Small Cap Value Report (Mon 21 Aug 2023) - RWA, CRST, FCRM, DPEU, 888

21st Aug '23 by Paul Scott

52 comments 7498 reads

Good morning, it's Paul & Graham here today.

Podcast and my SCVR summary spreadsheet were both updated this weekend, so we start the week up-to-date!

Stelrad (LON:SRAD) - many thanks to all the readers who responded to my question last week about how the supply of radiators would be affected by a move towards heat pumps. It sounds as if it might even be positive for Stelrad (a manufacturer & distributor) of steel radiators, if people need to fit larger radiators in future. That's dealt with one of my concerns. The issue over high bank debt remains though. As I mentioned in the weekend podcast, a lot of housebuilding, and building supplies shares are now looking cheap, but there's mounting evidence from their trading updates that macro factors have pushed back any recovery into 2024, and another wave of forecast downgrades looks likely. Hence I'm currently wary of both sectors - it feels too early to be bottom fishing, now that an H2 2023 recovery seems to have gone for a burton (thanks to our friends at the central banks).

Explanatory notes -

A quick reminder that we don’t recommend any stocks. 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 up to about £1bn. 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 are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green (thumbs up) - means in our…

Unlock with Email

Unlock with Google

Already have an account?
Login here

mojomogoz

21st Aug '23

...oh yes it is (will)!

Excessive govt debt will not be repaid. I combination of monetisation and yield/credit control will effectively equate to stimulus whether explicitly said or not. Debt deflation is not a route our mass participation proletarian societies (inc China) can tolerate with social and political collapse/revolution.

My point is 'financial cleansing' will never come...we will carry on 'dirty'...and stocks will remain a valid investment (sometimes good, sometimes bad)

Rusty2

There are some strange prices being quoted today, B.P. Marsh & Partners (LON:BPM) was down to around 282p and just now AstraZeneca (LON:AZN) had an email from Stocko, that price is 1067p, down 9590p, clearly incorrect. Anyone else getting these sort prices?

Is it a Stockopedia issue or a wider one?

planetx

Market is Not Functioning .

The small cap market is nuts at the moment .

Probably money to be made for the fleet footed .

Example, 5 million wiped off the valuation of Belvoir today and that’s down to me selling a chunk of shares cos I needed to realise sone funds for a private investment .

Decided to sell only 30k of shares and went and knocked the share price down 5%.

I think a lot of the drifting is just incredibly low volume and market malaise .

For micro caps totally pointiess in many cases even being listed as impossible to raise money and listing feee of 300k plus a year are an unnecessary cash burn.

I’ve spoken to CEO of a micro cap I have a chunk of and suggested they take it private and save 300k costs . They were making staff reductions and I pointed out it was a touch offensive for people to be losing their jobs whilst they maintain a vanity listing that does nothing more than costs money and reduces agility .

It’s going to a necessary move for a lot of good solid microcaps to go private .

Lucky dip

Housebuilders: a value opportunity or a value trap?

The sector had another wobble as predicted by many in this site.

The reasons are well summarised in today's Crest Nicholson profit warning and in Graham and Paul's reviews above.

Two questions need answering first: will house prices fall further and have the builders share prices fallen enough to account for that. In my mid the answer is Yes and Yes!

Looking beyond the next cycle, Two years time, for me the housebuilders offer outstanding value. Value trap is when a business no longer can produce the product or offer the services that the customer demand. Here , the demand is still there, supply remain limited and inflation and interest rate will fall in due course. The fear factor against that bet is quite high now.

Investing require a degree of intellectual guess, ( scientifically called prediction or forecast), Even the Bank of England prediction for those events proved wrong, if so, I am in good company!

Caper4

Someone next to me yesterday using the personal check out machines, deliberately put a couple of items into her bag without scanning them . I wonder how many daily do exactly the same ? These machines save staff expenses , but at what cost ?

Wolf of Small Street

Any chance you could sell a handful more and get it down to 100p planetx? :)

ken mitchell

It’s certainly nowhere near as bad now as in the 2008 Banking crisis nor the 2020 covid crash. And note this! Both were soon great buy opportunities as soon as it became clear that drastic Central Bank and Government action was starting to be taken to deal with the crisis.

This is just a slower downturn but as in 2008 and 2020 a very good buy opportunity including, and arguably even especially, for UK quality UK small caps that have been hammered and are at bargain prices. We’re spoilt for choice.

But just as the downturn this this time is more protracted so the same applies to the big bounce. It WILL come as all bear markets end, but we might have to wait a while. But this is a great opportunity to buy shares and Investment Trusts at bargain basement prices! Some Investment Trusts are on extraordinarily high discounts and paying growing dividends too and with yields even in double figures.

Like Paul, and plenty of Stockopedia subscribers too surely, I took advantage of those previous big buy opportunities and have been buying again.

e.g as the 2020 bounce started I bought and still hold Mining Investment Trusts Blackrock World Mining Trust (LON:BRWM) at 260p and now even after big falls still much higher at 561p Blackrock Energy and Resources Income Trust (LON:BERI) at 44p and now 110p and CQS Natural Resources Growth and Income (LON:CYN) at 55p and now 171p. Dividends on all 3 at those buy prices are very high. Also bought India Capital Growth Fund (LON:IGC) at 40p and sold for 127p and now 151p and Commercial Property Trust Aew UK Reit (LON:AEWU) at 62p and now 95p but down from peak 127p. Big 13% dividend paid quarterly at that 62p buy price. Commercial Property Trusts are again at bargain prices. Also bought Legal & General (LON:LGEN) at 175p and now a depressed 218p despite near 9% dividend and with increases promised.

