Small Cap Value Report (Weds 21 Dec 2022) - SDG, WAND, INSG, TRMR, XSG, PURP

21st Dec '22 by Paul Scott

40 comments 6611 reads

Good morning from Paul & Graham! Firing on all cylinders again, so let's hope we have some interesting news to cover.

Today's report is now finished.

Agenda

Paul’s Section:

Sanderson Design (LON:SDG) [Quick comment] - 113p (£81m mkt cap) - this is a “reach” (non-regulatory) announcement, of a new licensing agreement with Ruggable (two-piece rugs, with the upper piece being washable - clever idea!) SDG’s William Morris fabric designs will be used. It says this is the “second major” licensing deal in the USA - a key market that SDG wants to aggressively grow into, seeing a big market opportunity there. I reviewed the in line interim results here. As I noted at the time, strong licensing performance is offsetting weaker trading in the main business, which if it continues, could help SDG get through this recession.

My view remains positive on SDG shares - it’s easy to imagine this share being double the current valuation once the economy has returned to normal. Between now and then, there’s obviously the risk of a profit warning, and the company has previously indicated a wide range of outcomes is possible, shorter term. Balance sheet is bulletproof, so no risk of dilution or insolvency, hence it's a good long-term hold I think, if a potential dip shorter term doesn't worry you. Maybe one to take a small position in, and keep some cash on the side to top up on a warning (which may or may not happen), I was thinking.

WANdisco (LON:WAND) [Quick comment] - 900p (£621m mkt cap) - here’s an interesting share, that has soared in the last 6 months. We flagged here on 28 June that a big contract win was starting to look interesting, although the results announced on 15 June were dreadful. The key “tell” that something interesting was afoot (with hindsight) was that it got away another fundraise in June, at a premium, despite reporting terrible numbers. Afterwards, a series of big contract wins were announced. That was the turning point, it's tripled in price since then. So we’ll have to take a closer look at any more companies that look basket cases, but successfully raise fresh equity without having to offer a discount, as that suggests instis are being privately told that there’s a very positive outlook, and believe it to be real. Yesterday saw another deal announced,…

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Roger Baron

21st Dec '22

Thanks Wiimbledonsprinter. I'm not often mistaken for a philosopher.

Howard Adams

Hi GarryC

Yes, clearly (1984) and with the insane 15 minute city regions across Oxford its beyond surveillance its pre-defined restrictions. I understand the same is proposed for Canterbury.

As an investor it can sometimes be a bit of a dilemma assessing investing opportunities versus personal value judgments. Clearly many of the new big data, AI, data capture at the edge etc ... businesses can easily have a dark side to them. Yesterday's innocuous tech becomes tomorrows dystopian power grab.

Regards

Howard

c038644

I have a little bit of value to add regarding £TRMR. I wrote to the company asking about the dormant shares and did the company have any plans to cancel them. This is the reply I got back from the company:

"Thank you for your email. Tremor has no intention to cancel the dormant shares. By retaining the shares in treasury, the company eliminates the need to issue new shares, including as part of its employee share incentive schemes."

When I last checked there was 42 million dormant shares that will possibly find there way back into directors pockets. No position.

PJBY

£25K 8th November

Peej

Would anyone be able to cover Yourgene Health (LON:YGEN) (LON:YGEN) with their latest half year update & capital raising?

mojomogoz

Lot of wailing and gnashing on Tremor International (LON:TRMR) as usual...

The directors are over compensated relative to moral heuristic of many....and I think most execs are generally rewarded too much and too easily.

Tremor execs are not over compensated relative to their US adtech peers (and they are a US company that due to history are listed here)

During the period of high share comp earnings they were significantly outperforming their peers in an operating sense

The CEO Ofer Drucker deserves to be considered to some degree as founding entrepreneur...yes the company existed already...but is re-orientation of it is massive and so far phenomenally successful. So in that regard he is more worthy of the comp than many

A significant portion of the share comp goes to staff

Tremor is very highly revenue and profit generative per head of staff...can't remember exactly but approx $650k per head

There is some element of anti-Israeli prejudice going down with the company too. A heuristic that all Israeli cos are crooked.

UK fund managers once again make an arse of themselves with how they handle their fiduciary duty. The comp structure was agreed 3+ years ago under old chairman with shares in the doldrums....they had their opp to disagree then. Rather they wait until the volume goes up and make a hugely showy but counterproductive intervention after the company has shown great operating success (got to separate from share price)...

...cynically I'd say UK fund managers are trying to push a transaction by peeing off the mgt...this is not value maximisation. If they had balls and a view to value creation/recognition they would wait for the value to be realised through this rough cycle point. Instead they want to try off load their shares due to short term emotional angst and investor pressure on them. Not good stewards of capital

rwh3ue

THG (LON:THG) The Hut Group

On. Monday Paul mentioned the impact of withdrawal of trade credit insurance on Matalan. Today this article in the Guardian relates to THG. No holding, just hat tip to Paul for drawing attention to the risk.

https://www.theguardian.com/bu...

WANdisco (LON:WAND) -> v interesting developments... but v high odds the exponential move is too hot too quick

Snazzytime

Yourgene Health (LON:YGEN)

Just a quick look reveals poor results with continued losses and includes a profit warning. Deep discounted placing to keep the light on. Approx 200% dilution for existing shareholders. Looks grim and desperate. Bargepole territory.

