Small Cap Value Report (Weds 13 Sep 2017) - TUNE, EVE, TEG, EPWN

Wednesday, Sep 13 2017 by

Good morning, it's Paul here!

Yesterday's report ending up being a bit of a monster, covering 8 companies in total after my evening updates. So to get you started for today, here is the link to that enlarged report.

Spreadex interview

We were discussing spread betting on small caps here the other day. There seemed to be some confusion on how it works. That gave me an idea! So I contacted Spreadex (who I do most of my small caps stuff with), and asked if they would like to do an audio interview with me on  . Anyway, they said yes. So it's the usual format - the questions come from you, and I ask them. If you would like to submit a question, here is the link to a form I've set up for this purpose. Please submit your questions using that link, asap - I need questions in today/tomorrow ideally, to give me time to prepare for the interview this Friday.

I'm not charging anything to do the interview, but am doing it because it should be an interesting discussion. It also might help people better understand the practicalities of using spread bets for small caps, clear up any misunderstandings, and reinforce the vital need for disciplined risk management.

I do want to emphasise that I am absolutely NOT recommending that people spread bet. It's potentially very dangerous, as I discovered to my cost in 2008. So I want to cover those issues in the interview, and talk about what I got so disastrously wrong in 2008, and how I'm managing the risk a lot better now. Spreadex have also improved their risk controls, so we'll cover all that.

So it should be an interesting interview/discussion.


I see that Jamie Dimon has made some caustic comments about Bitcoin - he called it a fraud which will eventually blow up. I'm not sure about it being a fraud, but it's quite obviously a speculative mania, as indeed are the increasing number of copycat crypto-currencies.

If something with no intrinsic value soars to ever higher levels, in a parabolic shaped graph, then it's a bubble. Bubbles always burst. Always. So it's really just a matter of time before this blows up.

Maybe I'm just bitter, as I got stretchered out several times whilst spread betting on it, foolishly! The trouble…

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Focusrite Plc is a music and audio products company supplying hardware and software products used by professional and amateur musicians. The Company is engaged in the development, manufacture and marketing of professional audio and electronic music products. It operates through three segments: Focusrite, Novation and Distribution. The Focusrite segment includes the sales of Focusrite branded products. The Novation segment includes the sales of Novation branded products. The Distribution segment includes distribution of third-party brands, including KRK speakers, Ableton, Stanton, Cakewalk and sE Electronics. The Company sells its products in approximately 160 territories and countries around the world. The Company offers Scarlett, which is an audio interface; Blocs Wave application, which is used by musicians to create their own sounds and songs on any iPhone Operating System (iOS) smartphone or tablet, and e-commerce Websites. more »

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eve Sleep PLC, formerly eve Sleep Limited, is an e-commerce company. The Company is focused on direct to consumer European sleep brand which designs and sells eve-branded mattresses and other sleep products. The Company has six products, including foam mattress, topper, pillow, sheets, protector and duvet. The Company’s foam mattress made are up of three layers: a base layer of high-density foam, which provides support and durability; a middle layer of open-celled foam, which encourages air flow; and a top layer of next-generation memory foam, which moulds around pressure points and then springs back once the pressure is released. The Company's protector product is made of 100% cotton and a Neotherm membrane. The Company’s sheets product offers unbeatable comfort and sublime softness. more »

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Ten Entertainment Group plc is a United Kingdom-based ten-pin bowling operating company, which is focused on the family entertainment market, with Sites that are typically located on mixed-use retail/leisure parks. In addition to the core ten-pin bowling offering, the Company has additional entertainment activities. The Company offers a selection of entertainment options including amusement machines, table-tennis, soft play, laser games and pool tables, restaurants and bars serve a range of food and drinks. The Company operates approximately 40 sites trading under the Tenpin brand. In addition Company also offers iServe, which allows customers to order food and drink direct to their lane. In addition to the core bowling offering, the Sites include amusement machines, tabletennis, soft play, laser games, pool tables and food and beverage services to provide a entertainment offering. more »

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  Is Focusrite fundamentally strong or weak? Find out More »

40 Comments on this Article show/hide all

N1ckcook 13th Sep 21 of 40

Hi Paul,
Did you get a chance to look at AMS which is a stock that you have covered here before. The results look good but perhaps not good enough for the market to justify the current valuation. Just wondered if you had a view? Thanks.

