Small Cap Value Report (Tue 2 Jan 2024) - HVO, POS. Link To My 2024 Top 20 Ideas.

2nd Jan by Paul Scott

77 comments 10907 reads

Good morning, and happy new year, from Paul & Graham! Did I get the date right above, yes! That's the first hurdle cleared.

Today's report is now finished.

Some links to start us off -

1. Ed's 10th year of running the automated NAPS system, which has out-performed all relevant fund managers over the long term. Check out this article to see which stocks it has selected for 2024.

2. Megan reviewed how the StockRanks system performed in 2023, with some interesting data and conclusions.

3. Graham's review of 2023, where his top 10 share ideas delivered a stunning 25% return!

4. My review of 2023, where I delivered a more pedestrian 17% return for my top 20 share ideas here, but a rather better performance from taking on more risk, and concentration, in my real life portfolio.

My top 20 share ideas for 2024

Remember these are just ideas to research, never recommendations. We cannot predict the future, so some shares ideas will work, and others won't.

I see it as my "best of the SCVRs", so you'll be aware of all of these shares already. The spreadsheet is now finished, it's here. I'll do a proper article when time permits, probably tomorrow.

I'm expecting some pushback on the 3 smallest items! The other 17 are all pretty conventional value/GARP shares that you'll recognise.

I have a list of 42 more companies that were good contenders for my favourite value/GARP shares, but didn't quite make it, for various reasons. So I'll do another post at some stage listing those, so masses of good stock ideas for you to have a look at are in the pipeline!

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 (usually) between £10m and £1bn. We usually avoid the smallest, and most speculative companies,…

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TEIN

2nd Jan

According to the identities allocated by Google to viewers of Paul's 2024 'Top 20' I'm a dinosaur. I'm choosing to read into it that my portfolio performance will be huge in 2024. On the other hand, extinction might be just around the corner.

rmillaree

Plexus Holdings (LON:POS)

Just seen Plexus down 17%

To be honest based on the rapid increase in sharepice recently investors should be expecting 20% moves on the slightest bit of news (its taht kind stock) . Anyone not comfortable with swings like this on perhaps "broadly neutral" news probably shouldnt be invested here. Its also a good reminder that for any companies like this us the investors are generally at the bottom of the chain news wise.

yiannos1

Bottom of the chain news wise……….

Excellent!

mojomogoz

So. My Plexus Holdings (LON:POS) knowledge is poor. I tweeted something out. Twitter is a playground so my tweets are often a bit joking, nonsense, provocative, etc...this POS one is latter partly seeing what the response would be. Here you go:

moolahcoast

you really think the owners of (Plexus Holdings (LON:POS) want to sell out for the current market cap with absolutely no premium?

I don't know much about Plexus Holdings (LON:POS) - today's RNS looked to me like they had sold rights to their current commercial product for $5.2m. On a very simplistic arithmetic basis after paying down liabilities that meant that its implied there's c.£15-16m of value (this morning pre open) in what remains (in terms of commercial rights)...

So what do you say that 15-16m is valuing?

If I'm analysing wrongly then put me right on how to put the bits together

davidjhill

My understand Mojo is that Plexus Holdings (LON:POS) have two uses for their IPR

The part they sold to Schlumberger for cash was for low margin surface wellheads. Generally high volume but low margin and therefore require a decent and global sales force.

The higher margin specialised stuff they can still do (although not quite sure if they need SLB permission as it appears they might on a case by case basis?) - much lower volume, but high margin rental type stuff.

I guess the management theory is that they are now on a firm financial footing with a specialised rental market opportunity but I have no idea of how easy that market is to sell into.

I don't hold - have to say I find the deal odd so management probably need to explain where their opportunity lies and what sort of market they think they can get. Absent of that kind of information there doesn't appear much reason to get involved

(With little knowledge) it looks like Plexus Holdings (LON:POS) need to clarify what their commercial opportunity is and their position (in what and how) to transact ex Schlumberger NV (NYQ:SLB)

NewInvestor1972

They seem comfortable with cash flow but who knows...

"The Directors have prepared cash flow forecasts extending to November 2024. These show that the Group has sufficient funds available to meet its trading requirements.

· The Group's year to date financial performance has been factored into the cash flow forecasts.

· The Group has a financing facility in place of $1.7m which provides additional comfort and headroom to the cash forecasts. We expect that with future additional growth this facility can be increased to support any excess working capital requirements.

· The Directors have considered the position of the individual trading companies in the Group to ensure that these companies are also in a position to continue to meet their obligations as they fall due.

· There are not believed to be any contingent liabilities which could result in a significant impact on the business if they were to crystallise."

yep - agreed.

Looked good as a recovery play to me, CAGR of 26%, they seem to be turning a profit and the EPS is going in the right direction.

I look at 3 year forward cash flows and it is evident to me that they will need a new fundraise as they are losing about $2 pa. They only rely on a finance facility and not on any future cash coming in-very risky and not for me.

