Small Cap Value Report (Fri 26 Nov 2021) - SCS, MOTR, STU, DX., HEAD
.jpg&w=384&q=75)
Good morning! It's Paul & Jack here with the SCVR for Friday.
Agenda -
Paul's section:
Scs (LON:SCS) - I hold - trading update shows a sharp slowdown in order intake over the last 7 weeks. However, year-to-date order intake is still slightly ahead of pre-pandemic levels, and in line with broker forecast, which are unchanged today. So this is NOT a profit warning. Valuation now well below the company's cash pile, and a PER of 7. Seems crazily cheap to me.
Studio Retail (LON:STU) - I hold - a mild profit warning yesterday on completely predictable sector-wide issues (supply chain, cost inflation), with EPS guidance lowered 18%. Hardly a disaster, and the business looks adequately financed. Very low PER now.
Dx (group) (LON:DX.) - heavily marked down on a 'corporate governance inquiry' which will delay full year accounts and likely lead to a suspension of the shares. Hard to gauge the seriousness of the situation, but it's a low margin business in a tough sector anyway, so not of interest.
Headlam (LON:HEAD) - positive update given supply chain issues and labour shortages reported by others, with profit 'marginally ahead of expectations'. Self help initiatives are making for a more efficient enterprise, and the balance sheet remains strong, so the high StockRank looks well deserved.
Jack's section:
Motorpoint (LON:MOTR) - positive results yesterday from a vehicle retailer that is working hard on its online offering and appears to be taking market share. It is valued at a premium to more 'traditional' retailers in the space but it has set itself some ambitious growth targets and the PEG is just 0.5x, so there could still be upside. As with others, much depends in the short term on how long restricted new vehicle supply boosts used car margins.
Paul's section
Scs (LON:SCS)
(I hold)
186p (down 24%, at 08:18) - mkt cap £72m
ScS, one of the UK's largest retailers of upholstered furniture and floorings, provides the following update ahead of the Company's Annual General Meeting….
Year to date performance ahead on two year like-for-likes
The PR message at the top is trying to put a positive spin on things, but I think the key message from this update is that order intake has slowed in the last 7 weeks -
As previously reported, the Group had a strong start to the year, resulting in two year like-for-like order intake growth for the first nine weeks. However, over the last seven weeks, the Group has seen a reduction in store footfall and conversion with consumers spending less on big ticket discretionary purchases...
Checking back, SCS last updated on current trading with its FY 7/2021 figures, which I reviewed in detail here. That update said like-for-like order intake was up 11.9% on pre-pandemic numbers, for the first 9 weeks to 2 Oct 2021.
Today we’re told that this +11.9% has turned into +0.9% order intake for the 16 weeks year to date. Thus the most recent 7 weeks must have been sharply negative, to pull down the +11.9% to +0.9%. I’m ignoring the 1 year comps, as there was so much distortion from closures, then booms on re-opening, etc.
Total two-year like-for-like order growth of 0.9% for the 16 weeks ending 20 November 2021, with a one-year like-for-like order reduction of 10.6% following an unprecedented period of pent-up demand at the beginning of the prior year.
My sector expert points out that the broker forecast only requires flat LFL revenues this year, so the company should still be trading in line with full year expectations. Quite an important point.
The update today doesn’t mention anything on this, which implies the company is still on track to meet current year expectations, otherwise they would have been required to say so. However it does obviously raise the risk of a profit warning in future, if reduced order intake continues.
Why has demand suddenly slowed? My sector expert (who has run businesses in this sector) reckons it’s because there’s usually a pre-Christmas spike in orders around Oct-Nov, where furniture retailers promote “buy now for Christmas delivery”, which of course they can’t offer this year, due to backed up supply chains.
Order book - has shot up, it was £103.5m at 31 July 2021 for comparison. This is the latest position -
At 20 November 2021, the Group's order book was £131.9m, £71.5m above the same point two years ago
That’s both good and bad. Deposits received will be piling up even more cash in the bank account, which will now be considerably more than the market cap. Also it means that there’s plenty of future revenue backed up.
However, the already large order book rising even more, suggests that they’re not delivering as much as the order intake. Therefore supply chain disruption is clearly a worsening issue.
As the company did not actually warn on profits today, suggests it thinks it can catch up with deliveries by the year end July 2022.
Online - growing well, but it’s only a small part of the business -
Our online business, which is a key part of our ongoing strategy for growth, continues to perform well, with two-year like-for-like order growth for the first 16 weeks of the year of 38.5%.
Outlook -
The Group is now preparing for the winter sales trading period, and whilst it remains difficult to predict shopping habits and consumer engagement, the business is planning to approach this key period in a manner co nsistent with that which has proven successful in previous years. W e continue to work closely with our existing suppliers to mitigate current supply chain challenges. To broaden our customer proposition, we have recently partnered with new UK suppliers so that we can offer furniture on shorter lead times .
We believe our continued focus on a promotional, value-led proposition will remain attractive to our target market and the Board looks forward to the future with continued confidence.
My opinion - obviously I’m disappointed that order intake has slowed sharply in the most recent 7 weeks. However, this share is all about an absurdly low valuation. At £74m, the market cap is now well below the cash pile.
