Small Cap Value Report (Weds 22 Dec 2021) - D4T4, MEAL, CAM, CNS, KBT

22nd Dec '21 by Paul Scott

74 comments 9145 reads

Good morning! It's Paul here with the SCVR. As there's not much company news this week, I'm trying to handle the SCVRs solo, to give Jack more time for other duties.

Agenda -

Paul's Section:

D4t4 Solutions (LON:D4T4) (I hold) - 2 large contract wins are announced, but seem to be in the forecasts already. They company reassures that it should achieve its FY 3/2022 expectations. I'm struck by the size of these contracts, which will contribute 37% of the entire year's forecast revenues. Even after the recent c.30% correction in share price, it's still not cheap on a PER basis. However, I continue to be impressed by the potential for this company to scale up in future, possibly, which could transform its valuation if they succeed in winning more large contracts. No guarantees about that of course, so it requires a bit of a leap of faith.

Parsley Box (LON:MEAL) - a trading update that tries to sound upbeat, being in line with lowered market expectations. However, on doing a little digging, it's clear that this company is burning through cash at a prodigious rate, and has nearly run out. It says more funding is needed in early 2022. Very high risk, I think this share is probably heading to zero unfortunately. Bargepole I'm afraid, due to the high risk of insolvency, based on these numbers. I hope punters manage to salvage something from this bad investment. I think anyone holding this is crazy, because it looks highly likely to end up at zero, given the very high cash burn.

Camellia (LON:CAM) - my first ever look at this overseas agricultural group. I like the strong balance sheet, and good track record of dividends. Today's update is ambiguously worded/punctuated, and I can't find any broker notes, so can't take it any further. Developing country , and exposure to volatile agricultural prices, turns me off.

Corero Network Security (LON:CNS) - issues a positive trading update during market hours. Has this cyber-security company finally turned a corner, after years of heavy losses? I don't know, but there do seem to be some encouraging signs.

K3 Business Technology (LON:KBT) - issues an in line with expectations update for FY 11/2021. The balance sheet has been fixed now, with some non-core disposals businesses sold. My view: neutral.

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JSLDUK

22nd Dec '21

I can’t understand the price recovery, given all the bad news re covid, only thing I can see why is that the share was tipped in the times last week. (I hold)

Boon

Further gains this afternoon for Revolution Bars (LON:RBG) off OK (not huge) volumes, but post AGM.

Probably just tracking the wider recovery in travel and hospitality shares. But I'm just a PI in the dark!

Mcbride (LON:MCB) banking covenant Dec21 waiver just announced. So that removes covenant risk until Jun21, the next test, which they are also in the process of negotiating.

An interesting play if you believe that inflation has peaked, and they will be able to drive through double digit price rises successfully across all contracts.

Long term play is that many smaller private-label suppliers would have gone against the wall with inflation, so should lead to more market share. In addition, absolute profit should increase from 2023, given that their top-line revenues will increase c20%-30%, from both existing sales let alone organic growth from more market share. That is if they manage to hold onto their profit margins.

Would leave their debt and pension obligations more manageable.

Can really see this being a PE takeover once the risk and turnaround is done. Refi the bank debt at cheaper rates, and milk the low PE/cashflow multiple, and then re-IPO in a few years time.

(I don't hold but a share I have been in and out of over the decade!)

davidjhill

I think broadly speaking a few things have become quite a bit clearer that is now manifesting in a unwinding of some of the sell off.

1) Omicron appears far less severe

2) highly transmissible so lots of cases but peak wave comes quickly and then drops off rapidly

3) quarantine windows can thus be reduced - mitigating staff shortages

In other words all the real world data the South Africans kindly gave to us (and was completely ignored by our own science at the outset - instead focussing on doomsday panic) appears to be bearing a reasonable semblance of reality here as well. Assuming that continues to play out then peoples confidence should return quite quickly leading to a very short window of pain for hospitality and travel restriction windows. So for now I think investors are moving back to a slightly negative but more neutral position.

Pre Omicron Revolution Bars (LON:RBG) was 23p so has moved from 18p to 21p reflecting that mild negative sentiment. The group is net cash positive so also has wiggle room to cope with short term pain in my view.

peterthegreat

The real world data was closely examined by scientists the world over, but at least initially it was not peer-reviewed so the rational approach was to play safe which, thankfully scientists and clinicians did. No-one ignored what was coming out of South Africa.

Hi MichaelFBS. I think we all know what death from COVD infection means but I would be grateful if you could clarify what "overwhelming the economy" means in terms of deaths?

ridavies

No, you will have to join if you are not a member already - no cost - and then search for this presentation - Capital or CAPD on August 25th this year.

