Small Cap Value Report (Fri 17 April 2020) - BOWL, FOXT, Red Flag Report, GYM, SRT

17th Apr '20 by Paul Scott

111 comments 10211 reads

Good morning, it's Paul here with Friday's SCVR.

Today's report is now finished.

Jack has written up this section, thanks Jack!

Hollywood Bowl (LON:BOWL)

Share price: 157.5p
No. shares: 150.0m
Market cap: £214.5m

Hollywood Bowl (LON:BOWL) has reported that it is raising £10.9m at 145p per share via an accelerated book-building process.

The group says “had traded well in the five months to 29 February 2020 ahead of the prior year period” but now, of course, units are closed, the company “has implemented extensive cost saving initiatives”, and the H1 dividend payment has been scrapped.

The impressive news is that “as a result of these extensive cost saving initiatives, non-employee overheads (excluding property costs) are expected to reduce from approximately £1.1m to approximately £0.1m per month whilst centres remain closed.”

That really isn’t a lot so perhaps bowling alley operators like BOWL and TEG can hibernate quite effectively?

The group says:

As a result of these extensive cost saving initiatives, non-employee overheads (excluding property costs) are expected to reduce from approximately £1.1 million to approximately £0.1 million per month whilst centres remain closed. The Group expects a total monthly net cash burn of approximately £1.6 million whilst centres remain closed (once pre-COVID-19 liabilities have been paid). If all centres remain closed and the furlough arrangements under the Coronavirus Job Retention Scheme are available throughout the closure period, and including trade creditors unwind, the Group expects to maintain a positive cash balance until the end of October 2020.

That’s quite clear. Planning for no store openings until the end of October is prudent compared to some other Leisure and Retail operators that are banking on the lockdown getting lifted in June. This might be the most likely possibility, but planning for longer if possible would be very sensible.

For what it’s worth, BOWL’s trading was impressive before the lockdown: in the five months to 29 February 2020:

Total revenue was up 12.5% year-on-year,
Like-for-like sales were up 9.4% year-on-year (6.8% growth in game volumes and a 2.4% increase in spend per game to £10.08),
Group EBITDA was up 17.7% to £20.7m
Operating profit margin increased from 24.5% to 25.8%, and
Free cash flow during the Period was £9.03m.

The increase in average spend has been underpinned by the Group's focus on improvements and innovation in the customer experience, including the enhanced food…

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simoan

17th Apr '20

Why should guessing about an antibody test that may be completely irrelevant stop me upping holdings in Unilever, Microsoft etc. We don't even know if having the illness will generate antibodies that are detectable - although I'm taking it with a sack of salt as it comes from China, I read only last week about an early study that showed out of 175 recovered Covid patients some had no antibodies at all and others had very low levels. If this turns out to be the case, then any test could be so inaccurate as to be worthless.

And as if by magic: https://www.cnbc.com/2020/04/1...

Not that this is good news of course, if true...

All the best, Si

Bullsnbears

There's growing evidence that some patients who have recovered have gone on to re-contract the virus. I think this whole vaccine thing is a lot of hot air. The virus has already jumped from humans to cats who's to say that it doesn't mutate and jump from cats back to humans?

Far too many variables in play. Half of the companies shortlisted on the FIND website are tiny unlisted companies anyway. Think it's like searching for a needle in a haystack. Probably best to go with a life sciences mutual fund with it's fingers in lots of bio-techs.

Apologies, posted this on the wrong thread...

bryans1311

I don’t know if bowling alleys would or should be the first to re-open. Just think of all the grubby virus-infested fingers and thumbs in and around the bowling balls. Funny that the hygiene of bowling balls, never would have crossed my mind before now!

Paul Scott

18th Apr '20

In bars, people are breathing normally. In gyms people are working out, hence panting & spraying sweat & saliva everywhere. That was my point.

Hi mortimer,

Sorry Xlmedia (LON:XLM) goes in my "too difficult" tray. I've no idea if its business model is sustainable, nor where the profits come from. Just don't think I can add any insights on that one.

Sorry, Paul.

mark1308

Yes , but...….. Revolution bars have dancing - not breathing normally then !!!!

rmillaree

Ok weekend slight off topic covid post

Well worth watching Dr John Campbells you tube video yesterday on "infection rates" for anyone interested.

