Small Cap Value Report (Thu 20 Oct 2022) - LUCE, JUP, IGR, IPF, WINE, G4M

20th Oct '22 by Paul Scott

48 comments 7797 reads

Good morning from Paul & Graham!

UPDATE at 12:17 - I'll take a quick look at £G4M next, then we'll be finished by 13:00. Paul.

Agenda -

Paul's Section:

Luceco (LON:LUCE) - it's a profit warning, with broker forecast EPS reduced substantially (down 27% for FY 12/2022, and down 39% for FY 12/2023). I'm concerned about high bank debt here, although it has reduced sharply in Q3 due to reduced inventories. It's now clear that 2020 & 2021 bonanza profits were an aberration, not the new normal. Therefore the plunging share price looks justified on weaker fundamentals, and an uncertain macro outlook. The chart might look oversold, but on fundamentals, I have to say the current price looks about right to me. It could recover once the economy recovers though, and earnings forecasts start rising again - but it feels too early to be anticipating that.

Naked Wines (LON:WINE) - this troubled wine subscription eCommerce business has certainly made some progress. There's a lot of detail in today's update, with the main positives being guidance for a strong profit improvement this year FY 3/2023, and amended bank covenants which give it a lot more flexibility. Although the deeper you dig, the clearer it is that there's still a lot to sort out - especially very excessive inventories, which could contain further hidden losses. Overall though, risk has reduced, and the potential upside looks better after today's update, although some concerns remain.

Gear4music Holdings (LON:G4M) - a fairly solid H1 update, and in line for the full year 3/2022. I discuss the bull & bear points. Overall, I'm seeing the glass half full here.

Graham's Section:

Jupiter Fund Management (LON:JUP) (£495m) - in a sign of the times, another large fund manager has seen its valuation fall below our market cap limit. I’ve always maintained that the time to buy fund managers is when markets are depressed, as the subsequent recovery produces turbocharged returns for the owners of fund management companies. Jupiter is perceived as a company that lacks differentiation in the sector, which has resulted in it being a victim of the transition to passive and automated investment strategies. However, its new CEO appears determined to streamline the business. Furthermore, Jupiter is now going to start buying back its own shares. I would like to see much bigger buybacks, as…

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rmillaree

20th Oct '22

Naked Wines (LON:WINE)

yes that was my original guess too, i cant see anything madly exciting in the RNS to justify a 30% rise

Its a fact that the market hates uncertainty - if todays news has removed the short/medium term worries that may be enough to make the opinion of teh market change. If you look at the price today its still below where it was last month before the material uncertainty was flopped onto the table. In summary perhaps natural reversal of a drop that may have been overdone as the news is not as bad as peeps may have feered it could be - albeit i would not be in the slightest bit surprised if this turned out to be some of derad cat type bounce for now.

Fair play to management who released todays news - its not easy to pull one over the market so i ssupect the news today is genuinly good ref reduced risk due to pivot to more sensible plans (did they sack their chancellor recently?)

Camtab

Thanks guys. That is exactly why this is such a good board. All of your comments have given me something to think about. Good luck to you all. All the best.

Bouden54

On Jupiter Fund Management (LON:JUP) I think the low rating also reflects reputational damage relating to the Chrysalis fund l Chrysalis Investments (LON:CHRY) - I think this has been discussed on this forum before some no need to go over all this again here. Performance on their UK equity funds has also been especially poor, even allowing for the weakness in this area.

In terms of mainstream fund managers, there are several others I would pick over Jupiter, such as Polar Capital Holdings (LON:POLR) Premier Miton (LON:PMI) or Liontrust Asset Management (LON:LIO) all on similarly low ratings but better quality business in my views.

Jeremy Rea

Liz Truss just resigned.

FREng

Truss resigns. Election in one week.

TStubbs

Just a general comment that would effect quite a few shares such as IG Design (LON:IGR) Bloomsbury Publishing (LON:BMY) (no positions), packaging etc, a friend who is having her book published by T&H has had it delayed until spring, missing the Christmas market due to a paper shortage because of the war in Ukraine. This could have a knock on effect we might not see until next year’s numbers.

timarr

To be precise: Tory leadership election. My vote goes for Larry the cat.

Roger Lawson

Re £GBG. Share price just seems to be over-reacting to very minor issues. Also looking at short term issues rather than long term prospects. Might stimulate a hostile bid if share price continues to fall. I will hold for the present.

BnB

e GB (LON:GBG) - Share price just seems to be over-reacting to very minor issues

Thank you for the reply. I think all the small issues are sufficient in number to amount to a more significant level of concern. But the drop does seem rather full. Particularly in light of M&A interest in the background, though we don't know why the potential buyer pulled out.

Silver Moon

No dividends with SDI (LON:SDI) nevertheless I expect to see an SP of 200p befoer too long. I hold.

Raleigh4343

Liz Truss gone. Shortest PM ever. 5 foot 5 and 3/4s

ridavies

I hope that Mello isn't losing its appeal., One way to help ensure it doesn't is to work really hard - all of us, ME, DS and all annual holders - to up the quality of the offering. Next Monday's look the best for a while. See you then.

Epitychia

FWIW. I think we are close to the bottom in the small cap sector. The fiasco budget pushed the market down as far as it will go.

The problem is that i don't see a catalyst for a recovery. In addition, i think the US has further to fall.

Overall, strong confirmation that the underlying rules of investing are as important as ever. Diversify over equities, cash, gold and property. Only take the amount of risk you can handle. Use dollar cost averaging. Time in the market beats timing the market.

Re GB (LON:GBG) anything that mentions the dreaded words 'crypto' and their particular element of the 'fintech' sector, coupled with the clearly visible ups and downs of these horrendous sub-sectors sets me shivering. A very good product range; its the customers that make me shiver!

Gear4music Holdings (LON:G4M) for me it's all about trying to assess what their steady state of earnings are likely to be when things normalise and economic conditions stabilise. They did almost 60p during the pandemic - this looks to be a one off - if they revert to their pre-pandemic levels of around 15p then this would be worth around 150p based on a low-growth multiple of 10. However if they can get back to say 30p then this should attract a higher multiple as they will have demonstrated decent growth, so 500p could be feasible. There is arguably limited downside from these levels, but potentially a lot of upside if they can return to growth so am tempted to have a punt.

Snowbum

I found this article by Russell Napier very helpful to try and get a handle on the current macro situation. Well worth a read if you haven’t seen it.

https://themarket.ch/amp/inter...

Hope others here find it useful too.

Westway001

Thought he sat on the fence a bit too much for me…

Nanotrader09

isn't it all summed up by: expensive valuation, wobbly statement = slammed share price

21st Oct '22

That would be true if it had been expensive before the TU, but it was at a moderate valuation for growth tech already: EV/EBITDA of 16x (now 13x after the drop). Not expensive for uninterrupted double digit growth over a full decade. Although who knows about the next ten years?

I’ve bought back in which is a contrarian SELL signal of course.

Sosandar (LON:SOS) pI World podcast popped in earlier. Really strong sounding story. Took a modest amount last week after following it for ages until it bounced off recent lows. I have a feeling NEXT are more likely to jump in there after the recent Reversal from Joules. Strong October sales they say and seems to be a crowd pleaser for their target audience.

Small Cap Value Report (Thu 20 Oct 2022) - LUCE, JUP, IGR, IPF, WINE, G4M

Agenda -

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Paul Scott

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