Small Cap Value Report (Fri 25 Mar 2022) - Webinars, WIX, EMAN, STAF, PEBB

Good morning! It's just Paul here today, I think, not certain, can't remember, it's too early. Correction: Roland is joining me today, so we've decided to do some catch up reviews from earlier in the week, as there's not much news today in small caps. We'll get cracking, and there will be a full report up by noon (EDIT: make that c. 13:30!). Today's report is now finished.

Agenda -

Paul's Section:

Brief comments on some interesting recent webinars.

Staffline (LON:STAF) - results for 2021 are a whisker ahead of guidance given in Jan 2022, so no surprises there. Positive outlook. Balance sheet problem debt has been fixed with a placing last year. It's a very low margin business, but there could be a decent trade here, if you think it can beat guidance for 2022. My sector picks would be much higher quality, and reasonably priced Robert Walters (LON:RWA) and Sthree (LON:STEM) for the longer term, although STAF could be an interesting shorter term trade, possibly?

Pebble (LON:PEBB) - 2021 results were published on Tuesday, and are rather good - profit now exceeding pre-pandemic levels. Balance sheet is fine. Cashflow isn't great, with profit being flattered by capitalising development spend. Nevertheless, I think this could be an interesting growth company for subscribers to research further.

Roland’s section:

Wickes (LON:WIX) - 2021 results from this home improvement group show continued growth last year. But sales fell during the second half and one-off factors relating to Covid and the group’s separation from Travis Perkins (LON:TPK) are still distorting the results.

Everyman Media (LON:EMAN) - operating metrics suggest this premium cinema group is enjoying a strong recovery and could return to 2019 levels. But I think a lot of the good news is already in the price. I’d want to see concrete evidence of returning profitability before considering a purchase.

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Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

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Paul's Section:

Webinars

I'm delighted that many companies are now doing webinars for private investors online, as a matter of course. This has been such a good innovation, stimulated by the pandemic of course. I can't remember the last time I went into London for a company meeting, which essentially took up the whole day, if I had to travel up from Bournemouth. Although I tended to bunch meetings together, and stay up in London for a few weeks (I've got a permanent base in London, which is handy, but more for social purposes these days).

Online meetings have been very useful recently, including -

Beeks Financial Cloud (LON:BKS) (I hold) - it's well worth watching the recording on InvestorMeetCompany (IMC) from yesterday. I'm super-bullish on the long term potential for this business, because big contracts are now rolling in rapidly (most recent quarter was 3* previous record quarter for order intake). Management are very open, including freely admitting "our balance sheet needs strengthening, that's fairly obvious", but they're also considering other options for improving financing, including putting larger contracts onto annual up-front payment (instead of monthly), and asset financing for capex. They have strongly supportive institutions, so a placing would be a doddle, I reckon, hence should not be an impediment to investing. After pondering things, I must admit to buying some more BKS shares a couple of hours after the webinar, which can be a mistake sometimes, after reaching peak bullishness due to a good webinar! Sometimes a cooling off period is a good idea.

It's also obvious from management answers to Q&A that they think forecasts should be beatable (so we should expect upgrades in 2022), and mgt sees "a massive amount of growth potential".

The market cap is already up to £93m, so how much further it can go in the short term, in this bear market for small caps & growth stocks, I don't know. It's the long-term that interests me, where I agree with the CEO that it should be worth "multiples" of the current price, whilst admitting "I'm biased!"

I have to sheepishly admit, that I only partially understand the different services Beeks offers. Some of the technical detail in the presentation left me floundering a little, so will have to watch it again over the weekend.

Hostmore (LON:MORE) (I hold) - this is another good webinar recorded on IMC, from 14 March. I've watched it twice now, and cannot believe how low the market cap has sunk. It seems extraordinarily cheap for a self-funded roll-out of 3 brands. Although in a tighter consumer market, I do think the company needs to reduce its pricing. Value for money, the product is not. However, the worrying thing is that management seem to think everything is great. Maybe there's a bit too much focus on gross margin, which can damage a business longer term.

