Small Cap Value Report (Mon 10 Aug 2020) - FGP, IDEA, MCL, SDRY, ORPH
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Good morning, it's Jack here with today's SCVR.
It’s a strange time right now, isn’t it? We’re unfreezing parts of the economy but progress depends upon the data we get back concerning new COVID cases, R rates and the rest.
I don’t know about you but I’m happy to see businesses reopening, as much for peoples’ psychological wellbeing as for stimulating the economy. But it’s a calculated risk.
I’ve visited a couple of restaurants and bars, giving my custom, tipping, and talking to the site owners and managers where I can. It has clearly been a tremendously stressful period for thousands of small business owners.
That said, It’s not over yet. All around the world the pandemic rages on - with places as varied as Australia, Brazil, and America all continuing to grapple with rising cases. I’ve taken three taxi rides recently, always with a mask. In two of them the driver wasn’t wearing one. At the hairdressers, the barber told me I didn’t need to wear one for the haircut.
Each of these interactions is a small risk. Multiply them nationwide then we surely have to expect a degree of increasing cases as we slowly reopen.
With things so finely balanced I’m curious to know if others out there have started returning to bars, restaurants, etc. or if you think it’s still too risky. Everybody has their own take on how to play it right now.
One thing a restaurant owner did tell me over the weekend is that the Eat Out To Help Out scheme has had a noticeable impact - so the government at least is genuinely trying to get people out and about again.
Anyway, RNSs are beginning to come out so let’s see if there are any interesting announcements.
Firstgroup (LON:FGP)
Share price: 38.8p (before market opens)
No. shares: 1,220m
Market cap: £473.53m
Understandably, investors continue to be wary of transport groups. Firstgroup (LON:FGP) and peers have seen no recovery in share price since March. While First is marked as a Value Trap, Go Ahead Group is awarded Contrarian status.
So is there a contrarian opportunity with these stocks or are the risks just too high?
Today Firstgroup updates the market with this Statement re further government funding for bus industry, so let’s take a quick look.
Key points:
- There is funding round of £218.4m from the Department for Transport (‘DfT’) to support the provision of vital services by regional bus operators in England
- Rolling funding of up to £27.3m per week will be available thereafter, ‘until such time as it is no longer needed.’
- First Bus operations across England have increased operated mileage from c.40% to almost 90% of pre-pandemic levels, with passenger volumes increasing from c.10% to c.40% since the low point.
- The Group also welcomes the Scottish government’s announcement of additional expenditure of up to £68m to extend to 8 November the similar funding scheme it has in place for Scotland’s bus operators.
Conclusion
With a market cap of £473.5m, we’re hardly in ‘too big to fail’ territory are we? But it does sound like the government is committed to keeping private bus companies afloat during this period. While many probably don’t fancy the idea of getting on a bus anytime soon, for others they must still be an essential service.
Companies like FGP have a role to play in restarting local economies, getting people back to work, and getting children back to school later in the year. How big will the revenue hit be from a more structural shift towards working from home, online shopping and the rest? That is something to consider.
Note the disconnect between operated mileage recovery (90%) and passenger volumes (40%).
FGP has a big balance sheet for a c£350m company: more than £4bn in gross debt, a net pension deficit, more than £800m of cash, and more than £4bn of net plant, property and equipment.
At just 0.06 TTM sales, there could be value on offer for the risk tolerant, but it’s not one for me. The share price momentum is negative, the group’s financial scores are weak and its liquidity metrics are further flags, with a current ratio of just 0.75x.
Go back four or so years ago and FGP looked ‘cheap’ at c115p. Today the shares are a shade under 40p. Value Trap indeed. The poor returns on capital figures show bus companies can be a great way to lose money.
The risk/reward has changed radically in recent times. The shares could bounce on valuation alone, but I remain cautious given past disappointments and a risky balance sheet.
FGP has had activist interest in the past and it seems like it could still be an opportunity for a large, active shareholder to unlock value given the leverage, assets, and low valuation. Coast Capital and others have found it hard to make progress here though, so I wouldn’t hold my breath.
