Small Cap Value Report (Fri 15 Jan 2021) - CARD, XAR, FIF, CLG, BWNG

15th Jan '21 by Paul Scott

84 comments 16787 reads

Good morning, it’s Paul here with the SCVR for Friday. What a busy week it’s been!

Spectacles steaming up when you wear a face mask? It's been the bane of my life lately. I've found a solution which completely eliminates fogging up with glasses, explained in this short video. If you find this helpful, then feel free to share it on social media, because this does work brilliantly!

Timing - Today's report is now finished.

Agenda -

Card Factory (LON:CARD) - Trading statement - covenant breach imminent, so risky

Xaar (LON:XAR) - Trading update FY 12/2020

Finsbury Food (LON:FIF) - H1 trading update

Clipper Logistics (LON:CLG) - Founder/Chairman sells £62m-worth of shares

N Brown (LON:BWNG) - Q3 (18 weeks to 2 Jan 2021) Trading update

Card Factory (LON:CARD)

37.3p (down 7% yesterday) - mkt cap £127m

Trading Statement

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its trading update for the eleven months ended 31 December 2020.

Obviously it's been hit hard by covid/lockdown enforced store closures, no surprise there. Revenues down 34% in total, of which store sales down 38.1%. This suggests that online growth, whilst good in % terms, is nowhere near enough to compensate for store closures.

Although stores did trade better when they were allowed to open;

Recovery following first national lockdown exceeded board's expectations, building to sustained positive LFL from early October 2020 with the shop estate fully open

CARD was highly indebted before the covid crisis, so I am concerned about its solvency & bank position, which could end up forcing it to do a big placing.

It reckons current bank facilities are enough;

Assuming the current national lockdown for non-essential retailers does not extend beyond 30 April 2021, existing bank facilities of £200m would be sufficient to meet the current requirements…

Despite the unprecedented nature of this year, our aggressive but considered management of costs and cash has resulted in a material reduction in our utilisation of the debt facility, resulting in net debt being reduced to £90m as at 31 December 2020, compared to the net debt of £119m as at 31 December 2019.

We would not expect this facility to be fully…

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Phuntt

15th Jan '21

I agree with your post in almost every detail Jock. The UK market not only looks good value - it now has a catalyst for growth.

There are four factors in my opinion that could knock it off and lead to another correction. The scariest is probably a general crash in the US.

What would cause this? Well, the bubble there is being caused by effective negative interest rates driving vast amounts of money into the markets. This will change if interest rates rise. Inflation expectations are what determines that so I judge it’s fairly safe to invest as long as I don’t see inflation starting to tick up. This is one of things where I think you will have time to react if you see it moving. Just keep an eye on it.

doublelutz

Japan isn't extended in my view. It is only just breaking out of a multi-year base formation. It is well below its long term high. The currency is appreciating against the dollar. A bull market may just be beginning. I think it could be a good buy. As I said in an earlier comment today, different opinions make a market.

I don't think the US will go into a bear market until there is clear evidence of interest rates increasing. They will do all they can to try to avoid this although there are small increases now. The interest liability on their debt would be so significant. It has already been suggested that rises in inflation to over 2% nor decreases in unemployment will encourage them to do otherwise at the present time.

xcity

Boohoo (LON:BOO)
1. Some holders who decided to sell because of the supply chain issues didn't sell out completely as the SP fell and waited for the anticipated positive announcement.
2. Some traders who bought when the SP fell are cashing in and moving on.
3. Market falling; weak holders selling this one because of high PE.
4. Much lower SP seen recently; potential buyers happy to wait to see what happens this time.
5. The update wasn't vastly better than expected. Especially after the ASOS (LON:ASC) results.
6. Some holders expected more? Seems unlikely as a cause.

No shortage of possibilities. I'm sure there are plenty of others.

ben316

Hi, where have you read this r.e SAGA? Would be interested in reading the broker notes but can’t see anything anywhere?

