Weekend Rebel Review 17th May 2024

Feeling Hot! Hot! Hot! OTB, LUCE. MPAC, PFD, RM., ZTF

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.

A weak Monday got the market off to a dull start but you have to remember here there’s a lot that follow the mantra of ‘sell in May and go away’.  Even if that isn’t going on, a number of investors are always cautious of it and watch and wait.  It won’t be a ‘sell in May’ this year imo.   Charts are too positive, valuations are too low and there’s too much company specific good news on the way imo, in the form of results that beat.

Wednesday was the big news with US CPI month on month coming in lower than forecast. This set the bulls into a trot, if not a stampede. An early rate cut coming into focus and a bit of the grunt it needed.  The S&P put in a strong rally as it raced to a new high.  Inflation focus turns to the UK on Wednesday when our inflation data is announced.  Could be another active Weds like last week.

Thursday saw more building and industrial data out in the US, nearly all of which was weaker than expected.  This added to the sense of an earlier rate cut possibly, other than import prices being a bit higher than had been expected. The market seemed pretty relaxed.

Are things picking up globally?  Shipping prices are firming and it isn’t from troubles in the Red Sea or renewed tensions it seems.  Perhaps China is finally coming out of its malaise.

Fear/Greed has moved up a lot from the 46 of last week, well into Greed here, so the punters are getting excited. I rarely reduce when the arrow is moving up like this but I sometimes reduce if the dial is round into the 90’s for a protracted time.

If you have made over 1% during the week, you have beaten the FTSE 250 - I suspect many have beaten it by a country mile this week - the 1 week chart. The FTSE Small Cap Index and Aim All Share out-performed the 250

The FTSE 250 break out is pretty pedestrian compared to the Small Cap index:

FTSE250

FTSE Small Cap:

Stocks

It has been a cracking week here, enhanced by keeping my holdings numbers as low as I can. I don’t want to eliminate risk, I just need to have it controlled.  If you have a portfolio of 40 holdings, all weighted the same, then if one falls 20%, your portfolio is down 0.5%. To the same token, if you have one rise 20% then you only get a 0.5% rise for your portfolio.  If what matters is just a steady, modest gain and no larger falls then that is fine. Personally, I think if you study the co, the directors and you research the market, look at the assets, buy into solid charts and avoid stocks where everyone and his dog are salivating about it, and buy stocks where they are beaten up and most people are not interested – then it’s better to hold fewer share but enough to make sure if one or two failed it isn’t a disaster.   Holding around 16 stocks, I’m cool if one or two took a 30% hit, tho I wouldn’t be happy.  I’m cool because the likelihood is a number of stocks could double, and more could rally way over 30% easily.  The real psychological thing to get over is that when something does fall 30% it is likely a warning has triggered it or news and it all comes in one hit quite likely. If you had a stock that drifted 30% lower over months it would be less alarming because your other stocks had likely more than compensated over the months. Hits come as a shock, you need to be prepared not to panic when it happens.  If no stock is over 7% of your portfolio say, then you know the downside limit is 7% max. It’s likely to be less,but you know what the maximum hit can be.  Then when you look to the other holdings, each one could be far more than 100% in a year. Provided I have been buying shares on a well researched basis, and I’m not holding 15 mad punts or 15 ‘tips’ from the press or others, then I think I can accept I might get the odd fall in the portfolio of 2-3% from one holding but I’m likely to get far more than that back from one of the other holdings to compensate.  Holding fewer shares, like 15 or less, means you can have more time to research each one and feel far more comfortable when those that just buy tips and do little research get spooked. I’d say consider making up a dummy portfolio of your bet 12-15 stocks.  Watch how it performs compared to your exist portfolio if it has way more holdings. Occasionally you will get a 2-3% hit to the portfolio if one stock has a bad day.  What you will likely find though is that the smaller portfolio has performed so well that taking that hit still leaves you far better off than running a high holding portfolio, the occasional hits are larger but the winners are more plentiful and the individual gains are far greater imo.  Like all investing, you can only feel comfortable to hold if you have done good research and understand the business well, and  keep researching.  Lazy investors make lazy gains imo.

Monday was a quiet day for stocks with he stand out watcher for me being On the Beach,OTB racing up 20p ahead of it’s trading update on Tuesday.  This was obviously traders as by Tuesday and what read as a pretty decent trading update, the shares got dumped and gave back all of Monday’s gains.  I struggle to get excited by OTB. I’ve been long on lots of rallies but they seem to be experts in stealing defeat from the jaws of victory, after many promises. To be honest, I’m holding many stocks that will likely perform better and won’t likely let me down so why not add to one of those and not increase my holdings numbers?  By Friday OTB was back down where it was at the end of 2023.

Luceco also rallied 6p on Monday ahead of their trading update on Tuesday.  This looka better imo. 

“Q1 2024 Trading

 ·    The Group has performed strongly in the quarter.

·    Q1 2024 revenue at £51m, +6.2% year on year and +4.5% on a like-for-like basis.

