Small Cap Value Report (Mon 18 Mar 2024) - POS, TUNE, DFCH, BYIT, CURY, MSLH. Quick: NGHT, CHG

18th Mar by Paul Scott

131 comments 9627 reads

Good morning from Paul & Graham!

Today's report is now finished. I'm halfway through SEE, so will finished that tomorrow.

The Week Ahead - today's article is here.

Naked Wines (LON:WINE) - Sky News reports that this troubled wine subscription service has hired Interpath debt advisers to "explore refinancing options". Sounds ominous to me. WINE puts a positive spin on things - "... there may be an opportunity to secure a similar-sized facility that has less limitation on utilisation and more flexible covenants resulting in fewer restrictions on the actions we can take to reduce inventory and drive our broader change agenda." Paul's view - I think it could be in trouble. I can't imagine many lenders would be keen to finance this excessive wine lake, given that the business model has effectively failed to prove it is a viable/profitable business, and now seems in a downward spiral. Massive inventories and/or receivables often hide a multitude of sins. See our archive here for more bearish points. RED.

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 issued news on the day, with market caps (usually) between £10m and £1bn. We usually avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency),…

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Funnymoney

18th Mar

Yiannos1: Plexus Holdings (LON:POS) I don't have a strong opinion about this, but when I look at another rental company Ashtead (LON:AHT) I see that their strong bull run went on to double after they were valued at >8*Tangible Book Value. That is ~ to where Plexus is today. I'd accept that this could be an anomaly, but it appears to test your thesis regarding this. It would definitely be true to say that if one had followed your rule when Plexus was 2.35p and the P/TB was .22 then one would have been exceedingly grateful, although with the sea of red on the Stockreport I wouldn't have had the stomach for it. As I say I don't have a strong opinion, but it would be good to see any research regarding the efficacy of P /TB as an indicator, but perhaps the signal for rental companies would be lost in the noise from all the other companies in any study.

johnsmith68

This comment is under review

doctor dave

They do really excellent home studio audio USB interfaces. Most people I know who do home recording have some Focusrite (LON:TUNE) equipment.

yiannos1

This comment has been moderated

Guybrush

Micro-caps are for fools. You would be better off going to a casino. Right off the bat you lose 10 percent because of the spread. And if you did get lucky, assuming you bet the house, then good luck trying to sell it, given the nearly non-existent liquidity.

The US market is just a click away, with largecaps that have the upside of UK microcaps with none of the downside. I've noticed a big difference in my trading performance almost instantly when I quit UK small caps and started trading US largecaps. its unlikely I will be ever going back.

G Morris

Filter option. Apreciate views but not those who are disruptive, mislead and attempt to agressively intimdate others who don't agree with own opinions. Could go to LSE or ADVFN for that free.

Sorry Guybrush

I can only give the thumbs up once to your comment. Still some opportunities but decreasing day after day.

Thanks for your posts yiannos1. You talk much sense in a world that often has none.

That’s nice!

Cricketfan

Team Internet (LON:TIG) , I hold.

I agree. FY figures looked good and the FD commentary on IMC particularly so.

Now nicely in profit, div doubled and with 23/24 share buyback programme about to conclude. No promises re 2024 use of spare cash but back of fag packet suggests net debt down to near zero unless spend on acquisitions or buybacks. Debt now much cheaper helping bottom line. Next figures (Q1/24) due in 2 months time and should be reassuring and future indicative given FDs comment that they will be within mkt expectations. Fingers crossed with optimism!

Paul Scott

19th Mar

I make good money out of micro caps, by -

1. Stock selecting very, very carefully, which involves rejecting almost everything.

2. Ignoring story stocks that generate little to no revenues (let alone profits).

3. Buying & selling inside the quoted spread, in dribs & drabs over time.

4. When sellers are killing the share price, do nothing - just wait for it to get even cheaper.

5. Most importantly - buying after news where there is some sort of genuinely positive catalyst - eg major contract win, cash burn being slashed, etc.

