Small Caps Podcast with Paul Scott – Episode 4 for 2023

Paul’s usual rapid run-through of the week’s UK small caps results/trading updates.

Still manically busy with 2022 trading updates, and we’re unearthing some nice share ideas. Although plenty of companies are reporting in line, that often comes with caution about the 2023 outlook. So I reckon it’s best not to get too carried away with the overly excitable bull runs that many shares have had recently, seemingly in an indiscriminate way.

As always, my stuff is personal opinions, never advice.

Regards, Paul.


  • Really do appreciate the continued delivery of podcasts, great!

    re: speech recognition, that’s interesting post from @Chris with the transcript from AI/whisper.
    Following a link on the LinuxMusicians bbs I also find Julius for speech recognition:
    “The main platform is Linux and other Unix-based system, as well as Windows, Mac, Androids and other platforms.”

    There’s what looks like a Windows binary of 2 Sept 2020:

    – I haven’t tried it or explored further.

  • Auto-generated transcript – it should be fairly good, but probably won’t get the tickers right.

    Hello, it’s Paul Scott here, commentator and investor in UK Small Caps and of course I’ve
    written the Small Cat Valley reports in my eleventh year now.
    So welcome to my podcast. I’ve been asked to state the date so people know it’s the
    latest version. So this is episode four of 2023 and I’m recording this on Saturday morning
    28th of January 2023. Right, launching straight into Monday’s report fairly quiet. Saga, there
    were weekend reports that it was going to sell its insurance underwriting subsidiary. Now the
    important thing here was it’s keeping the bulk of its insurance business which is retail
    broken and I think it looks fairly good that it’s looking to sell the underwriting bit which
    obviously carries some risk and hopefully they’ll get a good price for that. So I didn’t see any
    particular reason to panic on that. Next Graham looked at the pay point and appreciate merger
    which seems to be going ahead. I think that’s been voted through approved by shareholders. Yes,
    we think both Graham and I think pay points pretty good. Nice value share cash generative.
    Dignity, another recommended cash offer has been raised again to £5.50. My views on this
    stand I think that the fact that management have been negotiating with a serious bidder for in
    total now four months and only very recently announced it to the market is an absolute outrage.
    Nobody’s suggesting that companies should have to report every sundry takeover approach no matter
    how spurious that would be ridiculous. But to actually be in serious negotiations with a
    major credible bidder and not to tell the market and shareholders I think is absolutely outrageous.
    You know the takeover panel rules are completely inappropriate because there’s been a false
    market in that share for three or four months and anyone who’s sold basically got fleeced. They’ve
    sold at too low a value because they hadn’t been told that the company was negotiating actively
    negotiating a premium takeover bid cash takeover bid. So anyway I’m glad to see the back of
    dignity because it’s horribly overgeared and it just didn’t work having it as a listed company.
    Graham looked at TinyBuild, an independent games company. Now intercede I looked at this one of my
    favorite IGP material ahead trading statement. Now I think this is for financial year March 2023.
    I think a lot of that is down to favorable forex because it sells very largely in US dollars
    but it’s costs here in the UK. So that might be a bit of a one-off there. I don’t know.
    Encouraging pipeline though they said and I think it’s had a nice step up. The interesting thing
    is with these type of shares they do a vertical move, intercedes done two of those, it’s actually
    recouped now nearly all of the losses in the share last year. So the issue I think is this shows
    if you’re not in a share when some key news comes out you miss the big gains don’t you? Whereas the
    moves down tend to be a sort of gradual grinding move down and often if you want to buy back into
    these things there’s not the liquidity to buy in any size. So I think there’s a lot to be said if
    it’s a fundamentally good company just taking the pain during a bear market and shutting the share
    certificate away in a bottom drawer and forgetting about it. If it’s a good solid decent company it’ll
    come back. I also looked at audio boom. Now the market cap there has only has dropped a hell of a
    lot down to only 69 million trading update. I’ve gone amber on it so kind of neutral. I think now
    I didn’t like this announcement at all they cunningly concealed a profit warning as I’ve put
    here and it was a profit warning they’ve missed the 2022 figures significantly but then obscured
    that with upbeat commentary and it seems to have fooled people because the share price barely moved.
