:OMG) another for that
Hi Paul
I’d welcome your thoughts on this morning’s results of Oxford Metrics (LON:OMG) if possible.
Jon