Small Cap Value Report (Fri 17 July 2020) - WEY, GATC

17th Jul '20 by Paul Scott

59 comments 7632 reads

Good morning, it's Paul here with the last SCVR for this week.

Estimated timings - should be well before 1pm official finish time, as it's quiet for news today.
Update at 11:15 - today's report is now finished.

Wey Education (LON:WEY)

Share price: 25.5p (up 10%)
No. shares: 138.5m
Market cap: £35.3m

Trading Update

Wey Education plc (AIM: WEY), the online educational services group is pleased to update the market on current trading for the year ending 31 August 2020.

Unsurprisingly, this online education group has been a beneficiary of the covid crisis, and is trading well;

Trading has continued to be very positive since the publication of the group's interim announcement in May and is in excess of expectations. Group turnover is expected to be in excess of £8m for the financial year ending on August 31, 2020, an anticipated growth of in excess of 30% from the previous year.

Group Profit Before Tax (after adjusting for share based payments and amortisation of acquired intangibles) is expected to exceed market expectations of £0.5m (2019:(£0.6m Loss)).

Profits would have risen more, but it has spent more on marketing. That's not a very convincing argument to me, because the nature of this business is that heavy marketing spend is vital, as that drives growth.

My other reservation about this business model, is that it's not like selling software, where growth drops straight through to profits. Wey has to provide a complex & expensive education service, employing teachers, and making sure everything is well organised & executed. I think that limits growth to some extent, and that costs rise as it expands. Hence I'm not as excited about this share as I used to be when first researching it.

T o my mind the valuation looks a bit toppy. After all, if this was a mature business, we would probably only value it (making just over £0.5m profit p.a.) at maybe £3-5m? Hence the additional c.£30m premium in the current valuation is investor expectations for growth.

As you can see, growth has been steady, but it's only just breaking into profit;

My opinion - it's clearly operating in a good sector, benefiting from covid. I think we should do far more teaching online - it's obviously better than getting 30 bored teenagers into a…

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Country

population M

Deaths

Per 100k

Denmark

5.8

610

10.5

Sweden

10.1

5593

55.4

Mark B

17th Jul '20

thanks Paul.

ed_miller

Re: Covid-19 death rates & Germany's better performance:

"Can anyone explain how/why Germany (and others) has such a low death rate - only just over 9000 -Tks"

- Many reasons, not least a much larger and more vigilant test-track-trace system to chase the contagion down and interrupt its spread, but one key reason is that in Germany, Covid-19 is only reported as a cause of death if it is considered or suspected as a principal cause of death. In the UK, Covid (unlike influenza) has been made a notifiable disease, meaning it is recorded on the death certificate where suspected, or confirmed by test result, regardless of whether or not it played any role in the cause of death. UK Covid death stats add up all death certs mentioning Covid, hence they over-record Covid deaths (in the early days of the pandemic, prior to testing at current scale & prior to Covid being made notifiable, there was widescale under-reporting of Covid-caused deaths in the UK).

For making comparisons, the best measure of deaths caused by the pandemic (both directly from Covid as a principal cause of deaths and from indirect deaths from lack of cancer diagnosis etc) is excess deaths per million of population (using mean number of deaths calculated over at least five years).

Mark L.

I think you can compare countries by measuring excess deaths. That we very recently have been recording lower than normal excess deaths in the UK, suggests that the early part of the COVID crisis was killing very frail or poorly folk, who were likely to die within months anyway. It's a grim thought, and every premature death is still sad. All the same, not quite as disasterous for the population at large as we initially thought.

2ShedSam

Timarr, if it is as simple as you suggest e.g. purely a function of lockdown, please explain why UK is nearly twice that of Sweden? There must be other factors at play. There was some suggestion that the Virus had already peaked before the UK went into lockdown in which case your free pass to SAGE is questionable. I have also heard on a political podcast that it was actually Cummings who forced the debate on accelerating the lockdown (remember all that behavioural science nonsense emanating from SAGE) but that wouldn't suit the mainstream media narrative. I agree about the lack of data and general preparedness for a Pandemic but this is a much wider issue than scapegoating a few recently elected politicians. The whole of Whitehall including the Civil Service and other publicly funded bodies need holding to account too as does the media. Personally I think there are many factors working against the UK when dealing with any sort of pandemic. We are very densely populated, very integrated (both internally within UK and externally with the world), very culturally diverse, massively bureaucratic, hugely divided and with a very vindictive media. Consensus is almost impossible and democratic mandates are never accepted. Throw in a bit of incompetency and viola 65k excess deaths. Reality is the UK is a shitstorm...

