Small Cap Value Report (Mon 18 Oct 2021) - Supply Chains/inflation, TSTL, CNIC, SUP, MIND, BVXP

18th Oct '21 by Paul Scott

63 comments 10588 reads

Good morning, it's Paul & Jack here with the SCVR for Monday.

Agenda -

Paul's Section:

Preamble on supply chains & inflation.

Tristel (LON:TSTL) - a quick look at FY 6/2021 results & outlook. After a "disappointing year" the outlook sees business returning to normal, and growth resuming. It's a nice little company, but I question the high valuation - it will need to seriously beat current forecasts, to justify the current share.

Supreme (LON:SUP) (I hold) - a reassuring trading update today, from this entrepreneurial company. It seems to hint at possible out-performance later this financial year? Valuation looks modest, and with good quality scores too. Looks good to me.

Jack's Section:

Centralnic (LON:CNIC) - profit to be at the upper end of guidance, with an improving organic growth trajectory. The valuation is modest relative to peers and the apparent growth prospects, but integrating multiple acquisitions while steering organic growth is tricky. Management is so far proving up to the task.

Mind Gym (LON:MIND) - revenue has returned more or less to pre-pandemic levels but the share price has risen faster than profits have recovered. The high valuation combined with a lack of share price liquidity is enough to keep me on the sidelines.

Bioventix (LON:BVXP) - a quick look over results for FY 06/2021. This is a remarkable little company, making a staggering profit margin for its niche disgnostic products (antibodies). Specialist knowledge is needed to assess this company's prospects/value, hence I'm neutral on it.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover 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 up to about £700m. We 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…

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timarr

18th Oct '21

The guarantee comes from peer reviewed cryptographic science, as opposed to politicians and central bank employees. I think it’s valid for anyone to make an argument and then a choice between those two.

While I agree with much of what you say this statement isn't correct, as the "guarantee" is that the stablecoin remains pegged to the underlying basket of currencies, not that the cryptocurrency itself is secure. The pegging process itself is the focus here - how does the issuer of the stablecoin ensure that it can be converted back at any time into the underlying currencies? The potential for the equivalent of a run on a bank is the obvious concern.

The other issue is the behaviour of central banks themselves. Members of the Fed are arguing that allowing private currencies at all is undesirable in terms of financial stability. Much of the current interest in Central Bank Digital Currencies stems from central bankers' concerns over Facebook's Libra, the archetypical stablecoin.

There is much that can be said for and against both cryptocurrencies and blockchain but this isn't really the place to do it.

On an investment related note Dispersion Holdings (OFEX:DEFI) today announced they are buying Accru Finance who are a platform for lending out cryptocurrencies. What that means is a mystery, but DEFI and Nft Investments (OFEX:NFT) are an interesting, if highly speculative, way of playing the crypto / token / blockchain theme.

kevfle

Doesn't too much money creation also have the effect of increasing demand so that we now have a situation where demand is increasing at the same time as supply is reducing?

Discodave4

Hi Paul,

With regards to the wages bill at Vertu, you said :

Unfortunately, I can’t find the total figure for annual wages cost, which is usually in the Annual Report, but Vertu only seems to publish abbreviated accounts on its website.

Don’t know if it helps but the wages are detailed in their annual accounts registered with companies house - see page 98 and 99 https://s3.eu-west-2.amazonaws...

sharw

Bioventix (LON:BVXP) - finnCap has issued a note this morning (free if you register https://www.finncap.com/resear... ). They suspended forecasts during the pandemic (hence the horizontal line on the Analyst Consensus section of the SR (that Stocko seems to be incapable of removing). Now restored they forecast Adj. eps of 127.3p then 129.0p compared to 132.8p just reported. The drop is mainly due to the loss of NT-proBNP revenues, which has been known for a long time. It looks as if we could be in for a long sideways move as we look to increasing Troponin revenues:

To date

finnCap say "Peak revenues of troponin in 2025 are still estimated to be in the £3-3.5m range". This compares to revenue of £1.28m for NT-proBNP for the year to last June.

Helvellyn

The government were probably over generous in their various support schemes and this has created excess cash for many consumers, added to the fact that for most of 2020 they couldn't spend this excess, has exacerbated the situation.

With reference to cmpeckham's post, IMHO an increase in interest rates now will not have any effect on supply and therefore very little if any effect on short term inflation.

Richard

Samsgrandad

Tristel (LON:TSTL)

There's certainly a lot of good news in the price and a large proportion of that surely hinges on US approvals. They are certainly dragging their feet and I wonder if this isn't US protectionism in action. It reminds me of Sportingbet's experience where a visiting director was arrested while they sorted out the law to make on-line betting equivalent to phone betting because it threatened the Casinos. The directors like selling too, is TSTL's patent protection running out soon? I no longer hold, I hope the bear case doesn't offend.

Tommy H

Is there a read across to the likes of Redde Northgate (LON:REDD) for the demand of temporary vans, though looks like a lot more people are driving their own cars for deliveries to our road in the last few weeks with the occasional logoed van.

