Small Cap Value Report (Fri 14 Jan 2022) - SNR, QUIZ, XAR, SMRT, CINE, EQLS, SENS

14th Jan '22 by Paul Scott

86 comments 10697 reads

Good morning, it's Paul & Jack here with the last SCVR for this week. Today's report is now finished.

Jack & I are going to trial an end of week podcast this afternoon. If it's any good, I'll publish a link to it here later today, probably this evening.

EDIT: Here it is, the first (and maybe last!) SCVR Podcast.

Agenda -

Paul's section:

Quiz (LON:QUIZ) (I hold) - small and illiquid. This ladieswear retailer is recovering well. December trading and year-to-date (FY 3/2022) is in line with mgt expectations. Not the best business in the world, but with shops now on short leases & cheap turnover rents, it should move back into profit in calendar 2022. Plenty of cash in the bank, which is up to £6m. So this is a value/turnaround micro cap situation, which I imagine won't appeal to most readers.

Xaar (LON:XAR) - trading update from yesterday. H2 moved into profit, recouping the losses in H1. Commentary sounds upbeat, and has plenty of net cash. I don't know how to value this share, due to erratic performance.

Cineworld (LON:CINE) - Q4 trading update, which glosses over the desperate debt position. Extremely high risk of heavy dilution or insolvency.

Equals (LON:EQLS) - a short section from earlier this week.

Sensyne Health (LON:SENS) - top faller today, down 69%. It's a high cash burner, and has almost run out of cash. I see if this was predictable (it was, it was obvious from the accounts), and compare it with the dot.com boom & bust from 1998-2002. Conditions now seem uncannily similar for speculative tech/growth.

Jack's section:

Senior (LON:SNR) - group says full year will be in line with expectations. Net debt reduced by £49m to £80m, cash flow positive, new contracts announced, and notes the start of a recovery in its markets. Margins were falling pre-Covid, but might subsequent restructuring and cost-cutting arrest that trend? It’s beginning to look a little more interesting now.

Smartspace Software (LON:SMRT) - short in line update ahead of more detailed announcement next month. Micro cap, so a lack of liquidity. Forecasts have been considerably downgraded over the past year. There’s still a lot to prove, so I don’t see any rush to jump in.

Explanatory…

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Smudge

14th Jan '22

End of week Podcast!!!

Fantastic, can’t wait. Always aware of just how much ‘stuff’ you chaps get through in such a short space of time makes me reluctant to ask for more so delighted to see this being tried.

Thanks so much for all you all do.

ezlifeme

Hi Fishcake, agree 100% that Paul is the voice of reason in business hours, however....

Sometimes when he lets his hair down after hours and has had a few "sehrebrts", you can't even understand his postings - But we wouldn't have him any other way

FederalReverse

Yes I agree with this, who knows how all the market participants are positioned. I was more just pointing out at times I find it is a bit pointless trying to second guess the market on these types of wide-reaching issues. One thing to try and outsmart the market with research on a small cap stock, another entirely to out-research the market on global politics and macroeconomics.

Interesting that you post the imeche article, I received the same email today and thought it might be helpful given this topic of discussion. No real surprise that many manufacturers have had brexit related issues. I always felt the "brexit positives" if you will were more likely around looser financial regulation rather than aiding industry.

shanklin100

I do think Creightons (LON:CRL) would help themselves if they also made sensible projections as to the (considerable) extent to which they expect to increase the shareholder count over this period. They are very keen to highlight how much they plan to grow sales and EBITDA, and do a good job of this, but I am notonly interested in much they plan to grow the business... ...with salary increases and bigger bonuses one potential result. We need to get some sensible input on what will happen to EPS where the increases will not be quite so exponential, as they issue significant numbers of shares for acquisitions and in staff bonuses.

As was mentioned in the latest video, they also, very definitely, need some broker coverage. Not just for the reasons given but so that financial forecasts aren't leaked out, in very bad practice, outside the realm of RNSes, albeit in well produced PIWorld videos.

Its just incredibly bad management practice. They wanted to be treated as top quality professionals but in this respect behave like complete amateurs. If they want their forecasts/targets to be treated seriously, put them in RNSes, or get broker coverage... ...and then supplement this with PIWorld videos. Don't continue to defy good practice in this regard.

All IMHO.

MiserableJacktPotato

Yeah, they treat shareholders like dirt. Got a long history of it. Interest in the company owners doesn't seem a priority for them.

ridavies

Thanks for that Tamzin. Accrol Group (LON:ACRL) that should be a laugh a minute. Question No 1 - when the directors sold a bundle at the beginning of the year, what did they know that others didnt. Probably just a lucky guess I would imagine.

Well done for making Paul's point.

Tonysaparito

Paul & Jack,.

I am such a great fan of what you guys do and find it mind-boggling the sheer quantity of your output, let alone the quality.

Accordingly, whilst we are entitled to give our opinion here, though only if we are a paid-up subscriber, some on here in my view, are complete idiots, in the way they criticsize you and Jack. and as a result, I find their negative attitude disgraceful and I wish they would feck off for good. TS

Paul Scott

OBR forecasts don't mean a thing. You can tweak the variables in a spreadsheet to show anything you want.

Bert Fox

podcast was an excellent recap on the week. Great effort to keep rattling through and keep it to 40 mins. Hope you can do it regularly. Many thanks Paul and Jack.

