Small Cap Value Report (30 Sep 2014) - ZZZ, ZIOC, BEG, BAR

30th Sep '14 by Paul Scott

22 comments 20618 reads

Good morning! Clothing retailers are in focus today, as Next (LON:NXT) has announced that unseasonably mild weather is hurting sales of autumn/winter clothing ranges at the moment. This will be affecting all clothing retailers - I recall in my days as an FD in this sector, every year I hoped for a cold snap in September, as it would give sales a strong boost as people bought jumpers & particularly coats (higher priced, so have a good impact on performance overall). So the opposite effect is happening at the moment - slower sales due to mild weather. It all averages out in the long run, so personally I see dips due to unfavourable weather as potential buying opportunities.

On the flipside of that, I suppose DIY and garden centres do better in mild autumn weather, which could explain why Kingfisher (LON:KGF) shares have been creeping up lately. Incidentally, I read the last Annual Report for Kingfisher the other weekend, and was tremendously impressed with the strength of its Balance Sheet, stuffed with a 10-figure sum of freehold property, and yet still with net cash on top. So I bought some shares in it, as it's also a nice play on a recovery in the French economy, which is going to happen sooner or later, we just don't know when. Reasonably priced, and a 3.5% divi yield too, plus share buybacks.

Snoozebox Holdings (LON:ZZZ)

Share price: 7.0p
No. shares: 211.8m
Market Cap: £14.8m

There are three announcements from Snoozebox this morning. This company has carved out a heavily loss-making (!) niche as a provider of temporary hotel accommodation - a great idea, to convert standard metal shipping containers into small but comfortable hotel rooms. The original business model failed, because the units were far too complicated and costly to set up & dismantle, thus negating the benefit from room rates charged to customers.

However, new management took over, and the business model has been re-worked. So the version 2 units are self-contained (no need for a separate utilities service unit), and can be quickly & simply fixed up or taken down, just in one day. So having learned from the mistakes of the v1s, the v2s are actually a viable proposition. On the basis of this, I took part in the 10p Placing a…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Jardine

30th Sep '14

Readers may be interested to know that the Snoozebox Holdings (LON:ZZZ) new version accommodation unit, on which the company's turnaround hopes are pinned, is likely to be displayed at the forthcoming Mello2014 private investor event in Derby (6 - 8 Nov). Given that today's statement says the new version units are to be launched in November this is likely to be the first time they will be on show to the public. This will be a useful opportunity for those (potential) investors who are interested in the concept to see what this new version offers before it gains a wider audience and, hopefully, support from the investment community.

Andrew

Declaration: I hold this if you hadn't guessed.

PhilHofGrowYourDough

Readers may be interested to know that the Snoozebox Holdings (LON:ZZZ) new version accommodation unit, on which the company's turnaround hopes are pinned, is likely to be displayed at the forthcoming Mello2014 private investor event in Derby (6 - 8 Nov).

Perhaps it would make sense to record some time lapse photography to demonstrate how quickly (or not) they can be deployed seeing as this was the biggest drawback on their potential

Phil (no position)

rick

Great stuff!

AIM microcap investing at its most speculative with two companies Zanaga Ion Ore and Snoozebox. Is it just me or is Snoozebox by far the most speculative? I am watching with interest but currently no position.

Paul Scott

Hi Rick,

There are far more speculative micro cap companies than Snoozebox Holdings (LON:ZZZ) !
After all, for its £15m market cap, you get net cash of £11m (73% of the market cap), with cash burn having been greatly reduced this year.
Also you have further asset backing from the existing v1 units, with a book value of £14.5m. They've already taken an impairment charge on that, but say halve it to be conservative for resale value, to £7m, and you're actually buying the shares at a discount to the businesses net tangible assets on a fire sale!

So bizarrely, once you ignore sentiment & drill into the numbers, Snoozebox is solidly asset backed, indeed the shares are at a discount!

