Small Cap Value Report (Weds 23 Nov 2022) - KGH, IGP, CML, FNX, BOTB, DPEU, DIA, ABDP, ACSO

23rd Nov '22 by Paul Scott

58 comments 8153 reads

Good morning from Paul & Graham. We're off to a flying start today, with some comments left over from yesterday's news. Today's report is now finished. I'm halfway through DLAR, so will finish that in tomorrow's report.

Agenda

Paul's Section:

Knights group (LON:KGH) [quick comment] - an honourable mention for TheFloatingInvestor who flagged up here in yesterday’s reader comments that the CEO of KGH just spent £1m buying shares at 83.9p. (Although context is that he banked £61m in Jan 2021 selling at 390p!). He’s already got 20.7% before this transaction, so seems well-aligned. Yesterday’s TU looks pretty good to me - H1 in line, and outlook sounds upbeat. I won’t have time to dig deeper, but want to flag this as something readers might want to assess more carefully. The forecast PER looks super-low, and the CEO splashing the cash in a meaningful way, makes me think this could be a buying opportunity perhaps? DYOR as usual though please. [no section below]

Intercede (LON:IGP) [quick comment] - Interim numbers look good to me. Note there’s a big benefit from the negative tax charge (R&D credits possibly?), so it made £1.2m PAT for H1- good profit growth. IGP should have benefited from the strong dollar, as its customers are mainly in the USA. £10m net cash is more than healthy. £32m mkt cap doesn’t strike me as excessive. H2 outlook is in line with expectations. I’d like to see faster organic growth, which is the main reason my interest has waned a little recently. It’s fundamentally a very sound company in my view. The jury’s out on whether it can accelerate growth into something more exciting. [no section below]

CML Microsystems (LON:CML) - more detail below. Good interim numbers, and a substantial increase in broker forecasts. Management tantalise us with vague outlook comments, but conclude that they see a "very positive outcome" for FY 3/2023. There's also the matter of a net cash pile about a third of the market cap, and surplus freehold property. All in all, this looks very interesting now I think, hence will include it as a mystery share (i.e. one of the best shares of the week) in this week's podcast.

Fonix Mobile (LON:FNX) [quick comment] - a rare thing this one - a fairly recent float (Oct 2020) that hasn’t collapsed in price! Yesterday’s AGM…

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Michael C

23rd Nov '22

Concerning Belvoir (LON:BLV) and the PRS (private rented sector) the White Paper A Fairer Private Rented Sector includes 4 references to tenants being able to challenge "unjustified rent increases". Section 4.1 says 'Any attempts to evict tenants through unjustifiable rent increases are unacceptable. Most landlords do not increase rents by an unreasonable amount but in cases where increases are disproportionate, we will make sure that tenants have the confidence to challenge unjustified rent increases through the First-tier Tribunal.' "Unjustified" is not defined. The current Housing Minister, the ninth in five years, said recently that the government does not propose rent controls but after reading a report of other things she has said I'm not convinced she has read the White Paper thoroughly. At their conference in September the Labour Party said they would abolish automatic evictions for rent arrears. I think the PRS (private rented sector) will shrink by a considerable amount but it will take some years before it affects businesses like Belvoir (LON:BLV), and for some time rising rents will offset the loss of clients - until the effect of rent controls becomes severe and horror stories of un-evicted non-payers of rent become widespread. My family has been involved in the PRS for over 60 years, off and on. In my opinion we are heading back to what it was like before the 1988 Housing Act.

EDIT - we have sold one of our properties and I am filling in the paperwork to sell another this afternoon.

Funnymoney

£BOO The Times is not looking for Boohoo advertising. John Lewis massive warehouses run with 3rd party workers on the other hand....not a word. I live in a sea of these type of distribution warehouses and know people who have worked as pickers in them; they are all similar to a greater or lesser extent. It's client journalism, same as the SBF/FTX crypto scandal: Marc Cohodes who broke the story "also said that he went to Bloomberg in July to report on Sam & FTX and Bloomberg's crypto news team passed on it, said it was bad for business, they'd "lose access" and it'd be "too much work."

Bouden54

Would private landlords not just be replaced by businesses running a portfolio of properties? It feels like economies of scale are needed to make BTL viable. The question is whether these business would use the services of Belvoir - presumably they would unless they are able to do it in-house.

ANDY1861

I remember working in warehousing 20yrs ago was the worst job i ever had its never been pleasant! Always had targets but that warehouse looks pretty modern, i worked in old converted mill during winter was freezing ! Remember being timed going to the toilet!

NeilS

Will Thorndike has also appeared as a guest on Invest Like The Best with the always effervescent Patrick O’Shaughnessy https://podcasts.apple.com/gb/... and is also now running a podcast called 50x

Alliance Pharma (LON:APH) down nearly 40% today on lower guidance for the year, £30m instead of £33m I think and also the CEO Peter Butterfield “stepping away” until January. An over reaction or not?

planetx

Crestchic

Just punched through the 300p barrier which it’s been banging it’s head on in the past 4 months .

If it holds above 300p probably going to trade in the 300-350 range for the next period .

Think the Camacord selling has gone and there was a vacuum of stock today and it’s popped up a range .

Paul Scott

Hi MichaelC,

Many thanks for flagging the disappearing tags, we have an ongoing battle with this, they vanish sometimes for no apparent reason. I put them all back in again manually before lunch, but they vanished again. So I've re-input the tags AGAIN!