It's not the biggest sample and it was new york - rough and ready figures as follows - they tested 215 pregnant women - of the 215 only 4 had showed material covid smptoms. The results came back 15% postitive for covid (33) - the % of those that had covid but showed no symptoms was 87% - so a ridulously high amount of potential silent spreaders walking around the hospotals. I think there was something similar stats when they were testing new arrivals into china reecently who had been quaranteened but who had shown no symptoms.

This has a terrible read across for short term prospects in all care homes / hospitals and similar places where a lack of symptoms has lead no no testing taking place. Our government really must immediately ramp up testing to full levels in such places if they want to avoid the worst possible outcome - i don't hold out any confidence they can do this quickly though - it does though highlight i think that the facts are reasonably clear now - if there is community spread at play mass/repeated testing really for all at risk is really the only way forward at present to allow us exit from lockdown with any semblance of safety - things may be different when antiboy tests are ramped up.

The only slight positive to what is not good short term news for the vulnerable and placed at risk is that the more bods who have had covid then this reduces the pool of possbile spreaders when they recover - i would say in that regard though we are still at such a low number thats probably of little use at present - and i do wander if some of the bods who have shown no symptoms may not have been able to build up full immunity themselves.

Zipmanpeter

Both bars (£RBG ) & gyms (Gym (LON:GYM) ) are strongly skewed towards fit young people <45.

IF ALLOWED, this group will likely rapidly return to near "usual" behaviour (despite any continuing govt advice) since the data says not much risk to them (nor to their family elders/co-workers the next day if they clean properly after especially with some simple operational changes (temperature taken at bar entry, extra clean downs on equipment in use, controls on numbers).

Gyms are much better placed as they can argue they are helpful to public health and have few good replacements. Bars and especially nightclubs are especially vulnerable if the govt allows sit down separated restaurant outings

The key business risk IMHO is thus govt regulations remaining in force (too long) as politically hard to accept any "avoidable' and visible deaths/health issues and simpler to blanket ban all than risk annoying specific high swing voting groups eg 46-55 year olds!

I hold both but see Gym as moderate risk/return and RBG as very high risk/return

xcity

At least some silent spreaders go on to develop symptoms.
Antibody tests are producing very variable results. Hard to know whether some of the variation is due to different tests being used.
There's no point in government ramping up testing. They tried that weeks ago. There followed a series of 'explanations' as to why it hadn't happened. Currently fluctuating between people not presenting for testing, to testing being inconvenient having just moved on from testing capacity not being there. Another case of being told something can be done, but the lever not working. Maybe, eventually, the system will work but the government must have given up trying to force it to increase the testing. afaics, the front line is doing remarkably well, unexpectedly including many hospital managers, but there appear to be grave problems between the DoH, PHE and the NHS executive. Much of this must have developed or continued on Jeremy Hunt's watch (wasn't good before, so probably simply wasn't improved); he really ought to resign as chair of the Health subcommittee before it comes to review everything that's happened.

One of the things that has got list in clapping the NHS is that most countries who have done well have a quite different, usually compulsory insurance based, system. There are advantages to our structure but the centralisation is a serious problem when the top is addled. Management situation is even worse in Scotland, Wales and Northern Ireland, despite more money.

Thornabian

Just on the last point, the Ways &Means program by the Bank of England didn't make waves because they aren't technically printing money; the Treasury need to raise funds in such a short time frame that the BoE are buying to support but it is with the intention it is paid back.

Any inflationary impact from all the activity by the BoE will likely be offset by demand, wage and import inflation pressures.

timarr

19th Apr '20

For example if one knows ones "s***" and is confident that the oxford university team who think they have 80% chance of having working vaccine for covid by september are more likely to be right than wrong in their assumption, and if that results in mass production in by xmas - thats the exact kind of stuff i would like to keep an eye on to see how that pans out.

The leader of the Oxford team is Sarah Gilbert. Here's what she had to say on the Andrew Marr show this morning:

Sarah Gilbert, professor of Vaccinology at Oxford University, who is leading a team to develop a coronavirus vaccine, said nobody can be sure that it is possible to find a workable vaccine.

She told the BBC’s Andrew Marr Show: “That’s why we have to do trials to find out. The prospects are very good, but it is clearly not completely certain.”

And that's from someone who most definitely does know her s***. We'll know when we know, and we won't be first in the queue.

If you look across the range of possible timescales you get from her 80% possibility of 8 months to the possibility of never. Roughly it looks like the average expert prediction is coalescing around the end of 2021, although it takes time to scale production up after that.

