Weekend Rebel Review - Sept 21st 2024

SNX, JNEO, W7L, MKS, TRT, MPAC, CORD, WOSG, CARD

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.

September is usually a great or dreadful month, looking like a great one so far.  One thing I am noticing is that while a number of stocks, particularly on Aim, have been sold off ahead of the budget, there are also a number that are starting to get bought.  I think larger funds etc, if they are planning to buy these falls, they can’t wait till after the budget, not fully anyway because if everyone piles in then it will be a bun fight in these stocks that have been unjustifiably sold. If they want to buy a decent position it makes sense for then to gently nibble into some stocks so as to be able to get a decent position in certain stocks, before a general pick up in buying imo.

Inflation looks like it has bottomed imo, the chart looks a potential bowly bottom, if it was a stock I’d be looking to go long.  Not going to get below 2% very easily from here so I expect rate cuts are not going to be very sharp.

The S&P hit an all time high again on Thursday as the US Central bank cut interest rates by 0.5% saying a new era of easing has begun, was the catalyst.  Earlier that day we had inflation numbers coming in flat at 2.2% for the third month for CPI.  Core CPI was up to 3.6% from 3.3%. This was expected but going in the wrong way won’t mean rates coming down as fast as many hope imo. The FTSE250 rose 1.5% on Thursday then fell 1.5% Friday - that’s the market the budget nonsense has created.

One question I have is if Reeves does change any of these things like IHT, CGT, 25% lump sum from pensions, when will they run from? From April 6th or from Oct 30th? If it’s from Oct 30 then that’s a 7month/5month lot of calculating to know how much tax to pay this year. If it runs from April 6th then there will be 5 months of selling perhaps still, or perhaps sellers will hold up and see how things go?

FTSE Small Cap Index - on current trend it hits a new recent high and break out at the end of October - Budget Day October 30 - there's a coincidence for you. 😊

Thursday saw interest rates left on hold by the BofE much as I had expected, the voting was a bit more bearish too. This was a classic September buying rally that you see when the sell in May punters return.  The best stock market period over the year is November to March and I detect bullishness moving in despite the budget over a month away. At the end of the day, businesses have to deal with lots of things worse than stupid governments. Investor sentiment re tax changes may make some cautious but there will be others that take advantage when they perceive a business as oversold too, before any news. You have to decide how much you want to be exposed to the possible upside and or downside for your own circumstances. It looks increasingly difficult to judge so I’m more inclined to go long, sooner

Monday was rather quiet as usual but Synetics, SNX came out with a “materially ahead trading update” Pointed out to me a few weeks ago by Jon ‘Briefed Up’, I never bought simply because there was no dir buying.  I post this because I expect many more reactions like this one, many stocks are over-sold from budget fears and when things like this happen you get big surprises and big moves. I am holding a few small illiquid stocks like TRT and CRL so never fancied more small stuff (MMs trade 1k as normal size. Looks interesting though.

Journeo JNEO, posted interims on Tuesday and saw a nice move up of circa 5% after saying they were trading inline at the interims with 14.7p eps.  Another nice little co that I’d be tempted into if I wanted more holdings, in particular small ones. I will watch for now.

Warpaint London was one that I was holding in a small way and I tripled my holding after seeing the interims on Tuesday.

While the shares have been selling off in recent months the old demons have been getting into investors minds to conjure up all sorts of fears. As it happens they were very unfounded in my opinion so I was able to buy more back way off the high 2 months ago at more than a pound discount.  Read those numbers – sales in of £45.8m. Last year they did nearly 50% more in sales in H2.  If they match last years h1/h2sales balance they will do  £112m sales, £106m is forecasts.  Earnings grew by over 100% last year, if they do £112m sales this year and with gross margins up 3.4% to 42.5% the W7L should do well over 32p eps for the year imo, brokers are forecasting 23.3p eps, so the chance of a big beat looks good in my opinion.  They could double there earnings possibly over last year for the fourth successive year.  What do you pay for compound earnings growth of 100% nearly?  Let’s say they slowed to 50% earnings growth next year and be real negative – they will be at around 47p eps on a share price of 550p approx., a PE of circa 11.5.  That’s a Peg of 0.2  No debt and a 2-2.5% yield, that yield is 10% on any purchase made two years ago around the £1 price. When stocks grow at 100%, dividends can become very meaningful imo.

Read the results and watch the webcast on Mello Monday, 5.30pm

Code Rebel50 or MM50 should get you in for half price.   Just a little work to make potentially lots of money – lazy investors don’t make big money imo.

This has to be a great opportunity to buy a dip on a great curved up chart imo, but I would say that because I’m long and buying still. So do your research. I have now bought back all that I did hold pre July at around 12% lower than where I sold.

I mentioned the strength in M&S, MKS last week. On Monday and Tuesday the stock rose 7% while 3 brokers upgraded their targets to £4 or more.:

JEFFERIES RAISES MARKS & SPENCER PRICE TARGET TO 410 (330) PENCE - 'BUY'

RBC RAISES MARKS & SPENCER PRICE TARGET TO 400 (350) PENCE - 'OUTPERFORM'

BARCLAYS RAISES MARKS & SPENCER PRICE TARGET TO 400 (360) PENCE - 'OVERWEIGHT'

Who’d have thought if you had bought MKS at the low less that two years ago, you’d be up 300% within as year? The chart says a lot more to play fore here imo:

I suspect M&S may get planning for their refurb of the Oxford Street store and this may be having an effect.  I’m pretty sure the roll out of the big new stores will be having a positive effect on sales and margins.