However, listening again to the webinar yesterday, the business is really on the front foot, and they have so many growth initiatives underway, that this looks a long-term winner to me. In the meantime though, the market doesn't like it, and seems to be pricing in a profit warning already.

Interestingly, the CFO indicated that 80% of the shares are held by the top 20 institutions, who are (all but one) firm holders, and highly supportive. He said the selling is coming from small shareholders. At some point obviously the selling will be finished, then the shares should re-rate. When that happens, no idea. As a 2-year hold though, I think it's stunningly cheap, but we can't discount a rough patch in 2022 due to squeezed incomes - although I think the press coverage of this is a little OTT. Next (LON:NXT) confirmed that yesterday, in its guidance, actually raising 2022 prospects for UK sales (but offset for them by loss of Russia/Ukraine business).

Portmeirion (LON:PMP) - I haven't looked at his one yet, but is on the list of recordings on IMC. Energy costs make me a bit wary, but possibly they're hedged, I can't remember? The company is doing a lot of self-help things, and has so far been a very good turnaround, so energy costs might not be a longer term issue. I was talking to oil & gas sector experts earlier this week, who are selling their investments into current strength, saying that the current price is just a spike, and higher production is likely to cause a glut of oil & gas in the not-too-distant future. Especially as politicians have finally woken up to the reality that energy security is actually rather important, and becoming dependent on cheap Russian gas was an incredibly stupid policy from Germany and others.

Virgin Wines Uk (LON:VINO) - quite a good webinar, again on IMC, I thought. Although growth is now quite pedestrian, and wine subscription services are competitive. The share price has lost its fizz, on what was (like so many others) an opportunistic float on unsustainable lockdown growth. The business looks OK, and the valuation could even now be a bit too high, so the webinar didn't tempt me to buy any.

Headlam (LON:HEAD) (I hold) - I've bought back into this, with the webinar from PIWorld reinforcing my view on the impressive results for FY 12/2021. In particular, cash is booming, so a special divi & buybacks are helping to support the share price. This carpet distributor has pricing power, so confirmed it is passing on higher input costs (a key thing right now). Also, a comprehensive turnaround strategy, is improving margins, and opening up the potential for growth (e.g. rolling out successful strategy to grow sales counters - small branches, focusing on winning contracts with larger retailers which had been ignored in the past).

So combined with a modest valuation, I decided to buy back into Headlam. A key point for me right now, is that companies need to be improving their operations in a way which more than offsets the inflationary pressures, and the risk of reduced demand. I don't want to be buying (or holding) anything where investors are just hoping the company copes with macro pressures - they're the ones most likely to warn on profits. The trouble is, the market punishes under-performance twice - firstly by de-rating the share heavily in anticipation of a profit warning, then a second time with a further plunge on the day of the profit warning.

I made a terrible mistake, deciding to look through supply chain issues as temporary. I should have just sold all my consumer discretionary shares last autumn, with hindsight. Anyway, as mentioned yesterday, the damage is done now & can't be undone, and valuations in many cases are now so low, that the upside looks greater than the risk of short-term weakness.

Next (LON:NXT) / Macro - from my recent discussions with a number of shrewd & highly successful investors, the mood seems to be turning, in that market & media gloom is starting to look overdone, possibly. There were some superb reader comments in yesterday's report here I thought, making similar points - keep them coming! I'm part-way through reading the recent results from Next (LON:NXT) which has such a good commentary, as always. They're surprisingly upbeat about the UK. Its commentary obviously mentions all the negatives that we know about, but also points out that wage inflation is +4.8%, and that UK employment is high, partially offsetting a lot of the negatives. So maybe the market could be approaching peak macro gloom? Who knows, as always.