Edit: Go-ahead (LON:GOG) has issued a similar update regarding the government funding with broadly the same comment. It appears to back up FGP’s assertion that bus passenger numbers are at around 40% of what they were the same time last year, with the group CEO saying:
As communities return to work, services reopen and people begin travelling again, we are seeing customers returning to public transport. However, passenger numbers are still below 50% of pre-COVID levels across our networks. While social distancing is in place and sections of society remain closed, we welcome the Government's continued support to keeping these critical services running.
Ideagen (LON:IDEA)
Share price: 181.88p (+3.34%)
No. shares: 227m
Market cap: £398.85m
The Ideagen (LON:IDEA) share price has marched ever higher over the past five years or so - clearly its strategic mix or acquisitive and organic growth is working. It’s a tricky formula to get right, but when it works returns can be excellent.
This ‘leading supplier of Information Management software’ has been on my radar after a particularly colourful exchange at a Mello event a couple of years back. The team is overseeing double digit annualised growth rates.
I’d like to know more about the background and track records of the management team. Experienced players can pull off this sort of acquisitive strategy over the long term, but it can also often end in tears.
For now my starting position is that management is probably capable given the group’s share price performance and growth rates, but this is something I would certainly like to investigate further before investing.
Today IDEA reports a trading update with an acquisition thrown in for good measure. Perhaps the fact that the company is acquiring at such a time can be seen as a sign of strength.
Acquisition:
- IDEA has acquired the entire issued share capital of Qualsys, a fast-growing supplier of Electronic Quality Management Software ("EQMS") for a net consideration of £15.6m
- Qualsys EQMS is used by over 150 customers including Diageo, Unilever, Honeywell, BT, FujiChem and IQE
- Qualsys' current Annualised Recurring Revenue (ARR) book is approximately £2.9m, an increase of 38% p.a. over the last 3 years. Total run rate revenue is £3.5m.
- This means the target is valued at c5.4x ARR or c4.5x run rate revenue, which strikes me as slightly expensive
- However, ARR is expected to grow to a minimum of £7m by the end of the Group's next financial year (April 2022) - a big step up. That’s a lot of growth. I wonder if this increase will be generated by cross-selling to IDEA’s existing client network? If so, that is a useful way to immediately increase the value of acquisitions.
- This is expected to be ‘modestly earnings enhancing’ in the current financial year.
David Hornsby, Chairman of Ideagen commented:
"We are pleased that trading so far this year has been in line with our expectations and that we today announce the acquisition of Qualsys. Qualsys has a resilient business model, a quality customer base, outstanding technology and a strong team. Qualsys V7 will be an important product for Ideagen as we integrate the software into our cloud platform and accelerate the ARR growth through our proven and established sales engine."
Trading update
The group says Q1 trading has been ‘robust’, with continued demand for its products from both new and existing customers. Notable contract awards include KPMG, GSK, Medtronics and Bank of Montreal.
Aviation remains suppressed but stable and Manufacturing is seeing an improving pipeline.
Customer retention and net cash generated from operations have not been materially affected by COVID-19 and the board expects to continue to perform in line with market expectations over the coming months. All in all, quite reassuring.
Conclusion
There are some encouraging points here but my concern for now is valuation.
Price to book you can probably ignore for a high growth software company. On a sales and free cash flow basis though, there’s no doubt this is pricey.
IDEA provides software and services to organisations in highly regulated industries such as aviation, banking and finance and life science. It has a broad geographical spread of clients. It appears to provide good value with software products that help clients reduce costs, improve operational efficiency, strengthen compliance and oversight and anticipate and manage risk.
The management team seems to be executing a rapid growth strategy. If this continues then IDEA could potentially become much larger. Directors are net sellers at the moment but the shareholder list seems to show some canny institutional investors like Liontrust are on board. Presumably they see a larger opportunity.
