Rebel Bumper Half Year Review, June 28th, 2024

The winners and the lossers an +28% year to date.

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.

It’s been a very good six months, better than I had hoped if I’m honest. From the late October low last year to December 31^st my total portfolio as reported here in December year end was up 31%.  I was trending up 40% until a few weeks prior but 31% in two months was very decent.  Someone once pointed out to me if you are up 40% then you only need to grow your pot another 40% to be up 100%.  That was in rough terms, it’s actually if you are up 41.5% you have to grow 41.5% to be 100% but it illustrates the point about compounding – when your pot grows in percentage terms, percentage gains are much more in cash terms.

At 40% up I was thinking another 40% would double the portfolio in a year but at 31% up I needed to be up 53% between Jan and the end of October to double the portfolio in a year – too much of an ask in reality I suspect.  Writing this today on the 28^th of June the portfolio is up 28%+  since the start of the year. That’s 70% from the October low. I need to grow 18% from here, in 4 months, to double the portfolio in a year. A tough ask but doable based on the last 2 months of 2023 and the first 6 months this year, but I’ll need the market to stay bullish.

This year never started well.  Watches of Switzerland, WOSG, after putting out a strong trading update and directors buying, then put out a warning.  Unbelievable that they had so little foresight of how trading was going in that first update.  Anyway, that hit the portfolio for 3%.  Shortly after, a trade I had taken in Halfords, HFD also got hit with a warning, clobbering the portfolio for 1%. Together, those two hurt, but really, I am used to the pain. When you hold 15-16 stocks that have the ability to double in a year then the size of positions and the speed of which these sort of shares can move both up and down in a big way, volatility.

Counteracting the drop from WOSG and HFD, my buy in late Dec of CMCX just on the bowl was rewarded by a trading update and a big jump of 20%.  I have continued to keep buying with my early buys now up 200%+ and the total holding, now 30% of my portfolio, being 50% profit.

https://cockneyrebel.substack.com/p/weekend-rebel-review-jan-13-2024

For anyone who hasn’t read it, the Jan 21^st Weekend review covers CMCX results. The company AGM is on Thursday 25 July 2024. The co goes xd on July 13^th for 7.3p final divi.  Paul Scott did a review this week too:

https://app.stockopedia.com/content/small-cap-value-report-weds-26-june-2024-cmcx-mex-vlx-msi-w-7-l-1000640?order=createdAt&sort=desc&mode=threaded

These are the H1 highlights.

Having sold most of Marks & Spencer, MKS and one-bagging them. I reduced a lot of Rolls Royce, RR. too.  The remainder RR. have risen 50% since January. I think there is a lot more in Rolls Royce, can it one-bag in a year?  I doubt it so I may extract some cash here if something good comes along that I think I can one-bag in a year.

Warpaint London, W7L has continued to deliver even more. I’ve added a number since the start of the year, the stock is up 65% since January, they hit all time highs on Friday. They had a trading update on Weds, more below.

Avon Protection, AVON, is also up 65% from the start of the year.  AVON has carried on winning contracts and defence is coming ever-more to the fore. It’s a chart with a lovely curve up, testing the recent highs.

One stock I bought back in April was Greencore, GNC.  I did take a look in December but didn’t find them interesting but subsequent research whetted my appetite.  Having put at a very decent trading update, the shares are up 30% from my  April buy  – results are in July – they recently raise guidance by 5%.  There was a recent scare re ecoli but that seems to have been identified at a supplier and one type of lettuce . While they did recall a few sandwiches, it was voluntary, and it never even warranted an RNS so I expect it has had a very minor effect.

I bought Luceco, LUCE around the same time having traded in and out several times last year. Their acquisition of 9% of EAAS and their trading updates seem very positive, these too are up around 25% from my April buy in price.  It has come off lately though which may be to do with the rising shipping costs.  I’ve trimmed a few in case – next update in July.

Funding Circle, FCH is another buy I have made this year, the bulk of them at around 46p on their trading update in April – these have doubled since then and hitting recent highs this week. More on this weeks fab news of the £33m sale of the US business announced this week, further down.

IG Design, IGR was a stock I bought on the trading update in April @ 154p, these have risen 50% since my first buys. On Tuesday they posted result for the year – more further down. They have a lot further to go I feel

MPAC has doubled since January, I never bought the bulk of mine till March so I’m up around 30% on those. They have completed a working trial of an automated car battery line for Freyr.  Nothing is in the forecasts for this.  Adam Holland appears to be a very capable physicist and bright CEO imo, having worked for Rolls Royce and JCB. He is targeting 10% sales growth and 10% margin growth per annum. The pension deficit may be a thing of the past soon which is another potential rocket booster for the co. Trading update in July.