Thanks

23jez

Hi Paul

Good postings nothing I am tempted to buy; think I will watch BWNG

mojomogoz

Well, if people can't be a bit charitable with their clicks and perspective during a raging bull market whilst coining on their genius....just imagine how snarky we are all going to be during a bear market.

Nevertheless I will promise to be just as disagreeable and contrary then...and to post long rambling yet detailed comments like now when I comment.

Anyhoo...I found this simple analysis quite interesting today:

https://www.variantperception....

Enjoy the weekend muthaf....

Zipmanpeter

It's interesting that both N Brown (LON:BWNG) and Klarna both offer buy now, pay later models in ecommerce. Yet N Brown is heavily regulated but Klarna is not !

Worth noting

In September 2020, the FCA Board asked Christopher Woolard to review change and innovation in the unsecured credit market and to report to them in early 2021. The review will concentrate on how regulation can better support a healthy unsecured lending market.

I recently saw an extended zoom run by Centre for the Study of Financial Innovation where Mr Woolard was specifically asked about this point. Unsurprisingly, he kept his cards close to his chest about what will be done in the Woolard Review - but Klara et al are clearly on his radar.!

Mood music seemed to be recommendations for slightly less prescriptive regulation but wider 'do no harm' obligation forced on everyone issuing credit (ie if if looks like credit, it is credit!) with loan costs communicated in £/pence vs APRs

I hold a lot of Morses Club (LON:MCL) (good) Non-standard Finance (LON:NSF) (bad) and so following closely !

QARPY

thanks herbie47 and Paul, I agree with both of you that these were not profit warnings per se. If they were, I would be worried as they tend to have a negative medium to long term impact on the share price, and sometimes they come in threes too...

Tricky the relationship between forecasts vs estimates that you mentioned, and the impact on shareprices. Actually I think there are three levels (or types) of forecasts/estimates: company guidance forecasts, brokers consensus forecasts and market expectations (psychology). The three are almost never aligned.

in the case of Boohoo (LON:BOO) I think the results announced yesterday were partially in line and partially exceeding company guidance forecasting, fell slightly short of brokers consensus (Stocko graph updated down a notch last night) and definitely fell short of market expectations.

Logical David

Boohoo (LON:BOO) has a volatility of 68.48% (click on 'Full Quote' below the share price to reveal the share price volatility). This equates to a potential price swing of about +/- 4.3% on any particular/normal trading day. Today the price was down by -3.7% so the price drop is within normal perimeters.

Dojosan

Didn't know that you were an ex-scout leader :)

AnonymousUser465323

Hi Logical David, thanks for sharing this, I never knew about the volatility on full quote, I do have one daft question, please could you let me know using your example above how a volatility of 68.48% equates to +/- 4.3%, apologies if it's simple, but I just don't get it :-)

Many thanks

Steve

Gromley

How will the economy reopen, especially the Hospitality Trade ? A lot slower than a lot of investors would like i think.

We all know there is a huge amount of Pent Up demand out there for all sorts of products and services, when the economy does reopen this demand will not be satisified initially and could lead to inflation which will cause problems.

I can't personally speak for how fast (other) investors would like the restart to be, but I do sense that it will be a lot slower than the ending of lockdown's 1 & 2. I will pleased if so as I think another start / stop would be disastrous for some businesses, particularly in hospitality.

I do sense that there have been (some) lessons learned (to some degree) and that care will be taken to try to ensure that this is the last lockdown.

As I mentioned earlier in the week I am convinced that schools will reopen after the half-term. Over the next couple of weeks I expect us to see case numbers fall quite markedly and this will feed through to a reduction in stress on NHS capacity by the middle of Feb.

I am sure that this will create a clamour for the restarting of other elements of the economy at the same time - the prize is a sustainable resumption towards normality from the spring into the summer.

