Small Cap Value Report (Weds 19 Aug 2020) - TRCS, LUCE, SOS

19th Aug '20 by Paul Scott

40 comments 8903 reads

Good morning, it's Paul here with the SCVR for Weds.

Today's report is now finished.

I rarely watch films (short attention span & easily bored), but I watched the most gripping film this weekend. I'm sure many of you have already seen it, but if not, I cannot recommend this enough. It's called All The Money in the World - based on the true story of John Paul Getty, and his grandson being kidnapped. It raises all sorts of moral issues: should ransoms be paid?, the problems caused by the pursuit of extreme wealth, family breakdown, what drives some people to put career before people, etc.. The old cars, and wonderful sets, were an absolute treat to behold also. The whole thing was utterly brilliant.

It looks like the rain has set in for the day. Not much company news for me to report either. So I should be mainly finished well before the official 1pm finish time today.

I'd just like to express my appreciation for MrContrarian's long-standing morning snapshots of the daily newsflow, and more recently Dan HollandSmith's different format, but excellent snapshot reports too. I think we're really lucky to have both of these computer wizards, with their own software, posting these lightning quick mini reports each weekday (in the comments below). They're certainly very helpful to me, steering me towards the most interesting small cap stories to write about in more depth in my reports. So a hearty thank you to both of them, and long may it continue! :-)

Today I'll be looking at;

Tracsis (LON:TRCS) - trading update

Luceco (LON:LUCE) - trading update

Sureserve (LON:SUR) - formerly called Lakehouse - trading update - sorry I ran out of time & didn't look at this.

Sosandar (LON:SOS) - I've got a call with management late morning, so if anything interesting comes from that, I'll report back. My feeling is that the business is definitely going to succeed, as in reach scale & become profitable. The only questions are: how long will it take, and how much will it cost, in terms of more fundraisings & dilution? Although the swift action taken to slash costs (esp marketing), which resulted in it getting close to breakeven in April-June is very interesting & demonstrates the huge advantage online retailers have in a downturn, with more flexible overheads.…

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jesseowens

19th Aug '20

Always worth a reminder of Tracsis (LON:TRCS) incredibly conservative accounting as software development is immediately expensed rather than capitalised . Capex amounted to a piffling 730k last year on c. 50 million of revenues . This helps explain the absolute bucketloads of cash Tracsis has generated as it has grown without any need for dilution . A slightly more aggressive use of the Balance sheet could turbo charge the growth even further . Yes the 5 year chart looks mediocre but revenues and profits have grown materially in this time This is a great opportunity to buy one of the best U.K. small cap compounders at a reasonable price

Cato1

Hi symt1980,

One of the main P&F charts is showing a price target of 330p. Traders will have their selling prices in at this point creating volume which the MM's will head towards. I have tried to add a copy of the chart below. Hope this helps.

barney100

Hi Andrew,

Why on earth would they want to do that?

Stick to what you know, do that well and outsource things such as logistics & manufacturing to those who specialise in those areas and have capacity that can be ratcheted up or down as required.

Look at the example of Fevertree Drinks (LON:FEVR) who run a not dissimilar £2.6 Billion business with just 180 employees.

Regards

Andy Sav

Hi Andrew, a lot of the larger online fashion retailers (Asos (LON:ASC), Boohoo (LON:BOO)) use Clipper Logistics (LON:CLG) and I think Sosandar (LON:SOS) is not different (i.e they also use Clipper Logistics (LON:CLG)). I can't imagine Sosandar (LON:SOS) would want to start their own logistics as its a complex enough service in its own right, so they are better off sticking with a firm that is proven and knows what its doing. Sosandar (LON:SOS) tend to outsource most of their ancillary functions, including IT and web development. Thanks Andy.

Trident

Thanks Paul for your overview of £TRCS. This is an encouraging update from the Company in the light of all the issues that Covid restrictions have had on transport, events and general people movement in the last months.

Tracsis (LON:TRCS) has evolved into a very solid company, perhaps shedding some of its earlier market fizz, when software sales were anticipated in the American Rail market. This is more of a background possibility, as they made some sales, and the USA has proved to be a slow adopter of track based technology.

They are an acquisitive company, which can be a royal nightmare in most instances for investors, but as Paul outlined they fund very conservatively from their own cash and small allocations of equity.