·   Adjusted operating profit increased 30% year on year, benefitting from the end of de-stocking pressures which ended in H1 2023.

·   Adjusted operating margin improvement year on year, driven by strong operational leverage.

The full statement is there to read, the company is confident of meeting  expectations they say.  My highlight is that Q3 operating profit was up 30%.  Looking at Liberum forecasts they have £24m operating profit last year and 26.5m operating profit for the current year, so thy are only pricing in 10% operating profit growth.  That would be more like 14.5p eps this year rather than next year if operating profit was up 30% for the year.  There has been a seller around for some time in LUCE, but the volume has mainly been low. I expect demand to clear the seller out here soon so once gone, I’m looking forward to these moving on up. Aside from this, EAAS in which LUCE took a 9% stake recently, have started hitting the big £5m contracts rather than the £1m or so. LUCE supply their hardware.  This investment and business partner could become very meaningful to LUCE’s growth imo.

Liberum raised their target from 170p to 192p price target and a Buy.

The shares rose 4p on the day on a weak day but I expect the shares to carry on rising from here outwards. I was very pleased with the update and by Friday they had risen to a two year high.

Wednesday was the turn of MPAC to put out their trading update with the AGM.  The trading update was spot on for me, just as I expected.

A few things I would highlight.  MPAC earnings are always H2 weighted.  I know when I read results that if a business says this, it can mean they don’t have the visibility or are hoping for an H2 recovery but it’s important to distinguish businesses that say that when things aren’t normally that way, and those that nearly always have H2 weighting.  So I suspect a few knee jerk traders jumped out at the open and took the shares off a tad.  MPAC definitely had strong momentum in H2 and they say that has continued.  Adam Holland has only been CEO for just over a year.  In that time he has more than delivered. He was promoted from within the business having already shown his ability having joined as COO a year earlier. Adam came from JCB. Prior to joining JCB, Adam held senior business leadership roles in the Energy, Oil & Gas, and Aerospace sectors as Vice President at Siemens and Rolls Royce, and in Space and Defence at AEA Technology plc.  MPAC packaging is precision engineering – automated filling cartons at 200+ per minute takes skill and experience – it is physics and technology that past experience in RR. and JCB means I like Adam Holland and have confidence here.

The most accurate thing they are involved with is automated car battery lines for Freyer and Ilika.  This requires putting the batteries together, wrapping all the cells and automatically building the entire battery on an automated line, at speed. They are on course to prove this line in the coming weeks.  This could lead to numerous battery lines for them in the future, nobody has an automated line for this yet, to my knowledge.  Nothing in their forecasts accounts for anything from this part of the business from Freyer or Ilika who they are involved with.  With all of that taken into account, MPAC earnings are expected to grow 65% this year according to Stockopedia, and the PE is just 12.5.

They have a large pension deficit which they are servicing but listening to Holland at a recent update suggested that the way things are going, this could be history in two year’s time which would leave the co with lots more cash p.a.

So for me these are cheap on a PE of 12.5 and the current growth as it is.  The battery side has nothing priced in or an end to the pension issues going fwd.  So I have these as a 7% holding here and will continue to hold. Next update in July if there is nothing sooner from Freyer.  If you’d like to see more about the MPAC update there is an interview here with Paul Hill from Wednesday. This is a stock where the market isn’t pricing in the potential and somewhat hidden excitement in my opinion.

 

 

Thursday saw Premier Foods, PFD, full year results published which in my view were very good. All of the numbers looked rather decent imo

They will no longer have the cash drain of the pension deficit going forward so more money to invest and return to shareholders.  The outlook was upbeat, highlighting the suspension of payments into the pension and the record low level of debt.  Up nearly 50% from the low in October, these never looked a one-bagger in a year but were and still look a decent place to park cash till something faster and better leaps out at me. I think they still could have 50% in them in a year.  I sold half on the results to increase my other holdings, the rest I’m undecided on as yet, with the need to keep holding numbers low. The shares rose 1.4p to a recent  high on results day to a 13 year high.

It has been a great first two weeks for May with many of my holdings hitting great new recent highs like SYNT FCH, IGR, BMY, FDEV, AVON and LUCE while MPAC and W7L are new or near new recent highs, these make up over half of my portfolio and their year to date charts tell you all you need to know.  I’m sure many readers here have had a great few weeks too.  Having grown the portfolio 40% in 2 months from the end of October to December, I’m now up well over 20% year to-date and over 70% up from the end of October, as is my aim.  I need a smaller than 20% rally from where I am here till October 31 to double the portfolio in 12 months. My performance and my main buys and sells have been documented through the reviews since then, and most stocks I hold have ‘one-bagger-in-12-months’ potential. I benchmark myself v the FTSE 250 and Small Cap Indexes and I expect to outperform them by 100% both up and down. My performance since Jan has been far better, up 200% ahead of the 250. Concentrating on a reduced number of holdings has definitely had a great impact, I’m currently holding about 16 stocks and would like to get that down a bit. After living through several bear markets I know when bull markets start I have to buy heavy, stay long, keep my holdings restricted and wait for FOMO to kick in, but importantly, having done my research. Knowledge is power and knowing a business better than most other investors means you can stay cool when traders trade and your stocks have the occasional wobble from traders etc. There are few short cuts following someone else blindly, but you are exactly that then – blind. You might do well but you’ll do much greater being more informed imo.

