Good morning, it's Paul here. No silliness in today's preamble. Just to reassure readers who posted concerned comments yesterday about me naming & shaming a young lady in Bournemouth - relax, as I made up the name!
Please see the header for company announcements I'll be covering today.
Estimated finishing time - today's report should be largely done by 1pm. Edit at 12:57 - Today's report is now finished.
Here are a few interesting news items that have caught my eye, together with my comments;
CNBC reporting that 40% of S&P 500 companies have withdrawn profit guidance for 2020. (Paul: how can market be so buoyant, when so many large companies cannot predict their trading this year? Risk that markets may not be properly factoring in potentially very bad 2020 figures. We need to treat all UK broker forecasts as probably far too optimistic, unless a company has specifically confirmed it is trading in line. In fact, I'm basically ignoring broker forecasts right now, as they're largely defunct - a very unsatisfactory situation. Just because it's difficult to predict, doesn't mean you should stop trying, if that's your job!)
Walmart reported strong sales, but it's incurring higher costs, e.g. additional cleaning, and staffing costs. (Paul: so even businesses that are trading well during the crisis, could see a squeeze on profits)
Chancellor of Exchequer has made ill-advised comments in a committee hearing - does he not realise these are televised? He described the UK as facing, "a severe recession, the likes of which we haven't seen". (Paul: if that's what our top finance man in Govt thinks, then we should be very worried, and cautious, in my view)
Air travel - proposals being mooted for "air bridges" - i.e. reciprocal arrangements with other countries which are seeing low covid levels. (Paul: could be why Dart (LON:DTG) shares shot up yesterday?). Also, the UK 14-day quarantine period being introduced apparently will not have an exemption for France. I've no idea why it has taken so long to introduce this measure, when it was needed a couple of months ago.
Vaccine - news from $MRNS about its success in early stage covid vaccine trials, which is reckoned to have triggered the Dow's 900 point rise yesterday, is apparently not so exciting after all. US markets gave back about a third of yesterday's gains.
CLBILS (Coronavirus Large Business Interruption Loan Scheme) - Govt has raised limit from £50m to £200m, a very significant announcement. Large companies can borrow up to 25% of annual turnover. It's a loan guarantee scheme. Divis & cash bonuses banned when using this scheme (good!). Higher limit available from 26 May. Note that N Brown (LON:BWNG) told us yesterday that it had borrowed £50m using this scheme, so perhaps the increase to £200m would give it extra possible funding, which is positive for the shares.
Let's start with a few items left over from yesterday.
Portmeirion (LON:PMP)
Share price: 390p
No. shares: 10.64m
Market cap: £41.5m
Portmeirion Group PLC, the designer, manufacturer and worldwide distributor of high quality homewares under the Portmeirion, Spode, Royal Worcester, Pimpernel, Wax Lyrical and Nambé brands...
My notes from 16 Jan 2020 here are quite useful to bring us up to speed. 2019 results were in line with expectations, but broker forecasts had been heavily reduced during 2019. So the business wasn't really firing on all cylinders even before Covid-19 began.
2019 results - headline PBT fell 24% to £7.4m in 2019, or 56.3p adj EPS. Final divi cancelled. Balance sheet not as strong as previously, due to debt taken on for acquisitions. I imagine it must be struggling to collect in receivables from its retailer customers.
A new joint broker (Panmure Gordon) was appointed recently on 12 May, which can be an indication that a fundraising might be on the cards perhaps?
30 March update - extending usual 1 week Easter factory shutdown to 3 weeks. Reduced customer orders from UK & USA. Strong online sales growth in March. Far Eastern markets starting to return to normal. Significant order book for overseas markets. Wax Lyrical (candles) subsidiary has converted production lines into making hand sanitiser & spray. Cash conservation & cost-cutting gone well. Outlook uncertain, but group is well positioned.
19 May update - partially re-opened factory on 6 May, so shutdown was about 6-7 weeks, not the previously planned 3 weeks. Capacity will be increased further in coming weeks. Warehouses fulfilling eCommerce orders successfully. Wax Lyrical to ship more than 1m units of hand sanitiser in Q2. Here are its sanitiser products, which seem to retail at typically £3-5m, so wholesale price probably not much more than £1 per unit, hence this doesn't look material to the overall group results.
Business has been "significantly impacted" due to retailers being closed. Expected to continue in Q2. Export orders to Far East being shipped, as they are opening up again. Significant uplift in UK & USA online sales (up over 100% in April), expect this trend to continue. Cash burn in Q2 less than £1m. Sufficient bank facilities & headroom. Divis - will reinstate as soon as they can.
