There have been a few positive highlights over the past week, despite the media hysteria in the wake of the tax cuts.
While there have been plenty of armchair Chancellors around, it does seem true to say that if we are looking for economic growth, raising taxes and raising interest rates would not appear to be a strategy. So far we have lowered taxes and raised rates – the latter of which effectively cancels out most of the former. As for inflation, raised interest rates is not going to dampen supply-side inflation, and I would even doubt it ever really cooled the demand effectively in the past.
But my main takeaway from this week has been the horrific knocking of UK PLC and of course, the new Truss administration by the financial media. It seems that having removed the previous Prime Minister, the newspapers are looking to do the same again. Project Fear regarding the Pound and pensions was the angle this week, although rather amusingly Sterling rallied hard. We were reminded that once a story hits the papers you normally make good money betting the other way. In fact, for the doomsters, the rebound in the Pound actually suggests that the financial markets realise that the Truss tax cuts are the (only) way to go.
Small Cap Rebound
Looking at the daily chart of the FTSE Small Cap index the good news is that we appear to have hit the floor of the falling trend channel from the beginning of the year at 5,800. Clearly, given the misery/capitulation amongst private investors at the moment, a 5-10% rebound in the minnows would be most welcome.
Regarding the stock highlights of the week, we continued with the Angus Energy (ANGS) story, which looks like it reached a positive outcome in terms of the Saltfleetby flow rates, second compressor and side-track update. This 3-in-1 RNS should mean the company has a clear run at success, something all the sweeter given the length of the journey and the timeliness given the horrors of the gas shortage after Ukraine. The fact that the shares are only the same price as they were in July 2019, before so much water under the bridge, suggests that recent stock market enthusiasm regarding George Lucan’s company is only at the foothills.
After what seems like an eon, I hosted an event for fire safety group LifeSafe (LIFS) in Mayfair (where else?) to a decent number of what could be described as the great and the good of London’s investor community. This was made all the more enjoyable now that Covid protocols are just a memory. Of course, it also coincided with one of the toughest week’s in the market. Still, the enthusiasm of the company, in the wake of its interim results, and with it being in the likely run up to adding B2B / industrial customers for its disruptive fire coolant, meant that there was optimism and interest in the room.
While many small caps continue to be hit due to investors thinking more about the cost of living rather than putting money in the market, it was still the case that companies, where the fundamentals are nailed, did see their share prices rise. One situation which remains off the radar is Boku (BOKU), where the payments company’s recent deal with Amazon and expansion into new territories is a highlight. This is especially a standout given the way that August and early September saw the stock hit new lows. I had a 120p technical target on the shares just a couple of weeks ago, and now at 111p (from 90p) this looks more than achievable.
Open Orphan / hVIVO
Of course, there are companies which have been going great guns but were in bear market conditions have meant the share price/valuation has not responded appropriately. This is certainly the case with Open Orphan (ORPH), soon to be renamed hVIVO (HVO). We saw the CEO Mo Khan leading from the front at the CRO by buying half a million shares at 9.8p. If nothing else he is reminding the market again of the £80m order book the group has, versus a market cap of less than £70m.
While director buying can be a buy signal for a stock, an obvious plus on the fundamental front is the swing to profit. This is all the more impressive in the current environment, and in the small cap space. The swing of the week came from Transense Technologies (TRT), a developer of specialist sensor systems for vehicles. Pretax profit hit £268,000 in the year ended June 30, from a loss of £193,000, with revenues up 49%. Given that the shares were trading at 120p last autumn, versus 71p, it may be that bulls feel it is a good time to re-enter the fray.
A company where we may see a positive swing in the second half of 2022 is DeepVerge (DVRG), the environmental and life science group. Here the Modern Water part of the business is clearly right on the zeitgeist of climate change and in the post pandemic environment. While London investors are slow to “get” companies outside the resources space, the DeepVerge offering looks to be well diversified given current economic uncertainties, and little credit has been given to Skin Trust Club, which it could be argued if it were an American company would have a unicorn magnitude valuation. Let us see if DVRG can start getting a proper sum of the parts valuation, when the stock market starts to brighten.
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