The most likely intermediate solution is finding some combination of anti-viral drugs that alleviate the worst symptoms and reduce the overall mortality rate and admissions into critical care. In the meantime we investors need to deal with the uncertainty which, of course, also brings its own opportunities. Or we can sit on the sidelines and wait for the new normal.

Roughly it looks like the average expert prediction is coalescing around the end of 2021, although it takes time to scale production up after that.

Averaging is the wrong way to think about it. It's possible that immunity isn't possible and a vaccine doesn't exist. That can't be averaged.

A more likely worst case is that a vaccine only works for those who would be severely impacted by overactive immune reaction. That's not awful, but lowers the numbers and there'd likely be extra delay while they looked for better.

I'd be looking at 2021 for more extensive trials and the second half before there's significant availability for the majority of the population. If the majority need it. But some sort of validated vaccine late this year or early next. It would make a huge difference if there were a vaccine that could be given to health and care staff. A vaccine for the vulnerable likely to be later because more extensive testing of the risks would be needed before it could be judged safe to roll out to them.

Before then we need to quantify and try to understand the obesity and BAME risk. Interaction with other factors quite probable. And many people, even older people, don't seem to suffer more than mild symptoms; who? Why?

I agree that improved treatment regimens likely to come first. Ventilation as per China and Italy doesn't look as good as it did. Antivirals seem to have positive effect. They'd probably do best when given early.

GrahamF

“ I agree that improved treatment regimens likely to come first. Ventilation as per China and Italy doesn't look as good as it did. Antivirals seem to have positive effect. They'd probably do best when given early.”

Interesting comment. At the start of this, from what we were being told, I had thought that ventilation was critical and that the high number of deaths in Italy was because their health system became overwhelmed running out of ICU capacity and ventilators. However, we haven’t run out of either of those things so why is our trajectory still following the same path as Italy, or do we expect to see our trajectory dropping below that of Italy in the next couple of weeks?

What we 'know' is constantly evolving. China said ventilators were critical. Italy followed them. So did most of the world, but specialists in US, UK and elsewhere are starting to doubt it looking at the damage it does. Starting to push for less invasive oxygen.
Every country has its own very particular circumstances. Our trajectory isn't really the same, though you can move on some of the graphs along to make it look like that. Strongest relationship is between the number infected and the number of deaths following on a few weeks later. Italy has a lot of old people and multigenerational contact. We have huge conurbations in London and the Midlands. Like Spain, we have a lot of care homes for older people. Health services make a lot of difference to a large number of people, but they're probably not the biggest factor - many who die receive fairly limited care before palliation because their bodies wouldn't stand more aggressive treatment and they would probably die anyway; everything depends on the clinical assessment of the individual. We are unlikely to know until next year whether the size of the US death rate can be linked to the level of obesity.

Rusty2

I don't think Italy did run out as so many were dying each day but the death rate for people who go onto ventilators is around 50%, one doctor reckons they may not save people on average because of other issues they introduce. Italy cases and deaths have now started to decline, I expect we will follow in the next week or so. We are already seeing less admissions to hospitals and a decline in hospital beds occupied by Covid patients. As Spain and Italy relax some of their restrictions we will see if they then if the decline reverses or not.

"Sampling" would have been more accurate, not that any half-arsed sample I might take of expert views has any validity anyway.

On the theme of vaccines the CSO Sir Patrick Vallance has written to the Guardian on the topic:

All new vaccines that come into development are long shots; only some end up being successful, and the whole process requires experimentation. Coronavirus will be no different and presents new challenges for vaccine development. This will take time, and we should be clear it is not a certainty.

... The more vaccine development projects there are, the greater the odds that a vaccine will be available in 12-18 months. But it is not certain.

https://www.theguardian.com/co...

The underlying issue with a vaccine which he is ignoring there is the lack of evidence so far of any immunity, low antibody levels in young recovered, and uncertainty about duration of any immunity or speed of dangerous mutations.

I very much doubt he's ignoring it.

peterg

20th Apr '20

But immunity is not just about circulating antibody levels, it's also about the bodies ability to produce them. Generally, that is not lost once gained. So even if a'body levels are very low someone exposed a 2nd time is likely to respond far quicker and more effectively. And the same will apply to vaccination.

Small Cap Value Report (Fri 17 April 2020) - BOWL, FOXT, Red Flag Report, GYM, SRT

Hollywood Bowl (LON:BOWL)

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Paul Scott

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