Small Cap Value Report (Fri 15 Oct 2021) - SDG, GMS, LGRS, K3C
Good morning! It's catch-up Friday, so here is something I prepared earlier.
Agenda -
Paul's Section:
Sanderson Design (LON:SDG) (I hold) - luxury furnishings group, doing well, and reasonably priced. Super balance sheet. Ticks my boxes, as a value/GARP investor.
Gulf Marine Services (LON:GMS) (I hold) - *NB* High risk special situation. Worth a look, for experienced investors only, able to assess risk:reward at a problematic, highly indebted company.
Vertu Motors (LON:VTU) webinar
Jack's section:
Loungers (LON:LGRS) - very good two-year like-for-like results for one of the best bar operators out there, but there's been a strong recovery in share price since 2020 and the valuation looks full. There are supply chain and inflation risks to consider.
K3 Capital (LON:K3C) - thanks to readers for flagging this update hidden in a 'Notice of Results' RNS. Another upgrade - the company is making a habit of this. The growth rates and profitability metrics are impressive, and the acquisition opportunity remains fairly significant, so well worth checking out.
Sanderson Design (LON:SDG) (I hold)
198p - mkt cap £140m
Interim Results - announced yesterday
Sanderson Design Group PLC (AIM: SDG), the luxury interior design and furnishings group, announces its financial results for the six months ended 31 July 2021.
Strong recovery continues with key financial metrics ahead of the previous two half years. Reinstatement of interim dividend. Full year trading in line with expectations
Top marks for clarity of presentation here - this is exactly how it should be done - giving us H1 comparisons with last year (pandemic), and the year before (pre-pandemic). In a table, not rambling text, and not cluttered up with percentage movements. Perfect!
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I’ve highlighted above how u/l PBT has bounced back to more than pre-pandemic levels. This is because SDG has undergone a very effective turnaround under new CEO Lisa Montague, who’s done a great job I think, judging from the numbers.
It’s all just common sense stuff - e.g. reducing product lines to focus on best-sellers (which has also reduced inventories - to the benefit of cash - note the very favourable progression in the net cash position). Also overheads have been cut, through efficiency gains (e.g. launching new lines online, instead of physically taking them round for customers to see).
Outlook -
"As we enter the second half of the financial year, we are mindful of the cost, supply chain and other issues affecting the UK and international business environment. We are focused on mitigating the potential impact of those issues on our business.
"Since the half year, manufacturing sales and licensing income remained robust and offset a slight softening in brand sales. Our key Autumn selling weeks in October and November have just started and we remain confident of meeting the Board's expectations for the full year."
The company doesn’t provide a footnote to explain what market expectations are. Nor can I find any broker research notes, so not great in that respect.
Stockopedia shows broker consensus of 12.1p. Given that 6.53p has already been achieved in H1, that looks reasonable. I can’t see any obvious seasonality from pre-covid results (which is confirmed in note 4).
Full year consensus of 12.1p equates to a PER of 16.4 - which seems a reasonable valuation, not stretched.
Results video - this is useful. I wish more companies would do these, as it’s easier to digest, than ploughing through a long RNS announcement. It also gives a flavour for the people running the company. The slides are too small to read, so if you click on the symbol with arrows going out in 4 directions, that makes it readable in the full screen mode.
Dividends - are back, but only a trifling 0.75p interim divi to begin with. Given the strong finances, and profitability, I expect that to rise in future.
Balance sheet - is very strong indeed. NAV: £71.5m, less intangibles of £27.6m, gives NTAV of £43.9m. That’s way more than is needed, for a business of this size. I’d say NTAV of c.£10-20m would be adequate.
Why does this matter? A strong balance sheet means little to no risk of dilution in a recession or other crisis, and that a business might be more attractive to a bidder. It also means better dividend paying capacity, ability to self-fund acquisitions, and that shareholders can sleep at night.
It scares me how many businesses are happy to risk the vagaries of the bank manager’s mood. In this recent crisis, the Govt took an unprecedented series of measures to prop up businesses and households, which has never happened before on anything like that scale.
