Coffee Can (or can’t as the case may be) ....

12th Mar '21 by gus 1065

74 comments 5930 reads

As suggested in today’s small cap report, here is a marker post for a list of subscribers’ candidate “Coffee Can” stocks to salt away out of reach for the next decade or two in the hope that they’ll blossom into 100 Baggers.

For format, I suggest a short thumbnail on the candidate suggesting how and why it meets the criteria for being a success along the lines suggested in the Mayer/Phelps’ books (sustainable high RoE/RoA, growth potential, durable moat, low-ish PE, Material founder/owner skin in the game etc.) and a punt on where the price is today and when/how it gets into the magical 100 club.

A possible font of ideas for hidden gems or maybe just a golden opportunity to spread egg all over your face. I have a candidate in mind which I’ll add in the comments once I’ve done a bit more digging ....

Gus.

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Kevin Holloway

26th Mar '21

Haven't heard Baltimore mentioned for years - I worked for them briefly and in the tech bubble day traded them (and Psion) for a few very profitable weeks...

Johnnycomelately

28th Mar '21

My coffee can stock is CAP-XX.

It has a founder CEO with great persistence and with shares in CAP-XX.

It's about to make its first profit.

It designs and manufactures Supercapacitors. Supercapacitors used with batteries extend battery life.

Supercapacitors are just starting to have their uses more and more widely recognised.

It has great patents and has won a court case against Ioxus.

It is at present in a court case against Tesla Maxwell for the same patent violations as Ioxus with the same Judge.

gus 1065

Interesting choice with Cap Xx (LON:CPX) . I looked at it a few years ago when the board announced it was about to see a step change in performance but didn’t invest at the time. I recall Graham Neary had a look in one of his SCVR write ups and was a bit sceptical despite management’s continued optimism.

https://www.stockopedia.com/co...

One observation I’d make is that at the time of GN’s article (Oct 2017) the market cap was about the same (£45m vis today’s £42.5m) but the # shares in issue was 218m compared to today’s 457m so there’s been quite a history of dilution to pay the bills and reward the management team. Hopefully the jam is about to arrive!

grb

I've had one share which 100-bagged on me: Eurasia Mining (LON:EUA) - my lowest buy was at 0.385p, and the top was 43p (111x). Unsurprisingly a) my low buy was an average down, and b) I sold most of them on the way up. I've spotted a definite tendency for me to sell some out of relief once a share that has been for a long time sitting at a loss in my portfolio moves into a notional profit. At that point it feels like it's a time to recoup losses rather than look to the future. Hindsight is so much easier than foresight! Eurasia's stunning gains (it took less than a year) took me very much by surprise. I've no idea where that one is going but I'm on for the ride with the few I have left.

One where I had rather more confidence was Anglo Asian Mining (LON:AAZ) - my lowest buy was at 3.95p - again averaging down, and the peak so far has been 177p (44.8x). I wouldn't be at all surprised if this reaches 100-bagger status in the next few years, and I still have a decent chunk here.

If I'd just held on to all the shares I'd ever bought in those two companies I'd be (on paper) a lot richer than I am now, but I don't think that's a useful way to think about it - I think the real challenge (as ever) is working out when to sell, and how much. I'm definitely in favour of some top-slicing to lock in gains and reduce risk on the way up, but in practice I've fairly consistently over-done it on the big risers. But then I've also done it on shares which have then fallen again, and where with hindsight it's been the right thing to do. How to balance the risk of things going up against the risk of things going down? In theory, the downside is limited to 100%, whereas the upside is unlimited, so the balance is not even. How should that play out in practice?

With resource stocks the huge gains seem to come from unexpected increases in reserves, surprise deals, or decreases in risk, and are hence relatively impossible to predict. For consumer stocks though, I think a more profitable approach might be to look at the 10-baggers. I would imagine that one's chances of choosing a 100-bagger at the 10-bagger point are a lot more than 10 times higher than of choosing a 100-bagger right at its lows! At the 10-bagger point it's perhaps a matter of looking at the moving pieces, rather than blue sky ideas of possible future pieces. For example I hold both Boohoo (LON:BOO) (currently at around 14.5x lowest price) & Gear4music Holdings (LON:G4M) (~7.5x), and both of these seem to have a decent shot at growing by another order of magnitude over the next decade or so.

31st Mar '21

It’s often said that a good outcome from a bad process should be frowned upon. Mea culpa, in the dark recesses of my portfolio I have a few dogs that made it into the Coffee Can on the grounds that I was too ashamed to admit I bought them so I hid them under the bed. One such canine is a cr***y little micro cap oil stock that I picked up at 0.28p/share last year as a complete punt (admittedly a very bad process).