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shine66 13th Sep 22 of 40

In reply to willhampson, post #9

I opened accounts with IG and Spreadex a while back. Turned out that most of the small caps I wanted to open a bet on I could only do so on Spreadex so in the end I closed my IG account.  IG did offer guaranteed stops which Spreadex rarely do, so not much of a safety net if something really bad happens and the price instantly halves, or worse. The spreads have got wider recently (and financing costs higher) and they can be shocking at times, it is true. Paul mentioned a few days ago that he phones to get a better price on small caps.

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Crusty 13th Sep 23 of 40

I recall a highly respected poster on a now defunct investors message board (bearing Paul's name) arguing convincingly that holding gold relied on 'the greater fool' theory, i.e. the lack of real value means that in order to profit you need someone more foolish to pay more than you did. Surely this is even more the case with BTCs as the volatility suggests, though no doubt international criminals find the risks very worthwhile.

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EssexPete 13th Sep 24 of 40

I don't want to get too distracted by joining the e-currency debate. However, if you would like a peak into the future of Bit Coin just read what happened to e-gold. This was an e-currency based on physical gold. Still the FEDS closed it down, seizing all the money. I suspect that the various world governments will eventually do the same with BTC once there's a decent pile wonga for them to grab:

Website: Utility Warehouse Discount Club
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Lion Tamer 13th Sep 25 of 40

Here are two possible reasons crypto currencies are not fit for purpose (or if they are then the purpose is to create a speculation bubble rather than for use as actual money or currency). One is the volatility, the other is the lack of fungibility.

I seem to remember economists define money as something that acts as:

  • a medium of exchange,
  • store of value,
  • and unit of account.

Given crypto currencies are so volatile I'd not be comfortable using them for any of these purposes. Would you be happy to be paid in something that one day is worth enough to pay all your household bills for a week, then the next day is worth a tin of beans?


The other issue is that since crypto currencies have no intrinsic value, they are essentially a "fiat money" but without the authoritative backing that underwrites their long term fungibility. If (or should that be when) something happens to undermine confidence in the crypto currency of your choice, then who do you go to? Therefore I'd be worried one day, for whatever reason, the realisable value of a numeric string will be realised to be worth exactly the same as it's intrinsic value; zero. Talk about the Emperor’s new cloths!

(Disclaimer, I do not hold any crypto currencies)

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Paul Scott 13th Sep 26 of 40

In reply to willhampson, post #9

Hi willhampson,

Re Spreadex, you asked;

 I'm finding that the spreads for small caps are not particularly favourable. This is not in any way bashing as I want to understand if I'm missing something here; perhaps they are better able to meet order limits within the advertised spreads? Many thanks in advance for any help!

To get inside the market spread for small caps, you have to ring up, and get them to work an order for you. So you give them a requested price, and quantity. I usually try just above the mid-price as a first step. Spreadex will then rummage around to see if they can find me any cheap stock. So it's exactly like using a proper broker, but cheaper, because there's no minimum commission charge. They're usually happy to do this.

Although of course with spread bets, the funding cost mounts up over time, but pales into insignificance compared with the tax-free winnings, if you're a good stock picker, I find.

Regards, Paul.

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doug2500 13th Sep 27 of 40

Tough day for me - 2 of my bigger holdings both marked down by 7%

Advanced Medical Solutions (LON:AMS) - solid results but the price had got ahead of itself so corrected a bit, quite rightly IMO
Microgen (LON:MCGN) - I have no idea why this is down, certainly the price has probably got ahead of itself recently but to drop 7% in one day for no reason. Strange.

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Paul Scott 13th Sep 28 of 40

In reply to N1ckcook, post #21

Hi N1ckcook,

I've just had a very quick look at the interim results from Advanced Medical Solutions (LON:AMS) - which look good.

Strong results. Confident of meeting Board expectations for the full year (why not market expectations?). Adj diluted EPS up 23% to 4.26p. Net cash of £55.2m. It all looks pretty good.

