Small Cap Value Report (Weds 16 June 2021) - SCS, ELTA, GTLY, BWNG, STU, RNO, BOTB, MOTR

16th Jun '21 by Paul Scott

97 comments 14179 reads

Good morning! It's Paul & Jack here with the SCVR for Weds.

Book recommendation - several friends have suggested The Art of Execution to me, by Lee Freeman-Shor.

I tried the audiobook, and found it full of contradictions. However, I found a nice spot at a pop-up beach bar in Bournemouth last night, and found the same book on my kindle. I read a quarter of it, and thought it was excellent. Maybe more for traders than long-term investors? However, still full of pearls of wisdom, much of which is based on statistical analysis of several years' worth of trades from top fund managers. I won't spoil it by giving anything away, it's just an excellent book that I think many of you will find useful, and enjoy reading. I certainly picked up some tips on how I can improve my investing performance.

Timing - today's report is now finished.

Agenda -

Paul's Section:

Scs (LON:SCS) (I hold) - strong trading & beating market expectations for this year & next year. Still looks cheap to me.

Electra Private Equity (LON:ELTA) (I hold) - a strong trading update from its main investment, TGI Fridays. Sales since re-opening are running +12.5% on 2019 comparables, despite restrictions on trading. I remain bullish on this, seeing it as a cheap entry into two forthcoming floats, TGI Fridays and Hotter Shoes.

Nwf (LON:NWF) - correction re last week's SCVR.

Gateley Holdings (LON:GTLY) - the company has been hit by a computer hack, but at this stage it doesn't sound too serious. Introduces uncertainty, and might induce some punters to bank profits?

N Brown (LON:BWNG) (I hold) - big increase in potential liability from Allianz legal dispute. I'm worried about this, and thinking about exiting from this position.

Studio Retail (LON:STU) (I hold) - Capital Markets Day coming up, with ambition to grow revenues to £1bn. Could be interesting.

Renold (LON:RNO) - (I hold) - accounts publication date is delayed, for the second time.

Jack's Section:

Best Of The Best (LON:BOTB) - FY21 figures more or less as expected, with growth opportunities going forward. But a reduction in customer activity as lockdowns ease hits the share price and makes sustainable growth rates harder to gauge for now.

Motorpoint…

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CamRaid

16th Jun '21

I held Motorpoint (LON:MOTR) for quite some time. A friend introduced me to following Norbert Lou of Punch Card Capital who has made some astonishing investments.

We saw he had invested in Motorpoint and followed him in.

We also followed him in to Naked Wines (LON:WINE) at £2.20

My understanding is they still hold Motorpoint which in my mind suggests it is a worthwhile investment.

Sniggolb

Gus

BOTB

In a long life I find it unwise to believe in coincidences.. however you may be right (Blackstone said he would rather nine guilty men go free than one innocent man be found guilty and I like that.) so let the milk of kindness flow in this case. Perhaps a yellow card system then?

But for the likes of the twerps who founded Quindell Portfolio, NMC, Patisserie etc "The Index!"

mojomogoz

Causing trouble...

I'm a bit butt hurt with Scs (LON:SCS) performance as I owned if from <150p to 220p (did get a near 10% dividend) and felt it should trade at 300p when I bought. But it was unloved back then. How things change.

Anyway, I think the quality of the company has deteriorated since then. I sold as I felt they were not doing the right thing with their excess capital (they were bidding for sofa.com). There's significant capital risk in going for anything other than steady growth and IMO they should grow earnings partly through buying back stock (then they could maybe make themselves a sustainable 10% earnings growth stock (or more like cash flow per share growth as cfps>eps due to working off some old onerous leases and underperforming shops when they went too ambitious on growth in mid Noughties). Throw in a nice dividend and good operational management and the stock can re-rate above 300p.

But it seems to me that the mgt want to build out their empire. There's so much for them to prove in doing this.

At time I sold they had been unlucky with the closure of HoF franchises. That was a great little investment. In addition, their carpet biz was starting to falter and it had been a great new earner for them massively increasing sales per foot in stores. These things hid some underperforming poorly placed stores (eg Reading) that were limping on until they could close them. Not sure how many they still have (in city and bad out of town sites).

IMO without a clear capital return plan there's high downside risk. 6 mths from now trading could really fall back as we go 'post-covid' (just don't know). SCS wont go under but could go back to looking value trap

Bouden54

An excellent and very thorough write up on Morses Club which I also hold and see a lot of potential to take market share, while still being extremely cheap and also good counter cyclical play if unemployment pick up. Regulatory concerns overblown if you actually look at the detail, which this piece covers well. Not seen this blog before - would be surprised if that's what caused yesterday's rally, but perhaps it is widely followed?

DarwenLad

One day, perhaps, Renold (RNO) will turn out to be a multi-bagger but the history of my investment in the business explains why it is no longer a key prospect on my watch list. I first bought in at 76.75p in July 2008, and, after the share price collapsed more than doubled my stake by backing a 20p a share rights issue in November 2009. Over the next few years I topped up my stake at 30.7p and 23.5p in 2012 before selling out at 27.6p for a modest overall loss in 2013. But I still believed that RNO's new management could harness the company's potential to be a global leader in a niche chains business so I bought back in again at 30p in April 2019 before selling out at 25p in July 2019 after yet another accounting problem, always a red flag in my non-accounting mind. I like to think I am a long-term investor but after more than a dozen years RNO has exhausted my patience. Good luck to all current shareholders.

