Small Cap Value Report (Thurs 1 August 2024) - VLX, GMS, RWA, PAY Movers: RR., GILD, COA

1st Aug by Paul Scott

120 comments 9574 reads

Good morning from Paul & Graham!

** UK base rate cut today, from 5.25% to 5.0% ** MPC: 5 voted for a cut, 4 for a hold.

Excerpt -

In balancing these considerations, at this meeting, the Committee voted to reduce Bank Rate to 5%. It is now appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures.

Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.

Explanatory notes -

A quick reminder that we don’t recommend any shares. 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 (usually) between £10m and £1bn. We usually avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech, investment cos). Although if something is newsworthy and interesting, we'll try to comment on it. Please bear in mind the "list of companies reporting" is precisely that - it's not a to do list. We typically cover c.5 companies per day, with a particular emphasis on under/over expectations updates, and we follow the "most viewed" list of readers, so if you're collectively interested in a company, we'll try to cover it. Obviously with the resources available, we can't cover everything! Add you own comments if you see something interesting, and feel free to discuss anything shares-related in the comments.

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…

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yiannos1

1st Aug

What does the yield curve in the US has to do with a Labour government in the UK??

All the best

Charles Mitchell

The cut has been anticipated for a while-and with lower rates maybe companies will start investing again-and create jobs.

Totally different opinion.

Early days and this is this the beginning of a bear market in the US that will accelerate after the presidential elections. I am not totally convinced though that this will affect the UK stock market as negatively as it used to.

These daily up and down movements of over 1% in the US are very bearish indeed. The first rate cut is usually the end of the bull market.

Yiannos- and that makes a market. I am not so negative as you- Labour will spend cash on infrastructure. Tax remains to be announced. I suspect the IHT pension loophole, probably dividends from private companies- I benefit from that, but really do not get why i should only pay 8.5% tax. Increasing the rate of IHT would be negative. CGT is probably another area rates will rise. Only time will tell.

john2

'the yield curve is uninverting, which often precedes a recession'

I am puzzled by this. I'm no expert on bond yields and I'm not arguing with you, but I always thought that an inverted yield curve predicted a recession.

The US yield curve has been inverted for around two years without producing a recession, even though many people thought the S&P overvalued. I assumed that this was because of the outperformance of the magnificent 7. Now we are being told that the uninversion of the yield curve presages a recession.

What on earth is going on? It's beyond my puny brain.

Andy Howe

BenHazz. Looks like it's a global sell off. US all indices significantly down. In my humble opinion it's because of the heightened threat of war in the middle east.

Hi BenHaz. In my humble opinion it's the increased threat of war in the middle east. All US indices are all currently significantly down.

Bouden54. The weak US data has usually been a reason for the US market to rally previously as the expectation for a rate cut increases ie the economy is weakening and the jobless number increasing. Per my earlier post I think the markets falling is most probably because of the increased threat of war in the middle east.

BnB

The uninverting of the yield curve immediately presages a recession (but not always) because that is the moment when long yields tumble as the fed is panicked into rapid cuts, having held them too high, too long

I held MERC, sold after 2 years at a loss. Despite several emails they never replied. I would never buy again. These companies need to improve they way they respond to the owners.

StrawberryDreams

Ooh wonder what they're filiming.They were filming a Bollywood movie down near Brighton the other weekend.Richmond is popular for filming though, assuming you mean Richmond in Surrey and not in Yorkshire?Miss cycling along the Thames pathway and walking around the park since moving.Hopefully results will be good.Zoo Digital (LON:ZOO) has maintained its gains from its bounce off the bottom for a good while.

Sorry BnB, that's clear as mud. An inverted yield curve occurs when long yields are lower than short yields, so if long yields were to tumble the curve would be inverted even further, not uninverted.

Sorry, I meant short, not long. Well, they both fall, and fast. But the short more than the long. Apologies for the confusion.

Bouden54

You're right an inverted yield curve is seen as a good medium term predictor of a recession over say the next couple of years, but curve has historically un-inverted just at the point when the recession starts (I guess the rationale is that the market starts to price in imminent rate cuts to combat recession - this pushes down short term yields faster than longer term yields).

doctor dave

Paul and Graham's performance this year amazing! Mr Thompson has had a bad couple of years with his Bargain Shares. Prior to that he has done pretty well over ten years, But as share picking is his job, I'm sure he must be disappointed by the last two years. I don't think the comment was unfair at all the performance graph of the portfolio he chose is definitely underwhelming this year! DD

2nd Aug

Give us a graph of his alpha report picks.

Viz

Nope.

Caper4

A new TV series yet to be named and a film. Took over Richmond theatre for a few days and also the restaurant on the Thames that is on a boat moored by Richmond bridge .

Rusty2

Where is the graph? IC don't publish anything apart from his bargain shares of the year. ST could not see anything wrong with Globo, even though their were loads of red flags, Paul Scott was pointing them out to him. Also a load of Chinese companies that went bust.

Boohoo (LON:BOO) was 50p when first reviewed by Paul? Went up to 300p.

Paul and Graham's share picks for 2024 are both up around 35%.

intuitive6191

That's interesting - and provides a possible explanation of some peculiar planning correspondence received recently fromm my local Council. It contained many errors and the event dates were all wrong. It was well below the usual standard of communication from this department.

I have now added a standard line to the bottom of all my correspondence requesting that any AI generated replies are clearly stated as such. I doubt that this has any legal standing but it might help get a better quality of response.

Small Cap Value Report (Thurs 1 August 2024) - VLX, GMS, RWA, PAY Movers: RR., GILD, COA

Explanatory notes -

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