Small Cap Value Report (Fri 21 Aug 2020) - SOS, RBN, SUR, VANL

21st Aug '20 by Paul Scott

36 comments 8983 reads

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

Today's report is now finished.

Catch up day! Today I'll be writing about;

Sosandar (LON:SOS) - interesting points from my call with management

Robinson (LON:RBN) - results from Tuesday

Sureserve (LON:SUR) - trading update from Weds

Van Elle Holdings (LON:VANL) - final results from Thurs

Sosandar (LON:SOS)

15.88p - mkt cap £30.5m

(I hold)

Call with management -

Subjectively, management struck me as more confident & calm than previously.

Key points;

Marketing - the TV ads in autumn, and early spring, lead to a large number of new sign ups, registering interest on Sosandar's website. These then often convert into sales at a later date, as emails & direct mail catalogues stimulate buying interest. Hence sales growth this year has been boosted by last year's marketing spend. Database now much bigger, so can utilise free channels (like email), and social media posts. Hence marketing activity ongoing, but drastically scaled back in spending terms, to conserve cash. Still getting a decent (but reduced) number of new sign ups on website. Intention is to cautiously expand marketing spend in Sept onwards for peak season. Likely to be about half level of last year. Will flex marketing activities depending on what works best at the time. Was overly reliant on Facebook ads, broadening it now. Will split marketing spend in future about a third each in: social media, direct mail, and TV. Customer acquisition cost is c.£40 - 1 year payback (2 orders).

NB - cost of marketing is now falling, as there's less competition for online ad spend, and TV, due to competitors reining in their marketing spend.

Cash burn - as stated in RNS, virtually no cash burn from May-July. I (mistakenly) thought that creditors must have been stretched in order to achieve this (e.g. VAT, payroll taxes). CFO confirmed that there has been no deferral of VAT, and only a low amount of other taxes deferred (with agreement of HMRC), under £100k. This is very significant. It means the business genuinely ran at cash breakeven for 3 months May-July. True, those conditions were not normal - e.g. a lot of staff furloughed (most are now back at work), and cash is likely to be needed to stock up for the peak…

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pj8

21st Aug '20

Si, my understanding is that the multiplier you quote is more appropriate for a closed economy. For an open economy, as the UK's is now, part of the effect seeps abroad (through value going to foreign owners, manufacturers, labour and providers of services) so whilst a high rate might apply globally, for the UK itself, the effect is diluted.

Gromley

Interesting point about the ripple effect of the stimulus Si, there are certainly many ways that you can see this can flow through to further output, but I would say it takes a massive amount of guesswork to identify the scale.

When I used to have a lot to do with economists it was always seen that the best way to stimulate the economy was to put cash in the pockets of the lowest paid as they were most likely to spend it and create the ripple. As things stand though many would be more likely to do some frivolous like pay the rent to avoid eviction.

This I think one of the challenges at the moment as there is quite a gulf between 'winners' (still in a job and probably with pent up savings from the lockdown period) and 'losers' (lost job and financially challenged across the board). Whilst we currently seem to be getting quite a lot of stimulus from the winners, unless tackled the losers could put quite a drag of the 'v-shaped' recovery over the next year plus.

simoan

pj8,

Thanks! That's interesting and obvious with hindsight. I have no economic training whatsoever, not even an O level. Perhaps it's something I should get more interested in but my preference is for behavioural economics.

All the best, Si

cmpeckham

"...once that £10 ripples through the economy it is worth more like £80-90 of stimulus"

I think that might be a misunderstanding. If £x of stimulus generates another 8 or 9 times £x of stimulus, then you would pretty soon have an economy approaching infinite value, even if that stimulus did very little.

The fiscal multiplier is often discussed in terms of £a of stimulus being worth £b in value of increased GDP, which I think is what you were referring to. The mutiplier is b/a. But estimates of that "multiplier" are typically much lower than 8 or 9. Proponents of govt spending might claim a multiplier of 2, but not 8 or 9. Perhaps your friend was saying that the initial £10 is re-spent 8 or 9 times? That's a related but different question.

The actual value of the multiplier is very much dependent on the context and the method in which the initial stimulus is applied. If the economy is flat on its back and the stimulus is well targeted, which might well be the case with this £10, then the mutiplier will be high. If the economy is roaring along and the "stimulus" is tax cuts for the wealthy (who will have a low "marginal propensity to consume"), then it's likely to have a multiplier of less than 1.

stockscreen

On Robinson’s, the AGM presentation has the surplus property at £10m+, which seems a useful amount for a company with a £25m market cap. Intended for future capex, which could be transformative in the hands of a recently refreshed management team. I’m a shareholder.

Equity Development

Thx as always , Scotty. Good piece on VANL and it will be interesting to see what difference a new management team (and almost a new Board) makes when comparing past performance and ratings. All companies need decent markets to operate in, but there is a lot of 'self-help' in this one to contribute to growth as well.
Enjoy w/end

Tommy H

A quick question, I have been watching Yellow Cake (LON:YCA) for a while now and looked to pick some up this morning, but Halifax basically said they did not think that the share existed no matter how you searched for it...

Is this adding to the get on with changing platform to Ig Group (LON:IGG) or Hargreaves Lansdown (LON:HL.) ?

Thoughts appreciated...

