Small Cap Value Report (Tue 25 June 2024) - VTU, IGR, PRES. Briefs: FCH, SAE, ORCH, G4M, SAGA, CDGP, ANP, WYN, HUD

25th Jun by Paul Scott

64 comments 9001 reads

Good morning from Paul!

That's it for today, sorry my brain now needs a rest!

I caught up with my backlog of updates for my SCVR summary spreadsheet last night, it's now fully up-to-date. I'm pleased to say we've reported on 537 unique companies here so far in calendar 2024. That rises to almost 650 on a rolling 12-month basis, so really extensive coverage, and I'm always pushing harder to do more!

Here's a screenshot below, for about the last 6 weeks. It's notable how much takeover activity there is (I colour-code takeover approaches in PINK and put them on the left). Also not many profit warnings (in black), other than a recent flurry of five of them. Remember that on the Google Sheet you can hover over any cell and a pop up box appears giving a short summary of the SCVR comment on that company on that day. It's a very useful quick reference tool, to quickly get up to speed on any share we cover here, using CTRL+F and ticker.

[Note that for the colour-challenged, I now arrange the companies in a left to right, good to bad format. Also if you open the spreadsheet, hovering over each item shows text which includes the colour as a word. I hope that makes it accessible to almost everyone].

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…

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Michael C

25th Jun

Cancelled post. Egg on face.

yiannos1

Supreme (LON:SUP)

That was up 10% yesterday on the announcement….. :-)

All the best

Drat. I have been offline for 2 days - got the email this morning and only looked on this morning's SCVR, didn't realise it had been discussed yesterday.

Nightmare being offline these days.

ctoman

Tortilla Mexican Grill (LON:MEX) : a late RNS today - they are buying an equivalent (smaller) French outfit. Intended to be a springboard for European expansion. My worry is the difficulty of running a French business from a staff standpoint..based on hearsay not personal experience. Be great if you could comment on the deal Paul, especially as its one of your 2024 picks

Auto

Good news re pension deficits.

"It’s not often that you hear the terms “good news” and “pensions” in the same sentence together, but today I bring you some good news on pensions. Britain’s corporate pension funds have just recorded their biggest surplus ever, according to actuarial consultancy Mercer.

As of last month, if you look at them in aggregate (the state of individual funds will vary), the FTSE 350 defined benefit (DB) pension funds have £79 billion more than they need in order to pay the pensions of their remaining members. That’s the biggest surplus on record, says Mercer."

Source: Bloomberg https://www.bloomberg.com/news...

A subscription site but I believe there are three free article views per month.

garbetklb

DWHT 1190p, DWHA 620p. They have exactly the same rights, inc dividends, as each other except DWHA cannot vote. So the non voting DWHA shareholders have minimal say in what happens to the business, despite owning >50% of the company.

For the voting DWHT shares, large shareholders with surname Dewhurst own around 47% - and there may be other family holders with small shareholdings / different surnames.

So the Dewhurst family dictate what happens. If you're happy with this, the DWHA shares are much better value. If you're not happy with this, I'd suggest buying another company!

Similar setup with Youngs.

It can be worth watching the relationship between voting / non voting shares as pricing anomalies do occur. However with Dewhurst, there's little liquidity.

I hold DWHA

docj

thanks for the explanation - much appreciated

Surrey Steve

Also on the subject of ME International (LON:MEGP) , I note that Stocko reports that Peel Hunt initiates coverage with buy rating; PT 350p. I'd be interested to hear how Peel Hunt get to such a valuation. I hold and have a lower target price in the 200s

noisyboy9

Directors Pay is also quite hefty, First time we have seen them speak in a couple of years! Not much "skin in the game" here either

Yes that was a vey well balanced and detailed analysis on IG Design (LON:IGR) and on Pressure Technologies (LON:PRES) as well.

I have exited now completely on my IG Design (LON:IGR) and McBride (LON:MCB) positions.

All these weekly billions and billions and more billions of bond auctions in the USA are starting to make me more and more nervous. Elections in France as well will probably unsettle the European markets if Le Pen gets in.

Bouden54

Should be good for the insurance companies as these schemes take the opportunity to transfer out while in surplus - Legal & General (LON:LGEN) recently mentioned the huge volume of buyouts expected to take place over next few years.

BnB

Also on the subject of ME International(LON:MEGP) , I note that Stocko reports that Peel Hunt initiates coverage with buy rating; PT 350p. I'd be interested to hear how Peel Hunt get to such a valuation.

Typical small cap broker BS. They just looked at the current price and doubled it. Maybe it’s the AI connection ;-)

Tombholliday

No comment on G4M ?

Paul Scott

Thanks yiannos1, appreciated :-)

Hi Newtarrow,

"Does anyone know who/what the Wellcome Trust is?"

I find that a quick google search is the best bet whenever an unfamiliar company name crops up. I do this every time there's a takeover approach, just looking up the name of the potential bidder provides an immediate guide as to their size, financial clout, etc.