Saga (LON:SAGA) (I hold) - another interesting one, there is a webinar on IMC today at 10:30, so I'll down tools for that.

Many thanks to the subscriber who pointed out the slide deck and results video on SAGA's website here. Again, I'm part way through that, the sunshine coaxed me away from my computer yesterday! There are a lot of moving parts in SAGA's numbers, but the core point is to reverse the heavy losses from the travel division, into profits in future years, and it's then obvious that the group should be decently profitable and able to de-gear. So a 2-year picture, but at some point the market is likely to anticipate that, once the fog has cleared with current worries.

 There are loads more webinars available, but these are the ones which I found most interesting.

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Staffline (LON:STAF)

64p - market cap £106m

Circling back to results from this staffing group, which were issued on Tuesday earlier this week. It also put out 2 contract win announcements separately, so they obviously are keen to get the share price moving up!

There was also a recent boost from Small Company Share Watch (SCSW) - a very good tip sheet with an excellent long-term track record, which featured Staffline. Although that can be a mixed blessing, as it often pulls in punters with a very short attention span, causing short-term spikes up in share price.

Customer Win - no financial details are provided, but STAF says it has signed a long-term contract to supply staff to BMW Group (BMW, Mini, and Rolls-Royce) in the UK. BMW is expected to become a top 5 customer. STAF expects the automotive sector to return to pre-pandemic levels of production in H2 2022 - interesting read across there for the car dealers?

My opinion - obviously a positive for STAF, but remember that STAF makes miniscule margins, and I imagine BMW would drive a hard bargain due to the prestige of suppliers being associated with it. Hence a nice to have type of announcement, rather than a game changer. Also remember that companies tend to announce new customers, but don’t usually announce customer losses, unless they’re material to profits, when they have to!

Contract Win - a separate RNS, to maximise the impact?

It’s a 5-year extension of an existing contract with VINCI Construction, to provide temps, through Staffline’s subsidiary called Datum.

STAF says this “points to encouraging signs of recovery in the construction industry, historically a strong sector for Datum”.

My opinion - again, no financial details are provided, so I assume this contract is again a nice to have, rather than material to future profits.

Audited Results

Moving on to the main announcement, it’s results for FY 12/2021. These were preceded by a strong trading update in late Jan 2022, which I reviewed here, being impressed with the turnaround back into profits (doubled in 2021 vs prior year), and with a much better balance sheet - with almost terminal levels of debt having reversed into a net cash position by end 2021, thanks to a bail out from shareholders with an equity fundraising in June 2021.

Plus the business was only able to get through the pandemic thanks to a flexible bank, and a big deferral of VAT. Still, that’s history now, and the business is now much more stable, and adequately financed.

Staffline Group plc, the recruitment and training group, announces its audited results for the year ended 31 December 2021.

Strong performance across FY 2021, exceeding market guidance

It has slightly exceeded market guidance, to be more accurate!

Actual underlying operating profit is £10.3m (up 115% on LY), guidance was £10.0m

Net cash of £6.9m is exactly the same as guidance in Jan 2022.

Very low margin - note the gross profit margin is only 8.8%, remember that is before STAF’s own costs. So gross profit of £82.8m on large revenues of £942.7m. The revenues are mainly pass-through, being mostly the wages of the temps that STAF supplies. It’s just not a very good business model - working hard, for wafer thin profit margins - what’s the point?! This type of business model leaves no scope for things going wrong, as we’ve seen in the past, with near-death experiences.

