Small Cap Value Report (Mon 9 Oct 2023) - SCS, VLX, MCON, VTU, MIND

9th Oct '23 by Paul Scott

61 comments 7581 reads

Good morning from Paul & Graham!

Today's report is now finished.

Podcasts - it was too hot here in Gozo for me to feel motivated to do anything energetic over the weekend, so I stayed in and recorded podcasts instead! Here we are, there are 2 for this weekend, with loads of (hopefully interesting) small caps news & views.

The burning issue this morning will be what happens at Metro Bank Holdings (LON:MTRO) - press reports are giving sketchy details of a deal having apparently been done, with an existing shareholding injecting more equity to take a controlling stake (at what price/dilution?) and apparently one level of bondholders taking a haircut. We'll look into the details once they are announced. Why anyone would want to be a small shareholder in a precarious bank, is beyond me - way too high risk. I discussed this one in the weekend podcast. What does impress me however is how fast regulators are now forcing refinancings at troubled banks - so far, preventing wider contagion. EDIT: apparently new shares will be issued at 30p, so not a bad outcome at all for existing shareholders, at first sight - but why did any small shareholders take the enormous risk, when they didn't have to?

Graham went into more detail on MTRO refinancing in his daily youtube show (recording here), flagging that he went AMBER on MTRO last week, because he thought the balance sheet numbers weren't bad enough for it to be a zero. Since a solvent solution for equity does seem to have been agreed over the weekend, thanks to a white knight investor buying new equity in what will be a controlling stake, then I suppose Graham's view has been vindicated! However, I maintain that risk:reward was terrible, since the positive outcome has only resulted in (at time of writing) a 16% gain in share price to 53p, which in order to have achieved this gain, shareholders ran a very big risk of a 100% wipeout. So regardless of outcome, risk:reward was terrible on this trade!

Reminder for Mello Monday - starting 17:00 tonight - 2 interesting companies presenting, both of which we've reviewed recently, Equals (LON:EQLS) and accesso Technology (LON:ACSO) . Also a guest interviewee, who David tells me has lots of interesting insights.

Graham's Youtube channel - I think…

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Trident

9th Oct '23

Whoops. You're right, shame I can't blame a hacker for it!

eParo

Any followers / investors in SDI (LON:SDI) here? Graham last reviewed them on 8th August (AMBER) when price was 122p. SP has cratered by 35% since with Mkt Cap dropping to around £87m now. There were big insider sales in Oct last year but no meaning buys this year.

Tommy H

Are there any holders of NB Global Monthly Income Fund (LON:NBMI)

I have just gone through the corporate actions last month and I am missing about 5% of my holding following the recent corporate action. I have just followed this up with AJ Bell today to query what has gone on. Just wondering whether everyone else had the transaction go through fine or not?

I also went back through the previous actions in March, May and July and the balance pre/post redemption was correct for all three, including the fractional.

Thanks

Tommy

Anthony127

I concur with your view that J D Wetherspoon (LON:JDW) is currently undervalued. I have recently turned up at some pubs expecting to have a civilised pre lunch drink only to find that the pub can't be bothered to open until noon. This is clearly not a problem with JDW as they always seem to be open.

My main reasons for thinking the share price is undervalued are:

a. The share price is currently languishing at £6.35 whereas it's pre Covid share price was £16 plus, and I believe that the share price will revert to the mean.

b. Tim Martin the Chairman of the company has bought £18m plus worth of shares this year at depressed prices which suggests to me that he has a lot of faith in the company.

c. JDW shares its scaled economies with customers.

d. Two pubs a day are closing in Britain and I think that those entities that survive will do very well.

e. The gradual return to working in the office should enhance sales.

On a recent visit to London I had to walk out of a Wetherspoons because the the pub was so crowded and I couldn't find a spare table even though it was a Thursday.

I think investors will need to be patient though as the Business Cycle is turning very slowly.

rmillaree

J D Wetherspoon (LON:JDW)

This is clearly not a problem with JDW as they always seem to be open.

I was a little upset last year when trains to london were delayed when i was going to see Pearl Jam at Hyde park and they refused to sell beer before 9 am unless i also bought a full monty breakfast. Perhaps thats just policy in Newcastle keeping the drunks out first thing. Hey ho they were happy to let us sit there and have a coke.

