Small Cap Value Report (Thu 23 Mar 2023) - SCS, OSI, FCAP, CNKS, SPE, PMP, EAH, SRT, WIX

23rd Mar '23 by Paul Scott

72 comments 8372 reads

Good morning, it's Paul & Graham here!

Today's report is now finished.

I reviewed SCS last night, and will shortly publish that below, once I've had a coffee (EDIT: that's now published, as always, do let us know your views too, in the comments section, especially if you disagree, we like bull-bear debates!)

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 for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

This is the stuff we didn't manage to cover today -

Paul’s Section:

Reach (LON:RCH)

Waiver of award

This impressed me, and is worth a mention. Perhaps more companies where the share price has seriously under-performed should also see Directors waive their share options?

Long Term Incentive Plan 2012 ("LTIP")
Waiver of Award Granted to Jim Mullen

On 27 March 2020 the independent trustee (the "Trustee") of the Company's Employees' Benefit Trust granted awards under the LTIP to acquire ordinary shares in the capital of the Company to Jim Mullen for the amount of 750,258 shares.
The LTIP award is scheduled to vest on or after 27 March 2023 in accordance with the LTIP rules subject to satisfaction of the applicable Performance Conditions relating to cumulative adjusted net cash flow and relative total shareholder return, as measured over financial years 2020, 2021 and 2022.
As noted in the Company's 2022 Annual Report, the indicative vesting outcome for the…

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Snazzytime

23rd Mar '23

So for those research notes that are locked you can only access them by paying a £25pm subscription?

Locked research notes do not appear to be accessible on the broker site (eg Liberum for Vertu Motors).

Paul Scott

Thanks sevenccc!

It's infuriating when companies use abbreviations which they are familiar with, but other people may not be. You would think that they would have someone in-house, or an adviser, that prompts them to add explanations for these abbreviations, when publishing material for people outside the business who may not know all their company/sector abbreviations.

I've been wondering about inverted bond yields, and it's something I've heard a lot about (as a predictor of recessions), but have never properly researched. So I decided to ask CHATgpt! This is the answer it provided -

Is an inverted bond yield a reliable predictor of recessions?

CHATGPT reply - 2 / 2

An inverted bond yield curve has been a fairly reliable predictor of economic recessions in the past. This occurs when the yields on long-term bonds fall below the yields on short-term bonds.

The reason why an inverted yield curve is considered a predictor of recessions is that it indicates a situation where investors are willing to accept lower yields on long-term bonds, which suggests that they expect interest rates to fall in the future. This typically happens when the market is uncertain about the economic outlook and expects a slowdown or recession.

Historically, an inverted yield curve has often preceded economic recessions by around 6 to 18 months. However, it's important to note that an inverted yield curve is not a perfect predictor and there have been instances where a recession did not follow an inversion, or where there was a recession without an inversion.

Therefore, while an inverted yield curve can be a useful indicator of economic health, it should not be relied upon in isolation and should be considered along with other economic indicators to form a complete picture of the economic outlook.

wolfspirit

:-) SRT Marine Systems (LON:SRT) vs Blackbird (LON:BIRD) - both decades long over-promisers (BIRD's prior existence included). Until recently BIRD (rev £2.7m) was a bigger MCAP than SRT (rev £22m).

SRT deals with very large contracts using new tech in parts of the world where things don't move with pace. Think HS2 and double the drag!

BIRD deals with TV news and sport organisations who make decisions quickly and getting an edge via tech is basic operating procedure.

Which one sounds more credible when contracts are delayed?

I am living with the fact that SRT sales cycles are years or maybe decades long capex sales. But BIRD is a SaaS model. Not sure if you can "pay for a month", but it is minimal opex investment - and they still can't sell enough to pay the bills.

Paul, I can see why you think SRT isn't to be trusted, it is a frustrating and risky investment, but I have no idea how you concluded differently for BIRD.

BIRD have no excuses other than the tech isn't what the market desires, The tech isn't delivering the benefits, they would have many more customers after 20 years.

BIRD's £10m of balance sheet cash will end up in bonus' and pension payments and they will have to send round the hat again.

FREng

Does anyone here know why there was a sharp downgrade in the 2023 broker forecasts for Cambridge Cognition Holdings (LON:COG) on Jan 31st, a couple of days after their positive trading update?

planetx

Bicycle industry distress easy to explain

- huge sales during covid so no one had stock

- everyone went Billy big balls and placed huge orders

- factory leadtimes went up to 18 months

- so huge orders placed all start arriving 18 months after the boom

- boom ends and sales rates back to normal

- there is a tsunami of backed up stock in Taiwan / China and demand is down so all manufacturers are bunged up with stock they can’t sell and more orders backed up

Moore large big wholesaler 50 million turnover 100 staff just gone pop .