    I do think it’s coming into reasonable value territory though audio boom and kudos to
    management who’ve turned around a previous absolute basket case and with it being US based
    predominantly you never know somebody might might might make an offer for it. So I don’t see a lot
    of appeal to audio boom I have to say there’s obviously ad revenues are under pressure but you
    never know in the next bull market it could do quite well. Lots of interesting reader comments on
    Monday as well. Thanks for those guys much appreciated. Wednesday was a really busy day we
    covered 11 companies I did three overnight the previous night before from the backlog. So looking
    at those first every man media this is a E-M-A-N this is an independent cinema operator that has
    sort of comfy sofas and tables with waiter service which I think is a nice format I haven’t been
    to one yet actually but I must I must try a mystery shop one. Now ahead it says ahead of
    expectations for 2022 but the 14 and a half million EBITDA turns into a small loss before tax
    because there’s a huge depreciation charge with this business. Now it is saying it expects good
    film launches in 2023 but I just question the business model what is the point in spending
    all this money fitting out these nice comfy cinemas and then not actually generating a return on
    the investment so I don’t I don’t get it so every man’s not for me but it’s not particularly bad so
    I’ve just rated it amber. What I have moving on next to in the style ITS I’m read on this one I
    think the shares are worthless it’s now trying to sell itself before I think it’s inevitably going
    to run out of cash and go bust I wouldn’t it’s one of those things now where it’s just a gambling
    chip for people who want to play around with it before it inevitably I think D lists so it hasn’t
    worked I would just forget about it we’ve never liked that one it was just a copycat me too type
    of fast fashion business and it’s now making heavy losses I forget about it. Coal facts I looked at
    CFAX I think that one is now I’m green on this really strong H1 results which were actually out
    yesterday which is Monday lovely balance sheet broker raises full year forecast it was guiding
    heavily down for 2023 because I forget what the year-end is maybe it’s April can’t remember anyway
    but it now turns out they’re doing better than expected so the forecast has been raised but it
    does say quite interestingly in the outlook comment be careful because a slowing housing top end
    housing market tends to feed through with a six to twelve month lag to deterioration in their
    trading so I thought that was very interesting from read across to lots of other companies it did
    put a spurt under Sanderson design group SDG which is one of my top picks for 2023 I don’t hold
    any personally but wish I did I think SDG is a very good long-term one what else do we have
    but now saga came out with a trading update for financial year January 2023 I thought this was
    reassuring it was one of the classic glass half full or glass half empty updates I think what you
    can say about this is it says broadly in line with expectations and actually the brokers
    edged their forecasts up a few weeks before this so it seems to me it’s probably over the
    worst now saga and it is still profitable and providing it remains profitable the bank covenants
    which are actually it’s not drawn down the bank facility at all but the bank covenants link to
    the bond covenants as I only discovered fairly recently from talking to our our resident bond
    expert so on my podcast which you can look back and have a listen to that’s quite interesting if
    you wish now it’s it’s got a very high depreciation charge on saga so with with no additional
    capex it should be generating quite good quite good cash flow although that wasn’t particularly
    in evidence in this year now crews and traveller doing well now that they’re coming back nicely
    and that’s really the bull case on the share isn’t it some challenges in the insurance division
    I think it’s turned a corner amazing recovery in the shares they bottomed out saga shares
    bottomed out around 75 b and they know about 1 pound 80 so people who stuck with it have done
    very very well I actually only had a tiny position left in it because I’ve mentioned before I closed
    my spread x accounts which was where the bulk of my positions were I just don’t want to be using
    gearing at all going forwards lesson finally learned after over 20 years of making millions
    and losing millions and you know I just don’t want to live that roller coaster life anymore
    I’d rather do you slow and steady owning physical shares out right now so you don’t have to worry
    about margin calls or profit warnings but anyway that’s by the by the point with saga is I did
    have a tiny scrap of them left and I sold them at about 1 pound 50 they’ve now gone up to 180 so
    never mind but I did put them into something else that’s gone up a similar or slightly higher
    percentage actually one disco so which is which is speculative but there we go so it doesn’t
    really matter does it if you sell before something peaks if you put it into something else that’s
    gone up then it’s fine I’m only keeping a tiny little spread bet account a third one which is
    now the only one just to use as a little slush fund for when you occasionally want to have a
    holiday or something so that’s the idea with that now one disco funnily enough coming on to that
    another contract win nine million dollars just this flurry of quite sizable contract wins of this
    is very very interesting the market cap is nuts though I think it’s up to about 800 million
    but the interesting thing with this is the shareholder register includes canny investor Richard
    Griffiths who’s been buying it’s not just a historic holding of his he increased his stake
    if you look back at the rns is I think it was as recently as December so I think when you have a