Forecasts are still intact, many thanks to Shore Capital for publishing an update, leaving EPS at 26.5p for FY 7/2022. That means at 186p, the PER is now just 7.0, and of course the cash pile is considerably more than the market cap now.
Dividends have already resumed, and there’s scope to pay out massive amounts with the surplus cash.
This looks a temporary disappointment, which we’ve seen with lots of companies recently. However, for me this is a long-term holding, and bumps in the road are to be expected.
The starting price was absurdly low, because the market clearly anticipated problems ahead, so we’ve seen a double impact - selling before the news, and more selling today.
Taking a long-term view, I think this share could even provide a dividend yield of over 10%, and buyers at this level could do very well.
As you can see from the Stockopedia graphs below, the trend is for EPS of about 30p, once the peaks & troughs of the pandemic are evened out. It’s even more way too cheap after today’s disappointment, in my view. Not a time to panic, in my opinion, the market is throwing lots of bargains our way at the moment.
Studio Retail (LON:STU)
(I hold)
183p (down heavily yesterday) - mkt cap £159m
SRG, the digital value retailer, today announces its Interim Results for the 26-week period ended 24 September 2021 and gives an update on its performance in its peak trading period.
Interim numbers look pretty good -
.
Although the increased profit seems to have mainly come from a reduced bad debt charge going through the P&L -
Bad debt charge £5.3m lower than prior year, due to improved recovery rates and lower default fees being charged to customers
Outlook - this is what clobbered the share price yesterday, which is quite surprising, given that the company is reporting on well-known cost pressures that must be causing problems for everyone.
We’re in a strange market right now, where share prices have been heavily marked down in anticipation of supply chain/inflation issues. Then they get smashed down again, when companies confirm that they are having issues like this. That just doesn’t make sense to me. Still, today’s panic selling, is future profits, if we buy shares in fundamentally sound companies.
Guidance is reduced, but not by much, and certainly not enough to have triggered such a large share price fall. The fall looks considerably overdone to me -
We will give a further update on this key trading period at the end of January but our current expectation for the full-year outturn of Adjusted PBT is now in a range of £35-40m (previously £42-45m). Despite these short-term headwinds, many of which are impacting the wider market, our strategy for growth remains intact and we maintain our £1bn revenue goal in the medium term.
Balance sheet - I won’t go into all the detail again, which we’ve covered here a lot in the archive. You can easily check the archive for any company by going to its StockReport then clicking on “Discussion”.
It’s a hybrid business model, online retailing, combined with an instalment finance business.
This means a very high receivables book of £291m, financed mainly through £264m of long term bank debt.
NAV is £99.3m, less intangibles of £27.1m, gives NTAV of £72.2m
Note also the pension scheme is shown as a surplus of £30.3m - that doesn’t reflect the commercial reality, in that it remains a drain on cashflow - e.g. this explanation take from the last Annual Report (page 24) -
Pensions The net valuation on the Group’s legacy defined benefit scheme at the end of FY21, measured in accordance with IAS 19, reduced from a surplus of £31.7m at March 2020 to £20.8m at March 2021 due to reductions in the assumed level of future returns. The IAS 19 valuation has no bearing on the contributions made by the Group to the scheme, which is instead derived from the triennial valuation of the scheme. The most recent valuation measured as at April 2019 concluded during the year leading to a continuation of contributions totalling £5.0m p.a. until September 2023. The lump-sum contribution of £13m and lower contributions noted in the FY20 accounts relating to the proposed sale of Education to YPO did not occur as they were contingent upon completion of that sale, which did not occur. As part of the subsequent agreement to sell Education to Endless LLP, the Group made an additional contribution of £9m into the scheme in May 2021. This has brought the valuation of the scheme measured by reference to the actuarial targets into surplus. The Company is therefore working with the scheme’s trustees to explore options to remove this potentially volatile liability from the balance sheet, including the potential use of insurance
Forecasts - many thanks to Singers for updating its forecasts, via Research Tree.
The new EPS for FY 3/2022 is down 18% to 32.8p - a PER of just 5.6 - which looks an extremely pessimistic valuation.
The 3-5 year target of 100p EPS is clearly being disregarded by the market as pie in the sky. But imagine if that was achieved, and the PER rose to say 10-15, you’d be looking at a pretty serious multibagger from this level.
My opinion - a deeply unfashionable share, in a deeply unfashionable sector that has seen a vicious across-the-board sell-off this year.
I can’t see anything particularly wrong with the business, although I’m not keen on high cost finance companies.
It all depends on how temporary you think the current supply chain/inflation issues are, which impact everyone, not just STU.
At some point this share could be a great buy, but it depends whether it can mitigate, then recover from supply chain & cost inflation, or whether this is the thin end of the wedge? We don’t really know, do we? If earnings recover in 2022 or 2023, then this share could multibag. If they don’t, and we get a string of profit warnings, then the price is likely to remain under pressure. I wish I could state with certainty which is the more likely, but it’s completely unknowable at this stage.
Personally I’m sitting tight, because it’s a relatively small position in my portfolio, and I don’t see any worries about solvency. The profit warning was only mild, and the price now seems extremely cheap, providing profitability doesn’t completely collapse.
