Small Cap Value Report (Fri 24 July 2020) - FCCN, RNO, CALL, BEG, CHRT, HOTC, WINE

24th Jul '20 by Paul Scott

91 comments 9720 reads

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

Update at 13:07 - Today's report is now finished.

I nodded off after lunch yesterday, so there's still a section missing on Cohort (LON:CHRT) . I've been through all the accounts, and taken notes, just need to write them up. So I'll catch up with that later, and indicate here when it's done. Now done - it's in today's report below.

UK retail sales for June have come in reasonably robust in the circumstances, down -1.6% year-on-year (better than -6.4% forecast).

UK PMI survey data (confidence) have just come out, and look surprisingly strong. Composite PMI (flash, for July) is 57.1, versus 47.7 in June. That's very reassuring indeed. Similarly strong PMI data has also come out today in France & Germany. Therefore, it looks like economic recovery in the UK and Europe's biggest economies, is well underway. That gives me more confidence to sit tight on my long positions, and that the time for shorting may have now passed? Possibly? Nobody knows, because markets anticipate these things, and hence often do the opposite of what we might expect.

Face masks in shops, etc, become supposedly compulsory today, but police say it's unenforceable. I'm finding it bearable, wearing a light, cloth face covering, that's reasonably comfortable. So it's really not a big deal, and can only help (ie. it can't make things worse).

French Connection (LON:FCCN)

Share price: 11.5p (up over 100% today, at 13:09)
No. shares: 96.6m
Market cap: £11.1m

(I'm long)

Refinancing

The RNS is actually called "Trading Statement", but I've renamed it to be more accurate!

This is a bit of a game changer. I was worried that FCCN might run out of cash, and go bust. However, that risk has now disappeared for the next 2 years, because it announces today a new £15m working capital facility with Hilco (restructuring experts). FCCN says this is sufficient for its needs. Hopefully Hilco might give FCCN a push to do a pre-pack administration on the moribund stores portfolio? FCCN did not qualify for Govt financing schemes, but hints that it has deferred tax and other payments, which will need to be paid sooner or later.

Collection of wholesale receivables (a substantial part of the balance sheet) better than expected during the lockdown period - good news.

Own website sales up 24%…

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Laughton

25th Jul '20

"Of course, perhaps they're so busy being angry about things they haven't noticed that UK retail has already recovered to where it was before lockdown ..."

Has it? If so, I'm amazed. Assuming that you're discounting online sales.

Time will tell I guess. Personally, I'm expecting retailers (excluding online) to start complaining before too long that footfall and sales are still, or more, depressed despite mandated face masks and the government to then guide that as things are now much better then masks in shops now recommended but no longer necessary to be mandated.

Off to the gym? Luckily, no masks needed there.

Hopefully the above not misunderstood as a "rant".

timarr

Has it? If so, I'm amazed. Assuming that you're discounting online sales.

If I’d meant that I’d have said that. Retail spending up 10% YoY in June, online spending up 48%. It would be very optimistic to expect that to reverse significantly by merely freeing people from the tyranny of light cloth face coverings. The economy is recovering nicely so far, it’s just doing it in a different way.

Most of the posts about masks here aren't investment related at all. The "investment" case is simply loose cover for people to express their strongly held but largely unevidenced beliefs. A true discussion would go look for some actual data rather than simply expressing opinions. For instance, this from Goldman Sachs on the potential economic impact of a face-mask mandate in the US:

https://www.goldmansachs.com/i...

These calculations imply that a face mask mandate could potentially substitute for lockdowns that would otherwise subtract nearly 5% from GDP.

The gym is fine without masks because people in at risk groups won’t go there, they don’t have to. The same isn’t true for retail generally which lots of old and vulnerable people have to use as they don’t have alternatives. Putting up with the minor inconvenience of a mask in order to reduce their risk even a tiny bit is a small act of kindness that costs the wearer almost nothing.

UK_Investor_8888

Lip reading

Facial expression

Smiling / teeth expression

Clarity of voice

For those of us who are hard of hearing, softly spoken, autistic, asbergers, and with anxiety issues, there is a significant cost to face masks. This has never been done in The UK before.

Don't assume that whilst its not a problem for some, it isn't a problem for others.

There are numerous Disabilities Acts setting in law the principle that we must not discriminate against members of our society.

What's that got to do with investing?

Timarr

Professor Jonathan Van Tan himself, the most eminent expert in Respiratory Diesease in the UK, back in March/April did not think then that there was evidence that Public wearing of masks was a significant tool.

There is IMHO evidence that for 99.9% of people COVID-19 is not a life threatening disease.

The perceived threat is therefore over exaggerated, the masks largely theatrical props for The Public where at any one time 99% of people we encounter do not have a transmittable form of the disease.

Personally, I'm staying away from the emporiums as much as a I can to have the easiest life.

