Small Cap Value Report (Tue 13 June 2023) - CMCX, TAM, IOM, DRV, VNET

13th Jun '23 by Paul Scott

58 comments 7179 reads

Good morning from Paul and Roland! (Graham's on holiday this week)

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.

What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.

Green - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced.

Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.

Red - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

Summaries of main sections

CMC Markets (LON:CMCX)

Down 5% at 160p (£449m) - FY23 results, in line - Roland - GREEN

A solid set of numbers from this financial trading group, reflecting the impact of reduced market volatility and increased investment in IT and headcount. I think the fundamentals of this business remain strong and suspect the shares offer good value at present. (more detail below)

Tatton Asset Management (LON:TAM)

Up 1% at 460p (£276m) - FY23 results,…

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Rusty2

13th Jun '23

Thanks, I see where you mean now. How quick are these alerts, as I've had some price alerts , very late. I tend to use the Today screen but trouble is that picks up everything in my Folios, around 10% of the whole market.

There should be a box to deselect which alerts you don't want shown on the Today screen.

Feta

I see there is a very large cross in Conduit Holdings (LON:CRE) (Odey holding) today. This stock has been under pressure since the Odey news broke.

mjfgs

Dear Roland,

Thank you for your detailed reply and explanation (and sorry for attributing your piece to Paul - I was using the tiny screen on my mobile!)

Would you be concerned if CMC Markets (LON:CMCX) was AIM listed?

Other than doing an internet search, is anyone able to list the main differences between a Main Market listing Vs AIM Vs Aquis etc, particularly with regard to shareholder protection and similar please?

Bouden54

Hedging every single position is very expensive and probably wipes out half their profits. Prefer the approach of CMC and PLUS to partially hedge - you will get more volatile earnings but they tend to even out over time and in the long run be much more profitable (especially PLUS)

Importantly both these companies have robust risk management procedures in place, so they will never allow unhedged exposure to grow so large that it could lead to catastrophic losses. More likely you'll just have a weak quarter every so often when trading goes against them, but personally not too worried about that.

Ian Monico

I have had a thought on this, as it has been concerning me a little too. The one benefit of keeping them in the treasury I guess would be to prevent a potential hostile takeover. Will be useful too if they ever need to raise capital. Just hope they don't use them to pay employees or executives as part of a compensation plan.

Roland Head

Hi Mjfgs - no problem!

I'm afraid I can't answer your second question without some detailed research.

But in answer to your first question, no. Speaking personally, I wouldn't be too worried if CMC Markets (LON:CMCX) was AIM listed.

Having said that, opportunistic de-listings of even mid-size businesses can happen occasionally - FDM (Holdings) (LON:FDM) is an example where the founders took it private opportunistically and then relisted a few years later.

Ultimately, you pays your money and you takes your choice.

In my experience, the benefits of owner-management generally outweight the risk they will act unfairly towards minority shareholders. But there are always exceptions and risks. That's part of the nature of stock market investing.

Roland

BenHazz

Albemarle (NYQ:ALB) is one of my largest holdings and my largest US share, I am currently about 10% up with them having bought when Lithium sentiment was in the toilet a few months back and then the Chile news. I do see this one as a long term hold for the next few years minimum. I agree it should be much safer holding than a lot of the more speculative options around lithium.

Harry Hindsight

ALB is perking up today I think UBS positive. Also looking at Global X Lithium & Battery Tech ETF (PCQ:LIT) and Sprott Lithium Miners ETF (NMQ:LITP) who probably hold it among others - useful to track the market and if don't have time to research.

Thanks Roland...I asked ChatGPT and here is his/her/its/their answer:

The **Alternative Investment Market (AIM)** is a sub-market of the **London Stock Exchange (LSE)** that is designed to help smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility compared to the main LSE stock market³.