    very canny very shrewd investor or several of them actually in a speculative stock it’s not a good
    idea to bet against them something very very interesting is happening at one disco and I’m
    going to be years ago a quite a senior guide HSBC invited me in for a chat and a coffee and he
    mentioned one disco funnily enough and said it’s the real deal it just hasn’t come through in the
    figures yet that was five six seven years ago but there’s there’s credible backers behind this thing
    I’ve no idea how to value it I’m just riding the wave at the moment with one disco and I actually
    bought some more for my sip this week as well totally speculative but you know you can’t ignore
    those major contracts with big clients something interesting is going on there no idea how to
    value it next Graham looked at senior trading update he’s he’s amber on this one although it
    was ahead of expectations the update so I think maybe that could have been borderline with green
    a crawl Graham looked at he’s red on that so am I we just don’t rate it a crawl although I would
    emphasise with a red rating on that we’re not saying it’s you know in danger of going bust or
    anything we’re just Graham’s a bit more aggressive with his colour coding than I am Smith news I
    looked at I’m green on that one we’ve liked the turnaround at Smith news SNWS for quite a long
    for quite a long time actually and we’ve proven correct on that one which is nice to see a turnaround
    happening super low P and great dividends still there’s no asset backing but I’m still happy with
    Smith you Smith news it’s doubled from the lows so I think naturally there’s some profit taking
    going on cyan canoed now I was read on this but I’ve got amber on it because it’s got away a
    placing of five and a quarter million and it was a reasonable price not a deep disco 17p which tells
    you although it’s only five million quid it does at least tell you that the people backing it
    believe in the story rather than sort of reluctantly putting in money to stop it going bust
    so I wouldn’t discount that I mean the figures are terrible on it it’s always a jam tomorrow thing
    but they they are saying they’ve got great con big contracts kicking in roundabout now so let’s see
    I don’t know I don’t have a strong view either way personally I’m not convinced but we’ll see
    it could could well be quite good now I liked M&C Sachi’s update ticket SAA I’m green on this
    surprisingly it’s trading quite well in line update you would immediately think wouldn’t
    you marketing PR companies do really bad in the downturn but Sachi’s really impressed me actually
    during COVID it did it was surprisingly resilient during the worst part of the pandemic and it’s
    hit a record PBT for calendar 2022 I think that’s worth a fresh look Sachi and there was all that
    kerfuffle with Vin Maria with sort of failed takeover beard a while back as well so I think the
    valuation’s appealing on Sachi so have a look at that one obviously if you want to do your own
    research on it and I’ve only I only skim these things please remember that that’s why they’re
    never recommendations it’s not just a disclaimer it’s the truth we don’t you know we don’t have the
    time to look into these things in enough detail to be able to give recommendations and we don’t
    want to give recommendations you know how many times do I have to say this I don’t want to recommend
    anything you know the whole east thos of stocco PDU is everyone doing your own research that’s what’s
    that’s what’s enjoyable isn’t it about it all really we’re just flinging dozens and dozens of
    ideas at you and saying have a look at this have a look at that and then make your own choices
    is sorry went on a bit of a rant there city pub Graham looked at he’s an amber on that so that
    was Tuesday okay on to Thursday the 25th of January I looked at a few stragglers again the night
    before which was staff line trading update 55 million market cap now this was one of those
    things where you look at the the highlights and you think oh this is a good update maybe this
    shares worth buying it says they’re going to make what was it I forget the exact figure uh yeah um
    underlying operating profit for calendar 2022 at staff line st af guided at 11.6 million which is
    up 13 percent on 2021 that becomes nine million profit before tax not bad but I also moved into
    a net cash position it’s one of these things that the DP you look you rapidly go off it and I actually
    ended up marking it red because the problem the trouble is yes it traded okay in 2022 but it’s
    doing nearly a billion revenues and a lot of the revenues are passed through wages of the the temps
    that it puts into its its clients uh so negligible margins the profit margin I think is only about one
    percent if that but the trouble is the brokers then it said old 2023 is not going to be more
    challenging but when you went to the broker forecast they’ve absolutely axed profits for 2023 by about
    half so this is a effectively a profit warning isn’t it for 2023 I absolutely hate it when
    companies PR these announcements to sound all upbeat and positive and then they’re sneaking out a huge
    reduction in profit forecast through the brokers it’s not right uh and deceives people it isn’t
    you know it’s the little guys who don’t necessarily have access to the broker notes who think oh this
    sounds positive let’s buy some more then they find out over the next you know week or two that
    actually everything’s being guided down significantly I just think staff line is a low quality business
    not a disaster though I mean it almost went bust I think during the pandemic but they’ve done I think
    at least two emergency fundraisings that have propped it up claims to have a strong balance sheet
    it isn’t you take off the intangibles and the balance sheet is negligible net assets so again
