Angling Direct: Fishing For Value

15th Feb '23 by Mark Simpson

15 comments 2421 reads

This week I am continuing my search for value amongst low Price-to-Sales stocks with a look at an interesting small cap stock: Angling Direct (LON:ANG)

Summary

Angling Direct is a cheaply-rated company trading at a considerable discount to Tangible Book Value, largely made up of cash and working capital.
Despite the large cash balance, there are no plans to return that capital, and the company doesn’t even pay a dividend. Instead, the company is going for growth by investing in new stores and expanding its European online business. Shareholders will need to believe that this strategy is the right one to invest in the company.
The company appears to be well-regarded amongst its customer base and has a reputation for offering high-quality products at usually the lowest price. The high growth rates in new stores may be hiding a better quality business than the Return on Capital figures suggest.
The shares are illiquid with a large spread and will only appeal to those investors who believe in the management’s growth strategy and are willing to hold for the long term.
If the company can profitably grow and is given a growth stock rating again, the returns could be significant, while the cash balance protects the downside. Hence the risk-reward may currently be favourable for the patient value investor.

Profile

Angling Direct is an AIM-listed specialist retailer with an approximately £22m market cap. It first started in 1986 when the founders acquired interests in a number of small fishing tackle shops in Norfolk. They began to trade online in 2000 using the Angling Direct brand name. In 2002 the company opened its first “superstore’’ in Norfolk as the first retail unit to be branded as Angling Direct. The company continued to expand via acquisition and organic store openings, as well as launching its own fishing tackle brand, Advanta, in 2016. Advanta now represents about 7% of sales and generates higher margins than other products.

The company floated in July 2017 at 64p per share with 15 retail superstores in addition to their UK online retail business. The company raised £6.1m net of fees to accelerate the opening of new Angling Direct stores within the UK and invest in their online offering. The company opened eight stores in their first year as a listed company, and the initial excitement about the company’s growth prospects led the shares to trade over 100p in…

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Joe Turner

15th Feb '23

Good article thanks. Totally unscientific but I'm an angler and buy stuff online. I buy from other online angling retailers because stock availability and choice from Angling Direct hasn't been great in the past. Doesn't mean it might not be a good investment though, everything has its price.

Rusty2

This article is about Angling Direct (LON:ANG) but the stock shown on the right of the screen is for JD Sports Fashion (LON:JD.). I do find this annoying, it happens on other posts as well. Is it possible to change the order or even delete JD Sports Fashion (LON:JD.)?. At first I thought te chart and information was for Angling Direct (LON:ANG).

Zipmanpeter

I own some £ANG and think the article slightly mis-represents and under-sells its position in the market, as confirmed in a Q&A on investorMeets Company. The biggest mkt share is from the general online retailers (Amazon, EBay etc) and omni-channel chains stores (Decathlon as well as JD Sports Fishing Republic - especially of the stuff only loosely related to fishing like jackets. These will not be beaten on price but can be on service (the strategy of anglers as instore experts), community (newsletters, sponsorship etc) and crucially services like live bait.

The other group are single store lifestyle businesses. These can definitely be squeezed but can fight back in the same way as Angling Direct (LON:ANG) to with Amazon. The net position is the Angling Direct (LON:ANG) is already much the largest dedicated retailer and has the space and cash to grow both in the UK and Europe and this will feed the Own Label strategy and which is the key to better margins. These products/brand names take time to grow - just as it did at G4M (I also hold).

The situation is the same in Europe but (i tend to agree with the company) online is less well developed there and there is no niche leader. Pre-Brexit signs were encouraging for Euro -sales and being forced into a omni-channel/warehouse in Europe strategy will be a good thing long term but this takes a lot of time, money and management attention to set up. The initial set up is now done and even 5-6 stores will be enough to put most of NL,B and a part of Germany within reach of stores and justify a virtuous circle of online advertising for both online and physical store sales.

The biggest risk is cultural on market size - will the next generation of Europeans take up fishing? It's a fairly cruel and bloody sport and often cold and lonely. Personally, although I don't fish, I think it will endure as a countervailing trend for some is a desire to get outdoors and engage with nature and all the attention on sewage in rivers now will likely lead to healthier fish population notwithstanding climate change ie species may change but more fish in the water. It is also a good 'sport' for the elderly.

NB the company rely on very old market research and this I think would be worth them spending some serious cash on updating this.