Gross profit per fee earner (salesperson) seem very low to me (below). Recruitment consultants should be earning fees well into 6-figures, not just £71.5k, to pay themselves a decent salary/bonus, and leave something left to cover overheads, and some profit for the company. I reckon STAF’s low figures here (although better in Ireland) would mean that the best staff are likely to leave, to earn more elsewhere -

· Significant productivity gains have been achieved as a result of a new focus on incentivisation  

o Recruitment GB: gross profit per fee earner up 14.6% to £71.5k (2020: £62.4k)
o Recruitment Ireland: gross profit per fee earner up 2.2% to £111.5k (2020: £109.1k)
o PeoplePlus: revenue per employee up 18.3% to £62.6k (2020: £52.9k)

Outlook - sounds encouraging -

Current Trading and Outlook  

· The Group has an encouraging pipeline of opportunities emerging across traditionally strong sectors such as automotive and travel as the UK economy continues its recovery from the Covid-19 pandemic

· The Group has today announced a major contract win with BMW and a material extension with Vinci an existing customer, demonstrating Staffline's scale, reach and its capacity for increasing market share  

· Whilst macroeconomic uncertainty has increased, the Group's strong market share in resilient sectors such as food distribution, logistics and on-line sectors provides good visibility of revenues  

· Overall, the Board of Directors is confident that Staffline has the operational and financial foundations in place to deliver sustainable growth  

· We have made a strong start to 2022 and are confident in meeting our expectations for the full year

Valuation - I think it’s self-evident that STAF is a poor quality business - because it only ekes out an absolutely tiny profit margin, for doing a lot of work, essentially managing part of the workforce on an outsourced basis, for its clients.

It also has a chequered past, with lots of problems, bad acquisitions, and an apparently competent previous CEO who cashed out for multi-millions shortly before the whole can of worms was revealed.

Still, we’re investing in the future, not the past, and STAF has managed to survive, and emerge from the pandemic in better shape under new management. It’s profitable again, and has reasonably sound finances, with debt no longer a problem.

So I can see that there is a bull case here, for potentially further recovery in share price. Also, staffing is a good sector to be in right now, with full employment, and upward pressure on wages due to skills shortages. Candidate shortages might allow staffing companies with good quality available workers to boost their margins.

Personally, as mentioned before, I think Sthree (LON:STEM) and Robert Walters (LON:RWA) seem much higher quality businesses, and are currently only rated at PERs of about 11. Why anyone would buy STAF in preference to those, I don’t know. Well, maybe people are looking at STAF more as a recovery trade, which does have some logic, and not as a long-term hold? It’s sometimes easier for a poor quality business making almost nothing in profit margin, to double profits, than it is for a high quality business that’s already maximised profit margin to double its profits.

Overall - if you think STAF is likely to beat forecasts in 2022, then it could be an interesting trade. The business seems to be on the mend, so I can see why some people might like to have a punt on this share. It’s definitely not something I would want to own long-term though.

Bear in mind the shareholder register - an Asian staffing group took a 14.5% stake in STAF a while back, and there was talk of a takeover bid. Maybe that could give a profitable outcome for small shareholders? A recent major shareholder also topped up its position.

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Pebble (LON:PEBB)

103p - market cap £172m

Don’t confuse this share with Pebble Beach Systems (LON:PEB) which is a completely different company.

This share caught my eye on Tuesday (22 March) when it shot up 20% on publication of final results for FY 12/2021.

Although zooming out on the chart to a year, it’s barely a blip in a downtrend, and it looks thinly traded too, judging from the volume bars (a nice recent addition to the standard charts) -

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We’ve covered Pebble here a few times, but I’ve never fully understood what the company does. That the shares always looked expensive, didn’t motivate me to dig any deeper. It’s something to do with promotional goods.

Financial highlights table (below) - shows impressive results for 2021 - now well ahead of pre-pandemic levels of adjusted profit.

Adjustments boost profit in 2021 by 17% compared with statutory profit (and 22% last year). Note the biggest adjustments occurred in 2019, pre-pandemic (relating to the IPO).

The PER is 103p (share price) divided by 5.14p adj EPS = 20.0 times - quite a punchy rating in a very nervous market, for a cyclical business.

