Small Cap Value Report (Weds 14 June 2023) - RWA, SPSY, MOTR, CGS, MRK, SAA, SFR, FDEV

14th Jun '23 by Paul Scott

88 comments 8947 reads

Good morning from Paul & Roland!

Today's report is now finished.

Terrific reader comments today, thank you! Keep them coming, we need more discussion!!

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

Lots of interesting companies for us to look at today! We've run out of time now.

Summaries

Robert Walters (LON:RWA)

Down 14% to 402p (pre market) (£301m) - Trading Update - Paul - AMBER/GREEN (edited from GREEN originally)

It's a profit warning I'm afraid, bad luck to holders. I run through the numbers below, hampered by a lack of broker forecasts. Short-term the shares are likely to plunge today, but it's…

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ken mitchell

14th Jun '23

bsharman

Like others I’m sorry to read of you going through such a difficult time investing and then getting that kick in the teeth of being made redundant.

It’s a strange market in that the indexes don’t reflect the reality of what’s often been going on, which is relentless falls for some sectors, including small company shares which have taken a big hit.

My solution is one you mentioned. I.e seriously consider Investment Trusts. Many of those too have performed badly for a couple of years, and have now gone to much larger discounts than usual. That’s a buy opportunity for good quality Trusts. Also I use Investment Trusts to invest all round the World and to cash in on Countries and Regions and sectors doing much better than UK small company shares. A lot of those look stunningly cheap, but a portfolio holding mostly small company shares is too narrow in that it magnifies the underperformance in difficult times like now. Obviously the opposite applies in the good times, but then a lot of other shares and sectors will be doing well too, so it still pays to diversify.

There is one exceptional buy opportunity right now. That’s quality shares paying unusually large dividends that are even seeing dividend increases year on year, and in some cases even several times in a single year. There are also a lot of Investment Trusts paying exceptionally big dividends too. My portfolio is stuffed full of these, and though capital gains have been small over the last couple of years, the dividends have been flowing in every week almost and funding new big dividend paying investments too. It’s a virtuous circle.

I could post more detail on these shares and Trusts but the Small Company thread is perhaps the wrong place, and I’ve found if posting or replying on other threads there’s little or no useful follow up. The same applies if posting here the following day and beyond. The result is that there are a lot of superb articles on Stockopedia that don’t get the recognition they deserve because it’s this bb that’s the one that’s by far the most alive.

Thanks Paul. I appreciate your reply and the virtual hug.

It definitely feels better to share and understand that I'm not alone. This is a great community of investors, and it certainly helps to bounce ideas around and vent our collective investment frustrations as well as looking for positive tangible solutions.

I think the redundancy which was announced last week in combination with my savings in the market reducing day-by-day has had a big impact on my (mental) health and wellbeing. I'm fairly resilient however having come through a lot of merde in the past and will try and look at this as a recovery/turnaround situation!

Enjoy the podcasts each weekend and the daily SCVR, so thanks to you and the team.

Paul.

Carnival have just been given a push by Morgan Stanley and Bank of America. The $35 billion debt doesn’t seem to be stopping the share price gains. Carnival are issuing their results on the 26th. I hold but wouldn’t but for the shareholder $150 to $250 on board spend perk.

Hi Ken. Thanks for your reply. I have been buying through the winter and spring a number of investment trusts, which are on big discounts and those that have high yields - infrastructure for example. Perhaps I should spread my small cap risk by investing in some of the best performing small cap investment trusts such as Rights and Issues Investment Trust (LON:RIII) and Blackrock Throgmorton Trust (LON:THRG) and trust the managers. However I'm trying not to get sucked into what seem to be very high yielding companies such as Vodafone (LON:VOD) only for their dividends to be cut or cancelled. Where do you see the most value at the moment? Perhaps Stockopedia should start an Investment Trust section or more articles on these and mid-caps?

stegga1000000

Saga

https://www.stockopedia.com/sh...

gmtrader

Keep smiling. Things always get better in the end. Money worries are stressful for sure but in time it works out. I personally understand you situation. I’ve lost my house, twice, going from being comfortable to desolate. I wrote my car off just over a year ago, putting me out of work for a month. But I’m still here, I could easily of died with the accident. Last month my engine died in my car which put me out of work again for a month and cost me £9k. So I do understand money worries.
I was married for 16 years and when I got divorced it felt like my world was torn apart. I changed jobs immediately as I felt I didn’t need to be in a job I detested any more. Im still doing my new job 16 years on and while it has it moments it was the best thing I did.
It pales in comparison though to loosing a loved one. Four years ago my 24 yo son died. This by far has been the hardest thing to cope with in my life. Divorce, job and money issues pale in comparison. What has worked for me is to keep busy. Hobbies and diy projects help massively. Taking pleasure in the small things in life. I found hill walking helps to put some prospective in live.
My point is, what ever life throws at you, you get through it. Humans tend to think and worry too much about money. It doesn’t make you happy. So keep smiling and one day, hopefully soon, the market will change in your favour and you will look back and wonder what you were worried about. In the mean time, keep learning, avoid those risky shares and priorities what makes you happy.

The Boon Fund

But not back yet to the share price before the Interim Results in On Beach group (LON:OTB) . Which I had thought was decent enough and positive in terms of forward outlook, but the markets marked down the price after the results. Probably because H1 profitability was poor; but that is not a surprise, given the seasonality (Oct-Mar) and also the huge forward investment they did in headcount and brand marketing to position themselves for H2 high season (Apr-Sep) and onwards.

I've had conviction that summer volumes is going to be fantastic back since the start of the year. But now, all the major players and news outlets have more or less confirmed that booking volumes are excellent. And I wouldn't be surprised if OTB releases a profit upgrade trading statement in July or August, when those forward bookings get actualised into real revenues.

