Small Cap Value Report (Fri 3 April 2020) - JOUL, SHOE

3rd Apr '20 by Paul Scott

90 comments 9951 reads

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

Here is the usual 7am placeholder, for reader comments as I write the main report throughout the morningday. Edit at 14:01 - please accept my apologies, I'm running late today. Estimated time of completion is 5pm. Edit at 16:41 - apologies again, today is a bit of a struggle. I'm back at the keyboard, and will continue until 7pm, to add a few more sections. Sorry for the inconvenience to you, I know it's irritating when reports are late. Today's report is now finished.

I'll focus today on fundraisings, because we're going to see a lot of them. Indeed, in sectors that have been shut down, e.g. retailers, hospitality, and travel, then equity fundraisings along with extended bank facilities, are going to be the only way many of these companies can survive. I think it makes sense for companies to raise funds now, whilst investors have some willingness to support companies. That may not be the case in 3 months' time.

Joules (LON:JOUL)

Share price: 80p (down 6% today, at 14:09)
No. shares: 89.4m +18.75m new shares = 108.2m
Market cap: £86.6m

(I no longer hold a long position in this share)

Placing of new shares

Joules is a distinctive fashion brand, which sells roughly 50:50 from physical stores, and online.

Last night the company announced that it intended to raise £15m in an institutional placing undertaken by Peel Hunt & Liberum.

This placing is going hand in hand with an extension of the bank facilities -

Agreement in principle from Barclays Bank plc to provide an additional £15m headroom on the Company's existing revolving credit facility ("RCF") for 12 months, conditional on the Company raising a minimum of £15m via the Placing, and subject to documentation.

That makes sense. If the bank is extending its exposure to the company, then it's perfectly reasonable for it to require shareholders to stump up fresh cash too. I think we'll see a lot of similar agreements in the coming weeks & months. After all, one of the key benefits of having a stock market listing, is to access the market for fresh funding. For this reason, banks tend to be more supportive of listed companies, than private companies.

Directors are putting in £1.2m, which is a decent level of support.

Covid-19 has obviously impacted the business to…

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timarr

3rd Apr '20

One data point worth considering as a starter is director deals. For those to matter they need to be significant - hundreds of thousands. Pack buys by multiple directors are particularly interesting. Sales can be interesting, especially if by multiple directors but individual sales don't necessarily tell you anything as individuals may have specific calls on their cash particularly during times like these.

If we look at the last two weeks some of the most interesting transactions:

Purchases at very large scale by directors of Plus500 (LON:PLUS)
Significant purchases by a number of directors at Genel Energy (LON:GENL)
Big purchases by single directors at Micro Focus International (LON:MCRO) and Ten Entertainment (LON:TEG)
4 directors selling at Cranswick (LON:CWK) including the largest single trade in either direction
4 directors buying at Coca Cola Hbc Ag (LON:CCH) in decent sizes
4 directors at Ocado (LON:OCDO) selling at around the half a million mark
4 directors at Bae Systems (LON:BA.) buying in reasonable volume
CEO at Bioventix (LON:BVXP) selling a million pounds worth and picking up a quarter of that in options.

Straws in the wind, maybe.

P.S. Worth remembering that lots of companies are in a closed period due to the FCA requirement to delay results. We'll get a better idea of sentiment when those come out.

Silver Moon

Berkeley and Imperial Brands came forward for me but there was another which cancelled its dividend the day before it was due to be paid.

greenhat2

Well what a load of shite todays comments have been.

We're collectively descending into something akin to ADVFN boards or LSE.

Keep up the good work Paul and Graham, we are all just going mad here with the effects of the virus.

bryans1311

What about bats?

Howard Adams

Hi timarr

Very useful posting of director deals. Thank you.

I am also looking carefully at major holdings RNS's with regard to companies I scan.

I also always look at the Stockopedias Major shareholders under the Accounts drop down. As the level of interest from these >3% holders and their recent movements help me to assess whether people with far more insight into a company than I are seeming to hold, add or are beginning to sell.

I then look/watch for such moves onto the volume and share price graphs.

For but one example Imperial Brands (LON:IMB) (not everyone's cup of tea type stock I know), 31.46% of the stock is held by 9 major shareholders. Six have made moves in Feb 2020 & Mar. The share price and transaction volumes seem also to reflect these sorts of traders.

Regards

Howard

mammyoko

CMC Markets (LON:CMCX) reaffirmed dividend policy of 50% of PAT today so would anticipate that IG Group (LON:IGG) will retain its generous dividend also

Meldrew

Can you expand on why?

