Weekend Rebel Review, 3rd Jan, 2024

S&P up 3% in Jan ‘So goes January, so goes the year’

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. Well the rain has killed any hope of doing anything meaningful outside today so time for a weekend review again this week.  There’s a fabulous feeling about the market currently imo, although many may not feel it. When investors/traders sell off just because they cannot take anymore, when they just want ‘pain relief’ or 5% guaranteed from gilts looks attractive compared to fluctuating equities that may fall at times and not even pay a yield, you know there’s a lot not participating long in this market.  So why do I feel bullish (apart from the fact that I am always optimistic and often get called a perma-bull) ?

With no review last week I’ve covered the fortnight here in a two weekender.

Last week was a bit dull on stock action so decided it didn’t warrant a review but there was some interesting macro data.  UK PMI for services, manufacturing and composite came out and it was better than expected, beating most of Europe across the board too. 

It’s hard to believe the UK can out-perform the EU by so much yet stocks are not being valued on that basis.  Here’s another chart showing the past two years:

The UK might not be flying but it has outperformed the EU nearly every month over the past 2 years since Ukraine.

We have seen retail surprise to the upside through the last year but the word was things were about to get tougher, but not according to the Gfk survey

https://www.gfk.com/products/gfk-consumer-confidence-barometer

the number came in at -19, better than expected and the best in 2 years.

The FTSE 100 has been stuck in a trading ceiling. For the past 17 years since the financial crisis it has risen less than 1% pa (although it does pay a yield) or around 15%.  In the 17 years prior to the financial crisis it rose 200%.  One thing I cannot find anywhere on the FTSE100 is a bowl on the chart other than a couple of major bottoms so I find it interesting that the FTSE100 has made one recently which suggests a recent change in sentiment imo.  I think in the coming months we will likely see a new high as it tests ad breaks these resistance levels. It’s a volatile bowl and not the best but it does show buyers very keen to by when it approaches the previous low.

FTSE100

Halifax House Price Index came in at a 0.7% rise for Jan, 0.1% was expected.  The more house prices rise, the more home-owners feel confident imo, knowing they have that equity to see you through tough times is one of the greatest things for people that own property. To my mind, the UK is a leveraged play on interest rates. It’s perceived we are highly sensitive to rate moves as we are so affected by the mortgages we have so rate cuts should please the UK market more than most when it does happen.

Thursday saw the Bank of England rate decision and hey presto, two BofE members voted for a rise in interest rates?  If ever you needed to know the BofE were out of touch then those votes are your guide imo. Too slow to raise, now too slow to cut.  Do they really think the economy is running hot?  They need to get out of the city. Watching Andrew Bailey on TV, he seems to be worried that having hit the 2% target then inflation might take off again.  They have been far to pessimistic on inflation and looks like they are a one trick pony imo.

 As far as stocks went last fortnight, there were a few nice highlights.

AVON had its AGM and trading update which was very good in my view.

Order intake for the first quarter was 36% higher than the prior year,

Year-on-year revenue growth of 27% was in line with expectations

“cash conversion was very strong”

“The trading performance in the first quarter, and the progress made to date on transformation, support our full year expectations of high single-digit revenue growth and solid progression in adjusted operating margin in H2.”

Nothing in there to disappoint me and looking forward to the Capital Day on Feb 8^th. A decent RNS or two regarding orders would do wonders imo.

Meanwhile on Thursday, the US Defence Procurement website posted this – read the second paragraph:

There hasn’t been an RNS regarding this yet so I guess it will be this week with the Capital Markets Day perhaps or before? That looks like over $60m in contract wins over the past 3 weeks, or roughly a quarter of last year’s revenue.  If you want to watch the Capital Markets Day online on Thurs, click the email link and register well before.  avonprotection@mhpgroup.com.

