Small Cap Value Report (Weds 9 Nov 2022) - PURP, VLX, GYM, NMRP, SNWS

9th Nov '22 by Paul Scott

70 comments 8233 reads

Good morning from Paul & Graham!

Today's report is now finished. I got halfway through Norcros (LON:NXR) so will finish that off this afternoon & put it in tomorrow's report first thing.

Agenda

Paul's Section:

MADE.com - As a post script, ThisIsMoney reports that, as expected, Next (LON:NXT) has bought the brand & intellectual property of this failed online furniture retailer - which went from a well-financed IPO in June 2021, to insolvency in Nov 2022 - astonishing. The price paid is a paltry £3.5m. The article says that inventories are likely to be disposed of via TK Maxx, the dicount branded retailer, so it might be worth a visit to see if there are any bargains on offer.

Volex (LON:VLX) - Interim results look good to me, given tough macro conditions. I have a good dig into the numbers, including balance sheet and cashflows, and overall it looks pretty good to me. Shares seem reasonably-priced, and overall I give this a thumbs up.

Smiths News (LON:SNWS) - encouraging results, ahead of expectations, for FY 8/2022. Legacy problems are now resolved, and what remains is now a reliable cash generative, largely de-geared business. The remarkable divi yield of c.11% looks sustainable in the medium term too, as finance charges should fall sharply. Long-term, who knows? As a high yielding value share, I can't help but give this a thumbs up! Whilst being a bit wary about the longer term uncertainty.

Graham's Section:

Purplebricks (LON:PURP) (£35m) - shareholder anger over the long-term Chairman’s position has bubbled over and resulted in a requisition for a General Meeting. I agree with the shareholder that the Chairman has failed and needs to go, to take responsibility for many unwise ventures and the incineration of vast amounts of shareholder cash. Unfortunately, it looks like the shareholder might struggle to get the necessary votes needed to get this done. Purplebricks is an interesting special situation where net cash and speculatively some brand value might help to support the valuation. However, its efforts to stop losing cash are probably about to run into lower property prices and reluctant home buyers, which I expect will make the job much more difficult.

GYM (LON:GYM) (£196m) - a disappointing update from this gym operator as the WFH trend has prevented it from reaching pre-Covid levels…

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TheFloatingInvestor

9th Nov '22

Thanks Planet that's a great shout.

Level 2 has the big boys sat at 70,69,68 with buy orders. It seems very good value at that level IMHO, so I'm buying an opener.

Margins are a slight worry and of course Stocko has it expensive on P/E I assume because its linked in with Construction, which is perhaps a tad unfair. No Divi's, but again decent growth projections for the next two years, so SP upside from here I would suspect.

peterthegreat

Yes, any comments on the go private proposal for SourceBio would be welcome as this company is not a blue sky biotech, so more amenable to financial analysis. Assuming the company is right in saying annual savings of about £600,000 would result from the de-listing, this move would seem reasonable bearing in mind its low rating and decent growth prospects in multiple areas. This company (or its predecessor) has already been taken private before and relisted with an increase in value so perhaps they can do the trick again. The association with Christopher Mills ensures that there is plenty of private equity expertise available. I have made a small top-up at below the suggested tender price as I have a long time horizon.

Dogon

hardening mkt helpful but it's essential to know the key underwriters' track record and cycle management. For that reason I rate LRE, HSX and previously AML for cat reinsurance.

RDHOWARTH

Not good this year but its difficult in the early years of building the book 105.1 ....at interims....no further losses....

FREng

Can anyone explain how Stockopedia calculates the %gain column in Folios? I have set valuation to use Bid prices "for realistic vakuations" because "last price, for consistent valuations" seems absurd when the last proce may be at Bid, Offer or somewhere within or outside the spread.

Even so, the % change on the day looks more like the difference between the closing Mid Price and either the Bid or Mid price currently.

Anyone worked it out or found an explanation?

mojomogoz

I've never been a fan of Volex (LON:VLX) ...partly I didn't see it as an attractive biz (the share price and opinions of others tells me I'm wrong!)....and I wouldn't trust Nathaniel Rothschild as far as I could throw him! (Not a random prejudiced remark but based on seeing and being around some of his investment dabblings...when trying to be or impress daddy)

abtan

Volex (LON:VLX) (no position)

Management stated today that they expect to achieve market consensus revenue = $692m for FY23.

