Small Cap Value Report (Fri 22 May 2020) - AIR, DPP, OTB, HEAD, KGH, BLV, AAZ

22nd May '20 by Graham Neary

90 comments 12112 reads

Morning!

If news flow is quiet, I'm happy to take requests for today's report.

Cheers,

Graham

Somebody requested that I do "Rockin all over the world" - not exactly what I had in mind!

Forming a list for today:

Air Partner (LON:AIR)
DP Poland (LON:DPP)
On The Beach (LON:OTB)
Headlam (LON:HEAD)
Knights Group (LON:KGH) (from yesterday)
Belvoir (LON:BLV) (from yesterday)

Finished at 6pm.

Air Partner (LON:AIR)

Share price: 72.6p (+2%)
No. of shares: 53.5 million
Market cap: £39 million

Full year results for year ended 31 January 2020

Many thanks to Tamzin for recording an interview with the CEO at Air Partner. These videos from PIworld are always very professional and high-quality - thanks Tamzin and Tim!

As the name suggests, this is an aviation services group. It does not own any aircraft, it is purely a service provider.

We've covered it plenty of times in the archives, most recently in March. I said "I think the company needs to tighten its belt now, to work its way back towards a more comfortable financial position".

Today's results

The year to January 2020 was a tough one.

And net cash turned into net debt after a £10 million acquisition:

The results shown above include the input from the acquired business. So the like-for-like (organic) performance is slightly worse, e.g. like-for-like gross profit is down 5.3% (not 3.7%).

The Charter division had a tough year, "impacted by Brexit, late UK election and the lack of a one-off event requiring urgent action".

There is usually some disaster requiring emergency charter services, or a big sporting event like the World Cup, but that didn't happen in this financial year. There was also a reduction in business from a key UK customer.

The goal of the acquisition strategy is to diversify and reduce the group's exposure to the volatility of this Charter division, which is still responsible for most of its gross profits.

Current Trading / Outlook

Disaster certainly struck in the last few months, and the demand for AIR's charter services took off. There…

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CamRaid

22nd May '20

thanks Graham.

rmillaree

simoan
Marston's (LON:MARS)
Only last week I was discussing the value situation at Marston's (LON:MARS) with someone in this comments section

That was me - i basically said it was a crapshoot investment due to the debt at present - if i remember you thought i was saying the share was a basket case when i simply meant there was a high level of variability to be expected in the end result, nice result from where we were yesterday but a very poor overall situation compared to where we were pre covid - where the shareprice was well over 100p. We can't turn back the clock though - i was kinda hoping they may get away with doing nothing and therefore give themselves the chance to get back on track once normality resumed. Have they sold the crown jewels and removed alot of the future upside ? - unknown but hopefully not - the doubling in shareprice confirms that mr market thinks or knows that this is a good deal based on where they were yesterday (a very distressed place!). It will be interesting to see what the discount to book value is now with what is left. If nothing else the cash will definately come in as useful. Well done to anyone who was brave enojugh to add or near the bottom here.

hayashi22

Idly sat by the computer and saw the Marstons announcement come up. Sometimes you just have to act...bought some at 40p. No analysis just a gut feel it was going up rather more.

Edinburgh Investor

just to point out if you go to the main Naked Wines report and click on discussion you can see all the previous assessments by Paul and Graham. There are a few.

davidhowman

At least we were spared a rendition of "Rocking All Over The World", had we got one I would have telephoned The Donald and asked him to arrange an 'extra ordinary rendition'. Great report as always, place your bets and hang on for the ride !

grout123

I heard M&S merging with Pound-stretcher. Its gonna be known as StretchMarks

simoan

23rd May '20

Have they sold the crown jewels and removed alot of the future upside ? - unknown but hopefully not - the doubling in shareprice confirms that mr market thinks or knows that this is a good deal based on where they were yesterday (a very distressed place!).

No, they've not sold the crown jewels unless you believe life will never return to normal and no-one will ever go to pubs again. The reason this is such a good deal is because brewing is the lowest margin part of the business by far e.g. FY19 it was 33% of revenue but only 18% of operating profit (excluding Group Services). The operating margin for brewing was 8.4% whilst the other pub businesses jointly generated margins over 20%. Also the brewing properties are on the balance sheet with a fair valuation of only £54m so the tangible asset value will not be much changed. And of course, they will still own 40% of the enlarged brewing business if the deal goes ahead.

It reminds me of the deal Fullers struck with Asahi last year, although that was a complete sale of the brewing business, so maybe this was something they had been thinking about for a while. And once the brewing business is gone, who's to say what's left does not look really attractive to someone else at the current market cap?

All the best, Si

Archaic

Si, I have found your insights well thought through and very helpful, may I ask a question of you and the community again. I invest in the market using The Share Centre platform. Recently I have tried to invest in a couple of funds HL Select Global Growth; Pictet Biotech Fund (French) ; and Prologis (a US company) all of which were refused by TSC. The stated grounds are that they can only be bought directly by the Fund Manager (minimum £100,000 purchase) or if there have been several client requests to put a foreign share on an accepted dealing list. Stockopedia provides a global coverage of shares to invest in, fantatstically useful unearthing interesting companies outside of the normal view. I have a desire to be a bit more adventurous in seeking high ranked companies outside of the UK. Do you have a view on which platform is best for achieving that ambition if I cannot persuade TSC to assist me on my journey? Not directly UK SCVR companies, but this forum has always provided sensible advice, so I thought I'd seek yours and other readers' experienced views on the best trading platform to use here.

