Small Cap Value Report (Fri 27 Oct 2023) - RWI, FA., SFE, KETL, XPP

27th Oct '23 by Paul Scott

86 comments 7275 reads

Good morning from Paul!

I'm pushed for time today, as I have to drive from Bournemouth to Brighton this afternoon for a (not dirty) weekend away - I'm doing more UK mini-breaks with mother, brother, nieces & nephews, etc, in AirBnB's. Doesn't look like we'll be basking in the sun on Brighton Pier (LON:PIER) - more likely trying to avoid being swept overboard in gale-force winds! I'll also attempt to record the weekend podcast early too, so let's crack on!

This weekend's podcast has landed early! Here's the web link. It's also available on the main podcast services. A more positive tone this week, and some comments about market doldrums & keeping your pecker up!

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), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red (thumbs down) - means we see significant, or serious problems,…

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The Jayman

27th Oct '23

The idea of paying more after reassuring newsflow is a sound one . . . . . if the contains unwelcome details you might also get to buy as it marks down (perhaps if the news didn't warrant the decline). I currently don't hold but conscious its not far off its 2022 lows and only lower than those once in the last 5 years for a month in March/April 2020

MetalMaid

Argentex (LON:AGFX) I don't think it's been mentioned here, but are people aware that this is now the 2nd time Argentex have spooked the market in a rather bizarre way - both times with no real explanation!

The last time was back in 2021. Harry Adams was previously the joint ceo with Carl Jani - they were the 2 founding partners. I believe they both had a similar stake in the business. Carl Jani was off work for some time, due to covid according to the company. He then returned to work in May and by August he had left the company. Argentex said that Jani was retiring from work due to covid related health concerns. And if I remember correctly, there was a contractual agreement in place for Jani to sell Harry Adams his stake in the company.

This may not be that odd at face value. However Jani was I believe a young man, so retirement did seem rather odd especially without Jani ever speaking up about it. The even odder part was the agreement to sell his stake to Adams, which if I remember correctly was at a significant discount to the actual SP (perhaps between 10 - 20%). This created a strange overhang on the shares for a while.

It always bothered me, why would Jani sell his stake for under market value. And also if Argentex was as good as it seemed, why wouldn't he want to hold his stake as a silent partner. The situation seemed extremely odd, and only briefly glazed over and never properly explained. Now we have a similar departure concerning Adams, the whole thing just doesn't stack up. It may be that Argentex are just not very good at communicating with the market. I'm not saying there is something untoward going on, but it certainly doesn't feel like a comfortable hold imo.

Helvellyn

Smaller Cap spreads will alter throughout the day depending on a number of factors. obviously news, demand, and market makers balancing their books amongst others . For example 8.00am spreads can be 7-8% and reduce to less than 1% during the day. Even then you don't know the exact spread until you try to trade, for the less experienced I would suggest you try some 'dummy' trades on stocks you hold to get an idea of the way things work. Unless I saw an opportunity for a quick trade I would never buy at the open, you are asking to have your trousers pulled down. For longer term trades this is not so important, but it is worth knowing how things work.

Snazzytime

hi MetalMaid

Argentex (LON:AGFX)

'The even odder part was the agreement to sell his stake to Adams'

I don't think Jani sold his shares to Harry Adams.

If I remember correctly they were sold via a bookbuild because of the heavy volume and hence the discounted price. This is fairly standard practice in such circumstances.

Snazzy

ed_miller

Re: Why not Premier Miton Pan European Property Share Fund, a unit trust?

An open-end fund structure for property and land (and other illiquid assets)? We've seen that go wrong before. If it owns just shares, fair enough, but otherwise I suggest folk stick with REITs and its closed-end fund structure.

Ok thanks for that clarification. I would still wonder why he decided to sell his entire stake at under market value. It seems he wanted a very quick exit, but why? You would think that if he believed in the company he would have kept a silent stake. And why was this not explained properly to the market. And now we have a 2nd strange CEO departure - that's 2 CEO's gone in less than 3 years - both times without proper explanation - and Jani dumping his stake is alarming imo. You think its standard practice, I think its very odd. I have no conclusions, just thought it would be worth mentioning for those that were not aware of the recent history.

'You think its standard practice, I think its very odd'

I meant that a bookbuild sale would be fairly standard practice where a large stake needs to find buyers (and hence a discounted price as the process is effectively a quasi auction).

As for selling his entire holding, no that's not standard practice although more likely to happen where there has been a sudden departure and a falling out (as seemed the likely case at Argentex).

