Small Cap Value Report (Fri 10 July 2020) - AAZ, GYM, RTN, LIT, MRL, SRT

10th Jul '20 by Jack Brumby

112 comments 10620 reads

Good morning, it’s Jack here - Paul asked earlier this week if I could step in today as he has business in London. Any particular requests just send them over.

Reaction to Rishi Sunak's mini-budget appears to be mixed to mildly positive (probably good in the circumstances) especially in the Hospitality and Leisure industry, with a VAT cut from 20% to 5% on accommodation, visitor attractions, cinemas, and other Leisure destinations. How much of this is held onto by operators, and how much is passed onto customers I wonder? There's not much of a precedent.

One big hurdle that remains for many businesses is rent - there is considerable rent debt out there and government support here is probably also needed...

A quick note before we start: It’s great to see passion in the forums but at times things can boil over. At the end of the day, we’re all private investors trying to make money. We have far more in common than that which divides us.

Nobody at HQ wants to have to moderate the community but we will do if it’s needed. There are a couple of issues we continue to discuss privately with some subscribers and we hope to find a way forward on these fronts.

We want to maintain a delicate but important balance:

On the one hand, diverse opinions are what make stock markets. It is important to have a wide range of valid and considered views; but
On the other hand every comment posted informs the culture of this community at Stockopedia.

And so we must bear in mind the culture that we want to build. In this venture we are all stakeholders. I remember when I started investing how important the supportive Stockopedia community and the daily SCVR was in igniting that passion.

There’s a lot of cheap, disposable hate on the internet but what makes Stockopedia a great place to hang out is the fact that it is a fundamentally positive environment - whether or not you agree with the person on the other side of the screen from you.

Anyway, that’s me off the soapbox. Before we get on with today’s news I’ve also got some notes on everyone’s favourite shiny metal...

Going for gold

The bull case for gold is pretty established so I won’t trot it out again. Suffice to say mid to long-term prospects look…

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kgb1953

10th Jul '20

Francis be nice if you let us know if you have a relationship with the company. you certainly seem to know a lot about them.

JohnEustace

The FT article says that Boohoo received good ratings from ESG ratings providers such as MSCI. Echoes of the ratings agencies and sub-prime?

Momoko Miyamoto

some countries are using DNA / RNA sequencing to detect covid-19 in wastewater and have shown that the virus had spread to Italy as far back as Dec 19. The technique can be used to detect any virus with known genetic sequence.

GrahamF

Hi Francis

I think I would have to separate the water treatment market for this discussion into the industrial market (I.e manufacturing from light industry such as food manufacturing to heavy industries such as steel) and what is generally known as the institutional market (offices, hospitals, education facilities and so on).

Now the likes of major international manufacturing companies are generally looking at suppliers who can supply and service them globally or at continental level. Attitudes vary but the major players in that game absolutely dwarf the likes of Marlowe. Down at the small end of that market you do find the local suppliers like Marlowe but Marlowe is never going to be a big player. Moving to the institutional market the legislation has tended to mean that any company that can supply following the relevant legionella guidelines is considered to be good enough by the FM companies that manage the buildings. Added to that there is less technical knowledge required of water chemistry and so on. So, that market tends to be more price driven, the service is seen as a commodity. One supplier’s technician doing a few checks on water or bacteria is no different to another’s. One electronic logbook much like another. One clean and disinfection of a cooling tower much like another. The reason it is fragmented is that there are low barriers to entry. Once someone has learnt the business they can set up on their own relatively easily with lower overheads. The efficiency gains from economies of scale are not really sufficient to make up for the commoditised nature of the business.

The option for a great deal of cross selling is limited for two reasons. Often the decision makers are different for the different product areas (although that may not be so much the case in institutional) and the people selling the water treatment and water hygiene have limited bandwidth to sell much else (they have to stop selling one thing to free up time to sell something else, or they have insufficient time to become familiar enough with these additional product lines to sell them effectively and so on).

So, good luck to them of course, and they may have some success but I doubt the water part of the story and I would think that there are much better opportunities elsewhere.

Gromley

Boohoo (LON:BOO)

I think many parties might really worry about something else coming out of the woodwork related to the family connection issues (possibly collusion or corruption) coming up to bite them later, but instead using the factory practice as an excuse to distance themselves.

