Small Cap Value Report (Weds 29 Sept 2021) - CARD, HEIQ, GOG, ESC, QUIZ, AIR, FUL, COM

29th Sep '21 by Paul Scott

63 comments 9675 reads

Good morning, it's Paul & Jack here, with the SCVR for Wednesday.

Agenda -

Paul's Section:

Card Factory (LON:CARD) - interim results show a small loss, due to lockdown 3. Footfall still well down on pre-pandemic level, but average transaction value is higher. CARD has missed the boat online, with only trivial eCommerce sales, an area now dominated by e.g. Moonpig (LON:MOON) . Bank debt still a problem, and very weak balance sheet, means high risk of dilution. I'm steering clear.

Heiq (LON:HEIQ) - poor interim results, way down on last year's H1. Wobbly-sounding outlook. It's halved in price, but still looks over-valued to me.

Go-ahead (LON:GOG) - lost southeastern rail franchise, due to accounting "errors". CFO resigns & accounts delayed. I'm steering clear.

Escape Hunt (LON:ESC) - improved trading recently, since reopening, but it's not yet clear whether this is a viable business being rolled out, or just a fad.

Quiz (LON:QUIZ) (I hold) - results for FY 03/2021 show a heavy underlying loss, as expected. However the commentary shows encouraging signs of much improved current year trading, improving gross margin, and a positive outlook for FY 03/2022. This is very much a glass half full or half empty share! I see it half full, with recovery underway, but others may disagree.

Jack's section:

Air Partner (LON:AIR) - trading figures are down on exceptional H121 figures but are up on H120, which is a more appropriate comparison. A couple of significant acquisitions have been made over the past couple of years and if the group can generate sustainable growth going forwards, then the share price today does not seem expensive.

Fulham Shore (LON:FUL) and Comptoir (LON:COM) - two listed restaurant companies, both reporting positive trading, but with two very different valuations and track records.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover 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 stick to companies that have issued news…

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gus 1065

29th Sep '21

Wonder if there are any views on the recent Fulham Shore (LON:FUL) placement by a combination of directors and employees who exercised various share options and sold a fair chunk of these and other holdings (about 3.7% of the issued share capital in total) last Friday (24/9) at 18p. Full details in this RNS which was followed up subsequently with confirmation that the placement was successfully completed.

https://www.investegate.co.uk/...

Seems to be a fairly comprehensive statement by a cross section of the company’s directors/ employees that the shares are fully priced at the moment.

Gus.

clouds

Probably best to check, but I think the rent reductions were meant to halve rent if revenue was the same as FY20. I am also unclear exactly how much rent was though, it seems FY20 total property costs were £13.3m - but a decent chunk of this was presumably business rates which I'd expect won't go down until / if there is a rates review. Of course they have reduced the number of stores as well.

JohnEustace

Perhaps Sosandar (LON:SOS) have poor repeat sales precisely because they don't have an app?

I've been patronised by a well meaning sales assistant in Next who explained to me very slowly and carefully that the item I wanted wasn't available in store but they might have it on this thing they had called a website if I had an internet connection... I just smiled and thanked him, being grateful that I don't have to spend my days in an out of town retail shed.

In any case I thought Sosandar (LON:SOS) were targeting working age ladies buying office wear - I imagine they have phones.

Sharewallah

Phenomenal output today guys. Thank you.

The toe that I dipped in the water with my initial Alphawave Ip (LON:AWE) purchase last week got badly scalded today - it's down around 30% after an FT article about the role of related party transactions and past questions for some of those parties around revenue recognition. I expect there will need to be a rebuttal or clarification RNS but for now I've exited the hot water.

Subscription needed https://www.ft.com/content/1a5...

Rusty2

Alphawave Ip (LON:AWE) I was just about to ask what was happening, it was down 46% just now.

davidjhill

yeah - wow! was not expecting this. The article by the way coincides with a short attack!! funny that.....

also looks like £8m worth of stock has traded and collapsed the market cap by over £1bn !!!

Yes, 53% down now. I can't read the FT article but this sounds a bit like Wirecard which the FT also investigated and were correct.

it's about a disclosure they are claiming wasn't made in the IPO document about connected parties to Versilicon.

Doesn't strike me as same as wirecard as this appears to be about an exclusive 3 year reseller agreement the company has with Versilicon who are themselves an entity of around $5bn mkt cap with 1000 employees, so I'm not entirely clear what the accusation is expect that one of the directors brother in-law is also a director of Versilicon and there are questions (refuted by the company) as to whether this should have been disclosed as connected parties.?

