Small Cap Value Report (Weds 16 August 2023) - RST, GATC, ESNT, CLX, MSLH

16th Aug '23 by Paul Scott

48 comments 6984 reads

Good morning from Paul & Graham!

Today's report is now finished.

Inflation data

Has come out today from the ONS (Office for National Statistics). Here's the link to the report. Key points seem to me -

CPI inflation rate is 6.8% in July, down from 7.9% in July - good news.

Not so good news -

"Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.9% in the 12 months to July 2023, unchanged from June."

Commentators seem to think that stubborn core inflation, combined with accelerating wages growth reported by the ONS yesterday, could mean the Bank of England keeps going with even more interest rate rises. It seems crazy to me that they're doing this, when we don't even know what economic impact the large increases already implemented will have. Anyway, everyone's got their own view.

It seems to me that hurting people in their 30-40s who mainly have mortgages, is likely to increase demands for higher pay from key staff. And push up rents. Thus fuelling more wage growth, and higher inflation. Do the people making these decisions really know what they're doing? Judging by central banks' long-term track records, I'd say vehemently no! Accusations of "groupthink" have come from some eminent sources, eg Mervyn King, and Andy Haldane.

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GN100

16th Aug '23

Investegate seems excellent now under the new Ownership. An RNS which the LSE are showing as mid afternoon re a PMDR Marks and Spencer (LON:MKS) purchase has appeared simultaneously on their directors dealings section. Also, they reply promptly to any queries you might have and have now upped the max number of Companies you can list to 100 - I believe, Hat tip to them, it's now a very useful site.

Norfolk'n'Good

Kitwave (LON:KITW)

This is a company I have been looking at and I quite like it. However, I notice that there has been considerable Director selling in June of this year. A total of over £4m by 5 different directors. I also notice that a similar thing happened in 2021, when 9 directors sold over £7M of stock. They don't appear to be the usual sell roughly half to cover tax liabilities from share options.

Does anyone out there have any insight? Is anyone else following this company, which other than this looks pretty good I reckon.

Silver Moon

Need to sort out the jobless shirker and the perennial student, we need to get the able back to work. Now there's a challenge!

mikebianchi

But we have never been taxed so highly, we spend too much on welfare and free handouts. Companies should for many years 30 PLUS of been paying better wages rather than the Gov propping up the welfare state. Companies have failed to invest anything like the sums required in the modern world on staff and equipment. On top of this we have simply encouraged to many to go to Uni, only to be disappointed they are stacking shelves, far better companies employ the right people and develop the talent they require part in house and part technical colleges or similar.

And then we wasted a fortune on covid

SJRen

No thanks

At the moment we (the government) are wasting a fortune paying universal basic income to the wealthiest.

Snazzytime

hi Norfolk'n'Good

re Kitwave (LON:KITW) Director share sales 7/23:

David Brind (CFO) sold 500k shares (retaining 1.5m shares) and Ben Maxted (COO) sold 150k shares (retaining 100k shares) so neither had a declarable level of holdings (i.e. less than 3%).

The other sales showing on Stocko were by Managers but not Board members. I believe that Chris Young is one of the sons of the founder and CEO Paul Young.

I note on Sharepad that Paul Young also apparently sold 200k shares but this is not shown on Stocko. However he still retains 10.8m shares representing 15.4% of the company. Personally I think it is only Paul Young's dealings that would be of any real significance for investors but in this case he only sold a tiny fraction of his holding.

I have been a holder since 4/22 and have a high regard for the company and management.

Kitwave (LON:KITW) are one of the few success stories of the 2021 crop of IPO's. Long established company since 1987, founder led with plenty of remaining skin in the game and growing both organically and by successfully integrated acquisitions in a fragmented market.

Lots to like imho.

Snazzy

carvalio

Roland did a good piece on Kitwave a few months back as well.

rmillaree

"But we have never been taxed so highly"

Are we taxed highly compared to other countries though ?

- surely with more pensioners than ever and us "paying as we go" with regard to these pensions and care home costs paid by the gov massively up we should be expecting higher taxes than the good old days when there were less old foggies collecting dosh. In some resects if we are closer to retirement than not then its the youth of today that will have a tougher job paying back for money we spent that we didnt have rather than us simply trying to get back to not accruinmg more debt.

