Small Cap Value Report (25 Jun 2014) - EasyHotel, ZIOC, SNX

25th Jun '14 by Paul Scott

16 comments 12118 reads

Good morning! I've been doing a lot of reading this morning, and it suddenly occurred to me that I'd better start writing a report!

easyHotel (£EZH)

This is yet another IPO (surely the market must be reaching saturation now?) which commences trading on 30 Jun on AIM. I've been reading the Admission Document, and it looks potentially interesting, although I've only skimmed it so far.

The bare bones are that the company is raising £24.1m (after expenses) through the issue of new shares at 80p each. There will be 62.5m shares in total, giving a market cap of £50m at 80p per share. The existing business operates 17 easyhotels, but all bar two are owned & operated by franchisees. So the company is going to use the fresh funding to open more of its own hotels.

Stelios is converting some debt into equity as part of the deal. I need to go through the figures in more detail (a weekend job methinks), but thought I'd flag it here as a potentially interesting IPO, given the strong brand recognition, and the interesting business model - I think budget, no frills city centre hotels are a good growth area, and I already have a few shares in Safestay (LON:SSTY) - a similar sort of thing, but more of a nice hostel rather than a cheap hotel.

My main concern at the moment is that quite a lot of IPOs seem to be failing, in that they go to a price discount immediately, and it can then be a long time for them to return to, let alone exceed the float price. I remain of the view that in the vast majority of cases, people who buy into an IPO get a lousy deal, which is why the vendor is selling! Whereas in the case of easyHotel, the deal is structured to raise fresh cash, with some dilution of existing holders, which is a much better proposition than some spivvy private equity operation selling out at the top of the market, on a bonkers valuation, as we've seen with some other deals in the last year.

Small cap markets

I was benchmarking my performance last night, as I've been very disappointed with how my main share picks have done in the last few months. So it was encouraging to see that the markets overall have been poor - it…

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PhilHofGrowYourDough

25th Jun '14

it somehow feels a lot less painful when you're doing badly, to discover that other people are mostly doing even worse

It feels even better when the market in general is pants and you're steaming ahead. Who knows how long it'll last though.

I hope the majority here are doing well as I have to say the stockopedia system has transformed my investing approach and it would seem returns. It could be argued that it is luck of market timing and a strong bull run however I personally haven't experienced a slow down in my progress since Jan 2014 (currently I'm up 20% ytd). It'll be interesting to see how I fair in a bearish market.

Good luck to everyone

Phil

Edward Croft

Paul - I wouldn't beat yourself up too much - frankly it's been very lean pickings all round. You can see from this graphic of the StockRank deciles that since the start of the year the top ranked 10% of £ 10m + market cap stocks have been treading water, while the low ranked stocks have sold off - this kind of churn is pretty healthy imo. The FTSE All Share has been pretty much flat YTD too.

I've super imposed some lines on the chart below to make it easy to see the year to date performance - the purple line is the all share.

53aab58c9ed5b5_jpg__8_documents__8_total

Caulkhead

Interestingly, it looks like the bottom two deciles have performed quite well over the last two weeks. Is it possible to cart the top decile over the bottom decile? Looks like it would be a powerful chart.

chart!

Hi Ed,

Any chance of a European version that chart? I'd be interested to compare the performance.

Regards
Phil

cycle

Hi Ed,

I'd really like to see a version of the chart that started in January '14 too. It seems to me that most of the gains made with the StockRank occurred after I joined Stockopedia and it would be interesting to see how the StockRank is performing in more challenging conditions than the 2013 rise.

Alternatively, if that's too much work, I'd be interesting in reading your analysis of what I'm asking about.

Thanks,

Jeremy

MrM

Benjamin Graham (The Intelligent Investor pg 68)
"Our one recommendation is that all investors should be wary of new issues-which means, simply, that these should be subjected to careful examination and unusually severe tests before they are purchased."

He gave 2 reasons: New issues have special salesmanship behind them, and they are sold under "favourable market conditions" - for the seller, not the buyer.

Hi Cycle,

Yu should be able to play around with the graphs here

http://www.stockopedia.com/backtest/deciles

Hope that helps
Phil

Hi Phil,
Thanks - I had missed that you could backtest from a particular date - very useful. It does show that even with high StockRank there has been much less opportunity for profit so far this year (unless profits were banked at the peak in March which was difficult to predict.) Helps to put returns this year in context.

Pabster

No mention of NTG Paul?

@Phil That's not officially a public link - so it's sneaky you've got hold of it ! We've got a new version which does quarterly and semi-annual rebalancing. That link just does 1 holding period from each batch date.

I'm working on it while trying to do other projects... I'm hoping that we can launch a new top level StockRanks link in the navigation which includes another nifty page that highlights the biggest 1 week and 1 month changers in the StockRanks.

Phil - we have some work to do to get the European deciles working due to the dealing with all the different exchanges & different bank holiday dates. I hope later in the summer we'll have cracked it... just a bit busy with the US. The ranks above are LSE only - they don't show ISDX stock returns... so gainers like Sprue Aegis not included.

Paul Scott

Hi Pabster,

Northgate (LON:NTG) is not one I cover, because the market cap is into mid cap space, at £670m.

I normally only go up to about £200m, sometimes more if the company looks particularly good value.

Northgate looks OK - mature business, reasonable PER, lowish divis, quite a lot of debt, but not excessive relative to asset base.

I'm generally not keen on hire businesses - they'll be subject to a lot more competition in recovering economies, as banks relax lending criteria to start-up competitors, so margins likely to be squeezed I would imagine. Also rising interest rates will hurt.

Regards, Paul.

Thanks for the quick response Paul

26th Jun '14

Hi Ed,

Apologies if it isn't an official link. I'm just eagle eyed and spotted it on the recent webinar.
I appreciate you are busy and trying to bring forward many different aspects of the site, so a Euro edition would be good (especially bearing in mind the cost of the Euro edition).

WRT Sprue it has been a considerable driver of my gains.

Keep up the good work
Phil

jonesj

29th Jun '14

Stelios must have millions of pounds of his own money stashed away somewhere & I guess he would want that invested where it can get the best return?

If the Easy Hotel business is so good, why hasn't he proven the business model with a larger number of hotels of his own before an IPO ?

Small Cap Value Report (25 Jun 2014) - EasyHotel, ZIOC, SNX

easyHotel (£EZH)

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Paul Scott

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