    I don’t like the whole way that company communicates and I just don’t think it’s a good business
    at all so why why get involved right sure-serve green I’m green on sure-serve SUR I keep getting
    the ticker wrong it’s not sure SURE that’s a different company it’s just SUR I must remember
    that good growth in revenues and profits I quite like this Graham’s more cautious on it
    I think the valuation is reasonable it’s got sticky contracts big order book it is quite low margin
    it does sort of heating contractual heating systems servicing and repairs for public sector
    clients and housing associations and so on local councils but it seems to be focusing on that niche
    and doing pretty well the balance sheet’s okay with sure-serve as well those public sector clients
    tend to be good payers they pay promptly and off and up front so it’s it’s got a nice bit of cash
    sitting there short so yeah I quite like sure-serve not the most exciting business in the world but
    it looks good value I think I’ve got a feeling Christopher Mills is all over that one I think
    I remember he said he liked that in a recent webinar and Christopher Mills obviously incredibly
    shrewd not somebody to bet against Pebble Beach Systems trading update I’ve been nervous about
    this one in the past it’s tiny it’s only 10 million so we’ll keep this brief because it’s
    really seriously overstretched with bank debt but it’s chipping away at it each time they report
    the bank debt comes down and actually it’s trading okay and the current year forecast for 2022 calendar
    2022 was 1.7 million adjusted profit before tax well that’s about three that’s a third of the
    bank debt which is still a little bit on the high side but I think it’s it’s profitable enough for
    the bank you know if I was the bank manager I’d just say yeah I’ll go with it I’ll run with this
    because they’re chipping away at the debt and they can always do a placing at some point maybe a
    smallish placing so I think Pebble Beach Systems I’ve gone from red previously to amber on that I
    can see why people quite like that like with as with a lot of these small software companies the
    challenge is going to be can they really hit some big contracts and scale the business up
    significantly if they can then you’ve got a multi-bagger on your hand potentially
    so yeah I’m warming to Pebble Beach as the finances improve now what else did we look
    at on Wednesday 25th of Jan okay Graham looked at CMC this is the spread betting outfit he likes
    that oh one of mine that I hold personally I think it’s my third largest personal holding
    is XP factory XP F there’s a speculative element to this but it’s actually an extremely rapid roll
    out of experiential leisure so these are bars which have well bars and well it’s escape rooms half
    the business is escape rooms doesn’t sound madly exciting but you look at the numbers and they’re
    actually very good generating 35% EBITDA margin and they don’t need to be refreshed they’ve
    haven’t refreshed any of them they’ve been going five years because you only need I think Richard
    Harper I’m the CEO I think he said that you only need about 80 80 customers what was it per day
    or per week I can’t remember exactly but it’s not very many customers you need and they’re cited in
    big-ish towns and cities where you know you just have a continuous flow of new customers coming in
    yeah what were they saying oh yes it was an inline with expectations update for 2022
    2.6 million adjusted EBITDA it’s now so it’s now cash generative which is really really good
    that does translate to a loss at the PBT level 0.8 million but this is very much work in progress
    this is an early stage business that done a phenomenally quick rollout of the boom battle
    bars which is the bit of the business that really interests me I’ve mystery shopped it and it’s very
    good format customers love it look on TripAdvisor it’s five star reviews galore apart from you
    know the occasional person who goes on goes on there to whinge about something but that’s what
    TripAdvisor is for isn’t it what I look for is lots of five star reviews and some one star reviews
    then you know it’s genuine from difficult customers who probably turned up pissed and
    were rude to people and whatever and then give a one star review that’s that’s a lot of it I think
    anyway XP factory yeah I think that’s going well interesting concept there is risk there but
    it’s got a bit of net cash I’d like to have a bit I don’t I don’t 10 minute Q&A catch up with the
    CEO uh yeah he seems pretty happy about everything um uh yeah he said yes we’d prefer to have more
    cash but actually we can just run the business for cash uh and we’ve got a strong pipeline of new
    sites and with optionality they can just push the button on any of the pipeline of sites whenever
    they feel like it the the the fit out on these things the boom battle bars is about 800 grand
    but the landlords cough up 500k of that in really big reverse premiums and they’re picking up a whole
    bunch of prime retail sites just at the right time in the cycle I think and the head leases
    are all with with XP factory itself and then a lot of them are franchised below but if the
    franchisee doesn’t pay the franchise fees they can just they can just kick them out and take over
    running the site themselves that’s never been done and Richard doesn’t think it will be but it’s
    it’s a good lever to pull uh in extremis so yeah I I accept there’s a speculative element to XP
    factory bars are really really unpopular with investors right now rightly so um because it’s
    so bloody difficult to make any money from bars right now isn’t it so I totally understand why
    some people want to eschew that sector all together but I do think XP factory is unique and it’s the
    only way in the in the stock market you can play this experiential leisure niche which is a big niche
