Small Cap Value Report (Fri 27 Nov 2020) - BOO, SAGA, LOOP, RCH

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27th Nov '20 by Paul Scott

241 comments 17397 reads

Good morning, it's Paul here, with the SCVR for Friday. Jack's busy with other work today, so this is all my work.

I'm hoping for a quiet RNS today, as is usual on Fridays, so I can have a big catch-up day - with a long list of things on my note pad from earlier this week, that I still want to look into. So I've cleared the decks today, got up early, and have the whole day allocated to writing this report.

I saw there was some bickering in the comments yesterday, over a subscriber chasing me on De La Rue (LON:DLAR) . Relax, he's a friend, and he didn't mean to sound abrupt! I will be looking at DLAR, because it's an interesting company, and I'm wondering whether to put it back on my personal buy list or not. I try to prioritise companies that look like they may be profitable investments, that's what it's all about after all! Although obviously I have no idea what short term share prices are likely to do, that's down to market sentiment. We just stack the long-term odds in our favour, if we buy strong companies that are growing, and are priced attractively. Although markets have been chasing growth at any price in recent years, so valuation doesn't seem to matter that much at the moment.

Agenda -

Boohoo (LON:BOO) - quick comment re valuation, and forecast from Zeus (done)

Saga (LON:SAGA) - safety accreditation of cruise ships (done)

Loopup (LON:LOOP) - Trading update (done)

Reach (LON:RCH) - Trading update

After that, I'm hoping to cover backlog items from earlier this week.

Frustratingly, I got bogged down in today's announcements, and didn't managed to make inroads into the backlog. It takes a lot of time & energy to unpick complicated & ambiguous updates like the ones today from LOOP & RCH. Hounding me because I haven't got round to covering some other company, is really unhelpful, so please don't do it. Today's report is now finished.

Update on Paddy

My little canine friend had an operation yesterday, to have a large cancerous lump removed. He's feeling a bit groggy, but survived the operation, thank goodness (he's about 13 years old, so it was risky. He has to wear the "cone of shame" for…

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Kelvin Prescott

29th Nov '20

I should have been a bit more precise... the two integrations (voice and video) are available separately. In product terms they are described as Cloud Communications and Remote Meetings. So,

- its possible to use Loopup Voice within MS Teams whilst using Teams conferencing for video.

- but if you choose to use the remote meetings product as an integration with MS Teams, you will use the loopup infrastructure for both voice and video.

If you are particularly concerned about security on conference calls (e.g. lawyers, investment banks, police/security) then the first option requires you to implement consistent security controls across both Teams video and a third party voice direct routing solution. The second option doesn't, as you are using the same solution. Both options are possible technically, of course, but there will be customers will prefer to have a single provider who is responsible for both.

I'm not sure, to be honest. My instinct is that the sell off has been overdone and this could be a good time to buy.

But my instinct is an unreliable, emotional moron and I've learned never to do what he says without giving the thinking part of my head time to research the situation properly. Which is what I'll be doing this week before making my mind up!

peterg

GDP is probably going to rise quickly for the next 3 years.

There will certainly be a post covid bounce back, but since Brexit is likely to lead to a larger, and maintained, hit to GDP, that's likely to be short lived. Add in short term distruption for import/export and it may be very short lived indeed.

GDP has already tanked (largely because of the action of the government, the duplicity of the media, not the bug itself).

There is a very strong correlation between the health impacts of covid in a country and the economic impact. Those that have controlled it well have had less economic impact. The UK is near the top of both tables. GDP damage is far more likely primarily due to failure to act fast and hard enough early on. GDP damage would probably have been much greater had they failed to control infections at all.

The fall in GDP is largely due to "socialists" and "socialism".

Europe, especially France, Germany and Spain, is full of "socialists", ...

So why is the GDP hit larger in the UK than those countries? Is Johnson a "socialist"? I think we should be told!

fwyburd

Hi Spongbob

For the sake of transparency, I ended up trading the shares I bought and sold them at a profit before they fell below 80p. Still nursing big losses in Loopup (LON:LOOP), just a little smaller than they were first thing Friday morning. I aim to review this position in the cold light of day and decide what to do long-term.

cheers

Francis

ambrosia

I meant mad in an endearing way, I quite like your long rambling posts, I even brought a book on one of your recommendations

IGotPoesJacket

"Likely". Only in your opinion.

We're net importers and most of the stuff we export to Europe doesn't incur tariffs and, much of it won't be affected by loss of access to the "Single Market" as there isn't a single market for services. I'm not saying there won't a Brexit impact, but there's much discussion, even amongst Remainers, how big it's going to be.

Also worth noting, that once we lose the Common External Tariff, many imports are likely to become much cheaper. I suspect most of the world is looking forward to being able to import produce on fair terms to the world's 5th biggest market economy.

