Small Cap Value Report (Mon 19 Dec 2022) - LOOK, CAM, MPE, Matalan, TEK, LBG, THRU

19th Dec '22 by Paul Scott

38 comments 8014 reads

Good morning from Paul & Graham!

Good, that's it for today. See you tomorrow!

Weekend podcast - went up on Saturday, summarising last week's SCVRs, where we covered 41 companies (1 short of our previous record). It's a good way of reflecting on the week's news, and results, and have a moan about anything that's got on my nerves a bit! Here's the audio, and I also typed up a transcript just for Stockopedia subscribers, which is here. No mystery shares this week, but lots of stock ideas, and also plenty to warn you away from (especially companies that are likely to need a fundraise or are struggling to renew bank facilities - avoid these like the plague!)

Missing tags - as mentioned in the podcast, we've had an issue with tags (the company tickers), which have been disappearing erratically from the SCVRs, we don't know why. This means that some reports won't come up on searches for a particular company. Thanks to the readers (e.g. Snazzytime) who flag this up to me with a reader comment - very helpful, please keep doing this if you spot that the tags have fully or partially disappeared, as then I can put them back in again manually. Anyway, the good news is that over the weekend I went through all SCVRs since 1 July to date, and replaced any missing tags. So we're now up-to-date, and all SCVRs which mention a particular company should come up when you search for that company, or click on the "Discussion" tab on any StockReport. Just an admin matter, but I thought it would be useful to keep you informed that it's fixed.

Agenda

Paul's Section:

Lookers (LON:LOOK) - an abrupt departure of the Chairman is announced, but comes with reassuring comments on current trading (remains strong, in line with expectations). I ponder the cheapness of the whole sector, and discuss below whether it's still of interest. The quick version is yes, I still like the value characteristics of this sector.

Matalan - it's a private company, but I found an interesting article today in Retail Gazette, which prompted me to write a section below about the importance of, and danger posed by withdrawal of trade credit insurance (a topic we've discussed here a lot in the past). Plus of course the key importance now of balance sheet…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Andy Howe

19th Dec '22

Thanks for the speedy reply Paul. Much appreciated.

A lesson learnt for me is not to put so much positive weighting on owners having skin in the game. I included this after reading 100 baggers but will not give it such a positive weighting in future. In addition get out, or dont go in, when owners have sold such a large quantity. Delayed company results is also a red flag in this situation. These are things I will be taking forward.

I also reviwed on Research tree and there wasn't really any advance notification of underlying issues, or at least none I could obviously see. I can only presume the analysts are not actually that close to the companies and are reactive rather than proactive.

Cheers Andy

eParo

Hi Paul, interesting comments on Matalan. Superdry (LON:SDRY) still haven't concluded their £70m funding and share price keeps drifting. I exited after reading the Auditor's concerns about internal controls.

Paul Scott

Hi eParo,

I think that's very wise. Superdry (LON:SDRY) looks high risk for the reasons you state. Why take the risk? OK it could shoot up say 30% on a positive announcement about new bank facilities, but the downside risk is 100%. So not good risk:reward right now, in my opinion. Probably little happening now between now & end 2022, so that gives it probably just 1 month to secure financing, or face potential insolvency.

SDRY has had about 3 years to fix its accounts dept problems (detailed explanations in Annual Reports are very worrying), but has failed to do so. What lender would want to put money at risk in that environment, in a horrible sector, going into a recession?

I suspect that SDRY could be in real trouble now. And if it does secure new facilities, the lender would no doubt want a hefty price tag.

It could all turn out to be fine, but I wouldn't want to gamble on that.

Regards, Paul.

DWit199

Lookers (LON:LOOK)

Paul,

"Strangely, the Z-score doesn’t seem keen on the financial position, which perplexes me, as I would say LOOK is very healthy financially, with a very robust balance sheet."

There are a few "hidden" features on Stockopedia which can be quite useful. If you click on the blue Z2-Score on the Bankruptcy Risk panel of the Stockreport for Lookers, it reveals a popup with a breakdown of the Z Score. There are two of the four components of the Z2 score that are marked with a red cross. These are the main contributers to the low score. Click on the arrow on the left and a panel opens explaining the calculation.

Are liquid assets a significant proportion of the assets?
In Lookers case this is a negative number due to negative working capital.
Does firm value compare favourably to its liabilities?
For Lookers, total liabilities are much greater than Market Cap so the company achieves a very low score for this test.

Of course, whether either of these factors is significant requires further analysis which I haven't done in this case.

It is worth noting that the same applies to the Health Trend (F-score) and Earnings Manipulation Risk (M-Score) panels. Looking at the red crosses for all of these panels is a quick way to identify potential problems with a company.

Roger Baron

Thanks for the update on Tekcapital (LON:TEK) Paul. Had missed that news as ii aren't showing there's an RNS! I hold. Good news for holders if they can get an IPO away but would be sorry if they were cashing in their Microsalt in a weak market.

Silver Moon

Me too, expecting people with disposable cash to shy away from crypto companies and be joined in investing in AIM by those with cash in their Banks saved during the Covid Lockdown but it's not happening yet.

Caper4

Curb Your Enthusiasm an HBO comedy series is brilliant IMHO. Available on Sky catch up .