The fact that the UK is ahead of the global curve in terms of vaccination roll out, I think reduces one of the pressures to open too quickly. Namely there probably won't be other European countries re-opening before us - or if they do they will be a more reliable canary in the coal mine.

On inflation, I don't think I agree with you :

Goods - not sure there is excess latent demand - because Amazon.
Hospitality - maybe, but for everyone that wants to get into the pub/restaurant ASAP there's someone that will probably wait a little while.
Holidays and "experiences" - here I do think there could be some excess demand, limited capacity & therefore inflationary pressures. This will IMV mostly surround "staycations", however I suspect most of the supply will be booked early (we will be staycationing this year so I'm tempted to book up now) so inflation I suspect will be limited to a small portion of the late booking pie.

Consumer related stocks (that relate in some way to consumers being out of the house) is going to be a volatile space I expect - so I think attention to detail and staying on top of the news/trends will be key for investors brave enough to play here.

Hi Steve W,

There are approximately 255 trading days in a year. The square root of 255 is 15.97 . For simplicity, lets call it 256 days. The square root of 256 is 16. When you divide 68.48% by 16 it gives you 4.28% and when you round up 4.28% to one decimal place it becomes 4.3%.

The reason why you divide a share price volatility by the square root of the number of trading days per year is due to some complex advance mathematics (which seems to like using square roots) but by just dividing the volatility% by 16 in your head this gives you a guide as to how much a share price could potentially move on a normal day.

If you were to look at Novacyt Sa (LON:NCYT) , it has a whopping volatility of 166.02%. Ouch!! Hence, when you divide 166.02% by 16 it gives you a whopping potential price variation of +/-10.4% on any normal trading day, bar a market crash of course. Hence, the reason why Novacyt Sa (LON:NCYT) is classed as 'Highly Speculative' and moved +5.1% today which is well within its expected daily movement. So hopefully you can now see why Boohoo (LON:BOO) is classed as 'Speculative'.

NB: There is no such thing as asking a Daft question. The only Daft question is the one that isn't asked!!

David.

Boon

But until that becomes regulation.... Klarna is going to run riot, be able to offer attractive credit deals to customers, be able to say what they want in marketing etc...

While N Brown is stuck with the compliance overheads of adhering to lending regulations, having to hold adequate capital (therefore lowering ROCE), and with a perpetual risk of mis-selling and misconduct fines if they ever cross the line (on purpose or even on accident).

Hard competing in an un-even playing field.

16th Jan '21

Hi Logical David

That's brilliant, thank you, every day is a school day!

Really appreciate the explanation will add a formula to my spreadsheet for ease

Rusty2

Novacyt SA (LON:NCYT) shares have gone up from 15p to over 1000p in the last year, so it’s not surprising that the volatility is high but I wonder what it is over the last month? I would expect that it is lower, I don’t think 10% movements are the average anymore.

MiserableJacktPotato

Something to do with Standard Deviation?

Probably is "something to do with SD" IGP.

The real issue, I suspect, though is that Stockopedia's (and I'm guessing the wider market's) definition of volatility favours arithmetic over reason.

If a stock makes some big daily moves during an uptrend (or during a downtrend) then those big moves mark it out as "volatile". However it may not have varied much at all from the "trendline" and may not "wobble" much at all.

Personally I only judge true volatility these days "by inspection" although that is leading me to an hypothesis that there might be a meaningful mechanical metric for true volatility.

Work in progress.

muzmano

17th Jan '21

Sunday - The Intelligent Investor by Benjamin Graham is 99p in the Amazon Kindle daily deal today.

Harry Hindsight

25th May '21

Clipper Logistics (LON:CLG) - founder sells to improve liquidity - seems to have worked - reading 100 baggers so may be worth study and a separate post tracking founders or CEO with skin in the game.

Small Cap Value Report (Fri 15 Jan 2021) - CARD, XAR, FIF, CLG, BWNG

Card Factory (LON:CARD)

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Paul Scott

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