Small Cap Value Report (Thu 17 Nov 2022) - BEG, FIF, WATR, IKA, CRST

17th Nov '22 by Paul Scott

27 comments 6957 reads

Good morning, it's Paul & Graham here!

Today's report is now finished. Sorry we had to cut a few corners today, due to Mello, but hopefully we still covered enough to keep you happy!

Autumn Statement day, which I'm listening to. I'll probably comment on in this weekend's podcast, once I've studied the detail. Here's a snapshot of what I jotted down during Hunt's speech -

It's a half:half mixture of tax rises & spending cuts, totalling £55 bn.
Investors are being hit with effectively the phasing out of both the dividend allowance (£2k to £1k, then £0.5k over 3 years), and the same for CGT allowance (£12.3k to £6k to £3k) - that's a nasty measure, which will particularly hurt small investors.
High earners also hit, with the 45% rate of income tax threshold falling from £150k to £125k.
Income tax personal allowances frozen for another 2 years, so a big continuing stealth tax there.
Windfall taxes increasing from 25% to 35% for energy company profits, and a new 45% windfall tax on electricity generators, combined will raise £14bn next year.
Business rates revaluation will go ahead in 2023, which he claims will help smaller shops & pubs pay less.
Nuclear power prioritised, with Sizewell C going ahead.
Largest ever increase in national living wage, to £10.42
Pensions triple lock maintained, increasing it by £872, largest ever increase (but it would be, in £ terms)

Those struck me as the main points, but I'll look at the detail again at a later stage.

Agenda

Paul's Section:

Water Intelligence (LON:WATR) - a detailed Q3 update, which is in line with expectations for profit. Shares look expensive, but the track record of earnings growth is impressive. Probably priced about right. No divis.

Ilika (LON:IKA) [quick comment] today’s update looks awful. Expecting a £9m EBITDA loss for FY 4/2023, with projected £14m cash remaining at that year end. So the cash runway is looking like it will be back with the begging bowl (again) probably in late 2023 or early 2024. Ilika has been promising jam tomorrow as a listed company for 12 years now, but not delivered anything of commercial substance. Occasionally there’s a speculative mania in its shares, e.g. last year was the biggest ever. It’s down almost 90% from that peak now. The market cap is £43m even after today’s 40% fall. Anyone buying or…

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ISAallowance

17th Nov '22

"That looks a no brainer, not a huge deal so not sure why Wynnstay felt
the need to raise 10 million (think it was that ) in the recent
discounted fund raise ."

Seems like they didn't close a potential larger acquisition, from today's RNS:

"The acquisition of Tamar is the potential acquisition referred to in the
Company's announcement of 17 August. The second larger potential acquisition
referred to in the same announcement is no longer under consideration as
commercially acceptable terms were not reached. The Company continues to
review a number of acquisition opportunities that meet its strategic
priorities."

planetx

They just have such a great track record of profits and dividends Im happy to sit and hold.

They dont seem to be valued on this years bumper profits at all but future profits which are in their forecasts at normalised levels .

As a 10 year hold I cant think of too many AIM shares with such a good track record, and the IHT cover is a key factor, and they just keep building and making these little additions at great prices , integrating into the overall and just building it nice and slowly.

Personally I think they will maintain higher profits than forecast and the "one off bumper" profits will not be as one off as speculated . But thats a "nice to have" and as a 10 year steady away sit and hold and forget about it holding its one of my favourites ,

Robert W

Integrated Diagnostics Holdings (LON:IDHC)

I know there are a few of us that follow/hold this share. Q3 results this morning. They delivered a net loss over this quarter and a significantly reduced operating profit (from being very profitable up to this point). Reasons are two-fold: one a (one-time?) large charge to exchange Egyptian £s into dollars to pay the dividend (I assume this is a consequence of getting caught the wrong side of the large devaluation of the Egyptian £, although they don't say explicitly). Two: operating costs have gone up very significantly ahead of revenues. On point 2 they explicitly say that "despite the more than 50% depreciation in the EGP since March 2022, we have refrained from passing on the burden to our patients through price increases during the past months.". So in my opinion there is a significant risk that they will be barely profitable at the operating level next quarter. There is even less chance ( I would say zero) of them hitting the current broker forecasts.

Titon holdings

Some stock available today at 77.5p. , doesn’t normally drop this low .

Sub 9m cap , stuffed with cash and freehold property and making profits .

Harwood and Jupiter have been building stakes .

Illiquid micro cap value trap so be warned but looks a good entry point .

The window ventilation they make has just become a regulatory requirement .

I’m liking it a lot and Harwood don’t mess around .

Silver Moon

Titon Holdings (LON:TON) I hold. Had to add this so I could right click on the link and then chose to get it in a new tab. It's all about functionality really. Having checked, the Board have been in place for a matter of months, the float is low and the spread wide so tomorrows Taylor Wimpey (LON:TW.) dividend is likely to be added elsewhere.