What happens next time there’s a crisis, especially if interest rates globally are higher, and QE has stopped working? It could be carnage. Investors are learning very bad habits at the moment, in my view. People of my age & older remember what happened in the 1990-92 recession (and the early 1980s), when many geared businesses were wiped out, due to high interest rates.
I’m not saying things are going to collapse any time soon, but younger investors definitely need some historic perspective, and to understand that what’s happening at the moment is a complete aberration. In particular, the leniency of banks due to zero interest rates. They can afford to let problem borrowers find solutions, because the interest cost doesn’t mount up very much.
It’s my historic perspective (I was seconded to the insolvency division of PWC in 1991-92 (in a junior role), and saw a lot of fundamentally solid businesses fail, due to excessive debt) that is imprinted on my memory, and makes me avoid companies with weak balance sheets.
People who take crazy risks though, have been rewarded in many cases, during this pandemic. Don’t rely on that necessarily happening again, in future.
Pension deficit - the only negative I can find with SDG’s figures. The accounting deficit is only £4.7m, apparently insignificant. However, the cash outflows were £931k in H1, plus £199k admin costs, which is a fair chunk of profits. So this could be one of many cases where an apparently trivial accounting pension deficit is, in reality, a bigger cash drain than people expect. We’ve had several interesting discussions about this in recent SCVR comments sections. I’m no expert on pension schemes, so am only flagging up what I see, for your further more detailed research.
My opinion - sorry, I rambled off the point there. Getting back to SDG, it looks good to me. There’s a smashing turnaround underway.
From my limited sector knowledge, it sounds like more elaborate home decor is making a return, after years of minimalism. That plays to SDG’s strengths. I spotted a nice colour advert in the Sunday Times supplement for Sanderson last weekend. I do like their elaborate, historic designs, such as Morris & Co, and think there is a lot of potential value there. More importantly, the gross margin is c.60% - that is proof of pricing power, and matters more than anyone's personal opinions.
Licensing revenues (which grew to £2.0 in H1) support that idea, and the deal with NEXT is going well, and being extended.
There’s a lot to like here, and I’m very happy to continue holding long-term.
Gulf Marine Services (LON:GMS) (I hold)
4.6p - mkt cap £47m
NB. This is a high risk, special situation
Several shrewd investors have flagged this share to me, and I think it looks potentially interesting. This is outside my sector expertise, so please do your own research, carefully.
The company owns & operates about 13 specialised ships, which support oil rigs and offshore wind farms. The track record is dismal, with all sorts of problems, mainly excessive debt, and the company came close to insolvency last year.
However, the turnaround underway now looks interesting. Ships are chartered out on daily rates which are now rising. There’s limited competition. Stage 1 of a refinancing was successfully carried out by new management, including a placing, and renegotiation of bank facilities.
There’s more work to be done on refinancing in future.
However, the company is now set to generate huge EBITDA, with daily rates rising, due to the higher oil price. There’s only limited maintenance capex, because its fleet of specialist vessels are quite new (about 10 years old, of expected c.40 years life).
This should enable bank debt to be reduced considerably, which should in turn trigger more favourable lending conditions and interest rates.
The main risk is if the bank lending doesn’t improve as expected, and the bank plays hardball requiring more placings & dilution from warrants. So this is quite complex.
GMS, a leading provider of advanced self-propelled, self-elevating support vessels serving the offshore oil, gas and renewables industries, is pleased to announce its Interim Results for the six months ended 30 June 2021 (H1 2021).
This is the interesting bit - massive EBITDA for FY 12/2021, and high utilisation rates, which should drive further increases in daily hire out rates for the vessels (increases are subject to delays, because contracts tend to fix rates for say 12-18 months into the future, and then rise once the contracts expire).
EBITDA forecast for 2021 set at US$ 63-67 million
o Secured utilisation of 92% for H2 supporting FY 21 EBITDA forecast
Supply & demand means that higher utilisation rates tends to drive up daily hire rates - a virtuous circle.
My opinion - I’ve only scratched the surface of this, but wanted to flag it to experienced readers as a special situation that you might like to investigate properly.
What I like, is that the forward order book is clearly improving, and contracted revenues are rising. That means the anticipated rise in free cashflows should enable GMS to quite rapidly reduce its gearing, which is currently excessive, and the main reason why the share price is so bombed out.
