Small Cap Value Report (Friday 8 April 2022) - JET2, VP., BOWL, SENS, RFX

8th Apr '22 by Paul Scott

45 comments 8168 reads

Good morning! It's just Paul here today, as Jack's snowed under with other work. Today's report is now finished, have a lovely weekend!

Agenda -

Paul’s Section:

Jet2 (LON:JET2) - outside of our scope, as it’s £2.5bn market cap. So just a quick mention of what seems like an encouraging update today - which could have positive read-across to other travel company shares. It says that Feb & Mar 2022 saw load factor “approaching seasonal norms”. Summer 2022 bookings “are encouraging”, and close to pre-pandemic levels. Fuel costs are mostly hedged. In any case, I see that the oil price (whilst volatile) has come down from recent peaks.
My view - this could be a good time to buy travel shares, as strong demand returns, but share prices still look depressed. Could be a nice trade, for a (say) 20%+ sector bounce? That's it, no section below.

Vp (LON:VP.) - a positive trading update, ahead of expectations for FY 3/2022. This strikes me as a good business, and attractively priced, with a decent divi yield too. Looks good value. Worth considering.

Hollywood Bowl (LON:BOWL) - an excellent H1 (Oct-Mar) update, with very strong LFL revenues continuing, from pent-up demand - but how long will that last? Ahead of expectations for the full year, but we can't access any broker research, which seems an own-goal by the company. The recent big recovery in share price looks justified to me, this seems a good business, and it's expanding, on a valuation that still looks reasonable.

Sensyne Health (LON:SENS) - shares crash nearly 80% on news it's delisting, and fresh funding from lenders will involve massive dilution from lowered conversion price (and warrants). We rang the alarm bells here on 14 Jan, and 26 Jan, when the company announced it had run out of cash. It's since dropped over 90%. Anyway, that's it, de-listing means that we won't need to cover this crock again. It's worth studying situations like this, so you can spot the warning signs in future at other companies in terminal decline.

Ramsdens Holdings (LON:RFX) - a reassuring H1 trading update, with all 4 activities doing well. Liberum ups FY 9/2022 profit estimate by 19%. There should be a c.5% divi yield by next year. Sales of forex are expected to improve, as leisure travel returns. Looks…

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TheFloatingInvestor

8th Apr '22

My worry is, everywhere in the Ukraine is in range of a cruise missile, and any target seems to be a legitimate target in the Russians eyes...and I am afraid an iron ore producing manufacturing facility could be deemed as aiding to the war effort, with the added advantage of effecting western financial interests.

I want to stick it up Putin as much as everyone else, but would keep any investment small as its sadly still in a war zone, and could be wiped out, which I pray does not happen, but I think remains a possibility.

Paul Scott

Thanks david, sounds interesting, I'm taking another look at JNEO now.

It will be interesting to see if the new mgt/strategy at Journeo (LON:JNEO) is going to work or not.

Looking afresh at it, the FY 12/2021 results don't inspire, with only £0.6m u/l PBT.

Do we know how much of the £15.6m revenues are recurring? The commentary talks about monthly income from connected vehicles, but it looks small numbers compared with other companies offering software connecting to vehicles for other uses, e.g. telematics like Quartix Technologies (LON:QTX)

Balance sheet looks weak, with cash tight, and negative NTAV, so it's under-capitalised a bit I reckon.

Good announcement today, I see it's put a rocket under the share price - a £9m framework agreement, over 3 years. Although already included in budget, so I question whether landing an order that was already expected should have moved the share price up 37% today?!

"The contracted revenues under the Agreement were included in management's expectations of performance for the current financial year and add to the Company's strong order book, providing further future revenue visibility."

Getting myself up-to-speed on it, this does look a bit more interesting that I thought. So could be worth a punt. Have we seen management present anywhere, e.g. webinars? I'd be interested in attending a webinar, to learn more about mgt.

Thanks for flagging, potentially interesting! (although a long, and unremarkable history, as I pointed out above!). Maybe that could be about to change? If it hits the broker forecasts for 2022 & 2023, then I think it would justify a higher price.

Jack & I do like it when readers post comments here which flag up stuff which we might have missed, and you might have researched in depth, so thanks again for posting your thoughts on JNEO. I'll watch out for their next results/TUs, and report on them in future, now you've piqued my interest! :-)

Regards, Paul.

davidjhill

That's the risk you take Paul but generally the same applies to any resource stock, just different risks. Most miners are in jurisdictions where things can play out badly in the worst case scenario though.

If you want to minimise risk then you stick with the majors who have global diversification along with the lower rewards on offer, otherwise you accept the elevated risk.

In the case of Ferrexpo (LON:FXPO) you don't get to buy stock at a PE of sub 2 free of risk! Investors have to try and assess the risk and reward and factor that in. That decision should be very specific to an individual.

Every investor has a different tolerance and diversification. For example I wouldn't buy Ferrexpo (LON:FXPO) as my only stock in a portfolio but I might allow it to be a 1 or 2% allocation on the basis that over time it may treble or quadruple or more and add good alpha to the portfolio, but in an extreme scenario would only cost me 1% capital.

Bouden54

I think it's simply the case that Ten Entertainment (LON:TEG) is smaller, less liquid stock and therefore tends to always trade at a discount to Hollywood Bowl (LON:BOWL) I don't think there is much difference in terms of their quality metrics. You see a similar thing in the property/REIT space - the bigger funds such as Segro tend to trade at much bigger premiums to the smaller companies.

