Small Cap Value Report (Fri 9 Aug 2024) - Main: KLR, SEE Movers: BEZ, ROO, HIK

9th Aug by Paul Scott

71 comments 6911 reads

Good morning from Paul! In case you missed it, I added some extra sections to yesterday's report in the afternoon/evening, and we're off to a flying start this morning with 5 backlog sections.

I'm finishing promptly today, to meet Phil Hanson for lunch, as a thank you for his excellent spreadsheet which measured the performance of our traffic lights system here in the SCVR. It clearly shows that GREENs do best, with AMBER/GREEN and AMBER not far behind (so do look at all 3), whilst considerable under-performance is shown in particular by REDs. Whereas AMBER/REDs also under-perform, but within it, there are some big winners - so that category is a bit of a lucky dip, where every now and then a poor/risky company suddenly shoots up when it sorts itself out, eg McBride (LON:MCB) . So there are opportunities throughout, but statistically you skew the odds more in your favour with GREENs - which is what we hoped would happen, so it's great to have data from Phil which proves it works!

Latest figures as of last night -

It would be interesting to see if combining our traffic lights with the StockRanks produces a better result still.

Explanatory notes -

A quick reminder that we don’t recommend any shares. 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, investment cos). Although if something is newsworthy and interesting, we'll try to comment on it. Please bear in mind the "list of companies reporting" is precisely that - it's not a to do list. We typically cover c.5 companies per day, with a particular emphasis on under/over expectations updates, and we follow the "most viewed" list of readers, so if you're collectively interested in a…

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MichaelFBS

9th Aug

Rev8

Thank you for sharing this. Very interesting.

I have created with one tweek with StockRank >= 90.

This throws up about 67 UK companies but screen for the US and you 398!

Regards

Michael

As Munger said "Fish where the fish are"

planetx

I think your approach misses one point .

If you buy a part of a business you are a shareholder .

Before you buy part of a comoany you need to understand the business, its valuarion, and know why you ate buying it .

Too many people invest to to buy and sell shatre.

if you think of it as buying and sellimg businesses you have taken the time to understand by definition you will buy less and hold better for longer .

Took me a good while to get this mindset and the jumping in and out mehtality and trading of shares is very different to investing in businesses mentality .

The longer you hold you then develop great in deoth knowledge of your companies and i find you know the correct times to buy and sell based on company performance not mr markets opinion.

Few of mine ate down a bit this past week dedpite being on olan and performimg well so ive been buyimg these companies, i probably know more about these than any analysts or mr market himsrelf .

BenHazz

For any holders of Zotefoams (LON:ZTF) - I contacted management to question the partnership with Refresco, specifically whether they had rights to any of the IP of Rezorce as part of the partnership. I also asked about market trials and if they will announce the start of the trial via RNS. The response from the CFO, Gary McGrath, is below:

Hi Ben, thanks for your message. Apologies for the delayed response. The week we announce our results includes a roadshow where Ronan and I are in the City morning to evening and are fully occupied the whole week. It means we fall behind on emails and have to find time in the evening or the following week to play catch up. You were not singled out as someone not to respond to, rest assured!

Refresco are the largest beverage packager in the world. They are owned by KKR and have a number of sustainability targets like many. They service supermarkets like Tesco who are demanding of them developments in sustainability. This opportunity provides them therefore with obvious benefits around sustainability as well as increased revenue opportunity. There are no financial agreements in place and they have no rights to any of the IP. They would become a customer of the product, process it into carton form and fill it with juice, and sell.

We will absolutely inform shareholders of milestones in this, the most likely next one being the market trial.

I hope this answers your questions. Take care. Gary

Always good to receive a personal response from the CFO and I am happy to hear that despite partnerships with Refresco, Shincell and Censco they still retain 100% of the IP.

Helvellyn

Ben,

I appreciate you taking the time to share, thanks.

turbo

Thanks for all the interesting replies - lots of food for thought! It's reassuring to know I'm on the right track, though I admit it’ll be tough to stick to this new approach without missing the thrill of trading. Maybe I might just allow myself to keep 10% of my funds for some trading excitement. Have a great weekend, everyone!

Rusty2

I agree Hargreaves Lansdown (LON:HL.) are too expensive for US shares. I use IG group (LON:IGG) now, only costs are 0.5% forex, spreads are very tight, usually less than 0.2%, no stamp duty of course. So often cheaper than dealing UK shares.

TamzinPiworld

Hill & Smith (LON:HILS) interim 2024 analyst presentation from yesterday video & podcast.

Revenue +2%
Operating profit +12%
Operating margin +1.3% to 16.2%
EPS +9%
US infrastructure demand offsets challenging UK
3 acquisitions including Trident post-period end
ROIC 22.5%
ILWE for the full year before the benefits of the Trident acquisition

Tim Boucher

Thanks Tamzin - the numbers look ok, but SP down 5% today. I must be missing something!

Mark Carter

HILS Analyst estimates still look good.

Q Score is 99. This is definitely a high-quality share.

Here's why it sometimes pays to listen to fund managers ...