Once the stock market realises that the company is now on the mend, then the benefit should all flow to equity, currently very bombed out.
Don’t be under any illusions though - this is a distressed situation, where something could go wrong, and I don’t know anything about the sector. So DYOR is more important than ever.
I’ve taken a small position personally (1% of my portfolio), and done a bit of research, and will see what happens. The timescale I anticipate is to wait until end 2022, which should hopefully show a marked improvement in the company’s finances, from free cashflows paying down debt.
The bear case is that thing could go worse than expected, and debt forces equity to step up with another placing (there’s a £50m additional placing potentially required), thus diluting holders. Hence it’s quite high risk.
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Jack’s section
Loungers (LON:LGRS)
Share price: 303.36p (+3.71%)
Shares in issue: 102,738,664
Market cap: £311.7m
Loungers is one of the more recent Leisure sector listings, although it’s been around for a couple of years now. It’s often seen as best-in-class operator, offering a modern all-day proposition that partially reduces its dependency on key trading hours.
For all that though, it does look slightly expensive at 30.9x forecast earnings. This type of company can’t grow forever, there’s a limit to how many bars a concept can have without becoming oversaturated. Loungers does have two concepts - it’s got 150 Lounge cafe-bars and 31 Cosy Club restaurant-bars.
And there has been steady progress in revenue, which is forecast to continue. Nevertheless, a key consideration at today’s valuation is at what point growth might begin to moderate.
Trading update for the 24 weeks ending 3 October 2021
Loungers has maintained its ‘significant outperformance’ of the market since indoor trading recommenced. Over the 20 weeks to 3 October 2021, the group delivered two-year like for like sales growth of 26.6%. That does sound remarkably good. Typically, pub companies eke out single digit LfL gains, and after a lot of hard work at that.
So there must be something about Loungers’ concepts that genuinely resonate with the public. Somehow I’ve managed to never go to one but I’ll have to change that. If anybody has any of their own anecdotal reports on going to a Loungers site it would be great to hear those insights.
The LfL performance does benefit from a VAT reduction (not quantified in this update), however Loungers goes on to say that the strong performance ‘is testimony to the relevance and resilience of our brands.’
Net debt at 3 October 2021 was £11.9m, excluding a further £5.6m of outstanding rent and deferred liabilities payable to HMRC.
Since the start of the financial year the group has opened 13 new sites, comprising 12 Lounges and one Cosy Club, taking the portfolio to 181 sites. A further 10 sites are expected to open in the current financial year. So it’s expanding at pace. Again, I wonder where the ceiling is for sites.
In the 90s, successful restaurant chains could grow to 400 or so units in the UK but it’s become harder in recent years as customers turned to local, smaller operators. It’s still possible to operate in the hundreds - Loungers itself is a case in point - but my feeling is that the optimal limit for an estate of this type has reduced over the past decade or two.
Although not a direct competitor, Fulham Shore’s experienced management team sees scope for c150 additional Franco Manca and The Real Greek sites on top of its existing 70 or so units. So that’s about 220 in the medium term. Loungers is not far away from that target but then again with such strong like-for-likes, perhaps its concepts can support a larger estate.
Nick Collins, CEO, comments:
Our like for like sales have been consistently strong since re-opening, across all site age cohorts and both brands. In addition, I am particularly pleased with the strength of performance in the new sites we have opened in this financial year. Loungers continues to thrive as we put Covid behind us and manage the current challenges facing our sector. This success reinforces our roll-out strategy and we look ahead with confidence, with our pipeline of future sites as strong as it ever has been. I would like to say a special thank you to our teams across England and Wales for their fantastic performance over what was a demanding summer trading environment.
A more detailed half year update will be provided on 1 December 2021.
Conclusion
With such strong like-for-like momentum and given the pace of new openings, Loungers has the feel of a long term winner in this sector.
There could still be some upside in the shares from here, but I also suspect that there is a ceiling to be encountered, probably in the next five years if current store opening plans are anything to go by. It will be 23 new sites this year, close to its target of 25 per annum.
Successful bar and restaurant concepts tend to attract strong competition as canny operators refurb their own units after taking note of what works. I’ve seen exciting new concepts become mainstream and oft-imitated over a span of ten years or less.