Personally i dont think we are a million miles off being fair without making hard choices - being blunt allowing someone to give away 300k to kids then giving them 300k in care homes fees without paying a penny (as its all gone) - clearly suggests your average taxpayer is heavily subsidising those peeps having their cake and eating it to a ridiculous degree.

As Paul said earlier we simply dont live within out means - from 2010 -2020 we were going ok and we never tackled the deficit. The deficit should have ben paid off and we should have been saving for a rainy day. Lies lies and more lies from all policital parties in this regard - although i feel perhaps Rishi was probably the once chancellor who may have turned the tide - i wont blame him for covid coming along though so he was robbed of a chance of proving he want like the others. I would quite happily vote in a random bunch of experienced school dinner ladies/peeps to run the company in sensible fashion if that were a tick box option on the card.

The Phoenix

How so ?

If the conclusion is that there is too much purchasing power in the economy to match available supply (and I believe it is largely a supply issue) then the government has the tool to drain that.... ie fiscal policy. It's just a political decision. Meanwhile they insist its the BoE job.

Monetary policy doesn't appear to work at these levels of debt to gdp, or at least it causes a massive stimulative bias that is offsetting a slowdown. That and pay increases, indexation, etc are just throwing petrol on fire.

The BoE is relying on the theories of interest rates expectations and propensity of savers to spend, yet despite the lack of results thinks the answer is to continue juicing the economy (we'll find out soon) until the credit structure can't be maintained. Argentina was at 100% inflation and 80% interest rates last time I glanced.... yes there are differences when borrowing in dollars, but you would think someone would question the policy.

I believe inflation will go away due to changes in supply and I am more convinced of longer term deflation, but the government, BoE seem unwittingly determined for inflation to last as long as possible.

Thank you, Snazzy!

I really appreciate you taking the time and trouble to reply. I thought someone may have the answer, and therein lies the beauty of the Stockopedia site and the SCVR readership. The accumulated knowledge is significant and has been a very useful source of information, ideas and learning for me. As have Roland, Graham and of course Paul Scott - now a legend in certain parts of Norfolk!

That was where my interest started.

net interests payment for the government I think are at around 120B at the moment up from around 40B (that won't be absolutely accurate) and that is likely to continue rising. That money is held in risk free assets and paid out in proportion to the amount of assets the holder has and is net spend by the government into the economy. As far as I'm concerned that is universal basic income to whoever holds them, and its not welfare recipients that typically do.

In a nutshell, the policy to reduce inflation is by pouring risk free returns to wealthy (or wealthier) people.

davidallen77

the government should be forced to balance the books on a monthly/yearly basis my vote is not a blank cheque for my government to borrow every month. cut something or spend less make a decision they get paid enough have a system similar to USA

If you prefer they balance the books every year they can raise taxes to achieve that.

The US system means the opposition can hold a gun to the head of the government (voted in by the people) and potentially cause a financial crisis in order to invoke their own policy choices. Th debt ceiling always gets raised regardless once they get what they want.

I think around 100k households a month roll off their fixed rate deals in the coming year.

gmtrader

Which is about 2% of all those in the uk with a mortgage.

Patrickmylnetrade

18th Aug '23

Perhaps your nicest post yiannos ;-)

Paul Scott

20th Aug '23

Hi Norfolk,

Yes I also really like Kitwave (LON:KITW) and have mentioned it positively here 3 times so far in 2023.

However, the heavy Director selling has completely put me off for now. I don't care what the reasons are, whenever I've ignored big Director selling in the past, it's usually been a mistake, as something untoward often surfaces typically about 6-12 months later. A good recent example of that was when SDI (LON:SDI) 's CEO dumped most of his personal shareholding last autumn, and the performance this year has since disappointed. They know the company far better than we do, so Directors ditching a big chunk of their shares in any company, makes me a lot more wary that I would otherwise be. KITW falls into that category for me - a great pity, as in all other respects, it's a good company, and good investment story.

Regards, Paul.

Small Cap Value Report (Weds 16 August 2023) - RST, GATC, ESNT, CLX, MSLH

Inflation data

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Paul Scott

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