.
Appreciate (LON:APP)
Clarification
I commented recently that a webinar from Appreciate management had not impressed me. This is just to clarify that the presentation I was referring to was from June 2021. There’s been a very recent webinar which I wasn’t aware of, which I am told is much better! Happy to clarify this point.
Dx (group) (LON:DX.)
21.2p (down heavily yesterday) - mkt cap £121m
Update on Publication of Annual Report and GM
This is a very strange situation.
DX, the provider of delivery solutions, including parcel freight, secure courier and logistics services, provides the following update regarding the publication of its Annual Report & Accounts for the financial year ended 3 July 2021 ("Annual Report").
Preliminary results have already been issued, so this relates to the audited figures & annual report.
Reversing the order of the update yesterday, it says that current trading is as expected -
The Group's trading remains in line with the Board's expectations, consistent with the commentary provided in the announcement of the Group's preliminary results for the period ending 3 July 2021, which was notified on 8 November 2021. The Board remains confident that DX is well-placed to continue to increase its market share and make progress over the new financial year. The second major capital investment programme, which will see investment of between £20m - £25m in the business over the next three years, underlines the Board's positive view of the Group's prospects.
Although that form of wording does not say anything about the preliminary results for the 53 weeks ended 3 July 2021. Will they be revised? Who knows, we’re not told either way.
This is what has gone wrong -
The Company is not in a position to publish its Annual Report ahead of the Annual General Meeting ("AGM"), which is taking place later today. The Company's Audit & Risk Committee has recently raised a corporate governance inquiry relating to an internal investigation commenced during the financial year ended 3 July 2021. The inquiry has yet to be concluded, and the process will delay the completion of the audit, but will be expedited as quickly as possible. However, it is not anticipated that the Audit & Risk Committee and the Company's Auditors will conclude their work before 2 January 2022, being the date that is six months from the end of the financial period ending 3 July 2021. If, as currently expected, the Annual Report is not published by 2 January 2022, trading in the Company's ordinary shares will be suspended in accordance with AIM Rule 19 on 4 January 2022, being the first business day following 2 January 2022. Suspension from trading will be lifted with the publication of the Annual Report.
What on earth are we meant to make of that?
What is a “corporate governance inquiry”?
My opinion - I’ve been over this numerous times, and still can’t work out what’s going on.
If something is serious enough to delay the audit, and cause likely suspension of the shares, then it’s worrisome.
The waters became even more cloudy, when later during the day (yesterday) Directors bought a decent wad of cheap shares. This has come in for justified criticism, since the explanation given of the problems was so vague that no indication was given of its financial implications. Then Directors bought shares which had dropped by about a third, causing a temporary, partial rebound yesterday afternoon, which looks to have run out of steam today (hardly surprising when almost everything is plummeting today).
Apparently, bulletin board posters are saying that the company is playing down the seriousness of the situation to anyone who rings them up querying it. That’s not right either - information should be provided via the RNS to everyone at the same time.
Is it a buying opportunity? Possibly, I just don’t know. Without being told the seriousness, and financial impact of this unspecified problem, we’re completely in the dark.
Also, I’m not interested in owning this share in the first place, as it seems a very low margin business, in a really tough sector.
What do readers think?
.
.
Headlam (LON:HEAD)
448p (up c.2% at 12:20) - mkt cap £382m
Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings distributor, is pleased to provide an update on trading, and Environmental, Social and Governance ('ESG') actions.
On track to deliver profit marginally ahead of expectations
This is self-explanatory, and comes across positively I think, given the well-publicised problems facing many companies re supply chain & labour shortages/costs -
Revenue for the year to date is tracking broadly in line with current market expectations* which were significantly upgraded in July 2021. A robust performance in the residential sector has helped to offset a persisting subdued commercial sector, with other features of the market being the ongoing industry wide supply issues, and associated inflationary pressures, all of which the Company has been largely able to mitigate.
Profit performance has been pleasing and reflects the previous and ongoing actions to improve operating efficiency and margin. As a consequence, the Company expects to deliver underlying profit before tax for the year ending 31 December 2021 marginally ahead of current market expectations*.
*Company compiled consensus market expectations for 2021 revenue and underlying profit before tax are £684.8 million and £35.0 million respectively (on a mean and post IFRS 16 adoption basis).
To me this suggests that Headlam’s self-help programme to make the company more efficient must be at least absorbing cost increases elsewhere, clearly a positive thing.
My opinion - is positive. It’s not a share I currently hold, but would be interested in buying back at some stage. It had to be culled, due to margin calls caused by other positions falling, unfortunately, these things happen.
I wish the company would get some broker research out there for private investors to see.
Current consensus estimates look light to me, so we could be looking at a possible beat against the 31.4p EPS forecast shown on the StockReport.
Remember also that HEAD has a fantastic balance sheet, with large freehold property asset.
There’s also the considerable reassurance of a high StockRank -
End of section.