It does look like Loungers is in a sweet spot though, with what for now remains a fairly unique proposition and sites located in suburban and market towns, where trade has recovered more strongly. Rent on new sites will also be more favourable. Over two-thirds of its estate has outdoor seating, and the group has used the pandemic period to reinvest in its already popular bars, so I can see the positive momentum continuing for some time yet.
Liberum’s broker note on ResearchTree states that Loungers has a medium term ambition of becoming a 250+ site business, with a longer term aim of around 500 units. That's an impressive target. It's very hard to successfully build up to ten sites, let alone 181 with talk of 500.
I do back the company to strongly outperform its peers for some time and could see a 10-20% rerate in the share price assuming trading conditions remain positive (and the wider economic backdrop supports a bullish environment), but I think the shares are quite fully priced for now. More detail on margin pressures and the outlook re. wage inflation and the rest would be good. The present valuation factors in a pretty benign outlook in my opinion.
It’s been a strong recovery so far and I suspect the time to make good money here (with the benefit of hindsight) was back in 2020.
K3 Capital (LON:K3C)
Share price: 344.45p (+3.59%)
Shares in issue: 72,726,509
Market cap: £250.5m
K3 Capital Group is a multi-disciplinary professional services firm providing advisory services to SMEs.
It’s got three main services:
- Mergers and Acquisitions (M&A) - Company sales, brokerage and corporate finance services to SME's looking to achieve full or partial exit.
- Tax Advisory - R&D tax credit advisory and fraud investigations.
- Restructuring Advisory - restructuring and financial advisory, creditor services, and forensic accounting.
The group's medium-term strategy is to build a wider group of growing and complementary professional services businesses to provide SMEs with high quality advice across specialist disciplines.
So far this strategy has enabled some eye-catching profitability metrics with very little capex required, and the company is confident of its acquisition pipeline going forward.
The company completed a number of acquisitions during the period including randd, Quantuma, Intax, Aspect Plus and Alchemy Cayman.
Following discussion with the Group's auditor, BDO LLP, the results will be published on Monday, 1 November 2021. This will ensure sufficient time for completion of the financial reporting processes, including those relating to the accounting treatment for all acquisitions completed by the Group.
The board now expects revenue and adjusted EBITDA (before acquisition related costs and share based payments) for the year to be ahead of the numbers announced in its recent update, which stated revenue of c.£46m and adjusted EBITDA of not less than £14.25m.
Conclusion
There are a few of these professional services companies now listed. Most of them are following similar acquisitive, diversifying strategies so there’s a consolidation dynamic here. For now, it appears to be working very well.
Further acquisitions can be expected from K3C. I think this theme is an intriguing investment proposition, as the margins are high, the market is ripe for consolidation, and quite a few of these companies are clocking up impressive compound annual growth rates. What’s more, some of the acquired businesses boast attractive recurring revenue business models.
In a people business, the people are (obviously) important so one thing to watch out for is a bout of wage inflation, or a conflict over how much of profits go to employees and how much is retained by shareholders. Ultimately though, trading is strong and there’s a good growth opportunity for a few listed players.
K3C’s shares are not obviously cheap, with a forecast PER of 17x and a forecast PEG of 1x, but then again given the growth on display, they are not overly expensive either.
I imagine upgrades are on the way and K3C has proven it can grow at a good clip with its current strategy. The share price has been strong recently but the valuation is not demanding and the growth opportunity remains, so I think it’s not too late to start looking at this stock if you haven’t already.
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45 comments
Sanderson Design (LON:SDG) down 9% today because of newspaper share sell tip. Buying opportunity or not?
sharw thank you for putting up the interview by finncap with John Rigby CEO of K3 Capital (LON:K3C) which I found very informative. I hold.
Re Loungers (LON:LGRS) - they are pretty hard hitting from a commercial perspective. Long running bars are closed if performance drops back or if landlords increase rents. They have closed two in the last few years near me which appears really good sense from a business lens but is quite frustrating from a consumer.
