Weekender #9

A weekly recap on European micro-caps

Good morning and welcome to your weekly source of European micro-caps news. I have two goals this week. 1) keep the Weekender shorter - we are all time poor 2) diversify the content, last week it was a tad Biotech heavy. Speaking of Biotech. Has anyone read Jack Schwager’s latest book Unknown Market Wizards? There’s an interview with a guy called Michael Kean (Steel Road Capital). He runs a “complimentary strategy” which involves long equity and short biotech stocks. It take nerves of steel to short biotech! Anyways, it turns out that he sat just a few desks away from my wife when she was running her business from the co-working space on Bermondsey Street. I never got to chat to him but Michael if you do see this let’s grab a beer.

Let’s dive in!


Highlights

Let’s talk about the outlook for the UK property market.

Firstly a few snippets from my personal experience in Central London: We own a property on Tower Bridge road and it’s now worth approx. 15% less than its pre-Brexit peak valuation. The COVID trade has seen property prices in Central London -10% and property prices outside London +10%. Most people I know who are playing that game haven’t been able to sell their property in Central London and are therefore renting out their city pads and renting in the “countryside”. It’s clearly the wrong time to sell central London property. Presumably the situation will normalise and maybe we can sell our city pads at a 5% discount?

Let’s see what the insiders have to say about the outlook. This week two UK franchised estate agencies (lettings & sales), #BLV (Belvoir Group) and #WINK (M Winkworth), reported 1H21 results:

Belvoir Group

…The property sector has seen high levels of demand with the “race-for-space” driving both the rental and sales markets, and the latter fuelled further by the stamp duty holiday. The shortage of available property both to buy and to rent has resulted in annual UK house price inflation to June 2021 of 13.2% and rental growth on new tenancies reportedly up to 5.9% UK-wide, and 8.0% excluding London….

….Current pipelines of house sales and the ongoing demand for property suggests that the transitional approach to ending the stamp duty holiday, which ends on 30 September this year, has succeeded in avoiding the cliff edge feared at the start of 2021. Instead, a gradual return to a more normal transaction level is anticipated in Q4…..

…The lettings market remains active with strong demand from tenants, as with homeowners, for more space….

M Winkworth (London focused) (also if anyone from #WINK IR is reading this, please change the format for your press releases from word to PDF)

….The ending of the stamp duty holiday, the re-opening of foreign travel in August, and transactions due to complete in July having been brought forward to June will, inevitably, mean that some of the fervour will come out of the sales market.  But with the ending of stamp duty relief being both phased and extended, it would appear that a cliff edge moment has been avoided. Our sales applicants continue to track well ahead of 2019 levels, with plenty of activity remaining as years of repressed underlying demand are supported by mortgage rates as low as 1%….

….We see a slight reversal of the move to the country, as the great debate on working from home plays out and workers once again return to city centres to be nearer their offices…

….As international travel returns, we also expect to see a steady acceleration of interest in central London sales, with foreign buyers joining domestic ones to compete for properties….

…We have seen a significant upturn in activity in the rental market as the return to work brings tenants back to London and houses in outer London recover to their pre-pandemic rents. We expect central London flats rents to follow suit over the coming year as international clients, students and young professionals return…

Well, it looks like we should hold on to our city pads for a few more years!

On Tuesday UK franchised estate agency, #TPFG (Property Franchise Group), reports 1H21 results. Keep an eye out to see what it has to say.


Leaders

  • #CLEMO (Clean Motion AB): +242% A Sweden-based company primarily involved in the advanced electronic equipment industry. The Company develops an electrical vehicle Zbee that is an energy efficient vehicle for short distance transportation of up to three people and smaller goods (mkt cap: £17m). On Wednesday CLEMO announced a collaboration with Valoe Oyj (#VALOE) on the integration of highly efficient solar cells in the roofs of the vehicles. This would involve the integration of Valoe's highly efficient IBC cells (Interdigitated Back
    Contact) into CLEMO’s future roof modules. CLEMO performed tests with solar cell roofs in 2015, but then the technology was not mature enough. Since then, the efficiency of solar cells has increased sharply, and in combination with CLEMO's extremely energy efficient vehicles, the technology is now commercially relevant. Soon, the goal is to have a vehicle with the range of 100km per day from solar energy.