Looking quickly at IDEA’s executive team there could be a good mix of management experience and alignment with shareholders. Chairman David Hornsby has been involved at the top level since 2009 and retains a c4.5% holding in the company.
If the market opportunity here is sufficiently large and the management team can continue to execute on acquisitions, today’s share price might prove to be worth paying. I don’t have a developed view on that right now, but earnings and share price momentum have been encouraging so there’s certainly a case for taking a further look.
The group touches on its ‘proven and established sales engine’. If it can acquire companies and immediately boost their revenues then that could be a winning long term strategy. It’s an interesting one, but I need to understand the business model a little better to understand why IDEA might have an edge over competition.
In its recent interim presentation, IDEA cites a £2.5bn market opportunity. Presumably that is on a revenue basis. If so, the group’s forecast 2020 revenue of £56m suggests plenty of runway for growth.
Morses Club (LON:MCL)
Share price: 55.72p (+9.25%)
No. shares: 131m
Market cap: £66.93m
Everything I’ve seen so far about Morses Club (LON:MCL) suggests its COVID lockdown fall is overdone. I can’t see why this company’s shares shouldn’t be worth upwards of 100p again in future.
Morses Club is the second largest home collect credit and business in the UK. It is also a specialist lender in the non-standard market.
Typical customers are generally the lowest paid customers in the UK, predominantly females in their 40s or 50s with annual income around the £12,000 mark mainly made up of a mixture of benefits and part-time working.
There is a wide range of investors out there and some might have ethical concerns around investing in this space. A quick look at Trustpilot does suggest Morses is reputable.
The group had to close down its lending operations during lockdown but it has used this as an opportunity to greatly increase activity in its online portal (from 78,000 customers to 110,000 - well over 50% of the customer base). The group is now lending to new customers once more and collections have been strong.
This isn’t the kind of company I typically look at but the quantitative attractions of its shares are undeniable, trading at just 3.7x free cash flow and 4.5x forecast earnings.
Recent news concerning the suspension of a banking partner to Morses’ U Account subsidiary does raise the spectre of reputational and ethical risk, although as I understand it this issue was resolved within a matter of days with no business impact.
Trading and 2020 Results Update
- Collections in the HCC division for July increased to 98% of normal historic expectations when measured against expected terms, an increase from 91% at the end of June, and are anticipated to reach pre-Covid levels by the end of August 2020.
- Cash in July has improved slightly to 82.3% of the level achieved in 2019. Sales were 80.9% of the levels for the same period in 2019 again an improving trend whilst customer satisfaction has been maintained at 97% or above.
- Continued growth in the online customer portal, which now has over 110,000 customers registered compared with c. 78,000 at the end of FY20
- The audit process for the Company's FY20 results continues as the results will include the impact of Covid-19 on the impairment of the closing loan book as at 29 February 2020. Morses Club will update the market on the announcement date for its full year results in due course.
Conclusion
This isn’t my area but I can see the attractions here. Morses shares are cheap at less than 5x forecast earnings. The group has strong liquidity metrics, its business model generates high returns on capital and it is consistently cash generative:
As the number two player in the market, and with scope to make opportunistic acquisitions as weaker competitors exit, Morses could be well placed to bounce back and recover to pre-COVID levels.
It has been trading profitably throughout the period although sales and collections are down like-for-like. The trajectory is improving though and Morses is running at 98% of where it would otherwise have expected to be by now (up from 91% a couple of weeks ago).
Buying shares at 56p that generate free cash flow of 13.7p is a neat trick, although there is a question mark over the potential Covid-19 related impairment of the loan book.
That said, from what I’ve seen given the resilient lockdown trading and stellar annualised growth rates (with 5y revenue, operating profit, and EPS growth all above +40% pa) I think the mark down in share price has probably been overdone.
Superdry (LON:SDRY)
Share price: 142.00p (+20.44%)
No. shares: 82m
Market cap: £96.7m
I’ve been occasionally checking back in on both Superdry (LON:SDRY) and Ted Baker in recent months - two retail giants whose share prices both languish at absolute fractions of previous highs and annual revenue. Either one could be a high risk contrarian opportunity. They’re probably worth either multiples of current prices or nothing at all. Turnarounds are risky, so I'm being very cautious.
