Small Cap Value Report (Fri 29 Jan 2021) - BOO, CARD, BMY, DLAR, XPD, NCYT, SLP

29th Jan '21 by Paul Scott

138 comments 17161 reads

Good morning, it's Paul & Jack here with the SCVR for Friday.

It's catch-up day today, thankfully the RNS is fairly quiet, as it usually is on Fridays.

Timing - Today's report is now finished.

Agenda -

Boohoo (LON:BOO) (I hold) - in exclusive negotiations to buy remaining Arcadia brands.

Card Factory (LON:CARD) - Banks extend covenant waiver by only 1 month. Clearly needs a refinancing. High risk.

Bloomsbury Publishing (LON:BMY) - Well ahead trading update

De La Rue (LON:DLAR) - positive trading update from yesterday

Xpediator (LON:XPD) - positive trading update

Jack's section:

Novacyt Sa (LON:NCYT) (I hold) - FY update

Sylvania Platinum (LON:SLP) (I hold) - Q2 update

Boohoo (LON:BOO)

(I hold)

Thanks to reader Alex, who flagged to me last night press reports (initially from Sky, who are usually reliable) that Boohoo (LON:BOO) (I hold) looks set to pick up the other Arcadia brands not already sold - Burton, Dorothy Perkins, and Wallis. A price of c.£25m is mooted. If that goes ahead, in addition to Debenhams BOO would by then have a total of 13 brands. Remarkable stuff.

As I've been saying a lot recently, the ambition of BOO's management is awe-inspiring. They want to build the best eCommerce business on the planet, and I remain of the view that this share should be a core, long-term holding. It's very much GARP at the moment too, with a forward PER below 30 by my calculations.

I've no idea what the short term share price will do, as it's a very volatile share. I see market gyrations as nothing more than background noise. It's the long-term that matters, and I'm very confident that my analysis on BOO is correct.

BOO has just confirmed the press articles, saying -

boohoo group plc

COMMENT RE: MEDIA SPECULATION

boohoo group plc (the "Group"), a leading online fashion group, notes recent media commentary. The Group confirms that it is in exclusive discussions with the Administrators of Arcadia over the acquisition of the Dorothy Perkins, Wallis and Burton (excluding HIIT) brands. These discussions may or may not result in agreement of a transaction. A further announcement will be made when appropriate.

[Paul:…

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doug2500

30th Jan '21

I think the problem with all this market frenzy is that we all know these companies will end up being priced at their true value, which is likely to be closer to the value ascribed to them by the shorters than their current prices.

While the shorters will have had a fright the ultimate losers will be the innocent (arguably also greedy / dumb / uneducated in markets) that are joining the party late.

MichaelFBS

On Novacyt Sa (LON:NCYT) (I hold) the problem the market perceives is what happens if those cashflows are temporary? In extremis say cashflows are 2021: £224m and 2022: £246m and 2023: £271m and then goes to zero, discounted back at 8%, this gives market cap of £633m. Not far off Friday’s close.

I had the same issue with Anglo Asian Mining (LON:AAZ) where the market could not see beyond a particular mine’s useful life being three years and therefore awarded the company a very low PE (this is proving to be wrong, all but tediously slowly).

I fully except that my investment in Novacyt is closer to speculating than investing but IMO the market is seeing an end to Covid and testing much sooner than will be the case. For example I think a negative COVID test (vaccinated or not) is going to be required to travel, for example, for a very long time until the efficacy of the vaccines over time is proved.

Regards

Michael

Thank you so much for this, will read with this.

As an aside I have always been a little wary of Novacyt Insider and as to whether was part of a ramping exercise on Twitter.

Michael.

pka

Hi MichaelFBS, you wrote:

"On Novacyt Sa (LON:NCYT) (I hold) the problem the market perceives is what happens if those cashflows are temporary? In extremis say cashflows are 2021: £224m and 2022: £246m and 2023: £271m and then goes to zero, discounted back at 8%, this gives market cap of £633m. Not far off Friday’s close."

Even if one makes that very pessimistic (in my opinion) assumption, Novacyt (which I also hold) would have £741m cash by 2024. It could use that cash to buy a number of profitable businesses to give it ongoing cash flows. And Novacyt has said that it is planning to do just that, in order to diversify its business into related diagnostic areas. So it seems to me that its current share price is far too low.

timarr

Perhaps if they are sharp they can do a placing at an absurdly inflated price and use it to reinvent themselve, but that's unlikely

No professional investor is going to put cash in at these inflated prices but with so much dumb money about if they tried to get a placing away at (say) an 80% discount to the insane price they might get some takers. Why not try - they're effectively bust anyway?