Tommy

Roger Baron

Interesting thread. But, in regards to: ".... being able to move an inflating currency into a digital asset that is pegged to assets that hold their value."

- I am intrigued to know what asset is guaranteed to hold it's value? Relative to what?

JohnEustace

I did hit refresh a few times without success. I'm on a workstation grade PC with a 500 MB fibre connection.

john2

There is a report in this weekend's FT that the Tether stablecoin has had to pay a $41million penalty to resolve a US regulator's claims that it had falsely represented that its digital tokens were fully backed by dollars. The CFTC found that Tether held sufficient financial reserves in its accounts to fully back tokens in circulation for only 27.6% of the days from September 2016 to November 2018.

Tether has issued more than $69 billion of stablecoins - presumably they are not expected to have the full $69 billion in their accounts?

dcon85

From an article in IC over the weekend on Blockchain:- "Last week, a story in Bloomberg Businessweek detailed how the stablecoin is not backing a one-to-one USD valuation with safe assets, which would include actual hard currency, short dated Treasury Bills and money market instruments. Instead it has been buying the lower-quality paper of Chinese companies, and - in a further twist - includes receivables crypto-backed loans to crypto exchanges in its reserves."

Sounds stable AF. So unless you have faith in your stable coin provider, or its properly backed by assets, it sound's very sketchy, and in either case anathema to true believers as they don't like fiat as it relies on trust in government (or other centralised power), and wouldn't want to back their coin with assets (gold is for boomers), the coin is the asset. However I don't know how the crypto world feels about stablecoins.

davidjhill

There is a note out today on Smiths News (LON:SNWS) that you can see on Research Tree. It is quite comprehensive (about 18 pages). In one section it covers the distribution and apparently the retailer bears the cost of delivery so there is no risk to Smiths News (LON:SNWS) profitability from an increase in HGV driver wages etc.

They have a target of 77p on them. Ie around a PE of 8 and estimate FCF of circa 10p per share annually so that would still make a dividend yield of 6.5% even at that price (on a 2* cover)!

Only thing that concerns me a little is interest rate risk on debt though rates would probably have to go up well past 3% before it becomes too material, so probably not an immediate concern and they should be at 1* EBITDA in next couple of years anyway.

Smiths News (LON:SNWS) good analyst note out on Research Tree from Edison - 18 pages and pretty comprehensive.

Harry Hindsight

Why not make a simple note and tell us. So much info not interested in random links sorry.

When I think of crypto I remember the pyramid schemes where new money is needed at the base so those that have been in it for a while - Mr&Mrs Rich - get their commission. Diluting the full coin value into multiples allows new blood - Mr&Mrs Wannabee-rich into the ‘opportunity’. Nowadays don’t need to sell soap etc products to your mates with boxes in the lounge - just a few clicks on the pc.

Bouden54

Yes good note on Smiths News (LON:SNWS) perhaps the most interesting snippet is that (if I read it correctly) Smiths are able to pass on higher fuel or delivery costs to the retailer through a delivery charge. I suspect it's the potentially higher costs that have weighed on the share price recently so this was very welcome news.

back2value

Funny how no-one bothered thanking container lines or shipowners when container rates were low for year after year.

B2V

MiserableJacktPotato

Dead link - you must've been signed in to an account when you cut and paste the link from your browser as your security token blob details are in the URL :)

John Gibson

Evening all,

This wee thread has included many interesting and respectfully forwarded opinions, surely a first in crypto discussions!?

Regarding Tether and other stablecoins that are backed by reserves - yes, you do need faith in the issuer, and I personally wouldn’t touch Tether.
However the next evolution of the technology is ‘algorithmic’ stablecoins, so , as an example, they are created by a protocol when you deposit a digital asset into a online smart contract (eg a contract to lock your asset for a time period, at a certain interest rate) in exchange for an amount of the stablecoin. When you return the stablecoin they are destroyed and your original digital asset is returned. All done by cryptographic math, and no trusted counterparty risk or risk of a ‘bank run’ scenario.

If that sounds opaque, in practice it is like this: you own Bitcoin, the price has gone up, you’re in profit but selling would be a tax event. Interest on borrowing is tax deductible and so you borrow against it, and still hold the bitcoin.
If the Bitcoin price goes up while it’s locked in the borrowing contract you get the upside when you end the borrowing contract.
If the Bitcoin price goes down you have the deductible interest payments and if you sell the Bitcoin there’s less of a gain to declare.

Or, even simpler example, imagine you want to trade in and out of Bitcoin, but every time you sell Bitcoin for pounds, it’s a tax event. But if you just trade for a stable coin token it’s not, so you hold your capital gain there. And maybe you do that trading on a decentralised exchange, again run by cryptographic math and resident in no specific country…

This, I should add, is not something I do! And this is probably a horrible explanation, but hopefully enough for anyone who’s interested to investigate further.- and you can see why central banks and governments are starting to sweat, even if retail investors dismiss the whole thing.

Sorry about the link, was a copy and paste from the Companies House website.

Small Cap Value Report (Mon 18 Oct 2021) - Supply chains/inflation, TSTL, CNIC, SUP, MIND, BVXP

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Paul Scott

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