Small Cap Value Report (Tue 30 August 2022) - DNL, REVB, JOUL, BMS, RQIH, UPR

30th Aug '22 by Paul Scott

40 comments 7594 reads

Good morning from Paul & Graham!

Podcasts - good news, I've managed to publish my weekly summary podcasts on the main podcasting services now. Just search for "Paul Scott small caps" and it should come up (e.g. on Apple, Google, Spotify, Amazon Music), and hopefully it'll filter through to others too. I've used a free publishing service called Acast, and had to figure out what an RSS feed was, and how to use it, which took some time! I'll still be publishing them on my own website, with the latest episode here (warning includes a rant about energy prices, and bitcoin, and I don't expect everyone to agree with me, it's just one person's opinions, as usual!)

Agenda -

Paul's Section:

Diurnal (LON:DNL) - a takeover bid at an amazing 144% premium from a larger US bioscience group.

Revolution Beauty (LON:REVB) - confirms (as expected) that it won't meet the deadline for publishing FY 2/2022 results. So its shares will be suspended from close of play tomorrow. It's currently impossible to value this share without knowing the extent of the accounting problems.

Joules (LON:JOUL) - Sky reckons that talks with Next for a "rescue" refinancing have stumbled. Joules says that discussions continue.

Braemar Shipping Services (LON:BMS) - I have a good rummage through the (late) results for FY 2/2022, raising quite a few issues over balance sheet items. Current trading (in a separate RNS today) looks highly impressive, albeit the big upgrade is mostly due to favourable forex. Overall, Braemar looks to be making hay, in a buoyant sector. Shares look cheap, if current strong performance can be maintained longer term.

Graham's Section:

R&Q Insurance Holdings (LON:RQIH) (£386m) - Boardroom drama is heating up as a special general meeting approaches. Major shareholders want the Executive Chairman removed and replaced by one of the founders who gave the company its name. In this section, I discuss the background to the story which includes a collapsed takeover bid and an emergency fundraising. It looks to me as if bridges have been burned and there is no going back: I don’t think these relationships are going to be mended. As for the shares, they are an interesting speculation and offer cheapness versus the rate of profitability which the Chairman aspires to. Whether or not he will be around to implement…

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JASVFS

30th Aug '22

Thank you for your quick scrutiny re Braemar Shipping Services Paul, you make some very important points on their balance sheet, options and accounting. I did try to buy early but thought the initial mark up overdone, it's gone higher since but I'll wait. We did buy Centralnic as they also seem to be on a high growth path, TS highlighted by Revs8 at 7.22am.

Snazzytime

hi Graham

re Uniphar (LON:UPR)

'........and for followers of the IPO avoidance rule, it remains out of bounds.'

So what does the IPO avoidance rule state?

Snazzy

Rusty2

Quarto (LON:QRT) half year results out today, RNS was at 10am, so some may have missed it. Look ok to me but shares are down over 7%, no forecasts on Stockopedia, so not much to go on, debt has been reduced further.

Outlook for next half year looks challenging.

FTSE100 was up because the £ is down, which benefits oil companies and others that have revenue in foreign currencies.

Revs8

Thanks for the podcast Paul. I’m now a follower via Spotify. You’ll get a better idea how many people listen to your articles.

Graham Neary

Hi Snazzy, it's the rule to avoid IPOs until they are trading at a discount to their IPO price! G

The Jedi Investor

Hey Rustbucket,

Just read the Quarto (LON:QRT) results and they show a good first half performance, particularly vs. 2021. H1 is normally the weaker half as well. Also nice reduction in net debt (as you say).
Usual suspects of supply chain, inflation / cost of living feature as likely to impact H2, but 8% drop seems overdone - but pretty much the same for everything at the minute!

Caper4

Yes so much more convenient as now can listen on my Apple podcast whilst in the gym .:)

Thanks Graham

Very sensible.

I think I'd add a timeline too. Personally I'd also wait until they have been listed for at least 12/18 months to allow the market to settle down and to be able to see a full set of post IPO numbers.

hi Paul

I've listened to most of your weekly podcasts and found them very useful. Your efforts are much appreciated and your off piste ramblings most welcome too, even if not everyone agrees with all your opinions. You can't please everyone all the time.

