Small Cap Value Report (Mon 8 June 2020) - RBG, UPGS

Good morning, it’s Paul here.

I’ll be writing Mon-Wed SCVRs this week. Graham has kindly offered to write Thu-Fri, in order to give me a 4-day weekend to celebrate my 52nd birthday! What a kind man! I shall enjoy that!

Probably much like yourselves, I needed to take a good break over this weekend, to recover from such an intense week, trying to work out what the hell is going on with the world, the economy, and the stock market.

Where do we start? Firstly, thank you for all the positive comments, I really appreciate it. I have no idea what is going on, and am just trying my best to interpret it from one day to another. Some will be right, some will be wrong. Anyone who uses words like this “will” happen, is wrong. People should use words like “could”, or “might”. Otherwise, they are charlatans overly optimistic about their forecasting ability! Nobody knows what will happen for sure.

It’s fine to express opinions. But not to express false certainty. Let’s measure commentators – let’s make a note of what each commentator said on each date, and then challenge them afterwards when they were completely wrong! (I got that idea from “Superforecasting” by Tetlock amp; Gardner. The best forecasters express their uncertainty, and readily change their mind when the facts change.

I’m the first to admit that, I had no idea the Dow would go from 29,500 in early March, to 18,500 low, then rebound to 27,000 now, all within less than 3 months. This is unprecedented. Anyone who did know this, would be a billionaire could have become very rich by now. Personally I kept my thinking flexible, and survived this turmoil intact. I hope readers survived it all OK.

My latest feeling, for what it’s worth, is to stop fighting market recovery, so I’ve been forced to close my Dow shorts (due to large short-term losses) . Let’s enjoy the longs on recovery – much more profitable than the losses on my hedges I should add.. That is clearly the way things are going. Hence I’m about to double up on increase some of my recovery longs for the UK economy today.

What do readers think? I think we’ve done a pretty good job of steering through this nightmare.

Shops start re-opening this day next week, 15 June. I suspect there could be pent-up demand, and plenty of people just wanting to be able to shop again, even if they don’t specifically want to buy anything. Evidence from the USA is that re-opening has gone better than expected, so the same is likely here, I reckon.

(apologies for the strike-throughs above. I wanted to tone down my Sunday evening comments, and make them less emphatic – following my own advice! But also leave an audit trail of what I’d amended, so that people who had already given a thumbs up can see what’s been changed)

Confirms it has executed final documentation re enlarged bank facilities, as expected. No surprise there, so it’s not price sensitive.

Allocations in the placing went out on Friday afternoon. It was scaled back, as placings usually are, because people expect them to be scaled back amp; hence over-apply! It’s a bit of a balancing act. Occasionally you get a full allocation, which is actually a bad sign, as you end up with more shares than you really wanted, and the price is likely to go down, because of lack of demand. Equally, if you get scaled back too much, then you end up with a scrap of stock too small to bother with. Therefore the ideal situation is where you get somewhere between c. 50-75% of what you applied for .

Sorry for the confusion about when RBG shares go ex-open offer entitlement. Some posters thought I’d got it wrong, but I’ve just checked with my broker, and I was correct originally. If we buy (or sell) RBG shares today, then they carry with them entitlement to 3 for 5 new shares priced at 20p. The last trade is close of play tonight. Therefore, tomorrow morning RBG shares are likely to gap down a few pence, taking into account that transactions from tomorrow will not carry any open offer entitlement, it will be fixed according to who owned the shares at close of play tonight. But please do double-check with your broker before acting on this.

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