Small Cap Value Report (Weds 6 Sept 2023) - DOTD, RTN, HFD, BKS

6th Sep '23 by Paul Scott

88 comments 8108 reads

Good morning from Paul & Graham!

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 up to about £1bn. We 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.

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

Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk.

Summaries

dotDigital (LON:DOTD) - up 2% to 86.6p (£259m) - Acquisition - Graham - GREEN

Dotdigital makes a £25m acquisition (mostly paid in cash) for a business with which it already works in partnership. The logic behind the combination makes perfect sense in my view and so even if Dotdigital is paying a full price for it, I think it’s good news for the stock.

Restaurant (LON:RTN) - up 1% to 44.2p (£337m) - Interim Results - Paul - AMBER/RED

…

Unlock with Email

Unlock with Google

Already have an account?
Login here

af20001

6th Sep '23

I was at one of their National Tyres centres the other day and it was noticeable that there were female technicians as well as someone with a disability, so maybe the strategy of getting under represented groups in is working. Obviously I've got no idea how long they've been there or if they're even in apprenticeships, but thought I'd mention it in the context of this discussion.

For what it's worth, their MOT price was good value (compared to the competition) and carried out efficiently with no hard selling.

I don't hold Halfords (LON:HFD) .

Monty Carlo

Two benchmark comparator stocks are Texas Instruments (NSQ:TXN) and Analog Devices (NSQ:ADI), who are amongst the biggest in mixed signal semiconductors.

Of course Filtronic is a minnow in comparison and the financials are in different worlds, but if you want to understand the business you'll need some familiarity with them.

Filtronic (LON:FTC) has been immensely frustrating from an investor perspective over multiple decades. I think part of the problem has been that Filtronic are just so much smaller than many of the companies they supply, and seem to have the weaker hand when it comes to negotiating commercial terms.

Paul Scott

Hi Mark,

Yes, i'll circle back to Headlam (LON:HEAD) either tomorrow or Friday, it's near the top of the list!

Regards, Paul.

wolfspirit

"AI" is the new ".com"? etc.

Hi c038644,

Thank you for your kind message! That's great you've achieved breakeven over the last 2 years, no mean feat given how the small caps market is down 43% in that timeframe! I'm pleased you've done well on Plexus Holdings (LON:POS) (I hold).

Although just to clarify one point, we never make "recommendation"s - we're just flagging up ideas for you to research yourself in more depth.

As we're flitting from one thing to another here, these are just brief reviews, and it's entirely possible that we might miss something important. Hence why it's so vital you do your own more detailed research (and let us know if there's anything important we've missed).

Best wishes,

Paul.

Thanks Andy! Yes I really enjoy my quarterly catch ups with Paul Hill, we always seem to bounce ideas around, and could go on for hours! I listened back to it last night, and have to say I enjoyed listening back to it myself!!

ezlifeme

Paul - Yes a great listen as always - Perhaps you need a can of that special "Chilled" drink before every future catch up with Paul Hill, you did seem very calm and focused this time! (Sorry people an in joke for those who have listened to it already, we do all seem to be getting a bit off topic in this heat today)

I don't remember tweeting anything about remortgaging my house. I suspect if you check the time and day of this tweet, it was probably about 2am on a Saturday, after a skinful at my local Revs! In any case, why does it matter? If I want to remortgage my house, that's entirely up to me. I'm not sure why you seem so outraged at this!? You're obviously having a bad day, and wanted to lash out at someone. Not really very nice though, is it?!

Boohoo (LON:BOO) didn't work out as I thought it would. That's what happens with shares, at least 40% of small cap share ideas go wrong. So I'm not quite sure why you think it's such a surprise that Paul got an investment idea wrong. Lots of everyones' investment ideas go wrong, that's how it works.

tic_tac_toe

Does seem a very sour grapes comment

rmillaree

Beeks Financial Cloud (LON:BKS)

However, strong current trading and reiterating FY 6/2024 guidance (of £30m revenues, and increased profits) is encouraging.

Is this not a potentially a con though ??- if £2.5 mill of sales has been delayed into q1 next year - should they not be £2.5 mill ahead of where they previously expected - if they had previously expected those same sales to be in this year just finished. I am presuming its simply contract delays here - not sure if that was confrimed or not ?

Seems kinda "sketchy behaviour" pimping up material sales increases during the year then taking them away after year has finished (timely update to market please) - then double counting them by boasting about the same sales in the next year !

how would outlook have been had they booked the shortfall this year as they expected to till the very last minute ?