Tommy

stegga1000000

Give them the ISIN code, for yellow cake is JE00BF50RG45.

ed_miller

"....After all, all other human pandemics have been overcome, since the beginning of time, otherwise none of us would be here!"

The worst of the bubonic plague outbreaks (such as that which arrived in England in 1348) wiped out half the affected populations.

We are fortunate to live in modern times.

Simon Rowan

I think the RNS attributed by Stockopedia from Geoservices about seismic survey to SWG is in fact a completely different company in Norway. Nothing to do with SWG. Possibly confused with GeoLang?

FREng

Try A J Bell. Yellow Cake (LON:YCA) is easy to trade there.

wildshot

I use IG and was able to find Yellow Cake very quickly in the search function. Trade 3 times in the prior month at £8 a trade then your trades are £3 a trade the next month with IG for share dealing. Not an all singing or all dancing platform but it serves my purposes. (I just find it odd that you can use stop losses on IG for spread bets but not for share holdings.)

sharw

Called it up instantly on ii and x-o but, like you, iWeb (part of Halifax) denied it existed

davidjhill

hi rmillaree

Yes, the face coverings bit bothered me a little too, mainly because I dislike wearing them intensely. However, so many people seem less fazed so I wonder if I'm an outlier.

I once spent a while creating a load of jobs abroad in another English speaking country. In tax discussions with the Government officials there they valued my £ at roughly 2.5* In other words for every £30k job I put on the ground they estimated a ripple effect of £75k+ through the economy. They were therefore very happy to offer generous tax breaks to win my business. This is a similar effect on a bigger scale.

Thanks Paul - I tend to agree. Only two things put my off the bowling sector

1) Management say they are easy spaces to social distance yet the Government kept them closed right until last so do they not agree and if so why not?

2) The mandatory face coverings effect

Before I buy any shares I am tempted to book a lane for a couple of games and see how busy they appear to be. It would, of course, be a little more helpful if I knew what the pre covid looked like so I had a comparison so maybe my logic is flawed there.

john652

22nd Aug '20

Revolution Bars (LON:RBG)

Mark Ward has popped up today with a 4% shareholding here. Anyone know who he is?

mesb

might be coincidence but there’s a freelance interior designer on LinkedIn with his name and mentioning work done for RBG.

I think that might be a misunderstanding. If £x of stimulus generates another 8 or 9 times £x of stimulus, then you would pretty soon have an economy approaching infinite value, even if that stimulus did very little.

The fiscal multiplier is often discussed in terms of £a of stimulus being worth £b in value of increased GDP, which I think is what you were referring to. The mutiplier is b/a. But estimates of that "multiplier" are typically much lower than 8 or 9. Proponents of govt spending might claim a multiplier of 2, but not 8 or 9. Perhaps your friend was saying that the initial £10 is re-spent 8 or 9 times? That's a related but different question.

Hi cmpeckham,

Thanks for the economics lesson. I think you'e correct and I have misremembered what he was saying (it was a few months ago) and that the 8 or 9 factor was the number of times the original £10 is recycled within the economy, not a direct multiplier. At least I remembered the basic principle!

Personally, I'm more interested in the behavioural economics of the £10 EOTHO offer. Virtually everyone I know that has used it has had something extra (another course, more expensive bottle of wine, and even a £10 cocktail!) they would not otherwise have consumed without the £10 offer. And of course when it comes to alcohol, this is where the restaurant really makes their margin. This was entirely predictable to a behavioural economist and even the friends I explained the power of the "free £10" to, and who could not understand why the government had done such a "silly" thing, have succumbed when they have used the scheme.

EOTHO is an incredibly powerful "nudge".

Anthony127

RD Howarth

Thank you for your interesting analysis.

It is unclear to me why US Housebuilding has done so well due to very low interest rates whilst UK Housebuilders who also enjoy very low rates have not made much progress. Part of the reason is I think that most of our Banks are being very conservative and insisting on 15% deposits. This requirement does seem rather harsh and should I think only be applied on a case by case basis.

Persimmon does appear to be the sector leader in many ways and certainly leads in terms of the headline ratios including ROCE, Operating Margin and Relative Strength.

Another ratio which I think is important in Housebuilding but isn't quoted so often is the Book Value per Share. The 5 year CAGR Book Value per Share for Persimmon (LON:PSN) is 7.4% whereas for Redrow (LON:RDW) it is 19.2% and for Springfield Properties (LON:SPR) it is 30.2%. This suggests to me that the headline ratios for Persimmon may not be representing the power of compounding that one would expect from this company. This may be partly due to share based payments and was obviously the case in 2017 when excessive payments were made to some directors.

On the question of Springfield I think the increase in EPS forecasts are largely due to the expansionary nature of the company and the large increases in debt and share capital that have been recently applied.

You also mention Crest Nicholson Holdings (LON:CRST) which also appears to exhibit good value. Although the Investors Chronicle tipped it as a Sell yesterday I believe that its recent fall has been disproportionate to the facts.

I think all the Housebuilders mentioned are certainly worthy of further investigation. I think the main question to consider is at what point does the new business cycle begin in earnest?

Small Cap Value Report (Fri 21 Aug 2020) - SOS, RBN, SUR, VANL

Sosandar (LON:SOS)

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Paul Scott

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