Totally agree Thornabian. We already knew that there was (at least) an amber flag of the PLT situation, but personally those related party relationships would have me running for the hills sweatshops or no sweatshops.

Francis hasn't yet revealed his relationship to the company.

Ah! Have your spies been undercover again KGB?

Off- Topic.

There was a peice on this a few days ago (I think on the BBC) that this is also being used in the UK.

This can be used to determine the past spread of the virus by testing retained wastewater samples. We apparently have loads of these available (everybody needs a hobby and collecting stamps is so 20th Century!).

I have also read (but not validated) that it can be used as a real-time tool to track the prevalence of the virus.

So potentially we have a number of sources to better understand the status of the virus.

The ONS sampling data is good but quite backward looking (although it is likely that Sage etc get to see earlier indicators).
Waste water sampling (which I would imagine can be done on quite a micro-area basis).
A symptom tracker run by a company called Zoe in association with Kings College London

I have no idea how reliable this last one is - does anyone have any insight?)

I can't see anyway to extract the hard data, but visually it seems to indicate they are estimating more symptomatic cases than the ONS is estimating total cases. That seems odd given the view that upto 80% of cases are asymptomatic. But then there are a lot of hypocondriac worryworts about.

If there is any merit to the methodolgy then at least the relativity between areas should be instructive. I'm not sure though as it appears to paint to some significant differences from the area breakdown of lab-confirmed cases,

I’m not saying that you cannot detect the COVID virus in water. What I am saying is Microtox definitely doesn’t do that but even if this other technique works what really is the point of testing water? Testing people is going to be far more useful and consume far more tests.

I report my status on the Kings/Zoe app every day. It only takes a few seconds and the more people they have the better for data accuracy. The app has been powerful in refining the actual symptoms to look for in diagnosing cases. For example the loss of smell and taste as a reliable indicator was validated through their work.

They recently adjusted their model to reflect the actual time people have symptoms for and their estimates are now close to the ONS data. There’s lots of information on their website.

https://covid.joinzoe.com/

Tonysaparito

11th Jul '20

Many thanks Graham...Your my man now for water...Appreciate your input..Tony

Frap

I agree that recent comments and bickering have been unhelpful. Jack states that HQ can take up issues with individual posters (they have a record us all our details). I am sure that HQ are well capable of stepping in if necessary and can be relied on to use their judgement. Over the two years I have subscribed there have been very few reasons to complain about posts so I think it is not necessary to change anything.

Most of the comments are made by people not using their names for privacy purposes, as I do, HQ knows who we are. If the suggestion that only real names can be used, I for one will not post again.

Yusuf Samad

Jack, Thanks for an interesting SCVR broadening the focus to resource and industrial/services companies. The discussion thread has been high quality and useful as a result.

Yusuf

Great Portland Results collected lesser proportion (28%) of retail rents due than New River (48%). Does that not differentiate NRR? As NRR management has highlighted many times, they have low exposure to the parts of the retail sector that have been structurally challenged such as casual dining, fashion retail and department stores. The Community Shopping Centres and Retail Parks seem to have been relatively more resilient. Yet, few people buy the story!

MichaelFBS

12th Jul '20

Hi bluesky

Sorry for the delay (on the new site one doesn't get notifications, which is really frustrating!)

Thank you for the comments. If I understand because the price of gold has increased substantially in the last few months this is causing investors to project the current price forward and come up with a higher valuation. Have I got that right?

Certainly it is possible if the gold price trajectory is as predicted by the world bank but I suppose as a bull on Anglo Asian Mining (LON:AAZ) and gold I am not sure why I should use there predictions anymore than I should Bank Of America (LON:BAC) prediction of $3,000 an oz.

Personally my "pub" economics and interpretation of the world (additionally central banks have been heavy buyers) would make me think that gold is more likely to head to $3,000 than $1,500 in the next 24 months and settle around $2,000 to $2,500.

Do you have a few on the gold price?

However even at an average of the World Bank projection for gold the PE for AAZ comes in at between 3.41 and 6.83 on my model.