On a more relevant point. What are your current thoughts on Loopup? I think I read somewhere that you had a tiny (now small) position in them. I personally think they will be squeezed out (too small) but could be a takeover target for one of the telecom/technology giants with deep pockets.

timarr

Timarr, if it is as simple as you suggest e.g. purely a function of lockdown, please explain why UK is nearly twice that of Sweden?

I said that "had something to do with it". I didn't say it was the only reason :-)

Comparing Germany and the UK is reasonable given that they have similar demographics and population sizes - although there are significant differences, too. Comparing Sweden, where population density is lower and social conformity is higher with the UK is less reasonable. Comparing Denmark and Sweden is reasonable.

Sage is only one of multiple agencies feeding into government, they're not the only scientific advisory body and, in the end, it was a political decision - so it's quite likely Dominic Cummings had a role to play in the final decision. Until we get a public inquiry, which BoJo is unwilling to hold presently, it'll be hard to determine the real causes but we do know that if we had locked down earlier there would have been less deaths. Why we didn't is probably a combination of ideological preference, lack of proper data analysis and insufficient testing.

Why those things were as they were is a more difficult question - and, as you suggest, may well have something to do with the underlying political structures. But we elect politicians to sort this stuff out and the Tories have been in power for a decade - at some point this comes back to the government.

Loopup (LON:LOOP) - there's a decent thread from Maddox on this. I agree with him - it's a big market and they have an interesting niche. The recent results show real cash generation and if you think, as I do, that there is a permanent change in how we work then I think they still look reasonable value. But, yes, ultimately the value will be outed by a takeover I reckon.

timarr

raggedtp

Try https://www.euromomo.eu/graphs...

It's the only comparable data I know, but trustworthy, I believe. And yes, some demographics in some countries swinging to below average now..

bohenie

thanks for all these contributions to the debate - Agree its necessary to look at total deaths not just CV19 - Germany scores well here too. Perhaps its more down to politicians. I seem to remember that BJ couldnt be bothered to attend the first few critical CV meetings and so lockdown was late as already pointed out....

Paul Scott

Thanks Michael. Same to you.

You can ask him yourself! ;-)

Not sure when Graham's writing the SCVR next, we tend to just agree it on the hoof on Sundays.

Hi Mark,

This was on my list of things to look at, but didn't get round to it, sorry.

Will try to circle back to it in the future.

Regards, Paul.

Gromley

Also you have to bear in mind the relative populations.

Denmark has a population of c. 5.8m , Sweden about 10.1m.

If Sweden had achieved a similar death rate to Demark, then instead of five and half thousand deaths they would have had a little over a thousand.

Sweden's death rate per 100,000 people is 51, Denmark's is 4?

FuzzyHaha

Very succinct and reassuring Paul.

I'm long on this and also think it could be a multi-bagger but what niggles me is this. It's a similar story to "On the market" Large monopoly player that everyone is happy using as end user, but those paying aren't. I used the analgy of Coke versus "Nobby's Cola" in the pub on the OTB thread a few weeks ago and can't help but think the same with BigDish. They'll be swallowed up by the big boys who can simply run them out of town or modify their own proposition to compete head on.

But we all like the underdog, and It's so tempting to buy more in each time it dips.

No unless I have done something horribly wrong in my sums Sweden is 55 , Denmark is 10

Country	population M	Deaths	Per 100k
Denmark	5.8	610	10.5
Sweden	10.1	5593	55.4

Figures from worldometers

I pulled the data below from the Economist's latest figures. Not guaranteeing it's correct, mind you.

I guess you were using the excess deaths figure? I was using the quoted Covid figure (worldometers) - for Sweden they are close, but for Denmark he excess deaths figure looks to be half of the Covid figure!

Bear in mind though the Economist figures cover 72 days for Denmark and 97 days for Sweden!

18th Jul '20

Bear in mind though the Economist figures cover 72 days for Denmark and 97 days for Sweden!

That's because the table shows excess deaths since the first 50 deaths from Covid - otherwise it's not a fair comparison. The fact it took Denmark an additional 25 days to get to 50 deaths is probably significant as well :-/

Andrew niven

Hi paul, do you ever walk down to the sandbanks side of the seafront.

There Is a great pub accessible from the canford cliffs chine called the cliff, you should try it out.
Also inn on the park accessible from branksome park chine .

Might make a change for you

Regards

Andrew Niven

melody9999

WEY - major red flag for potential investors is the recent director sells. Maybe they think the busines is overvalued too?

Neil Williams

The FT have a graph that I find useful https://ig.ft.com/coronavirus-...

Small Cap Value Report (Fri 17 July 2020) - WEY, GATC

Wey Education (LON:WEY)

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Paul Scott

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