I would say Zanaga Iron Ore (LON:ZIOC) is far more speculative - that really is a binary outcome - multibagger if it works, heavy loss if it doesn't work.

I don't even scrape the barrel of the real junk on AIM - there are loads of way more speculative stocks than the ones I cover!

Regards, Paul.

"Would it not make sense for this company to offer actual accommodation to a few brave, potential investors during the November Mello in Nottingham?"

I have been talking to Snoozebox Holdings (LON:ZZZ) for a couple of months to facilitate them exhibiting at the Mello2014 event in November. The original plan had been to offer some limited accommodation to a few lucky interested (potential) investors but there are some real practical problems to doing this, not least the fact that the Snoozebox experience is heavily brand orientated, and by that I don't just mean the logo. They manage the whole experience carefully from booking through to arrival and maintenance of the service delivery during the stay. As well as the room they would usually offer reception and restaurant facilities plus a lounge area. Given the limited space available it might not be possible for them to offer the whole experience and they are reluctant to compromise the brand. If the position changes I will let you know. To imagine the concept you need to think Premier Inn++ but in a field! Interesting to note that today they also announced the appointment of James Latham who had 17 years experience at Whitbread (owners of Premier Inn) to head up their hotels division.

Hi Paul,

I take your point about Snoozebox having solid asset backing. This is indeed a fresh start for the company and they could make it a success.

My concern is that this is (1) a new concept and (2) v1 did not fly. My concern is that despite managements great enthusiasm v2 could go the same way, and there is unlikely to be a v3, given the size of the company. For me this is too speculative but then I may also miss out due to my risk averse viewpoint.

Zanaga - as you say is a binary bet. As with most such bets these are best left to investors who can diversify across a number of such companies and assess the odds of success.

Good luck to investors in both companies.

Rick

AnonymousUser39518

Absolutely crucial question. Does snoozebox have patents for the idea? Does anyone know?

If the answer is not, big avoid from me

Hi Rick,

"My concern is that this is (1) a new concept and (2) v1 did not fly. My concern is that despite managements great enthusiasm v2 could go the same way, and there is unlikely to be a v3, given the size of the company."

That's not quite right. V1 did fly, in terms of strong demand - customers love it. It failed commercially because it was far too time-consuming & expensive to set them up & dismantle (up to a week either side, using multiple contractors).

The v2 units are set up in 1 day, very simply. So the business model for v2 is radically better.

You're right though, that if v2 don't work, there won't be a v3!

Regards, Paul.

beatingmrindex

How can you patent living in a metallic box? Its a valid point - I am sure from what I read v1 to v2 is much better there is nothing stopping someone else making a v3....

bsharman

Hi Paul. I would argue that now is not the time to sell Begbies Traynor (LON:BEG) because:
1. There is a large number of zombie companies which are operating at break even or worse in the current low interest environment.
2. Interest rates will increase and the number of insolvencies will therefore rise.
3. BEGBIES have gone though a difficult period over the last few years due to the above. Interest rate increases are in sight (probably early 2015) and this should improve their business and having held for the past couple of years I'm not going to throw in the towel just before rates start to rise! I bought Begbies Traynor (LON:BEG) as a turnaround/recovery situation.
4. There is a good dividend yield on offer paid whilst you wait for the recovery in business.
5. Begbies Traynor (LON:BEG) is a relatively 'safe' and boring investment which is good in the current market environment in small caps.
Best Wishes,

Ben

MrContrarian

Are Snoozebox's V1's worth anything? The company has shown they can't be operated profitably. Surely that makes the asset worth scrap value.

I thought they tried to patent it on ipo but never got it away. Easy to copy so international market would become competitive. margin squeeze and loss of market. low barriers of entry.

not convicing really

HuwDE

Great point about placings Paul. It all helps to demystify the goings on in small caps.

Thanks!