    and I think it’s going to do really really well because going to bars and just standing around
    chatting it’s so boring generally whereas going on an organised night out with a group
    to XP factory and playing all these games that are pre-book the axe throwing is really good fun
    really popular the augmented reality darts is brilliant shuffleboard looks looks crap but
    people love it it’s really exciting well no no it’s not exciting but it’s it’s engaging people
    love it I’ve I’ve mystery shopped it and I’ve seen that the customers really enjoy the experience
    I take the point that the same customers may what not necessarily want to go back there over and over
    and over but they got huge screens playing football they do nice nice ish cocktails and the Heineken
    silver was really really good on draft I have to say anyway I’m sorry I’m rambling but I do think
    XP factory’s got a lot of potential so I like that share a lot and I have added to my position
    now we’ve had an inline update for 2022 I think risk is receding now the business has done this
    massive rollout but there are some teething problems with some of the games as I discovered when I
    mystery shopped them but they can iron that out and I told the CEO that he said we know we’re
    dealing with it you know there are we’re all over it we’re our own biggest critics he said so we know
    we can do things better and we’re constantly improving which is exactly what you want to hear
    isn’t it right next uh pen dragon uh Graham was amber on that one Van El Graham’s amber on that one
    uh now I’ve got a mystery share on Wednesday’s 25th of January’s report um I’m green on this one
    it was actually read a request which I followed up on and I think it’s really really good and
    I bought some personally so uh with my cash pile that I’ve just uh cashed in from selling my seraphine
    shares bump BUMP the 200 premium takeover bid there has given my portfolio a really really
    nice shot shot in the arm so that’s the mystery share on Wednesday uh finally phonics fnx it’s
    expensive but I’m still green on it because uh the solid update for 2022 was published and I think
    there’s a good a lot of good stuff in the outlook sections as well which I’ve said here I do think
    that justifies the high valuation on phonics in particular they’re talking about international
    expansion without having to increase their overheads well that’s music to my ears if they can pull that
    off and it’s icing on the cake really there are quite a few we didn’t get around to looking at
    inland homes down 30% that looks a total disaster doesn’t it we um I commented a while ago on that
    but I’ve never I’ve always thought the previous CEO of that was an absolute clown uh you know how
    can you not make money in a 15 year bull market in residential house building uh but he managed to
    destroy shale of alley it’s total fool we um we met him at an agm years ago and just thought this
    guy’s useless anyway um the new CEO walked after only a few weeks in the job which we flagged up in
    the small cat valley reports and said you know you need to steer well clearer this I think and uh
    anyway um the latest news from it is horrendous it’s either going to go bust or um be a multi-bagger
    from the current level so there might be some speculative element to inland homes I personally
    I’m not interested in in risking any money on it uh yes so that was Wednesday right onto Thursday
    26th of jan I’m almost out of times I’ve rambled a bit on xpf so right uh mystery share on Thursday
    I’m really keen on this one so uh see Thursday’s report for that and I have been buying personally
    I hasten to add with my the my new cash pile is rapidly burned well has rapidly burnt a hole in
    my pocket I’ve spent nearly all of it although I’m trying to keep one standard position size in cash
    just so I can move quickly when I see interesting opportunities which are cropping up nearly every
    day at the moment there’s so many interesting updates now in specs reported s p e c now I only
    went amber on this because it said it it was only an inline update with inline with lowered
    expectations after a really bad profit warning um a few months ago but uh I’ve said here it is
    cutting costs and could be a turnaround the market’s gone gone gone mad for it it’s up it
    rose 31 percent on the day on on an inline update and continued rising uh on Friday so I don’t
    understand what people why people have suddenly gone so bullish on in specs but anyway there we are
    people have uh the bank covenants are relaxed no dividends and a new factory to be built so people
    are obviously betting on a turnaround there good luck to you I think um well we’ll see what happens
    retala ROL this was one of my top picks for 2023 I’m pleased to see a significant tender offer
    was announced there uh at a good premium so there’s been a 59 profit to be had on that
    this year to date for the shares that you tender uh buying back about a third of the their own
    shares so that is an interesting share I think I also looked at fintel fntl this used to be simply
    biz I’m amber on this I think there’s some quite uh good uh aspects to this business model lots of
    recurring subscription revenues uh it provides business services to financial advisors and so on
    and collects in lots of small subscription fees by offering um a very worthwhile advisory service
    with relating to compliance and so on so I do like that business don’t see it as particular value on
    17 times it’s got this massive bank facility as well available for acquisitions not too keen on that
    although it does seem to have done quite good acquisitions in the past I just think the bank
    borrowing facility looks oversized so fintel fntl I think really the crux to that is will they use
    that that that bank those bank borrowings which haven’t been drawn down at all it’s unused at the
    moment if they draw that down and make good acquisitions that could really add shareholder value