On to LUCE – these had an RNS out on the Tuesday last week which was intriguing – a concert party which held 46.14% was splitting into two so that each new concert party could now buy more shares without triggering a bid.  One concert party is led by the chairman, the other by the CEO.  What that’s about I don’t know other than one or both parties seem to want to increase their holding. The trading update was out on Tuesday and the co said they were ahead of forecasts.  By my calculation they should do around 12p eps, despite Librum’s note suggesting 10.8p eps imo, you can work out what they will do just by comparing to the trailing 12 months performance.  Net debt has fallen from £29m to £23m despite investing circa £2m in EAAS. Liberum have a 170p target currently. A couple of things – if the CEO and the Chair head concert parties that want to increase their holdings, would you be overly bullish in your trading statement or would you perhaps try to kerb any exuberance until you’ve increased your holdings? The sceptic in me says the latter.  Secondly, few seem to have even noticed LUCE’s recent 9% stake in EAAS which they recently acquired. Bear with. Since the Concert Party RNS there has been some large trades.  Each party can add about 1m shares before they go through a round 1% and have to RNS their raised holding. LUCE rallied heavily about 15% ahead of the results from traders I guess, then without a blow out RNS they took profits.  It has been getting bought u on Thurs and Friday so I added.  The news here just looks excellent in my eyes and I suspect there will be a strong rally by the results if not way before. The sell off on the results was utter nonsense caused by ignorant traders just selling without thinking imo, I think they are going back to new highs soon, way too cheap and a great bowl on the chart.

LUCE bowl and break out

EAAS have two divisions, the Energy Management division which supplies energy to business and the Services Division which supplies LED EV charging and Solar to businesses and institutions like schools and colleges.  Recently EAAS agreed to sell the Management division to DCC Plc, part of Flogas, a FTSE100 co.  The initial cash consideration of £25m is greater than eEnergy’s current market cap of £24m.  The initial consideration of £29.1m comprises £25.0m cash and £4.1m being used to repay amounts due from DCC to the Energy Management division. The total equates to an enterprise value of £30m.

This leaves EAAS with the Service division and with no debt and net cash of around £15m while the mkt cap is just £25m.  The services division has grown by +87% and +131% respectively over the past two years, it could have grown faster as they are now getting enquiries for large contracts but have lacked the working capital and cashflow to fund them.  Now they will be focussed on this side of the business.  EAAS are customers of LUCE so it is in LUCE’s interest to have provided the cash they have by way of their 9% stake in which they subscribed for 35,078,000 New Shares at a price of 5p per share.  It’s a win/win imo, and could add a lot to LUCE sales.  In hard cash terms, EAAS, a tenth the size of LUCE, generated around 87% sales growth of around £8m compared to just £3m sales growth at LUCE. Energy Services reported revenue of £19.5m and EBITDA of £2.3m having grown sales 330%  compound over 2 years, they have been turning big business away as they haven’t had the cash to implement them (contracts of £1m or so are now coming in £3-4m+ and growing and it takes 5-6 months to go from contract win to payment and cash coming in). LUCE sales are forecast to jump in the year ahead from £208 to £222m, a much stronger rate than in the past two years. I have bought a stake in EAAS, with all the debt facility paid down they should have net cash of around £15m and a market cap of just £24m and full tilt for growth. The sales of the energy management division gets signed off on Feb 7^th AGM.  Either LUCE get a lot of business via EAAS or they make a bid and pick up a dirt cheap, very high growth company imo, now the Energy Management business is sold – I suspect it’s the former.  The sale is due to be signed off on Feb 7^th (Weds) at the AGM and I suspect a trading update likely too – should be pertinent to LUCE shareholders too. Equity Dev have a 13p target ahead of the AGM, and while not my usual thing, there looks a much bigger picture here for them and LUCE and just looks way too cheap for the cash and the business and the very high growth rate imo.  Punters appear to be fast asleep, we’ll see, luscious bowl forming imo.

EAAS

OTB had a trading update on Friday.  I had already started reducing as the chart looked a little less than confident.  As it happened, the trading update looked like they were saying they were chasing sales rather than margin in my view and I wasn’t overly impressed. The shares rallied 7p to my surprise so I sold the rest into the rally.  The market has changed and I feel there is better places for my money.  AIM penny share, illiquid therefore greater risk so do thorough research and don’t follow an idiot like me blindly.

