Thu 23 Jan 2025 - Paul Scott's Small/Mid Cap Value Report
Free: ABF Premium: LUCE, ZTF, S247, WJG, TM17
Good morning from Paul & Dave!
Alun’s snapshot here hopefully (NB. just a reminder that Alun does these voluntarily, so it’s (very) nice to have, but not part of the formal service here.
MrC's Smallcap Sweep: Revolution Beauty stays ugly.
21 companies today. Bloody hell.
REVB, RE., PR1, GENI, RWI, AGL, IQE, RBN, KOO, IOF, BOKU, FORT, LUCE, TM17, GETB, SKL, ZTF, CDGP, AIEA, ANCR, NET
◄Revolution Beauty (REVB)► warns FY-Feb net sales down c.25% and and high single digit U/L adjusted EBITDA. Blames some retailer launches delayed to H1 26. It has cut 75% of products. Compliant with covenants. Co "confident in a return to overall growth in FY26". [SP=14.12 Cap=45m]
◄R.E.A. (RE.)► FY-Dec production down 10% offset by higher CPO prices. Outlook "supplies remain tight and are expected to stay that way well into 2025 as Indonesia continues to push increased use of biodiesel in transport fuel". [SP=69.54 Cap=30m]
◄Pri0r1ty Intelligence (PR1)► partnership with Funding Circle will give Pri0r1ty customers to access loans of up to £750k in 48 hrs. CEO trills ""We are thrilled to forge this partnership". [SP=8 Cap=8m]
◄GENinCode (GENI)► CARDIO inCode gets approved for eimbursement from Medicare and Medicaid in US. [SP=4 Cap=7m]
◄Renewi (RWI)► PUSU deadline stretched to 13 Feb. [SP=803 Cap=647m]
◄ANGLE (AGL)► guides FY-Dec rev £2.9m up 31%. Loss £14m in line but cash balance £10.4m market expectations which should last 'into' 2026. [SP=13.36 Cap=43m]
◄IQE (IQE)► a rare beat for this cash-guzzling tech outfit. FY-Dec rev exp to be c. £118m and adj EBITDA £7.5m+, both above exp. The strategic review is currently focused on its Taiwan operations. Also in final stages of concluding its proposed convertible. [SP=12.36 Cap=120m]
◄Robinson (RBN)► guides FY-Dec rev up 14%. Adj op profit moderately ahead of market expectations. Expects FY25 rev and adj op profit up. [SP=103 Cap=17m]
◄Kooth (KOO)► guids FY-Dec rev in line at £65.8m but adj EBITDA at or ahead of the top of the range of forecasts of £12.7m, boosted by some non-recurring items. [SP=179 Cap=65m]
◄Iofina (IOF)► Guides H2 '24 production in line but EBITDA miss due to a shipping delay of $2m of iodine. Outlook "With iodine prices currently above $70/kg, and expected higher iodine production compared to 2024, the current outlook for the year is very promising." [SP=22 Cap=42m]
◄Boku (BOKU)► guides FY-Dec rev over $99m up 20% and adj EBITDA over $31m up 22%. In line? CEO is extremely pleased with progress. [SP=195 Cap=585m]
◄Forterra (FORT)► guides FY-Dec rev flat at c.£345m though H2 had a double digit increase. In line? Adj EBITDA c.£50m, in line. Net debt better than exp. Outlook - "signs of modest improvement in our markets, recent heightened macro-economic uncertainty dictates that the timing and trajectory of the recovery remains uncertain". [SP=160 Cap=340m]
◄Luceco (LUCE)► guides FY-Dec beat with rev up 15% and adj op profit £28.5-29m (£24m). Outlook confident. [SP=135 Cap=220m]
◄Team17 (TM17)► guides FY-Dec rev and adj EBITDA slightly ahead of market expectations. Will change name to everplay n Feb but wew ticker EVPL on Friday. "The change enables Team17, StoryToys and astragon to continue to operate under their highly distinctive brand identities whilst maximising operational synergies and cross-selling opportunities." Maximising synergies! Fill yer boots! [SP=268.5 Cap=379m]
◄GetBusy (GETB)► guides FY-Dec rev up 3% with ARR up 6%. Adj profit breakeven. In line? Co is sufficiently funded to execute its strategy. [SP=55 Cap=28m]
◄Skillcast (SKL)► guides FY-Dec rev up 18%. EBITDA c.£0.5m, in line. So was the rev below exp? [SP=38.14 Cap=37m]
◄Zotefoams (ZTF)► guides FY-Dec beat with rev £147.8m, slightly ahead of market expectations. Adj pretax £15.6m up 19%, also ahead. [SP=306 Cap=154m]
◄Chapel Down (CDGP)► guides FY-Dec rev down 1% gross and 4% after duty. In line? [SP=36.31 Cap=64m]
◄AIREA (AIEA)► guides FY-Dec rev up 0.6%. H2 rev was up 6%. "After certain non-recurring costs associated with the manufacturing facility and ongoing investment in people and other resources to support future growth, the Group expects to report a satisfactory result for the year overall." In line? [SP=22.22 Cap=9m]
In line: ANCR, NET
Warm welcomes
There’s been another wave of new premium subscribers this week, and I’m delighted to see so many free accounts upgrading to premium, on a try before you buy basis (that’s the idea)! We’re in a virtuous circle now, as there’s such good demand for this service, I feel more motivated by the day, hopefully you can see that from the content we’re producing, ably supported by Dave.