Now for two new holdings which I’m still researching but have bought holdings in.

One new holding is RM PLC, RM.  A 2.6p eps forecast this year for a PE of 33 is likely putting punters off to some degree but 2025 eps forecasts are for 7.5p, a near 200% leap for a PE of 11. RM plc is a UK-based global educational technology (EdTech), digital learning and assessment solution provider.  There is a good presentation here: https://www.rmplc.com/pdf/web/viewer.html?file=/-/media/PDFs/RM-Plc/Reports/Preliminary-presentations/RM_plc_Preliminary_Results_Presentation_2023.pdf

I am still researching them deeper so am not in by my normal weighting and I usually always buy a starter size and increase as I get more confident.

What they do have is a bombed out chart, a bowl formed, a new CEO Jan 2023 and CFO May 2023.  The company outlook has been sounding less negative. The CEO, CFO and another director have all been buying shares since Mark Cook arrived as CEO. That’s a lot of good ingredients.

Mark Cook CEO

“With a background in business process and technology, Mark brings extensive experience in business transformation and creating shareholder value. After qualifying as an accountant and working in several finance roles, Mark moved into consulting, joining Xansa PLC, where he led transformation and systems implementation programmes for clients including the BBC and Boots. Following this, Mark joined Getronics Group in 2010 taking the business from public ownership under KPN Telecom NV into private ownership under Aurelius Investments. As Group CEO, Mark and his team led the growth of Getronics, having refocused the portfolio and created a global technology digital services business, prior to its sale to a U.S. investment consortium. In 2019, Mark joined Capita plc as CEO for the People Solutions Division and latterly the Technology Solutions Division, a £650m revenue business, spanning Capita’s cloud, connectivity and resourcing solutions for the public and commercial sector. Mark is currently non-executive Chairman of Searchlight Consulting.”

The CFO is Simon Goodwin.

“Simon is joining RM from MTI Technology where, as Group CFO, he has been responsible for its finance and administrative functions with operations in the UK, France and Germany. He has also held senior finance roles in Getronics, the Dutch ICT business, and Sopra Steria, the digital services and software development consultancy. After qualifying as an accountant, Simon worked in a number of finance and commercial roles for Warner Bros and Marks and Spencer PLC.”

So it looks like Simon Goodwin was poached by Mark Cook having worked together at Getronics. I like that, similar to what happened in AVON and CARD.  The CEO employing a former sidekick  - he knows their skill set, no hiring an unknown quantity to this important role.

More digging to do for me but I’ll post more when I have had the time.

A second new ‘muse’ this week is Zotefoam, ZTF.  Zoatfom make specialist foams, used by the likes of sports sHoe manufacturers through to industrial businesses that require strong protective foam to protect walls from vehicle impact.  I’ve bought their foam online, £120 a sheet or more and just 1m square.  What makes it special is their proprietary system for making it from nitrogen rather than air, which allows for more control over the bubble size. This is very useful to give manufacturers the foam they need that is strong, has memory and cannot be achieved by standard foam maker imo.

What makes them really interesting is they have produced a product that could revolutionise the drinks carton industry.  Drinks cartons are cardboard with a plastic film inside to make them waterproof.  Zoatfoam has developed a product that is waterproof by using bubbles.  As it is not a cardboard and plastic combined product it is fully recyclable, a bit of a holy grail.  In the recent RNS, this really caught my eye:

If they licence the product out then the scalability could become huge and definitely looks not in the price imo.

On a PE of 21 falling to 17, even after the recent rise, they don’t look over valued for their potential in a recovering global market. Again I have bought a starter position albeit nearly a 5% holding, ahead of doing a lot more research, tho I was already aware of the company which helped.  Again, I’ll try to do a deeper piece at some time going forward when I’ve learned far more.

There’s a big crowd been increasing their holdings and directors buying.

A link for readers.  When FCH sell off their US arm, what might the SBA license be worth? They were one of three companies to win a SBA license for the first time in 40 years – may be something another banking co might covert?  I priced the US value as zero in my fag packet valuation last weekend. 

https://www.fintechnexus.com/funding-circle-keep-7a-lending-license/

Coming up this week and high on my radar that will likely set the share price in action:

21^st       GNC     interims

21st AVON interims

22^nd      MKS     interims

23^rd       RR.        AGM t/s

23^rd       BMY     Finals

Remember, I’m just an investor, doing this for a living for 25 years.  That doesn’t mean I get everything right for sure. This is just my diary, these are not tips.  You are the guys and gals that hit the buy and sell buttons so do your research please – I am no analyst by a long shot!

Cockney