Snazzy

Rusty2

It is not under the directors dealings.

RupertEvans12

Well said

davidjhill

very very poor. They had opportunities to raise funds at much higher prices even up until recently so I am flabbergasted that they waited until they had a desperate need and had already cratered the share price 90% before raising at a further whopping 75% discount! Wow! Stewardship has been shockingly bad in my opinion. Say they will have enough funds until Q3 2023 on a baseline level of revenue post raise - that's bad and spells even greater dilution coming to my mind.

Great healthcare technology that is genuinely needed and CEO talks a good game in his videos, but the reality is an absolutely dire performance for shareholders - what have they achieved, something like a 98% capital loss in the last 2 or 3 years?! So they've basically wiped out shareholders yet are still in seat? hmmmm - draw your own conclusions to that

Agree - I hope it is nothing more than exploratory.

I do think there is too much greed in the comp structures though. I take your point about being agreed 3 years ago but the 2 motions proposed for the AGM that were then withdrawn under pressure was an attempt to rebaseline in favour of the directors, which frankly feels like a pretty poor time to be trying it on given shareholders have seen a 60% fall.

Hi BnB

High price might be in part due to 82% held by major share holders I suspect.

I watched WANdisco (LON:WAND) for quite a while and always was put off by wide spreads. These reduced recently in random periods in sessions.

No idea if recent rises will stimulate selling, or attract more buying. It's quite a techy play and might not keep ahead of competitors.

suspect (as others have mentioned) it might end up being bought up. The insiders have invested over 10 years building it up s they might be keen to cash in at some juncture. Also, competitors might want to incorporate the tech into their own offerings.

We shall see.

Whitbourne

Thanks mojomogoz for reminding us of the recent history of Tremor International (LON:TRMR)

This is fair "The CEO Ofer Drucker deserves to be considered to some degree as founding entrepreneur...yes the company existed already...but his re-orientation of it is massive" can't argue with that. Then it is all the more important for the BOD to ensure that the successful entrepreneur's interests are aligned with those of others in the company.

Your point that a high % of the compensation goes to staff is also well-made. Nonetheless I still feel that there is a mismatch between the rewards that have flowed to staff and those that have accrued to shareholders. And that the board should have been more active and skilful in managing this.

Albm7

£PURP (No holding) Paul, thanks for flagging it up, I had read recently (but forgotten) that they were proposing Harry Hill the co-founder of Rightmove to the position. Definitely one to keep on the radar IMO

Tommy H

I held Ferrexpo (LON:FXPO) in two accounts but sold on the invasion, whilst there are a lot of its operations in "safe" areas of the country and they have managed to reroute a lot of their exports for me it just became a share where it was not in my investable territory.

I concur with the thought that it is a trading share right now, just all over the place with no rhyme or reason.

Once things reach their conclusion I would be happy to put it back on my watch list, but for now just not a sleep at night candidate.

Tommy

I do not hold Ferrexpo (LON:FXPO)

Paul Scott

22nd Dec '22

Hi rwh3ue,

Thanks for flagging that article about THG (LON:THG) seeing its trade credit insurance reduced. A couple of points -

THG says the trade insurer was reducing limits on unused accounts, which makes sense. However, my experience long ago was that when cover is reduced, it often becomes difficult or impossible for new suppliers to get cover.

There's an interesting footnote to the Guardian article, where obviously the company must have complained about the original article suggesting it's in financial trouble -

"This article was amended on 20 December 2022 to remove reference to THG cashflow being “under pressure”. While a reduction in insurance cover can affect a company’s cashflow, the article did not intend to suggest THG would be in serious financial difficulty because of it. As the article reports, sources close to THG say the insurance change has no bearing on THG’s financial position."

I found the CEO's comments about floating its shares in London being a mistake, and that the whole process has "sucked". Clearly self-reflection is not in his repertoire. Floating something at an insane over-valuation, promising the world, and then disappointing with poor performance, doesn't seem to register with him, in that the whole situation is his fault. He's too much of a self-publicist too, seemingly enjoying being photographed flexing his muscles. - are we supposed to be impressed or something?! It's a horrible look I think, especially on a middle-aged man, and makes me worry that the company might be led by a delusional narcissist.

I wouldn't touch THG, almost at any price.

Regards, Paul.

Harry Hindsight

WANdisco (LON:WAND) - easy to get sucked into the story but in six or more years has not turned a profit. I'll wait.

BarrieLomas

23rd Dec '22

From the Simply Wallstreet analysis
'
Ofer's total compensation ($USD 18.31M) is above average for companies of similar size in the UK market ($USD 1.05M).
'
Compensation vs Earnings: Ofer's compensation has increased by more than 20% whilst company earnings have fallen more than 20% in the past year.
'
Name_________Position__________________Tenure____Compensation__Ownership
'
Ofer Druker CEO & Executive Director 3.67yrs US$18.31m_____2.54%__$ 10.8m

By my count Offer had made over $ 6.5 million in multiple share sales Dec 21 to Dec 22

Small Cap Value Report (Weds 21 Dec 2022) - SDG, WAND, INSG, TRMR, XSG, PURP

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Paul Scott

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