Jack's section
Motorpoint (LON:MOTR)
Share price: 347.5p (pre-open)
Shares in issue: 90,189,885
Market cap: £313.4m
This omnichannel vehicle retailer has seen a significant rerating after the publication of its “New strategic objectives” on 16 June 2021. These include a target of achieving £1bn p.a. In online sales, and over £2bn total revenues, in the medium term. MOTR also demonstrated that its business was resilient during lockdowns, with sales moving online.
There’s a big divergence in valuation between traditional car dealers and ‘disruptive’ online competition like Cazoo, even though many of the old guard are building their own online offerings. You could argue MOTR has a superior business model in that it’s doing well online, plus it has large, efficient, low cost physical sites too, selling nearly new cars at competitive prices.
Highlights:
- Revenue +56.1% to £605.2m,
- Gross profit +56.8% to £55.5m,
- Operating profit +36% to £15.1m,
- Profit before tax +39.2% to £13.5m,
- Earnings per share +34.1% to 11.8p.
Gross margin has improved to a record 9.2% due to vehicle value appreciation, strong buying and pricing controls, improved finance penetration, and continued efficiency improvements, all despite the introduction of vehicles more than three years old. Motorpoint has also quickly gained a 2.2% share of the three to four year-old market, which is impressive.
Retail volume growth of 46% in the period outperformed the overall used SMMT car market, which grew 31%. Total online units were over 60% of overall volumes ‘demonstrating the growing strength of our E-commerce offering’.
Online retail sales increased by 53% against the same period last year and website traffic improved by 24%. The group has invested in people, technology upgrades and marketing, with data science now helping to influence buying patterns and targeted marketing.
Further lowered APR finance rates to 8.9% from 1 October 2021 ‘as we reinforce our position as the best-value car retailer in the UK’. In the period finance penetration improved significantly to 51.7% in September (H1 FY21: 42.1%).
The number of sites has increased from 13 to 15, including the opening of a branch in Manchester. Motorpoint now has agreements for further branches in Maidstone, Milton Keynes and Portsmouth, with a number of other strategic locations in the pipeline.
Current trading and outlook -
Despite the ongoing constriction in the supply of new vehicles, which is expected to continue into 2022 and beyond, in recent weeks we have been able to use our market position to access more stock to satisfy customer demand, both online and in branch. This increased demand reinforces our belief that our customer-centric, omnichannel proposition remains the most appropriate business model for the used car market.
Revenue and profit in October continued to be well ahead of the same periods in FY21 and FY20. As a result, the Board is confident of delivering revenue ahead of plan for the full year, and therefore full year profit before tax significantly ahead of its expectations.
The Group is well placed to deal with any uncertainty or potential headwinds and continues to invest further in growth. The Board looks to the future with confidence, as the Group transitions to a digitally led business with huge potential.
Conclusion
Looks like a good management team here, with a clear vision and a differentiated business model. It suffers from the same low margins as others in the sector, but the tailwinds remain favourable and I suspect Motorpoint can gain share from competitors.
It’s focused on delivering a market leading proposition of ‘Choice, Value, Service and Quality’ to customers and generates an impressive amount of repeat purchases. The group’s H1 Net Promoter Score ('NPS') further improved to a record breaking 84 (H2 FY21: 83). It is good at what it does.
The strategy to more than double revenue in the medium term remains on track and there are clear growth initiatives including:
- Rapidly upscaling E-commerce capability;
- Increasing customer acquisition and retention;
- Expanding wholesale and E-commerce channels; and
- Continual improvement in operational efficiency through technology and innovation.
Online retail sales increased by 53% against the same period last year and total online sales were over 60% of overall volumes (H1 FY21: 62% - inflated due to lockdown induced branch closures). An online car buying service was launched in July 2021, and during H1 12.6% of retail vehicles were sourced from consumers (H1 FY21: 7.6%).
Clearly, Motorpoint is in a good place, as are other used car retailers at the moment. I have other holdings exposed to this part of the market but this company does bring its own attractions and innovations, with strong online progress balanced against a higher forecast PER than many of its competitors. The market continues to benefit from reduced new vehicle supply and higher used car margins. This dynamic will normalise at some point, but Motorpoint expects it to last for at least another year.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
64 comments
Hi Paul
Re Dx (group) (LON:DX.) , I have no insight at all re the company.
However, its obvious IMHO purely from yesterday's RNSes, that the company directors who bought shares are completely unethical. I am not prepared to buy shares in a company where this is the case, however cheap they may appear to be.
unethical / borderline illegal
Interesting that Pfizer confirmed that they are already testing their vaccine efficacy against the new variant and will have results within 2 weeks latest. It may need an adjustment of the formulation if it evades immunity and spreads globally. They don't sound unduly worried about being able to control it.
Feels like a bit of market knee jerk reaction today, almost the inverse of the initial muted reaction when the virus first surfaced and the market ignored it. Recent historical memory playing a part here I suspect, which is unsurprising but worth keeping in the back of the mind that we are in a far different place now than last time.
This is in the Guardian: "The variant has more than 30 mutations on its spike protein – the key used by the virus to unlock our body’s cells – more than double the number carried by Delta. Such a dramatic change has raised concerns that the antibodies from previous infections or vaccination may no longer be well matched. Purely based on knowing the list of mutations, scientists anticipate that the virus will be more likely to infect – or reinfect – people who have immunity to earlier variants."
there is a lot of non evidence based conjecture out there about what might or might not happen and there's nothing the media love more than a bit of fear mongering! Sells a lot of content..... I try and avoid taking too much from the media if I can, it's too biased but alas you do have to keep an eye as it does indeed drive sentiment.