TM17 is one of those new places imo.  They put out a very respectable trading update and had around £40m net cash at the last results.  With a new CEO and Chairman, and on a PE of 13 falling to 10, this looked a decent recovery potential.  The New CEO was the founder of Iris – a digital marketing co that got bought out by Samsung. He looks a capable guy and with gaming stocks out of favour there may be a bargain to be had I feel. TM17 looks potentially way undervalued imo. Team17 Group plc is a United Kingdom-based developer of independent  premium video games. There has been around 10% dilution from that big high of £9. I still have a lot more research to do to see if I want to make these a long term committed holding but I like what I’ve seen thus far. A bit of profit taking going on the past two days after the rapid rise so I’ve been adding on the dip.

TM17

KIE – I have been adding more since the trading update.  Looking at the FTSE positioning on Typo’s UKStockchallenge site, they look nailed on to enter the FTSE250 at the end of Feb in the reshuffle.  With the interim results in March, they will once again start paying a divi of a decent size.  They trade on a PE of 6.2.

“Net cash / debt

 Kier's focus on operational delivery and cash management alongside the cash generation from the strong volume growth has successfully resulted in the Group continuing to deleverage materially with average month-end net debt of c.£(140)m (HY23: £(243)m) showing a significant improvement of c.£100m.

 Kier is expected to report a modest net cash position at 31 December 2023 (HY23: £(131)m).

 Dividend

 The continued resilience in trading, order book security and ongoing strengthening of the balance sheet provides the Board with confidence to resume dividend payments in the current financial year, commencing with an interim dividend to be announced alongside the half year results

With KIE saying they are trading inline and earnings weighted to H2 as already guided, I suspect investors may get excited after the interims, knowing H2 will be even better. They did 4.7p eps in H1 last year, 18.3p for the year.  Forecasts are for 20p+ eps  this year. A fab bowl imo

KIE

SAGA - I had a small holding in these and on Thursday they said this “The Board is exploring opportunities to optimise Saga's operational and strategic position in Cruise, where exceptional demand for its boutique ocean cruise offer means it is operating at close to capacity. It has concluded that a partnership arrangement for Ocean Cruise would be consistent with Group strategy to move to a capital-light business model to support further growth and crystalise value, reduce debt and enhance long-term returns for shareholders.”  This looked interesting and the PE looks very undemanding here imo.  They could be very cheap but the insurance arm isn’t trading well and it’s a bit of a drag on earnings at the moment.  One too keep an eye on.

JNEO – I had been aware of these but just hadn’t bought because they were so small and I never wanted another holding, especially a little one.  However, after doing the Bash on Mello Monday and listening to Kevin Taylor highlight them too, I did a bit more research and convinced myself to buy, which didn’t take a lot of convincing really. The huge bowl on the long term chart I also hadn’t noticed.

These do telematics and data for coach and bus co’s which allows co’s to track vehicles, watch driver behaviour and transmit time of arrival estimates to digital screens at bus stops.  They have real traction and can expand into trains etc.  Am I late to the party?  Definitely.  Am I too late, I don’t think so.  These have been growing earnings at around 50-100% p.a. and that growth on the current PE looks very attractive imo

So having taken a big hit on WOSG in early Jan, wiping 3% of my portfolio it’s pleasing to say I have recovered that and more with 10%+ holdings doing well.  AVON up 20%+, KIE up.  20%+ LUCE up 15% and AT. up 10% since he start of the years and EAAS up over 10% since buying less than a week ago. Now up just over 1% from the start of the year but absorbed WOSG hit.  I hope and expect to make chunkier gains going fwd, there’s a lot of good newsflow to come up to April.

Lastly RR. – had several tests of the recent high over the last month, very strong on Friday. Not only are hey winning lots of great orders but it seems the Boing 757 has been put together by chimpanzees judging by the things falling off them. Doors, a front wheel and who knows what else.  Airlines are likely to adjust their contracts to Airbus imo.  Someone told me travel agents have software now that let’s you sift out 757s from your holidays.  That has to be good for Rolls Royce flying hours imo.  Results in 3 weeks.

And very lastly – MKS now at the lower end of its trading range so I’ve been buying back some that I sold on the results.

MKS

And that’s mainly what I’ve been up to the past fortnight.  Obviously I hold the shares above and so there is no way that I am impartial – in fact I’m deeply biased.  Do your own research, don’t follow me blindly, I get stuff wrong like everyone. You make your own judgement and trades after doing due dilly.

Have a great week ahead

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