Aug 31, 2024 · 30 min
Buffett’s model meets a tougher test in UK small caps
IC031 Profit Warnings – Nvidia's Growth, Buffett's Triumph, H&T Group, Focusrite, Aquis Exchange & Much More
The episode contrasts Nvidia’s AI-fuelled expansion and Berkshire’s patient compounding with warning signs across several smaller UK-listed companies.
- 1Nvidia’s exceptional growth raises questions about valuation, AI enthusiasm, and the wider investment consequences of a concentrated market narrative.
- 2Berkshire’s trillion-dollar milestone highlights the power of retained earnings, diversified operations, patience, and unusually clear shareholder communication.
- 3Focusrite, Aquis Exchange, Naked Wines, and H&T Group show how growth prospects, valuation, profitability, and management guidance shape small-cap conviction.
Don't miss
The hosts examine how Berkshire reached a $1 trillion valuation while emphasizing the patience, retained earnings, and clear communication behind that result.
The brief
Chris Cote and Lord Lee frame a UK-investor-focused review around market movers, potential bargains, and a run of recent profit warnings.
Nvidia’s triple-digit growth and strong margins have exceeded forecasts, but the hosts question whether its valuation and the market’s AI fixation signal bubble territory.
Berkshire’s rise to a $1 trillion valuation becomes a case study in retained earnings, operating businesses, patient shareholders, and Buffett and Charlie Munger’s direct communication.
The small-cap discussion turns sharper: Focusrite needs a turnaround, Aquis Exchange offers technology potential without a bargain valuation, and Naked Wines remains loss-making after falling sales.
H&T Group delivered strong interim growth across pawnbroking, jewellery, and foreign currency, but later guidance cuts make management’s caution the episode’s key unresolved question.
Taken together, the companies illustrate the gap between a compelling long-term story and the evidence needed to sustain investor patience.
What was said on this episode
25 statements · 18 positive · 5 negative · 2 neutral
Nvidia is expected to continue its extraordinary growth.
“truly incredible how this business has been growing and is seemingly set to continue growing”
Listen at 2:30
Nvidia is the core investment for gaining AI exposure.
“if you want exposure to AI, you need no further than Nvidia. It is like the core of it and the place to be.”
Listen at 3:01
Nvidia’s valuation appears reasonable based on one- to two-year growth.
“the valuation based on shortish-term growth, a year or 2 years out doesn't look too bad.”
Listen at 4:18
Nvidia must sustain its growth for three to ten years.
“It's got to keep this going now for 3, 5, 10 years.”
Listen at 4:24
AI’s major practical benefits will emerge in drug development and robotics.
“where are we going to find the really useful applications? The applications in maybe pharmaceutical drug development research. That's where the real benefit's going to start coming through, maybe robotics.”
Listen at 4:45
Nvidia currently leads all competitors in AI.
“NVIDIA at the moment is head and shoulders above everybody else.”
Listen at 5:28
Small AI providers struggle to compete with cash-rich technology companies.
“How can a small provider without the cash flow effectively compete? It's hard to see.”
Listen at 6:43
Berkshire Hathaway became the first non-technology company valued at one trillion dollars.
“first non-tech company cost a trillion dollars”
Listen at 7:17
Berkshire will buy attractive US assets if markets sell off.
“If there are, if the market does sell off, valuations look more attractive in the US. They'll come in and start nipping up some good deals.”
Listen at 13:11
Berkshire issues shares only when essential and repurchases them when undervalued.
“They will only issue issue new shares if it's absolutely essential and start buying them back if they think the shares are cheap.”
Listen at 14:14
Focusrite has a growing product portfolio.
“I still believe there's a growing portfolio of products.”
Listen at 16:37
Focusrite’s content-creation division is expected to recover.
“its content creation division should pick up as well.”
Listen at 16:57
Acquisitions are central to Focusrite’s business model and growth.
“Acquisitions has always been part of it. This is an acquisition story.”
Listen at 18:35
Focusrite should make acquisitions intelligently and at appropriate prices.
“But you've got to acquire cleverly. You've got to acquire at the right price.”
Listen at 19:03
Aquis Exchange’s licensed exchange technology has strong potential.
“Its technology bit where it licenses exchange-related technology to clients around the world looks really interesting.”
Listen at 20:16
Aquis can potentially take business from larger exchanges through cheaper subscriptions.
“it conceivably can take business from it. A cheaper alternative based on a subscription model, conceivably it can be a nuisance”
Listen at 21:25
Aquis’s 3.5% revenue growth is insufficient for a high-growth small-cap classification.
“3.5% revenue growth is not, I wouldn't call stonking small cap.”
Listen at 22:11
Naked Wines has no clear path out of its profitability and capital problems.
“I struggle unfortunately to see the way out.”
Listen at 23:22
Naked Wines would be heavily indebted if angel subscribers withdrew their funds.
“If all of them said, no, we've had enough, we want out, they'd be heavily indebted.”
Listen at 24:23
Naked Wines faces a very difficult turnaround.
“I struggle to really see a way out. And good luck to management if they can work this one through.”
Listen at 24:57
H&T Group’s pawnbroking business model is attractive.
“I like the pawnbroking business model.”
Listen at 25:30
H&T Group benefits from a strong gold price.
“This business really benefits from the strong gold price”
Listen at 25:57
H&T Group’s earlier pledge redemptions appear to be a short-term issue.
“the commentary around this suggests it was relatively short-term”
Listen at 26:39
H&T Group shares appear undervalued and may continue performing well.
“the shares look cracking value and could continue to do nicely”
Listen at 26:59
H&T Group offers nearly 5% yield at 7.7 times forecast earnings.
“Just shy of 5% dividend yield trading at 7.7 times forecast earnings”
Listen at 27:55
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
Warren Buffett
London Stock ExchangeListen to the full episode and explore every guest, topic, and moment on PodLume.