Small Cap Value Report (Mon 31 Oct 2022) - CRPR, ARB, ESP, SAG, TPG, LOK

31st Oct '22 by Paul Scott

43 comments 6898 reads

Good morning from Paul & Graham!

Paul's weekly recap podcast went up on Saturday evening, the audio is here (and on podcast platforms). Also, for Stockopedia subscribers only, I've typed up a written summary, which is here.

Mello Chiswick - I'm looking forward to seeing many friends old & new at the resumption of this in-person event. I hope people support it, as it would be such a pity to see everything go online, and lose the important social aspect of investing.

Edmund’s article on Market Musings - this is a very interesting series of articles, which you might not have seen, so do check them out.

Agenda

Paul's Section:

James Cropper (LON:CRPR) - a profit warning for H1 (breakeven), but better results expected in H2. Reasons given are sensible - a 20% hike in raw materials, plus the energy spike, and time lags in passing this on to customers. The trouble is, this is now looking to be the 3rd consecutive year of EPS around 15p. So a share price of 995p looks crackers to me. There's also some net debt, and a pension deficit. Cropper looks very significantly overvalued, in my view. Edit: the price has been marked down c.20% this morning, but hardly any trades printed (so far), it's very illiquid.

Science (LON:SAG) - has been circling TP (LON:TPG) for a while now, and a deal has been struck for SAG to acquire the 72% it doesn't already own. SAG has impressed us here at the SCVR for a while, so let's hope it makes a success of this acquistion.

Graham's Section:

Argo Blockchain (LON:ARB) (£35m) - this looks like it may be reaching some sort of conclusion. The equity investment that the company hoped for has not come through, and it has resorted to selling newly-purchased bitcoin computers that it has not yet taken out of the box. Bitcoin mining is an inherently leveraged activity and Argo has combined it with financial leverage, making for a toxic combination. Energy costs are up, crypto prices are down, and there’s a very real chance that these shares are worthless.

Empiric Student Property (LON:ESP) (£504m) - this REIT has issued two statements today. The first one is a dividend declaration (0.625p per share), and the second is a business update. Empiric’s properties are…

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Metatron

31st Oct '22

I also bought PIBs at the same time but Principality is no longer available.

I hold but one always have to worry about South African politics.High crime and frequent strikes.Oh hold on am i taking about the New UK going back to the 70's?

Bouden54

Yellow Cake (LON:YCA) is not a trading company, it merely holds physical uranium. Profits or losses not applicable so wouldn't pay too much attention to that.

MattH

This is very useful and definitely not inappropriate. Thanks.

planetx

Everyone is free to apply whatever criteria they want .

There are thousands of companies to invest in so pick and choose as you see fit .

I had questions of Wynnstay a few months ago regarding a fund raise at slight discount so I wrote with my concerns . The CFO wrote back sane day out of hours with a measured , respectful and considered response . Box ticked .

I was also CEO of a not insignificant business so I understand that day to day interactions with shareholders is not possible in many cases but equally investing in s business where there are large founder holdings come with risks so very important to establish management work for shareholders and not a micro cap l lifestyle business for themselves .

Can’t see anything wrong with the criteria I apply and with such a tight number of holdings (8) in companies on AIM I think it important .

For example I’m over 10% of holders technology and if the majority shareholder / founder wanted to take it private or strip it of cash in excessive pay I’d be pretty screwed, so I asked him some very direct questions at AGM which he answered perfectly , so box ticked .

Anyway each to their own, I’m actually holding my own this year to date so it is working ok for me .

jinjah

I will just alert you to the fact that Sprott have said they will NOT be selling Uranium into a rising price. Their strategy is simply to accumulate uranium at NAV and earn management fees from it while hoping that the price will go parabolic if a point arises when demand outstrips supply. The management were unable to articulate an 'endgame' and I would speculate that if they were preventing the operation of nuclear power stations one might expect the US Goverment to intervene.

mojomogoz

Can't vouch for Yellow Cake (LON:YCA) but Sprott are probably permanent hoarders (at least for any investment horizon)...its the constitution of the fund and they do the same with their other physical asset funds...