Today SDRY’s shares are up 20% on the back of a trading update and new financing facilities. If you think the brand could recover then a 20% jump to 142p will be peanuts in the grand scheme of things.
New financing facility and trading
Financing facility:
- SDRY has agreed a new £70m Asset Backed Lending Facility with existing lenders, extending the term until January 2023.
- The new facility is subject to a number of financial covenants and the borrowing base will vary throughout the year ‘dependent on the level of the Company's eligible inventory and receivables’.
- As at 6 August, SDRY had £57.8m net cash on the Balance Sheet (vs £39.8m net cash as reported on 7 May and vs £2.1m on 6 August 2019).
- Total creditor position at the end of Q1 was up net £3.1m year on year, with the deferred payment of property related costs and taxes broadly offset by the delayed intake of stock into the business.
Q1 trading update:
- Current trading in Q1 has been better than initial expectations, however disruption from Covid-19 continues to ‘materially’ impact year-on-year performance.
- Total Group Revenue for the period is down 24.1% year on year, with c95% of stores now re-opened and store like-for-likes down 32.3%.
- Wholesale is down 31.0% year on year although Ecommerce is up 93.2% in Q1, normalising in recent weeks as stores re-open.
As of the groups Q4 FY20 update, SDRY had the following revenue split:
- Retail - 43% (£373.7m)
- Wholesale - 38% (£335m)
- Online - 19% (£163m)
Conclusion
With the group’s co-founder and major shareholder Julian Dunkerton back at the helm as CEO, SDRY could be one to watch. If it can recover to anywhere near its previous levels of profitability, shares would be worth many multiples of the current price.
That is a big ‘if’ though, and forgoing some of the early upside in order to monitor progress and wait for the company to derisk a bit is a pretty valid option - no need to dive in on little information.
The shares are down almost 90% over the past five years, so a genuine recovery would suggest shares have plenty further to run if Dunkerton can turn the ship around.
Put in the context of that 5y performance, today’s share price action is negligible.
The recent drop in profitability is obviously alarming, and broker forecasts suggest there could be more bumps to come given the future net loss estimates.
SDRY needs to revitalise its brand and reshape its trading base. Online is growing but should be larger. This funding should help but there is plenty more to do.
Perhaps the current environment is an opportunity for SDRY to renegotiate some of its less profitable sites. But at what cost to its existing shareholders? SDRY wouldn’t be the first High Street CVA in recent times. The end game presumably is to refocus away from expensive retail sites to wholesale and online sales.
The picture continues to be mixed, and significant risks remain. No harm in sitting this one out but at the same time, it is worth keeping on top of developments here just because of the scale of the potential upside.
Open Orphan (LON:ORPH)
Share price: 14.61p (+8.83%)
No. shares: 666m
Market cap: £89.36m
This is a Highly Speculative Healthcare Momentum Trap that is burning cash. It has recently diluted its shareholder base, it has a poor F-Score, a Quality Rank of 8 and a Financial Summary soaked in red. These are all flags I try to avoid, but shares are up c9% today on a new contract win.
Even great companies can have very risky financial profiles early on so you might always hit upon the real deal in this space. Open Orphan (LON:ORPH) needs to pull something out of the bag if it is to avoid diluting shareholders further but the community has been buying and the share price has been rising - so maybe there is something worth investigating here.
ORPH has announced a new contract, valued at £4m, with a top 3 global pharmaceutical company ‘to be the sponsor of and provide a respiratory syncytial virus (RSV) human challenge study trial’ and says this deal will generate ‘significant cash flow’ - so maybe it takes the pressure off existing shareholders to fund operations.
In fact trading momentum in general seems strong.
Conclusion
The transformational opportunity appears to be to do with COVID (see here). Possibly a crowded trade and it’s not an area I have an edge in. I’d like to see more signs of profitable, cash generative growth before getting involved.