I don't use a podcast host (wouldn't know how to nor why I might need to use one) so will continue to access it via your weekly website link.

KevinS1

Hi 55555,

I think the bear case for Boohoo (LON:BOO) goes something along the lines of;

Tiny Operating Margin, reducing sales, increasing debt (including a number of bank-loans that need paying off soon (and could lead to a discounted share issue), poor governance (family owned with lots of inter-party deals eg. purchase of PLT from family member), family members running slave-labour manufacturing warehouses so that Boohoo (LON:BOO) profit, returns costing huge amounts of ££ (now charging so maybe less of an issue), lack of global distribution system leading to poor customer experience outside of UK, crooked governance eg. purchasing shares in Revolution Beauty (LON:REVB) using shareholders money without approval (this was a personal investment by the Chairman at IPO but now using shareholders cash), massive bail-out of a lot of institutional money when the SP was around £3-4 a couple of years ago when the ESG issues first landed and little confirmation yet that things have really changed, competitors (Shein) doing far better, cost-of-living crisis likely to impact their customer base significantly........I could go on.

Apart from that everything is fine. I am sure someone has the bull case.

Regards

Kevin

Trident

I do wonder if the general media's view of the Energy pricing 'crisis' will turn out to be like the Pandemic 'crisis', as something we look back on shake our heads at being steamrollered by Fear Mongering headlines into some dubious policy decisions?

This could have the side effect of driving Stock Market prices into further irrational lows.

rkells

In fairness Uniphar ( I do not hold )has been quoted in Dublin for many years and has performed well since its London quote in 2019. They appear to be following the strategy which brought success to UDG now in private equity hands.

JCPr

As I'm sitting outside the UK at the moment and I'm getting news from varied sources it seems quite apparent that the UK media do seem to be trying to talk the UK into a recession, when the energy crisis is actually a bigger problem in continental Europe. A conversation last week at work around a facility in Spain, for example, included the snippet that their electricity costs have increased seven-fold.

MichaelFBS

You can find Paul’s podcast on Spotify at:

https://open.spotify.com/show/...

Yet to listen but will binge at some point especially if there is a “a rant about energy prices, and bitcoin”!

55555

Many thanks Kevin. Being bull'ish, many of the points you raise are either old news, dealt with or being dealt with. Unlike Shein, Boohoo have the brands and their target market loves brands and of course make up. Maybe cash will be short, but Boohoo have made some big investments into gearing up for massive US growth, which must be their biggest opportunity going forwards. I hold and am tempted to buy more at these levels.

Lochinver

I agree that the media do love to sensationalise things .

But having children at university with little disposable income now let alone before the energy price hikes, having family members earning less than £20k gross working in hospitality , and having worked with SMEs for over 30 years, this time I am genuinely scared about the future .

And i mean pretty petrified.

Not for me personally, although my clever idea three years ago to set up a share portfolio to have some fun and beat the market , is being slaughtered into oblivion. But for the young people who face the prospect of going to work purely to pay their bills, if they can even manage that. And I have family members with very young children in just that predicament.

‘Riots in the streets’ is another often abused phrase, but I can genuinely envisage this this winter if something isn't done pretty soon.

JohnDoe2378

I concur that the indices could have further to fall

MiserableJacktPotato

31st Aug '22

Interesting that Revolution Beauty (LON:REVB) is up 7% today - lots of gamblers out there it seems.

Monty9

CentralNic (LON:CNIC) is one of my largest holdings - and recently profitable and cash +ve too, which, being a smallish cap tech stock, makes it very interesting in today's market. It is beginning to hit the financial media's focus and is growing like topsy - the PEG is 0.3!!

Quite a lot of their business is esoteric and thus hard to understand but I think the financials are beginning to make the argument. Management have a very clear view of what they are setting out to achieve - they are ambitious, which can add risk but they really haven't put a foot wrong so far.

Kestrell Partners and Slater Investments are holders at 21.84% and 9.11% respectively.

Yet the market remains completely unimpressed - one for the biscuit tin perhaps.

Small Cap Value Report (Tue 30 August 2022) - DNL, REVB, JOUL, BMS, RQIH, UPR

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Paul Scott

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