My opinion - this doesn't sound too bad, in that solvency sounds OK. Although cash burn was only £1m in Q2, remember that the P&L loss could be much worse, because companies are deferring many cash costs, e.g. delaying tax payments, etc.
Given there is so much uncertainty, and no profit guidance, I don't know how to value this share. As with so many companies, we cannot rely on the now defunct broker forecasts. Actual results are likely to be far worse, but no indication has been given of how much worse.
Overall then, I don't have enough information to form a view. There doesn't seem to be any risk of it going bust, so long-term holders should feel reasonably relaxed about sitting tight, I think.
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Mcbride (LON:MCB)
Share price: 62p (up 8% yesterday)
No. shares: 182.8m
Market cap: £113.3m
McBride plc (the "Group"), the leading European manufacturer and supplier of Contract Manufactured and Private Label products for the domestic Household and professional cleaning and hygiene markets, today provides a trading update for the current financial year, ending 30 June 2020.
McBride seems to be making products which are very relevant to the current crisis, which sounds positive;
Further to our update on 25 March 2020, demand levels in our Household business have moderated from the surge seen in many markets as countries went into lockdown but encouragingly remain above the run-rate levels seen before March. These higher demand levels are evident in most of our major markets and apply mostly to surface cleaning and dishwashing products, with more limited impact in laundry products.
This is all self-explanatory;
Our teams have worked well to address the early challenges of staff shortages, material availability and distribution blockages and all factories are currently operating at more normal activity levels.
As anticipated in our March update, we have seen lower input pricing in this period although some of this benefit has been tempered by one off COVID-19 related operating costs.
This company has also jumped on the hand sanitiser bandwagon!
Profit guidance - a bit of a positive bombshell here, very impressive;
As a consequence the Board now expects full year adjusted profit before tax to be approximately 15% ahead of current market expectations (*) and for net debt at 30 June 2020 to be lower than expectations.
(*)Current market expectations refer to a Group compiled consensus for FY20 of adjusted PBT £18.6m.
Lovely to see the company include that footnote, giving market expectations, that's so helpful.
My opinion - this is clearly a positive update. Although if you check back, the company has been under-performing for several years, with EPS in steep decline.
I'm not madly keen on its balance sheet - this is quite a capital-intensive business, not generating much of return from a lot of fixed assets. Therefore it's not really a sector, or company that interests me. However, it's performing well in this crisis, and the valuation looks cheap. Therefore it might interest value investors at this level.
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Judges Scientific (LON:JDG)
Share price: 4,750p (flat on the day, at 09:02)
No. shares: 6.25m
Market cap: £296.9m
It opened down 2%, but has since recovered, although only on tiny volumes printed so far. Hence the price could go anywhere over the next few days, being so illiquid.
Judges Scientific, the group focused on acquiring and developing companies in the scientific instrument sector...
Orders - there's been a sharp downturn in new orders;
Across the Group, organic order intake as of 15 May was down 18.5% compared to the same period in 2019, caused by the closure of universities, the cancellation of scientific conferences and our inability to travel. This reduction in order intake has not been evenly spread across our key geographies with China/Hong Kong and the UK each decreasing 4%, North America experiencing a reduction of 25%, the Rest of the World reducing by 22%, whilst Rest of Europe decreased 11%...
Clearly that's bad news, but the order book overall is still "comfortable", at 11.9 weeks. This is down from 13.2 weeks organic order book at end 2019.
Profitability -
The Group has operated profitably in each of the first four months of this year and has generated positive operating cash-flow for the period. As a result, the Group has maintained a robust balance sheet with solid liquidity.
More information is given about operations.
My opinion - this is all a bit vague. I think we can conclude that the company looks secure financially, and hence there's probably not any insolvency risk. That said, it's not possible to ascertain what level of profitability is likely this year.
Broker forecasts are now out of date, hence need to be ignored unless they are recent, and specifically adjust for covid.
This share has done brilliantly for investors in the long term, hence I certainly would not bet against it. That said, the current valuation seems very high, given the uncertainty over future earnings. It seems to be priced as if covid hadn't happened. That doesn't make sense to me. Nice group of companies, but it's over-valued right now, in my view. Why pay top whack, given the earnings are likely to fall considerably this year, and who knows when recovery will take place?
EDIT - an email has come through from WH Ireland, saying that it lowered FY 12/2020 forecast EPS by 30% in March, to 152.4p. It says today that this forecast is retained, but "arguably with more risk attached". I'd be surprised if JDG does hit that target this year, so why take the risk of buying/holding now? However, there could be recovery potential in 2021. End of edit.