    but that’s what it hinges on they’ve got to make good acquisitions so um our gentex agfx I’m amber
    on this this is all these these forex dealers are doing fantastically well at the moment um
    it’s a bit of a confusing update from our gentex but it seems to be ahead of expectations uh yeah
    all these dealers all these fx dealers are doing great so it’s a sector move rather than a company
    said specific move um I think I decided that our gentex looked reasonable value on the current
    forecast I can’t remember animal care ANCR I remember on that don’t really see the appeal of
    the shares but nothing particularly bad about it slightly below expectations trading update
    now euro sell I like this one I’m green on this one it did drop four percent on a trading update
    for calendar 2022 it’s expecting softer markets in 2023 these are this is building products things
    like um it makes and distributes things like double glazing and windows and doors and so on
    it’s vertically integrated it’s got its own distribution depots selling direct to um the
    trade and the public uh it’s it’s cut some costs I’m going to buy some of these euro sell shares at
    some point I just not convinced now’s the right time as building products companies generally
    are seeing a slowdown the and they’re all telling us that it’s obvious isn’t it because new builds
    house builders are reigning in their new builds and they’ve had a two-year boom during the pandemic
    from people updating their homes so 2023 is is going to be a linear year so it seems to me it
    might be better to just hold far on my buying that one I’ve also commented commented briefly on access
    technologies uh impresario and foxtons foxtons uh is doing seems to be quite promising but they’re
    also saying obviously 2023 is going to be a slower year so quite like foxtons but I don’t see any
    particular rush to buy into that one now on Friday poor old Graham was struck down on Thursday with
    a neck injury and he’s in a lot of pain so get well soon Graham and uh he came up with a great
    idea of roping in Roland who came to a my rescue on Friday uh uh or was it Thursday no it was Friday
    so Roland very kindly covered um four backup items uh backlog items rather that Graham had
    wanted to cover the previous day um so Strix Kettle KETL rather is the ticker he’s amber on
    that one uh provident financial pfg Roland was green on that rank rnk Roland’s amber on that one as
    am I I agree it’s amazing how with Roland Graham and myself we nearly always agree on practically
    every share and it’s not groupthink we just have the same sort of value stroke gap um mindset and
    way of analyzing these things so we nearly always agree I’m probably a little bit more bullish on
    on some shares they’re a bit more cautious than me I think but I’m just probably that’s just me
    isn’t I’m a little bit excitable and over the top you know that’s just who I am anyway uh
    Hargrove Services HSP I think that’s good I think that was on either my top or my my runners up
    now I think it was on my top list watch list for 2023 so I’m glad Roland looked at those results
    because I’ve not had time uh yeah he quite likes it he’s green on on Hargrove Services as am I uh
    so those are the backlog items oh and I looked at what can jones wjjg um this is a stock I hold
    personally I’ll always disclose if I own something personally I think it’s good I was watching the
    Buchanan Communications Analysts webinar and company presentation that is available online
    through Buchanan you just have to put your email address and name in and then you can watch the
    video of it really really interesting uh I’m a lot more comfortable with this one because obviously
    it’s a property developer so but but they do it off balance sheet this is the thing they forward
    sell the projects usually before they start building them so it’s a very different business model
    much lower risk shares have absolutely crashed um I’m I’m a buyer at the current level but I think
    you’ve got to be a bit careful because they are warning that H1 2023 will be soft and it’s going
    to be H2 weighted um and their and their building margins are going to be lower so the analyst
    presentation is very very transparent but people I think when the interim results come out and it
    says oh you know the profits are going to be a well down but we’re expecting an H2 waiting I think
    people uh that could cause the shares to sell off later this year temporarily I think so I want to
    keep some powder dry with walking jones so that I can buy later this year when the interim figures
    probably disappoint people who have not been paying attention uh in that the company is
    guiding for lower H1 results but uh you often get a knee-jerk reaction by the market makers
    to mark the figures down the share price down by 30 percent uh because they don’t want to get you
    know on on the bad results and that’s where you hit the market with a buy order on the opening bell
    and uh sometimes it works great if you know the company is a really good company and obviously if
    you’re just doing it blind on some speculative rubbish it can be a disaster so I think you know
    buying on bad news you’ve really got to know the company inside out before doing that that’s my view
    I’ve learned that the hard way I lost a load of money years ago on a thing called TMN I just read
    the highlights and thought that looks amazing I must have been doing well on my spread better
    account at the times I bought a quarter million quids of shares and it ended up I think it ended
    up going bust eventually but I got absolutely stretched it off on that one and that was actually
    one of the things that motivated me to research pretty much the entire small caps market when I
    launched the small cap value reports in 2012 I thought I never again want to just buy something
    speculatively without knowing the company inside out or well no knowing the company at least well
