Small Cap Value Report (Weds 26 Jan 2022) - SOM, BMY, RST, IGR, GMR, ZOO, SRT, SENS

26th Jan '22 by Paul Scott

91 comments 12604 reads

Good morning, it's Paul & Jack here with the SCVR for Weds. Today's report is now finished.

I don't recall it being so manically busy in previous Januarys. Maybe we're covering more companies this year in the SCVRs? Or it could be that the general market plunge this year to date has made everything more intense?

Agenda -

Paul's section:

Somero Enterprises Inc (LON:SOM) (I hold) - 2021 ended with a flourish, and has yet again beaten previous guidance, which was raised as recently as 7 Dec 2021. Looks terrific value still. Outlook for 2022: another good year expected. Increased spending on S+M, and product development, so expect flat profits (which they'll probably beat). This remains one of my favourite shares - a high quality business, performing very well, at a remarkably cheap price.

Ig Design (LON:IGR) - another profit warning, it's down 52% today. Now only breakeven expected for FY 3/2022. Supply chain & logistics problems have crushed its margins. Is that fixable though? It might be in time. I don't think there's any rush to bottom fish here, but at some point it might become a turnaround, who knows? Balance sheet looks sound enough for it to get through these problems. The danger is that it has another profit warning in it. So I'll avoid for the time being.

Gaming Realms (LON:GMR) - a positive sounding update, but it actually looks a little behind forecast, and H2 was down on H1. Large EBITDA turns into small PBT! This company does look interesting, but in a more sceptical market, I'm not finding the valuation appealing.

Srt Marine Systems (LON:SRT) - a big contract win confirmed, looks like it was expected, as share price hasn't moved much. I question the market cap, given how there's been such a long track record of missing forecasts, and historically almost no visibility on the pipeline converting.

Sensyne Health (LON:SENS) - avoids insolvency, with an emergency cash loan from major shareholders. This is to provide enough time to (hopefully) sell the company. Incredibly high risk, with a high chance of a 100% wipeout for equity. Very dangerous, beware!

Jack's section:

Bloomsbury Publishing (LON:BMY) - trading is again ahead of expectations, with strong trading across both Adult and Children’s publishing, plus a major milestone of £5m…

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Lucky dip

26th Jan '22

3i is now only on 26% premium!

not sure why HVPE and OCI are on such high discount.

PSH also is on big discount with its investment mainly in US.

dhannaway58156

Joules will be reporting on the 1st of Feb fyi

rmillaree

This is starting to go round in circles a bit - Doug2b has their metrics and they stick to them whatever the the business type. Its a simple formula that takes nothing else into account -ref business type.

Please correct me if i am wrong here Doug2b

pointless arguing that you think the formula is wrong as from Dougs perspective it works very well and its their golden rule whatever the business type.

My blunt opinion is that the formula is great for flagging up shares that are more risky in that they havent proven to be great roi type companies based on dougs metrics. However the fact they fail the test does not mean they won't be a great investment - albeit we know they wont be right for Doug :)

PS its great to have your presence here as its really useful to know if it passes the Doug2b test or not. Certainly for more novice investors - investing in more proven buisness is probably less risky - albeit we should be always looking forward imho -Somero stats might say "nearly great" investment but if we know the race to build new warehouses and the like will end in 9 months time it could be a poor investment howver good the prior metrics are.

Glorenfeld

Joules (LON:JOUL) I held, but sold out after being alerted to their recent (last 6 months or so) trustpilot scores. They have been truly terrible. I know that this will only be a small sample of all sales and that a (relatively) few negative could actually be caused by them doing such good business they've struggled to keep up, but I wasn't willing to hold during results in case they were indicative of broader issues.

abtan

Somero Enterprises Inc (LON:SOM) (I hold)

"The obvious answer is that they left something in the tank that is being booked now (or not taken out now) and that causes anomalies"

This could make sense but it wouldn't explain the cash position changing by the exact same amount as the other movements.
" its probably also the case that they will not necessarily have sat down and done the formal numbers right up to 30th November at the time the announced the update early December."