Leebod

They had issues in the past (Aug 19) with misstatement of results due to intentional mis-reporting at a local level - a potential reoccurrence of this may have spooked the city I guess. Last time it was due to one division (gears) which worked out to be an overstatement of £2.5m. Any whiff of bad news is being hammered today!!

GrahamF

Re Best Of The Best (LON:BOTB)

Apart from the regulatory risk pointed out by Jack and the illiquid nature of the share, the other risk that you rightly point out Snoo is competition. I’ve always been sceptical that they will scale substantially as if they start to be that successful then competitors are bound to emerge and it already looks like that is happening.

https://www.spottheball.com/

No position

bryans1311

We’re still getting a positive ROI (just about) on our Facebook spend, but we’ve reallocated a good % of our marketing budget to improving our SEO and affiliate/referral marketing on Instagram (rather than Instagram ads). We’ve also set up a TikTok account and are working with influencers to generate following/sales. Email marketing and generating revenue from our existing customers/subscribers is another channel we use.

It’s an e-commerce business I landed in by accident, and I’ve probably learnt more about (digital) marketing in the past 6 months than the previous 40 years!

I thought it was another IC tip yesterday?

Harry Hindsight

Not sure a 'wallstreet bets' style blog would be useful. Don't look at it much but their is a Benish M Score - perhaps add an algorithm for "selling big prior to bad news".

But I did read somewhere that directors are not always the best at timing their sales - running a business rather than trading methinks. Capital (LON:CAPD) springs to mind which Mr Scott noted their selling but then the share price improved considerably - so maybe was to improve liquidity after all.

Still when ethics meet business I tend to have a cynical eye. The 100 baggers book has a chapter that is less complimentary of company boards, advisors et al.

Dachsis Capital

re BOTB - I believe we are now trading well below the bid level for the company that was turned down by the board. That should now represent a new line in the sand. That the market can be quite so surprised with a slowdown in activity as lockdown lifted suggests consensus became too dreamy. But the ROCE and Cashflow generated are a reality which suggests value is on offer below £20.

Boon

This. When I read Paul's analysis today on Renold (LON:RNO) I highly recommend any investor currently invested or thinking to go back to 2019 archives. They had an accounting irregularity then too. Can't remember the specifics as I had not been watching Renold closely then.

With bullish ambitions like what Motorpoint (LON:MOTR) just announced, one always has to take it with a pinch of salt whether management are just trying to pump up the share price to meet LTIP targets or make their out-of-the-money options worth something. You see it all the time with so many failed AIM companies that promise the moon.

However, as Jack has mentioned, CEO holds nearly 10% of shares. What he failed to spot was that the Chairman also holds 10% of shares. So combined, they really do have a vested interest in both preserving the existing equity value, but also looking to grow it prudently over the years.

I'm not invested yet but it is on my watchlist. The one big red flag I can see is that in the USA, the latest retail trends have seen car sales drop back in April and May. The big risk is that everyone who needed a car in 2021 brought forward their plans in to 2020 and early 2021, and the volume boost we've seen in the last few months wasn't incremental, but substitutional.

Hence why I think management haven't issued a bullish FY or HY statement vs market expectations, as part of the results. Its usually what's missing that is important!

I know we have a separate Boohoo (LON:BOO) thread but my question is on CFDs and director dealings, just so happens to be on Boohoo...

I saw from today's announcement that an NED "bought" 100,000 shares via Contract for Difference.

Why would a director acquire shares via CfDs instead of just regular purchases on the market? Is he using leverage? Is there a tax advantage? And is this a signal of a short term play on the share price rather than a long term hold?

chelsea

I sold out today on the news. TBH I was getting frustrated by the poor price action and have been reducing and this was the final straw.

Mado81

Good question. Only a CGT advantage via spread bets not cfds

ls2g08

17th Jun '21

Thanks, appreciate the response and best of luck!

smegster

Re: Best Of The Best (LON:BOTB)

Quite a few people have highlighted some of the potential issue with Best Of The Best (LON:BOTB)
1. The recent slow downward mentioned in the results
2. Large spread
3. Changes to Facebook ads
4. Other competitors emerging

In this situation we need to assess whether
1. The overall business model has been compromised
2. Is management competent
3. Is there still scoop for growth.

As a long-term holder, I was very happy with the large dip in price yesterday as it allowed me to add a few more shares for under £20.

We will have to wait and see if this was the right decision in a few years time!

Dojosan

19th Jun '21

A PI with a large twitter following bought Argentex (LON:AGFX) - Myles McNulty

UK_Investor_8888

Paul will recall myself selling down my SCS (LON:SCS) holding @ 205 to 210p.

I think I need a sofa to rest on... staggered by the +57% performance of this stock, which I did not have the conviction in, and alas only a trivial holding for me.

Well done SCS (LON:SCS) shareholders for picking and backing a winner.

Small Cap Value Report (Weds 16 June 2021) - SCS, ELTA, GTLY, BWNG, STU, RNO, BOTB, MOTR

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Paul Scott

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