Small Cap Value Report (Weds 12 Oct 2022) - SDG, HSW, KCT, ANG

11th Oct '22 by Paul Scott

49 comments 6856 reads

Good morning from Paul & Graham!

Thank you for all the interesting comments that you're posting, we're really enjoying reading and discussing things with subscribers here. Even though market conditions are just dire, so depressing, but there we go, it's just like that sometimes.

Agenda -

Paul's Section:

Sanderson Design (LON:SDG) - solid interim results from this upmarket wallpaper & fabrics group. I've been really impressed with the turnaround under Lisa Montague, and am setting up an audio interview with her for early next week. Performance is expected to be in line with full year expectations, although there's some understandable caution because peak selling period has only just started. The balance sheet is superb, so there's no solvency or dilution risk in my view. The modest PER already factors in a downturn arguably, but of course it doesn't work like that. So as with everything right now, there's short term share price risk, but long-term I think buyers/holders now should do fine.

Angling Direct (LON:ANG) - I've spent most of the morning going through interim results & broker notes for this online & shop retailer of angling kit. The main attraction is its net cash pile, which is now 80% of the market cap, a very unusual and attractive feature. So there's asset value here. The trouble is, the business itself warns on profit again, and is now only really trading marginally ahead of breakeven. I doubt there's been much impact from consumer confidence reducing, as it's the sort of hobby that I think anglers would continue with, come hell or high water (quite literally maybe!). I'm undecided, and need more time to think about this one.

Graham's Section:

Hostelworld (LON:HSW) (£93m) - an encouraging update for Hostelworld as September revenues exceed the revenues of September 2019 (the last comparable year). Even better, this has been achieved with a lower marketing cost as customers engage with Hostelworld’s new social app. This app allows travellers to see each other’s profiles, chat and make plans in advance of their stay. I’m greatly encouraged by this update and can see the company recovering to its pre-Covid performance levels in the next few years. However, what holds me back from taking a more positive view on the stock is the expensive debt facility which I think is going to take away most of the upside in principal…

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Silver Moon

12th Oct '22

@Brookeda, I would add the BOE and Andrew Bailey to your concerns plus the vultures circling over and ready with plenty of cash to swoop on our AIM and FTSE 350 investments. I can list mine here Go-Ahead (LON:GOG) EMIS (LON:EMIS) Micro Focus International (LON:MCRO) AVEVA (LON:AVV) and brace myself for others to disappear.

MH1

Kin and Carta (LON:KCT) ( I hold)

A kind request for some real analysis please:)

One of the stocks I have actually traded very well and I have been rebuilding a position prior to the numbers.

Digital transformation in my view is non negotiable for the future though clearly macro could delay some spend. Good organic growth, strong pipeline and long runway to be able to make bolt on acquistions. The pensions are all in surplus. They are very clear re their growth opportunity and have just upgraded their doubling of revenues to occur by 2024 not 2025.

My only worry is the amount of adjustments in the numbers. I am not good enough to get to the bottom of that. This was recommended to me a while back by a very switched on friend who compared it to Keywords 5 yrs ago

Its not clear value territory but has strong growth in a market that will be growing for the foreseeable future so I view it a good play on the Industrial Tech revolution we are in.

Paul Scott

You might regret asking us to cover this one, when you read Graham's analysis, just published! :-D

Bouden54

Thanks for the insight. Worth noting that forestry is only a small part of Foresight's overall business through its recently launched forestry investment trust. They are mainly focused on renewables and infrastructure, which is a probably a good thing if what you say is true!

Camtab

Do you have a view on Rayonier planetx?

Zipmanpeter

£ANG reported H1 results today , with a profit warning from forecast sales down and EBITDA cut again to £2.2Mn as margins get squeezed. The share price is thus down 10% down as a result.