LongValue

Simply adding a few points to Graham’s Anglo Asian Mining (LON:AAZ) commentary. And I should make clear that I am an investor in the company.

It’s a low-cost Gold producer with an All-in Sustaining Cost of just US$591 per oz. Very importantly, it’s debt-free. Unlike most AIM resource stocks, Anglo Asian pays a dividend (It looks to pay at least 25% of its FCF in dividends). Again, unlike most AIM resource stocks, the company has not diluted shareholders' interests - raising no funds from the market since it IPO’d in 2005. Some 42% of its stock is owned by its management. There is alignment with shareholders but they can do what they want with the business.

Production is largely from one open-pit mine. That’s Gedabek, with a life of mine to 2024. It's currently working on a JORC that it expects will extend the mine life until the 2030s - but this will be an underground development and costly. It also has some five Gold mining projects in Azerbaijan with the earliest set to go into production in 2022.

It has a Production (Profit) Sharing Agreement with the Azerbaijan Government. So, for now, it pays a royalty of around 12.75% but this will increase to some 51% when all past costs have been recovered which looks likely to be in 2021. However, an extension of the mine’s life will, I believe, result in further costs so that the royalty figure of 12.75% will probably remain the same.

Thus far, COVID-19 has had little impact on its business, adding some US$100,000 to its monthly running costs.

For sure it’s risky. The country lies between Russia and Iran. And much depends on it replenishing its flagship open-pit resource. But it’s profitable and paying dividends. The same cannot be said for many quoted companies both here and abroad. The backdrop is the Gold price. If this collapses then so does the fortunes of the company. And it will need a significant amount of money (Debt) to expand its operations at Gedabek. Of course, should Gold go higher then the share price is likely to go with it. In my opinion, the JORC report due in Q3 2020 will be key - that will define the company.

Silver Moon

More than a few Stocko aficionados must have taken fright at Graham's words on Anglo Asian Mining (LON:AAZ) as it slumped 8 pence over the day, I like it anyway.

24th May '20

Stockopedia provides a global coverage of shares to invest in, fantatstically useful unearthing interesting companies outside of the normal view. I have a desire to be a bit more adventurous in seeking high ranked companies outside of the UK. Do you have a view on which platform is best for achieving that ambition if I cannot persuade TSC to assist me on my journey?

Archaic,

I'm not sure I can be too much help here. In particular I don't like giving out advice so please take what follows as a description of what I've found. Please DYOR on broker accounts to find one that fits your own needs before making any financial decisions.

I believe most good brokers will allow you to invest in International stocks, including the likes of Hargreaves Lansdown and AJ Bell but most hit you with a loaded exchange rate because they do not allow you to hold cash in foreign currency in their dealing accounts AFAIK I hope someone else will correct if my understanding is wrong.

Outside the UK I only deal on the US markets, and for reasons I won't go into I have long had a USD cash account. Over the years many brokers have stopped allowing customers to hold foreign currency in dealing accounts and so I've ended up with IG share dealing. I believe their dealing and exchange rate charges are reasonable compared to the other big platforms, although this isn't something I keep an eye on as needs must. They also seem to allow dealing on a range of other overseas markets, of which I have no experience. However, it Is just a share dealing platform so doesn't support OEICS etc. and like many other brokers there is some kind of charge if you don't deal at least three times per quarter.

BTW this isn't an advertorial for IG! It's just an account that meets my own personal requirements for dealing US shares. It probably won't be suitable for others.

ken mitchell

Archaic

You and anyone else reading this will almost certainly know this, bit just in case not, Investment Trusts are a great way to invest all round the world, , and on a wide variety of interesting sectors. Trustnet is a good source for info, but I find aic easier to use.

Also some of them are now covered on Stockopedia stock pages.

www.theaic.co.uk

john652

25th May '20

Re J D Wetherspoon (LON:JDW)

* Face masks and protective eyewear provided (extra operating cost)
* Around 10 hand sanitiser stations in each pub (extra operating cost)
* 2 new FTE employees in each pub to implement measures (extra operating cost)

This from Tim Martin, i don’t believe it! To me this is complete nonsense and might be the intention, but not the reality, in this fear & madness stage (160 page guide for opening schools anyone?)

£10 to anyone who captures a picture of Wetherspoons pub with the patrons sitting in facemasks & safety glasses, leaning over to hand sanitise between sips , fussed over by two ‘sanitizing officers’.

Forgive my cynicism but no way is this going to happen. Spain had one of the most strict rules in the world, bars are now open with 2 meter distancing per table. After two weeks the general behaviour is back to normal, still social distancing but no one sipping an Americano in a hazmat suit.

