Small Cap Value Report (Thu 11 Jan 2024) - NGHT, TSTL, SPA, LORD, POLR, TRST, MER, XPP

11th Jan by Paul Scott

71 comments 9519 reads

Good morning from Paul & Graham!

Let's leave it there for today, before my elderly PC (or me!) blows a gasket!

Mid to large cap news so far this year strikes me as pretty good, which is encouraging for the overall economy, and hopefully smaller caps too - eg.

Larger housebuilders - are much higher share prices up with events now? -

Persimmon (LON:PSN) - y'day seemed surprisingly upbeat - reported FY 12/2023 completions (sales) ahead of expectations, albeit 33% down on 2022. Its outlook sees "highly uncertain" market conditions in 2024, but mortgage rates easing is already helping demand. Build costs moderating. Shares have risen 54% since late Oct 2023!

Taylor Wimpey (LON:TW.) - Today says FY 12/2023 operating profit at top end of guidance (£440-470m), which it says is in line with expectations. Uncertain market conditions, but improving mortgages outlook & enquiries. Order book is reduced. Planning system "extremely challenging" - slow. Build cost inflation almost gone, at 0-1% on new tenders, but 4% in H1 2024 due to time lag. Also trades in Spain, which I didn't know! Net cash £678m. Optimistic medium & long term, PSN said the same thing. Shares up 42% since late Oct 2023 low.

Big retailers - as you know, last week we had -

Next (LON:NXT) reporting a good Xmas & raised guidance, but

JD Sports Fashion (LON:JD.) warned on profits & plunged.

This week so far we have -

J Sainsbury (LON:SBRY) - yesterday it reiterated full year profit guidance at £670-700m. Groceries did well, general (mainly Argos) struggled. They offset. Shares dropped about 6% y'day on this news.

Tesco (LON:TSCO) - today says it traded well over Xmas, and raises retail op profit guidance to £2.75bn (previously £2.6-2.7bn). "Cautiously optimistic" about consumer spending in 2024.

Marks and Spencer (LON:MKS) - strong sales growth, esp groceries. Increased costs. FY 3/2024 looks in line with market expectations. Uncertain outlook for FY 3/2025, and increased costs, esp labour & business rates. Shares down 4% in early trades, after an excellent bull run since Oct 2022, up >150%!

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…

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Burnt Onions

11th Jan

Hi Yiannos1, Cavendish Financial (LON:CAV) I have a small position at 10.5p so it's on my radar but I can't find any research on it and I have no access to forecasts and thus no idea what it's worth!

From the last results they mooted £7m savings post merger and they had £17m in cash against a £40m mkt cap, numerous small director buys but they have been losing money.

However the investment thesis is very interesting, they have gone from being 2 small cap brokers competing on price to becoming the largest AIM broker. This must give them better pricing power. Furthermore if after two years of no IPO's and minimal placings you think this is going to change and this year we will see a lot more corporate action in the AIM sector then these guys will be the obvious beneficiaries, operationally geared etc etc

I will probably add on positive news flow or if I see a lot more activity in the small cap sector, until then it's wait and watch.

Nursemaid

Burnt O. Excellent post! the previous version of Stocko. used to provide golden cross indicators and I miss them! I have no idea why they ceased ?

Charles Mitchell

Anyone looking at investing in Fund Management groups might want to look at this annual survey by the Investment Association. I found it will doing some research into the listed UK fund management sector. https://www.theia.org/sites/de...

ed_miller

"This used to be on the old Stocko site, seems to have been lost in the move.

"There were various chart indicators, that were quite useful."

- Ed Croft said they were very little used, but I tried to remember to review those charts displaying Technical Indicators such as Golden Crosses regularly, and I hoped to use them more to improve my lousy buy/sell market timing.

I certainly miss their absence in the updated version of Stockopedia, but they suffered from a lack of a prominent link on the homepage - out of sight, out of mind.

I should think many subscribers were even unaware that functionality had been available to them.

Chrisfarrell21

Thanks for the review on Polar Capital Holdings (LON:POLR) Graham. I did instinctively feel surprised this morning, at the large outflows in Q3. I bought it last July for the (i) big upside once markets get back into full swing, and (ii) the whopping dividend. I've posted before about this, so some of this is repetition.

I think (i) is a given, we just have to wait long enough. In relation to (ii), the dividend clearly is at risk but how much risk is still not clear. It's not covered by full year earnings, but the company stated in the annual results:

"The Group's dividend policy is to pay an annual dividend within a range of 55% and 85% of adjusted total earnings, dependent on the scale of performance fees in the relevant year and the anticipated trading conditions for the following year. Where appropriate, the Group will consider using its balance sheet strength to support the dividend."