Buying with leverage though ... well, I wonder. Individual losses will ultimately be capped by personal bankruptcy but the platforms are exposed to a very unusual set of risks. I wonder about Plus500 (LON:PLUS) and their lack of hedging - how exposed are they? And I look at the Ig Group (LON:IGG) takeover of tastytrade and wonder where the bodies are buried?

Still, many of the people involved will learn valuable lessons. I have a framed Marconi certificate I look at before I buy anything. Caveat emptor.

timarr

I agree that the Novacyt Insider website is something of a ramping exercise, but the articles seem to me to be very well informed about the company's activities and a useful source of information.

MiserableJacktPotato

"Why not try - they're effectively bust anyway"

Roaring Kitty doesn't agree. Look at the date before anyone claims it's a response to the last couple of weeks.

100%+ short interest in GameStock stock (GME) – fundamental & technical deep value analysis - YouTube

Well, he might be talking his own book there ...

Whatever it's worth, it ain't $22 billion.

Yes and no.

Don't forget the shorts have to buy the shares back to give to their original owners, and even when they've bought 100% of the company stock (for GME, other situations are different), they're still not finished buying.

In theory this whole thing could unwind and only the shorts lose. Not going to happen in practise, granted, but being the greatest fool is always a risk at the top.

Westway001

I think the main reason for the £NCYT sell-off on Friday was the lack of any forecast at all for 2021 and the fact that talks are still ongoing for phase 2 of the DHSC contract, the first phase of which (according to my maths) ended mid-January. I also hold and hope that there is a contract extension announcement soon to put some spring back in the price. I have to say that I was disappointed that the 2020 revenues were not a bit higher than they turned out.

It sure ain't worth $22Bn, but it's not 'effectively bust' either according to the video.

According to the video.

timarr

Simon Rowan

Presumably if shorters borrowed 150% of stock to short there won't be enough shares around for them to close positions. o dear. No doubt thats too simplistic. Is it possible to borrow more shares than exist? As I have said before this was a mechanism designed to protect peoples investment, not to help sharks move in and create carnage. As usual good intentions end up getting abused by lack of control of regulators. Now its left to individual brokers to lay down the rules it seems. IGG the latest to ban purchasing shares in certain stock of their choice.

Another possible reason for the Novacyt sell-off on Friday was the announcement of the effectiveness of another Covid vaccine (Johnson and Johnson's).

Well, all we can say is, he's put up more data about the position and why he's long than you have saying they're effectively bankrupt :)

31st Jan '21

I imagine he has significantly more motivation to do so :-)

JESSE LIVERMORE

"And I look at the Ig Group (LON:IGG) takeover of tastytrade and wonder where the bodies are buried?"

Its worth remembering that Ig Group (LON:IGG) s core leveraged products (CFD's & spreadbets) are currently not permitted in the US.

Operationally, the US business being acquired by Ig Group (LON:IGG) appears low risk on the basis that it is classed as an 'agency only broker'. This is evidenced by its low regulatory capital requirement : 'as at 31 December 2020, tastytrade had a regulatory capital requirement of $500k.'

KTF67

2nd Feb '21

the one forecast i can see for 2023 is Revenues decline to £97m, Net profit to £30m but for 2022 they have net cash 390m (no estimate for 2023 but can assume 415m). If they used their cash to buy in shares the market cap would fall to 215m which puts the remaining business on 7* PE.

TangoDoc

As a Card Factory (LON:CARD) holder, I find myself in a constant state of indecision about it. It was therefore, a very useful exercise to follow the link to the presentation and I would recommend anyone in a similar state to do so, albeit that it was some months back. https://webcasting.brrmedia.co...

I was impressed by the transparency and the sheer volume of factual, research-based information being shared. These chaps seem to have their finger to the pulse and, although they acknowledge the general slide of the sector over time, appear to be prepared to think laterally while not wasting what they have gained historically.

Now we have a vaccine rollout, giving some hope to the possibility that safer high street footfall will rise as Spring arrives, particularly for the largest card buying demographic, it would seem odd to write this company off. I find the fact that they print 75% of their cards reassuring.

Paperchase, a modest competitor has gone but that would seem to be an advantage to Card Factory (LON:CARD) rather than an arbiter of doom. Time will tell, but I propose to hold.

Berksbee

4th Feb '21

Very useful Tango, I share your indecision and like your analysis. Will listen to the webcast. One thing I am certain of is no Moonpig for me, even at half the price.

Small Cap Value Report (Fri 29 Jan 2021) - BOO, CARD, BMY, DLAR, XPD, NCYT, SLP

Boohoo (LON:BOO)

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Paul Scott

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