Small Cap Value Report (Wed 29 Nov 2023) - SUP, TUNE, HFD, IPX, DFCH, XAR

29th Nov '23 by Graham Neary

52 comments 8033 reads

Good morning from Roland and Graham! And we also have a section from Paul. Today's report is now finished.

Charlie Munger RIP - It's the end of an era as the death of Charlie Munger has been announced overnight. Here is sample coverage from CNBC. He was 99.

The official announcement can be read on Berkshire Hathaway's website.

Warren Buffett, CEO of Berkshire Hathaway, wishes to say: “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation.”

Courtesy of Ramp Capital, here are some of the greatest quotes from Munger.

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, 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 (thumbs up) - 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. OR it's such deep value that we see a good chance of a turnaround, and think that the share price might have overshot on the downside.

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

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rmillaree

29th Nov '23

Halfords (LON:HFD)

I held halfords in the olden days and had lots confidence in then business - they make half what they do 12 years ago with materially higher sales - so whatever the positive tones are "about the mid term" this clearly aint been a great business.

i did notice they had nailed their colours to the mast though ref where they think they are going - presumably B2B/motor repairs will be the driver here ?

per update today

assuming markets recover in line with projections, we remain confident in our mid-term target of £90m-£110m Underlying PBT, asoutlined at the Capital Markets Day in April 2023.

This target has piqued my interest somewhat - if we take 80% of £90 mill that would be p/e of 6 - hmmm whats the nasties ignored with underlying numbers?. So if we have confidence in managements ability to deliver seems like this company could be trending for the better. I wander if they are simply doubling down here due to prior statements ? does anyone have confidence management can deliver here depsite the actual numbers going in exactly the opposite direction they need to be going.?? It does seem kinda logical moving into the B2B segment - just seems slightly worrying that the reality is the opposite of the vision they have. I would say the downgrade today in itself wasnt terible - presumbaly the market thinks there is worse to come based on share price drop? are the samurai swords being sharpened? are the redde board sat their waiting for halfords to come back to the table with a begging bowl?

BnB

What puts me off investing in Plexus is the ticker POS, which is an unflattering abbreviation ;-)

That aside, there's a compelling need for the product. But how sure can anyone be that there aren't any alternative technologies or competing products? That's down to individual investors of course.

cheeky_minnows

I was never been tempted by Xaar (LON:XAR), based purely on price and the current macro. I agree with you fully though, I have had a few disguised profit warnings and it means that I put them in the 'not to be trusted' pile. I had the Somero Enterprises (LON:SOM) profit warning earlier in the year and sold immediately, but no bad feelings. The management were open and straightforward.. now looking for the right time to get behind this business again, now with added confidence.

Alphaflight

All true Paul. From a sectoral perspective, most of these oil and gas service and equipment companies look very similar i.e. battered to death and out of favor. I tend to use the ETF SPDR S&P Oil & Gas Equipment & Services ETF (PCQ:XES) as a benchmark when comparing companies. e.g.

P Bryant

Great review of Impax Asset Management (LON:IPX) from Graham above. You might also be interested in my Equity Development research note published this morning (link below) - I go into quite a bit of detail about the market environment for sustainable investing. In the analyst call this morning company quite bullish on pipeline too.

https://www.equitydevelopment....

yiannos1

There are far superior companies offering these products and i totally agree that it’s down to individual investors to basically do their own research.

What really puts me off is that the company sold their treasury shares at 20p after rallying from 3-4p. Why should I buy at 20p? Who bought these treasury shares?!

af20001

Thanks for covering Focusrite (LON:TUNE) Paul.

I noted in their statement the figures they quoted were a industry wide 25% fall in sales on average, so they at least beat that!

Their premium Synthesiser brands, Oberheim & Sequential suffered a 10% fall in sales. Regarding competition, there isn't much at their end of the market. Moog, probably the closet like for like competitor has just been bought out, so has a lot of uncertainty around future product lines/pricing. I would expect most of their product line to be redesigned at a lower price point. Their purchaser isn't renowned for premium price, quality products, shall we say.

The Focusrite interfaces are in a crowded market, but are very well regarded.

In fact, most of the groups brands have very good reputations for quality/performance. So although there is a lot of competition in some segments, often at lower price points, I expect there is a lot of aspiration among musicians to 'trade up' when they can. I know I'd like some Adam monitors!

Lucky dip

Mello

Great meeting even when I attend only half!

I will report some highlights on Friday.

Andy Howe

Hi Paul,

Looking forward to the bull/bear post tomorrow. I was very surprised that the brokers / company only have a forecast for 2024 which were already known anyway. Usually there is a forecast for at least 2 years minimum. For me there was nothing new in the outlook. Was expecting something like an unweighted and weighted value of the opportunities that they currently have. It's all down to trusting and investing, or not, in the story.

nathantrader

One of my favourite Munger Quotes, you can take a turd and put currents on it, but its still a turd.

RJS89

if you're converting to £, then: £8.21m (£8,210,000)

Thanks

And 750% of that?

ryanc106

Thanks Paul, interesting stuff. I hold this share in my SIPP but not in the qty that some of you guys clearly do. Best of luck to all :)

Crikey, 750%.... Well done you whoever you are Mr Alpha

He/She bought 80% market cap of $10.4m (£8m approximately) , makes paper profit of 750% but the current market cap is only £20m!

Epitychia

The spreads on micro caps rule them out for me.

Their $10.4m contract to supply wellheads was about 80% of its market cap back when I purchased this

Oh it gets worse.

Revs8

I don’t get it.
Paul. With due respect. With all your analysis skills why would you pick your largest holding to be a company where you are relying on events that can’t be analysed. Or at least it needs expertise from the oil and gas industry. It looks like a risky bet.
I’m intrigued to see what comes out tomorrow morning.

Equity Development

4th Dec '23

Impax Asset Management (LON:IPX) - new video recording (Investor Presentation) *** Ian Simm (CEO) and Karen Cockburn (CFO) of Impax AM held an investor presentation covering Full Year results. They highlighted the growth in Assets under Management over the period (+4.8%) and high client retention despite challenging markets. They provided a detailed financial update, discussed targeted investment to support growth, an increased product pipeline and strengthened distribution capabilities. The team also then answered a wide range of questions from viewers. Link to video:

?si=cHIdYqNE01OxUGWK

Small Cap Value Report (Wed 29 Nov 2023) - SUP, TUNE, HFD, IPX, DFCH, XAR

Explanatory notes -

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Graham Neary

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