Trader’s Café with Zak Mir: A Week In Small Caps, Saturday 17th December 2022

It is a cliché that the stock market runs in cycles. This is especially the case given that statistically, the markets spend as much as 80% of the time in ranges.

Author @ZaksTradersCafe

This year though, it feels as though we have been in ranges within ranges. For instance, it was noticeable in June – July that the small-cap area was particularly hard hit as if investors were selling up ahead of the summer holidays. It looks as though this week we had a similar effect with investors selling up many, particularly tech-focused companies, ahead of Christmas. To be fair, it has not been difficult to find an excuse to head for the hills. The strike season is in full blast, the cost of living crisis adding to the pain, and as a final act of sabotage, the Bank of England raised rates this week.

The situation has perhaps not been helped by many small-cap companies themselves. In many years we see a pre-Christmas placing fest, which may be fair in normal liquidity conditions. However, in what could be argued as the worst cash crunch since 2008, it may have been advisable if some of the companies had raised in October, not just as most people have shut up their portfolios for the year. After all, it is difficult to believe that those who are raising £500,000 or £1m this month, were not aware of this state of affairs in September or October.

Of course, it is perfectly understandable that in a bear market we have companies seeing their share prices fall. What has been noticeable is the way that even those who are in good shape get punished. This was highlighted of late with cashed-up Reabold (RBD), where arguably the requisition was primarily a factor of share price performance, rather than the corporate strategy, or the quality of oil and gas group’s assets.

We could also point to a company like hVIVO (HVO) where it feels like there has been umpteen significant contract wins over the year, yet the shares remain stubbornly in the bargain basement valuation zone. This can be explained by bear market conditions meaning that investors have a tendency to throw the baby out with the bathwater, selling out of quality companies, just to raise cash.

Our current market is also one where even with solid announcements, the news can be an excuse to sell, just because some are reminded that they hold the stock. The past week has witnessed decent RNSs from both Firering (FRG) and Wishbone (WSBN), both plays moving the mining groups well along their timelines. It could be the case that once the present dark clouds in the market blow away, the recent exaggerated downward moves seen here will be reversed.

Finally, it may be worth looking on the bright side as far as a couple of situations. There were a couple of standout positives this week. The first was AI-based cybersecurity group Smarttech247 (S247) coming to AIM, with a £30m plus market cap, and £4m gross profit notched up for 2021. Listed investors in the company Riverfort (RGO) and indirectly Pires (PIRI) should benefit from the successful IPO – rather rare for 2022.

Indeed, the company which may justifiably be a contender for the most successful IPO of the year is Hydrogen Utopia (HUI).

This is not only on the basis that the stock is now trading close to double its IPO price of 7.5p but also off the back of the announcement that it will be moving from Aquis to the main market of the London Stock Exchange on December 21

This is the first case of a move up from the challenger stock exchange, since the misconceived raising of the main board market cap minimum last year. Interestingly, the company is also set to be listed on the Frankfurt Stock Exchange on Monday, ahead of the LSE, potentially feeding in fresh liquidity from what is a very Europe-focused company.

Author @ZaksTradersCafe

Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion

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