Jim Gordon
"Re Loungers (LON:LGRS) - they are pretty hard hitting from a commercial perspective. Long running bars are closed if performance drops back or if landlords increase rents. They have closed two in the last few years near me which appears really good sense from a business lens but is quite frustrating from a consumer."
Thanks for adding that useful info - thats exactly the kind of stuff i would like to here as a prospective shareholder. Much easier to strike a deal with landlords i guess if they know you are serious about walking away if they decide to take the p. Must admit from what little i have seen of this company they seem a well run outfit - in current climate though i am reluctant to pay top dollar with lingering economic and post covid issues but i think with this company my hope that i maybe able to get a "cheap" entry point is just that hope. Who knows though i didnt think boohoo would offer a cheap (compared to higher previous price - some may say its still not cheap now) entry point last year so who knows.
Yes, that is good to know - I hadn't heard they had closed some units. On that basis, they must have been able to secure some excellent terms on locations in otherwise pretty average (Melton Mowbray) or even run down (Grantham, Wellingborough, Corby) town centres.
I know its not their remit, but they should also be commended for doing their bit to bring back a bit of style and buzz to these kinds of places. I’m pretty sure Melton Mowbray doesn't have any other “rooftop terraces” ! There may well have been a dollop of luck about it , with the unforeseen pandemic/ working from home/shopping locally theme, but the management team have taken a calculated risk here and it is paying back, not just for their benefit, but also for the local economy's. So good luck to them.
I don’t think the pandemic or wfh has anything to do with it. The relatively well heeled young lady wants a good cocktail/wine bar, and the men go where the women are. See Only Fools and Horses in the eighties/ early nineties.Fact of life innit. Loungers (LON:LGRS) have just put together a replicable formula that works in the provinces.
K3 Capital (LON:K3C) - I still find this name undervalued at these prices. When you look at the operating numbers blind (ROCE 60%, EBIT and FCF Margin 30%, cash conversion >100%) you'd think you were reviewing a market-leading SAAS provider and would expect to see it trading on a PE in excess of 75x. Of course people businesses like K3 have different economics but software resource providers like Kainos (LON:KNOS) and Fdm (holdings) (LON:FDM) are on forward PEs in the 40s and 50s. K3 is down at 20x. I actually think if it was more expensive it would get more attention!
It's an outsized holding for me and I can't recommend the company itself highly enough. You never know - one day the market may wake up and re-rate.
IMO its a bit of a disservice to compare K3 Capital (LON:K3C) to most other professional services companies. Its defining feature is sales driven process supported by a systemisation of support function. Clearly its not a tech biz but I think it has barriers to its position and continued profitability that are not dissimilar to the protection some form of protected IP provides...but more powerful and durable than that and I'd make the comparison with the Toyota Production System (TPS). This has driven decades of advantage for Toyota relative to other car manufacturers. It is not defined by superior tech and IP but a superior management of their people and resources. An odd comparison...but K3C has more durability than other high margin professional service cos as a result (who ultimately are making money mainly thro high prices professional services rather than the way they deliver the services).
What Toyota/K3C does is super hard to emulate...its a true barrier to competition. In addition, K3C have a model that can be scaled and transferred across disciplines and maybe even borders (they have never said that so pure speculation by me).
They raised £30m and did two acquisitions just over a year ago. I think the small one RandD (R&D tax credits) is worth the raise (near £5m pa repeat revenue on c.50% margin). So the much large insolvency biz is 'for free'. My only quibble re K3C in recent moves in that I think Quantuma (insolvency) doesn't fit their model well...and it may have been a little bit of a knee jerk response to covid and fears of impact on core corporate finance stuff. I wonder if Quantuma may be spun off (at bigger scale) in future.
One of the things I like about K3 Capital (LON:K3C) is that the CEO, John Rigby, is aligned with shareholders as he owns 10.4%. There is a very good chat with him from finnCap here
Perhaps keep a look at the SCFI index to check how global shipping freight prices are working out. Shanghai to Los Angeles and Shanghai to Europe. Are the shipping container prices going up, down or staying the same? This will let you know how the supply chain is working out for these regions. Has anyone got a link for the best SCFI index to get the most up to date prices?