It could be that ORPH is right at this inflection point but I’ll leave that for others to decide. DYOR.
I’ve had a quick look around and can see others expect this to grow quickly. Brokers are forecasting a stepchange in profitability in FY21 - so if you believe that, then there could be an opportunity.
These are quite big forecast jumps in revenue.
Possibly worth flagging for others but not one I’ve looked at before and it seems quite high risk, with further equity dilution very possible if anything gets delayed. For that reason I'm on the sidelines here.
Still, signs of some good trading momentum and management talks about a healthy pipeline going forwards so good luck to holders!
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51 comments
I am testing Stockopedia for the next 14 days First impressions are good and I expect to become a member after this date. No further comment at present.
I am a newbie with a small but growing equity portfolio, to keep my mind active in lockdown, whilst Cazenove worry manage the bulk of my assets, so I am not really qualified to participate in the financial dialogues on here, although Stocko is always part of my decision making before investing. I have recently been tempted by the current prices of Ted Baker Ted Baker (LON:TED) or Superdry (LON:SDRY) and have some first-hand feedback about the latter. It’s jolly hot in Somerset and the Superdry vest tops are just the thing to stay cool. After looking at dozens I liked on the site, all at a great price, not a single garment was size Large, hardly any medium either. I am an active online purchaser and small and XXL only sizes on clothing and footwear are a big indicator of a company which is not really committed to online retailing. Yes, it’s hot and everyone wants one, but if you haven’t got it, you can’t sell it. The stocking process of the professionals in this market are awesome and the amateurs abysmal. You can’t mount a recovery without moving the product in volume and I will be checking to see how long, if ever it takes these guys with one of the most expensive retail sites in Regent Street to get their online offerings on the shelves. BTW I love the way you include parts of the stock reports in your posts Jack – really helps my understanding on some of the key indicators. Thank you.
Jack
Open Orphan (LON:ORPH) I think you have this one very wrong. It's all historic data. You have the old companies about right but the last 12 months have been completely revolutional. I don't have time to do a full analysis write up on here unfortunately so just a few snippets. I do advise going to proactive investors though and watch a few of Cathal's video updates.
In a nutshell this isn't all about Covid at all, but Covid has had a beneficial impact on the business. They changed the business to be a services company and have one of the only fully quarantined facilities in the world for challenge studies. Historically badly managed but now is either making money or breakeven. The dilution you mention isn't dilution at all as it was all done at premiums to the share price but they have more than enough cash now, so I think further fundraises unlikely.
They will also likely divest one of the drugs in development. Interestingly there is a read across to a recent market transaction of a not dissimilar drug that was sold for multiples of the existing share price. That's not in the price but will play out during the remainder of the year.
I usually hate these type of companies but I am long from 6p. See that they've done so far and the record is impressive.
I reiterate everything said by davidjhill. I hold this stock.
Open Orphan owns Venn Life Sciences as well as one of Neil Woodford's legacy Life Sciences businesses, hVIVO.
hVIVO had £113m invested in it by Woodford resulting in a respiratory diseases quarantine unit, a state of the art virology lab and a stage 3 ready universal flu vaccine among other things. Cathal Friel bought hVIVO for £13m and has turned the company round.
Open Orphan has a possible £160m prospect contract pipeline. £100m of which is non Covid related and £60m is Covid related. It is now in negotiations with a number of potential Covid vaccine devopment companies to test their vaccines using Human Challenge Studies (carried out in the quarantine unit).
After years of investing. I am highly sceptical of story stocks but I everything Cathal Friel has said so far has come to fruition. He is the first to admit he got lucky with hVIVO.
ORPH - really encourage people to listen to today interviews & not rely on the historical financial information quoted here.
This is a very exciting share with covid19 and non covid19 revenue streams. Hvivo is the only place in Europe offering challenge studies solutions which is especially prominent with a potential vaccines for covid19
A few points from call today
- Cash generative. Cash balance at the end of H1 was £15m.