SundayTrader

Stock ranks don't work well on miners. Metals Exploration (LON:MTL) is nearing end of life, this makes it a fairly speculative proposition, and could do very well or very badly. DYOR strongly recommended.

topvest

Argentex (LON:AGFX) - Jani didn't sell all his shares to Harry Adams, just some of them. I seem to remember that management and Pacific / the Beckwith's also took them at c80p. It was a discount but Jani probably just wanted out. I got the feeling that he was the brains and Adams the salesman, but I might be wrong. The other oddity is the fact that LLP profits take a sizeable haircut every year, as the founders take a big chunk of the distribution. That should have been changed at IPO as it left a bad taste!

Yep sorry Snazzy, I meant the whole episode seemed rather odd, and not standard practice as to how it all transpired, and also how it was subsequently communicated.

I take on board what you are saying about the bookbuild sale, many thanks for clearing that up. And I am sure you are right that in such circumstances this is not unusual.

I remember thinking at the time that the stock price seemed very cheap. And here was Jani wanting out, and fast, and willing to eat a fairly large discounted price. It just made me question why he was not wanting to hold any position. Tbh, I kind of forgot about it all. But then yesterday its 2nd ceo departure in just over 2 years - and again no real explanation. I don't think anybody really knows what's going on with this company, because imo they never properly inform / communicate with the market.

Yep 80p was what I remember. I think the stock was trading at around 95p - £1. Very good point about the LLP structure.

Re: Strix (LON:KETL) - Over-expansion is a pretty serious, and dangerous, misdemeanour for an executive team. (No position)

Btw, just to add. I wouldn't find this that odd if it was a poor performing / struggling business. But for some time now, Argentex have been sitting on what appears to be a very strong balance sheet, with loads of cash. They have also been posting very good top line growth within a difficult economic backdrop. Not the circumstances you would usually see the founder ousted. Perhaps its just a boardroom coup. It will be really interesting to see how this all transpires. I for one will watch from the sides, as all the uncertainty makes it uninvestable for me for the time being.

yiannos1

Half of that cash is clients money.

Tommy H

And each month I donate £cash to the Foodbank so I concur life is hard and I am very grateful and sometimes I moan too

Tommy

StrawberryDreams

28th Oct '23

Bit late as was busy yesterday.But have a good weekend in Brighton Paul.A mate just moved down there last year up towards the outskirts almost overlooking Brighton FC and the south downs.Lovelier area than i thought.. as i had only visited Brighton in summer before when the beaches were packed with burnt 'tourists' and the town clogged up with foreign language students!!

Personally i'm just waiting for Powell to finally admit defeat re : the 'soft landing' thesis and say the big R word.Do i dare say that could be near the 'bottom' for the US market.. which irrespective of Bailey has to give us a little boost over here surely.....?Just perhaps!I'm hoping the US will then start seeing the end of the business cycle and be more willing to buy the 9/10 of the indices that aren't the previous 'Magnificient 7'.

'History seems to support the idea that a soft landing for the economy is
very challenging to pull off. Since the 1950s, each period of U.S.
disinflation driven by Fed policy tightening has coincided with a U.S.
recession, according to Deutsche Bank.'

Positives :

If the U.S. does slip into a recession sometime during what’s left of 2023 or in early 2024, there’s no reason for investors to panic.

First off, historically speaking, recessions don’t last very long . The average duration of a U.S. recession since World War II is just 11.1 months. The Covid-19 recession in early 2020 lasted just two months.'

https://www.forbes.com/advisor...

I'm no expert on the US markets, although do follow general commentary still and they definitely seem super jittery with even the big, global tech names selling off recently and don't seem to know what to do anymore!So some certainty could definitely help imo.

sevenccc

TU for Zotefoams (LON:ZTF) due out w/c 6 Nov. CFO says if there had been any material change from August update they would have informed the market. Like you I wonder at the continuing price erosion and hope I'm right to keep holding. Just part of the general malaise and people getting spooked? Tis Halloween after all!

littledavesab

Junior miiners on the London Market are the fastest way to burn money. You have to be a trader really.

doctor dave

I hold Renewi (LON:RWI) and didn't sell because I expected a second bid. The bid came but management rejected that too, so they really have their work cut out to show they were right .....

Normally I sell straight away as I did with SCS (LON:SCS). Greed got the better of me with Renewi (LON:RWI).

BenHazz

29th Oct '23

Thanks for the date, my response to the CEO would be, is a 30% lower SP not a material change that you would want to reassure the market on. I hope you are right, I'll keep holding for sure but I'll be ready on 6th November just incase.

Small Cap Value Report (Fri 27 Oct 2023) - RWI, FA., SFE, KETL, XPP

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Paul Scott

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