Weekender #8

A weekly recap on European micro-caps

Good morning and welcome to your weekly source of European micro-caps news. I’ve just realised that I haven’t properly introduced myself! My name is Stefano Bertolini, I’m half Italian/half Swiss (French side). I was born in London where I lived for 4yrs and then I lived in:

  • Milan 6yrs

  • Casablanca 3yrs

  • Cairo 5yrs

  • Manchester 3yrs

  • Back to London where I currently live!

(My Dad worked as a Hotel Manager, just in case you were wondering why we moved so often!)

Education: I am a CFA Charterholder and hold a Masters in Finance from London Business School.

Career: Places I’ve worked at in chronological order (all roles: Trader/Portfolio Manager/Equity Analyst)

  • Schneider Trading Associates

  • CMC Markets

  • Savoy Investment Management/Ashcourt Rowan

  • Butterfield Private Bank

  • Slater Investments

  • Northern Trust

  • Jefferies

And now Dark Horse Research. I’m 110% invested in this. My goal is to continuously improve the product so if you have any comments/suggestions I’m all ears!

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I’m also pleased to say that an intern will be joining us next week. I say intern, but what I really mean is partner who will be joining us on our mission to make Dark Horse Research a leading provider of great investment ideas in the European micro-cap space. Let the journey begin!


Let’s chat about #CMCX (CMC Markets). Not a micro-cap at £900m mkt cap but since I worked there I have a few things to say which outsiders might find interesting.

On Thursday CMCX profit warned (stock closed -27%) It feels a bit like a #BOTB (Best Of The Best) moment (see Weekender #5), a company benefits from COVID/lockdown and then expects the good times to continue….. CMCX now expects FY22 net operating income to settle in a range of £250-280m (previously “in excess of £330m”). Management blames lower volatility and therefore lower trading activity in July and August following from the moderation in 1Q22. What a difference a month makes! The previous guidance was issued on 29 July! This just sounds like a case of getting carried away with guidance. Now the share price is back to where it was trading in August 2020. Just to put into context, net operating income in FY21 was £410m, and in FY20 £252m.

Now before I say anything, I would just like to say that I haven’t looked at CMC markets with my investment hat on and that I’m sure the company is very different now compared to how it was when I worked there for 9 months in 2007/08. I worked as a dealer on the Indices/Commodities/Treasury (ICT) desk. There wasn’t a whole lot of hedging going on back then. Sure, we used to look at overall exposure during the day and hedge accordingly but we were allowed to take on large positions. I remember that the Goldman Sachs guys who came to do some due diligence before buying 10% of the company (which they wrote off 3yrs later) said that we were taking on more exposure than they did! The daily P&L swings for the ICT desk alone were approximately £4m/day just to give you an idea. There was no such thing as hedging every trade. We occasionally tried to hedge clients who historically made a lot of money. This never worked as we would hedge and then the clients would eventually lose money. When I was there, 3 clients turned £50k into £1m trading S&P futures. One of them eventually blew up their account…..and guess what I’m pretty sure we were hedged on the way down!

The message I want to get across is this:

CMC markets is a market maker/bookmaker. Every trade you make they take the opposite side unless they hedge. Spreadbetting/CFD companies make peanuts on spreads relative to the money they make/can make on taking the other side of the trade. Why? Just like a casino, CMCX has several things that give it the upper hand:

1) The spread - statistical advantage

2) Leverage - more likely to blow up account, time is against you

3) Retail clients - lack of knowledge/experience

After all “67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider”

So why does CMCX hedge?

Firstly, there are capital requirements according to amount of risk taken and therefore CMCX has regulatory limits. Secondly, taking exposure leads to earnings volatility and increases the risk of going under. This is especially important now that CMCX is listed. Investors favour stable earnings and lower risk and this leads to a higher multiple. So my questions is, isn’t it better for a company like CMCX and other spreadbetting/CFDs to remain private? Take more exposure (within reason), have more volatile earnings, not care about what the markets think, and make more money overall? Food for thought….


  • Innate Pharma Sa (#IPH): +28% (mkt cap: £271m) - A France-based biotech company that develops drugs for treatment of cancer and inflammatory diseases. On Thursday the company announced that two oral presentations will be highlighted at the ESMO 2021 Virtual Congress (September 17-18).