- In very advanced talks with UK government and third parties on COVID-19 challenge studies.
- Upon announcement of this will also be a new quarantine facility in London provided by UK government. In Telegraph indicated is the Royal Free.
Then there is also spin off or sale of Imutex
Also there has been reference to Wearables deal.
Jack, thank you for the write up on Ideagen (LON:IDEA)
This is a interesting company, it seems to be doing well in terms of revenue and profit growth.
However it also seem to have a terrible ROCE (2%), which either implies that it has been paying too much for its acquisitions or that it's acquisitions are so early stage that they are not generating that much profits yet.
As it is too difficult to work for me to work out which is the case, I have added this company to my 'too difficult to understand box', as I watch it's share price rise and rise....
Took a day off and went by train to a historical resort area. Train was Ok until Mr Gangster Man entered the carriage his mobile phone at first blasting music and then a film of some sort at full pelt. After 40 minutes he got off swearing he had missed his station (how we laughed). He wasn't wearing a mask.
On the return journey, a middle class family of 2 daughters and a mother got on. One without a mask. They proceeded to talk non-stop for 1 hour and 20 minutes, most of it absolute basic rubbish. They didn't seem to make sentences, or talk with any intelligence about anything, so it was like being next to parrots with verbal diarrhea. When they got off the whole carriage seemed to relax in the relative silence.
Most people were wearing masks, but unfortunately it proved again that Hell is other people, and usually a small minority at that.
Trident, I hope that overall your day out was enjoyable. You don't mention the ages of the daughters, but under 11 yo are exempt from face covering. It sounds like their chatter was annoying, but as a parent of teenage girls myself I applaud that they talked to each other and didn't just look at their phones. My daughters equate a train journey with free-wifi and not much will persuade them to put the phone down and engage in conversation - I'm aware that this may be considered a reflection on my poor parenting skills.
Hi Patxi. I would say the girls were between 16-19. They were passing pictures to each other for the first 40 minutes by them telling the other where they were (' me in toilet', 'me washing hands' etc). If it had only been me that was exhausted with their endless banal chatter, fair enough. But my wife who can talk for England felt similarly afflicted. I am acutely aware of the potential to slip into Victor Meldrew mode. If I hadn't been forced to listen to it by circumstances, I would be happy for their day out. Sadly I was trapped.
I enjoyed the day out thank you but saddened by the middle-aged and younger people who have covered their exposed skin with tattoos.
Oh God, perhaps I am Victor Meldrew!
trident, you made me laugh
It may be that shop workers have come into contact with so many viruses from the great British public in the past that their immune systems are better able to defend against the COVID-19 virus and so they are asymptomatic.
Unfortunately, the virus is too new for us to know. So, the authorities are walking a fine line between too many restrictions and too few with relatively little information to base decisions on.
Thanks for your comments on Open Orphan. I looked at this a while ago and must admit I was put off by the fact that it has an association with an unsuccessful oil and gas company.
Cathal Friel, who chaired Fastnet Oil & Gas, decided that prospects in the biopharmaceutical sector were rather better than in the than oil and gas sector, and he played an important role in creating Open Orphan in its current form.
Whilst I would agree with him about the oil and gas sector, I'm not sure that skills from this sector are necessarily transferable to the the biotech sector, although I must admit that both sectors do, from time to time, benefit from speculative froth.
The more cynical amongst might consider small cap oil and gas as being best characterised by a drill hole with a liar on top; similarly small cap biotech as being best characterised as a test tube with a liar on top.
The transferable skill is, therefore, surely lying?
Open Orphan (LON:ORPH) It is always worth doing the research before slagging off this stock and Mr Friel. It is a research services company and sees a route to £30m turnover and profitability this year supporting research (it has an unusual asset in a 24 bed isolation unit. It is not the usual punt on some drug 10 years from now (think Fastnet). There is also a kicker with JV owning a mid stage flu virus that could be worth north of $500m if taken, I don't see any value ascribed to that in the current share price.