These are the two divisions -

Facilisgroup - a small, but highly profitable part of the business, making a remarkable £5.1m operating profit on just £12.7m (nearly all recurring). It’s a SaaS business based in the USA. This looks very interesting. It provides eCommerce software, and the strategy is to accelerate growth - which could be very interesting on such high margins. There was a heavy loss in 2019 though, which would need investigation before buying any shares. It sounds like a better version of Altitude (LON:ALT)

Brand Addition - revenue of £102.4m in 2021, now back above pre-pandemic levels, and operating profit of £7.1m. Again, in promotional products market -

Working in close collaboration with its clients, Brand Addition designs products and product ranges, hosts client-branded ecommerce platforms, and provides international sourcing and distribution solutions…

Our client retention has been high and new contracts won in 2021 will positively impact 2022. Additional sales opportunities also remain from those clients that have not yet returned to pre-COVID-19 levels.

Supply chain - problems have been “controlled & minimised”.

Outlook - I can't get this format right, but here it is, in italics - 

The new financial year has started well and in line with our expectations and the Group Board looks forward to the year ahead and beyond with confidence.

- At Facilisgroup, year to date at 18 March 2022, Gross Merchandise Value ("GMV") was up 57% year on year with Partners implemented or contracted awaiting implementation totalling 211
	- At Brand Addition, year to date at 18 March 2022, the order intake has been positive and sales invoiced or received to be invoiced was up 11% year on year. The supply chain continues to be well controlled

Balance Sheet - looks OK. NTAV is £18.9m, which looks healthy, for the size and type of business. It has £12.1m in cash, with no interest-bearing debt, so that’s fine.

The only item which jumps out at me is receivables seem a little high at £29.4m compared with £115.1m revenues - so customers don’t seem to be in much of a hurry to pay invoices, which can sometimes indicate underlying problems.

Cashflow statement - not great actually. The problem is £4.6m capitalised intangible assets (see note 7 - this is mostly “software & development costs”) (£4.9m last year), which together with lease & interest payments, consumes most of the operating cashflow.

So I think profit numbers are flattered by capitalising development costs, with free cashflow being a lot less than profit.

My opinion - I was expecting to find this share uninteresting. However, we always try to look at companies with an open mind here at the SCVR, and I have to say these results look quite impressive.

Facilisgroup in particular looks potentially exciting, if it can accelerate growth meaningfully, which is the plan. Although the massive profit margin is helped considerably by capitalising development spend onto the balance sheet at a rate which is higher than the amortisation charge.

Based on a quick skim of the numbers, I think this share might be worth readers taking a closer look at, to better understand the group and its prospects. My view is neutral at the moment, because I haven’t done enough work on it, but decent results & positive outlook strike me as a good starting point.

I also like that the share price has fallen heavily in the general market sell-off, which makes a new purchase more attractively priced.

Our friends at PIWorld published a 30 minute results presentation from PEBB here.

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Roland's Section:

Wickes (LON:WIX)

Share price: 185p (+8% at 08.15)

Shares in issue: 259.6m

Market cap: £448m

Final results

“Trade customer order books at record levels”

Home improvement group Wickes was spun out of builders merchant Travis Perkins (LON:TPK) in April 2021. The group serves three customer segments; local trade, do-it-for-me and DIY. Today’s results cover the 53 weeks to 1 January 2022.

The pandemic triggered a huge surge in home improvement activity. Some of this may have been additional work driven by lockdown living, but much of it is likely to have been demand pulled forward.

This implies that we could now see a slump in activity as consumers direct their surplus cash into sectors that were shutdown during the pandemic, such as leisure and travel. Today’s results from Wickes suggest this may be happening to some extent, but the numbers still look quite strong to me.

Financial highlights

Wickes has only been an independent business for 11 months. So we don’t have a long track record of RNS reporting to look at. However, the demerger prospectus includes accounts from 2018-2020, so I have been able to go back and look at comparative figures from before the pandemic.

Today’s results show that 2021 trading was substantially ahead of both 2020 and 2019.

