Paul's 2023 Watchlist - Half-year Update

5th Jul '23 by Paul Scott

11 comments 4228 reads

Paul’s 2023 Watchlist - half year update

I came up with a watchlist for 2023 in Jan 2023, which I posted here. The idea was this list was to highlight my best small cap share ideas which had come up in the SCVRs during late 2022. My original selection criteria in Jan 2023 were simple -

Good business model, as far as I can tell,
Trading well, with positive outlook comments,
Sound balance sheet, hence little to no insolvency/dilution risk, and
Modest valuation with clear upside.

It was obvious early in 2023 that this would be a difficult year for macro, so I knew that some of the shares I picked would issue profit warnings, but not which ones! Hence the importance of balance sheet strength, which would allow any under-performers to recover in time.

Wasn’t it crazy to create a top 20 when markets looked so wobbly? Not really - there’s more upside on shares when valuations are cheap, and confidence is low, so weak markets are often a good time to buy, if you're patient.

Results so far - my top 20 list of shares are up 7% at the half year stage (plus divis on top). You can track performance live on this public spreadsheet.

This compares with the AIM All-Share, the relevant benchmark, which is down -10% YTD. So that’s a very good out-performance of +17% in just 6 months, of 2023 to date. Clearly value/GARP has been a safe space in a troubled market, so far this year.

Here are the shares again below, with the year-to-date (YTD) share price performance (per Googlefinance), and my updated view, in descending order of price up/(down) year to date -

Angling Direct (LON:ANG) - up 34% to 33.5p (£25m) - AIM - StockRank: 82

Omnichannel retailer of fishing gear - originally put on this list due to being valued at par with net cash. In line updates this year, but trading barely above breakeven. So business itself looks unimpressive, but big cash pile remains the main attraction. A weak hold at best for me - tempting to recycle the gain into something else.

Rotala (LON:ROL) - up 31% to 46p (£14m) - AIM - StockRank: 94

Bus operator. A special situation which I…

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rhomboid1

5th Jul '23

Morning Paul

some interesting names there…& great relative performance too
I hold Goodwin (LON:GDWN) so am able to correct you on a rather crucial point….the family are significantly increasing their holding…just shuffling it around via tax planning …the tender exercise was effectively a c £4 or £5m buy as well given their majority holding …Stockopedia captures the transfer into the family trust via a sale but fails to record the equivalent purchase except in the summary…which also wrongly attributes the % held by Richard…John Goodwin has c half of his recorded interest

Finally they spend their time wisely imho…just generating long term returns for all shareholders…having no f’casts means no requirement to spend time updating anyone anytime…which certainly is fine by me …but

Aysgarth

Hi Paul,

a good performance indeed in such adverse conditions. I am slightly puzzled however in that I set up a dummy portfolio on Stockopedia based on the same shares and invested £100 in each of the 20 shares (£2000 total), based on 03 Jan Stocko prices. Today the portfolio is showing a closing value of £2055, an increase of just 2.75%. Presumably the difference is something to do with spreads?

Edward Croft

Paul - great list of companies and terrific performance of the watchlist year to date. Just goes to show how quality small caps can perform in a very tough environment. AIM being down 10% or so since the start of the year is so grim.

I was chatting to Jack the other day. He's working in AIM/smallcaps as a fund management analyst now and mentioned Alpha Financial Markets Consulting (LON:AFM) , Ergomed (LON:ERGO) , Next 15 (LON:NFG) and GlobalData (LON:DATA) as being of interest. Just FYI.

I'm trying to convince him to come on and do a webinar with us.

Rusty2

6th Jul '23

Well he is using mid prices, the spreads on some of those are pretty wide.

Paul Scott

Hi Aysgarth,

That seems a big difference from 7% to 2.75%.

My calculations are completely transparent on this public spreadsheet, and nothing has been amended. So you can check the calculations for yourself, eg. you could cross-tick the prices from your system to mine, if you wanted to identify why there is a discrepancy.

It's possible it might be something to do with spreads? I think googlefinance takes the last printed transaction, which could be a retail buy or sell. So it should even out.

From memory, I think I took the mid-price starting prices from the Stockopedia charts, as at 30 Dec 2022, ie. the closing price at year-end.

Let me know if you find any errors in my spreadsheet, but it all looks correct to me.

Regards, Paul.

GavSmith01

Another correction on Goodwin (LON:GDWN) - they provided a trading update this year within the Tender Offer RNS, showing continued strong progress in the order book.

Bouden54

I think there was a big rally on the first day of the year, so if you plugged in the trades on 3 Jan rather than 30 Dec you would have missed that uplift - could explain part of it?

9th Jul '23

Thanks Ed!

Yes, awful for small caps at the moment - AIM All Share is now down 42% from its peak in mid-2021! Even the mid cap index is down about 25% from its peak. Still, history clearly shows that it's from this point that outstanding returns can be made, when markets recover (as they always do). Also, I think we'll have loads more takeover bids. I've already had 2 both in my personal portfolio, and a different 2 out of my 32 watchlist shares (there was a "runners up" list of 12 more watchlist shares here). That list is currently up 5% YTD, with my main list now up 6% (versus AIM down 13% now YTD).

This echoes with what Megan was saying on her multibagger webinar, that in tough markets good quality companies tend to be particularly resilient, and relatively out-perform, which my watchlists confirm.

The when a new bull market starts, it's often the low quality, bombed out stuff, that can give the multibaggers (but at high risk).

Thanks for the stock ideas from Jack, I'll have a look into those.

It would be great to get Jack on a podcast or webinar!

Actually, I'm meeting him & his father, Mark Brumby of Langton Capital (brilliant, and often hilarious free daily email of hospitality sector news) after the holidays for lunch, so will suggest he does something with Stockopedia - it would be really interesting to hear his perspectives from working in fund management/ analysis.

Best wishes, Paul.

Thanks Gav, I've added this point to the main article. Although my point about inadequate trading updates is still valid, because the previous year there was a gap of over 8 months between results, with nothing in between. So the tender offer this year looks to have plugged a gap that would otherwise have repeated. It's not good enough. Public companies need to update the market more regularly. Goodwin seems to act like it's a private company, which strikes me as a bit arrogant.

Hi rhomboid1,

Thanks for clarifying re Director/family shareholdings. I recall you have a big, and long-standing position in Goodwin (LON:GDWN) so I'm pleased it's working out well for you!

Thanks Paul..you’re correct ..it’s by far my largest position because imho Goodwin (LON:GDWN) is a special business …in fact only 2 companies have outperformed it over the last 25 years in terms of shareholder returns….& I believe it’s limbering up for another period of outperformance as a result of the substantial investments they’ve made over the last decade or so …they definitely march to their own drum though

Best wishes

Paul's 2023 watchlist - half-year update

Paul’s 2023 Watchlist - half year update

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Paul Scott

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