    1) Sep 17: AstraZeneca will present a late-breaker abstract on the COAST Phase 2 trial, highlighting progression-free survival (PFS) results for novel durvalumab
    combinations with potential new medicines, including Innate’s monalizumab,
    and oleclumab, an anti-CD73 monoclonal antibody, in unresectable, Stage III
    non-small cell lung cancer (NSCLC).   Monalizumab, Innate’s lead partnered
    asset, is a potentially first-in-class immune checkpoint inhibitor targeting
    NKG2A receptors expressed on tumor infiltrating cytotoxic CD8+ T cells and NK cells.

    2) Sep 18: Innate will present pre-clinical data from its next-generation,
    proprietary, multi-specific NK cell engager platform known as ANKET(TM)
    (Antibody-based NK cell Engager Therapeutics)

    The CEO then added:

    We’re pleased with the continued progress of monalizumab, particularly in a combination trial with durvalumab in unresectable, Stage III non-small cell lung cancer

    This led to brokerage SVB Leerink upgrading the stock to outperform from market perform (maintained $7 PT, currently $6.15, dual listed) and saying it was even more optimistic about company’s antibody monalizumab after recent updates from a mid-stage trial in non-small cell lung cancer patients. There’s some optionality here. According to the broker, a positive readout could mean the stock is worth $9 and a negative result could see the stock drop to $5.

  • Idun Industrier AB (#IDUNB): +25% (mkt cap: £278m) - A Sweden-based company that develops and manages Swedish industrial companies. On Tuesday the company reported 2Q21 results. Sales and EBITDA were up more than 75%. Organic growth was +32% and was significantly higher than management’s expectations. Idun’s companies performed well in the recovery post lockdown.

  • Tiziana Life Sciences (#TILS): +25% (mkt cap: £137m) - A clinical-stage biotech company that focuses on targeted drugs to treat diseases in oncology and immunology. On Thursday the company announced that it has entered an exclusive license agreement with Precision BioSciences ($DTIL, mkt cap: £610m) to evaluate TILS’s foralumab (a fully human anti-CD3 monoclonal antibody) in conjunction with allogeneic CAR T candidates for cancer treatment. The company is in the process of relisting on Nasdaq.


  • Chill Brands (#CHLL): -30% (mkt cap: £45m) - (formerly Zoetic International) is a UK-based company that produces cannabidiol (CBD) products with both pharmaceutical and tobacco replacement applications. On Tuesday post market close, the company released FY21 results (June year end). Maybe I’m missing something, but there’s no commentary in the press release….. I guess they did give an update at the end of July, but still. Also, sales were non-existent at £321k (£93k) and losses were significantly higher at £5.9m (£1.9m loss). Sales are picking up as per July update, but giving some commentary around the widening loss would have been helpful in my opinion.

  • Lekoil (#LEK): -25% (mkt cap: £5m) - An oil and gas exploration and production company with interests in Nigeria and Namibia. This is a complicated situation and not one that I have been following closely. One look at the price chart and it is clear that things went pear-shaped a while back. This is now a special sits play with a legal angle. Lots of institutional shareholders on the register suggest some may be playing the game. On Thursday the company released a corporate/operational update. The company has signed a Convertible Facility Agreement (CFA) for £200k which will primarily be used to fund legal costs for the protection of shareholder value as well as to cover some ongoing operational costs. The CFA funds are being provided by Hadron Capital (4.7% shareholder of LEK), TDR Enterprises Ltd (a company controlled by the CEO of Metallon Corporation which on Tuesday liquidated 15.1% LEK stake) and a non-related third party. The CFA is expected to be repaid from either a capital raise in Q4 2021 or the CEO loan recovery. The company also needs further funding and is exploring all avenues.   

  • Supply@me Capital (#SYME): -22% (mkt cap: £101m) - A UK-based fintech company that provides inventory monetisation services, improving the working capital position for a wide range of manufacturing/trading businesses. On Tuesday the company released a trading update. I’ve read it several times and I can’t see anything negative. The company expects FY21 revenue to be in the range of £3.8-4.9m. In line with IFRS 15 (revenue recognition), the Board expects a further £3.9-4.9m to be deferred and recognised as revenue in FY22. Is this the problem? On Thursday the company announced that it has agreed a new short-term loan facility with a family office provided by ARC Group (IB mid-market specialist) to close the agreement with Negma Group.

Directors’ Deals

  • Hansa Investment Company Ltd (#HANA): An externally managed alternative investment fund (mkt cap: £269m). William Salomon, a Non-Executive Director, bought 45,500 A shares 219.5p (£100k). He owns 11.1m ordinary shares (28%) and 3.5m A shares (4%).