6. Usually - only buying things that have adequate cash resources and probably won't need a fundraise within say 18 months.

7. Top slice into strength, after a big rise in price, thus freeing up cash for new opportunities.

8. Trying to avoid delisting risk - but this is only usually a risk where a company has either an overly dominant major shareholder, or has obviously come to the end of the road in terms of being able to raise finance from the market.

9. Reasonably competent & honest management, so far as that can be ascertained.

10. Avoiding the usual company promoters, brokers, etc, who float absolute junk.

I find this approach works very well indeed for me, and over the years most of my really big gains have actually been from micro caps.

So I don't like sweeping statements like your "Micro-caps are for fools". There are always opportunities, if you know what you're doing, in many investment areas that might not appeal to many people.

There are some particularly good opportunities right now in micro caps, highly selectively, as so many valuations are completely bombed out from distressed sellers.

Paul.

intuitive6191

Guybrush has a point. The huge problem with micro caps is the liquidity issue. If something goes wrong it is very difficult for the average punter to get out their position when everyone else is also heading for the exit. You are locked in - quite possibly with substantial losses.

Poor liquidity also attracts pump and dump campaigns/wash trading etc which can be difficult to spot and are designed to leave the average investor out of pocket.

There also will probably be little/non existent research. It is unlikely that the average investor knows more about the company than the managment so in all cases you are also relying on the quality and the integrity of the management to give an accurate position of the prospects.

If you like a punt and most of your portfolio is in safe liquid stocks then thats fine. The chips are however stacked against private investors on micro caps.

jamesalastair

Great post.

Silver Moon

I am certain you do the right thing Paul, I constructed 9 virtual portfolios elsewhere (Stocko doesn't seem to be able to help here) on the 5th of August 2023, and this is how the one outstanding portfolio called Jim's MicroCaps (which holds 29 stocks) stands now:

If only I had put all my money on this horse I would be sending to Zane but as it is, I'm the one who needs my own charity :-)

Silver

If nobody minds I'll expand on my virtual MicroCaps portfolio. Firstly, RMM and INCE went bust which hurt my real portfolio, escaping from the Mellor Dilution Tool of CNR just in time. In the virtual portfolio then, the remaining dogs are VANL, PEG, ZNWD, AAU, KDNC, ALBA, ZYT, SIXH, KEFI, RAI, VAST, and ADME. I'm sure one of these will come to fruition ;-) however, anyone referring to my first post can see that the other 14 stocks must have performed exceedingly well.

Edit: All of the aforementioned stocks are held in my actual portfolios, more is the pity....

Harry Hindsight

24th Mar

Do you confuse Ashtead (LON:AHT) with Ashtead Technology Holdings (LON:AT.) perchance.

One is in deep sea diving repairing and maintaining our energy future. Company should have work forever, not sure about the 'energy future'.

JPmorgan US Smaller Companies Investment Trust (LON:JUSC) - if like small caps well perhaps need to reassess the definition of 'small'.

Leaving JPM with huge resources and govt insiders to do the heavy lifting.

Experimental but in the blue, whereas most of my UK's have been in the red for more than a year and only likely to take off if someone buys them.

Frustration is high. And the future is uncertain. The stock market industry is as much to blame as the complex tax regulatory rubbish governmental system. IPO's anyone (nah - sorry Primary Bid - only so many golden gooses born each year).

Arm Holdings (NSQ:ARM) - clever boys.

Bytes Technology (LON:BYIT) - one to watch closely and still in the UK.

I work 5 days a week so cannot devote anything like enough time to what I do hold, let alone new opportunities. And the micro/smalls often don't hit the SR70+ safety net.

dfs12

28th Mar

Looks like the volatility has kicked in at HSS Hire (LON:HSS) - up 7% yesterday and so far 9% today!

Small Cap Value Report (Mon 18 Mar 2024) - POS, TUNE, DFCH, BYIT, CURY, MSLH. Quick: NGHT, CHG

Explanatory notes -

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Paul Scott

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