  • #IPH (Innate Pharma): +40% A France-based biotech company that develops drugs for treatment of cancer and inflammatory diseases (mkt cap: £372m). We wrote about this stock in the last Weekender. Last week it finished +28%, this week +40%. There’s optionality here. There’s nothing new as far as I can see. Dates to look out for are: 15 Sep - business update 1H21, 17 Sep - Astrazeneca presentation including IPH’s monalizumab, 18 Sep - IPH’s presentation on ANKET.

  • #PEB (Pebble Beach Systems): +32% A UK-based software/technology company that is engaged in the collection and delivery of video and data from scene to screen (mkt cap: £15m). On Wednesday the company published a strong set of results. 1H21 revenue +9%, adjusted EBITDA +14%, PBT +36%. Orders received were +64%. The delays in customers order placement that were experienced in 2H20 have eased significantly. The company believes it is well positioned to sustain performance in 2H21 and beyond is considering ways in which to accelerate growth.


Laggards

  • #GDR (Genedrive): -31% A UK-based company engaged in molecular diagnostics business (mkt cap: £26m). Yesterday the company announced a proposed placing (£6m raised successfully) and open offer (£4.5m) at 25p (40% discount to undisturbed price). The net proceeds will be used to fund two near-term revenue opportunities: 1) the final development of the Genedrive® COV19 ID Kit, a point of care assay for the detection of SARS-COV-2; and; 2) supporting the commercial roll out of the Company's Antibiotic Induced Hearing Loss test, Genedrive® MT-RNR1 ID Kit. The funds will cover the Group's other product development, commercialisation and general corporate costs until the two revenue streams cover the Group's overheads.

  • #ASKN (Asknet Solutions): -30% A Germany-based company engaged in the procurement, e-commerce and payment market for European academic institutions, students and alumni (mkt cap: £7m). The company profit warned on Monday saying that a higher loss than originally assumed would have to be recorded for both the 1H21 and FY21. The company will post EBIT EUR-1.1 to -1.4m for 1H21, resulting in a loss of more than half of the share capital and a deficit not covered by equity of EUR -0.7 to -0.9m. The weakness is due to 1) higher legal costs relating to legacy issues; 2) high restructuring/investment costs; and; 3) postponing of high revenue projects to H2. For FY21 the company expects declining sales (previously stable to single-digit percentage increase) and declining gross profit (previously slightly below FY20) leading to EBIT at prior-year level (previously significant reduction in losses)

  • #IZAFE B (Izafe AB): -22% Sweden-based company that conducts research, development and marketing of medical products for medication and drug management. Its offering includes Dosell, a patented drug dispenser under development that can be used when medicating patients at home via remote monitoring; and MediKoll, an app that provides patients information about side effects, reactions and allergies linked to different types of medication (mkt cap: £5m). On Monday the company announced that it will raise approx SEK53m via a fully guaranteed rights issues at SEK1.50. The funds will be used to produce, continuously further develop, sell and market Dosell to partners and consumers in the long term and on a large scale.


Directors’ Deals

A week filled with £millions

  • #CNIC (CentralNic Group PLC): A UK-based global domain name service provider (mkt cap: £261m). At the beginning of August, the Group MD sold £160k worth of shares. This week Erin Invest & Finance Ltd, a company that Samuel Dayani (Non-Executive Director) has a beneficial interest, has sold £5m worth of shares. Erin Invest and Finance Ltd has stated the recent share sales are to fund liquidity needs. It considers itself a long-term holder in CNIC and has notified the Company that it has now accomplished its liquidity objective and has no intent to sell any further shares in the medium to long term.   