They seem to be ignoring the 55%-85% rule. Last years dividend was 100+% of adjusted earnings. I had previously focused on the adjusted total earnings bit, because last year this gave significantly increased EPS when compared to basic EPS (last year, basic was 36.8p, adjusted was 44.3p). It's not clear whether the upgraded EPS forecast of 38.2p for this year is intended to be adjusted earnings, or unadjusted, so it's hard to make an estimate on this.

But today's performance fees are much larger than last year, so they may be feeling rich. That depends how much the outflows have surprised / scared management, but that's impossible to know right now.

I think if they decide to cut (rebaseline is the current way of pretending you're not cutting) the dividend, the share price would fall significantly, which I assume they won't want. Given they've said they would look at supporting the dividend from cash on the balance sheet, which they have quite a bit of (£70m at the half year), I'm hopeful (no more than that) that the dividend will be safe.

Cheers

Chris

planetx

EKF

I’d see it as positive

Mills and his team are pretty savvy at engineering exits / sales

They will not sit back on hold but will Engage with management and get this into play

andrewjames

Paul, As to your comments on the RNS issued yesterday announcing the sale of @Tristel (LON:TSTL) shares by the CEO (Paul Swinney) and the CFO (Liz Dixon), are you aware of the fact that the two are married and so the sales are linked? There were two late trades yesterday, each for 90,000 shares, so it looks as if the shares were placed and that there may be another disposal to be announced.

Michael C

Interesting history of Mills' involvement. I remember him pushing this business ages ago in one of his interviews with Paul Hill when he was saying how knowledgeable about enzymes the CEO was, then the wheels fell off with the core business underperforming and the new South Bend facility going way behind schedule. The CEO is now changed, the previous one now focusses on South Bend IIRC, and I'm guessing this is one Mills will want to put behind him before too long (but not at 30p).

davidjhill

Super - thanks spglet. I did not know that but now I do I will have a look and run it. I like the 50 day MA to time trades particularly if it is close or crossing the 200 and looks a bit like a bowl with volume picking up.

Shore Cap do a full deep dive into the business and they estimate any payments will fall to £1m p/a in 2025 and beyond. Stated objective is to move the pension deficit to an alternative provider. Whilst the scheme is now heavily in surplus from an Accounting perspective it was in 2021 under an Actuarial deficit circa £25m I think. This should be materially lower at the next triennial (this year) given bond yields and LDI.

But nonetheless expectations are for another year at £2m and then max £1m p/a.

littledavesab

It's certainly doing a hellalot better than Jupiter!

Tortoise investor

That's v helpful thank you!

Jonniegul

12th Jan

Quite some time ago there was an article written about Golden Crosses here on Stocko. I don't remember when exactly or who the author was, but the gist of the screen is 50dMA / 200dMA > 100%. It's easy to set up using the screen functions and add any other parameters you may wish (market cap, etc.)

Regards, Jon

Rusty2

But that picks up every stock with 50dMA above 200dMA, over 500. What we want are ones just crossing or just below. Limiting it to less than 101% helps but still 50.
I did find this: https://www.stockopedia.com/le...

Indeed Rusty2. Spglet posted a better version, which had I read before posting, would have saved us both some trouble!

Certainly limiting the results as you suggest is a good idea!

A cursory glance at the article you found, but it's not the one as I recall, which included some screens

I did try that but it selects 757 stocks, unless I'm doing it wrong.

Paul Scott

Thanks Michael!

Yes we've pulled out all the stops, and have the accelerator flat down!

Thank you for the encouragement, much appreciated!

Regards, Paul.

14th Jan

Hi again Rusty2,

I think you're doing it right, I get the same results (can also be wrong of course!)

The OP was more related to stocks that were already on a watch list, that now indicated a golden cross. I've tried playing with rules, but cannot come up with something that provides what you are looking for, other than applying limits (98% to 101%), results in 162 stocks. Adding a rule for 10d/3m average volume can bring the results down, my idea being volume increases are also generally a favourable indicator.

Thanks. Yes I think volume is something to consider as well. One I've just seen that is close to golden cross and has a lot of recent volume is Greggs (LON:GRG), I don't hold at the moment.

One to watch Zotefoams (LON:ZTF) I hold.

Sharewallah

20th Jan

Tristel (LON:TSTL) The CEO and CFO are married so that would explain why they are both selling shares on the former's retirement.

Small Cap Value Report (Thu 11 Jan 2024) - NGHT, TSTL, SPA, LORD, POLR, TRST, MER, XPP

Explanatory notes -

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Paul Scott

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