As expected, very little news this week apart from the typical types of updates from a certain type of company. For example, Mobile Streams (MOS.L) issued their final results twice, perhaps to remind us of:
the existence of a material uncertainty that may cast significant doubt upon the Group's ability to continue as a going concern
…in case we missed it on first reading.
Sonderel (SND.L) failed to make payroll in December. Saietta (SED.L) got their results in before they got suspended, reminding us that they only managed to raise enough money this month to keep the lights on for three months:
In December 2023, Saietta announced it had completed a fundraising of £7.14m before expenses. Proceeds of the fundraising will be used to satisfy the Group's working capital requirements through to the end of March 2024
But let’s not dwell on companies that we knew were not investment grade, anyway. Instead, here is a little bit of what we might expect from a few well-discussed companies in 2024.
Capital Limited (CAPD.L)
Could this be the year that we finally see the expected re-rating? For several years now this company has remained on a large discount to similar listed peers. The market has had several concerns. The first is the Africa-focus; the second is that they have been taking on debt to invest in growth; the third is that management had a tendency to sell on good news. In all three, we have had good news recently. With large contracts in North America due to start, this is now becoming a more balanced portfolio. Their Centamin earth-moving contract is due to end in the middle of 2024, and the sale of the equipment could mean that they start to reduce debt (although at these levels, a buyback probably makes more sense.) With the current gold price strength, the current cycle seems far from over, so they have been proven right in pursuing growth over the last few years, but only long-term contracts with Tier 1 producers. Finally, management buys have outweighed sales recently. Could this be the year they are given credit for all the work going on behind the scenes and their record of good capital allocation?
Hargreaves Lansdown (HL.L)
This is outside our normal market cap range, but one thing brings it to our attention: it is the second most shorted UK stock. Short interest has been ramping up recently:
We rarely bet against the shorts, who are often much smarter than the longs. However, in this case, it appears they may have overplayed their hand. This is a company that is struggling with a poor management team, and regulatory pressure. But it was Buffett who said:
I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.
This seems exactly the sort of business with sticky clients that can be run by idiots. The forward P/E is just 11 vs 19 for AJ Bell, and shorts have to fund a 6% dividend in addition to borrow fees. And with current market conditions more favourable than they have been for some time, it wouldn’t take much of a beat for a pretty big short squeeze to play out. Average trading volumes mean it would take around a month for declarable shorts to close. But there will undoubtedly be other undeclared shorts. The volume would rise in a squeeze, but perhaps not in the way shorts would like, as their hedge fund mates are as likely to pour fuel on any short-burning fire.
Hummingbird (HUM.L)
It takes quite some doing to be the gold miner in 2023 who needed two equity raises due to poor operational performance. If this hadn’t been a strong year for the gold price, things could have been a lot worse. However, having been saved by gold price strength and their main lender also taking equity, they look cheap if they can hit their 2024 production guidance for the two mines. Could this finally be the year they don’t disappoint?
Jadestone (JSE.L)
This is another company that hasn’t covered themselves in glory. Operational issues at their main asset, Montara, meant that they went from buying back shares at almost £1, to raising equity at 45p in 2023. However, their portfolio is now much more balanced, even more so, as there is every indication that Aktara will come on stream on schedule in 2024. It only requires them to meet 2024 production guidance for them to be one of the cheapest oil stocks around.
Paypoint (PAY.L)
Paypoint seems to be exactly the type of business that would attract Private Equity bidders in the current market. It is big enough to interest PE, not just trade buyers, and on a P/E of 8, it is still looking cheap. The market perception is that it is a declining business, but with multiple streams of income growing and high cash generation, it will surely come on the radar of some buyers.
Somero (SOM.L)
This quality cash-generative stock still looks cheap on a forward P/E of 9, even after a strong end to 2023. However, the company were not keen to provide much forward guidance at the end of August, and there was a major board change that didn’t appear to be amicable in October. Is 2024 the year when the outlook for US construction is much stronger, and will their innovative products start to build traction? Their recent willingness to buy back shares is perhaps a good sign. Or will their (over-)reliance on Boomed screeds in North America come back to bite them (and recent buyers?)
Vertu (VTU.L)
Vertu is the only remaining listed major motor dealer, as all the others have been taken over. Unsurprisingly, this has increasingly been a sector that has benefitted from scale. In light of this, it looked like a dead cert to be the next one over the past year, according to the trade press, but so far, no offer has appeared. The company was buying back shares recently, so we can deduce that there are no current active discussions, even though Cinch have upped their stake even after the recent profits warning. Will 2024 finally be the year that Vertu ends up part of a larger group, or have market conditions finally put a stop to the consolidation in the sector?
Have a great last weekend of 2023 and Happy New Year!