So far reads like a normal progression through mutations. Keeping in mind Covid has 1,500 recorded mutations already, the vast majority fizzle out as evolutionary dead ends. This one is B.1.1.529 Sars-Cov-2 variant, which in Southern Africa has supplanted the Delta version as the dominant strain. The WHO is meeting and if it's deemed significant and expected to become the new dominant strain, give it a name, "Nu" or such like. Pfizer are busy checking if their existing mRNA vaccine is effective against this new version, expect this will take two weeks. If it isn't they'll release a new booster, their share price is up 7% on the news.
So it really depends on Govt reaction. timing's not great as we head into winter. Hopefully, continue on the current path of boosters, potentially a new one, and no lockdowns. Let's see. Such mutations are likely to continue, potentially for years to come, like Influenza.
Paul
I have only just realised that my post at 9.59 this morning on £Saga should have been posted to the Saga thread you opened on August 2nd.
Is there a facility to transfer the post?
Not really impressed by the comments made by Andrew Pollard - he seems to be clouding the issue by calling out for more vaccines to be sent to third world countries (nothing wrong with that)- whilst at the same time saying there is "no need for boosters" here.
When looking scientifically at one issue if we need boosters or not i don't want to confuse the question here by bringing in other issues like whats the best use of resources available. I expect all good scientist to avoid any suggestion or possibility of bias like the plague.
His comments seem to be at odds with the fact that the decision has been made to provide boosters (presumabvly scientifically approved) and i thought it was medical fact that some older peoples immunity was wearing off now in which case seems obvious that booster shot for them will work (am i wrong in this assumption) - is he saying that a booster wont up their immunity levels? all seems nonsensical what he is saying which is strange as he is the director of the Oxford Vaccine Group. Perhaps as usual its just me talking nonsense.
I don't agree that we don't need boosters and 45 weeks does seem too long a gap. It is saying the wider the gap increases antibody levels, it was found to be much higher (double) in the group that had 15 to 25 week interval than the 8 to 12 week interval group between doses. But then AZ drops wanes after 6 months, so getting a booster makes sense. The other issue is variations, it is changing all the time, so we need up to date vaccines to combat new variants.
The issue is how immune are we with the current vaccine against this new variant?
I will be getting my 3rd one soon.
"I will be getting my 3rd one soon."
Had mine 9.30 today (efficient top notch service again ref vaccine thank you to everyone in the NHS) at least i have a spare space on my card(2) now if the new un causes havoc. I have been very wary about buying/topping up on Leisure entities since the start of covid ( i was too exposed pre cvid which wasn't great place to be with covid) - but must admit i have had a nibble at Saga today. Fingers crossed that the new variant if it does spread globally isn't a game changer for the worse - it doesnt exactly look proming at present though. I do feel my decision to buy Saga today is a "gamble" not sure anyonse sensible needs to take the risk of investing in this sector at present (at least saga does have the insurance side of things to slightly compensate).
Good to here positive feedback abot someone who has been on a Saga cruise - covid aside they need to ensure customer service in that area is top notch (or at least goioid enough to keep the punters happy)
Has anybody ever read the google reviews or trustpilot reviews of ScS? Might be worth a glance for those who haven't.
I was expecting the reviews to be negative, Scs (LON:SCS) are one of my largest holdings now after buying at some of the dips. So I'm pleased to see generally they are good reviews.
Just tempted into Scs (LON:SCS) for first time - although trip to collect a parcel has been expensive, price back to 226p not the 186p Paul saw at 8.15! (Memo to self, post office is open in the quiet afternoons) .
Size of order backlog says demand is not the problem and the last 8 weeks have been characterised by a constant media focus on the upcoming cost of living crisis (gas bills, tax rises, Universal Credit cut - the latter is more important mood music for SCS's consumer base, still biased to CDE's and buying entry level sofas, than for the average Stocko reader!).
However, another round of Covid travel/hospitality restrictions looks likely to me (new S. African variant, Euro-Covid wave etc) so cash will continue to be available to divert into home comforts perhaps with a 'while we can' mentality. However, so far, employment has held up and work is available for those who are prepared to take unpleasant/entry level jobs, even at higher rates of pay.
On the supply side, a move to more UK supply mentioned in today's announcement will help fix medium term supply problems, reduce risk/consequence of any 1 key supplier failure and long term the supply problems will lessen. This may even help margins for a while next year ie we are seeing only the negative of the price spike not the positive. Consumers will be trained not to expect £299 sofas, so maybe in 2022 the market floor becomes £399 (Note I am someone who thinks we have a big and not-so-transitory inflation spike coming).
Finally, SCS do have some routes to modest organic growth (internet growth behind a well known brand name, +2 stores/yr is not nothing when the base is only 100) and there is that now legendary cash pile.
I suspect there will be further buying opportunities over the next few weeks. I’ve noticed that the initial market shock reaction has a habit of indicating where the share price will settle.