Historically they have shipped 50% of production via the barge/rail route through Europe. No reason they can't ship 100% via that route but they will need access to a European port for seaborne onward deliveries. That is what they are working on currently. That will cost a bit more in freight but given lack of global supply and price rises in Iron ore additional freight costs would be more than offset by price rises.

Estimates are that mine is operating at 70% of previous capacity which is surprisingly strong to be honest. I expected less.

Thanks Paul

I'm not sure we have seen much from management. I recall a meeting with them I attended a couple of years ago which alerted me to the story but not much else. Nothing on IMC either. I think the business is at inflection point personally but todays rise has obviously removed some of the undervaluation.

Brookeda

There is a 6 mins video on proactive investors which I seem to not be able to link on here which is about a year old, but is a short summary of the challenges the company are looking to help support. This isn't a big holding of mine but something that could get more traction particularly if they can go on the back of government money to re-invest into public transport

JohnEustace

I'm not able to see anything about the Path Investments (LON:DGI) technology other than people being interviewed saying how great it is. Are there any details you can point us to?

I am intrigued given this appears to be defence technology making it's way into the commercial world but don't agree they are more advanced than £SED. DGI describe themselves as an R&D outfit so far, albeit with some promising partnerships.

Gostevie

Re Sensyne Health (LON:SENS) Early in my investing career I lost a small amount of money on $NTX.L - flat surface loudspeakers - anybody remember them? Later I lost a lot more on $TUNG.L . They vere valuable lessons. Never again will I invest in small loss-making companies that promise jam tomorrow but generate no cash or shareholder value.

harrymunro

"Head I win, tails I don't lose much." - Mohnish Pabrai

c038644

I have small positions in £FXPO, £POG and £POLY. If two of them go bust and the other one 10 bags, I will personally be delighted.

Bristolian

Your time will come Paul, as will many others on this board.

Revs8

Hi Brookeda

Thanks again for the heads up. I read the PI comments in SCVR looking for ideas and you've posted a good one here.

I followed your advice and read the March financial report. It makes for very impressive reading.

All companies like to tell us that their market is huge (and we all know there are many fish in the sea) but Journeo (LON:JNEO) seem to be getting noticed by a very sceptical/frugal industry. I particularly liked that Abellio London are funding their £0.5M investment through operational savings. A zero cost upgrade is going to result in a happy customer and more orders. Plus makes a great case study to show to prospective customers.

Just a few wins from their many opportunities will make a big difference to a company of such a small size. I suspect their next problem may be growing pains (small operator operating in a big market) but its a good problem to have.

It also looks to me that they have IP and "know how" that may form a moat. "Know how" is often underrated as IP but in reality is often the best way for small companies preventing others from overtaking them.

I've bought my small initial stake (thankfully, early this morning). I'll be doing more reading and keeping an eye out for dips in the price. Hopefully Paul and SCVR might keep an eye on it too.

On a side note it is good to see that good news can result in a share price break out. There is money looking for interesting companies. I looked up the price chart on investing.com and it doesn't look the same as the one Paul posted earlier which paints a very negative picture. Not sure why they are different.

albert100

Some reports in the US that advertising market is slowing, was on CNBC

FrugalTree

Here's a link to the note; http://www.alignresearch.co.uk...

Thanks Albert

simmsc

Cant get excited about jet2 as at Dec 2019 market cap was 2.5bn (and there are now more shares in issue as there were then). We are now also at 2.5bn mkt cap. Net debt position slightly better than then. The pent up demand argument is risky with all the talk about consumers have less spending power now compared to back in 2019. Better bets to be had elsewhere

MH1

Journeo (LON:JNEO) ( I hold)

Journeo has suffered from historical perceptions that it is simply a box shifter(CCTV). Whilst this was its historical business, the story has moved on somewhat. Firstly, camera and CCTV technology is now being used to monitor different aspects of the journey, for example potholes etc in the road that need fixing and can make the process more efficient. More importantly, it also means they have relationships across what is a very inert industry. I had a bad experience in an unlisted name in the same space that was always doing pilots but couldn't get across the line.

The cloud has opened up all sorts of opportunities that were previously dominated by 2 hardware manufacturers on board. Journeo is effectively a play on Smart Cities. The transport network is critical both in terms of giving and receiving information. There are big government grant programs in place from which they have been benefitting. They have a contract with Edinburgh who are very committed to the smart city concept. A lot has gone into tech and tech development since Russ Singleton became CEO. He is ambitious but building steadily. The orders are becoming greater in magnitude which is a great sign that the strategy is working including an increasing component of recurring revenues but I wonder if there may be a need for fresh working capital at some point.

It has some similarities with Tracsis in my view but is clearly miniscule in mcap terms. Liquidity has been an issue. I suspect this will change with the appointment recently of Cenkos as brokers.

TamzinPiworld

Thanks Paul!

You'll go back to out perform soon, you always do. In the meantime you sharing your experiences help us all cope with the ups and downs of investing. And, we are all grateful for your amazing research and analysis, which is too easy to take for granted.

Re Journeo (LON:JNEO) -

I looked up the price chart on investing.com and it doesn't look the same as the one Paul posted earlier which paints a very negative picture. Not sure why they are different.

Different timescales. I was talking about the long-term performance of the company, so showed a long-term chart.

It's always worth checking the X-axis when looking at all charts, just so you're clear what timeframe you're looking at.

Small Cap Value Report (Friday 8 April 2022) - JET2, VP., BOWL, SENS, RFX

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Paul Scott

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