Tortoise investor

As an aside I saw that Which? rates £PROC products highly, along with EazyGlide, so it's products do seem good quality.

mojomogoz

I like Thruvision (LON:THRU) and the CEO and CFO a great deal and I think they communicate really well and honestly and have done a great job positioning the biz overtime. I can't get round to investing in it tho as I don't like the end market. Yes they could grow lots and at vg margins from here...but there will always be the potential for rather lumpy and surprising to the downside demand outcomes. Makes it hard to value as a growth or quality stock in any way IMO so that means its a value play (with a cool story)...so the time to buy is when lowly priced...

Which it could be at the moment but I think that is a rather opaque judgement to make a call on

davidjhill

Journeo (LON:JNEO) is a good little business but has previously struggled to scale and hence the share price is moribund. They have some good sticky customers and are moving more into the software space which should mean recurring revenue growth and I suspect that will eventually help the share price. Directors own plenty of stock and have a decent historic track record (they effectively took over this business a few years back).

The contracts they are announcing are material compared to their market cap but included in their management forecasts so don't lead to earnings upgrades, which is why we don't see much upward movement. Nonetheless we are looking at a PE of just 6 for next year so definitely a scope for a re-rate in my view. Haven't looked recently but from memory Accounts are clean with few adjustments and balance sheet is fine (or at least fine in comparison to a £9m market cap).

Market is niche but plenty big enough - I think if they can keep selling software with recurring licence fees and updates and do everything in a seamless cloud based fashion then good scope to be a much bigger company. Taken a long time though!

Graham Neary

You're welcome, Roger! Good luck :)

JASVFS

I enjoyed your threats and opportunities comments about Lookers and Vertu Paul, I agree about the rapidly receding threat from online only used car dealers. I respect members comments on Vertu's large aquisition but this was a deal for well established profitable franchise outlets not a buy out of a failing company. A friend in a position to know remarked that Ferrari dealerships are extremely difficult and expensive to acquire and that was the jewel in the crown on Vertu's deal, I doubt if Vertu's canny CEO and his directors have lost their strategic direction with this deal. We continue to hold.

ACounsell

yiannos1

Hi Paul ,

Superdry is another one that will end up worthless (unfortunately).

A recent visit at a couple of their shops up north has confirmed my worries ; even if they manage to find funding this company will not survive in the long run.

Wimbledonsprinter

Andy

My two pennies worth. I think investing is a percentage game - it can be dangerous to learn too many lessons from an individual loser (or winner).

I would try to distinguish between

(1) a gap in my knowledge/ analysis - was there a key piece of information that I missed. (And this can happen on as much on winners as losers). If so, then I think immediate lessons can be learned;

(2). The position losing me money or making me money. There will always be a dispersion of returns and I think you should only draw firm conclusions from a large number of data points.

catalogue

Thruvision (LON:THRU) I have held it since 2018 and am currently down 21%. They need a big customer that wants what they have designed, but you could say that about any niche manufacturer.

Chris Brown

From my own experience the PROCOOK (LON:PROC) products are very good quality and I've had the stock on my 'longlist' for a while. However, I've been Christmas shopping in the Edinburgh area over the past two weeks and it was by far the quietest store I visited. Absolutely dead, when everywhere else was heaving. Several staff members who all looked bored, and zero customers. I took that as a bad sign.

RDHOWARTH

20th Dec '22

Serica Energy (LON:SQZ) substantial acquisition announced this morning. Not such an easy deal to get your head round.... so chatroom / twitter crowds jumping to their own conclusions. They don't like North Sea due to UK tax position and don't like the deal because of debt and dilution. However there are substantial tax losses that may well make the deal look attractive and Serica Energy (LON:SQZ) can absorb the acquired debt pretty easily. A very broad fag packet looks to be doubling reserves into oil for 30% dilution so it needs to be a terrible deal for the market to not like it..... what could be wrong? Contingencies in the detail around the deal, decommissioning liabilities , drilling commitments etc etc.... flowback on the issued equity ( 28.9% BUT Mercuria to become a 25.2% strategic investor in Serica - so not substantial).

Most obvious negative is it postpones a buyback....and market loves the instant gratification of those. Confusion just before Christmas never good but the meeting at nine should clear up a lot of that. I think you have to trust management.... having said that initial reaction suggests market thinks the deal is dilutive. That would be most annoying ....fingers crossed management do a good job on the call.

Boon

21st Dec '22

I have also been tracking PROCOOK (LON:PROC) and the Fackelmann stake building with interest. But also think that a takeover bid is unlikely, given the founding family controlling stake.

However, does anyone know the reason for the IPO? Was it a precursor for the founding family to be able to sell out easier, as of course its easier to sell out public equity than private equity?

The other thought I had was maybe ProCook and Fackelmann already have some commercial agreements. Like distributing each others products, or maybe ProCook licenses some patents, or Fackelmann produces some lines for ProCook? If so, then a stake is normal in my eyes, just the partners strengthening their relationship and ensuring their commercial partnership is aligned.

However, I agree with Paul that right now, the financials aren't any good. Can easily go from middling to bad quickly, especially with a fixed cost store network.

StrollingMolby

22nd Dec '22

Hi Paul, I was one of the early movers / fools who bought into LBG Media (LON:LBG) almost exactly a year ago, not long after the IPO, and set-up a thread elsewhere on it… (possibly as a more mature DBOX if memory serves…).

The price has continued to rebound very strongly this week so wonder what is happening behind the scenes. The CEO bought over half a million quids worth a month or so back which was a confident message to the market.

I’m away from my computer right now but will try and pop back with more detail on this over the Christmas period.

Small Cap Value Report (Mon 19 Dec 2022) - LOOK, CAM, MPE, Matalan, TEK, LBG, THRU

Agenda

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

38 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...