My only thoughts on beyond 2024 is that they seem to have a lot exploration irons in the fire and that they are putting out a lot of positive messages about likely discoveries. I know that seems weak and perhaps should indicate that I should not be so exposed.

But for now with a yield of 5.5% I am happy to sit and wait. Additionally with projected net cash of $42m at the end of 2021 it would be reasonable to anticipate a special divi.

Regards

Michael

mojomogoz

Hiya everyone

Just checked in to see how my status was fairing before we start Monday's fun and games - saved or executed?

I see my fate was even worse - I was just erased. I can assume my gladiatorial judgement was execution.

The funny thing is that many of you believe I bring the badness....you fail to see how some of you act like a gaggle of bullies.

Anyway, it kind of all started with Paul Scott saying I was clueless on something (Tasty (LON:TAST) - bit gratuitous given BigDish (LON:DISH) or Revolution Bars (LON:RBG) enthusiastic ongoing backing which I had not previously questioned) so me reciprocating ask about his clues about some other stocks...that seem a bit iffy in the light of evidence....sticks and stones stuff etc.

Then we had the Boohoo (LON:BOO) thing flare up and a lot of you guys love this stock.

Let be honest. I knew I was going to get a red thumbing for having a dissonant view on something so cherished. I was going to get however I expressed my negativity as that is norm on here (some of you pious fellows will say I'm a rogue and deserve opprobrium always....as hinted at on a a few snide posts on this SCVR)...

...soooo, I played to the gallery and expressed my boo negatively with some elan (or whatever you prefer to label it).

Anyway, I'm not innocent or a victim etc. Whatevs dudes and dudettes.

On to boo...interesting still. I have little interest in the stock as 1) corporate governance is dodgy imo (and its clear that the biggest shareholder does not rate/value other shareholders) and 2) I'm sceptical on the sustainability of the biz as I think its a week brand (but good "industrial" engine and I think it will hit margin rouble as its marketing and first mover growth slows. Next (LON:NXT) is a much superior business just less exciting.

But I don't feel strongly about the above (particularly 2) and I wouldn't short before now and I may just be wrong.

But the unfolding story at boo now remains bizarro IMO...why?...as I said before...

a) They have shot themselves in the head with open ended QC "independent" investigation (yes QC investigation can be managed to some degree) and have ceded control.

And then what I leap to is

b) perhaps this is the early innings of a battle for control....the PLT payments to fam already seem odd. Maybe a lot of problems are going to be dug up 'damaging the short to medium term outlook'...then you get a price that gets a lot lower...with some private equity help the family could take back control...and the founder executes a passing of ownership down the generations...

I know...you think flights of fantasy and negativity for the sake of it...I think the situation is odd and may contain large surprises (and then can't just shift to cheap overseas labour as they have now ensured that under public gaze this much be kosher too).

Best wishes. Good luck

No hard feelings

Ciao for now
Your mojo
xxx

fwyburd

13th Jul '20

Hi kgb1953,

RE: Marlowe (LON:MRL)

I don't have a relationship with Marlowe other than being an investor. Last year I briefly consulted for them on a potential business development strategy but this was not developed into 2020. Apart from that, I meet with Alex Dacre at least once a year to discuss the business as I have a very large holding.

Hope that answers your question.

cheers

Francis

stephencrane

Thanks for the valuable analysis Jack. I hope that GYM can recover in time, but certainly wouldn’t buy it today. The risks are just too high. Fortunately I have a relatively small position (& now even smaller!), so will hang on & see what transpires.

2ShedSam

perhaps this is the early innings of a battle for control....the PLT payments to fam already seem odd. Maybe a lot of problems are going to be dug up 'damaging the short to medium term outlook'...then you get a price that gets a lot lower...with some private equity help the family could take back control...and the founder executes a passing of ownership down the generations...

This would be my worry! They have a great rinse and repeat model that could easily work across brands for all demographics and price points. Sub £2.50, if I was was less sceptical about owner motivations, is a great price but feels like Russian roulette. I fear this ends up being taken private sub £2.

Shhhhh 2ShedSam! The village people will come for you too ;)

Small Cap Value Report (Fri 10 July 2020) - AAZ, GYM, RTN, LIT, MRL, SRT

Going for gold

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Jack Brumby

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