Small Cap Value Report (Friday 7 June 2024) - BWNG, CCR. Brief: BWY, TPFG, SRT, CFYN, SYS.

7th Jun by Paul Scott

86 comments 8052 reads

Good morning from Paul!

I got up early today to finish my half-written section on N Brown (LON:BWNG) from yesterday, but haven't quite finished it yet. I'm 90% done now, so that should be up a little later this morning. EDIT at 08:49 - now published below.

Thanks very much to Ed for a superb webinar last night. I jotted down some key points which chime with ideas I've independently had, after mulling over the consequences of the last 2 years' bear market. If you didn't attend last night, then make sure you watch the recording, it was full of incredibly useful reminders (which we all need from time to time), but also some great insights too from the data. I was delighted that Ed highlighted Graham & my stock-picking successes in 2023 and 2024, where we've trounced the markets, and the various automated systems!

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 company, we'll try to cover it. Obviously with the resources available, we can't cover everything! Add you own comments if you see something interesting, and feel free to discuss anything shares-related in the comments.

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…

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Lawrence Judd

7th Jun

Ed has posted a link to the replay above, but it's also permanently on the Stockopedia Academy here: https://www.stockopedia.com/ac...

ACounsell

Probably forgotten about Patisserie Valerie. Mean while the ex directors continue to live off the cash from their exercised options at what were fraudulently generated share prices. No justice it seems as far as the FCA ,SFO or whatever regulatory body is failing to do there job properly!

yiannos1

Hi sparkler,

SRT Marine Systems (LON:SRT)

A jam tomorrow stock that has lost about 70% of its value the last year or so where at the same time most small cap stocks doubled.

Negative cash flow yields for years with revenues less than village corner shops.

Dilution after dilution and on top of that under investigation by a country that takes no s..t.

Good luck is an understatement.

All the best

davidjhill

Just to be clear though Sparkler - my views are made on the basis of risk/reward not necessarily whether I believe in the company long term or selling the bull points of the business. At 10p (and 16p) it was very obviously the wrong price for me and so it proved as it’s doubled intra-day as the market has realised the same and rather than being uninvestable presented a glorious market opportunity.

SRT Marine Systems (LON:SRT) has only been cash generative in one year of the last many I think and has certainly been a serial disappointer in terms of profits moving to the right. They’ve been quite canny in tapping investors though as placing have been done at much higher levels so dilution hasn’t been terrible.

But the IPR is clearly valuable - it has won a lot of business. I think the French Government gave one of the countries funding support expecting a French company to be awarded the contract and the Country in question STILL chose SRT Marine Systems (LON:SRT). That alone tells you the IPR is strong. But also the constantly increasing sales on the transponders and market leading position in that area gives you a similar perspective despite the losses.

I’m not sure why investors seem to think that you have to either have a trader mentality or be an investor in it only for the long term in sleep at night stocks. I’m certainly not. I pay attention to risk and reward and that might be short term or long term. In this case the next year for SRT Marine Systems (LON:SRT) is where it is all about. If those big contracts get going then really all that has happened is the massive profits due this year have moved into next and you’ll see a big re-rating. If that doesn’t happen it will start falling - when the share was at 15p I could see the drift to maybe 11 or 12p on bad/no positive news so my risk is 20% approx. Buying right now that risk is higher - circa 40%.

I’m not in love with the share - it is what it is. I recognise its faults and understand the drivers for potential upside so that makes it investable. It has IPR, it has material contracts (albeit moving), it has a long financing runway to absorb shocks and it operates in a good and growing market segment with (and excuse the pun) a bit of a moat. Given those dynamics why would I look a gift horse in the mouth if the market offers it to me? It’s all about relative value.

You started out saying it was a bargepole stock and I disagreed. There are lots of bargepole stocks out there but for me SRT Marine Systems (LON:SRT) isn’t one of them, for all the reasons Ive previously described. That doesn’t mean it goes up of course, nor that it succeeds in its aspirations. If the story isn’t playing out you move on, but if the risk/reward is good enough who cares whether it becomes a short term trade or long term investment - we don’t have to be single track investors.

littledavesab

Stockopedia Turd Awards - would be some good marketing for ED !

BnB

Surge at Equals (LON:EQLS). Something leaked?

Caught my eye too, as a holder. A notable spike, but not associated with high volumes so it might just be an aberration.