I had to visit Evans Cycles this morning (to get a race wheel trued): Evans Cycles are very busy. Couldn't do me so a one man band bike mechanic did it on the spot and he's working 7 days a week at full capacity.

Clearly the bike and e-bike industry are having a good pandemic.

I await hard sales data with baited breath on retail.

My only retail stock is Scs (LON:SCS) . Paul's comments on the lack of a positive trading update and the recent significant pull back in builders £TW Persimmon (LON:PSN) for example, shows we've still got big problems.

Good luck!

Because, Timarr, there are millions of consumers (market participants) in this country/economy severely effected.

And if the death/autistic/mute/disabled can't participate in the economy as before everybodies shares don't perform as well.

You make less money.

You lose the benefit of some of their contribution to the economy and their tax contribution.

GrahamF

What about the cost of not wearing face masks if infection spreads more rapidly or widely as a result? That could result in another lock down, causing the economy to crash even further and many share prices to plummet.

Other countries seem to be able to manage this (i.e. mask wearing). If Spain, Italy, France and Germany can do it why can't we?
https://www.statista.com/statistics/1114375/wearing-a-face-mask-outside-in-european-countries/

Previously fascist/axis countries with a tendency towards left-leaning authoritarian government: note the extremism of the French and Spanish authorities' lockdowns.

That other european countries did it, does not necessarily mean or prove that the masks did or did not have an effect.

The second (subsequent) waves may or may not happen irrespective of the masks.

For example, if COVID-19 got into a water supply, food, clothing, gym, care home, transport system, etc.

As a free-marketeer minimal-government-ist, I would rather The Government policy be that the show must go on despite a minor surgence of one minor disease when all other disease is ignored.

Why is HM Gov allowing all these "variances" to the mask policy, for example for the shop workers, sandwich providers, pubs, gyms, etc?

They don't know what they are doing: Boris's Government flip-flops and deviates due to media pressure, not logic.

It does not have to follow that a rise in R or cases needs a full lockdown. More granular localised lockdowns, on a case by case basis, would be less economically destructive.

How many cases were there in darkest Eaat Anglia or the periphery of Cornwall?

Still nothing to do with investing. Can't you take this off to a political website rather than cluttering up the posts here?

marigold

https://www.meehanmd.com/blog/2020-06-12-healthy-people-should-not-wear-face-masks/

Show us how, Timarr.

Nice, Marigold.

I think face masks are a theatrical prop rolled out now the outbreak (small compared to the cost of smoking, diesel, obesity, etc) is contained.

Oh Thank Goodness all those politicians spared us from a winter flu and gave some of us our money back. We best do what they say or else we might end up on a ventilator. Rishi will cover the bills.

Show us how, Timarr

Write to your MP. Set up a petition and get a debate in Parliament. Strip naked, paint yourself red, white and blue and chain yourself to the gates of Downing Street.

Because if you feel this strongly about you should do something affirmative rather than just posting about it on an obscure investment website.

john652

Here’s how, all mask discussions into the Lockdown thread, i had many a damn good rant in there about that and still could about all the incompetence of the state, this week masks, then gloves, and something else next week for sure, it is inevitable that more madness will follow, but it should live elsewhere. Muzzle thyself mask commentators

https://www.stockopedia.com/content/lock-down-586923/

Oh dear.

At this rate the Stockopedia discussion board is going to become a shadow of it’s former self.

Gloves!

Don't give them ideas. After that, it will be personalised bog seat covers.

Already way ahead of the curve:- Some of us are trying to get the economy back to normal.

JJB1

26th Jul '20

I agree. This site is a great venue for high quality ideas, high quality commentary and great feedback on stocks, shares and markets. It is a shame it is competing with discussions, albeit very important and interesting but not directly linked to financial markets.

I have been patiently been waiting to add to holdings in Easyjet and Dart and wonder whether next week may be an opportunity. I understand they are both still well capitalised and therefore able to withstand some more short term pressure. Still short John Menzies.

JamesHolmes

Instep with the best!

Gromley

27th Jul '20

In the interests of full disclosure (not that I imagine my views have any influence on the market) I should just add that I did have another look at Indivior (LON:INDV) over the weekend and concluded that it is too complicated for me to want to take further at this time.

So I sold out this morning for £1.50. (Missed the top) Nice to have made a months income over the course of the weekend, but I am kicking myself for not being braver, it was obvious that this was good news that had not been fully reacted on giving the timing.

Not taking undue risks is all well and good, but when you KNOW you are right,sometimes youjust have to back yourself.

It is not the first time that I have underinvested in an extremely high probability scenario - I need to give this some more thought I think.

Small Cap Value Report (Fri 24 July 2020) - FCCN, RNO, CALL, BEG, CHRT, HOTC, WINE

French Connection (LON:FCCN)

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Paul Scott

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