Invested early and happy to hold/
Thank you Jack for another excellent writeup, very informative due to your style of investing being akin to my own.
Regarding your comment
"I’m curious to know if others out there have started returning to bars, restaurants, etc",
I returned to my local Wetherspoon in Formby the first day it opened. It is extremely busy on a Monday, Tuesday & Wednesday due to the Eat Out to Help Out promotion. I sit next to the front doors which are permanently open throughout the day, that way there is a constant breeze of fresh air circulating.
One small observation Jack, with Graham having permanently moved over to other pastures, how long will it be before your picture replaces his on the front of the SCVR Today page??
I think we need to remember that lockdown was to slow down the rate of hospital admissions to avoid the NHS being overwhelmed. Saving lives was an outcome. As hospitals were not overwhelmed even in the peak (or believed to be) in March, then this worked. With much more hos capacity now available, admissions remaining low even in virus spikes and better Covid handling and outcomes I think we have plenty of scope to keep opening up. I don't think further lockdown should even be considered given the long term damage to our economy and our society.
As a 70+ citizen, I am appalled at suggestions that the economy was shut down in order to help preserve my life. That would be a reaction out of all proportion
Same here Housemartin, at 70+ we have had our three-score and ten years of taking on risk.
Fully agree - i am mid 60's . We have damaged the economy enough , time for herd immunity !
We have heard recently in the press that of all the people tested 8 out of ten didnt know they had been sick.
Thinksmart Thinksmart (LON:TSL) mention by Mr Contrarian below (he and I hold) is up another 10 per cent on agreement on a legal action. The real interest...TSL owns a small stake in Afterpay via a ten per cent ownership in Clearpay. Afterpay is one of the fastest growing tech stocks and has a current mkt cap of 14 billion dollars. No idea of the true value of that stake and the complex put and call option structure has not put investors off pushing the price up daily. An interesting stock to research in my view...no advice intended.
I think it's just been tipped again by Simon Thompson of IC. I don't hold the stock.
Shop workers - in those stores that didn't close during lockdown - are the perfect control. If supermarket and corner shop workers had been dropping like flies for the last few months, then I (who have ability to work from home) would be very wary about going out. However, I don't think they are, certainly it's not been widely reported. In fact I've read more than once that store workers are actually less likely to succumb to CV19. Which makes me think going about your normal business (if you're not 'high risk') presents very little additional danger and that the protective properties of face coverings are hugely overblown.
I don't know that shop workers are actually such a good control. Whilst some customers don't seem have paid too much attention to keeping 2m apart from each other, shop workers generally have an easier time maintaining distance from the punters, by sitting behind their Perspex screen etc.
It is true that whilst visiting pubs and visiting other households do seem to have been identified (presumably through test and trace) as important vectors, nothing has been said of shops thus far.
That might be for one of two reasons (or perhaps other) :
> The period of "social interaction" in shops is sufficiently short, not to present a significant transmission risk.
> Or without an APP it is virtually impossible to identify who your contacts at the supermarket might be.
Also worth noting that restaurants don't appear to have been signalled - more effective social distancing?
And despite some of the beach scenes over the last couple of months being pretty disturbing - not much indication there either. Although there was a very large organised beach even in Romney yesterday, which would be easily track and traceable if there is significant transmission on the beaches.
It does seem to me that social distancing remains the best defence, but that we can get back to doing many of the things that make life normal.
Social distance is certainly important. But masks are key. In practice people will often end up interacting within 2m. A mask will greatly reduce spread via coughing, talking. In the absence of masks people need to be far more rigorous about keepinng distance, and probably more than 2m if you are indoors for more than a short period of time. "Normal" life is going to include masks for sometime to come. I'd be pleased to see them become the norm in places like doctors waiting rooms even after this crisis has gone.