Specialised cutting 8% of staff

It is Armageddon for a good couple years anyone with debt is going to be under duress if banks aren’t supportive.

Yes I know Kev very well he rode in my team in the 90s for a long time , great rider won a fair few national championships for me .

Rode 100 miles in 3 hours 22minute which is very quick

Not connected to Sureserve just got sidetracked sorry

Moore large tip of iceberg, they did an MBO At a very high price at the peak of covid and loaded with debt .

WDWombat

WIX - have you actually been in a Wickes recently? This may not be typical but I walked in to Wickes Guildford when looking for wallpaper two months ago. Few people in the store, almost no staff except one poor lady at checkout with a queue of about five customers waiting to pay. No-one to help customers. Awful place, disgusting car park, unpleasant all around, will never get my custom nor my investment.

Hi wolfspirit,

Graham actually wrote the section on SRT, whereas I wrote the section on BIRD.

The layout of the reports is always the same, every day - my section at the start, labelled "Paul's Section", then Graham's section below, labelled "Graham's Section".

Maybe we need to put the name of the writer in every section, as we seem to quite often get this problem where readers don't notice who has written each section?

Personally I wouldn't invest in either company, they both look awful, jam tomorrow things! I can't believe how long SRT has got away with dangling massive contracts in front of investors, with little actual delivery. Its validated pipeline seems to grow exponentially, soon it will be equivalent to the GDP of a small country, and it'll still be loss-making!

OR you'll suddenly make money from it, like people have been hoping since SRT floated in 2005. That's 18 years ago!

Regards, Paul.

I pay £25 per month for Research Tree, and it's worth every penny - a vital service for serious investors I think. It amazes me that people are so tight, wanting everything free, but throwing large amounts of money around in their portfolios - penny wise, pound stupid! (not you, I'm just talking generally).

Services like Stockopedia, and Research Tree, cost money to run, and I think people should be happy to pay up for quality information, otherwise such websites wouldn't exist, hence why we should support them, I feel.

The subscriptions pay for themselves many times over I find, just on one good decision prompted by information provided by them.

Just my view! (which I would say even if I didn't have a vested interest in writing for Stockopedia)

I'm not connected to Research Tree, other than pre-pandemic having had lunch & drinks with the founder, Rob, who's a top chap!

I've reviewed Luceco (LON:LUCE) (and 10 other companies!) ready for tomorrow's SCVR, following a rare burst of energy this afternoon. So I'll put those up tomorrow morning.

Right, off to get some beers & settle down to watch The Apprentice, then shout at the tele when Question Time comes on :-)

See you in the morning!

Robbie Burns

£20 a month on this link https://www.research-tree.com/code/nakedtrader

Please note I get a small bung on that link but you'll get a fiver off a month.

Agree with Paul, well worth it. After all we are running a business and the costs

are very small.

wdjm

Sounds like it might be a good time to buy a bike!

jonno

planetX I clearly got hold of the wrong end of the stick today regarding the topic of bikes; apologies for withering on about Halfords (LON:HFD) and Tandem (LON:TND)

All the best.

Alkmund

24th Mar '23

This sounds like a reasonable summary from ChatGPT My understanding is that the signal of an imminent recession is actually when bond yield curves un-invert. In other words, central banks are responding to current conditions (that things have broken etc) by now rapidly cutting interest rates. By this stage though its probably rather late to be very useful as a predictor!

:-) I stand corrected on author! It probably would be useful to have author in front of each.

I think there is a solid argument to not invest in either. They are both a bit like "investing" in a horse at Aintree!

BIRD started in 2003 - but it's heritage goes back further than that. Before Eidos got big in video games.

The out-of-town Wickes in Tunbridge Wells was reasonably busy when we went in 2 weeks ago, and the staff were helpful. A local builder has said that Howden's provide better service to him.

Just one data point. {No positions)

Rusty2

Lowestoft is always quiet, the stores have not changed in years. Staff not very helpful. Their tile selection is very poor. Obtaining certain items is very difficult.
Click and Collect was not even manned, have to collect within 24 hours, Screwfix you have 2 weeks to collect.
Screwfix I think are much better.

Small Cap Value Report (Thu 23 Mar 2023) - SCS, OSI, FCAP, CNKS, SPE, PMP, EAH, SRT, WIX

Paul’s Section:

Reach (LON:RCH)

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Paul Scott

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