SCS - Isn't it a little simplistic to refer to valuation in relation to the company's cash position. Surely you need to take into consideration the balance sheet as a whole. They are holding a lot of customers cash for orders placed. I know you are aware of the problems that companies in this sector have had in the past.
Yes I agree and have never been persuaded about the net cash argument, which supposedly covers the entirely market cap. From what I can tell most of that is offset by receivables and such like, and I think better to look at the overall net tangible assets.
Spookyone,
re Scs (LON:SCS) (I hold)
We've discussed how to view the cash piles at furniture retailers quite extensively before, and I think it's fair to say that there are differing views on this, all with some validity.
My view is that these balance sheets can be stripped of all the cash (which is precisely what larger rival Dfs Furniture (LON:DFS) has done), because the furniture retailing sector has a permanently favourable working capital cycle. Customers pay the companies well before the companies have to pay the manufacturers. That continuously rolls, therefore a private equity owner for example could easily extract the cash pile, load in some bank debt, and the acquisition would have paid for itself.
From memory, I think SCS said that if conditions completely normalised, it would still have about £50m in surplus cash.
Why the company isn't doing share buybacks now, I have no idea. Seems a terrific opportunity to enhance shareholder value.
Buying now should lock in a fantastic long-term dividend yield.
Regards, Paul.
Good morning Paul and all on Scs (LON:SCS)
Thank you as always for your wide range of thoughts. I fear that my input is going to add another possible black cloud on the horizon. I cannot remember when it was ( Paul will remember immediately) but one Jan/Feb Scs (LON:SCS) put out a terrible RNS Trading Statement to say that versus expected orders, actual orders were horrendously low.
I note today that they are saying that lower footfall etc is leading to a similar but not so serious pattern currently. I am forecasting that middle Britain will feel more pessimistic as the winter goes on, and may consider a summer holiday with a predictably less dangerous C19 situation infinitely preferable to buy a new suite. The latest C19 variant is just the most recent of a series of threats to our sentiment as well as pockets.
I am a long time fan of Scs (LON:SCS) but having added to my holding some months ago, I sold out a couple of weeks ago. I remain a fan but believe there will be further falls before I reach the anticipated buying in point when some of these issues begin to fade.......
.......or am I being over-pessimistic about patterns of consumer spending in the New Year? It wouldn't be the first time.
Last month I ordered carpet from Scs (LON:SCS) (I hold) with it due to be installed early this month.
Customer service was excellent, the identical carpet was more expensive everywhere else - I’ve see it in John Lewis. And I availed myself of 48 months interest free credit.
I was then informed the day before it was due that I would not have the carpet till mid January. Customer service still good, offering my deposit back and a printout of the quote so I could go and bargain down other suppliers, but they too had January delivery for the carpet I wanted.
I did find it elsewhere, but costing 50% more and no interest feee credit option. So decided to stick with the wait.
I was also told in store that they were bringing forward their last order-now-for-Xmas-fitting date due to supply chain issues.
Others who like me might have felt initially let down by SCS might also (like me) then see it’s sector wide and just stick it out.
But I guess I was already committed as opposed to new customers being told to wait for longer than normal. Hence poorer sales for now until supply chains get sorted out.
From their last annual report, SCS held 87.65m in cash of which 37m was customer deposits, so 50.7m net. Still fairly chunky.
As a holder of £Saga I thought subscribers might be interested in feedback from my sister in law who with her husband recently took a 5 day cruise with Saga on the Spirit of Adventure.
They are P & O veteran cruisers over several decades but they both had nothing but praise for Saga and I suspect they may well be changing their allegiance. They arrived at Southampton by chauffer taxi and after a covid test including the taxi driver they boarded and were shown to their cabin in person and did not even have to carry their hand luggage.
The customer service on board was exemplary. The staff were very well trained having attended the training school in Dover and were impeccably dressed, polite and helpful and clearly took pride in their job.
The cabin was top class even down to a night light in the bathroom if you got up at night, a small thing, but it shows attention to detail.
The food was superb and full attention was paid to covid without impacting the guest experience.
On arrival back at Southampton they were impressed to see all the chauffer taxis lined up waiting to whisk them home.
There is no doubt they are Saga converts and P&O may be history.
If you read the cruise critic reviews there are also lots of examples of people having to wait in those taxis at port for up to three hours to board and then once on board you can only leave the ship on official trips (cruise industry wide I believe). I have enjoyed cruises in the past with another firm but I'm not willing to be a sheep on another until shore restrictions are lifted.
If you read the cruise critic reviews there are also lots of examples of people having to wait in those taxis at port for up to three hours to board and then once on board you can only leave the ship on official trips (cruise industry wide I believe). I have enjoyed cruises in the past with another firm but I'm not willing to be a sheep on another until shore restrictions are lifted.
I bought more Saga at 259 today. My average is still over 300 and therefore I am not the one to follow!