Beginner

They cannot be operated profitably as mobile units, but they will have value above scrap as static installations. (A friend stayed in one last year and was very impressed. He actually said at the time he would like one to stick in his garden!)

Hi MrC,

As Beginner says, the Shoozebox v1 units do have a value, as once they V2s are in service, then the v1 units will be used for static installations - e.g. the long-term hotels at places like Silverstone, and TT races, where planning permission has I think been granted (or in the pipeline?).

I lost my notes, but from memory when I discussed this with management a while back, I think they said that the v1 units are expected to generate a positive contribution of enough to cover their central plc overheads. I may have got that wrong, but it's something along those lines.

I did check it at the time, and the book value of the v1 units does stack up (haha, geddit!!)

Regards, Paul.

narp

Re: Snoozebox

I am surprised no mention of this in the interim report, it will certainly help with the bed shortage in the NHS.

http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCMQFjAA&url=http%3A%2F%2Fwww.hsj.co.uk%2FJournals%2F2014%2F09%2F17%2Fd%2Fr%2Fy%2F140919-efficiency-supplement.pdf&ei=uwUrVMaDDMbB7AbslIG4AQ&usg=AFQjCNHee4HuKuVK5Fq0gWSeO4qkoUMyMw&bvm=bv.76477589,d.ZGU

Medirest and Snoozebox have signed an
agreement to work in collaboration and are
seeking expressions of interest from NHS
trusts to take the concept forward

jonesj

I don't get the snoozebox business model.
Compared with a "proper" hotel building, the acoustics of shipping containers must be poor, therefore requiring some decent insulation to rescue that situation. I would want to stay in one or at least read some good Trip Advisor reviews before investing.

jonesjeff,

Snoozebox units have been around for a couple of years now, so there are loads of customer reviews on the internet - have a dig around. People love them, in the main. There's no issue at all with demand - quite the opposite.

What the original business model lacked was the ability to setup and dismantle quickly & cheaply. Instead setup was horribly expensive & time-consuming, using multiple contractors, thus negating all the income from hiring them out. So it was the equivalent of a normal hotel that only managed to fill its rooms about 1 day per week - i.e. heavily loss-making!

So, the new management have completely re-worked the business model, recognised that the v1 units were not going to work on a mobile basis, and instead ear-marked them for semi-permanent installations where they become small cash cows, and in addition created the v2 units that are self-contained, very quick & easy to set up, and hence will be economically viable. I recall crunching the numbers over the phone with the new CEO, and it seemed to stack up.

The only issue now is to build enough of them, to make it all work. Hence why the lease funding deal today was so important, as that opens the door to getting another batch manufactured & into service next year hopefully.

It could well work at the second attempt, in my view. Remember it's new management too.

I'm only interested at the current valuation because the stock is trading well below net tangible asset value (mainly cash), and has the funding to proceed. I wouldn't touch it with a bargepole if the valuation contained any speculative froth, but at the moment it doesn't, as I flagged in today's report.

Regards, Paul.

1st Oct '14

Here is an example of how Snoozebox Holdings (LON:ZZZ) are deploying their stock of the first version containers as semi-permanent hotels, which avoids the need for the expensive deployment costs every time they are moved, which was their problem.

http://www.edenproject.com/visit-us/hotels-and-ticket-packages/on-site-yha-hostel

What a great idea to link up with the YHA who are geared up to manage this sort of facility.

According to the RNS today they have already deployed 50% of their first version containers on a semi-permanent basis and the pipeline of interest exceeds the remaining stock available. I know they have some interesting ideas for deploying the remaining stock which demonstrates they've been thinking outside the Snoozebox !

So if you want to experience a first generation Snoozebox take a trip down to Cornwall and visit the Eden Project.

Andrew

Guzziman

Thanks for your reply Jardine.
Was not aware of the practical implications.

Small Cap Value Report (30 Sep 2014) - ZZZ, ZIOC, BEG, BAR

Snoozebox Holdings (LON:ZZZ)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

22 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...