I have referred to Cornerstone FS (LON:CSFS) about a couple of weeks ago-it my opinion that even after todays 15% gain that it is still massively undervalued. All research available is totally wrong in my opinion and I feel they will be beating these estimates for the next couple of years (I hold).

I have started adding Good Energy (LON:GOOD) today as well as I feel they will be beating the market estimates as well.

DYOR

All the best for the new year.

djones08

Hi Paul, Thank you for your 20 top GARPs.

Something I'm encouraging the groups I work with is to be bold and put a target valuation on their research / picks. Can you do that for your top 20?

Keep up the good work.

Regards

Daniel

RDHOWARTH

Apologies but I don't believe any company does this ... when you have recurring revenue it's one thing to endorse analyst models of what might happen... but companies don't make forecasts. The best you can hope for is they give you their investment plans and you can calculate expected returns and therefore revenues. I see the CEO also exercised his option to acquire the KMS stake from the co. which is also an odd move. It looks to me like he is getting everything he can out of it .... leaving the rest a bit of a punt.... not sure how the co. can justify selling IP to the CEO really... I wish holders best of luck.

POS

Apologies but I don't believe any company does this

Huh - not sure if this is getting lost in translation but with regard to forecasts for next year there is plenty of companies that have expectations up for next year up on the stocky site - if we take a company half the size of plexus like Northern Bear (LON:NTBR) stocky have numbers pencilled in for ye 31/3/2025 now. Note i dont expect stuff to come directly from managemnt - i am well aware Northern bear figures probably come from their broker Hybridan - but as the house Broker i would expect the views of Hybridanwould have been "proof tested with management" unless the company have gone to the trouble of advising otherwise or the numbers are so outdated as to be meanungless (ieg f broker removes coverage)

However unknown the future is to me if you are a listed company you want to be advertising what the following years figures will be if you want peeps to take you seriously. I am not saying companies cant mange without forecasts - i think northern bear used to say nowt about the future themselves - i would kinda accept that for a consisntently profit making company - but if your company is making no profit and you wont give an estimate of what next years numbers would be what is the investment case here other than some sort that can be proof checked progress wise.

Plexus might be a special situation here based on what they have - it might be impossible to say , justa shame they dont make public "their best gues" as a i would gobsmacked if they dont have any numbers pencilled in internally. If they have been short of funds i do semi understand not payinga broker whatever it takes to come up with numbers that may not seem to be value for money - but without something to pin the mast to it doesnt really help trying to make some sort of buisness valuation.

It annoys me when companies like saga are so cagey about current/future numbers when other like Norcor and Redde are happy to to pin the exact contents and summary of broker notes on their websites (or at least confirm consensus)

Bouden54

Personally not a fan of price targets - if it's a good quality business and attractively valued then I tend to just hold until something happens to change that view. I think it's very difficult to put a precise a figure on exactly what a share is worth, and of course things constantly change (both within the company and at the macro level) which means any target could go out of date very quickly.

They are buying though as well football premiership teams injecting much needed millions in the British economy!

intuitive6191

Re Plexus

It should be easy for the company to produce some forward information. They employ a broker/nominated advisor and a financial PR firm, so if there were forecasts, they would surely have enough resource to put something out. The problem with omission is that it breeds suspicion.

It may be that forward information isn’t that important from today. It is possible that Schumberger have tied this deal up quite nicely and what Plexus sell and who they sell to is now pretty much influenced by Schlumberger. Private Investors could be a long way down the information chain on this one.

Up to Plexus to be more transparent here.

Johnnycomelately

3rd Jan

For me, Plexus have sold off a part of the business that is too expensive for Plexus itself to run. The fact SLB have bought this, shows, they're expecting a demand for it.

I think Plexus have held on to the more monetising part for them of the business where they can expand and make decent money.

In my opinion, Plexus have done the right thing here. They have the money now to expand the more lucrative part of the business.

I'm sure SLB would love to have bought all of Plexus and didn't get the chance.

Personally, I prefer Plexus going for the specialised business where they get all the money and not just royalties.

I find where there are royalties to be paid, then these businesses don't put enough work into selling the products. Where businesses don't have to pay royalties, then more time etc., is devoted to selling the products. This can only bode well for Plexus' pos grip technology because it will get more and more known worldwide. So, all in all, a far better chance for Plexus to pick up specialist projects where much more money can be made by them.

peterg

My first moan about this for the year!

Can people please make clear what company they are talking about in posts? It's not hard.

Many of us don't find theaded reading of Stocko discussions effective, so when I look at a post and think - "I have no idea what you are talking about", I'm more likely to skip it, than grasp your pearl of wisdom.

Small Cap Value Report (Tue 2 Jan 2024) - HVO, POS. Link to my 2024 top 20 ideas.

My top 20 share ideas for 2024

Explanatory notes -

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Paul Scott

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