If this is correct then year-on-year H2 growth is currently forecast to be c+4%.

This seems quite weak given the positive commentary and in the context of 4 acquisitions made since October 2021 (H2 is October-March.)

Here are my notes from the Volex Annual Report for 3 of them for any interested:

TC (acquisition announced October 2021):
"In FY2022, TC contributed $2.4m to Group revenue.
If TC had been acquired at the beginning of the year, it would have contributed revenues of $11.6m."
Prodamex (acquisition announced October 2021):
"In FY2022, Prodamex contributed $3.3m to Group revenue.
If Prodamex had been acquired at the beginning of the year, it would have contributed revenues of $14.9m."
Irvine (acquired October 2021):
"In FY2022, Irvine contributed $6.8m to Group revenue
If Irvine had been acquired at the beginning of the year, it would have contributed revenues of $21.7m"

James Weston

There's one thing for sure Paul, if it' a cook at home pizza it will resemble nothing like that picture!

Raleigh4343

I like what Fulham Shore (LON:FUL) are doing. Great management and a good company to come out of the recession doing well. Waiting to jump in at some point.

Kaboom

Paul, perhaps it 'fell out of your pocket'... a subconscious tip after all those 2 for cocktails? ;-)

Snazzytime

re Sourcebio International (LON:SBI)

If they are taken private, assuming they don't re-list, what's your exit strategy? Presumably there will be no market to sell into, unless I'm missing something?

Snazzytime you are correct that there will be no market to sell into if they don't re-list or make a trade sale. I judge that management will be able to continue growing the company over the next 5 to 10 years and will have the incentive to realise this value at some stage in the future, but you definitely need patience if holding a stake in a private company. Look out for another post in 10 years time.

JimMcLad

FWIW I too use ‘bid’ price for valuation and have asked more than once for it to be used throughout the folio figures for consistency. No response from Stocko to date.

yiannos1

Hi RDHOWARTH,

I do agree , but this will need a big fundraise to bring down the debt and probably the current shareholders will end up with almost nothing. After the fundraise and better market conditions this will be a good investment. The current CEO has to go as well and hopefully replaced by someone that can do deliver on his promises ( the recent new shrewd shareholders will make sure of that ).

PS. Today’s announcement was embarrassing.

Michael C

A sort of mini Minsky moment?

drvodkaquickstep

Yes totally agree - a very useful presentation by a mgt team who are very focussed and aware of past pitfalls and the need to steward the cash cow core business whilst looking for complimentary new profit streams. My second largest holding.

I do wonder where all these Bitcoin gurus are now.

In the beginning it was the new currency , then when they realised this couldn’t sell anymore , they went for the story that Bitcoin was better than gold ( yeah keep on dreaming ) and finally they went for the inflation hedge , then as inflation was rising and bond yields flying and Bitcoin falling they lost the game completely and couldn’t think of anything else.

You do have to feel for the people that believed all these stories as all these cryptocurrencies will end up worthless at some point in the near future.

whatmore1951

10th Nov '22

£50 notes. The new £20 notes.

davidallen77

40% uk windpower production!

davidjhill

I think that's the point. There is a perception that somehow geo-political risk outweighs all other risks. I mean why buy Bank of Georgia (LON:BGEO) say when you can buy Lloyds Banking (LON:LLOY)

But the reality is look at the two businesses and I'd far rather have been the owner of the former for the last 15 years than the latter. One has lost shareholders a ton of money whilst sitting in a perceived safe geo political environment whilst the other has delivered super shareholder returns and still has a CET way ahead of minimum, a cost to income of just 30%, a dividend circling the 9% mark and is growing nicely whilst run in a conservative and well managed manner.

Now I'm not saying investors should ignore geo-political risk - merely that it is often used lazily for avoiding an investment; instead plumping for something that has an equal overall risk say but offers far lower returns.

As for Georgia Capital (LON:CGEO) my own view is that most private equity type businesses will trade at a discount to NAV but because of Georgia Capital (LON:CGEO) weighting to listed stocks that liquidity risk is somewhat lowered. So for me a 25-35% discount to NAV is probably fair which would make a share price of £13-15. Whether we ever get there without liquidating holdings and returning capital who knows though!

Small Cap Value Report (Weds 9 Nov 2022) - PURP, VLX, GYM, NMRP, SNWS

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Paul Scott

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