Last year’s excitement for UK small caps seems to be fizzling out again, it’s such a weird contrast: on one hand private equity are buying UK shares hand over fist, on the other hand institutions keep selling in order to meet redemptions (from private investors I assume). A classic example is Downing Strategic Micro-Cap Investment Trust which already trades at c 60% discount to market expectations and is offering clients a 50% redemption event so they are forced to sell in order to raise the cash. This sort of pessimism is typical of a major market bottom.
Time for a review of my 3 microcaps for 2024 as they all had material updates recently:
SONDREL looks like they found a strategic investor to fund them to positive cash flow. The deal is the best they could get, in my view. Rox are private equity and could end up with more than 30% of the co. If anything, this deal shows that there is value in Sondrel, as PE are usually very astute investors. This is clearly positive, but the deal is still work in progress and again, it shows how poorly this has been managed. It should have never ever, got to this. They should have sorted the finances ages ago, look how smoothly Ensilica managed to raise money. You should never get to the point where you have to rns you can’t pay the wages. Anyway, I think Sondrel is investable again and the 10p placing should put a floor under the sp. They still have a lot to prove, but In the right market and with the right newsflow, or even a Nasdaq listing, the shares could have a spectacular run. So, I remain invested with a v small position for now as I want to remain plugged into the story. I knew the sp will be volatile due to funding, I just couldn’t forsee how chaotic the rns’ would be: one day they can’t pay the wages, the next day they can !….. who in the right mind wants to invest like this ?! the ceo has yet to prove that he’s a maverick
MADE TECH the story remains intact: it’s a matter of when, not if.
The key take away from the H1 results was NO profit warning, as the market kind of expected that after the previous update. MTEC went through a tough period of internal reorganisation, where hard decisions had to be made. For example, one of the benefits employees had, was unlimited unpaid leave. How crazy is that ! so a lot of the legacy benefits have been cut, which in turn caused major upset amongst employees ( many of whom left) but now the company has finally turned the corner from an operational pov: the workforce has been rightsized, they set up an academy to help with new recruits. This is absolutely critical for their future financial performance. They also confirmed improved profitability for FY25 even if revenues reduced slightly.
MTEC has troughed from an operational pov and it’s just a matter of patience now, I think the possibility of a pw is virtually gone and all we need is decent rns to kick start the long, overdue rerating.
CROMA SECURITY still at an embryonic stage with only 16 security centres so far, but slow and steady progress is being made nevertheless. It reminds me a bit of SDI when the sp was c 15p and their main business was a disinfectant tool for NHS equipment ( from memory). Such a long time ago, shame I didn’t have the patience to hold for the long term then.
I think CROMA will follow the same path, it might take some time for the story to unfold and be better understood, but as they make progress, financial commentators will pick up on the story and the sp will rerate.
I’ll keep holding all of the above and yes, there will be volatility but let’s see where they are on 31st of December 2024. So far, not bad. Already banked a 120% gain on SND on that Neuralink spike ( defo an insider’s job to bring the price back up for the placing) holding free shares now and the gain on Croma offsets the loss from Mtec.
AMS with a mc of £470 mil and which I held for a while, could potentially be at an inflexion point now. The ceo has lost all credibility by saying exactly what I just said: overpromising and never delivering for the past 3 years, but prospects could finally improve. The US healthcare has finally stabilized and coupled with some operational restructuring ( new distribution agreements) should see AMS returning to proper growth this year. They’re worth watching, FY results on 13/3/24.