Trouble is, like a lot of growth companies, it's now looking very expensive. Lots of expensive growth stocks seem to be undergoing a correction at the moment, so that's either a warning sign of darker days ahead, or a buying opportunity.

Nice company, but too expensive for me.

Regards, Paul.

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jonesj 13th Sep 29 of 40

I'll consider bitcoin AFTER the first 200 years, but for now see it as high risk.

More importantly, can Paul recommend a specific brand of memory foam mattress ?

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willhampson 13th Sep 30 of 40

In reply to Paul Scott, post #26

Many thanks, Paul and Shine66 for your helpful comments! I'll certainly give that a go going forward. Looking forward to the interview. Thanks again.

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slopsjon 13th Sep 31 of 40

In reply to Paul Scott, post #26

Am I the only one not understanding this. Surely if your opening a spreadbet then your are not buying shares so how can you ask Spreadex or IG to work an order. They make there money on the spread and then the overnight borrowing costs on daily bets. If you open a forward bet then they make their money on the spread, so if your inside the spread how do they make any money.

I get the impression Paul you are treated differently from the average Joe just like the naked trader. When he opens a bet it will appear on the level 2 trade list, as if he bought shares, because they hedge all his bets.

Whilst we are on about IG, I have just moved my ISA from them due to the awful prices they would offer me on some illiquid stocks. As an example I tried to sell one share with a bid price of 136p and they offfered me 125p, so I lowered the amount of shares to the EMS and they then offered me 110p I tried this twice and got the same result. I had the same shares with iWeb who gave me the bid price. I have had this happen a few times with IG both on selling and buying and there response is, thats what the market is offering. I think they are either taking advantage or they have a poor relationship with their market makers.

I've also checked out Spreadex and comapred it to IG for small cap spread bets and Spreadex seems more expensive on the spreads and on the overnight costs on daily bets.

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PabloAguas 14th Sep 32 of 40

In reply to simoan, post #1

Bitcoin is not a ponzi scheme, that is a silly notion; a ponzi scheme is a fraud, bitcoin is a beautiful piece of technology that adds a transactional layer to the internet that did not exist before. I would disagree that it should be viewed as currency, or even "cryptocurrency".
"Digital asset" is probably a better way to think about it. This is a new class of asset that is uncorrelated to traditional asset classes.
There may be a mania around bitcoin at the moment and this may be reflected in the price but I would argue that it is here to stay. There is only a billion dollars a day transacted at the moment, it is a very small space, there is a lot of upside potential, especially now that the blockchain has been made scaleable. I could go on but I will spare you...

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PabloAguas 14th Sep 33 of 40

* I do not have any investments in digital assets, bitcoin or other.

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PabloAguas 14th Sep 34 of 40

In reply to Aislabie, post #20

A globally distributed, time stamped, synchronous, peer to peer ledger that allows the transaction of financial trade across the internet between two people who neither know nor trust each other, rather more than a secret number!

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DGBell 14th Sep 35 of 40

It's hard to see bitcoin doing anything but collapse eventually. It is only computer code and not underwritten by a government unlike a normal currency. It's like the emperor's new clothes. Some people have made fortunes in it and others might do so before the music stops . Gold ,which I don't hold , at least has a history going back to the dawn of time .

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TStubbs 14th Sep 36 of 40

Hi Paul, what did you think of Dunelm final results yesterday? I'm wondering if it is a good time to buy in.

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Ramridge 14th Sep 37 of 40

Re. eve Sleep (LON:EVE) today 14/9  Woodford increased his stake from 22.2% to 24%. Share price at close is near 14% up.
Clearly his pied piper appeal is undiminished despite recent setbacks.

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shine66 14th Sep 38 of 40

In reply to slopsjon, post #31

Yeah, I also wondered if it was a case of Paul being quoted better prices. So I rang Spreadex and they confirmed they will do it, but only on small caps, and yes, even for me.

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slopsjon 14th Sep 39 of 40

In reply to shine66, post #38

Did they say how they make money on the trade. Are you opening a CFD instead of a spreadbet?

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shine66 14th Sep 40 of 40

In reply to slopsjon, post #39


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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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