Ok, that makes sense. All Teams traffic is going to be certificate backed so I'm not sure what extra security you're going to get offloading that capability. One assumes the Remote Meetings are going to use identity Single Sign On, the tenant is still going to be operated by a third party and your team still need to administer a solution - I personally can't see any benefits in Remote Meetings over native Teams. Especially as the security controls for identity and access are (usually) monitored in real time against emerging threats by Microsoft, and frankly, you'd be ludicrous to not let them or a serious dedicated third party (with massive real time, automated monitoring and data gathering capabilities) do it. I suppose there might be some argument for saying "our IT team is so small we don't think they're well placed to manage identity and access" but if that is the case, one has real problems with more than just meetings security. Maybe I'm missing something as I don't do UC, but I do work as a consultant for a major player assisting with desktops across multiple industries that care about security, and have provided services to all the industries you mention so I'm not completely naïve. But I have stated many times, my industry knowledge might be working against me for both Loopup (LON:LOOP) and Intercede (LON:IGP) .

For voice, security isn't going to change, people dialling in from a public exchange can be eavesdropped and there's little to no certificate based protections.

Only in my opinion. No

ONS, BoE, IMF and govt's own estimates. I wouldn't claim to know better than any of them, but there seem to be plenty happy say their own views and wishes override them.

mojomogoz

Thanks. Don't worry, I wasn't in anyway offended...the tartness of response was a bit joking/banter/faux upset sort of thing. By and large I don't care what people say to me or about me (in a professional or public capacity sort of way, which I consider investment stuff)...as long as they reciprocate the freedom. I do have a dishevelled rambling mind which falls well short of the required standards. Its useful sometimes and annoying at others (to me). To me very little is certain and most things are blurry but within that we must choose our sides...I do...but then I also flip when I realise I'm wrong (which can just be stupidity on my part)...which sometimes infuriates or adds to the perception of some I've worked with of inconsistency or even madness given I might have resolutely argued the other way.

Let's rewind. You said it's "likely" Brexit will lead to a "larger and maintained hit to GDP". GDP is down 11% or so right now.

In a world trade orgasnisation Brexit, IMF says 8% down, less depending on various trade deal scenarios. I didn't bother looking up the rest as one is enough to suggest you didn't actually go and look at what they said, but I doubt the others say -11%.

Some of your others are in the chart included in this blog.

The Uneven Path Ahead: The Effect of Brexit on Different Sectors in the UK Economy – IMF Blog

You are quite right, IGPJ, I was wrong to write "larger AND maintained". It looks like being smaller, but indefinite in duration, so the overall impact will be greater, since we are likely to lose 8% or so for many years, in case of a No (Australia!) Deal, rather than 11% for a year or slightly more.

Stocks123456

I don't understand either why the LoopUp (LON:LOOP) Group revenue is 32% down but the stated reason for this is due to a 32% drop in revenue in the non PS division but this represents only 14% of the Group?

UK_Investor_8888

Because our Government over-reacted.

Because we have the biggest City and financial services sector in the region.

We are a makor shipping, aviation and tourism "hub". We are big in aviation and oil, to a smaller extent big engineering and manufacturing.

Because as one of the leading european economies with the highest rates and numbers in useful employment.

Of course our fall is going to higher than a dysfunctional economy like Greece or Italy.

Remainers see falls.

Brexiteers see opportunities.

I see many things we can do far better at than The EU members.

We could (should) exceed EU environmental, consumer protection and quality standards.

Even The Californians beat The EU on vehicle emissions.

brianbathgate

Best wishes to Paddy, he looks a tough little terrier!

2nd Dec '20

as a further addendum to this. After having had a bit of time to reflect and review the annual report and the trading update, I've decided to have a dabble. The free cashflow generated from the existing customer book combined with the annualised growth over the last 5 years make the current price look compelling.

One point that came out a bit more strongly once I'd looked at the customer acquisition cost numbers was the fact that Covid isn't that strong a tailwind or headwind in the professional services market. These customers already made extensive use of remote working because the nature of their operations are international.

herbie47

7th Dec '20

"profit warnings usually come in threes"

Actually they don't, I suggest you read Stockopedia's article on the subject.

dahokolomoki

28th Dec '20

You say that customers will remain sticky because of the cost/effort to switch.

But that's exactly why Loopup share price is declining - as is Zoom - Microsoft's Team app is very good and has most of the capabilities of these dedicated platforms, and will only get stronger. And Microsoft Teams has much lower cost. If senior management and finance in a company wanted low hanging fruit of cost savings to be made, switching from Loopup to Teams would be it, and IT would just be given an edict to get on and do the migration.

Plus, the migration wouldn't be too onerous, as the infrastructure for Teams is built on the MSFT platform (Outlook, Sharepoint, etc) which many companies use anyways!

The fact that Loopup is highlighting they will pivot to a telephony solution that integrates with Teams.... yes, they might still keep their PS customers, but they can only charge for the telephony services, no longer the web/video services, and revenue/customer will decline over time.

Small Cap Value Report (Fri 27 Nov 2020) - BOO, SAGA, LOOP, RCH

Update on Paddy

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Paul Scott

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