NeilS

Top tier suppliers are very much a part of this Mark. I was doing some work many, many years ago helping the national account manager for Kimberly Clark on a Sainsbury’s job and all his attention was taken up by them taking Andrex off the shelves. Imagine the stress given the hundreds of millions invested in the mills.

Then there was Adam Lloyd of Lloyds chemists chucking Gillette out for a while, before it was bought by P&G.

A company I worked for at one early stage in my career actually paid £500k to get 12 four foot wide gondola ends in the Sainsbury Savacentres back in the day. (Interestingly, savacentres just spell checked as “scavengers”!, LOL)

Big retailers behave very aggressively with people’s livelihoods to get what they want and run training programmes on dissecting businesses -without anaesthetics!

My goodness there are some antics in the grocery industry! It certainly made work exciting!

I remember the MD coming back one day and saying he had left the buyer at T stamping her feet and in tears because he could not agree to the demands. So half the store estate went to a rival -who of course had to pay listing fees and a bigger discount because they were winning the business.

A never ending cycle of value destruction which drove sourcing from China and then retailers starting their own buying offices in the Far East.

Charles Mitchell

Laugharne is worth a visit, only 25 mins away. Browns and the Ferryman deli plus the Castle, estuary to walk along and of course Dylan Thomas’s home. I live there.

Rare Bird

True, but I suspect they always will. From a global perspective the UK market (particularly small caps) is surely niche and essentially domestically driven.
I invest in UK small caps because I feel, living here, I have a better understanding of the market in which they operate that I do in other countries, but if I didn’t live here I wouldn’t touch the UK with a bargepole.

davidallen77

8th Jun

many thanks Paul, I see Justin waite did a video on this one for watchlist yesterday, volume of over 2million in a month so a seller could be cleared, new FD to be annouced soon. Pi world interview in discussion tab I can't understand the ceo but old FD said we will be better this year, why no Investor meets interview.

Paul Scott

Trying out some new software called LOOM (a chrome plugin) for video screen sharing. This was intended as a test, but turned into a review of mine & Graham's 2024 share ideas lists.

Let me know what you think! Useful? This link below should enable you to watch the video -

https://www.loom.com/share/a9f...

EDIT: Here is the link to my top 20 2004 shares ideas spreadsheet, which is open to all to view. This link is in the explanatory notes above in every SCVR.

Peter T

Big thumbs up from me

I've done another video!

The theme for this one, is whether our SCVR colour-coding system actually works - ie does it have any predictive ability? This data analysis by my friend Philip Hanson proves that it has delivered remarkably good results. So yes, it works very well!

Also some very interesting insights into how profit warnings have behaved subsequently, which challenges the conventional view that we should sell on the first profit warning. This data says yes, do that for the smallest companies, but larger companies profit warnings are often buying opportunities at the moment (mainly due to them receiving takeover bids).

The data covered is all SCVRs from July 2023 to end Feb 2024, and I run through a lot of the biggest gainers and fallers over that period.

This is about 40 minutes long - I hope you find it interesting.

https://www.loom.com/share/75e...

Here's a new spreadsheet, created kindly by Phil Hanson, which I haven't shared before, which shows how our colour-coding system in the SCVRs has worked very well, and I talk through this sheet on the video. You can open this using google sheets, save a copy locally for yourself, and then you can play around with the data to your heart's content!

The Rodmeister

Thank you Paul!

alexdonnelly

Hi Paul

You mention you use an earnings surprise screen, would you be willing to share that screen

thanks

Clovenhoof94

9th Jun

Excellent run through . Cheers Paul

iwright7

Paul - Yes an excellent review of your colour coding sytem - A fantastic result to.

It struck me that there maybe an opportunity to create additional Alpha by combining Paul's etc positive (Green) assessment with a systematic (High Stockrank) score.

Ed mentioned in his last video that a systematic Sell rule could be companies with a SR <70. If we adopted the inverse of this rule and combined it with Paul's Green assessment, we would only buy Green companies with a SR >70.

My Excel skills are insufficient to attempt calculation, but maybe someone could look at this and see there is any benefit of combining man and machine?

John LA

10th Jun

Its good to see that US justice can work. HP clearly did not do their DD properly, buyer beware rules!

Hi alex,

Sure, I've done a video on the topic you requested, here -

https://www.loom.com/share/896...

Regards, Paul.

grahamt

16th Jun

Hi Yiannos1. Where do you get your information in choosing the above stocks?

Small Cap Value Report (Friday 7 June 2024) - BWNG, CCR. Brief: BWY, TPFG, SRT, CFYN, SYS.

Explanatory notes -

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