Small Cap Value Report (Weds 23 Mar 2022) - ZOO, SAGA, JDG, CRPR, DTY

23rd Mar '22 by Paul Scott

73 comments 8957 reads

Good morning, it's Paul and Roland here today, welcome back Roland! Today's report is now finished.

Agenda -

Paul's Section:

Zoo Digital (LON:ZOO) (prepared last night) - a positive trading update. Good industry tailwinds in streaming TV, provide a boost, some one-offs though. Forward visibility is limited. I question the valuation, given a long, and weak track record of inability to generate profit.

Saga (LON:SAGA) (I hold) - Preliminary results for FY 1/2022 are as expected, a small underlying loss. Liquidity & going concern statements look strong, so no solvency or cashflow issues. Heavy losses from travel, due to covid, are covered by big profits from the insurance division - an excellent hybrid business model. Forward bookings on cruise are strong, less so in the tours business. I remain of the view that this share looks very cheap, for a strong recovery in the travel business.

James Cropper (LON:CRPR) - profit guidance is reduced by 29%, due to a huge increase in gas prices. The company is taking action (price rises, etc), so this could be a temporary problem, and it says customer demand remains strong. Shares look expensive though. A fairly muted market reaction today, shares only down about 10%.

Roland's Section:

Judges Scientific (LON:JDG): This scientific instrument group has delivered a record set of figures, ahead of expectations. But after a strong recovery from the pandemic, management sounds much more cautious about the year ahead. A flat outcome seems possible at this stage.

Dignity (LON:DTY): Listed funeral service provider has put out a downbeat set of numbers today. Management warns of the risk of falling profits and a potential covenant breach as the UK’s death rate returns to normal. There are also looming challenges from debt restructuring and new FCA rules relating to pre-paid funeral plans.

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…

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Discodave4

23rd Mar '22

Hi, from my recollection they haven’t given any earnings forecasts for the previous two years either. Realistically how could they with all the moving parts and headwinds they have been, and still are, facing.
A lot of businesses haven’t given any financial forecasts either.

tom stokes

Rws Holdings (LON:RWS) has a capital markets day to day. It will be interesting to see how brokers react following RNS.

BnB

Diaceutics (LON:DXRX) published full year 2021 results yesterday afternoon. Here, CEO, Peter Keeling, and CFO, Nick Roberts, present these full year results for the period ended 31 December 2021. Video & podcast.

This is worth a watch for those interested in life science picks and shovels investing. I topped up an existing holding this morning after seeing the unexpectedly rapid progress of the platform and the reassuring profitability. Potentially significant network moat building here.

mepfish

I think Saga (LON:SAGA) management are due to do a presentation on their results later this week. lets hope they have thought through their thoughts on outlook by then as they are likely to get a grilling on this key issue for investors.

Wimbledonsprinter

Jim Mellon was talking at the weekend about how inflation in the US is spreading from goods into services and therefore becoming more embedded. I noticed this morning in a rather uninspiring update that Ecsc (LON:ECSC) said it had increased pricing in its cyber security assurance (consultancy) arm by 10% in August 2021 - seemingly leading to only slightly improved margins (upto 63% FY on the assurance side) but covering mostly accelerating staff costs. With Allenby forecasting c10% top line growth in 2022, it makes you wonder if this reflects any “inflation-adjusted” growth.

rmillaree

Saga (LON:SAGA)

I don't really accept the argument that the company could not say sales expected 600-700 mill and profits 10-70 mill. Don't tell me they don't have those internal forecasts nailed down in such a manner?

So whilst they are far from alone in being sketchy - well organised companies eg next do mange to do that - is it any harder for next to predict the next 12 months than saga - saga should have reasonably predictable insurance revenues and booking revenues ref cruises.

The whole point is - just give us somethig to work that aligns with "management expectations" and update during the ear - we are grown up enough as shareholders to understand that if there is lockdown at month 7 that the forecasts at that later date would be materially changed. Or as the year progresses things may be getting worse or better naturally.