    enough to be able to spot the duds have that have I been able to execute that perfectly no but you
    know it’s it’s work in progress with the what I love about this is we’re just constantly learning
    aren’t we nobody and you have to learn from your mistakes if you’re me and it’s thrilling and losses
    happen losses happen if you can’t go with losses you shouldn’t be in this game that’s my view
    else was there oh yeah on the beach otb I’m amber on this currently because it’s doubled in price
    we will bullish on this share back in october november last year because I check back and readers
    were flagging it to me and says what do you think about this pool and I said I think it was 95p I said
    I think this looks really interesting in valuation terms it’s now doubled to about £1.90 but I think
    it’s still I think it’s still actually reasonable value very strong update 68% growth in bookings
    announced for q1 which was october to december it’s obviously spending a lot more on marketing so
    and it dodged telling us anything about profitability I hate that you know trading updates need to
    specifically say whether you’re trading in line ahead or below market expectations for profit
    with an asterisk footnote we believe market expectations is 12 million profit or whatever
    so many companies are doing that now it’s best practice it’s transparent every company
    should do it if companies just dodge that and I’ve been told that some brokers I won’t name
    and shame them maybe I will at some point in future but some brokers actually cross out
    when management put that those footnotes in and say no no you can’t put that out you
    can and you should so if your broker tells you not to be transparent with the market
    sack them get a new broker in I know that’s something I always go on about maybe I’m
    getting too strident but it really pisses me off it’s trading updates need to tell us how
    the company is trading not just give us a load of general waffle anyway uh what’s that super dry
    s dr y now rhomboid one who’s brilliant I’ve known him for years and he’s he’s a great investor
    and really good to follow on on twitter he he’s invented a new verb and it’s to be dunketton
    the CEO and founder of super dry is obviously julian dunketton he’s super bullish all the time
    his his enthusiasm is infectious which is great you know that’s what you need when you’re a CEO
    of a fashion business you need to energize and excite people particularly when it’s losing money
    as super dry is now now uh it put out a profit warning for April 2023 which is based entirely on
    the wholesale business seriously underperforming year-to-date orders down 18 percent and for the
    last nine weeks wholesale orders are down 57 percent which is terrible but as he said in the
    webinar where I was at definite risk of being dunketton because I did come away feeling a lot
    more positive about it or less negative but having slept on it I think the negatives are so
    significant that you can’t ignore them you know if you if you if you if you if you look at slide 11
    on the um on the pack on the slide deck that’s available on on super dry’s website slide 11
    shows that um a forex gain I think it was about 17 million or something um more than that actually
    its forex gains took them from a loss of about 31 million to a loss of about 14 million so
    without that far favorable forex movement the loss would have been horrendous and that’s clearly
    shown in a profit bridge on slide 11 h1 is the weaker half though and they do the stores and
    online did trade well reasonably well over Christmas dunketton’s very very excited about that
    and he’s said they’re working hard to fix the wholesale business but I want to know what’s
    gone wrong in the wholesale business they say it’s oh we weren’t attentive enough towards clients
    and he’s actually put the head of retail in to run wholesale now to interact much much closer with
    the big retail clients that makes sense to me but we’ll see I mean if wholesale orders are up to
    for up to a year ahead well that tells me that the wholesale customers don’t rate um the summer
    and maybe the autumn stock packages that super dry’s put out there for them to buy if they’re
    not ordering them in the quantity you know to dunketton says oh well you know they don’t realize
    how well the brand is now selling at retail level but that was for the what’s now the last season
    stock um and the wholesale customers are not buying the next season stock in in anywhere near
    sufficient quantity so I do have concerns over super dry also read the audit reports which I
    covered in October in a stockopedia article about this I went through the annual reports is horrendous
    they basically the accounts department hasn’t got a clue what it’s doing it seems over years this is
    not recent it’s got no controls over stocks or trade creditors which means there could be all
    sorts of horrors lurking in within inventories and that’s why the auditor resigned it nearly went
    bust when the bank pulled the bank facilities but it managed to get they’ve sailed really close to
    the wind but they did get new bank facilities in place so fair enough super try now is much lower
    risk now it’s got proper bank facilities but people are taking a hell of a risk with this share I don’t
    think it’s well no that’s not fair now it’s got the bank funding in place is probably okay for the
    next year in a bit but it is a loss making business now and um uh with no real control over its stock
    and its creditors which is scary because that means probably at some point you get a whacking great
    right off and they’re still clearing old stock through tk max they admitted that in the webinar
    that’s why the gross margin is three percent lower you know they’re they’re dribbling out all the
    dead stock actually I might go to tk max today and have a look and see if there are any bargains