Some key differences between AIM and the Main Market (Premium segment) include:

- No minimum number of shares to be in public hands on AIM, while there is a minimum of 25% shares in public hands on the Main Market¹.
- No trading record requirement on AIM, while there is normally a three year trading record required on the Main Market¹.
- Prior shareholder approval is required only for reverse takeovers and fundamental disposals on AIM, while it is required for significant transactions, including significant acquisitions, disposals and related party transactions on the Main Market¹.
- Admission documents are not pre-vetted by the Exchange on AIM. The FCA will vet an AIM admission document where it is also a Prospectus under the Prospectus Directive. On the Main Market, a prospectus is pre-vetted and approved by the UKLA¹.
- A nominated adviser and broker are required at all times on AIM, while sponsors are needed for new applicants and significant transactions on the Main Market¹.
- There is no minimum market capitalisation on AIM, while there is a minimum market capitalisation of £700,000 on the Main Market¹.

Some other differences between AIM and the Main Market (Premium segment) include:

- Compliance with a recognised corporate governance code or explain why not on AIM, while compliance with UK Corporate Governance Code or explain why not on the Main Market.
- The role of the nominated adviser on AIM is to ensure that the company is appropriate to be quoted on AIM and to advise on, and to ensure that the AIM Rules for Companies are complied with on admission. The nominated adviser can be the same entity as the company’s broker (who encourages trading of the shares in the market) – and so it is important to carefully consider their selection. As required by the AIM Rules for Nominated Advisers, the nominated adviser must undertake extensive due diligence, advise the company of its primary or secondary market disclosure requirements, be available to advise and guide AIM Companies for which it acts at all times and liaise with the Exchange and the company’s other advisers.

Most of it fairly obvious I suppose.......

They arrive in my inbox as an email almost instantly after being posted on Stockopedia.

yiannos1

I don’t understand your post or logic.

Vertu Motors plc needs a bull market to go up?

raggedtp

Agreed. I put all our stocks in Folio and the RNS/RCS have been very reliable and on time over the past year.

FREng

Can a company vote its shares held in Treasury? I had thought not.

We dare not ask it what our so called conservative government has done for our country over the last 12+ years. Best not go there.

Silver Moon

To provide for boardroom share options perhaps? Certainly this happens quite a lot here and there but maybe should not be leveled at the Plus500 (LON:PLUS) management. The share count is reducing on the balance sheet and time will tell if these share buy-backs are of benefit to the shareholder, I hope so as I do hold.

Food, variable rate mortgages, govt control on what vehicle you can own, what the hell do you buy that has some future proofing other than the white elephant old tech expensive lump plugged into a lamppost but ticks your "vertu" box and keeps Chinas lithium producers in business. Ask how many battery factories they have over UK's er zero.

But sure if breaks out then were 'off to the races' and will follow with interest.

I haven’t got a clue what you are talking about (I have but they all have nothing to do with Vertu’s balance sheet or business-you are just talking daft basically).

Have a look at Chrysler’s price during the doom and gloom years!

Vertu Motors is returning about 10% p.a. to its shareholders through buybacks and dividends. The share count will be below 280m in three years time , meaning that £2 is still cheap.

The yearly free cash flow is over 15% of its market cap!

They have recently sold a property over 50% of its book value , so the NAV of 65p is way too low in real terms.

Good luck with your investments.

Seems motor manufacturers are funding miners to secure supply. And America ramping up its own resources so not reliant on imports. Hot and moving space.

Keep eye on Lithium Americas (NYQ:LAC) (General Motors) American Lithium (NAQ:AMLI) Amplify Lithium & Battery Technology ETF (PCQ:BATT) and someone Ford is sponsoring but lost the note.

As with all 'hot' markets "warning - danger Will Robinson". But you want your EV then it don't grow on trees.

14th Jun '23

Hmm, true. Hope they will just cancel them eventually. At least the management team seem to know what they are doing and buying them back at very good prices.

Looking at the Today screen, this morning, I'm getting RNS for stocks I've sold but also for stocks I have never held in my folios. No wonder I get so many.

Small Cap Value Report (Tue 13 June 2023) - CMCX, TAM, IOM, DRV, VNET

Summaries of main sections

CMC Markets (LON:CMCX)

Tatton Asset Management (LON:TAM)

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Paul Scott

58 comments

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