Light relief from the markets - PIWORLD interview with Alexandra Jackson, Rathbones UK Opportunities Fund: Selecting Winning Stocks. An engaging interview and nice to see a smart woman in fund management. Recorded on Monday. In hindsight, I should have asked her views on markets generally! Video & podcast. Mentions: Future (LON:FUTR) Keystone Law (LON:KEYS) Diploma (LON:DPLM) Halma (LON:HLMA) Greggs (LON:GRG) Bytes Technology (LON:BYIT) £KNOW Molten Ventures (LON:GROW) Intermediate Capital (LON:ICP) Accsys Technologies (LON:AXS)
From the last week see:
Oxford Metrics (LON:OMG) 5 year strategy presentation.
Nextenergy Solar Fund (LON:NESF) H1 results
Eneraqua Technologies (LON:ETP) the new IPO
Appreciate (LON:APP) H1 results
Ig Design (LON:IGR) H1 results presentation & overview
Or next week join:
Tpximpact Holdings (LON:TPX) for their interim resullts webinar here.
Hopefully there's something of interest for you here. Happy Black Friday ... or is it red Friday?!
Hi Paul
Like you I hold Scs (LON:SCS) and continue to believe the shares are undervalued, We will have to wait to see how the New Year sales activity plays out to get a better fix on the current (FY22) revenue and profits performance.
Unlike you, I find it difficult to access the underlying broker forecasts. I am puzzled as to why Stocko shows the consensus as having increasing revenues for FY23 but falling profits and eps. Are you able to enlighten us on this please?
Some Christmas bargains around today. Picking up Scs (LON:SCS) for well under current cash was nice.
Maybe those Covid winners ain’t so bad after all.
So guess who decided the time was right to swap a bit of cash in my SIPP for a top up of Somero Enterprises Inc (LON:SOM) first thing yesterday!
Down nearly 10% today seems massively overblown to me and I thought it was good value before. The market does not seem to like Somero Enterprises Inc (LON:SOM) right now.
I put a very mean limit order in for Somero Enterprises Inc (LON:SOM) just now. Sorry that I'm betting on Somero falling a bit more than it has so far (it really isn't the darling of the market just now).
Still, I am buying to hold and not to trade ... we both stand to gain in the long run.
rumour has it that a fund is liquidating their position in Somero Enterprises Inc (LON:SOM), no fault of Somero...
"From 13 October 2021, following shareholder approval of the Proposals
announced on 23 September 2021, Acorn Income Fund Limited (“the
Company”) entered into a scheme of reconstruction, whereby the Company’s
residual assets will rollover into the Unicorn UK Income Fund, an open
ended vehicle managed by Unicorn Asset Management Limited. The Company
was placed into members’ voluntary liquidation on the same day and
Benjamin Alexander Rhodes and Andrea Frances Alice Harris of Grant
Thornton Limited were appointed as Joint Liquidators.
Friendly reminder to Saga (LON:SAGA) holders this morning that in the year end Jan 2021 (i.e. the worst COVID year) Saga’s insurance business generated EBITDA of £141m while it’s travel business (Cruise and tour ops) generated negative £52m of EBITDA. Saga (LON:SAGA) shares may trade like they are a pure play cruise business but that is simply not the case.
Blood bath on the markets this morning due to this newly discovered Covid variant in Africa.
yep 5% down at the moment taking my losses since September to just over 22%!
Yes got stung myself, have some spare powder do I fire it yet
Hard to know ... buy today or wait a bit (next week?) for even bigger bargains as the market panic escalates ?
I will be waiting. I have no idea what the market will do, but safety first!
50% cash now...
Well if you want to buy, maybe do it in 2 stages. Ftse looks like another 90 points to drop still to reach bottom of the trend channel.
If this new variant is resistant to vaccines as is being suggested, it's a very significant setback - but I do recall that when the vaccines were developed, it was stated that it would be relatively quick to modify them to tackle new variants if needed.
The problem would then be the logistics of rolling out another international vaccination program.
Drops today just compounding losses from an already weak market. Very frustrating.
Yes but many people have just had their 3rd injection so may have to wait around 5 months to have the next one. Even if tweak the vaccine now, it will take around 6 months to roll it out across most of the population by which time winter will be over. Other countries may take longer.
There's no scientific evidence that I've seen that a 6 month wait is required? I think it's been implemented for practical purposes (ie stock, cost, benefit vs risk). So would assume a 4th booster could be administered sooner?
Happy to be corrected if I've got it wrong as I'm also curious.
Yes, the timing of the boosters was determined by the drop off in protection from the original jabs.
There does seem to be some evidence that delaying the 2nd or 3rd dose increases immunity “ researchers from the University of Oxford reported that extending the interval between the first and second dose to 45 weeks resulted in higher antibody titres. They also found that a third dose given 44 to 45 weeks after the second increased antibody titres further, and that adverse events were lower after the second or third dose than after the first.” You can read more about it here: https://www.bmj.com/content/37...
But my point is this is not a quick fix, it will take many months, probably 1 month even to get the new vaccine. So do I get my 3rd now or wait for a new vaccine?
All rather academic hypothesis when the Covid situation is so fluid and ever changing. So do what you're advised now and not pontificate on what may or may not happen going forward.
I got my booster this week. Worry about the virus that is actually here, not the hypotheticals.