However, long term it seems no big deal and its doing the right things. It is still opening stores in the UK, growing its higher margin own label product range and most interestingly for me, finally getting sales going properly from its new, post Brexit Euro hub. If fishing stays a big hobby, it is well positioned

Very importantly, it is not losing money on its established operations, has current assets 3 times current liabilities and has £17Mn in cash vs a Mkt Cap (after today's fall) of just over £22Mn. So, it's got time to grow and recover - and is very likely to find some nice little independents to aquire for buttons

I hold a scrap and wonder if I should be buying more but there so many distressed consumer facing stocks I am paralysed by choice.

As investors we are expected to look forward. Surely investor confidence (and UK political competence) will higher in 6-12months than now.

Graham ,

Thank you for looking at £KCT. The old St Ives business was a completely different business. The recent history of Kin is one of constant divestment of legacy businesses to invest in digital transformation businesses. This has been going on for several years but is now recently complete. I would like to think that this will reduce adjustments going forward. Although acquisitions are clearly part of their business model.

topturkey

to Paul's comments above on institutional sellers, an institution ('Octopus') did sell out some the day before the results and still has a reasonable holding of around 4% or so further to go which won't help.

Maybe management can step in here with a show of confidence like they seem to have done big time on Victorian Plumbing (LON:VIC) which i also bought at the same time a couple of weeks ago based on a bombed out valuation and has had a somewhat better performance (again as Paul comments)

Happy to hold this as although profit is down to low levels (I even picked up a few more at 24.9p earlier) , cash flow does still look like it could be positive or breakeven if the downturn isn't any more severe - hopefully they are just being pessimistic with the forecasts now so we don't get a 3rd profit warning (but they do always come in 3s...) in as many months.

Berksbee

Agree and a pleasant surprise at that. The lettings part, especially, does not surprise me as it ties in with the anecdotal feedback I have about the upper end of the rental market in London (it is on fire and rents are rising fast). The share price is only down 8% on the news!! It really sums the market up - capitulation.

I'm tempted to top up. The near 8% dividend also looks pretty safe. My issue, shared with many I suspect, is every buy decision I've made of late has been punished.

Snazzytime

re Angling Direct (LON:ANG)

Seems like there are a number of optimistic anglers subscribing to Stocko :)

Graham Neary

Hi MH1, thanks for the comment. Yes, they have certainly changed a lot over the years and as you say it looks like the acquisitions are going to keep coming. Cheers! G

JCPr

If they let this opportunity get away it would be ten times the value by this time next year.

Michael C

I asked Stocko for a modification to the search engine which would allow me to search SCVR comments in addition to Paul & Graham's posts and they said they were thinking about it but I've heard nothing further. Perhaps if several people ask the same thing....?

@planetx, can I check you are referring specifically to Foresight Sustainable Forestry (LON:FSF) ?

And Gresham offer several Forest funds - are they all about the same? https://greshamhouse.com/funds...

Thanks

Anglers are always optimistic. Optimism is what persuades them to sit for hours staring at a float.

Gobbagvooar

£ASC ASOS final results were due today but now mid-afternoon I see moved forward to 19 October. Market response predictable.

Ne'er a dividend paid. Presumably for reasons similar to e.g. Amazon, but in gloomy (though possibly bargain laden) times, one wonders if a "The Signs Were There" analysis beckons.

Nanotrader09

Keep meaning to add a list of "thumbs up" shares on the SCVR. This is just from memory in no order: Victorian Plumbing (LON:VIC), Crestchic (LON:LOAD), K3 Capital (LON:K3C), Ricardo (LON:RCDO), Wincanton (LON:WIN), Wilmington (LON:WIL), Redde Northgate (LON:REDD), £SPSY. Note this is not a definitive list!

FrugalTree

https://progressive-research.c...

planetx

Yes foresight sustainable forestry .

Gresham forestry have various LLP funds , I think they open new ones and close old ones but pretty sure consistent . They're easy to talk too and very proactive ,

Rayonier I domino know much about, but Im looking for IHT cover so Gresham ticks that box .

Small Cap Value Report (Weds 12 Oct 2022) - SDG, HSW, KCT, ANG

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Paul Scott

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