I think their last acquisition was slightly more expensive that the previous acquisitions, and that is I guess one of the dangers of being an acquirer. Ultimately any acquisition can be a turkey or fly high, but given that the management use a yardstick of investment criteria (available on their website) , rather than just trying to get sexy headlines as a result of deal making, I am generally hopeful they will continue to progress.

The CEO is a new guy, and Paul regularly interviewed the previous CEO, so maybe at some point the new guy may be open to the same if Paul is interested.

My take is that Tracsis (LON:TRCS) is a very Steady Eddie stock with a small dividend in a high energy IT space, with the potential to surprise on the upside.

Has touched 800p before, but stock trades tend to be fairly illiquid.

I Hold

Albm7

Taylor Wimpey (LON:TW.) I'm a longtime holder and think the raising money to buy land which I think they said (could have been somewhere else) was 25% cheaper than January this year. Also worth noting that CEO has just bought £750k worth of stock at £1.20 - he has been a good buyer and seller of his own stock - fwiw I will probably buy more but must remember to sell it too:)

cholertonandrew

Thanks Barney, appreciate the comments and that’s a really helpful point re Fevertree.

Andrew

Thanks Andy, that’s really helpful.

nigem2000

Thanks RDH. Interesting re: house-builders. Apologies to any reader that, inevitably, some of the below strays beyond the Small Cap focus.

As background, have been investing in/out of house-builders for 20 years (including Small Cap!) and have now worked in (land and planning) side of industry for 30 years. Coincidentally, your notes coincide with some research I was doing on Crest yesterday.

Housebuilders tend to be inconsistent re: strategic (sites without planning permission) land acquisition and investment. Strategic land is notoriously "lumpy" (long term and unpredictable in respect of timing) and housebuilder boards generally prefer to acquire land with permission, as it provides for certainty in respect of timing and costs. This is especially the case in uncertain economic times (early 90s, 2008-12, 2020-). However, the likes of TW and Crest have a more established approach to strategic land (less "in and out" than other builders). Both companies have made huge returns from strategic land and understand the long term value.

I currently hold Persimmon (and TW, Redrow, Barratt & Foxtons, the latter in respect of inevitably increased house sale/letting activity over the next 6 months). However, have been re-considering Crest, following significant board changes in 2019.

Not on the basis of disposing of Persimmon - the company is a well-oiled machine and its margins and earnings remain consistently high, it generates cash and its yield is well-covered.

However, even minimal research shows that the view of Crest as a "London flat-builder" is simply wrong. It has significant stratland holdings and existing sales outlets from the Midlands to the south. Am trying to understand why the share price appears depressed and hasn't seen much uplift from the March sell-off and whether this is largely a sustained reaction to board changes last year.

Similarly, the TW share price vs say Redrow is an odd one. Both are regarded as higher quality developers and both have a track record of effective land investment, yet TW's share-price lags way behind.

As always, DYOR, but having gone through several cycles in the last two decades, house builders appear to me to be generally well-placed at this point in time. In answer to your question, for me it is less a case of switching to laggards and more a case of possible latent value in the likes of Crest and TW. Certainly ones to watch.

Jeffvshepherd

Stockopedia has good charts and indicators. For long term trend a 200 day moving average will probably be sufficient and a shorter moving average to give possible buy/sell signals. Be careful that you do not fall into a common trap with indicators, the do NOT tell you when to buy or sell, they only say "Hey! I think you should buy/sell, take a look to see if you agree."

Westway001

Very interesting observations nigem, thanks. Did your research produce any reasons for Vistry's dire performance?

Mark Carter

One the subject of films and finance ... Paul, you might also like Margin Call. Quality acting all 'round, and Jeremy Irons stands out even though the others are good.

smig78

cracking film

Hi Westway. Vistry now being Bovis plus Galliford Try minus GT's contracting business (effectively Linden Homes). Appeared that GT rode the wave of house price values as a housebuilder but seemed to get carried away on values - burnt after failing to properly gauge the London flatted market. Bovis seemed to plod along without the strategic edge of TW/Crest or the sausage-machine mentality of Barratt/Persimmon/Bellway. Whereas GT was sold off and now has a foothold as a quality operator in the hard but very large low-margin construction contracting world, its hard to see what's so special about Vistry other than being ANOther box-basher. Suspect its share price reflects that it still needs to find its feet and make the two brands Linden and Bovis work together effectively. So, IMO, nothing particularly attractive, given the opportunities elsewhere in the industry, so its share price is perhaps more understandable than say Crest or TW, which appear depressed without reason.