New premium subscribers, anonymised as usual - JohnE, PatrickE, OllieK, Harris, Abel (founder member), ShaunW, Liz N, Donati, David G, Max W, Viz, Kieran, GlassHF, PaulL, AlanR, Oliver, AndrewM, MaxF, AndrewB, PatrickW, SC120, RogerH, Tom, Jordan, Mustafa, blobfish, MatthewA.
There was also a new subscriber who only left his first name, and asked for it not to be mentioned publicly, so I have not included him above (to avoid confusion, there is a similar name in the list above, but that’s someone else).
Paul Hill and I are doing our weekly roundup video on Vox Markets a day early today, because I’m having fibre broadband installed tomorrow, making a diary clash for our usual time. Hope you can join us today at 3pm, or the link below will work for the recording later -
UK interest rates
I mentioned recently that there was an interesting press report indicating what appears to be a major shift in Bank of England stance, with it now talking about up to 6 interest rate cuts (of 0.25% each) in order to prevent the UK going into a recession. If that’s right, then this is very good news for equities generally (lower interest rates makes equities relatively more attractive vs holding cash or bonds).
My 5 REIT investments (ASLI, SOHO, WHR, CLI and LABS) have so far been disappointing, although hefty divis are rolling in. I might double down on them if the outlook for interest rates is now improving, as seems to be the case. Also the spike up in US & UK Govt debt yields seems to have peaked and has eased somewhat in the last week.
I’m no expert on these things, but do like to keep an eye on the broad thrust of what’s going on, as it affects the outlook for, and price of shares.
It seems to me that current interest rates in the US & UK make Govt debt unaffordable, and I remain of the view that Trump could aggressively drive interest rates down, maybe even with a new bout of QE. It’s been done before, and it worked. If so, REITs and other interest rate sensitive shares would have a field day probably.
The burst of inflation in the last couple of years was mainly due to the energy crisis and supply disruption. It wasn’t from overheating economies, hence it doesn’t need punitive interest rates to strangle demand. That’s the way I see it anyway, and maybe central banks might move (or be forced to move, behind the scenes?) in that direction.
Goldman Sachs must have a big bet on interest rates dropping, as the papers today are covering this story that -
“Markets are significantly underestimating the chance that the Bank of England will have to step up the pace of cutting interest rates, Goldman Sachs has argued.”
It also acknowledges that inflation, and pay rises are still running warm in the UK, but Goldmans also sees signs that “the medium-term inflation outlook was softening” - eg a cooling of the labour market, with hiring freezes being widely reported after the Budget NICs hike. Staffing companies that we cover here are certainly reporting very depressed business, globally, not just the UK (Europe is even worse).
Goldman reckons UK base rate could be down to 3.25% by mid-2026.
The market currently expects a 0.25% UK interest rate cut imminently.
Expectations can change on a sixpence though, as we saw in the first fortnight of 2025, so I try not to predict things with the macro outlook, just observe and think about what’s the more likely outcome. It seems bullish for my portfolio of shares anyway.
Free section here. As usual when it’s very busy, I’ll be doing short comments on these later -
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