Paul's SCVR podcast - written summary - episode 18 (29 Oct 2022)

Here’s the written summary of my most recent podcast (audio is here, or on podcast platforms), recorded on Saturday 29 October 2022. 

Introduction. 27 companies covered in SCVRs this week, and one audio interview with professional corporate bonds trader, Paul Hawkins, on Thursday.

Monday 24 Oct –

Bioventix (LON:BVXP) (Graham). Amazing profit margin.

D4t4 Solutions (LON:D4T4) (Graham – interim results)

Cerillion (LON:CER) – really good performance. Could we have foreseen it multibagging? Not really – it’s down to winning major contracts subsequently. So we should look out for companies that are accelerating rate of contract wins. Balance sheet good, with net cash of £20m. Only small divis. Shares look expensive, but company is performing so well, it’s justified. I’m interviewing CER’s CEO on Tuesday.

Shoe Zone (LON:SHOE) – declined my invitation to do a CEO interview.

I only approach companies that meet my strict criteria to do interviews. So you know that when a new podcast comes through, is because that company is trading well, has a strong balance sheet.

Never advice or recommendations, it ‘s up to you to do the more detailed research.

Fulcrum Utility Services (LON:FCRM) – another profit warning. I’ve ditched my personal position, because losses are greater than expected, and it’s flagged that it might need more equity. So that breaks my key rule over having adequate funding, hence I’ve dumped it. Lost about 35-40% personally, but I’ve moved on.

Aferian (LON:AFRN) – used to be called Amino. Profit warning, caused by customer de-stocking, a big issue at the moment (unwinding high inventories, because supply chains are improving). Does set-top boxes for TV. Not an area I understand. Blown cash pile on acquisitions. $5.5m costs of aborted acquisition, seems crazy. I’m not sure management are adding value from an acquisition spree. Brokers downgraded forecasts by a third. Shares down similar amount. Doesn’t look cheap even now.

Luceco (LON:LUCE) also has seen customer de-stocking, hurting profits.

Mello Monday had interesting companies, e.g. Warpaint London (LON:W7L) , Quixant (LON:QXT) and Galliford Try Holdings (LON:GFRD)

Mello London, in Chiswick, returns 16-17 November. 50% discount for Stockopedia subscribers, see David’s post. Use it or lose it, for conferences. Social aspect of investing is important. Will be nice to see everyone again. Mention of Bill Makins amp; Steve Holdsworth, who we’ve both lost, tribute to both.

Tuesday 25 Oct -

Superdry (LON:SDRY) – more problems with its accounts department. Going on for several years, full disclosures in Annual Reports. Auditors have resigned. Vulnerable to a shorting dossier?

Shoe Zone (LON:SHOE) – another good trading update, ahead of expectations (Zeus raise 4.5%). I remain positive. Sadly management declined my offer of a CEO interview.

Deepverge (LON:DVRG) – no good. I warned in June about these accounts at 10p. Down 75% since.

THG (LON:THG) – now in small cap territory. Sold Q3 update. No change in guidance. Reassuring. But has burned through cash pile. Crazy valuation on float. Still loss-making. Dependent on bank debt. Needs to increase margins. I’m steering clear.

SDI (LON:SDI) – Graham reviewed. £13m acquisition (6-7% of market cap). Seem good at doing acquisitions, lots of experience. CEO just sold most of his shares – not good.

Graham also looked at System1 (LON:SYS1) and Altitude (LON:ALT)

Wedndesday 26 October -

2 collapsing share prices -

Made.Com (LON:MADE) – don’t want to crow, but I’ve been warning on this one. Website now closed for new orders, and formal sales process ended. So administration likely for its trading subsidiary. But the holding company might avoid insolvency, possibly? Depends.

Parsley Box (LON:MEAL) – one of the worst floats ever. We’ve been negative all the way. Burning through cash pile, and considering de-listing. Fell as low as 1.5p, then doubled to c.3p. Below own net cash balance. (I mis-spoke here, saying 1.5p market cap, when I meant 1.5p share price – apologies). Major shareholders could buy out minority shareholders for peanuts. Business model isn’t working. I hope it does de-list, so I don’t have to waste any more time on it.

On Beach group (LON:OTB) – starting to look good value, worth a closer look maybe?

Graham looked a Bloomsbury Publishing (LON:BMY) and Vianet (LON:VNET)

Thursday 27 October -

Purplebricks (LON:PURP) – new CFO.