One of my takes on the Loungers success, other than all the points already noted, is that they have often located sites in unfashionable locations. I reside in Leicestershire and Loungers have become well established in nearby places such as Melton Mowbray, Wellingborough, Corby and Grantham. Those town centres have been struggling generally for years and have no offering at all that is comparable to Loungers’. Judging by their popularity, the local populations have been crying out for a more classy venue - and currently there is very little competition in sight.
This is the primary reason I acquired a shareholding - on the ground it just seemed such an excellent concept and product.
Dear Jack
Thank you for your informative update on Loungers (LON:LGRS) which I hold. Looking ahead over the next couple of years, you will see from the Liberum note that operating expenses are expected to increase significantly, rising from £108 million for April 2022, to £122 million for April 2023 and £141 million for April 2024. Although sales are forecast to continue growing, these increases will have a detrimental impact upon operating margins, operating profits, pre-tax profits and earnings per share. My understanding is that business rates will be reinstated from 2023 ( current saving £5m to £6m), whilst VAT rates on non-alcohol sales will return to 20% from 5% last year and currently 12.5%. Like most operators, the company held on to the VAT rate benefit, all of which suggests that current margins have flattered performance. None of this should be implied as a criticism of management who have done an exceptional job in very difficult circumstances. However, I think your point about a full valuation is correct.
Kind regards
Phillip
Calnex Solutions (LON:CLX) has just posted an RNS notifying of a director share sale:
https://www.investegate.co.uk/...
The seller is Anand Ram, VP of Sales. I find this a bit odd after the strongly positive trading update from Tuesday: https://www.investegate.co.uk/...
Of course we can never independently know the personal background/individual circumstances that lead to a director selling, but it does make one pause for thought. Just wondering if there are any other holders here and how they think about a situation like this?
Hi welwichia,
I'm not a holder of Calnex, so not commenting on that specifically, but in general you have to keep an eye on PDMR sales. Often it's tempting to write them off as just dictated by personal circumstances, but it's interesting how often directors sell at or near the top.
I think you have to look out for:
Nothing's foolproof on this, but if in doubt, SELL SELL SELL. If the PDMR's don't want to hold the shares, why should we.
Ta
Chris
Calnex Solutions (LON:CLX)
I think the evidence is pretty mixed on directors sales. Some do sell before a fall, I can think of a few such as Solid State (LON:SOLI), Best Of The Best (LON:BOTB), Boohoo (LON:BOO) and Ab Dynamics (LON:ABDP) but then there are plenty of others where directors sold and the share price has continue to rise or soar.
For me CEO and CFO sales carry more weight. This director is not listed on Stockopedia. If there are sales by other directors I will take more notice.
Hi RayStraw,
Yes, agreed, some directors sell big with no underlying issues coming out, no doubt. Each company and set of directors has to be looked at afresh each time. Each company and its directors unavoidably build up a track record of being trustworthy or not, through RNSs and making 'well timed' sales/purchases, and this will be another factor in the decision.
This should be something we all help each other on incidentally, and point out on here or company-specific discussion threads. These announcements often come out at ad-hoc times, so not everyone will notice them. Thanks to welwichia for doing so this time.
Thanks
Chris
thanks both Chrisfarrell21 and RayStraw for your perspectives. I am normally relatively relaxed about these, but in this case thought the timing really sends a pretty conflicting signal - on the one hand letting the market know you are anticipating results above expectations, yet in the same week the VP of Sales is offloading shares in the business.
Not planning to take any action, but also not sure this has added much to the "conviction" side of the ledger.
Thanks again for your inputs!
Calnex Solutions (LON:CLX)
"This director is not listed on Stockopedia ". That is because he is not a director - he is a PDMR (person discharging managerial responsibilities) whose dealings also have to be reported.It is always difficult to know why a sale is made - it could be for a new house, divorce settlement, or to pay for a daughter's wedding as well as the one we worry about - that the company may not be doing as well as you hope.
In general I only take notice of executive directors' sales.
Re LGRS
“The LfL performance does benefit from a VAT reduction (not quantified in this update)”
Paul
That’s an excellent point. Being one of the people caught out by the Patisserie Valerie fiasco, where they didn’t give like for like sales numbers, I was very pleased to see that Loungers are providing LFL numbers and frankly somewhat amazed at how well they were doing.