Low and behold, I had a peak under the mattress today on reports of a resource upgrade to find 88 Energy (LON:88E) is now up to 4.05/4.20p bid/offer, a 14x multiple (and a 5 bagger today on the original entry price in just one trading session). It will doubtless end in tears (it usually does), but enjoying the ride while it lasts. Usually I would have sold by now but perhaps I’ll let this one run for a while.

JJB1

1st Apr '21

Hi- sorry to reply with a different angle but can I ask you more about Samarkand as you first mentioned it here. I am interested in it but find information scarce. I have signed up to Jarvis/Share Deal in order to access Aquis. I believe they floated a few days ago. Is there anywhere with some details that you know of? Many thanks. Good also to see Burford Capital (LON:BUR) on the move.

Jules

Hi Jules.

For Samarkand (OFEX:SMK) , I suggest you start with the company website and go to the Investor section. You will find various links to useful documents. Probably best place to start would be the Offering Circular for the IPO. The deal closed on March 22nd and is now trading at a slight premium to the IPO price.

https://www.samarkand.global/i...

I did see an early draft of a research piece by VSA Capital (a bit out of date as the IPO raised £17m rather than £10m so the capital structure is a bit different) the IPO Lead Manager, as well as an Investor Presentation given by the company which were both useful. They are both behind a confidentiality agreement so I can’t post them here but if you contact the analyst at VSA, Phil Smith (psmith@vsacapital.com), you may be able to obtain a copy.

Hope this helps.

Bluesky Ventura

I just love the Blue sky idea's but to humble to think I could pick a 100 bagger.

BSV

Thanks and very helpful.

Best Jules

abtan

4th Apr '21

Burford Capital (LON:BUR)

Hi Gus

I've finally found some time to trawl through the mountain of information in the Burford Annual Report. Some observations:

I can't work out if cash generation is actually good.
It looks like it is, but a little digging has left me confused.

There were $173m of cash receipts from their indirect positions in their funds, yet only £1.915m of realised gains (i.e after costs).
So they spent $171m on cases and are now only receiving $173m back?
If correct, that doesn't seem very good, though maybe the $171m is a part of all indirect cases, not just the ones that concluded in 2020?

On a similar but more positive note, the $325m cash receipts directly on Burford's Balance Sheet appears to equate to a realized gain of $179.684m ie the initial investment was $145m and total profit made = $179.684m, a remarkable return.
I'm glad that $400m debt was raised last week, because:
1. a) Deployments in 2020 were far too low.
  
  b) Generating an IRR of 30% (or 24% excluding Petersen) whilst simultaneously borrowing at 6% makes complete sense.
  
  c) Given the size of their operating expenses , the real benefit here only comes with scale.
  So far I am against the use of the funds, despite the favourable profit sharing system in place, as I haven't seen any discernible benefits yet.
  Fingers crossed they're just around the corner, but from the view of someone who has no real access to those funds or how they are performing, I would rather the company keeps everything on their own books where I can see true progress.
I am disappointed that they reinstated the dividend and would rather they use these funds for deployments.
There were $128m of FV adjustments (ie unrealized gains) in 2020.
According to Burford 19% of final realized gains are made in the year before the case closes.
Even if that figure turns out to be 50% for 2020, that implies realized gains in 2021 of $256m.
For reference if the 19% holds true, then 2021 realized gains should = $674m, but honestly, that seems a little ridiculous based on the past numbers.

I'm happy to hold for now, fingers crossed we start to see some progress in the next 12 months.

Cheers

Gromley

Hi abtan,

I'm hesitant to fire an off the cuff response to you as I know you really do your homework, but when you say :

There were $173m of cash receipts from their indirect positions in their funds, yet only £1.915m of realised gains (i.e after costs). So they spent $171m on cases and are now only receiving $173m back?

I haven't caught up with the Burford Capital (LON:BUR) results in any detail yet, but are you missing the previous fair value adjustments?

Rather than £1.915m isn't the figure 1.915 + 5.482 (essentially the profits they had booked earlier but not received the cash for.

Admittedly £7.4m still seems a relatively modest return on £171m , but I can't recall if there is a also a debtor number to consider (IE where the precise amount of the legal claim has been established as due, but not yet paid).

Its a funky old business reconciling Burford's profit to cash-flow and I'm a bit rusty on the subject, so apologies if what I have just written is total nonsense!

Hi Gromley

I must admit to being quite wary about commenting on Burford Capital (LON:BUR) given the mountains of data that they provide, so if I made a mistake somewhere I wouldn't be surprised.

As to your point, I think it's the other way around.

The ($5,482k) reversed out of Unrealized Gains should be offset by a +$5,482k in Realized Gains, so that the overall balance is zero.

Without this +$5,482k, there would actually have been a Realized Loss of ($3,567k).

I think that's correct, but to be honest, whichever one of us is right, it's a pretty poor result for the indirect portfolio.