(I hold in the Boon Fund)

mortimer

keep looking keep alert and above all keep the faith

Raleigh4343

Great post.

BenHazz

Thanks BnB, you clearly have a lot of knowledge so thanks for clarifying. I just applied my perception of how recruitment in education (my field) is looking right now, where we have plenty of candidates but very few with the skillset to be successful in challenging schools.

Phil Mc

I'm in education and where I am we have zero candidates coming through , especially in Physics and Maths.

abtan

Dalata Hotel (LON:DAL) (I hold)

Dalata Hotels put out a H1 trading update today, which looked good to me.

EBITDA is expected to be higher than €100m (vs €84m last year) - which I believe will result in free cash generation = c.€50m.

I would hope for a slightly better performance in H2.

Net assets at year end = €1.2b.

The Market Cap today = €1b.

There's also a decent pipeline of new openings over the next couple of years.

Before taking a position a few weeks ago I did look at a handful of other listed hotel groups, but found nothing as "cheap", though I was impressed with the quality of Hilton Worldwide Holdings (NYQ:HLT)

It's probably a too late in the day, but I'd be interested in hearing thoughts on listed hotel groups, particular opinions on valuations in this post-covid, reduced work travel environment.

Thanks

Huwster

Does anyone else have concerns about the macro factors reported in the Motorpoint (LON:MOTR) results impacting the broader car dealership sector e.g. Lookers (LON:LOOK) and Vertu Motors (LON:VTU? Both shares held up well today so broader market thinks not perhaps but interested to hear opinions of others that may be better educated on this sector in general.

I’ll try and reply sometime tomorrow.

garbetklb

Hi Ben

My commiserations too on being made redundant. Just possibly an opportunity to sit back and see if you're happy, or fancy a change of direction?

You mentioned Rights and Issues Investment Trust (LON:RIII) - are you aware that the Manager changed recently? Previously run very much as a 1 man band by Simon Knott and his father before him. Now run by Jupiter. I've no idea about Jupiter - but Knott seemed to be a class act. I don't know why he retired - my reading between the lines (which might be 100% wrong) was that he was being coralled into being more conventional and decided he'd prefer to bow out. He was very successful. I sold at this point.

All the best

Andy

Saxonboy57

15th Jun '23

Sorry to hear of your circumstances. Keep struggling on . You cannot lose until you give in

Rambo

Thanks for that Wolf of Wall Street and an interesting read. I believe the article refers to manufacturing rather than warehousing which is where Somero has a niche product in laying "high quality" concrete floors. It is difficult to know if this will create an opportunity for Somero.

In the near term this in-shoring will definitely increase prices so I dont see prices coming down any time soon.

Prof Calculus

I share your pain I am down also and it is difficult and very lonely sometimes .Cant offer any solutions however sometimes switching the screen off going for a walk and reading a book can be a welcome distraction . As for you job hope you find something soon .

Hi bsharman

I hold about 30 big dividend paying shares and Investment Trusts with current dividend yields from 7% to 16% and most of them hopefully without risk of dividend cuts, and in some cases with policy of further dividend increases. These exceptionally high yields reflect the current bargain prices, rather than a warning sign of dividend cuts or cancellation ahead. I won’t list the 30 now but will another time if of interest.

For now your suggestion of going for Investment Trusts makes sense as these pooled investments are less risky than single shares, and as with a lot of shares, some are very cheap and on big discounts.

The following are Investment Trust sectors you might think are worth considering. And this link is for the aic page for Global Trusts where there are several very good long term performers. Aic is much better than Stockopedia for Investment Trusts as Stocko include a lot of info not needed or relevant and exclude must knows like discounts to NAV. So I haven’t provided the link for each share for access to the Stocko stock page for each one.

https://www.theaic.co.uk/aic/f...

Perhaps:-

BIOTECH AND HEALTH.

e.g IBT. 7% discount and 4% dividend

COMMODITIES.

e.g BRWM 6% dividend and the best of the Trusts if wanting to invest in the biggest Mining Companies in the World.

COUNTRY SPECIALIST.

e.g VOF. 14% discount and 3% dividend. VIETNAM is little understood by UK investors bit is described as the new China. Make sure you read the monthly updates from the Managers of the 3 Vietnam Trusts.

GLOBAL.

Several very good ones.

JAPAN AND JAPAN SMALLER COMPANIES.

e.g BGFD. Discount 8% but tiny dividend. The BG Trusts traded at a premium and were top performers until the last year or so.

OR AJG 15% discount and 5.5% dividend or JSGI.

USA.

e.g NAIT. Discount 10% and dividend 4%.

PROPERTY UK COMMERCIAL

e.g AEWU 105p 3% discount 8% dividend or SREI at a big 31% discount and 7.6% dividend.

PROPERTY EUROPE COMMERCIAL

e.g SERE 26% discount and 7% dividend or EBOX 40% discount and 7% dividend.

UK EQUITY INCOME and UK SMALLER COMPANIES.

There’s such a wide choice. As with all potential Trust buys check out their top 10 holdings and try and find one that includes small company shares covered in SCVR reports. Also I prefer conviction portfolios and look for Trusts with as much as 50% of their portfolio in their top 10.

OR for UK Smaller Companies don’t go for Investment Trusts if tempted by single company UK shares covered by Paul, Graham and Roland.

Hope that helps a bit and that your quality of life can somehow improve soon.

Clive44

18th Jun '23

Problem with SPSY is the enormous bid-offer spread. Not sure why this is with a 75% free float? I hold.

Small Cap Value Report (Weds 14 June 2023) - RWA, SPSY, MOTR, CGS, MRK, SAA, SFR, FDEV

Summaries

Robert Walters (LON:RWA)

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Paul Scott

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