Trader’s Café with Zak Mir: A Week In Small Caps

While there may be some hope now for an unlikely breakout for blue chips in terms of the FTSE 100, getting back to where they were at the start of the year, the pain for small cap investors may take rather longer to improve.

Author @ZaksTradersCafe

The last big bull run for this particular asset class was in Q1 last year, and the fall from grace has seemed far longer than that. If you add in the June / July sell-off this year, when it seemed everyone was cashing out before the summer, we not only had evidence that “sell in May” works” but also that there was one of the most intense liquidity crunches since the Global Financial Crisis.

Suspended Stocks

The crunch has taken the form of pulled IPOs and deeply discounted placings, perhaps something that we can and have to live with. However, the agony has been added to by suspended stocks taking away large chunks of liquidity too. Relatively large-cap companies such as AAA (AAA), and Dev Clever (DEV) have been taken out of the mix, and it took months for the likes of Canadian Overseas (COPL) and San Leon (SLE) to re-emerge.

When suspended stocks do return, there is normally an initial jostle among investors, as those who are thirsty for liquidity exit, even if the story is good. It does rather beg the question as to why stocks need to be suspended, unless in exceptional circumstances. Why not let the market decide? Is a stock being suspended because some traders may have an unfair advantage, or are we part of a kind of sadistic snakes and ladders game, going from 97 back to square one, or in this case marked to market at zero? I would argue for a change, whether it be in the run-up to admission documents, prospectuses, big news, or bad news. Let the market decide, rather than go for the health and safety/nanny state approach.

Afentra

We were reminded of this suspension issue in the case of Afentra (AET). Happily, it came back from suspension in October last year, to finish the week 85% higher. While this was impressive, one broker commented to me that if we were in a “stronger” market, the gains would have been much greater. The shares were suspended at 14p and closed the week at 27p. So what, if they had been allowed to trade in the interim? It is food for thought.

Igas

An interesting comment from a trader was delivered to me regarding fracking play Igas (IGAS). He pointed out that the stock has managed to more than double in the recent past, with hardly any of the Twitterati’s encouragement.

The implication is that it is usually the shares with the most social media noise that are the least likely to succeed. To be fair the shares were given coverage on a charting basis in the mid-30p, ahead of Prime Minister in waiting for Liz Truss’s backing for fracking. Instead, rather than Twitter, it has been mainstream media to get the stock over the line and up to 74p this week.

East Imperial

Perhaps one of the best things and worst things about small caps is that they are not necessarily correlated with the economy as a whole. This means that even if the macro situation is weak, they can shine on company-specific news. The point was underlined this week by the news for premium mixer group East Imperial (EISB). Given what a torrid year to date it has been for the company, news of a Chinese distribution deal was a massive shot in the arm. Even better, the shares did break a trendline before the RNS hit the wires, meaning that technical traders had an opportunity to chance their arm and potentially scoop up a gain from 2.5p at the beginning of the month, to 4p on Friday.

Tirupati

After a wide-ranging RNS at the beginning of the month, including the appointment of a CFO, graphite play Tirupati (TGR) added to its gains on CLN news. What bulls of the stock will be looking at here is for the company to now be fully funded ahead of a production ramp which will make it a significant world player, at a time when graphite and its uses become more and more sought after. The key in the short term is breaking 50p versus 45p currently.

Ascent And Galileo

The white smoke over the Vatican came for shareholders of Ascent Resources (AST), with the first payment in the bank for the natural resources group from its JV partner. Indeed, the rebound in the shares on Friday was so strong that at one point there was said to be “no offer.” Shareholders will no doubt be hoping that this state of affairs is set to continue. An inflexion point also looks to have been achieved at Africa-focused Galileo Resources (GLR), with its shares up nearly a quarter on the week as it increased its interest in Zimbabwe. For once, the market has started appreciating the newsflow here.

Jubilee Metals

Sticking with Africa, there was a big update from Jubilee Metals (JLP). The metals processing group said it had completed a £58m investment programme in Southern Africa. At a time of growing demand in PGM’s, Chrome and Copper, it will be interesting to see whether the shares end their recent rather frustrating consolidation.

Touchstone

A stock which does not normally get much airtime, but has reminded us of the simple fact that with crude oil near $100 a barrel, oilers are very much on the front foot, was Touchstone Exploration (TXP). Here we found out that sales were up from $7.6m to $12.6m, helped by the surge in energy prices.

All Things Considered

Finally, with liquidity crunches in mind, it may be worth watching the independent music company All Things Considered (ATC). This is on the basis that the post-June decline from 154p to 113p is finally over. If “the seller” is out of this play, ATC which was hit by the Glastonbury outage last year is now apparently going great guns. With revenue up by a third and £4.4m in the bank, it probably would not take much for the shares to regroup in a positive way.

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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