They did and they even said they did. They did not overlay any real world data over their own modelling, instead preferring to dismiss it completely and predict doomsday instead, with all the consequences that has. The one good thing that may come out of this mess is if the models prove to be woefully inaccurate again it will force a re-think.

sevenccc

I thought the R rate in London last week was estimated at 3-5 for Omicron. And Delta is surely no more than 1 given how long it has been around? Should we just put London under lockdown and leave the rest of the country alone? Cancel all trains in and out until the New Year and close off access to the M25!

Covid total infections have been stable for 5 days now and only increasing by 1/3 each week through December. Appreciate that may change but until it does let's stay open - please.

Numbers have been flat for 3 days. Too soon to hope we're coming through this through individual action and common sense plus massive booster numbers and even a good uptick in first vaccinations? Good to see some additional help for hospitality and arts as they have already been massively impacted by our choices over the last 2 weeks. Keep well.

timarr

No idea what you're on about, I didn't suggest any of that - and more than happy to take an alternative number for Omicron R if you have a source for it. All I've seen is that it's 2 to 4 times more transmissable than Delta, which itself had an unmitigated R of 5.

As I noted, those figures aren't accurate due to hoards of confounding factors. Plus, as marben noted below, if Omicron is less dangerous then hospital stays will be shorter, which will reduce the overal NHS load.

All I was doing was pointing out that just because Omicron is less dangerous than Delta it doesn't necessarily follow that it will have a reduced impact on the NHS. But given the potential for the NHS being overwhelmed, you can see why government advisors are anxious.

All of which, under the circumstances, I thought might be a useful observation for investors thinking about where to invest at the moment.

Tommy H

Hi Richard

Sorry my link is straight to the login page

https://www.investormeetcompan...

Cheers

Tommy

peterg

True but what also does not seem to be discussed in the MSM is whether the policies that have been adopted to “control” the virus will overwhelm the economy.

The evidence suggests you do more harm to the economy by letting the infection run relatively uncontrolled than by tight controls. Countries that have kept infections and deaths to a minimum have suffered much less econimic slowdown than thos that haven't. The UK is amongst the highest in terms of both economic conraction and deaths. That is complicated by Brexit which has also hit the economy, but the trend is clear, and the UK is not the only country showing that.

Deaths, lots of expensive hopsital care, loss of work time, people avoiding crowded situations by their own choice to avoid infection all cause damage to the economy.

Silver Moon

It's still early days in S Africa, this morning's RNS Brief from £BRB makes for interesting if not disappointing reading. I hold.

wolfspirit

Parsley Box - I agree with the doom laden conclusion - but am surprised at the stockopedia QV values given this analysis.

Whitbourne

Thanks for that ForAFewDollarsMore in fact the Innovaderma (LON:IDP) StockSlam wasn't fwyburd it was me - clearly people called Francis have an affinity for the company :-) You did well not to invest at the time, since my pitch was clearly too early. Your view "I like the invested management who seem to be doing what they said they would." is very much where I'm at. There's really good alignment of incentives. The products seem fundamentally OK but fighting for a share of a crowded market.

With hindsight, it seems clear that the turnaround is taking longer than I had hoped. I agree that management are doing broadly the right things, but the fall in sales is disappointing and increased margins have not fully compensated for it. I'm still holding and looking for improved sales next year. Fundamentally it's a sound product range with growth potential if the marketing is done right.

Best wishes,

Francis (the other one)

I looked at the company at IPO - I thought it could be a great business as there is a need - but the food looked like school dinners and it only comes in tones of brown. It is many decades since I was at school but at least we had something resembling green, even if it smelt of sulphur. Maybe as a nostalga play? but is this really better than going to a supermarket and going for a chilled dish and a few fresh prepared veg that can be microwaved easily?

I keep thinking that we'll see Jamie Oliver popping up on the screen trying to save our pensioners from the new "turkey twisler".

sharw

BRB ?? Can't find that on RNS. Do you mean Biomax Rubber or Breaker Resources?

barnakles

Nice summary, thanks. There's a lot to like here, I'm not sure what a reasonable PER is considering the operational and juristiction risks, say 9-10? As a capex heavy biz the investment case rests on whether you agree with the CEO's view that were are early in the investment cycle of Gold mining in Africa, and also bullish Gold generally.

I'd like to see them diversify into Cu/battery metals for sure. Also, although the CEO and founder have considerable skin in the game (12% and 6.4% respectively), I'm a bit wary due to the level of director sales from the Commercial Exec - over £0.5m this year, all around 80 - 85p level.

ForAFewDollarsMore

Thankyou Francis.

It seems 2 + 2 = 5 in my calcs here!

Sadly the rationale on my share picking seems to be working in a similar way!

I will have a serious look on another dip but need to offload something first. Hopefully though there won't be another dip...

Hoping so Francis.

Apologies for the mistaken identity!

Clint

Small Cap Value Report (Weds 22 Dec 2021) - D4T4, MEAL, CAM, CNS, KBT

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Paul Scott

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