I’ve posted those gains and hold similar winners bought in 2020 or later temporary dips not to show off but to point out that now or soon is another such buy opportunity. Our successful buys now will also multi bag in time for some. AND though the paper profits reduce in bear markets, as the examples here show, the profits remain large.

So take advantage of the current downturn and don’t get too depressed if only starting to invest recently and losing for now. My more recent buys are often down too. It’s inevitable at times like this. Get rid of any we know we’ve got wrong and usually on bad news or profits warning. For other quality losers and green small caps covered here, further falls will often mean they are even bigger bargains and perhaps worth buying a few more.

My focus and skills are not small caps but we’ve the benefit of Paul and Graham’s superb analysis here and some very clued up posters to help us find the best ones. And I’m nibbling at some including Volex (LON:VLX)

It’s arguably a mistake only to invest in UK small chaos as isn’t that all our eggs in one basket? There are Investment Trusts enabling us to invest all round the World with some on astonishing discounts,,AND some UK large caps are also at astonishing Bargain prices.

ed_miller

Re Price Anomalies Today

Yes, I kept getting email alerts that AZN price was down to 4,400p and the like - if only; and if only I had the cash to benefit from it.

jonno

What a wit.

Funny enough I bought at Belvoir (LON:BLV) 105p when the pandemic hit. I still hold and would be happy to add, but as always more buying ideas than money.

Hey ho.

Mark B

I update my spreadsheet once a month, so I am guessing but probably up around 15 to 16% YTD. I last sold some shares in February last year. I don’t think I am very typical and I struggle to find people who think like me. 2022, I was down 28%, 2021 down 15%, and 2020 up by 54%. For me. I avoid stress by never having leverage, buying companies where I think there is a very good possibility of holding them forever and buying when I consider them under priced using the saying “all companies are worth their present and future cash flows discounted accordingly”. It’s very rare that I see anyone here valuing a company and or explaining how they got to their valuation. I also take time to consider management as I think I am giving them a lot of trust and I know that they will have some hard times, so I want to trust them and leave the decision making to them. I will start selling when I retire, so although the market valuations will be volatile, I don’t have to care and it may even produce great opportunities. I will be a buyer this month and probably next, but that is really getting ahead of myself as I have no idea what the market will do in the short term. I think it will be worth a lot more in ten years than today. This philosophy keeps me stress free and I see it working, and I accept that some years will not look good on my personal balance sheet, but those years generally produce the building blocks for great future years.

The Jayman

I was about to make the same plea to Planetx to sell another tranche before seeing the waggish WoSS got there first. I was a buyer down at 170p in March and will be again.

No point in taking the risk of unproven companies, business models or recovery plays when there is actual value in front of you right now. That said Jonno is right that most of us have more good ideas than free funds to invest

rmillaree

What also struck me recently is that supermarkets run their businesses to probably a specific margin - so if they all aim for 3% margin they are all putting up the prices to cover the increasing theft. So the reality is that the law breaking needy are really stealing directly from the honest needy if the honest needy need to cover the costs of whats stolen via higher prices. I suspect we are probably mostly in agreement here that letting this blatant law breaking run rampant without making any effort to tackle it really is hitting the honest needy directly in the pocket - while slapping them in the face saying well the dishonest needy are fine to do that as no action will be taken. I suspect small majority do in on an industrial scale and higher % do it as they see nothing ever happens if you are caught.

Yes indeed. In the case I mentioned, the woman was apprehended by a member of the staff ( local M and S ) and she explained it was done in error. Full of apologies and off she went !! Bizarre

I can't see any trade that low on AstraZeneca (LON:AZN). On B.P. Marsh & Partners (LON:BPM) there does seem to be a trade around 282p.
Just wonder if auto stop losses would be trigger on low trades or glitches.

BnB

At our local co-op, the tills work by weighing the bag you put the produce in, so you can’t slip something into your bag without the system raising an alert. Obviously you could still pocket the odd item surreptitiously.

john2

TV chef Antony Worrall Thompson caught shoplifting cheese and wine | Antony Worrall Thompson | The Guardian

Boon

Another reason to buy online than in the shops then. No need for honest us to subsidise the shoplifters?

You could look beyond to the next cycle. But you've got to be sure that the company you invest in will survive to the next cycle.

KevinS1

It is 11 years ago..................... lets try and be slightly up to date

TraderMark72

23rd Aug '23

Crest Nicholson Holdings (LON:CRST)

“…..tangible balance sheet value of a staggering £848m, and a net cash position.

Therefore, I like the risk:reward on offer at a market cap today of c. £430m. Even if asset values are written down significantly, the stock is still likely to be trading at a healthy discount to tangible NAV.”

The vast majority of a house builders NTAV will be Land bank and WIP. Depending on the region of the country and selling prices; a drop in selling prices of say 10% can translate to a reduction in land values of 30% because land valuation is a residual appraisal exercise.

Small Cap Value Report (Mon 21 Aug 2023) - RWA, CRST, FCRM, DPEU, 888

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

52 comments

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

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