...buy hey, I'm a uranium bull with a significant exposure to area (mainly equities but some SPUT and Yellow Cake...I prefer the former as got more dynamic liquidity mgt). Very volatile and cyclical space and not an area to own forever...but I've been in for 5 years, and with scale since the covid sell-off and I believe the opportunity is only in early innings. High risk tbc!

MichaelFBS

"Edmund’s article on Market Musings - this is a very interesting series of articles, which you might not have seen, so do check them out."

These are very good and I try to remember to read them but don't always manage to.

I have asked Stocko why we cannot have an email reminder when published as one gets with the SCVR but for some reason this is not possible, which is a shame.

Regards

Michael

bullhead

Am a long term holder of Sylvania Platinum (LON:SLP) and over the last year or so have transferred all my holdings into my ISA and is one of my biggest holdings think they are a well run company with a very good management who have done a good job over the last few volatile years they throw Off lots of cash have a large cash balance and are willing to return money through large dividends both regular and one offsand their webinars on investor meet the company are well worth watching for anyone holding or looking to hold the company https://www.investormeetcompan...

Also as others have mentioned are also looking in the medium term and longer term on increasing production

So agree with you Bob can’t see anything not to like myself

Have held and done well out of Argo Blockchain (LON:ARB) in the past but have never held long term I learnt back in dot com boom that investing in small and large tech firms in high growth but risky areas is certainly not for widows or orphans and only to risk money you can afford to loose and to take profits quickly same is the case with biotech

More like gambling really normally stick to tech biotech investment trusts and private equity nowadays namely HgCapital Trust (LON:HGT) International Biotechnology Trust (LON:IBT) Harbourvest Global Private Equity (LON:HVPE) £PCT

Just my opinion if you pick the right small cap tech/bio tech you can make a lot of money the vast majority aren’t the right one

Sylvania Platinum (LON:SLP) I hold. it is my largest holding at about 18% of portfolio. And have held since November 2019 though I have sold some along the way including in my March 2020 meltdown.

You haven't missed anything in my opinion GloucesterBob and you state all the salient points.

There was a good note out this morning from Liberium (available through Research Tree), which is helpful in seeing future likely figures.

ST in the IC is a fan (I often take this as a negative but will go with him in this instance).

The stock is up 3.95% this year (which puts in a small group in the small cap space) and will have received 10.25p in divis this calendar year.

The share price tends to be driven to some extent by the Rhodium price and that has been soft since the peak back in early March. See images attached.

New car sales have impacted the demand but Liberium is of the opinion that new car production is about to pickup.

Against this you have to weigh the possible political uncertainty of a country like South Africa, enviromental issues will hold back some ESG types (not me), and the possibility that they will run out of raw material and it is the latter which weighs, IMO unfairly, on the price.

I won't be topping up for obvious reasons but if I was younger I could see me putting a 1/3rd of my pf into this. Sorry if this seems rampy, it is not meant to be.

timarr

Sylvania Platinum (LON:SLP) Against this you have to weigh the possible political uncertainty of a
country like South Africa, enviromental issues will hold back some ESG types (not me), and the possibility that they will run out of raw material and it is the latter which weighs, IMO unfairly, on the price.

You also have to weigh:

The research into replacements for their output in fuel cells
The exchange rate risk
The need to continually replenish their feed material as yields drop
The fragility of the power generation capability in South Africa

In the end it's a small mining related stock. No matter how good it looks, it's high risk.

Snazzytime

Sorry if this seems rampy, it is not meant to be

Not rampy at all. Simply comes across as rather rose tinted.

For me Sylvania Platinum (LON:SLP) holds little attraction due to country risks and is in a volatile sector I'd rather avoid.

The South African economy is weak, politicians are corrupt and they have an energy crisis much worse than Europe.

I have friends in Cape Town where they continue to have multiple daily power cuts (known as 'load shedding') and has become a way of life. Basket case country.

yiannos1

Hi Michael,

Sylvania is a great company that will generate amazing free cash flows for many years and any expansion will easily be funded from these flows (very important for any company).

