Small Cap Value Report (Wed 3 Jan 2024) - IGP

3rd Jan by Paul Scott

79 comments 8091 reads

Good morning from Paul & Graham!

Today's report is now finished.

Graham and I agreed that the other micro caps on the news list today weren't worth covering, and we've both got loads of other things to write about (I'm part-way through a mammoth article on my 2024 shares ideas, so would rather focus on that). Also Graham's agreed to put his top 10 onto that same spreadsheet, on a different tab, so we can monitor both lists with real time prices.

Graham's eagerly anticipated Top 10 list of share ideas for 2024 is up! I'm sure we'll all be carefully scrutinising these, given Graham's stellar +25% result in 2023. It's also interesting to see how Graham whittles down a large shortlist to a top 10.

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.

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davidjhill

3rd Jan

aside from Yiannos point have you seen the monthly revenue growth rates of the discount business Edward? I'm not sure why you consider that a "failing" business

Nor would I imagine Higginson purchasing 2.5m shares recently if he considered it failing either.

Anyway - we will see

stockorocko

Just watched the Proactive Investors interview. I have to say I found the CEO very credible. He seems honest about his concern about the North Sea prospects and needing to go to other waters, and clear on his business model insisting that Plexus is a low volume supplier and will continue to be. I think his view on the Schlumberger "partnership" (his words) opening doors as a gatekeeper in the industry is promising. I hold (small position) and will continue to root for this business. It's the only oil stock I am willing to invest in - why shouldn't leak-proof wellheads be the standard?

EdwardJW

Anyone can sell £1 coins for 90p. Revenue growth means nothing if the model doesn't work.

"For the year ended 31 May 2022, Huddled recorded a loss before tax of £160k on revenue of £465k. In the year to 31 July 2023, Discount Dragon's unaudited results showed an EBITDA loss of £0.7m on revenue of £3.3m."

That tells me the model doesn't work.

It looks to me to be an Ocado without the product range, brand recognition and technology. Most of the offers on Discount Dragon aren't even good.

yiannos1

That’s not exactly what I have said; you have to study their accounts in detail and obviously you haven’t-Motatos exited to concentrate in other territories (Germany, Austria, Sweden).

This is a new management now and if they achieve £10m sales pa then this will work and price will move higher-I believe they will easily achieve that and this is the reason I invested (already up 47% and have added today).

Comparing a company business model , with a totally different management , for an investment thesis is something I would never do. It’s like not getting married again cause the first one did not work out!

As I said though just go short on it-I am sure there are a lot wiling to take you on out there.

All the best

"Comparing a company business model , with a totally different management , for an investment thesis is something I would never do."

Erm, isn't that what you just asked me to do - compare it with Motato in their overseas territories.

Whatever the markets in overseas territories, the UK market here is completely different. I'm not lying when I say I have the following stores within a 3 mile radius of where I live:

- Farmfoods

- Tesco

- Lidl

- Aldi

- Poundland

- One Below

- B&M Bargains

- Home Bargains

Much of the UK the same. Why on earth would someone visit Discount Dragon to pay £2.99 for a box of Coco Pops?

Well done on making a profit on investing in a rubbish, loss making company.

Erm , No - I just asked kindly if you can have a look at Motatos accounts , their cost of goods sold and their margins.

By the way you have listed 8 different brands all very busy with millions of sales!

None of whom do home delivery (apart from Tesco). Have you considered why that might be?

This comment has been moderated

Rather than tell me I'm unresearched, why don't you enlighten everyone here.

I understand the average basket size of a Discount Dragon customer is around £32. Can you tell me the average gross margin achieved by Discount Dragon, including delivery costs from their depot, on a typical box of discounted groceries?

BenHazz

Interesting concept. Took a look at the website and saw one or two things where I though the products offered good value but not enough of a hook where I personally would put an order in. I shared the link on my friendship group WhatsApp and asked for people's thoughts, 4 friends got back to me and all of them noted they didn't feel there was enough there for them to sign up and put an order in, interestingly 3 noted a lack of stuff they actually wanted or needed on the site. I feel it's on the precipice of potentially drawing in a lot of new customers but what they would need to offer to get those customers signed up and using the service would probably really hit margins. It is worth noting that my friends are very much comfortable financially, have decent income and are maybe are not the target clientele.

This has to be calculated on a max capacity and this is the reason I have invested (they are far from that point)- it’s pointless what you are asking but if they achieve maximum capacity then their gross margin will be about 16%.

Huddled (LON:HUD) does not need any capital (very important especially in this difficult interest rate environment) as they have about £5m in cash and another £1m coming in Q1 2024.

You are plucking numbers from thin air.

The gross margin has never been RNS'd from what I've read. I wonder why? Very unusual that this company is listed and investors aren't even told basics like the gross margins.

In summary, a company with a broken and unworkable business model run solely for the benefit of the Directors, that has had a little spike up in share price from a very low base (was trading below net cash - cash that should have been returned to IMMO shareholders) on the back of some rampy tweets from certain investors with a large following.

I am talking about full capacity numbers so I do not fully understand how on earth you will find this in a previous RNS!

If you are interested though there is a new broker and forward numbers and estimates will be published soon.

Just go short on it in the morning if you don’t trust the company’s growth plans. You are not going to convince me as I am a shareholder-nothing wrong with that-we just disagree and that’s why prices fluctuate!

I have just agreed to David’s comments that mentioned Huddled (LON:HUD) in the afternoon. I don’t tweet and I am not interested who does. I haven’t got a clue who are the shareholders as well.

Disco Dan

Everyone is jumping aboard (including me) because it has broken out of a range it’s been stuck in since the end of 2022.

Db47

just hope Huddled (LON:HUD) sell loads of vapes from Supreme (LON:SUP) (I hold) ;-)

To be honest I did not know that they sell vapes as well - had to check this and they actually do but I do not know if it is Supreme (LON:SUP) vapes-hopefully they are!

Supreme (LON:SUP) got the UK distribution licence to sell the 'Lost Mary' vapes I believe, so they don't manufacture them .

out of interest re: Huddled (LON:HUD) how did their cash pile jump circa £6.8m TTM ? is that due to their forecasts ? sorry if it's a silly question...

Was a reverse takeover of Let’s explore Group , formerly Immotion Group. Cash was there after the sale of the main business.

thank you !

Small Cap Value Report (Wed 3 Jan 2024) - IGP

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