FREng

planetx: re Titon Holdings (LON:TON) I don't see stake building by Jupiter in the past 12 months RNSs, only that they have just taken over as fund manager of Northern Trust. When were the RNS showing stake building by Jupiter?

eParo

Wonder what's put a rocket up Mulberry (LON:MUL)? Can't see any news. Bid coming?

Aislabie

I am unable to judge whether Ilika (LON:IKA) actually has world class technology that makes it real player in the race for a solid state car battery ( for example). But regrettably I am fairly sure that even if it is world class Ilika is taking a very gentlemanly British pace to achieving what management appears to project as a jolly interesting solution to the problem, with a five year build to viable production business.

If it is the real deal then we need a fire breathing entrepreneur who can find a billion dollar backer and a burning desire to get insanely rich - as fast as possible. There are not a lot of Bezos/Musk/Zuckerberg types in British industry (more’s the pity) but IF the technology is good we sorely need one here. If the technology is not a world class solution then five years is far too long to decide.

Indie

Thanks, Robert W, for calling out these important details on Integrated Diagnostics Holdings (LON:IDHC) (I hold). Good growth, though.

MiserableJacktPotato

The smaller batteries are more important. Get them going and they'll pay for Goliath.

Not a holder but have held in the past.

Spread is wide yes , float is low yes - at the end of the day it’s a risky AIM micro cap and not to everyone’s taste and pretty high risk if yiu might need cash quickly

It definitely isn’t one for traders or speculators .

On the plus it’s easy to understand and the company is willing to engage with Pi , Booked myself in for a look round and was well received .

I’m happy enough as the share price is pretty much covered by property / cash and I’m a huge fan of Harwood so will follow where they go .

But I’m not going to keep it pretty low key for now and not put the kids inheritance into it .

They also seem to have had a bit of an ERP systems meltdown this summer which I have experience of and that should be a one off issue

It’s just a decent each way long term bet and I can understand the business .

Tommy H

I think as a people business, and having a friend who works for a similar company, is how flat out that you can make your staff work?

From my friend, poll of 1 obviously, he is flat out busy has been for a long time, his team are, and doesn't matter if more work comes in it just joins the queue. To grow you have to poach from someone, solves an immediate problem until one of yours goes the other way. So they tend not to bother with that approach.

A trickle coming in from the bottom, but takes years to get the experience and qualifications, so hence quickest way is just buy up the small local practices, keep the contacts with the solicitors that refer, and look after the existing teams so they don't want to leave.

Or to liken to my own trade, Construction, when the government announces that they are going to increase expenditure within a particular sector from £100m/year to £1bn/year it is like and who the beep has the staff to do this??? We do not want a wave, but it makes nice reading if you are trying to put a spurt on the SP.

Overall a happy holder, been in and out a bit, and just have to learn to ignore the short term stuff.

Tommy

Begbies Traynor (LON:BEG) I hold

wolfspirit

Yep - I think they should focus on the niche of the smaller ones, the big batteries are a massive capital sink with way more competition, that will be won by the Chinese. The medical scenario is one that is heavily regulated, that would suit the "steady as she goes" approach. There seems little fire in this one's belly.

Oh course the UK govt are backing a competitor (£100m) for multiples of the Ilika (LON:IKA) MCap. Oh wait - didn't that hit the buffers?

https://www.constructionnews.c...

I heard someone bought a bag for his wife and daughter - given the price of them, that's what led to the SP increase! :-)

Derek12

Perhaps some one can help me being newish to investing and not the best maths person in the world. I'm looking at Severfield and from Stockopedia stock reports, plus Severfield balance sheet and even their last annual report they are reporting NO CASH. How do they operate with no cash. If im being thick please forgive me. I also do not know if i'm informed to a reply to this note or have to keep looking. Thank you

yiannos1

They have negative working capital.

Antehelion

totally agree, I don't doubt they have a solid revenue base and good expectations of uplift in the future but I've always looked at this on a p/e basis and thought "jam tomorrow" in terms of valuation Vs reality. The market seems to have lapped up the "just around the corner" narrative seemingly though..

Breakout Trader

19th Nov '22

the issue I see with begbies’ update is that revenue was only £58m. That’s a 12% increase on h2 2021, but is basically flat on h1 2022 (£57m), whereas the trend has been steady increases for each of the last 6 or 7 6-month interims.

I was expecting a decent increase in revenues versus the prior 6m. Perhaps they’re working at capacity for the workforce they have, or they just had smaller cases to deal with. We’ll see.

I still hold, as the economic landscape suggests they should do well for a while yet, but I was hoping for better.

Snazzytime

20th Nov '22

hi Derek12

re Severfield (LON:SFR) - you are correct that on their latest balance sheet they do not have any cash balances. However they do have £9m of long term debt and £6m of short term debt (both net of lease liabilities). Hope that helps.

Snazzy

Small Cap Value Report (Thu 17 Nov 2022) - BEG, FIF, WATR, IKA, CRST

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Paul Scott

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