Small Cap Value Report (Fri 16 Oct 2020) - LGRS, JUP, MIND, ARC, NCYT

16th Oct '20 by Jack Brumby

79 comments 13511 reads

Morning all, it’s Jack here with Friday’s placeholder so drop by and leave a comment if anything catches your eye. Paul’s back next week.

The week started off with further lockdown announcements and it feels like yesterday money was leaving the market ahead of what could be a bumpy winter. There are ongoing whispers of circuit breaks and all the rest of it - how that all plays out is not in our hands so I don’t get too involved. I just focus on the controllables, ie. my own portfolio, but I do think we have to be braced for some tough days on the market.

Early indications suggest a positive start today though, with the FTSE 100 up 45 points or so.

Yesterday’s markdown was understandably felt most keenly in stocks directly affected by potential additional lockdowns. I retain my view that there will be some good mid to long term contrarian opportunities there, but for now most of the share price action will be news driven and volatile.

It’s not my usual patch, but there are also some strikingly ‘cheap’ blue chips out there. Royal Dutch Shell (LON:RDSB) below 1,000p, Rolls-Royce below 200p, Lloyds below 30p… It seems yesterday most of the damage was felt in the FTSE 100.

UyJaaCqemre6G6b-rNuHvZXlxBrqKxRLUzSnLwQqX4f6-3xN2d-TfUC_9PEwuDmKwqdDv9Ta0eFh4EyaGRCKd5KZOPOL7C7tm38GyM35QP0jCPK6e-VINMbB2_YSmsrwLf-MiTuw

I’m not tempted personally. I own one large cap, Games Workshop (LON:GAW) and the only other one I’m considering is Computacenter (LON:CCC) .

Anyway, following on from yesterday’s coverage of a couple of Leisure stocks, Loungers has released an update. This is a well-regarded roll out so let’s see what it has to say on current conditions and outlook...

Loungers (LON:LGRS)

Share price: 140p (pre-market open)

Shares in issue: 102,400,000

Market cap: £143.4m

Loungers (LON:LGRS) operates 168 all-day cafe/bar/restaurants across England and Wales. It’s done a great job of attracting trade throughout the day - a big issue for other operators that often have to capitalise on a few key trading hours.

This is a very brief update for the 24 weeks to 4 October. It looks like the bar group continues to outperform the market, with all 168 sites open and like-for-like sales up an impressive 25.1% over the 13 weeks from 4 July to 13 October. This probably includes a…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Phil O.

16th Oct '20

hi - I once worked for such an IT reseller and I concur the business model is tough. In a good year, you're lucky to do 2-3% Return on Sales. The model works well as Kelvin says , by cash recycling, driving Sales in either new territories or with vendor driven technology refresh projects. Re: investment in last 5 years of new tech, cloud, Big Data, XaaS etc, you're get smashed by the big guys with eco's of scale, so unless Sales grows dramatically money goes to expensive salaries and expensive inventory. I heard the their CTO give an impressive presentation of their capabilities, case studies across Europe. Enough said. The action, the true value, the margins etc. are in SW/Apps/Data much closer to the business processes and services. Infrastructure a mugs game.

Snowbum

Sirius'ly ?

GloucesterBob

If this is true, I will put money on Paul having a section on Boohoo (LON:BOO) on Monday, doesn't sound good

https://www.stockopedia.com/share-prices/boohoo-LON:BOO/news/media-pwc-quits-as-auditor-to-boohoo-on-reputation-concerns-ft-urn:newsml:reuters.com:20201016:nL4N2H73IW/

JohnEustace

The headline is "PWC Quits as Auditor to Boohoo on Reputation Concerns"

The comment I like best is "Er...... whose reputation are we talking about?"

Harry Hindsight

US Peloton. The Uk is very very hard work. Like riding one of their bikes :)

Yup. Mr Market makes money. Joe punter loses.

Dojosan

I quite often drive past Revolution during daytime and early evening - completely empty - even with BOGOF meals - no one. So yes appears to be primarily a bar / club

Ramsdens Holdings (LON:RFX) at the time that it went up - had gone down quite badly. From June 8th 161p circa to 110p+ a few days ago before popping up 15% recently. So therefore not much to shout about. Having just bought into H & T (LON:HAT) again, albeit a small stake, I have noticed that its sentiment towards retail shops. H & T (LON:HAT) has just got to a 4 yr low - its' offer price was 247p today! It was irresistible ( I am beginning to buy value shares that are at rock bottom with a view of good news from a pending C19 vaccine to give such shares a big booster. )

Overall, H & T (LON:HAT), once C19 is sorted, will explode due to increasing market share, gold price, current unemployment situation and cheaper rents

Snoo

Surely this would be priced in?
Doesn't sound like PWC quit just now. If the tender is in process wouldn't this be known in the city?

Sports Direct were declined by all the big 4 auditors, but their share price didn't decline any further after the Grant Thornton news was announced.

Mike888

https://uk.reuters.com/article...

Gromley

The Private Eye report states that they [ Computacenter (LON:CCC) ] received £96 million supplying laptops for children who receive free school meals.

In the context of a business with a turnover of £5Bn, £96m revenue (which may or may not be incremental) at very slim margins doesn't sound major news.