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Bloomsbury Publishing (LON:BMY)
Share price: 215p (up 2% today, at 10:02)
No. shares: 79.1m
Market cap: £170.1m
Bloomsbury, the leading independent publisher, today announces unaudited results for the year ended 29 February 2020, in line with expectations.
That's really useful, telling us that the figures are in line with expectations right at the top of the announcement.
Being pre-covid, these results are not terribly relevant, with outlook comments being more important right now.
FY 02/2020 - adjusted earnings up 12% to 16.8p - the PER is 12.8
Net cash of £31.3m at 29 Feb 2020. Why did it then do a placing, raising £8.4m in April 2020? How bad are FY 02/2021 results going to be?!
Covid/Guidance - this is rather waffly;
Since the year end, the coronavirus pandemic has led to significant disruption across all our key markets. The impact may be substantial.
Orders for print books, which comprised 79% of the Company's revenue for the year ended 29 February 2020, are being affected in all our markets. Our UK, US and Australia warehouses remain open and continue supply to customers.
Our strategy of expanding and leveraging our digital rights and products means that we are well placed to benefit from increased demand for our digital resources, audio and e-books.
There is no immediate certainty around the severity and duration of the impact on our business and therefore the Board is unable to provide guidance for the year ending 28 February 2021 at this time.
Current trading - much more useful, and this seems to show that the business is resilient. The closure of schools & Unis looks to be positive for BMY, as learning moves partially online. I like this;
April 2020 year-to-date revenue is 3% below last year, with print revenues at 87% of last year's sales and academic digital revenues up over 52% year-on-year.
Although this sounds a lot more positive than the tone of the comments further above, which sound much more bearish. Maybe the company is expecting demand to reduce as this year progresses? It's not very clear.
Plausible downside scenario - I'm really pleased to see the company joining others that are informing investors as to their stress-testing. This is vital information, that all companies need to publish. Here it is in full, as this is useful to flag up;
The Board has modelled a severe but plausible downside scenario, including the impact of coronavirus. This assumes:
· Print revenues are reduced by 60%-65% for the three months of expected global restrictions to July 2020 and gradual recovery through to March 2021;
· Downside assumptions about extended debtor days to the end of 2021;
· In this scenario, we extend the cost reduction measures already implemented, as set out above.
Under this pessimistic downside scenario, we expect our business model to be able to manage these downside assumptions and stay within the headroom of our current banking facilities.
Should a prolonged downside scenario not materialise the equity placing proceeds will be used for future growth opportunities. Bloomsbury has a successful track record of acquisitive growth via 26 strategic acquisitions and we continue to see opportunities in the Academic markets.
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That's really useful information, well done Bloomsbury. Although modelling such a large drop in revenues does suggest that revenues must be getting a lot worse than the March to April downturn of only 3%.
Note also that receivables could be an issue - not only delays in receiving payment, but I imagine solvency of customers could also be a problem - hence expect potentially a big increase in the bad debt provision this year.
My opinion - it's financially secure, so insolvency should not be an issue.
However, I am a bit shocked by the potential downside outlined in the plausible downside case. It's good to see the worst case scenario, but if that did play out, then there would be plenty of scope for the share price to fall significantly.
The lack of earnings visibility puts me off. If the price were about half the current level, then risk:reward would look more appropriate for me personally. On the upside, the online growth looks good.
Looking at the chart, the current price is only slightly below where it was last summer. Yet the economic outlook was OK then, but is now dire. Can anyone explain to me how that make senses?
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Cello Health (LON:CLL)
Share price: 119p (up 4% today, at 12:31)
No. shares: 106.2m
Market cap: £126.4m
Cello Health plc (AIM: CLL), the global healthcare-focused advisory group...
Updating for FY 12/2020.
- Good Q1 (but that was mostly pre-covid)
- Q2 also going well. especially in the US - hence confident about H1 results to come
- Supporting Covid-19 public health campaigns
- Cello Signal (16% of Q1 revenues) likely to be more impacted by covid-related delays & cancellations - so have reduced costs
- Solid net cash position, it says. Still paying 1p interim dividend shortly
- Cash generation good
My opinion - this sounds a reassuring update. The focus on healthcare is clearly good news. That said, I wouldn't want to be holding any shares in the marketing sector right now. It's the first thing customers cut, when going into a recession. Although the healthcare focus for Cello could be its saving grace. Not for me.
That's everything I wanted to cover today, so will leave it there.
Graham's putting away his trowel, dusting off the soil, to write tomorrow's SCVR for you!
Best wishes, Paul.
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