    in there but I think again super Duncan believes his own PR and thinks that product’s great and
    it’s really good value it’s not it’s really expensive so you’ve got to get the the designs spot on
    and the brand image spot on for the young trendy customers to want to buy it as opposed to potbellied
    middle-aged men like me who seem to be uh seem to like super dry stock but I’m certainly not
    prepared to pay I’m wearing a super dry hoodie at the moment actually 55 quid it was you know you
    could get something essentially the same slightly inferior fabric maybe in in primark for about
    15 quid or a tenor which I’m much more comfortable with I’m more of a primark man I have to say um
    anyway that’s super dry I’m amber on it at the moment but I think I’m I don’t know but sorry I
    lost control of my mouth fair uh quick comments on treat TET I’m amber on that inline training update
    it needs to really smash the forecast to justify the current uh valuation treat does but it says
    capacity is going to double from this new factory so that’s the upside isn’t it if you think the new
    factory is going to rapidly fill with with new orders turnover leaps profits will go through
    the roof so I can see the appeal of treat but it’s uh there’s too much guesswork involved
    motor point horrible profit warning it’s only a break even now MOTR shares didn’t budge so shareholders
    were obviously in that for the long run uh I think why buy motor point when it’s not making any money
    at all uh when the traditional car dealers are um are coining it in at the moment and have great asset
    backing motor point isn’t making any profit and it hasn’t gotten the asset backing so on the basis
    of the numbers I think motor point looks pretty awful at the moment actually but all these things
    like kazoo and cinch probably are going to disappear I think loads and loads of online only
    challenger firms which will then leave leave motor point with that uh budget online uh car supermarket
    operation market oh largely to itself we got the hiccup so yeah I can see the interest in motor
    point actually first time I looked at this one stelrad s r a d uh amber recent or 2021 float so
    obviously it’s crash but broadly a nine update and this looks a nicely profitable substantial
    business so uh but it also it’s building supplies as the name implies it supplies radiators I’m
    wondering if there’s a structural decline in that market I don’t know I haven’t looked into it um
    because you know going forward people might be buying heat pumps rather than gas fired radiators so
    I don’t know stelrad you’d need to look into really the structure of its markets on that one I think
    so a lot of research needed it says 2023 is going to be challenging as well uh avon protect protection
    put out an inline update but it looks too expensive to me on current forecasts all right that’s the
    individual companies we haven’t really got any time for macro now I look through my notes there’s
    really nothing earth shattering there that we haven’t covered before so I’m going to just finish with
    a quote from a book an audiobook I’ve really enjoyed recently called it by guy hands the
    private equity supremo of terra firma who bought emi and has done all sorts of deals
    it’s called the deal maker it’s a really interesting read because on a personal level
    he goes into a lot of detail about his upbringing and his the challenges he’s faced in life from
    being uh dyslexic and um it’s it’s it’s one of those fascinating biographies where people are
    really brutally honest about their own failings as well as their own successes and kudos to him for
    that because you know when a billionaire admits to their failings and so on I think that’s uh you
    know it’s very very educational for all of us here’s a quote from it which I thought was fascinating
    and has great read across for us he’s talking about management of companies that he’s um his private
    equity firm have invested in he says don’t get into a comfortable relationship with them you
    need to challenge challenge challenge management uh every management team believes is doing a good
    job if things go wrong it’s always someone else’s fault I’ve never had a member of management say
    I’m sorry guy I’m mucked up it just doesn’t happen for the most part they have no sense of risk
    only of upside no sense of risk only of upside isn’t that interesting you can give them incentives
    but there’s no real alignment of goals if business is successful they get paid well on the exit if
    the biz exit if the business struggles most private equity equity owners will just pay the
    existing team well for them to stay on so there’s someone there to pick up the pieces that’s not
    to say management don’t work hard or don’t care but they’re on their own side not yours they tend to
    believe their own propaganda hence why private equity firms have to constantly challenge challenge
    challenge isn’t that brilliant I think we should all take that on board and when we’re uh talking
    to management and asking questions on webinars it’s not our job to to become mates with them
    and to be all friendly which is an ever-present risk whenever you talk to management uh you’ve
    got to be sceptical and challenge challenge challenge right that’s it for this week thank you
    for listening thank you to for subscribers to Stockopeager you know we’re very grateful and we
    had one guy come back this week he said he didn’t renew uh and after two months he was missing it
    so much he came back I wish I could remember his name but welcome back and that was I was
    absolutely delighted to hear that so uh and hopefully um yes right I’m waffling now I’ll
    leave it there thanks for listening bye you

  • Thanks Paul – much appreciated and digested as always. Anne

  • Great podcast, thanks. The weekend wouldn’t be the same without it!

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