If it's like every other organisation I've worked for the management accounts will be produced every month. In any case I would expect management to know their revenue/costs quite easily whatever day of the year it is.

As a holder I'm not concerned and merely pointing out some quite circumstantial numbers. I'm sure all will be revealed once full year results are out.

raggedtp

Thank you for your preamble, Paul. You came out with a thought-provoking concussion today:

"Also, if you look at a long-term chart for good companies, you don't look at the low points, and think, "I wish I'd sold at that low point"! You say to yourself, why didn't I buy at that low point? Probably because fear had taken over at the time. It's so important to remember that good companies recover from big falls, and buying at the best time can often feel scary at the time."

While I am generally a long-term investor in smaller companies and specialist investment trusts, I do have a version of trading, and that is:

Look at long-term charts of a few FTSE 100+ stocks, set targets at low points. Buy around the low point, with a view to selling when they re-rate back 15%. Often it works within a year. For instance, feeling fed-up at unscrupulous touts last year and in need of defending my family, I held my nose and bought Imperial Brands (LON:IMB) @ 1380 and sold @ 1600 a few months later, banking a div along the way. This was definitely not a long-term investment in a quality company, but just a convinction that something still robust was oversold. I bought some Persimmon (LON:PSN) at the end of last week on this basis....

gmtrader

Has anyone looked at Safestyle Uk (LON:SFE) today, with profits increasing despite the current head winds of material costs. 2 broker reports out both stating under valued. Increase in cash position and a dividend likely to resume mid 2022.

ACounsell

Good discussion on Somero Enterprises Inc (LON:SOM) today which has prompted me to look back at my decision to sell at the end of September 2019 only to see it increase x3 since then! This followed a number of profit warnings and had I been using my current selling rules (only applicable to a NAPs type short/medium term sub portfolio) these would also have signalled a sell. These are stock rank <80, Trailing stop loss -25% (for an adventurous stock), -10% or more relative strength since purchase and price less than the 200 day MA. The Stockreport for end September 2019 (available via the print button) confirms these negative measures but highlights the excellent Quality & Value ranks with plenty of 'green' flags throughout the report including passing 6 guru screens. Somero Enterprises Inc (LON:SOM) was rated a contrarian style and this combined with some strong metrics suggests despite the sell signals (and the profit warnings) I would have been better advised to buy more shares! - a decision which would have proved profitable in hindsight. Unfortunately I am now anchored to my 2019 sell price (£1.87) which in itself was at a significant loss and find it very hard to press the buy button on a repurchase of Somero Enterprises Inc (LON:SOM) despite apparently excellent results and prospects. I guess this is the reverse of the price anchoring behavioural bias that Paul referred to in his preamble! On the plus side the experience and retrospective analysis might prove useful if a similar situation arises with another stock that hits a bad patch.

Logical David

"I don't recall it being so manically busy in previous Januarys."

Paul, could it possibly have something to do with last year when you decided to increase the size of the Market Cap of the companies you look at SCVR from around £400 million-ish to around £750 million-ish??

TheFloatingInvestor

Forterra (LON:FORT), I cant help thinking that all construction is getting hammered regardless of the sector....very low PEs and some great value companies.. i don't get it. Recently got into Persimmon (LON:PSN) as the SP I think is fantastic, but still dropped a little more from bargin basement stuff.

ken mitchell

jayrannejad

First, apologies for the error in my previous post. The performance figures were over 1, 5 and 10 years.

The main reason Private Equity Trusts Harbourvest Global Private Equity (LON:HVPE) and Oakley Capital Investments (LON:OCI) are on such huge discounts to NAV is that investors don’t like them anywhere near as much as they do, overvalued 3i (LON:III) . Note that both HVPE and OCI shares have done better than 3i except for 10 year performance. The OCI update today was impressive and the share price finished up 10% but it’s still at a very big discount.