Spain is rowing back the extreme rules extremely fast because the population are not having it and the economy is heading for implosion. A few weeks ago the ‘scientists’ had no one out, no tourism & schools maybe never reopening. That has all changed because the reality has dawned on them....protect the vulnerable but not at all cost.

Im not quite a buyer of Revolution Bars (LON:RBG) but i don’t see why the uk wont follow spain & italy etc on the way out ( they followed them on the way in), and the bars, restaurants and tourism will return. The UK simply cannot afford to not have a functioning leisure sector, and thats forgetting the fact people are social, and they will socialise. Maybe a leisure etf.

Edit: todays paper, uk is trailing EU, this is what the Uk will see, and subsequent need to relax the rules & urgently getting the economy restarted.

https://www.telegraph.co.uk/business/2020/05/24/boss-britains-biggest-recruiter-warns-tsunami-job-losses-furlough/

timarr

£10 to anyone who captures a picture of Wetherspoons pub with the patrons sitting in facemasks & safety glasses, leaning over to hand sanitise between sips , fussed over by two ‘sanitizing officers’.

The PPE is for staff, not patrons, so I think your tenner is safe ...

Sounds attractive, doesn't it?

But we don't need to guess at Mr Martin's expectations, the J D Wetherspoon (LON:JDW) trading announcement accompanying their surprise placing laid them out:

The principal assumption is that like-for-like sales will be minus 10% for the first month after reopening, increasing by 2% per month, and levelling out at +3%. Sales were about +5% in the 18 months before closure, therefore it is assumed that initial sales will be about 15% below pre-closure levels.

They give the financial impact of those estimates, plus a worse case, in the following:

https://www.rns-pdf.londonstoc...

In the best case scenario they see revenue halving next year and then bouncing back in 2021. In the worst case it'll take to 2022. Roughly that looks like they're loss making next year, possibly in 2021 as well. How you value it I don't know, but they will obviously survive. The Stockopedia forecasts don't incorporate these figures, btw.

Bear in mind that 'Spoons has a lot of spacious pubs and a lot of outside space, some of the competition will struggle with social distancing. The cost of all of this protective stuff to J D Wetherspoon (LON:JDW) is £11 million, which they can easily afford. For less well funded bar groups anything equivalent is going to hurt. You have to suspect that part of the reason for the placing is to arm the war chest.

Tommy H

Hi There is an article from Micheal been posted today on this

Thank you very much for taking the time to share your views. I am grateful and always take the views expressed with a DYOR caveat. Thanks again.

Dear Ken, thanks for your comment. I have used Trustnet before as a check on IT's by sector. I will follow up on theaic.co.uk. Thank you for bothering to provide the advice, much appreciated. Best wishes.

Wilbraham

A follow-on question. Does anyone have recommendations for a 'quality' discussion forum for US companies? A quick google didn't bring up anything helpful. I thought maybe Motley Fool might, as they used to host a UK discussion forum, but no joy. SeekingAlpha often features articles about a company by an investment professional (not sure if they're paid-for or genuinely independent) followed by perhaps a dozen comments from readers - so not a full discussion board. Perhaps the major US retail brokerages do - but would they be open only to clients?

Ideally I'd be looking for something close to Stockopedia levels of discussion, as opposed to advfn, lse etc. Maybe the problem is there's so many US PIs that any decent discussion forum would be drowned in dross?

26th May '20

Hi Timarr

For the staff :) in this climate of silly rules i assumed the patrons, who during the day are the high risk group, but clearly fearless as most must have pre existing conditions I suspect.

Good points. J D Wetherspoon (LON:JDW) could well be last man standing but although i think the uk rules will be softened rapidly i’d suspect social distancing will be the last to go. Would it mean the extra business they pick up is enough to offset the losses and impacts, who knows.

I have never invested in a pub business and now they look far worse investments than ever, even with possible rent reductions or moving premises to a cheaper locations ( but this would take years for enough to move to have a meaningful impact).

A fascinating area to watch non the less!

abtan

28th May '20

For any followers of Air Partner (LON:AIR) , note the following published yesterday on the Air Partner blog. regarding their Private Jet segment (bold is mine):

May 27th 2020

https://www.airpartner.com/en-...

"As governments across the globe begin to ease COVID-19 restrictions, Air Partner’s global private aviation team saw more than a 210% increase in request volumes for future flight bookings during May, compared to last May. This uptick in inquiries is for private flights heading into June through August, with many clients – ranging from individuals to corporations – seeking alternative solutions for flying to frequented leisure destinations or traveling for essential business matters."

It's worth adding that this post (rather strangely) only appears on the "USA" section of the website (why do they have more than one English language blog?), so I can't tell if the 210% figure relates to only the Private Jet segment in the USA, even though the exert above clearly states "global private aviation team."

FYI in H1 2019-20 (Y/E Jan 31st 2020) Private Jet:

- Revenue = £12.8m

- Gross Profit= £6.0m

- Admin (inc. depreciation) = £4.3m

= Underlying Operating Profit (bal) = £1.7m

Small Cap Value Report (Fri 22 May 2020) - AIR, DPP, OTB, HEAD, KGH, BLV, AAZ

Air Partner (LON:AIR)

Current Trading / Outlook

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Graham Neary

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