Tristan_Treacy

Margin call is excellent. Out of all the finance films I've seen it is the most true to life, and the most gripping.

Very helpful, thanks.

ACounsell

RDHowarth,

Your graph of the housebuilders performance YTD is sadly familiar! I have held Berkeley Group (LON:BKG), Persimmon (LON:PSN) and Redrow (LON:RDW) at various times over the last few years. Originally I held Berkeley Group (LON:BKG) but exited July 2018 due to fears over the impact of Brexit and over valuation in London markets . Switched into Persimmon (LON:PSN) as they have much wider geographical spread only to see shares hit by reputational damage of CEO remuneration and numerous media reports of shoddy building . After some recovery exited Persimmon (LON:PSN) in December 2019 on basis of ongoing issues re quality, etc. Replaced with Redrow (LON:RDW) which appeared to a good quality builder, sound finances, plenty of cash, 6%+ yield and decent geographical spread without excessive London exposure. In addition Stockopedia rankings were excellent (it made the old style NAPS selection for 2020) and the Stockopedia community had it as one of their 20 top picks. To provide further ‘reassurance’ Shares Magazine included Redrow (LON:RDW) in their top 10 picks for 2020! Covid-19 put paid to that with the share price collapsing by more than 50% at one stage and the cancellation of any dividend. From your more recent graph from start of May Redrow (LON:RDW) has improved but is still badly lagging £BKG & Persimmon (LON:PSN) which are now +30% and +5% above my earlier sale price! I don’t really understand why £RDW is not benefiting more from the current ‘housing boom’ and seeing a more significant boost to its share price. Any thoughts from Stockopedia subscribers welcome - other than don’t tinker and why didn’t you stick with £BKG!!

Funderstruck

Hi fwyburd,
I too use Charts as well as fundamentals, for which Stocko ' is excellent & I use Sharescope for charting as they are incredibly flexable also Sharepad for screening back up.
My take on BOO , based just on charts is that they are in an UP trend and have been since 2019 , in June they established the top of that main Up channel & then retraced to the new bottom of the main channel, once again for the current leg of the trend to get back to 50% so far of the June /July retracement. This leg is still very positive, just taking a breather consolidating before rising back to the top of the main channel.So still a 50% rise to come. Traders do use the Ma as indicators but they are lagging and distorted by the Covid-19 drop so IMV not very reliable. Ultimately it may revert to a narrow channel , as it was earlier at about 25%
If you are using MA's as indicators then take into account the direction of the price move and the price action, the latter is more important than any of the multitude of indicators. What i mean by that is whatever i have suggested may happen to the price, may not , and one must always be guided each day by the price action to decide any moves.
It is good to see many users also getting into charting , when i started it was just one or the other& each side sneered at the other. Rest assured even the city professional investors also use charts, but for me the simpler the better. Hope that helps those who wrote some queries.

OldSchool05

Hi Francis,

Many thanks. Can you recommend any good books on charting that you have read?

Harry Hindsight

Charting or 'technical' analysis (boring term)

Stocko contributor Micheal Taylor loves his cup and handles and 52wk breakouts. Can just trade on that and forget the rest.

I love candlesticks. Read Steve Nison who says he brought it to the west from Japanese rice traders, good fun reading and psychological insights into it. I love visuals so works for me which is the fundamental aim of Stocko with their Ratings algos. Candles perfect for warning of slowdowns or trend change, or the odd 'gap' signal - but yes a blog below it does not tell you how far the sentiment will go in price terms.

Clearly construction is/was in the dumps and recovery traders looking for break-outs from channels. I'm watching but not convinced. Keeping head above water but no breakouts expected this month. Next month?

It would be good to have separate blogs for the sectors, as suggested for gold or mining even.

Another thing on blogs below which I have no idea how to manage is 'stop losses'. It has been covered but that mental strength to 'take a capital loss' or not take it too early, or be too late, or wait for the rebound or, or or...... hence the strength of a good traders mind and a system and risk management. I'm crap at it at the moment and stock watch constantly when at home.

One thing I think is coming into play is 'Brexit' (I think Covid is less now as another countrywide shutdown cannot be sustainable / saving London is the next step) - distribution, taxes, I don't know but hopefully companies have had 4 years to work out risk management but there will be some affects on trading and not balanced across all companies.

Interesting this game - brexit and rice trading - who needs movies.

Small Cap Value Report (Weds 19 Aug 2020) - TRCS, LUCE, SOS

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Paul Scott

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