Small Cap Value Report (Fri 17 Dec 2021) - AIR, TUNE, NWOR

17th Dec '21 by Paul Scott

62 comments 10033 reads

Good morning, it's Paul & Jack here with the last SCVR for this week. What a dreadful week it's been. Never mind, the show must go on.

Agenda -

Paul's Section:

Focusrite (LON:TUNE) - getting a bit big for us now, but it's a terrific company, so I like to continue covering its updates. Today we're told that current trading is in line with expectations, despite tough comps from LY, and supply chain disruption/costs. There's a very impressive history of repeated broker upgrades. Valuation is toppy though, so there's no room for disappointments.

National World (LON:NWOR) - from yesterday, a positive "substantially ahead of the Company's expectations" trading update for FY 12/2021. This is the new holding company, cleared of legacy issues, from the wreckage of Johnston Press. I think it looks quite interesting.

Jack's section:

Air Partner (LON:AIR) - I hold - profits for the year to end Jan 2022 to be materially ahead of expectations. It’s been a strange time for Air Partner, with exceptional FY21 profits due to lockdown-related air freighting activity. But as this subsides, the group has seen a more general pick up across its divisions. It’s strategy of diversifying its operations appears to be paying off, and the valuation remains modest.

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 up to about £700m. We 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.

Paul’s Section

Focusrite (LON:TUNE)

1,583p (pre market open) - mkt cap…

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Terry Dickens

17th Dec '21

Breakout Trader

Let us hope so.

On top of a really BAD 3 months. I got a message that Stockopedia are putting up the subscription from February

It never rains but it pores

Delta neutral

Totally agree, loose money and low rates created the rally , so it is logical to assume that tighter policy and higher rates should do the reverse. If they fail to get a handle on inflation as has happened in the past then the down turn could be nasty.

ridavies

Hello Terry. Hope it doesn't go too deep with you (into your PORES), but when it POURS, it slides off like water off a duck's back. Seasons greetings to you.

Caulkhead

Yes - we're all going to have to understand Web3. It seems rather complicated but it'll rule our lives (apparently!)

Kieranj077

I'm OK with Stockopedia putting up their prices next year. This site has a wealth of information, learning modules, commentary, a great community etc. which is worth more than the annual charge.

Hopefully there will also be some additional investment to make the site even better.

Hello Mammyoko. Thank you for that. Just referring to your Frp Advisory (LON:FRP) holding, I have Manolete Partners (LON:MANO) for the same reasons, but the shares have gone off something rotten since I acquired them for that express purpose - minus 23% off to be precise. Interesting in a comparison with Rbg Holdings (LON:RBGP) on Stocko, Manolete Partners (LON:MANO) is considered to be the Winner, though if you throw in Begbies Traynor (LON:BEG), that becomes the winner by far. Of the first 3, if Manolete Partners (LON:MANO) showing me a 23% loss is a Winner, then I am hoping for a big gain in March (is it?) when the flood gates open and all those businesses which have been propped up by the government come tumbling down. Hopefully, someone's loss is another's gain. Certainly, I wouldn't mind at least some of the 23% loss being wiped out, though I do have some Begbies Traynor (LON:BEG) too.

davidjhill

Interesting news on Litigation Capital Management (LON:LIT) but has had a somewhat surprising effect on the share price at -17% today

so it seems they have terminated an exec for gross misconduct under expense policy breaches. Violations were apparently significant for expenses but insignificant to the company from a financial or results perspective so no implication to results.

I understand the knee jerk reaction of "expense fiddling - oh no, what else has gone on" but in reality (1) the company controls caught it - that's good and (2) the exec was fired. Doesn't suggest poor governance from a corporate level to me. They could quite easily have come to an "arrangement" with the exec to leave and swept it all under the carpet but they chose not to. That actually makes me more comfortable with the board rather than less. Breaches are not tolerated, dealt with and not covered up.

Share price down 17% on that I guess shows the state of the market.

TamzinPiworld

Thanks Paul. Richard Leonard a big fan of National World (LON:NWOR) in the interview posted earlier and here.

And, just published Begbies Traynor (LON:BEG) H1 presentation. Interesting facts on insolvencies: they say worst hit are construction, retail & of course hospitality. There's an increase in corporate debt (and difficulty fulfilling borrowing criteria) and working capital pressures. Administrations are still below pre-pandemic levels; liquidation volumes back up to pre-pandemic levels

Thanks Paul. Richard Leonard a big fan of National World (LON:NWOR) talked about in the interview posted earlier and here at 28m33s.