2023 sales say 24.5 mill

2024 sales 27.5 mill (i have used broker note on their website 29.1 mill less £2.5)

expected 12% increase

almost makes me wander if it suited them to have the sales slip so the future narrative remained good.

I always worry if companies might need near term funding that they are either consciously or subconsciously biased towards putting "best possible narative forward" - thats probably looking after those already invested - but screwing over those that hadnt earlier but did so on basis os promises likely being met.

Fair play for putting up targets and missing - but imho they should have updated earlier - or not ben over optimistic and they should have been more workmanlike in how it was comunciated too.

As a non holder if they are on track for 2024 those are genuine numbers (ie not pimped up) and the shareprice is depressed due to lack of "investor faith" then perhaps the price now looks attractive (is it pe off11?) - then again perhaps stocky "sucker stock" clarification is right.

Hey ho no doubt if future news aint good price will continue to drop in advance (coincidence?) and if futuire news is good no doubt shareprice will have risen back up before we get reeasonable clarification they arent going to screw us over this year.

Not sure what companies history is but they should be ensuring there is no repeat this year due to excess enthusiasm.

Think for now i am happy sitting on the fence.

Graham Neary

Hi Gimmers, thanks for the comment. I don't see any news on SDI apart from the appointment of a new COO. Unless something changes I probably will take a positive stance below £100m market cap . We are already at an unusually low earnings multiple. Big director sales in recent years were at 165p-195p. A c. 50% discount to that level would provide some comfort. G

Gimmers

Thanks Graham! Appreciate your comments and personal thanks to you and Paul for doing such a great job! :)

You're very welcome Gimmers! G

JCPr

Any company that is using any form of XYZaaS model for it's revenue is going to go through the same thing Beeks Financial Cloud (LON:BKS) is going through. Revenue takes much longer to build up than it would with the traditional approach of selling hardware and charging support & CRs. And of course their upfront commmitments are significant.

I have a small holding. Not tempted to increase it or to sell at the moment. I lost out on Sage (LON:SGE) by selling out too early (albeit at a profit) when they went through the pain of adopting a SaaS charging model. So planning to be more patient this time. Disappointed through that the RNS wasn't as open and clear as it should've been.

john2

The problem with SDI (LON:SDI) is the debt. While they claim to make their new acquisitions from retained profits, net debt has risen from £m1.81 in 2021 to £m6.33 in 2022 to £m20 in 2023. This is a very steep rise, and occurs at a time when debt is becoming increasingly expensive.

peterthegreat

Yes I agree about SDI's debt john2 and I would also note that at least one of their recent acquisitions have gone wrong. I would recommend viewing their results presentations on Investormeet. Some of the remarks made by their CEO, Mike Creedon, are a bit unorthodox (such as his limited interest in financial markets) and although a personal thing, I wonder if his "cheeky chappie" style might irritate some company owners, although he hasn't done badly up to now.

G Morris

Selective memory maybe? Warnings about £Superdry turned out correct. It's not possible to be correct 100% of the time, especially in awful markets for UK small caps recently.

Sage (LON:SGE) - it can be frustrating holding and shares not delivering sage for me has been a proper example of playing long game - I bought when price had previously spiked over 900p thought it must be worth a punt when it dropped to 360p (I knew it was a good business fundamentally) - after purchase it went below 100p.

The secret to success was simply waiting the 23 years needed for sage to get back to its 1999 highs - we are there now thankfully so acceptable result I guess factoring in divis, shame I didn’t do a Paul and load the boat at the bottom hey ho.

Can anyone beat 23 years for share to beat prior peaks without going bust in the meantime ?

As an aside sage was the first share I ever bought - hmmmm now where is my paper certificate ?

£bks

I understand fully about the long game - what the saas model - agreed it takes time to build that’s known and factored in - in some respects because it takes time to build recurring revenues missing on revenue late in year is extra surprising - they might have been unlucky with something lumpy but it should be reasonably easy to plan conservatively and deliver with perhaps a beat on top - it’s poor form imho for them to do what they have done - so late in the day albeit as one of one might be tempted to give them a pass. To me there is more to like here than not like but the reality is it’s not as good as they have led us to believe previously particularly if they have boosted new year by stealing from one just finished .

WarrantStar

Beeks Financial Cloud (LON:BKS) This highly rated software company updates the market with a statement that is actually a profit warning, but attempts to gloss over it in the hope that virgin investors will be deceived. Unless there is a dramatic improvement in the company's prospects, then the price will be significantly lower in a couple of months than it is right now.

Small Cap Value Report (Weds 6 Sept 2023) - DOTD, RTN, HFD, BKS

Summaries

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

88 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...