Do not listen and do not get carried away about people claiming that South Africa has political uncertainty ( it is certainly more stable than the UK’s ).

Hold on to it and enjoy the future dividends, the special dividends and the share buybacks.

Yiannos

KevinS1

Not sure if this will help Michael, but I leave my browser on the SCVR page, but whenever I come back I will immediately click on the "Discuss" option down the menu on the L/H side - this immediately takes you to the summary page so you can see a) any new posts and b) how many new entries to the SCVR (or any other post) since you were last on the page.

This way I normally see Edmunds article at a weekend soon after its posted and also allows me to re-visit any past articles that have new commentary - then I just scan down the entries looking for the latest time stamps.

For example, I hadn't been on the SCVR since mid-afternoon until 5 minutes ago and it told me there were 8 new posts, so I just scrolled down the SCVR until I found anything with a time-stamp after about 5pm tonight.

Sorry if that's of no help.

Just because they turned down an interview with Paul doesn't necessarily mean they 'fail to engage with PIs' , so I wouldn't be that dismissive. They probably get all sorts of requests and can't accept all of them. That said, I don't think I've seen them on Investor Meets Company or similar sites, so perhaps they do need to up their game on that front.

DaviStoVest

1st Nov '22

I also hold a significant (for me) amount of Sylvania Platinum (LON:SLP) in my portfolio and have been very happy with its performance. It's risky of course but I think achieved and prospective returns are a very fair reward for accepting that risk. Realised profits, in the form of dividend distributions, have more than covered my initial outlay ... in addition to substantially greater paper gains. The company continues to perform well and I am very happy to continue to hold as one of my largest investments.

That said, your tolerance of concentration risk is clearly much greater than mine. Sylvania Platinum (LON:SLP) represents about 8% of my total portfolio and if this rises above 10% I will trim and take some profits to invest elsewhere when things look propitious. I am pretty confident about SLP but I still don't want to keep too many eggs in any one basket. Experience tells me that my own confidence level is a somewhat imperfect indicator of how any stock will actually perform.

Funnymoney

Both Sprott and Yellow Cake have no economic purpose other than to squeeze the market. This may get you to $100/lb but probably no more and it would be best to sell into that rise. The Kazaks are able to produce at <$10/lb ( and are still 10% below their previous output). Nextgen (NXE.TO) will hit the market later in this decade with 30m lbs and will produce at about $10/lb. McArthur River produces about 15m lbs. So the biggest producers would be producing at about $10/lb but the bulls think the previous high of $140/ lb can be taken out. One has to set that figure against the fact that every other potential project in the world is economic at $75/ lb. The bull case rests on either a mania gripping the market or a very big fund throwing say $2bn at Sprott and being able to get out at a profit in the aftermath. You also have to remember that the Kazaks can get an ISR into production in about a year so are able to ramp up quickly to meet demand.

There will be a lot of crap junior miners that could rise if the price increases, but you would still be left with an asset designed to mug you off rather than a productive resource. The whole area is spiv central.

Tommy H

Thank you, this is great food for thought for mum's Pension (ISA), only challenge I have is that IWeb took Twentyfour Select Monthly Income Fund (LON:SMIF) off their dealing list, as they said it was inappropriate for individual investors. I only found out when trying to top up at lower values that they had stopped this.

Same applies for NB Global Monthly Income Fund (LON:NBMI) and Amedeo Air Four Plus (LON:AA4)

Maybe need to move the money to somewhere better with more range...

Cheers

Tommy

ken mitchell

2nd Nov '22

Apologies for the late reply. That’s nonsense. Investment Trusts are generally much safer investments than single shares. Every competent broker lets their clients buy and sell them, and trade them exactly the same way and with the same dealing charges as for single shares.

The biggest Investment Trust is in the FTSE100 and several are in the FTSE250.

Also, look at the Stockopedia scores for each Trust, including Twenty Four Income and see that they often score well.

Small Cap Value Report (Mon 31 Oct 2022) - CRPR, ARB, ESP, SAG, TPG, LOK

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Paul Scott

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