Lochinver

The same thing crossed my mind Snazzytime regarding Joules ( JOUL) which I hold.

Im hoping that reporting rules would mean that they would get into very deep water if they failed to advise the market of a further profit reduction of which they are aware, which I am sure they would know about by now and certainly before they report on I Feb.

And I too was pretty shocked by reading the trustpilot reviews but these have since been mitigated by a couple of factors :

- The first being that I every christmas buy the grandkids a range of nice stuff from Joules. Whilst they apologised online at the time of order that there would be some delay from their usual delivery timescales, in the event there was no issue.

- The second was that I figured that if it really was as bad as the trustpilot reviews made out , then it must have made life pretty horrific for the poor shop staff in the run up to Xmas and since . In the event I could find no reference to these problems on Glassdoor, where generally the response of Joules’ people was pretty positive .

Fingers crossed for the Ist Feb - I’ve convinced myself it will be ok !! Always dangerous ….!

Try asking your broker. On smaller companies with fairly thin trading, automatic spreads can look big, but I can almost always buy within the spread. Tanzania with the new president is not a basket case and is opening up mining licences again, for instance. Single property yes, but they are printing money now. Even at the uplifted price the forward div of 8%+ on a company at about half its total tangible NAV.

Cenkos says
"Our NAV of the Company’s 2P reserves is 33p per share – a 58% premium to the
current share price. At US$22.8m, Wentworth’s YE21 cash position represents c48% of its market cap – the highest of any producing AIM E&P company. We believe the combination of a sustainable and progressive dividend policy and one of the lowest emissions footprints in the sector makes for a compelling investment case. We maintain our price target at 44p, c2.1x the current share price."

I'll be happy with my 32p price, given the single-asset risk.

Neither do I. I hold Oakley Capital Investments (LON:OCI), Nb Private Equity Partners (LON:NBPE) and Bmo Private Equity Trust (LON:BPET), which span the world and styles between them, and as they say, their NAVs should always be understating the value, as they have to be conservative estimates, which they hope to (and do!) beat handsomely on re-sale.

Mark Selby1

Comments like this (unsubstantiated statements) should be removed. Rampers and derampers are not welcome here.

Effortless Cool

Hi RutlandRam

Not a Joules (LON:JOUL) specific comment, but I would say that reporting rules are regularly abused, especially on AIM, and nobody ever seems to get into shallow water, let alone "very deep water" as a result.

Tombholliday

Zoo Digital the commentator changes but not the opinion yet the price continues to rise

Is this rational or human

WozzaBozza

Love the preamble Paul, some wise words and interesting market musings

JoeA

I work in the ecommerce sector and have good relations with a number of review companies but not Trustpilot. They are a shady lot with questionable marketing and sales tactics. Joules does not have a commercial account with Trustpilot so this means Trustpilot do not collect their reviews. A customer has to proactively visit Joules on Trustpilot to review them and they're only going to do this if they have a bad experience. Trustpilot will not let Joules reply or moderate to reviews unless they sign a commercial arrangement. This is why companies who have an arrangement with Trustpilot have far better scores. You should not use Trustpilot to judge a company. Use Google reviews would be far better.

Tesla results out look pretty sound.

Would be interesting to know if any of the Tesla skeptics or ex skeptics are starting to change their viewpoint ref this company?They seem to be churning consistently good numbers that surely all the bods previously shouting it’s all a fraud must soon admit they got it completely wrong ?

I can understand the taking viewpoint that it may be expensive but surely anyone looking at the figures today has to give the company respect for the reasonably good job they are doing bearing in mind supply chain issues most car manufacturers are facing.

Forecast Growth next year - sorry now this year - should be easy Peasy with the investment they have put in this year into China and Germany factories - can’t really can’t see any scenario where tesla don’t have a good 2022and they are now so well capitalised no need or probably want anymore to pimp up the numbers.

Small Cap Value Report (Weds 26 Jan 2022) - SOM, BMY, RST, IGR, GMR, ZOO, SRT, SENS

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Paul Scott

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