Foxtons (LON:FOXT) – good Q3 trading update, ahead of exps for FY 12/2022. Singers raise forecast. New CEO says he can turn it around. Reasonable valuation around 30p. Not especially cheap, but long-term this might be a decent entry price. Lettings business is good reliable recurring revenues.

PCI- PAL (LON:PCIP) – good update, trading in line for FY 6/2023. Q1 revs up 29% vs forecast of 20%. New product developments sound interesting. Strong pipeline. Patent infringement case is a cloud over the shares. Could drag on until 2024. I could see this share 2-3x in a bull market.

Camp;C (LON:CCR) – Graham looked at this.

Seeing Machines (LON:SEE) – also Graham. Eternal jam tomorrow. We don’t understand the valuation.

Inspecs (LON:SPEC) – halved in price on a profit warning. Too much debt. Mentions that France amp; German economies are weak. Curtailing some of expansion.

Interview with Paul Hawkins, highly experienced corporate bonds trader. Fantastic interview with Tamzin from PIWorld in June 2020, still highly relevant. I tried to avoid overlap with it. Many commentators are looking at bonds now, because higher interest rates are now much more attractive, and with lower risk than equities (but also less upside). If you think inflation is likely to fall, then locking in high yields now on bonds could be good. Useful pointers to get round high minimum investment – Prefs, or buy shares in an investment trust.

Friday 28 October -

Likewise (LON:LIKE) – my first proper look at it. Mild profit warning. Quite impressive actually, doing £120m revs this year. Balance sheet OK, and has freehold property. Could be good, long-term. Challenger to HEAD, run by former CEO, Tony Brewer.

Made.Com (LON:MADE) – about to go into administration, according to Retail Gazette. Founder lashes out.

Franchise Brands (LON:FRAN) – Ridavies chased me to cover this. Impressive Q3 trading update, ahead of expectations. Shares are expensive, but justified by strong track record.

Marks Electrical (LON:MRK) – from 2 weeks ago. I like management here, down-to-earth entrepreneur. Nice business, but in a horrible market (electricals ecommerce). Profits are dipping. Can’t justify current valuation, but long-term could be decent.

Macro comments - interesting points I’ve picked up this week.

PMI (purchasing managers index) – forward looking economic indicator. Falling into negative in UK, Eurozone, and USA. So a recession now seems inevitable, and profits falling at lots of companies. I was starting to feel a bit more positive about shares last week, but the slew of bad economic data is making me wary.

Eamp;Y report – 86 profit warnings in Q3, highest since 2008. Retail, travel amp; food worst sectors, unsurprisingly. Pretty negative.

We need to ignore 2020 amp; 2021 high profits for some companies (e.g. eCommerce), as one-offs. But eCommerce companies now so cheap, some may be bargains.

USA economy slowing. But, takes the pressure off the Fed to aggressively raise interest rates, may be bullish for shares? Fuelled a big rally in US – Dow from 29k to 33k. Looks like a bear market rally.

UK small caps have rallied, but nowhere near as much as US indices.

Dollar has softened a little from major strength. Both sterling amp; Euro have bounced a bit.

Spectator data (thanks to reader recommendation) very useful info.

Truss/Kwarteng – good ideas, but poorly implemented. Caused spike in Gilt yields, now recovered. Sunak seems safe pair of hands, but might over-tighten, making a recession worse.

Mortgages – boom in fixed rate mortgages, but now it’s logical to go for a much cheaper tracker discount rate, which means houses are still affordable. But higher risk than fixed rates. So I’m considering buying very cheap housebuilders.

Frasers – Mike Ashley – bought 5% stake in Asos. Online buys – MySale, ISawItFirst, Missguided, plus stakes in N Brown. Very interesting. He’s paying a lot of attention to online.

Directors Share Options – making me very cross! Tone deaf to load up with options, at a time when investors have seen our investments crumble. No evidence that share options lock in good people, or incentivise people. They pay out randomly, I think.

Inspecs – profit warning – said that Germany amp; France are struggling – e.g. German consumer confidence at 25 year low.

Big tech sell-off in USA. Facebook amp; Amazon sold off. Elon Musk buys Twitter.

Bank shares fell this week on updates – NatWest amp; HSBC.

Sorry to sound negative, even though we have some lovely cheap small caps, it’s difficult to see shares rising much further, with so much bad news to come.

Thanks for listening!

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