I mentioned that I had been buying Transense Technology, TRT,  last week  and continued buying this week.  They announced on Wednesday what seems substantial news:

They don’t quantify how much they stand to benefit in sales from this contract win so I’d guess it isn’t massively huge in the scale of things but with 5 partners in the consortium and making the assumption TRT are the smallest in the group ad its over 30 months then in cash terms per annum it won’t be a lot in all likelihood but the cred and possible spin offs to it going forward may be substantial.  With the market cap a mere £28m these sort of small tech co’s can one-bag rapidly.

It isn’t a huge holding for me due to the size and illiquidity but the fun is in seeing stocks double and being right rather than total cash gains doing this for me.  TRT seem to be hitting that ‘critical mass’ and gaining traction where the mushrooming starts hence my buying here.

Results are on Monday and an investormeetcompany presentation at 4pm on the day.  W7L present on Mello on Monday at 5.30pm so it will be a busy afternoon. As I have said, very illiquid, volatile, much higher risk potentially, it isn’t for widows or orphans but on a forward PE of 17, net cash of nearly £2m, £25m of past tax losses to set against future losses and a market cap of a mere £28m. They have also got £10m odd in ongoing royalties going fwd from Bridgestone.  The  number of shares in issue falling to 15.2m from 16m with the share buy backs they are doing and directors buying recently, there are a lot of green lights flashing here imo.

Fab curve up on the chart and only 50% dilution since 2008 – new board in place since 2017 lows.

Director dealing since November:

Also on Wednesday, MPAC  announced their second acquisition in two months.

“Mpac Group plc, a global leader in high-speed packaging and automation solutions, is pleased to announce that it has entered into an agreement with Jim Laverdiere (the "Seller") to acquire the entire issued share capital of Boston Conveyor & Automation, Inc. ("BCA"), a US-based supplier of robotic automation and conveyor solutions to the food, life sciences and general industry sectors (the "Acquisition"). The Board expects the Acquisition to be earnings per share enhancing in the first full year following the Acquisition.”

It's always nice when an acquisition is earnings enhancing and there isn’t lots of shares being issued. The rationale for the acquisition seems good ad you can read that in the RNS.  Not a ground mover immediately but should bring benefits going fwd.

Cordiant Digital Infrastructure, CORD. Strangely I have been watching this stock for months. Typo who runs the UK-Stockchallenge pointed them out to me at around the 70p level.  CORD describe themselves as a “Buy, Build & Grow” strategy in digital infrastructure: the critical foundation of the internet.  The ‘infrastructure is all the  mobile towers, data centres, fibre-optic networks and wireless sensor that go to making the internet work. In December they and their businesses acquired Cloud4com and DC Lužice. In August they bought Speed Fibre Group’ These are just the latest in their acquisitions that take them up to 5 businesses in total. 

České Radiokomunikace (CRA)

Hudson Interxchange

Emitel

Speed Fibre Group

Norkring België

My concern months back was why were the shares plunging when the NAV was around 120p a share and they were trading on a PE of circa 4 or less going forward. The market isn’t as efficient as it should be in many cases and often these falls provide opportunities.

However there has been a decent bounce of late and the chart is curving up nicely.  I was dabbling with the idea of buying this week as my arm was forced on Thursday morning when Questor in the Telegraph tipped them.  They highlighted that they believe the fall was through poor sentiment from the demise of DGI9., a tower and cable co that Questor had previously tipped.

I’m not one for following press tips in the main but already being aware of CORD I was sort of researched up a bit.  The co has seen truly relentless heavy director buying and I cannot ignore that curve up in the chart anymore so I bought an initial holding:

A PE of 5.7 falling to 4.7.  They pay a divi of 4.2p, that’s 5%. For the 12 months to 31 March 2024, dividend was approximately 4.4x covered by EBITDA.  Rather stunningly, according to Stockopedia the operating margins are 89.9% With a £642m mkt cap they are no tiddler either – and not Aim. They also have a £20m share buy back programme going on. 753m shares now compared to 771m shares last year.

Worth doing your research on perhaps.

Close on my watchlist is Watches of Switzerland Group. WOSG. I’ve been watching the chart testing the recent highs for weeks, will the rate cut in the US mark the start of a rally?  Taking them on their word that jewellery is doing ok, I have been keeping an eye on Rolex prices.  There has been a marked tick up this week but is it the bottom of the trend for Rolex? 

The rate cut may be the catalyst, will have to see – I will likely buy any break out on WOSG, even though I got well and truly groined by them t the start of the year for 3% of my portfolio.

Friday saw Cardfactory, CARD, take off – up 12p at one point .  I struggled to see what had triggered it but by 9.30am the headline came across

UBS RAISES CARD FACTORY TO 'BUY' (NEUTRAL) - PRICE TARGET 180 (116) PENCE

Interesting as the results are out on Tuesday and UBS have notoriously been the most pessimistic broker forecasts as long as I can remember for CARD.  They hit a big new recent high yesterday. UBS said “the group's vertically integrated business model allows for stable mid-teen earnings before interest and tax margins with limited cash drag.|”

It expects free cash flow to almost double by financial 2027 supporting self-funded upside from new partnerships and/or materially increased shareholder returns. UBS forecasts FCF generation levels that “could support around 40% of the current market cap being returned to shareholders in the next three years”.

So that’s what I’ve been watching and doing this week. I’ve got back to 70% invested now. Increased and been buying back MKS, RR., CARD, W7L - bought CORD.

The market is feeling better to me, it will be volatile but there are some sharper more confident moves on news which feels good.

Enjoy the weekend -

Rebel