Actually it was 30 mins. Even better!

iwright7

15th Jan '22

Excellent Podcast format. Please continue

ricardomontalban

Really enjoyed the podcast Paul and Jack - thanks for taking the time to do it - hope you consider continuing to do this if time allows.

illiswilgig

Thank you for the Podcast. I don't normally find podcast chats to be very helpful - but this one fits into my Saturday morning review of the week like a glove - very useful to have your input at the same time - I've already noted a couple of ideas to follow up which got buried in the week. So thank you for doing this - and I'll certainly be listening if you find the time to do it again,

cheers

Mark

Weekly summary typed up, with audio file of our first SCVR weekly summary podcast here.

Companies mentioned below & timings

(green = out-perform trading update, red = profit warning or financially distressed balance sheet)

01:49 – Quiz (QUIZ) (Paul holds) £20m – Xmas trading update, in line with exps. Interesting turnaround.

02:18 – Senior (SNR) £591m – In line update. Jack thinks it looks potentially interesting.

03:15 – Xaar (XAR) £157m – Moved into profit in H2. No opinion from us.

03:42 – Smartspace (SMRT) £22m – in line with exps trading update. Small, and loss making. We’re lukewarm.

05:19 – Bear market in US for speculative tech. Impact of lockdowns. Flow of PI money in/out UK market.

06:45 – Cineworld (CINE) £554m – update doesn’t mention elephant in room – $5bn debt pile! Very high risk of heavy dilution or insolvency.

07:30 – Sensyne Health (SENS) £35m – has run out of money. Shares down 69%. Very high risk of equity wipeout.

08:15 – Equals (EQLS) £142m – earnings in line with exps. Good revenue growth, but high valuation.

10:57 – Asos (ASC) £2,340m – in line update, surprisingly good, given supply chain issues impacting sector.

11:08 – Card Factory (CARD) £188m – good current year update, but profit warning for next year, due to huge increase in costs (£30m)

11:57 – Royal Mail (RMG) £4,950m – Should we be worried about wage inflation?

12:36 – Circassia (CIR) £180m – scraped into a small positive EBITDA for first time, ahead of mkt exps. But valuation a concern.

14:53 – Countryside Properties (CSP) £1,810m – shares down heavily on profit warning. Poor figures & CEO walks the plank.

15:15 – Science Group (SAG) £205m – positive trading update. Figures look good, a decent GARP share (growth at reasonable price)

15:48 – Finsbury Food (FIF) £127m – reassuring trading update. Valuation looks reasonable. Mitigated cost increases so far.

16:06 – Quixant (QXT) £118m – Jack likes this ahead of expectations update.

17:42 – Accrol (ACRL) £71m – another profit warning, due to delays in passing on more cost increases. Paul is sceptical of the business model.

18:07 – Portmeirion (PMP) £99m – positive trading update, profits 9% ahead of exps.

19:00 Gateley (GTLY) £264m – Interim results. “Strong position to deliver” mkt exps for the full year. Jack prefers this legal firm to Knights Group (KGH). Paul briefly mentions RBGP – another legal group with impressive CEO.

20:47 – MPAC £111m – year end trading update is in line with exps. Positive outlook, with increased order book & pipeline. Don’t ignore the huge pension scheme though.

23:30 – Shoe Zone (SHOE) (Paul holds) £71m – good results for FY 9/2021. Helped by Govt support measures, and release of provisions relating to closed shops.

24:44 – Robert Walters (RWA) £660m – another profit upgrade. Jack continues to like this share.

26:50 – Cambridge Cognition (COG) (Paul holds) – contract win.

26:55 Unbound Group/ Electra Private Equity (Paul holds) – decent current trading for Hotter Shoes, it’s operating business.

27:05 – Audioboom (BOOM) – turnaround continues, with another positive trading update. Valuation now looks high though, for modest profitability.

27:20 – Tortilla Mexican Grill (MEX) £72m – strong finish to 2021, results “materially ahead”.

29:59 – Nightcap (NGHT) £38m – strong trading in Dec, and 70% of Xmas bookings deferred into 2022, not cancelled. Suggests hospitality sector could have a better Jan/Feb than imagined? Lots of new bars planned. Cash position is gross, not net (misleading).

cmpeckham

The whole point of the OBR is that what they "want" is to provide an independent and dependable forecast of government finances. It's all too easy for you to dismiss them without backing up your claims with evidence. But let's set the OBR aside if you don't think they have any merit and go back to basics because I'm interested to know what your opinion is based on.

Many of the costs of Brexit are obvious. Companies can reorganise as you say, they can move operations and jobs to the EU, they can pass on higher costs to customers because everyone has the same issues. Companies don't have to take a long term hit, but the costs to the UK economy of these actions are unavoidable. Meanwhile, frictions in trade have been known for centuries to be detrimental to growth. Equally, the constraints on labour supply, while they have an individual benefit for UK low skilled labour, will only reduce output. All of these things and others present clear costs to the economy. So for Brexit to be positive for the economy, there have to be clear offsetting benefits. These seem much harder to identify, but you must be able to see them if you think they offset the obvious costs. So what are they exactly? If there really is a plausible case I would genuinely like to hear it because I have not heard it set out so far.

Paul,

Ha! That's brilliant, thank you - and one thing I thought would really be helpful for me - but I really did not want to ask for more :-)

smatthews1

This is fantastic, I'll look forward to hearing more of these in the future! Thanks.

jules2k6

Personally I don't think our government's management is any worse than that of the EU or the US and will not be altering my investments.

Taplow

16th Jan '22

Brilliant Idea, keep up the good work providing you both do not burn yourselves out and again Many Thanks

Bruce

Small Cap Value Report (Fri 14 Jan 2022) - SNR, QUIZ, XAR, SMRT, CINE, EQLS, SENS

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Paul Scott

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