Plus as we know viruses tend to mutate to be more infectious and less virulent over time. The balance of probability, therefore, (N.B. not certainty) is that this new version will fall into that camp. Personally, I think there are some bargains out there this morning: I just need to engineer an hour's break into my working day to investigate them further....
From what I understand, what you've said here is a bit misleading. While it's true that other viruses have mutated to become less virulent, it's not generally thought (so far) that this will apply to covid 19. It's all about what evolutionary advantage is conferred. Covid 19 will gain no benefit from becoming less deadly because most of the infection of others occurs weeks before the carrier's death. By the time of death, most of the virus has been neutralised and the patients die of organ damage and over-active immune response.
Indeed, so far what we've seen is that each new major variant is more deadly, rather than less. I don't know if there are any official data as opposed to estimates, but what I've seen said that Alpha was more dangerous than the original, and Delta twice as virulent as Alpha. That is why we've seen many deaths of young people who were untroubled by the original virus.
The increase in virulence appears to be a side effect of the mutation that confers other evolutionary advantages. Delta, we're told, produces viral loads up to 1000 times that of the original virus. These higher loads make it much more infectious, with the side effect that it also becomes more deadly.
All of the above is with the caveat that I'm far from being an expert in this field, but my understanding is rather different to what you said.
Get your 3rd now of you've not already done so. The next new vaccine will only come along if needed.
Opportunity knocks, then kicks you in the balls.
With the exception of the impact on Africa facing travel stocks, it feels a bit over-the-top as we don't know very much and it hasn't spread very far yet. Even stocks that did well in the pandemic seem to be down!
One other reason for optimism right now are COVID treatments. One has been licensed, one is about to be licensed, and there are others on the way. The Pfizer one (about to be licensed) is 90% effective against hospitalisation although it's only been tested in an unvaccinated population and there are worries it has potentially tricky drug interactions with other medicines a patient may be taking. But the point is these drugs are starting to come through and may help change the course of the pandemic as well.
Book - The Marshmallow Test by Walter Mischel. Shows how delayed gratification leads to a better life outcome. Essential knowledge for investors
Off-topic Friday: Christmas book list
Apparently it's Christmas soon, & I'm under pressure to make some hints about what items would make an acceptable gift. This topic comes up here most years, but unless I missed it no one yet has triggered the discussion this year, so does anyone have any good investing themed book (or other) recommendations?
Thanks in advance & all the best in the markets. Happy Christmas all.
Book—-Amazon unbound. The amazing story of the rise and rise and rise of Jeff Bezos
Books -
The most important thing by Howard Marks for investment
Shoe dog by Nike's founder for a business book
Books - Thinking, Fast and Slow by Daniel Kahnemann for those who haven't read it, or Noise by the same author for those who have.
Books - not investing related but American Kingpin by Nick Bilton is one of the best books Ive read in ages. I thought it was an amazing true story.
Like Doug500 mentions, Shoe Dog is also very good.
Hi Lion Tamer
Ref. Christmas books. If you have an interest in innovation, intrapreneurial start-ups which gain commanding positions in the markets and our every day lives. 'Zero to one' by Peter Thiel is a good read IMO.
If you are not familiar with Peter Thiel he co-founded PayPal, was an early investor in Facebook, co-founded Palantir and is an investor in many of todays major technology companies. The so called 'PayPal Mafia' are a group of people who all worked at PayPal and have now gone on to become major actors in the whole innovation/tech space. Elon Musk being one, Jack Dorsey another, Alex Karp yet another, to list but three.
Might not be everyone's cup of tea but I found Peter Thiel's articulation of how truly innovative companies form and operate pretty interesting.
Another book but of a much broader remit might be '21 lessons for the 21st Century' by Yuval Noah Harari. This (like his previous two books) is a grand sweep across our civilizations, where they seem to be and where they might be heading. It covers politics, technologies, cultures, truth and our resilience. For me it offered a useful contextual backdrop to my explorations in the markets.
Regards
Howard
Re: Off-topic Friday: Christmas book list
Thanks to everyone for all the contributions so far, there is plenty of choice for my list.
To reciprocate here a list of some of the favourites from my book shelf, hoping someone finds something useful in this list. Some have already been mentioned, but I'm including them as a +1 vote for anyone making their own Christmas wish list.
These behavioural economics books contain some great lessons of how the mind works, which I find useful when it comes to portfolio management. Recommended reading in my opinion.
This section are classic investing books, some are timeless, some dated but still relevant at many levels.
Slightly off-topic
I hope Black Friday has not been too unkind to your portfolio. Let's hope the recovery will be swift.
There's a 2021 New and Expanded edition of Influence, The Psychology of Persuasion, by Robert B Cialdini so that's the one to go for.
if you are a good golfer who wants to get better The practice manuel by adam young from amazon
I have posted several times about Norbert Lou at Punch Card Capital. A friend of mine put him on my radar. His track record in investing is astonishing. I followed him in to Naked Wines (LON:WINE) at £2.20 and also followed him in to £MOTR. To my knowledge these are his only two UK holdings.
If Norbert is invested in Motorpoint (LON:MOTR) I would suggest it is a very good opportunity.
Motorpoint (LON:MOTR) - Punch card capital are listed as holding 3.07 pct
lp