Please note my use of the word 'premature', by which I mean, before the disease is under control. At the moment it is not It would be folly to relax controls before the medical and public health criteria to allow such a relaxation are met. I am not medically qualified so I cannot say what those criteria are but I cannot accept that they should be ignored as Barnet Peter seems to be suggesting.

Trident

Good old Si. We will will miss him when he goes.

He has obviously been inadvisedly practising those skills acquired in the 'Jeremy Clarkson - My guide to Diplomacy' course, again.

:-)

Hi Howard

It's an interesting indicator but I wouldn't take too much notice of institutional selling - there'll be a lot of covering of positions going on, funding redemptions, etc. Purchases are interesting but it could be for a number of reasons - income funds desperately covering the dividend losses they're suffering. for instance.

That's one of the problems at the moment - the rapid scale of the drawdown will have left many holders short of available funds so you'll get inexplicable price movements which people try to interpret in terms of some level of fundamental understanding but which are often nothing more than side-effects.

Director dealing - particularly purchases and particularly in large volumes are usually very strong indicators of insider sentiment during periods of uncertainty. On the other hand, directors are notoriously poor at judging their own companies so it's never anything more than a flag for further research.

But I was particularly interested in the purchases by Ten Entertainment (LON:TEG) and Micro Focus International (LON:MCRO) directors where both companies have recently passed their dividends ...

I hope so, I hold both :)

I should really have bought Plus500 (LON:PLUS) as well but previous reporting issues put me off.

Paul Scott

LOL! I think it's understandable that people get irritable and ill-tempered when under a lot of pressure from falling portfolios & being stuck at home all day.

Let's try to keep mutually supportive & kind, in this difficult time.

Best wishes to all, Paul.

Hi,

Graham normally covers H & T (LON:HAT) - he's doing Monday's coming report, so I suggest you put in a request for him to look at it.

Regards, Paul.

rhomboid1

Best wishes to you too Paul....your continued service under the stresses you are experiencing is absolutely praiseworthy

I'm considering whether to buy back into Cenkos Securities (LON:CNKS) actually. As you say, you're getting the business for nothing, as the market cap is similar to its own cash pile.

The downside is that it's unlikely to return to previous levels of profits, because those were one-off gains from floating things to Woodford.

On the upside, I think we will have a tidal wave of fundraisings to keep existing listed companies afloat over the rest of 2020. So should be lucrative fees available for brokers that get the business & can deliver. Set against that, I doubt they'll get many IPOs away for the time being.

Hi FREng,

I'm just a freelance writer, so I don't get involved in anything like that!

You can raise a green ticket on anything, to talk direct to the Stockopedia HQ team - it's that round circle in the bottom RHS of any Stockopedia page.

Wilbraham

Yep - my friend that emigrated to Thailand will regularly go to the market for a kg of locusts. And wait till you see the size of the rats - body easily fills a dinner plate with tail handing over the edge. We're just a touch precious in the UK compared to RoW.

I listened to Patrick O'Shaunessy's latest podcast this afternoon "Gavin Baker - Investing through a bear market". One comment that struck me was analysts' #1 starting metric nowadays is "Liquidity days with zero revenue". Pretty self-explanatory - how long can the business survive on its cash reserves with costs cut to the bone. Obviously one can then finesse that, eg if there is some demonstrable value in non-cash assets. (But it's not impossible to anticipate little commercial value in, say, a car dealership out in the sticks in a real economic meltdown. Or the example of the garden centre referenced in today's thread - a large centre might hold £100K+ of 'fragile' stock - some of it might survive if fed and watered but the rest will just shrivel away.)

I don't feel that Stocko's underlying data is sufficiently granular to address such issues - you really have to dig under the bonnet with the detailed accounts, segmental reporting, key customer risk etc.

Another interesting comment was that you may think a SaaS company has solid recurring revenues. But in extreme conditions, some clients will go under and those that survive will demand, and get, huge discounts going forward. Just like the problem commercial landlords are facing. It's contagion effects like this that make analysis so fraught. Just a few weeks ago UK investors saw this as primarily an airline/travel sector problem, but look how fast it's spread to almost all sectors now.

JonBirdy

Hi Paul, every time I read your SCVR I find something new to consider. Really useful during these very strange times. Thanks you. Have a good weekend. Jon

xcity

I believe they prefer smaller insects.

Robert Smith

Sssh, you’ll upset the Chinese.

Small Cap Value Report (Fri 3 April 2020) - JOUL, SHOE

Joules (LON:JOUL)

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Paul Scott

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