One of their divisions is "Galanizing Services". Now, this sounds like the most deathly dull business there is in a cyclical industry. Sounds terrible, right? Well, it turns out that transporting steel is pretty expensive, so you want to do as little of this as possible. This gives the division something of a moat. There's usually not enough business for two players. So if you can out-compete someone, you can usually earn decent returns. This is what HILS is doing.

Over 10 years its share price has gone from 564p to 2040p. Not bad for a company that sends everyone to sleep just listening to them.

It seems to me like a company that flies under everyone's radar and they miss quite a good opportunity. (I don't own any shares, however).

The company was covered in one of Paul Hills videos, where he was talking to two lady fund managers in the small-cap sector. Alas I can't remember the video now, so if someone's got a link, I'd be grateful.

jamesalastair

Thanks for sharing this ... I have not yet heard back from them. They announce that Refresco are a "joint development partner" when in fact they are a future customer. Really not quite the same thing is it? Language matters and this is pretty sloppy, leading to obvious confusion.

Now that we understand the relationship with Refresco is as potential customer, we can secure a better understanding of why they have appointed Mazzone and Co. to find a strategic partner to roll ReZorce out.

littledavesab

It's tax that's the only reason. And probably staff are not based there either

Have a look at Investor AB listed on the Stockholm market. They have a similar family holding company structure to Berkshire Hathaway and a similar philosophy, but with a focus on industrials, rather than insurance.

Investor AB holds strategic stakes and often voting control in some well-known large cap companies including ABB, Astra Zeneca, Atlas Copco, Ericsson, Husqvarna, NASDAQ, SAAB and Electrolux. They also have a private equity arm called Patricia Industries which invests in medical tech and consumables, and they own a small stake - circa 10% I think - in Swedish fund manager, EQT.

Investor AB was set up in 1916 by the Swedish Wallenberg Family, who are the richest industrial family in Europe. Market Cap is just over £69 billion. There are two classes of shares with the A shares carrying the votes. The Wallenberg family own 49.22% of the A class shares.

They form 20% of my portfolio and 40% of our family holdings where we have held the company for over 20 years.

They have compounded capital over the past 10 years at 16% pa including a 2% dividend. They have delivered double the returns of Berkshire Hathaway over the past 10 years, although the family also hold Berkshire Hathaway (I don't). Berkshire Hathaway and Investor AB are buy and forget and sleep well at night investments.

Finally, you can hold them in a UK SIPP or ISA as they have a crest certificate.

Investor - Home (investorab.com)

sevenccc

Not sure I agree with that comment on sloppy wording James re Zotefoams (LON:ZTF) . I suspect both Refresco and Zotefoams regard each other as partners in bringing this innovation to market. The trial is presumably exclusively through Refresco as it is relatively small volume 150,000 units. On packs of 12 or 24 that's probably half a day's production.

I would expect someone like Refresco to get 6 months exclusivity on first products to market if the trials go as expected. Or category exclusivity or geographic or similar. Maybe not a financial JV but definitely a development partner IMO.

For Zotefoams (LON:ZTF) I think it is a great strategic move to have a major producer as a partner. Especially when you've got Tetrapak to compete with.

I'm more concerned with the length of time this is taking. I thought we'd have had the trial run in Q2. Appreciate the summer not the ideal time for trials when production lines need to be running or available to run at max capacity if the sunshines. Fingers crossed this turns out well.....

lemming1

Possibly Georgina Brittain from JP Morgan small cap growth and income - JUGI - they hold HILS

Archer

10th Aug

I would have thought that they will need to perform production trials and maybe product stability studies for what they put into the cartons hence the co-development. This takes time if they need to get data on leachables and extra tables.

Extractables

Hi Archer

I'd have expected those tests to have been conducted on pilot scale plant in either their or Refresco's R&D labs. This test should be to confirm the materials run through the line efficiently and don't present any issues through the supply chain. Perhaps I'm imaging they are further along the process.... You only have to look at the history of Britvic to see where these things can go wrong. Two examples that made the news - Still Tango had to be withdrawn after the bottles started to suffer fermentation and expand, Robinsons Fruit Shoot changed the Cap and ended up off sale for over 6 months. The profit warning that followed almost halved the share price. (Another missed opportunity!)

Yusuf Samad

11th Aug

Trader Jack, I agree with your doubts about HL’s service reputation. They used to be prompt in answering the phone and dealing with issues with a better understanding of the customer. They have now caught the same disease as most other financial platforms led by legal and compliance cultures. Long wait times on telephone calls, identification requirements and restrictions on dealing have caught on. I was unable to add to Doric Nimrod Two, a position I already held because they were and still are short an information document from the issuer whereas I could buy the stock in my AJ Bell and II accounts. They were very slow in handling a transfer of my ISA from another platform. Lately, I have noticed that they pay dividends later than other platforms. I hope the PE owners can address these issues but I fear a rise in costs and more streamlining. Getting ready to move.

Interesting, The NEOM project has been scaled back significantly so sustainability of Kelley’s revenues/profits if derived from that’s source is questionable.

Small Cap Value Report (Fri 9 Aug 2024) - Main: KLR, SEE Movers: BEZ, ROO, HIK

Explanatory notes -

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Paul Scott

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