Hey ho it is what it is - i want doesnt always get unfortunately - which looks like it will be the case here.

chris2021

Saga (LON:SAGA) Whilst accepting the relative prosperity of the customer group, or at least that sub-set which is comfortably off, there may well be increased demands made on the BMD (Bank of Mum and Dad) by their offspring due to the emerging economic difficulties. Quite how much proposed travel spend, if any, gets reallocated to other demands is an interesting conundrum.

JohnDoe2378

Thank you for that well informed response. Yes, i did note yesterday that Knights Group (LON:KGH) had warned on corporate work, one to watch closely...

barnakles

Interesting insight, thanks. In terms of the chart, what would confirm a Stage 2 uptrend, do you think? A technical signal like a golden cross, or a price breakout above a certain level? Or simply a rising MA line?

Brookeda

Yes a buy out would be good (not had one for over two years) but this one I think clearly has legs either way.

Rws Holdings (LON:RWS) is not in the small cap definition for this site, but after dropping 30% in the last hour it is making a solid attempt to come within our scope

A little more sense in the later price action today. 15% drop looks justified.

Bouden54

Overall not terribly impressed with Saga (LON:SAGA) results. Obviously it's a very competitive motor market at the moment and looks like lower renewal margins to persist as a result of price rule changes. In underwriting, we're going to see lower reserve release this year and they're sticking to a long term combined operating ratio of 97% (compare with Direct Line which has a medium term target of 93-95%}. Relatively high use of price comparison sites too (which are much lower margin and lower retention than selling direct).

Chrisfarrell21

Really, for SAGA, a stage 2 uptrend couldn't be confirmed (for me) before it breaks out and trades above the most recent high at c.462p. Depending on when that happens (if it happens), it should be above the moving averages at that point, which also should all be pointing upwards.

Cheers

Chris

GN100

Mevans 890,

The LSE website gives a good layout of the RNS's unlike the feed on Stocko where to read it clearly you have to go to the link mentioned at the top of the page. The problem for me is the LSE doesn't always want to accept my registration as a PI and sometimes doesn't work at all for RNSs before 0800. Maybe something to do with my cookie settings but I wish the techies would leave a perfectly good website alone instead of 'improving' it to the point at times of unusability. Investegate gets a bit stuffy if you go beyond 50 tickers on your feed.

Ponzy Mad-Hoff

I'm not optimistic about the cruise industry's recovery prospects in the near to medium term. Consumer confidence and spending power will drop significantly over the next 1-2 years, the impact of rising home energy bills has been delayed by the price cap and the effect of rising interest rates will feed through as 2-3 yr fixed rate mortgages expire. Falling property values will further discourage discretionary spending . Taxes will need to rise for health and defence spending. I'm inclined to avoid anything that is consumer discretionary.

Tombholliday

The commentary around Zoo has been consistently negative while the price has doubled. Reinvestment in network expansion as streaming becomes the dominant method of watching television suggests that value longer term is being created. Either research properly or not atall

Dojosan

Agreed - same drop to Gateley Holdings (LON:GTLY) and Rbg Holdings (LON:RBGP) and Keystone Law (LON:KEYS) yesterday in light of TU from Knights Group (LON:KGH)

Was in 4basebio (LON:4BB) until a few months ago having bought at 209p. Great co. but wide market not so conducive.

Patrickmylnetrade

hopefully they're insured with someone else!!

A_Private_Investor

24th Mar '22

What a rubbish comment!

Paul evaluates a mass of businesses on the day that news of the day and he predominantly does it by looking at the figures informed by what they say in announcements. In that respect, its a pretty comprehensive on-the-day announcement. It's certainly a more comprehensive bit of research than your one-liner of the investment case for them.

Without reviewing Paul's commentary in detail, he basically makes the point that the increase in turnover isn't turning into an increase in earnings or, looking at their figures, free cashflow. So 'Yes' turnover might well carry on increasing because of the reason you state, but why will that turn into genuine earnings and free cashflow when it hasn't in the past?

Small Cap Value Report (Weds 23 Mar 2022) - ZOO, SAGA, JDG, CRPR, DTY

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Paul Scott

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