Unfortunately you need to factor in the extra shares in issue compared to pre covid - there is 20% plus more shares now in circulation so on lfl basis if they hit 80% of prior highs thats probably pre covid peak equivalent if you are expecting that they will revert to mean. I also think with higher interest rates they currently have to work harder to stand still ref debt - hopefully rates will come back down but no sign they will get as low as they were previously.

Patrickmylnetrade

That’s one of the values of mojo’s contributions. He seems to always have a unique take on stocks. Which you could love or hate but differing opinions helps fight group think. I’m always interested in mojo’s comments even if I disagree with them ;)

af20001

I thought Impax Asset Management (LON:IPX) had done a pretty decent job at limiting their outflows - certainly way better than the Fund Manager I work for has :-(

Aislabie

Thank you for the response Boon, regarding MTRO. I will cheer from the sidelines as I just don't see enough demand for their street front services, but maybe if they really are the last man standing they can mop up enough to cover what I consider unnecessarily high overheads. Especially if they are the last resort I can see no reason for them to be at street level in a high footfall high street.

I am probably biased against their chances since on a personal basis I don't believe I have been into a bank more than once a year for the last decade.

jamesalastair

Because of the amount of time spending due diligence - which can be weeks, even months to find that a company you expect to hold for years gets taken out a few weeks after you have bought it. I find this profoundly irritating. I am not a trader - some shares I have owned for more than 10 years

There is absolutely no need to be rude here, It demeans you.

Energean absolutely hammered.....down nearly 18%. Their off shore infrastructure must be a vulnerable and tempting target for hezbollah, should their Iranian Quartermaster instruct them to start another front. Gas and oil prices are up after a difficult week. We have two sets of family friends in Israel and this is horrific.

It's the dry humour I love.

Mark L.

Takeovers of quality companies are a scourge on the UK stockmarkets. The LSE is not replacing the delisted companies with fresh 'good' stuff.

As a result the pool of 'good' stuff on the LSE is reducing, and we're fishing in ever lower quality waters.

Ask yourself this. Would you rather have Cadburys Schweppes in your portfolio now, or have received cash for the takeover with 30% premium (or whatever) a couple of decades ago? Same could be said of ARM , Reuters etc etc.

Paul Scott

Hi rmillaree,

Interesting to see that Pauls comments friday that he thinks J D Wetherspoon (LON:JDW) is probably overvalued.

Except I didn't say that it was "probably overvalued"!

I just said it looks fully priced, i.e. price is up with events, in my view.

As you discuss in this thread, if you think earnings are set to strongly rise, then that could justify paying up for it.

Regards, Paul.

Wimbledonsprinter

Tommy. I hold and the payment looks spot on to what I was expecting. (Do not hold with AJ Bell).

SaarfLondon

10th Oct '23

Fair comment James, but I cannot be told "I need to overhaul my approach" when I have been successful over a long period (long and short). Nobody is aware of my risk appetite or capacity for loss.Everybody needs to work within their own comfort zone

apologies for this misquote there - in my defence i had at first copied your exact comments but somehow lost the contents of my post and made a hash of it the second time around.

mojomogoz

Get a grip man SaarfLondon. I'm amazed with your chippiness! I thought you were just messing rather than being upset but turns out you were upset. So, with that hindsight, turns out you were the only one being rude. It was pretty clear that I was giving a view and then jesting a bit and exaggerating about it. At no point were you told to overhaul your approach...I was stating I don't follow it and don't like it (for reasons given).

Maybe discussion and disagreement isn't for you until you've built your confidence a bit more ;)

(NOTE: the last sentence is a subtle dig...tho its not subtle anymore as I've explained it and owned it for the plodders in here...I expect a bit of pearl clutching outrage from somewhere)

PitBullCH

11th Oct '23

Yes the weakest link is always human: e.g. those C-suite managers that are forever clicking on spear-phishing links despite all the training you give them !

However IT know all that, and they have to plan for it and plan mitigations for it.

In the case of Volex it sounds like they were pretty successful: no operational impact suggests whatever happened was contained, and if they did need to recover any critical systems they were able to do so from immutable / offline backups. Many companies are not so successful.

U crazy rascal - I thought I was back on Twitter

Small Cap Value Report (Mon 9 Oct 2023) - SCS, VLX, MCON, VTU, MIND

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Paul Scott

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