It really helps when people point out any missing tags, so I'm glad you did. I normally check, but sometimes things just happen, and we don't know why.

Regards, Paul.

I did comment on CentralNic (LON:CNIC) the other day, in the reader comments, and explained why I didn't find the numbers appealing, and I don't feel I can add much to the discussion, as it's not a business model that I particularly understand.

We've commented on Eckoh (LON:ECK) dozens of times, just check the archive.

It's so boring when people whinge about not liking the stocks we comment on. We've been over this ground numerous times - we can't cover everything, and we focus mainly on things we understand, that are newsworthy (e.g. ahead, or below expectations). I think Eckoh was just in line this time, so not a priority.

If you think something is good or bad, feel free to post a comment here explaining why.

Westway001

I tried to buy some Crestchic yesterday and couldn't get any - none available. Bit frustrated to see the price rise today but I already have a few so pleased in that respect.

Aislabie

My comments were not supposed to be aimed at you or Graham, your inputs being very welcome - and I recognise that, for the most part, staying on the right side of tangible net worth is a sound position! I am sorry if my comments came across as a whinge, absolutely not what was intended

My concern was more with the direction of community comments that do not seem as interested in debating these stocks as I would have expected.

Thanks Aislabie, I appreciate your reply. It is a bit dispiriting when we try our hardest to cover as much as we can, then people criticise because we haven't covered what they personally find most interesting. We cover about 500 companies here, which is at least half of the entire small caps market, so I think that's pretty extensive. Although obviously my personal sector specialism on retail/eCommerce has been awful in the last year. That's just the way it goes.

But going back to CNIC, there were several reader comments discussing this stock the other day, and I thought as a community we actually had a good bull-bear discussion on it. But I think several of us don't like the accounts, the gearing, the lack of cashflow, how big EBITDA turns into almost nothing in post-tax profit, etc. There was a good discussion about it, maybe you didn't see all the reader comments?

Anyway, we managed 9 companies today, despite being on a super-tight schedule, not being defensive (OK, well a bit!!)

You've got to remember also, if a company reports in line with expectations, it goes to the bottom of the list for us, because that's not newsworthy.

We'll keep doing our best, but we can't cover everything.

Best wishes, Paul.

Tommy H

I concur, I tried to buy yesterday but no deals available.

I had an offer today but didn't accept the price being asked so just let it lapse, maybe tomorrow.

Tommy

I don't hold Crestchic (LON:LOAD)

The key question here is risk, if you cannot identify whether you can increase prices or not on rent, or that you can use due legal process to remove a tenant who has not paid rent, then would you as a business want to enter into this?

I have one rental property left, and holding for a number of reasons (owned outright), but have put on hold reentering the market for more currently due to the changing rules.

I would also add in for private landlords there is a pending tax reporting change which is likely to force quarterly reporting to HRMC and mandate a proprietary software programme, not just Excel which does the job very well for me.

Tommy.

Gobbagvooar

A near example?

https://www.propertypartner.co/blog/october-2022-portfolio-update/

I think you're right to get out of this market - seems an incredible amount of hassle for very modest returns. Over the long term I would expect far higher returns from some of the companies featured on these reports, and with much less hassle!

abtan

Crestchic (LON:LOAD) (no position)

Hi Planetx

I'd also like to extend my thanks to you for sharing insights from your site visit.
It is most definitely appreciated, irrespective of whether or not I do, or eventually will, hold a position.

A quick question if it's okay. Did the company say anything about their receivables balance and whether it has come down since the last reporting period? I must admit that this was one of the things putting me off...no doubt another example of me overthinking things.

I completely understand that this is a very specific query and will not be surprised if it didn't come up in conversation.

All the best and thanks again.

ridavies

24th Nov '22

Thanks for that Jim. Anything of interest re Angle (LON:AGL) at the moment would be good! Though I would still be saying to the company, for heavens sake, focus on the US. The UK NHS seems to be disinterested in Angle (LON:AGL) and not a lot of progress in Europe with one (small?) distributor added in the Czech Republic.

Presumably Company B is Angle (LON:AGL), Jim?

Monty9

CentralNic (LON:CNIC) is one of my largest holdings and one of only two of my tech stocks showing a decent profit. It feels a lot like the other one, Equals (LON:EQLS) which was beaten up by the market following my initial purchase at about 116p all the way down to 25p. Each time I looked at the numbers the company seemed to be making good progress and I added (nervously) a few times; the last one at 29p. It recovered steadily to 96p now.

To me the reasons for the current market reaction to CNIC are similar. Everyone is nervous of the tech space at the moment and CNIC is not easy to understand, given its rapid acquisition programme, related amortisation and mix of currencies. This year the early bond redemption increased the amortisation charge but that is a one-off. The refinanced bond should help here and it is probably good to be re-based in USD following the currency's recent rapid rise - it it unlikely to get much stronger, and in any case now matches the majority of its income. There was also a shock in in the PI community when the 2021 audited pre-tax results was much less than the unaudited update due to recognition of a loss on hedging instruments - probably a one off, but the shock lingers longer!

I haven't added but remain a very optimistic holder.

Small Cap Value Report (Weds 23 Nov 2022) - KGH, IGP, CML, FNX, BOTB, DPEU, DIA, ABDP, ACSO

Agenda

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Paul Scott

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