• Revenue: +14% to £1,534.9m (2020: £1,346.9m, 2019: £1,292.4m)
• Like-for-like sales up 13% on 2020 and 18.6% on 2019
• Gross margin: 37% (2020: 37.8%, 2019: 38.8%)
• Adjusted operating profit: +42.5% to £116.3m (2020: £81.6m, 2019: £95.8m)
• Adjusted operating margin: 7.6% (2020: 6.1%, 2019: 7.4%)
• Pre-tax profit: £65.4m (2020: £28.9m, 2019: £22.7m)
• Earnings per share: 23.3p (2020: 10.4p)
• Dividend: 10.9p per share (2020: n/a)
• IFRS net debt: £618.7m (2.8x leverage)

A few quick takeaways from the numbers.

Sales: I’d expect revenue and profits to be ahead of 2020, given the disruption during the early months of the pandemic. It’s good to see sales ahead of 2019, too.

Inflation: Although the falling gross margin suggests some pressure on materials costs, it looks like this is being managed quite well so far. Wickes appears to have been able to pass on higher costs to customers last year, reporting full-year price inflation of 7%.

Profit margins: Last year’s adjusted operating margin of 7.6% is comparable with the reported operating margin of UK competitors:

• Kingfisher (LON:KGF) - 8.7%
• Topps Tiles (LON:TPT) - 8.1%

There’s a big drop from Wickes’ adjusted operating profit to its reported pre-tax profit. This is because the group’s results have included some big adjustments over the last couple of years. For example, the company spent over £14m last year on separating its IT systems from those of former parent Travis Perkins.

I’m willing to give the company the benefit of the doubt for 2021, but I’d hope to see a much lower level of adjustments going forward.

Dividend: There’s a useful dividend, giving a yield of around 5.9% at current levels.

Debt: Net debt appears to be quite high, but may include significant lease liabilities. I’ll look at this in more detail below.

Operating highlights

Anecdotally, it’s still hard to find tradesmen to do work on your home. I know one family member who has been waiting for months for a builder to start a small extension. He has blamed both labour and materials shortages.

High levels of demand may be one factor. Wickes says that Core sales (DIY and local trade) rose by 15.1% to £1,234.7m last year. The company added 80,000 new trade customers last year, taking the total to 630,000.

DIFM (do-it-for-me) sales rose by 9.4% to £300.2m over the same period.

However, sales growth was heavily-weighted to the first half of the year. My sums show that Wickes’ revenue fell by 11% during the second half of last year (vs H1).

Cash flow, debt & balance sheet: Let’s take a closer look at the potential risk areas.

As I suspected, Wickes’ IFRS net debt of £618.7m is driven by £742.1m of lease liabilities, which are reported as debt under IFRS 16.

Excluding leases, Wickes ended the year with a net cash position of £123.4m. This compares to a pro forma net cash position of £125m at the time of last year’s separation. The balance sheet doesn’t show any financial debt at the year end.

I don’t see any obvious concerns here, assuming that the group’s store estate continues to be profitable and actively managed.

Cash generation appears to have been quite strong last year, with operating cash flow before working capital movements rising by 15% to £204.2m.

However, Wickes has spent an extra £50m rebuilding its inventories after Covid disruption and ahead of the peak Spring trading season. These costs, together with lease payments, mean that by my estimate, underlying free cash flow was roughly zero last year.

This may not be a major concern, but I think it’s something to monitor as the twin impacts of Covid and the group’s separation fade away.

Current trading: Trading during the first 11 weeks of 2022 is said to be in line with the same period last year. The company isn’t explicit on this, but my reading of the commentary is that DIY sales have dropped off, but trade and DIFM remain strong.

Trade customer order books are said to be at record levels, but I wonder if any of this relates to supply chain bottlenecks?

The DIFM order book is said to be double that of one year ago, giving management confidence that delivered DIFM sales will be ahead of 2019 levels in 2022.