Unless of course we're misunderstanding how the Indirect Portfolio works.

---

When I looked through the Annual Report about how the Funds works, there was a mention of Burford being due back costs before profits would be shared...I thought that would be on a case-by-case basis, but what if it's actually consolidating all the Fund's cases together?

Imagine this scenario:

$171m is spent funding 10 cases in a Fund;
3 of those cases complete generating cash receipts of $175m.
Burford shows $2m Realized Gain (50% of the profit after they receive ALL of their initial money back)
The remaining 7 cases complete for total proceeds of $300m.
Burford show $150m Realized Gain ($300m * 50% profit share, and all costs have already been accounted for.)

That could be right, but it doesn't really make sense to me. I would assume that Realized Gains are on a case-by-case basis, not for the entire Portfolio.

So this scenario makes more sense to me:

$171m is spent funding 10 cases in a Fund;
3 of those cases complete generating cash receipts of $175m.
It cost $75m to fund these cases
So profit = $100m
Burford shows $50m Realized Gain ($100m * 50%)

I would have thought the latter scenario was correct, but it is confusing.

As I mentioned before I would rather Burford simply conducted everything directly on their balance sheet. It might not be as profitable in the long run, but at least I'll have a greater understanding of what's going on.

In the meantime, the Direct Portfolio is showing enough promise to keep me interested.

15th Apr '21

Hellofresh (I hold)

For any interested in the Hellofresh story (either for the company itself, or if you're now following Parsley Box (LON:MEAL) ) there was an update this evening.

Short Version:
Q1 >100% YOY revenue growth.
Full year revenue and margin forecasts are revised upwards (although Adj. EBITDA margins look lower than 2020).

Long Version:
https://ir.hellofreshgroup.com...

MiserableJacktPotato

Given there's no time frame for 100 bagging, I have a couple of ideas, I'm long all these;

I like Cap Xx (LON:CPX) as already mentioned below.

Bidstack (LON:BIDS) I think is a binary bet - if it can corner the market in programmatic video game ads it could explode, the TAM is absolutely huge but they've only secured a couple of mill in revenue so far. However, the company is on a massive spending spree in terms of hiring big name talent in the worlds of technology and marketing, it's either going to end in tears or beers.

Mirriad Advertising (LON:MIRI) similar to BIDS except for video instead of games. Imagine if, based on your browsing history, when you watched something on Disney+ the scene had a can of coke on the table, but your girlfriend saw the same show and it was a can of San Pellegrino or even a bottle of water. Delivering adverts into advert free subscription services is potentially a great way for the currently loss making service providers to get that missing revenue. At £150m company might already be too big to 100 bag, but there's plenty of scope for expansion and diversifying once you get big enough,

Beermonster

22nd Apr '21

I believe that over the pond is a better hunting ground for 100 baggers, so on that basis my selection is $PLTR (I hold).

With a market cap of over $41B many may consider $PLTR to already be too large to have a chance of managing to 100 bag, however when we consider that $msft has a market cap of just under $2T this then looks as if there is a possibility.

Palantir is a software company that helps companies manage their data, and has a growing list of customers including US Army, NHS, as well as hedge funds and banks.

Peter Thiel (one of the founders) still holds over 7%, so still has skin in the game, even though the reason for floating was to allow the founder shareholders the opportunity to sell down some of their holdings.

Martin VT

What I like about the multi bagger / Coffee Can approach is that it is getting me into thinking about comparative prospects, not for the next 6 / 12 or 24 months, but instead thinking of a company’s prospects in five years time, and then five years after that. That doesn’t mean I’m going to hold something for that long, but it does mean that my analysis focuses more on market, strategy, track record, competitiveness, margins and comparative advantages (which are often intangibles as much as the product or service) over that sort of timescale.
I recently invested in Pci- Pal (LON:PCIP) which I thought I had missed the boat on. But when I looked at this with a longer term perspective, it looked a great company with very dependable and profitable growth, likely to happen for many years to come. Suddenly the words of Buffett about ignoring the price of a company when assessing it made complete sense to me as it will be likely worth a lot more in a few years. Gear4music Holdings (LON:G4M) looks a bit like that to me as well and indeed Boohoo (LON:BOO) (if it can ever regain its mojo).
I hold all.

Gus

A scuba diving PI is an interesting image. Can you see the Stockopedia screen ok with your goggles on?

Not really - I find it helps with my investments LOL!

Trident

23rd Apr '21

I'm sure I would be talking to the converted on Stocko, but if you haven't got an ISA you should because there is the extra tax free incentive that if you reinvest any dividends, it should, depending on the company help the compounding process.

That said I know 100 baggers frown on dividends being money the Company should use to reinvest in growth, rather than distribute (certainly the view that Terry Smith holds to).

Coffee Can (or can’t as the case may be) ....

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Gus 1065

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