Strikes me this may be an opportunistic short attack but irrespective management are going to have to explain things very clearly as it has had a huge impact on the share price.

rmillaree

Alphawave Ip (LON:AWE)

The following is probably worth a read - i am a bit surprised company has not commented today - i am sure they will be on the case in that regard as we speak.

https://californianewstimes.co...

Toad1957

What went wrong at Loopup (LON:LOOP) I’ve paper traded for a long time waiting for the right moment to buy. It never came. They have just announced a placing on Primary Bid at a 31.5% discount to a bombed out share price. They had the tech to clean up through Covid. I feel for anyone invested. Any other views. Recovery stock?

Paul Scott

Hi Toad1957,

Loopup (LON:LOOP) has looked promising at times, but execution by management has been awful. They had a big opportunity, but squandered it. Made a terrible, value destroying acquisition, and their software has effectively been made redundant by Zoom & Teams.

I think they're trying to mask the decline of the old business, by pumping up the story for this new venture in cloud telephony. It's a startup, with a legacy business attached, in my view.

Overall, I think mgt seem incompetent, judging from their lousy track record, so I wouldn't go near it again. The deep discount to this latest fundraising, suggests there's little institutional interest in supporting it.

Regards, Paul.

The Loopup (LON:LOOP) placing is dressed up with a (small $4.5m) acquisition, but ultimately it looks like a fire sale fundraise with an additional 50%+ being added to the shares in issue off the back of an already depressed share price. If you believe the stock ranks (very high Q and V rankings) it may be a time to buy at a knock down price via the PB offer if you’re feeling brave - not sure I am though.

Completely different topic - Tritax Big Box Reit (LON:BBOX) is also doing a placing of up to £300 million including a PB tranche this evening. Already a holder so looking at this one. With associated debt, looking to add up to £530m to their funding base.

Tombholliday

Great comparison Fulham shore versus Comptoir thank you real added value

Boon

Except this enhanced data collection is no longer true, at least for iOS customers. You cannot now collect data through app for marketing purposes unless you've explicitly asked customers to opt in - and the opt in rates on average are low.

WDWombat

HEIQ easily my worst recent investment it has halved and was not as small a position as I had thought. To be honest I heard Leon Boros raving about it and was suckered in, thinking the ppe business - especially masks - would stay buoyant whilst other newer businesses were developed, especially additives for paint seemed attractive to me. In the event the mask business has pretty much collapsed in volume and price and there have been problems in the supply chain meaning the company has been unable to meet the terms of some contracts whilst others have suffered from nil pricing flexibility in the face of rising costs. Some of the explanation on the Investormeet video is helpful. To some extent I see this as the canary in the mine for smaller manufacturers relying on cross border suppliers. There is no realistic end in sight to the worsening margins, I do think this will look better in eighteen months but have no idea whether it is worth holding the rump of my position given current very weak trading. On balance probably safer in depreciating cash.

Andy Sav

I bailed (for a small loss) on £HIEQ when I started hearing negative sentiment; they had stock tied up in the suez canal block and Leon bailed when he saw there was a high receivable amount on the balance sheet. Interesting to read Paul spotted the same today. Maybe it's a red flag that they are spread over so many markets; graphine has been a notoriously bad investment over the last 10 year's; promises to be world changing, but not much has happened yet. I also got lucky with Novacyt Sa (LON:NCYT), not feeling comfortable with the high price when there were rumours that the NHS wasn't happy with the product (sold for a small gain). Unfortunately, one of my worst so far (-60%) is Best Of The Best (LON:BOTB), that's the one that's got me. I'm hanging on in hope it's been oversold and the dark nights will return the punters. Oh, and Bushveld Minerals (LON:BMN) hasn't faired much better. I've held since 2019 and was hopeful this year would be its turning point, given the keeness in the stocko voting at the start of the year. Unfortunately, this year's gain is faster disappearing and making it hard to be a newish small cap investor. I'm still learning patience :)

Thanks Paul. I’ll definitely follow your advice on this one. I agree it must be poor management - I had corporate clients swear by Loopup (LON:LOOP) but those same clients are now users of Teams mainly with Zoom second. No way back surely.

17th Oct '21

The problem is, of course, that the world is structured to focus on spending money on cures to fix problems once they occur, rather than spending money on preventive actions.

This happens across the entire medical sector - the amount of funding that preventive programmes get is miniscule. Also happens across many other areas; think climate change too.

Therefore, while the Heiq (LON:HEIQ) product might be good at anti-viral properties, people are not going to spend more money to have it in paints, fabrics, etc. So it will always end up being a bit of a niche, blue sky company. Promising tech, but no huge commercial scale.

Small Cap Value Report (Weds 29 Sept 2021) - CARD, HEIQ, GOG, ESC, QUIZ, AIR, FUL, COM

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Paul Scott

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