However, as you imply, it could create some adverse media attention - although I think Private Eye has lost its mojo in recent years (sorry Ian)

David Talbot

PWC has been involved in so many accounting/auditing scandals in recent years (with associated fines), does one more (alleged) scandal matter?

Martin VT

17th Oct '20

Overall, these sort of stories just give more power to those within Boohoo who want to improve Boohoo’s governance.
Yes Sports Direct did ok with their maverick governance, but I think Boohoo has greater ambitions, and has learnt that if it wants to become a major world player in online retail (which it clearly has the capacity for, overseas sales are expected to exceed U.K. in the next year or so) Boohoo has to improve its governance standards. It is clearly looking to do this in its product sourcing, (albeit this may result in a loss of U.K. jobs) but this auditor story suggests Boohoo will have to look at other areas too, not least independent Chairman, and moving from Aim to full market.

Diversification 99

Here's a link to the full broker note for Novacyt:

https://www.docdroid.net/SmuLL...

Next year's revenue forecasts are conservative as they do no include the possible second phase of the latest government contract which the government has stipulated can be greater revenue than the first phase if all of the products and services are taken up.

Also the revenue forecasts seem to be based only on organic growth so no allowance has been made for further income from acquisitions which the company has said it will do going forward as well.

Very well run company as well with first to market approach on its products.

GLA

Parsley

https://www.telegraph.co.uk/bu...

"Boohoo is searching for a new auditor following the resignation of PwC amid reputational concerns following an investigation into working conditions at one of its factories.

BDO, the UK's fifth-largest accounting firm by revenue, declined to be appointed after being approached in recent weeks, The Telegraph understands.

A senior audit source said there were concerns about Boohoo's governance and supply chains as well as reputational risks for any firm taking on the role.

An investigation commissioned by Boohoo that was overseen by Alison Levitt QC uncovered a litany of problems including life-threatening fire safety breaches and evidence that staff were earning less than the minimum wage.

PwC is said to have resigned from its role with Boohoo within the past month - a position it held prior to the company's 2014 listing - the Financial Times first reported.

Boohoo is understood to have approached other audit firms in recent weeks to fill the void, The Telegraph understands.

Boohoo may face a difficult search for a new auditor and could be forced to turn to a smaller firm if the industry leaders do not agree to work with it."

Personally, I think investors should read every last page of Alison Levitt's report and then make their own mind up, rather then read second hand reports. Its a very long and very uncomfortable read. But having read it, I fully understand the reluctance of auditors to engage with them - particularly the EXECUTIVE Chairman's (Kaman), reluctance to get involved on corporate governance. E.g., Kamani didn’t recognise the name of the company’s own internal auditor, Edward Toogood, who had warned the audit committee of problems in September 2019. When asked about Toogood’s report, Kamani replied to Levitt “Who is this guy? Who?” By August 2020, the date of the interview, you’d think he would have known.

sevenccc

Many years back Bass used to have a pub brand called Edwards. The intention was for it to be run on 5 day parts to serve different needs. Morning coffee, lunch, afternoon casual, early evening dining and late night bar from memory.

Sounds like Loungers are similar and can hopefully succeed where Bass seemed to let the concept fade. Might have been operational issues - they weren't always the best - or could just have got lost in a larger estate.

Either way not a slam dunk and feel for them and the rest of the trade when pubs are hit despite not being primary sources of transmission. Tim Martin, Ralph Findlay and even Julian Metcalfe from Itsu have all tried to make the case but our leaders and scientists seem determined to save every life at any cost, be that to finances or liberty.

MiserableJacktPotato

It's telling that the news media never link or quote the Levitt report.

The comment "who" doesn't necessarily mean he doesn't know who he is. It can be used as a dismissal that the person doesn't have the knowledge or authority to comment.

Interesting you mention Tim Martin as that's very much what Wetherspoon are doing - making the building operational for as many hours of the day as possible, but obviously in a different market segment to Loungers :)

If Boohoo (LON:BOO) can't appoint an auditor, doesn't that mean the government will have to appoint one for them? I don't think that has happened yet. And won't AIM have to initiate a delisting process?

Bushranger

Reuters cite Boohoo (LON:BOO) . as denying PWC resigned rather they tendered for new auditors. In the article (Thanks Mike888) PWC refused to comment regards this. The allegations repeated by the press have been shown by the independent report at the end of September by Alison Levitt QC to clear BOO of direct blame. BOO have set in place a raft of measures to combat the deficiencies. Alison Levitt felt BOO had an opportunity to become a beacon of light in the industry. Did PWC jump the gun before the report if the Telegraph article Parsley below states is correct? Or is it a case BOO is not happy with PWC? Perhaps in the independent audit of BOOs practices, PWC services and advice were found below par. PWC conduct was not in the terms of reference of Levitts investigation and thus not commented on but she may have uncovered problems with them.

Small Cap Value Report (Fri 16 Oct 2020) - LGRS, JUP, MIND, ARC, NCYT

Loungers (LON:LGRS)

Unlock the rest of this article with a 14 day trial

About the Author

Jack Brumby

79 comments

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

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