But then your qualifier brought me back to earth. A good thing! Makes me wonder how many updates are truthful but in effect misleading as we won’t see the full impact of all the financial support (deferred bills, loans to pay back, VAT reductions and so on) for some time to come.
No position in Loungers myself.
Wow Paul you were up early this morning! Thanks for all the superb write ups.
We have just published PIWORLD's Sell it to the City. This came about through Andy Brough's tweet re the StockChallenge, "A stock I have never heard of or met, maybe I should just have an information forum where people pitch ideas to fund managers. Just need to get a few more. Could be like judgement day (for those who remember his column in The Sunday Times) in reverse. Any other fund managers up for it?" Fortunately they were!
Here, we bring you a fund manager panel of Andy Brough, Schroders, Judith MacKenzie, Downing and Stephen English, Stellar Asset Management, who listen to pitches by John Marriott (@F15JCM), Rebecca Stewart (@Reb40 AKA Aston Girl), Ryan Rahimikia (@Ryankia2) and Richard Crow (@RebelHQ AKA Cockney Rebel). Both sides, the pitches, and the fund managers questions and comments are enlightening. The format is work in progress. Get in touch with any comments or if you would like to get your name and a stock idea in front of top fund managers to 'Sell it to the City', contact via the PIWORLD contact page VIDEO & PODCAST.
And please give your vote for both the company and the pitch on these two twitter polls.
1. Vote for the best company
2. Vote for the best pitch
Happy weekend watching ... and voting!
PIWORLD's Sell it to the City - what a fantastic concept. I thoroughly enjoyed watching this, especially with bonus points awarded for jokes.
Is this a future TV show?
Good morning, just mention trading comment from K3c,tucked into results date Cheers stay safe Tony
Good summary on Gulf Marine Services (LON:GMS) Paul. The extra potential raise is $50m not £50m fwiw. The key point is that if rates and utilisation continues at current levels or improvea then debt/EBITDA is forecast to dip below 4x by end 2022. If that happens then it is thought the extra dilution can be avoided. This leads to a Panmure fircast of 16p. So far they are on track fir this.
As you quite rightly point out a lot can go wrong.
GMS - (I hold, since recent fund raise) . The Executive Chairman did top up his holding this week. The second potential fund raise by end 2022 is only $50m ( not £50m), with net debt below £300m, but set to fall rapidly in 2022. Brokers Panmure think it is trading on a PE of 2.5x and 2x for 21e and 22e respectively, in part reflecting the very high debt and much bigger EV.
K3C (LON;K3C)
Although the RNS is titled "notice of results", it contains a trading update.
FY21 ended 31 May now ahead of numbers announced in June 15 update :
"Following a review of the Company's accounting policies, the Board now expects the Group's revenue and adjusted EBITDA* for the year ended 31 May 2021 to be ahead of the numbers announced in the trading update on 15 June 2021 which stated revenue of c.£46m and adjusted EBITDA* of not less than £14.25m.
The Group has seen the positive momentum built throughout FY21 continue into the current financial year, with strong KPI performance and trading in line with market consensus. The Board expects the Group to deliver further organic growth this year, while continuing to progress its acquisition and integration strategy."
K3C share price has fallen back considerably since June, even through the company has continued to trade very well.
I hold
Sanderson Design (LON:SDG)
Paul the presentation also mentions a new printing press arriving I think it said 2023, it may of mention transformational, printing press wise.
Announcement from Electra Private Equity (LON:ELTA) not showing up on my Stocko news feed. Flagging because Paul highlighted it as an interesting situation recently.
In précis, Hostmore to be listed 2nd November.
Electra Private Equity (LON:ELTA) thought the trading update was pretty lacklustre. LFL trading for TGI seems to be only marginally above 2019, which is well behind the figures reported by Franca Manca (+33%) and Wagamama (+20%).
Electra Private Equity (LON:ELTA) I cant find any trading update today, do you have a link to it?
https://www.electraequity.com/...