Outlook: Management expect further progress and believe that trends such as hybrid working, millennial DIY interest and high energy costs should continue to drive demand for home improvement.

However, the board is mindful of current geopolitical and macroeconomic uncertainty.

My view

Wickes is a well-known UK brand with decent market share and a popular offering. The business looks promising to me, and the shares do not seem expensive at current levels.

However, I think I’d like to see a little more progress under normal trading conditions before taking a strong view here. This sector could suffer in a recession and we haven’t yet seen the full impact of the post-pandemic return to normal.

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Everyman Media (LON:EMAN)

Share price: 132p (+2% at 09.00)

Shares in issue: 91.2m

Market cap: £118m

Final results

“Admissions are returning to pre-Covid levels”

Everyman Media is a cinema group which runs 36 venues around the UK. The group operates 119 screens and has a committed pipeline of four new venues for 2022.

The company’s aim is to provide a premium cinema experience. This includes licenced bars, fresh hot food and a range of seating options and a broader-than-usual range of films.

Today’s results cover the year to 30 December 2021.

Everyman appears to be making a decent recovery from the pandemic. Management says that admission from re-opening on 17 May to the end of 2021 were at 87% of 2019 levels.

Since full reopening on 21 July 2021, admissions are said to “have reached 103% of 2019 levels”, although confusingly this is on a “non-like-for-like basis”. I’m not sure what this implies. Even so, admissions numbers seem promising to me.

However, Everyman shares have already made a substantial recovery from the 2020 crash.

Remember that the company raised £16.9m in equity in 2020, increasing the sharecount substantially. Future earnings per share will be diluted, even if profits do return to 2019 levels.

The question for investors today is whether Everyman’s financial position and valuation support a further recovery in its equity value. Let’s take a look.

Financial & operating highlights

• Revenue: £49m (2020: £24.2m, 2019: £65.0m)
• Adjusted operating profit: £8.3m (2020: (£0.3m))
• Reported pre-tax profit: (£5.4m) (2020: (£21.8m), 2019: £2.3m)
• Net cash from operating activities: £12.2m (2020: (£5.4m), 2019: £15.9m)
• Net bank debt: £8.4m (2020: £8.7m)
• IFRS 16 net debt (inc leases): £90.2m (2020: £87.8m, 2019: £86.2m)

KPIs:

• Admissions: 2.0m (2020: 1.2m, 2019: 3.3m)
• Average ticket price: £11.44 (2020: £11.81, 2019: £11.37)
• Food and drink spend: £8.96 (2020: £7.89, 2019: £7.13)

Outlook

Management are optimistic about the current year, naturally. But this view does seem to be supported by strong admissions performance since last July and a good slate of films for the remainder of the year.

Everyman says that admissions momentum has continued so far this year. Based on the firm’s commentary about H2 trading, this seems to suggest that admissions should be comparable with 2019 levels. That seems encouraging.

My view

Everyman says its cinemas are now operating profitably on an adjusted basis, with positive cash generation. The group also reports liquidity headroom of £24.6m, which seems adequate to me.

My impression from today’s results is that if trading continues as expected, the group probably does have the financial resources it needs to return to normal without further refinancing.

However, I’m not convinced that the valuation leaves much room for further gains. If we look back to 2019, we can see that Everyman’s pre-pandemic profitability peaked in 2019, with an operating profit of £4.7m and a net profit of under £2m.

Everyman is expected to remain loss-making in 2022, but the group’s market cap of £118m means that this business is currently valued at around 60 times historic peak profits.

I believe there’s room for this business to continue growing and expanding. But I’d want to see more concrete evidence of improved profitability before buying the shares at current levels.

For my money, Everyman’s share price is already well up with events. Interestingly, Stockopedia’s algorithms appear to share this view, awarding the stock Momentum Trap status ahead of today’s results.