Synthomer, SYNT. I bough my first lot after the trading update @ around 228p which are up but I added more on the way up which has me under water on them now.  The recent pull back has been deeper and steeper than I expected. I reduced a third simply because I don’t know why but will continue to hold and would buy back if I see any signals to make the chart look more positive

I bought Filtronic, FTC on the SpaceX news – they really have been winning loads of contracts.  My first buys were just under 60p and I’ve been buying heavily since so my average is only mid 60ps but I think there could be huge profits and growth going forward.  Mush taking 9% via warrants is apparently the first UK co Musk has invested in – I’m pretty sure he isn’t in here for a million or two 😊 I think he either makes a lot of money or takes the company over.  Currently FTC tech goes into the ground stations but if they go into the satellites then they require multitudes of what ground stations require.

FTC’s history the was with products that had shorter product life cycles in mobile telecommunications infrastructure market. This is now being offset by the revenues that we are now starting to generate from the critical communications markets of satellite and defence which has a longer-term demand and more predictable revenue streams. This will eventually see FTC re-rate as earnings start growing faster from this much higher margin business imo.  

ZTF I have taken a smallish position in but am under water here too.  Awaiting an update regarding their exciting ReSource product soon.  I haven’t bought too many as it is illiquid and volatile.  Apart from a few small bits of stuff, I’ve not bought or holding much else.

I sold my Ashtead Tech, AT., back in May as it no longer looked a OBIAY (one bagger in a year) when it was up 30% for the year.

Liontrust, LIO I bought for the bowl but after the recent fall I banked my profits to wait and see the results.

I’ve had a fair number of trades like YU., RCH, FOXT, DLAR, THG, – some winners, some losers, most of the gains and losses pretty small except for buying FDEV on their update which I had intended to hold but ended up snatching a very decent gain, being I don’t understand these businesses that well.  A few were short holds like BMY, GHH, KTW ETC which just became boring compared to other stuff I hold and I sold to increase other holdings.

And so onto this week and after a quiet Monday, Funding Circle. FCH, announced they had sold their US  business for £33m.  I had been factoring this as being just written off at zero so the £33m came as a bonus.  They already had unrestricted cash of £165m.  They are spending £25m in buy backs. So once that is done they will likely have £165m approx still.

So now they have a very profitable loans business in the UK Which made £1.4m pbt in H1 and £5.1m pbt in H2 for £6.5m for the year. The sale of the US business wipes out a £10.6m AEBITDA loss they made last year going forward.  They have the Flexi pay business in the UK too. FlexiPay transactions almost quadrupled to £234m (FY 2022: £59m).

So leaving the Flexipay business aside, pbt from loans have gone, £1.4m H1, £5.1m H2.  What could H1 be this year?  If that trend continued you’d have £9.4m pbt in H1 this year. Now you can’t rely on that but it’s an interesting thought.

So once Flexipay UK is profitable too then it all gets even more exciting.

Lisa Jacobs says she is doing buy backs because the shares are materially undervalued. With say £165m in unrestricted cash, they look like they are extremely cheap imo.

Unrestricted cash refers to total cash less cash that is restricted in use. The restricted cash is cash that is not available for general use by the company as it is held within investment vehicles and generally payable to third parties.

FCH shot up 15% but on a poor day, traders scalped.  I added more.  Next scheduled news is in September. Wednesday saw the buyers back and hungry to buy. The shares are hitting new recent highs.

Both FCH and FTC got covered by Richard Stavely of Rockwood Strategic on investormeetcompany on Wednesday – he said he thinks FCH can get to £50m profit in the coming years and can trade on a teens multiple, plus they have all that cash.  A not to miss interview imo. 

https://www.investormeetcompany.com/meetings/full-year-results-143

Funding Circle paid 98p to buy back some of their shares this week.  When they started buying back in March they were paying 45.9p, Lisa Jacobs saying "We believe the share price materially undervalues the business and as such will be buying back up to £25m shares.” Roughly 12m shares bought back so far at an average somewhere around 70p, probably something like £17m to go before hitting the limit.  Way too cheap and not trading on a fin-tech rating that they should be trading on so I expect a big re-rating at some point.

Next up on Tuesday was IG Design, IGR Full year results.  These are the headlines:

You can read the RNS for yourself but with adjusted eps coming in at $16.3c, that was 3c above consensus.  There are some strong targets for margins going fwd.  Watching the result presentation, the co seems very confident imo.  They rose 8p on the open but closed down 5p on trader profit taking – I’m happy to keep holding. I think they motor on higher when funds do due dilli. The recovery has only just started in my view. They mention shipping costs and other small issues but are confident of increasing margins and growing sales, just way too cheap imo. A few traders scalped but by Weds the serious buy and hold investors were buying the dip as it hit a new recent high.