  • #SAG (Science Group): Needs no introduction, currently trying to takeover TP Group, next significant event is the EGM (mkt cap: £197M). They recently raised £18.5m to back fund the TPG shares bought (now owns 27.1% and will probably increase to 29.9% where it is restricted, remember every vote counts!). During this placing the Executive Chairman sold £9m worth of shares. This was to satisfy institutional demand. The timing seems a bit odd and on top of it the Board had to ask shareholders to waive the unexpired term of the 12 month lock-in undertaking given by Mr Ratcliffe on 30 September 2021. In return he has undertaken that he will not dispose of any further Ordinary Shares for a period of 12 months after completion of the Sale. He holds 20.6% post the sale.

  • #MCLS (McColl's Retail Group PLC): A UK-based convenience shop and newsagent operator (mkt cap: £28m). It is interesting to see the strong take up from the Board/Senior management in the placing. This is especially true for Jonathan Miller, the CEO, who picked up £3m shares.


Notification of Major Holdings

Lots of interesting situations to choose from this week. Check out my tweets or email me if your want to hear about the others.

  • #MTC (Mothercare PLC): A UK-based retailer for parents and young children (mkt cap: £126m). Yes it did go into administration and yes it still exists. Three things caught my attention this week: 1) Lombard Odier Asset Management increased its position from 19.4% to 23.7% a week before the trading update. 2nd largest holder after Richard Griffiths! (33% stake); 2) I found out that it is now a franchise business, and you know how much I like the franchise business model! It turns out that MTC has struck a 10yr franchise deal with Boots; and; 3) Shore Cap reinitiates coverage calling MTC the most underappreciated opportunity within its UK retail coverage. “The value is not in the rear-view mirror, it is very much in the windscreen”. What operating margins could MTC achieve? I usually don’t invest in special sits, but this might be worth looking at.

  • #CREO (Creo Medical Group PLC): A UK-based medical device company that focuses on the field of surgical endoscopy (mkt cap: £305m). A new 7.13% position from Capital Group’s SMALLCAP World Fund ($84.5bn fund). Given it is one of the largest asset managers in the world, I assumed it didn’t look at micro-caps! The company has a good reputation and some of the best analysts in the industry so it is worth taking note.

  • #MNO (Maestrano Group PLC): A UK-based software company that offers a cloud-based business Platform as a Service for the small to medium businesses, banks and accounting firms (mkt cap: £25m). CRUX Asset Management is another name that I am pleased to see on my list. I’m sure that at some point in my career, I sent them a speculative CV. CRUX declared a 3% position in MNO.


Movers & Shakers

  • #HUM (Humana AB): A Swedish-based care provider (mkt cap: £291m). In 2020, the CFO left, and last month the CEO, Rasmus Nerman, announced he was leaving to join Apoteket AB. Replacing him is Johanna Rasta who has been at the company since 2018 and is currently business area manager of Individual & Family. She will be taking over in 1Q22 as Rasmus Nerman leaves.

  • #LOOK (Lookers PLC): A UK-based motor retail and aftersales service company (mkt cap: £267). On Thursday the company announced the appointment of Oliver Laird as CFO. He joins from CPPGroup PLC (mkt cap: £41m), the multinational financial services business, where he was CFO. He starts on the 15 November.

  • #CCP (Celtic PLC): Yes, the football club! (mkt cap: £106m). Dom McKay, the CEO who took over only two months ago, is departing. For a bit of context, the former Australia coach Ange Postecoglou was appointed the club's manager in June following the exit of Neil Lennon in February after a dismal campaign. When Dom McKay joined in July, he said Celtic was "more than just about financial results off the pitch and football results on the pitch." Replacing him as acting CEO is Michael Nicholson, Celtic’s director for legal and football affairs.


Tweets of the week

  • Interested in micro-caps? This is who you should be following on Twitter:

  • Conor Maguire strikes again. This time with an overview of the uranium market. It’s a hot subject. #YCA (Yellow Cake PLC) trades on AIM (mkt cap: £468m)

  • Some insight from Nicholas Sleep/Qais Zakaria (Nomad Investment Partnership)


Unwind and relax, the weekend is here!

Dark Horse Research