FederalReverse

In my opinion (i'm often wrong btw) the huge elephant in the room is the performance of US equities over the last 12 years, where returns have been far beyond historical norms. Now I believe to some extent in reversion to the mean, which would imply future returns will be to some extent negative to get us back to something resembling normal capital markets. In the UK index returns have been far poorer, but you can bet your house on UK indices getting trashed if US markets fall over.

The catalyst/timing for this as ever is completely unknown. However monetary and fiscal tightening periods have been strongly associated with large drawdowns historically. So in my view this is a period that requires significant caution and restraint. Something that was extremely overvalued last month that has fallen 15-20% can still be extremely overvalued, and do your portfolio a lot of damage if you incorrectly chase the price down. So right now I am restricting my portfolio positions to investments where I have a very high level of confidence of a sound valuation, and keeping a steady amount of cash. That way I shouldn't be hesitating to buy more if and when a big drawdown occurs.

Boon

I got in to Fulcrum Utility Services (LON:FCRM) at 14p with the same thoughts. That Bayford and Harwood would be making a bid (my guess c20p) as they tried to buy last year at 26p.

So was definitely a bit miffed with the fundraising just issued at 12p. But looks like both shareholders are very committed. At the current price, it'll be interesting if they mop up excess shares in the £6m open offer too.

(I hold)

Liquidium

Having to sack a key person though...

Logical David

With rising overall Company EPS throughout the stock market, rising Inflation and rising Interest Rates, that puts the Stock Market in a Stage 4 Bull Market (which is the final stage of a Bull Market) and this type of stock market can run for a longer period than people realise. I am anticipating that the Stage 4 Bull Market will continue throughout 2022. So long as companies EPS is still rising then share prices should continue to rise (so long as companies have decent profit margins to cover rising interest rates) and overall the stock market should continue to rise. Once EPS starts to fall combined with rising Inflation and rising Interest rates then you enter a Bull market and the stock market starts to have downwards momentum. When you look at the FTSE predictions from city brokers, etc for 2022 , they range from -3.7% -> +11.7%. If you take a mid point you get +4.0%. Hence, this suggests that the market will finish higher at around 4,300-ish.

The other question to ask is, what happens if Russia invades Ukraine next year, what will that do to the stock markets??

David.

Westway001

Only two things to say:

Russia invading Ukraine would wipe out Russian stocks and economy, might crash the ROW markets and gold will rise

I’m not sure there is “rising overall company EPS throughout the stock market”. Which stock market are you referring to?

gmtrader

18th Dec '21

I believe she bought the shares as an after thought after being unable to get a new sofa for Xmas.

Yes, with Russia's GDP being similar in size to that of Belgium or Argentina then a war would probably wipe out Russia's stocks and economy.

I'm looking at the average overall EPS for all the companies in the FTSE. Some companies have great EPS and some companies have poor EPS but when you average it out for all the companies then overall EPS for the stock market is still rising.

Bouden54

Yes aside from the CEO, he seemed to be the top guy and certainly featured heavily in some of their investor presentations.

A_Private_Investor

19th Dec '21

In simple terms, here's my understanding of MMT: rather than just print loads of money indiscriminately (think Venezuela & Zimbabwe), MMT aims to print enough money to stimulate the economy to achieve full'ish employment, but not too much to cause over-inflation. i.e. a bit of inflation is good as it deflates away the debt.

In theory fine. The problem I have always had with it is (a) generally economics is an imprecise science with a huge number of variables of which 'amount of money to print in my currency' is just one and (b) more specifically, achieving the balance between stimulus vs inflation, especially as there is a lag between printing the money and when inflation appears. It appears they - the central bankers - may have over-printed.

Aimforme

Thanks Paul, I too have followed for many years for my sins. Hopefully I'll be in a position to ask this question again in 2023 when profitability is earmarked. But like you've highlighted, with its track record this might be a little later.

Speak in 2024 - 2026.

Ronan

Small Cap Value Report (Fri 17 Dec 2021) - AIR, TUNE, NWOR

Paul’s Section

Focusrite (LON:TUNE)

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Paul Scott

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