Net, with a such a low EV, I am happy to patiently wait for growth to work through and a re-rating. It wont be huge due to ongoing margin pressure but it will in time become a very steady income share and I think I am in at the ground floor.

Mike888

16th Feb '23

Thanks for doing this Mark, bit too tiny for me, but just had a quick look at the balance sheet, I'd question why they are carrying so much inventory and why this figure is climbing so rapidly, bit of a red flag, why can't they shift it and why are they allowing it to accumulate

Mark Simpson

I see Angling Direct (LON:ANG) on mine, so hopefully, this was just a short-term bug, or someone from the tech team has fixed it!

Hi Joe,

Like you, my poll of anglers is only a few friends and contacts so equally unscientific. However, I was surprised by how positive they were about the company overall. However, they appear to be disappointed that I was not asking for real purchasing advice but just writing an investment article!

Hi Zipmanpeter,

Good thoughts. My contacts said they did believe Angling Direct (LON:ANG) was often cheaper for good quality brands. And I think that the days of Amazon competing on specialist kit are numbered. The selling fees are too high, and there are too many fake products and reviews. So I think we largely agree, but with slightly different perspectives.

On the age issue. The keenest Anglers I know are teenagers. This may be the free fishing license. But they seem to enjoy the independence and adventure, and even go night fishing, so the weather doesn't appear to be a major impediment. Whether they remain interested into their 20's is another matter, though.

In terms of research coverage. Their broker is Singers, so at least that is available for those who pay for research tree. I think there will be a point when it is worth paying for additional research. However, probably not today. The issue is that the uncertainty over short-term trading is too high. So the research recommendation will most likely be an Under Review one, which helps no one.

Like you, I don't mind the uncertainty. since the company is more than backed by cash and inventories. However, this is definitely one for the patient.

Inventories as a proportion of COGS is fairly static:

130 days isn't the fastest turnover, however. But I think this just reflects specialist shops that need to stock a full range of equipment, rather than a food retailer with large shops that turnover standardised goods. I'd only consider this a red flag if the proportion of inventory held went up significantly. That said, it shows that store growth will require capital since each store probably has around £2-300k of stock as well as fit-out costs for the store itself.

Thanks Mark, fair enough I guess

Berlin50

17th Feb '23

This company was heavily tipped some while ago. I got out quickly at breakeven when they reported a data breach, since when the share price has gradually weakened. I share your concern at the JD Sports situation but they might be tempted to take AD over. I will put it back on my watch list. Thank you for a very comprehensive report

Helvellyn

Mark,

For someone who admits not to know much about fishing this is a first class summary of Angling Direct (LON:ANG) .

The fishing tackle trade was a huge beneficiary of Covid and has retained some of the new customers but probably not enough to replace the natural wastage, the pastime had a huge influx of newcomers around the 80s thru a series of programmes on Channel 4 starring the late John Wilson, a lot of these are falling out of the numbers now.

One danger of comparing historic rod license sales is that the new fad for carp angling usually requires the angler to purchase 2 licenses as each one only covers 2 rods and most anglers will use 3. Whilst go back a few ( 5 plus) years and that didnt happen.

The fishing tackle trade has never found a way to advertise the 'sport' as a fantastic way to spend some leisure time and unfortunately seems it never will. It seems to be facing too many social issues, stock predation, water abstraction, parking issues and parental worry of leaving a child alone all day.

AD have already bought out a number of the better independent retailers and a lot more are in their 60s-70s and wont be in business for ever so AD will continue to mop up an increasing share of a shrinking market IMHO.

a.s.a.p

Hi Mark , thanks for the article. For the record the average age of a UK angler is 50 something . In the Uk a fishing licence is required by law from the age of 13.

Thanks Berlin50. I was aware of the cyber attack but didn't want to make the article too long. IIRC the main issue was that the hacker redirected their website, and visitors were shown a different type of tackle than the one they were expecting!!

According to the gov.uk, the licenses are free to under 16s: https://www.gov.uk/fishing-lic...

I think the challenge is how many children will then buy a license when they reach 16 rather than give up the sport.

andrewwhitfield

20th Feb '23

Mark, great report, this is a longer-term hold, my first purchase was after the hack due to the way they handled it, intention is to hold more shortly, reasons, fishing in certain EU can be lucrative income for the leisure industry supported by customers with reasonable disposable incomes. The distribution scenario appears sensible for EU and UK plus the new entrant from Dunelm background gives comfort. I hold Angling Direct (LON:ANG)

Angling Direct: Fishing for Value

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Mark Simpson

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