Small Cap Value Report (Mon 11 Dec 2023) - SNX, QTX, SCE

11th Dec '23 by Paul Scott

95 comments 8567 reads

Good morning! It's just Paul here today, as Graham has a prior engagement.

Podcast - what with one thing and another, I didn't manage to muster any inspiration to record my weekly summary this weekend. We can't have a gap, so I'll record it late either today or tomorrow. Apologies for any inconvenience.

Mello Monday is from 17:00 tonight - with entertaining speakers, and terrific companies - I want to see 3 out of the 4 presentations.

Summaries

Synectics (LON:SNX) - 105p (pre-market) £19m - Trading Update (materially ahead) - Paul - GREEN

A positive trading update, and broker increases forecast EPS to 13.1p. Combined with a strong (net cash) balance sheet, reasonable divis, and a increased order book, this all looks attractive value to me. Not the most exciting company, but shares look cheap. So I think this looks a nice entry point. Stale bulls might sell into the liquidity, perhaps?

Quartix Technologies (LON:QTX) - Down 3% to 150p (£73m) - Konetik update - Paul - AMBER

Founder Andy Walters is back in charge, and kicking ass! After a board room clear-out, today's update basically tells us that the acquisition made in Sept 2023 was no good. Are shares good value after a 9-year round trip back to where they started? No, not really, based on current forecasts, about 19x earnings (which have been in a downtrend since 2018). That said, I think a turnaround here looks possible, and you can't beat a founder, motivated with a 22% stake to sort out problems.

Surface Transforms (LON:SCE) - down 7% to 10.6p (£28m) - Result of Open Offer - Paul - AMBER/RED

The open offer has been well supported, with oversubscriptions meaning it raises £2.7m. This is conditional on the proposed £13m capex loan completing, which still hasn't yet happened. It's due "imminently" the company says. High risk, until the crucial loan is agreed.

Update: loan has been agreed, so the fundraising package should now go ahead.

Paul’s Section:

Synectics (LON:SNX)

105p (pre-market) £19m - Trading Update (materially ahead) - Paul - GREEN

Many thanks to gmtrader, who flags this materially ahead update in the reader comments below.

Synectics plc (AIM: SNX), a leader in advanced security and surveillance systems, provides…

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jamesalastair

11th Dec '23

That is not the point. The point is one of etiquette and good manners.

Rusty2

Supreme (LON:SUP) I think was another tip that halved in price. I don't subscribe.
But did they not tip Yu (LON:YU.) ?

Paul Scott

Thanks ken, my cheque is in the post ;-)

Hi SC120,

My comments were addressing your post, which looks like it was a typo, that was all -

SCI20Joined 2019168 posts2:38 pm

I am surprised that the actions of subscribers of SCVR can shift the price by these amounts: Good Energy down over 10% and McBride up 15%. Surely the markets can’t be influenced by a niche monthly publication. Or can they?

1Reply

Glad we got that sorted! Ignore my reply a moment ago.

Peace and joy, and jingle bells are restored to all :-D

SCI20

Cheers

12th Dec '23

I'm tempted to reply with a bit of banter, but won't! ;-)

This comment has been moderated

I don't want to be associated with any of the over the top comments on Cornerstone FS (LON:CSFS) (I hold)

We merely spotted an ahead of exps update here, and you can do with that what you will. (I bought a few, it's not a crime. No intention to sell, we'll see what happens in 2024)

matylda

LMAO

You should have done. Always appreciate banter :)

I’m very disappointed at my typo error. Caused a bit of a s—t storm :). I am very pedantic when it comes to writing anything. I check over every word, spelling, grammar and whether anything can be misinterpreted or misconstrued. Clearly this time I failed my own standards.
For the record , I follow the SCVR every day without fail and appreciate the great work that you and the guys do. I do hold Good Energy but not McBride which is on my buy list awaiting a pull back in price. All in all a bad day at the office.

ken mitchell

Yes Rusty2, SCSW did tip Yu (LON:YU.) and it’s one of their very successful tips. That’s why I still subscribe. They do also find some good ones.

The first thing I do with SCSW tips is to look at the Stockopedia stock page for that share, and then on to any comment on it here from Paul and Graham and other informed posters. It’s then, IF it looks worth checking out properly, that I move on to Company announcements and Results. As well as the figures I always look for hints in the commentary of possible problems ahead, and also for hints of a future “above expectations” update.

This month’s main tipMcBride (LON:MCB) fell at the first hurdle including just an Amber rating from Paul. And just reading their write up and seeing that they supplied supermarkets like Tesco was a put off anyway as the likes of Tesco can be ruthless with smaller suppliers. McBride (LON:MCB) might prove to be a successful tip but with so many quality small cap bargain shares available we can afford to be choosy.

Bouden54

Thanks would be interested to see your findings when you get round to it. I'd probably be a bit more prudent and value GoCo on a 14-15x multiple, which would cover around half the EV (and leave the rest of the business trading on an implied multiple of less than 3)

That's a harsh removal imo - It was a most accurate comment

abtan

Future (LON:FUTR) (I hold)

Hi Bouden54

Sorry, I completely missed your comment.

I probably haven't researched the company enough yet, but I may as well share some thoughts whilst I'm here.

GoCo Multiple

You're right, a x15 PAT multiple for GoCo makes a lot of sense and wouldn't be unreasonable.

I actually used a range of x17 to x22, with the latter figure being the multiple that GoCo was acquired for a few years ago.

In the end I settled on x20 for ease and to make my point.

In any case, whether it's x15 or x20, GoCo - I would hope - is currently valued somewhere between 50% and 66% of Future's EV.

And then as you say, the rest of the business can't seriously be valued so cheaply, unless there's a good reason for it, such as a risk to its profits.

My thought process below:

---

Organic Traffic i.e. getting users in without paying for them

It was interesting seeing the below from the Capital Markets Day last year:

There doesn't seem to much paid advertising driving traffic to Future's websites, which gives me a degree of confidence that they will continue to reap the benefits of their naturally strong SEO.

I'm a big believer that large, well-known brands - like Moneysupermarket.Com (LON:MONY) -will continue to rank near the top of search results for their respective niches.

Advertising Revenues - getting paid for having so many users on their websites

There might be a risk targeting users with relevant digital ads, with Google set to follow Apple's privacy strategy and block 3rd party cookies.

Digital Ads are a chunky part of Future's revenues so I can understand why there might be caution, but I can't help but think that the larger niche websites will be more immune given:

the organic, bespoke traffic that is already driven to them;
the need for display ad marketing funds to go somewhere, even if they are less targeted. Surely these niche websites will be in demand by advertisers and even more so without their ability to target specific users?

Affiliate Income - getting paid by users buying something

Again, I don't see much risk here. There will always be users looking for the "best 40" TV" or the "best budget phone" and with that comes affiliate income.

So that leaves the macro risk...but I feel we're already in the middle of that.

I'm therefore left scratching my head at what else I might be missing. Are there other risks? Probably, there usually are! But certainly nothing obvious that comes to mind.

I'd be interested in hearing of any bear case I might not have thought of from anyone reading this.

Thanks

Thanks for that, very useful analysis. I'm with you, While the company has some issues to sort out, I don't see any major risks that would justify such a low rating - probably just a case of markets getting carried away on the downside when fear takes over.

Small Cap Value Report (Mon 11 Dec 2023) - SNX, QTX, SCE

Summaries

Paul’s Section:

Synectics (LON:SNX)

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Paul Scott

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