  • Sopheon PLC (#SPE): A UK/US-based software company that offers software and services for enterprise innovation management (mkt cap: £102m). Stuart Silcock, a Non-Executive Director, sold 74,328 shares at 963p (£715k). Reason for sale: “pursuant to investor demand following the Company's recent results.” If that was the case, why didn’t the Board sell pro-rata (normally the case). Stuart Silcock only owns 279k shares (2.7%), while Barry Mence owns 1.9m shares (18%).

  • OptiBiotix Health PLC (#OPTI): A UK-based life sciences company developing a range of products to modify the human microbiome (mkt cap: £50m). Two small purchases this week. Earlier in the week Stephen Hammond bought 25k shares at 54p (£14k). Later in the week the CEO (Functional Fibres), Rene Kamminga, bought 8k shares at 55p (£5k). They both own 0.1% of the company. The company released a bullish trading/commercial update at the beginning of August.

Notification of Major Holdings

  • SigmaRoc PLC (#SRC): A UK-based company that pursues a buy-and-build strategy in construction materials in the European market (mkt cap: £692m). Given the mkt cap, I’m unlikely to mention this company again! The shares have done very well and are at levels last seen pre financial crash and there’s a lot of activity! Sellers are: Slater Investments (2.3%), BGF Investment Management Ltd (5.3%), Lombard Odier Asset Management (2.2%), and Hermco Property Ltd (<3%). Buyers are: Janus Henderson (5.1%) and Ninety One (old Investec AM) (7.4%). SRC recently completed the reverse takeover of Nordkalk Oy Ab (EUR470m).

  • RPS Group PLC (#RPS): A UK-based consultancy that defines/designs/manages projects in property/energy/water/transport/resources/government (mkt cap: £322m). The Wellcome Trust Ltd (Charitable foundation focused on health research) announced a new 5% position. This is two weeks after Aberforth Partners LLP (Small-cap fund manager) increased its position from 10.3% to 12.3%.

  • Nostrum Oil & Gas PLC (#NOG): An oil and gas company engaged in the production, development and exploration of oil and gas in the pre-Caspian Basin (mkt cap: £19m). A new 8.6% position by Fraseli Investments S.a.r.l. This is a Luxembourg registered investment vehicle. A quick google search suggests it is owned/controlled by LN Mittal Group (Numetal Limited v. Satish Kumar Gupta | National Company Law Tribunal | Judgment | Law | CaseMine).

  • Oh and James Robert Kight is buying more Evgen Pharma PLC (#EVG) (see Weekender #7) - now holds 9.1%

Movers & Shakers

  • Sievi Capital Oyj (#SIEVI): A Finland-based private equity firm that invests in small/mid-sized Finnish companies (mkt cap: £110m). A CEO + CFO change. Paivi Marttila (CEO) steps down to focus on leading the operations of her family’s investment company and on board work. Replacing her is Jussi Majamaa, who has experience working in Nordic investment banks and a global investment bank. The CFO, Markus Peura, has announced that he will be stepping down in March 2022. SIEVI and BOREO recently signed a letter of intent on a potential combination.

  • Nanosynth Group PLC (#NNN): (mkt cap: £21m) A UK based company that focuses on the synthesis and application of nanoparticles. It includes three subsidiaries: 1) Pharm 2 Farm Ltd; 2) Nanosynth Ltd; and; 3) Cloudveil Ltd. The shares have been volatile making it on the leaders list last week and laggards list this week. It seems like a play on COVID. Last week the stock finished up 36% after revealing details about the contract it won with VKE to distribute MHRA approved Pro-Larva mask which is proven to kill Covid-19 and influenza viruses using unique patented nano-technology developed at Nottingham Trent University. This week the stock pulled back after announcing the new CEO. I don’t think it had anything to do with the pick, Mark Duffin, who is currently CEO/founder of Angel Share Capital Ltd. I think the stock over reacted on the way up.

  • Stanley Gibbons Group PLC (SGI): The world’s longest established rare stamp merchant (mkt cap: £12m). I picked this company because I know the CEO, Graham Shircore. He’s a partner at Phoenix Asset Management (Phoenix owns 58% of SGI). I did a project for Phoenix Asset Management when I was at London Business School and Graham was mentoring me. He is very smart/capable and an asset for SGI in my opinion. The company recently announced that the CFO, Anthony Gee, will be stepping down by the end of November. He will remain at the company but work in a more operationally focused role. The Board is looking for a replacement.

Tweets of the week

  • And another one on #DHG (Dalata Hotel Group PLC) by Conor Maguire @ Value Situations (I used to cover DHG at JEF)

Have a great weekend!

Dark Horse Research