Regards, Paul.

davidjhill

Agree re Saga (LON:SAGA) rmillaree

I’ve emailed management this morning and have asked them precisely which expectations they are managing to…….

Are they treating shareholders like the proverbial frog in hot water and hoping we dont notice a 20% profit warning or are they genuinely trading strongly in line with the expectations set in January

Given I have so far got no response I suspect its the former and that’s starting to make me quite cross ;-)

The 26 bonds now say zero chance of default trading at 95p and given gross cash exceeds the De Hahn facility I suspect the debt situation now has multiple outcomes including a bond refinancing in about 12 months………..the trading and shareholder communication is beginning to leave a lot to be desired……

Boon

If DB pension schemes in corporates are recording increasing surpluses... this should also be good for pension consolidators like Legal & General (LON:LGEN) and Phoenix group (LON:PHNX) in their existing portfolio of DBs right? Possibly more surplus cash/assets can be released?

(I hold PHNX in the Boon Fund)

Darei

Paul many thanks for your SCVR Spread sheets , really useful

Much appreciated

Thank you Darei

ken mitchell

26th Jun

Here’s a Citywire write up on Augmentum Fintech (LON:AUGM) after their update yesterday:-

https://citywire.com/investmen...

It’s worth registering for Citywire articles but for any not registered here’s the text:-

“Shares in venture capital fund Augmentum Fintech (AUGM) jumped 5.5% on Tuesday after annual results showed the resilience of the portfolio despite the challenges of a rising interest rate environment.

Over the year to the end of March, the largest 10 positions, which represent 81% of the portfolio, delivered revenue growth of 65%, driving the trust’s total underlying returns of 5.4%. Half of these companies are now cash-generative, while the other half have a 20-month cash runway.

Manager Tim Levene said it had been a year of milestones, as the £271m trust of European challenger banks and financial services disrupters saw its fifth and sixth realisations since launch in March 2018, while the largest holding, business banking group Tide, saw its value surpass £50m.

The trust’s valuations were validated, as NatWest acquired pensions provider Cushon at a 44% uplift, while in April, post the period-end, the US-listed provider of digital identity solutions Entrust acquired digital identity verification business Onfido at a 5% premium.

Chair Neil England said a chunk of the £32.9m realisation proceeds will be distributed to shareholders via a tender offer or special dividend, depending on the preference of shareholders, but could include share buybacks as it has done in the past.

‘The average premium to the last reported value is 30%,’ Levene (pictured below) told Citywire. ‘That demonstrates that not only should there be confidence in the underlying valuations, but actually as and when you exit, they’re exiting north of the holding value. The market’s the market, but I hope the discount starts to bridge as we’ve made a little bit of progress over the last couple of days.’

He pointed out that the extent of the current 31% discount is highlighted by the three largest holdings – Tide, Zopa and Grover – plus cash almost equating to the £187m market capitalisation of the company, implying that no value is given to the portfolio’s remaining 22 holdings.

The majority of the portfolio, or 21 positions, have downside protections such as liquidation preference and anti-dilution provisions in place, which shield the value of the fund’s position if there’s a fall in the value of the company from the price paid.

Now that the European Central Bank has started cutting interest rates and the Bank of England is poised to, Levene said improved sentiment could bridge the gap between the shares and net asset value.

The deployment of cash will likely return to longer-term averages in the coming year as valuations return to normal following the departure of ‘tourist capital’ in fintechs.

At the same time as announcing its annual results, Augmentum Fintech revealed a £2.6m investment in LoopFX following the period end. The fund is the first institutional investor in the spot exchange rate trading platform, which Levene said is a textbook example of a fintech operating in the capital markets in partnership with blue-chip financial institutions.

The investment manager invested £16m in one new company and six existing holdings during the year, a reduction from the previous year as valuations looked expensive. This included £4m in new position Artificial, an emerging leader in the ‘insurtech’ (insurance technology) space, as part of an £8m Series A funding round, and a further £5.3m in existing holding Volt, a real-time payment provider.

The board bought back 4.7 million shares over the period to narrow the discount, which widened from 39% to 40% over the year. Since then it has come in slightly as the shares have rallied 8% during the past three months.

Since launch six years ago, the portfolio has delivered underlying returns of 69%, while the shares have gained only 8.4%, according to data from Morningstar. The shares peaked at 173p in September 2021 and were trading at 116p on Tuesday afternoon.

Deutsche Numis analyst Gavin Trodd said the fund could be an ‘attractive’ long-term investment but noted that the early-stage portfolio could make for a bumpy ride for investors.

‘The fund has a strong record of realisations, all six of which have been above carry value and we would expect this track record to continue, particularly as wider market conditions begin to ease,’ he said.“

Zorbatheleek

11th Jul

Directors pay as always...but today, 4 x directors put some skin in the game with purchases

Small Cap Value Report (Tue 25 June 2024) - VTU, IGR, PRES. Briefs: FCH, SAE, ORCH, G4M, SAGA, CDGP, ANP, WYN, HUD

Explanatory notes -

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Paul Scott

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