Wednesday saw a trading update from W7L. Warpaint London. H1 sales up 26% and margins up.  Here is the last 3 years op margins:

7.63%, 12.4%, 20.6%

EPS 3 years: 3.90p,  8.27p, 18.0p which means 22.8p eps this year is far too low imo.

W7L like to guide low and beat too imo. The shares have remained petty much at the recent highs and calculating the company numbers they look set to beat forecasts well imo.

All in all a great week for news coming after CMCX last week.

One I did buy a small few of this week was MS International, MSI.

This is an engineering and manufacturing conglomerate of businesses.  The bull bread and butter side of the business is the forging business (I thought forging was illegal 😊 ) their petrol forecourt superstructures business and their Petrol Station Branding business.

The exciting part though is the defence business:

'Defence and Security'

 Another year of considerable progress and growth has been achieved by this division. Our long-held commitment to investing in people, enhanced production facilities, product development and extensive international marketing, is clearly propelling the business to a new and higher level of financial performance.

International interest in both our naval and new land-based weapon systems remains most encouraging with an order intake during the year in excess of £100 million.

Pleasingly, included in that figure, were new orders for six MSI-DS30mm naval weapon systems to be fitted to the first three Royal Navy fleet support vessels. When delivered, this will bring the latest upgraded version of the MSI-DS-30mm weapon system into the Royal Navy's inventory which will significantly improve their 30mm weapon system capability.

These developments auger well for the Company's future as 'Defence and Security' rapidly establishes itself as the dominant division of growth potential.”

I have followed this co for a while but its illiquidity has always been a bit of an issue.  But nevertheless, the outlook statement sounded so interesting that I felt it warranted a buy as the size and scale of these armaments they are manufacturing and their superiority just makes them look a one-bagger if some big orders scale imo

“Outlook

‘'Defence and Security'

“We live in an increasingly dangerous world and Governments are escalating defence budgets as a consequence. With this background and a strong and growing order book, we look forward with a good degree of confidence to a commendable outcome for the current year.

 Deliveries to the US Navy of the first production order contracts of our 30mm naval weapon systems commence in the first half of 2024/25. We will also be delivering additional 30mm naval weapon systems to shipbuilders in the USA for their US 'Foreign Military Supply' contracts.

Of particular note will be our first supply of 30mm naval weapon systems to the German Navy. These, together with our 30mm naval weapon systems in service with the Royal Navy and those going to the US Navy, will make MSI the current primary supplier of small calibre naval weapon systems to three of the major 'NATO' navies.

We await the tender documents from the US Navy with regard to their proposed five-year procurement programme of our MSI-DS 30mm naval weapon systems. We believe we are well placed to secure this 'follow on' order but do not expect it to be placed until after the end of our current financial year.

A number of countries around the world continue to show considerable interest in our land-based mobile counter-drone weapon system, 'Paladin', previously known as V-SHORAD. The Company has further developed this product, successfully demonstrating its capability to protect against the ever-increasing aerial threat from incoming drones. These developments will continue.

Significant investment continues into both our product range and the Norwich production facility to increase capacity in line with the expanded order book.

All told, we perceive that the excellent prospects for the division bode well for the current year.”

Anyway, I have taken a small holding.  With an historic PE of 15 and loads of cash it looks a pretty solid investment in a sector that I very much like at the moment.

So that’s been my week and my half year.  I close June out up just over 28% year to date. I really was pleased to hear Richard Stavely at Rockwood, one of the star performing fund managers say at the investormeetcompany presentation say that they are targeting stocks that can double – nice to know he has a strategy like mine, even if I have a more aggressive timescale.

https://www.investormeetcompany.com/meetings/full-year-results-143

Several one-baggers, CMCX a two bagger and a number more half way to one-bagging for me so far this year, far outweighing those inevitable ones that don’t come off which is how I expected things to go if the market held up.  Onto the next 6 months. That’s what has worked for me – identify possible one-baggers early, buy a stake, research them the best I can and if what I find confirms my thoughts buy lots more.  If what I’m looking at proves to be less inspiring after research then sell up, move on and put the cash into something I already own or keep the cash for the next OBIAY that sticks it’s head above the pit.

All the stocks mentioned here can be found in my earlier substacks by just searching the ticker, you can then see when I bought and why.

Next weekend, back to the usual format – if there is a format – a post-election Weekend Review.

Have a great weekend

Rebel