Electra Private Equity (LON:ELTA) - the cash generation seems pretty solid though. Trading marginally above 2019, but in the last 3 months they've generated £12.5m cash (vs cash generated in 2019 of £21.4m (Ive taken that number from slide 15 of this presentation)). Im not sure how much seasonality exists in this business but over 50% of the 2019 cash generation in just 3 months seems good. Ive only had a quick look so may have missed something. I hold.
Yes not at all bad, but was hoping for more given that lot of the competition wiped out and the fact many people have been on staycation this year. Would have wanted at least a 10% increase from 2019. Compare with the boom in trading at Wagamama and Franca Manca, as well as other leisure businesses such as the ten pin bowling companies.
Good point however I believe wagamama (at least) didn't adjust for the VAT reduction at 21%lfl. The direct comp for Fridays is 11% which is 3% ahead of the 8% market growth advised in RTNs trading update. That doesn't sound too bad to me.
Can't see it on mine either, just the notice of demerger.
The documentation looks quite light, which I assume is because it is a demerger. Still wearing my novice hat but I thought there might be a listing price + valuation for Hostmore in the documentation?
Also, can I query with those more knowledgeable and who may have more time to dig this morning whether shareholders are missing out on some value as we seem to be getting 91% of Hostmore rather than 100%? 7.3% of the new shares will go to Hostmore management. I don't know whether this reflects any shareholding they currently have in £ELTA.
This presentation seems to be the best info : https://e6b88485-f139-4997-aee...
There’s a prospectus to be filed later today.
Hi PatrickL.
Another RNS just now detailing the availability of the Hostmore issuing prospectus and also an explanation of the “missing” 7.3% of the shares going to the management. Appears to be a buy-out of the existing LTIP being crystallised as part of the demerger process.
https://www.investegate.co.uk/....
Gus.
Thanks think the prospectus is now here. I can't see any valuation yet unless I am being thick (I can't remember if that is usually included or not in a prospectus):
https://www.electraequity.com/...
Thanks think the prospectus is now here. I can't see any valuation yet unless I am being thick (I can't remember if that is usually included or not in a prospectus):
It's a demerger not an IPO. The market will set the valuation and adjust the value of the rump of Electra Private Equity (LON:ELTA) to compensate.
timarr
Just choked on my cornflakes! Out for the day yesterday and I saw Paul’s headline on Gulf Marine Services (LON:GMS) and a 46p share price. Sadly it’s still the 4.6p it was when I went out. Still, we can hope (it has been 46p in the recent past) and I concur with the view it’s an interesting recovery play. I hold.
In terms of the company itself, I think part of the appeal is its three largest shareholders (accounting for about 40% of the shares) appear to have deep pockets. They supported a heavily discounted equity recapitalisation in June (the time I bought in) and seem to be working well with the banks to offer further equity for improved financial terms. Virtuous circle to an extent in that a safer company can get better terms from customers if it doesn’t constantly have the wolf at the door and the lower ongoing funding costs improve the net income. I recall they’ve already stated further equity will probably need to be raised (under the terms of a controlled deleveraging of the bank debt) which will be dilutive and there’s a risk the insiders will get it on preferential terms compared to the small ticket PI but even so I would suggest their presence makes the “risk” a bit lower even if the “reward” upside might be reduced. For prospective investors, I would suggest starting with the Issuing Prospectus for the June fundraising (via the company website) and digging into the background of the principal investors. Also, this presentation from June gives a good overview (including a section on the deleveraging strategy):-
https://www.gmsplc.com/wp-cont...
Gus.
Sorry Gus, schoolboy error 4.6p error not 46p. Apologies. I did manage to get the mkt cap correct though. Rubbish - really angry with myself for such a basic error. I double check all the numbers, so am really sorry for the occasional error that slips through :-( Not good enough. Not at all. Unacceptable.
Regards, Paul.
Paul I am always amazed at how you and Jack manage to churn out such high quality content, so quickly, with so much accuracy and wisdom - I know you're experts in your field but it's still very impressive. I think we'll allow you the odd minor error :)
Especially when posting at 3.46 am. Dedication beyond the call of duty.
Good morning everyone. I have started another discussion post on how people manage withdrawals and growing portfolios. I don't want to hijack the SCVR so I have included a link.
I value the experience of a lot of people on here and would love to hear some thoughts and ideas.
Link here.