I work in major supermarket with 600+ employees not one case of covid19 although we are all in our big bubble is store during the past complete lockdown
Hi David,
Remember that quite few cases of SARS-2-CoV are likely to be asymptomatic or quite slight, particularly in younger people so the number of cases in your 600+ employees is unknown. The problems occur when they pass on these undetected infections to elderly or susceptible relatives and friends (or customers!)
As i understand it face coverings are a political thing and the science is very doubtful eg the WHO once said dont wear a face mask unless you are looking after a Covid-19 sufferer , they admitted to the BBC that under political duress they changed their advice .
Coastal Devon is getting packed out so have taken a holiday on some UK island group...Lots of eateries ,b&bs and a couple of hotels closed until next year...Our Hotel doing B&B But has an arrangement with the local quayside pub for them to do dinner....It is working very well...Timed eating slots , everything cleaned down before the next guests., one way system to get between the restaurants and bar area......Another cafe has hung see through plastic from their ceiling beams between tables...excellent and non obtrusive....The cafe staff wear masks (more customer contact) ..the pub restaurant don’t but the waiting staff step back from the tables to speak and only place the food in front of you....Unlike the mainland the islands are quiet for this time of year ( a total bonus) and staying distanced is not a problem....unless on a coastal path where to be honest the wind and high uv probably kill any viruses dead before you breathe them out.....Not overly looking forward to returning to ram packed Devon...and masks are a darned nuisance and to my mind a total waste of time for the average sensible person who stands back and doesn’t try to crowd the person next to him....We need to get back to work and learn to live with it and keep the good things like walking a bit further apart,better personal hygiene with hand washing and the cleaning of surfaces as in tables and any touchable surfaces.....That is far better than the terror of going out and worrying that if you speak to someone you may catch the unthinkable
Jack any comments re Morses Club (LON:MCL) - non-standard finance has to be a candidate for most consistently hated sector over the last 2 years, and again over last few months. Many companies have gone bust/exited but trading results today from Morses Club (LON:MCL) (SR 80 - Q90, V96, M7) look OK which is good enough at this stage in the cycle (ie priority is to avoid going bust/losing your shirt to impairment). Next stage should be preparing to make money as rates rise, demand grows and loans are all on tihghtened scorecards.
In key Home Credit segment, Sales are reported at 81% of last year and long term cost reducing structural changes to online lending and collections have been made. (basically agents going forward should be able to spend much more time on new customer /new lending visits without need to call round to collect if payments are on track. Critically, implied impairments seem relatively low and under control - a reflection of move to quality over last few years, govt benefits are unchanged and unemployment rate yet to rise much. Borrowers ability to spend on F&B/travel has also been much reduced.
However, since so nearly all lending is 44weeks duration or less the exposed tail of old lending on old scorecards is getting smaller and smaller. Key default risk (my view) must be when quite a lot still to pay; if only 4 payments from completion, then find a way to pay to be able to borrow again. New lending then has had scorecards tightened and credit price lifted - with demand beginning to rise as more people need to borrow.
Old lending: "Collections ... for July increased to 98% of normal historic expectations when measured against expected terms, an increase from 91% at the end of June, and are anticipated to reach pre-Covid levels by the end of August 2020"
New Lending: "Payment to terms for the initial cohort of new (remote) customers is 100%, reflecting high quality lending (and 97%) for new lending to existing customers "
The leap into digital online lending (by integrating and reshaping Curo/U Bank ie a series of 2019 acquisitions) also seems to continue to improve despite Covid : "Collections have strengthened at above 80% to terms, which is anry improvement on the level prior to Covid-19". Winners in online lending will do very well and be those companies with conservative mgt who really understand the sector. I think this is the Morses mgt team.
Finally, speculatively, Morses Club (LON:MCL) have balance sheet to mop up a lot of smaller home credit books or their agents many of which have low risk, easily digested £1-3Mn turnover businesses. Right now this can be done on good terms and they must also be watching what is going on in Non-standard Finance (LON:NSF) (basically cash strapped and might even sell Loans@Home) whilst Provident Financial (LON:PFG) is not focused on Home Credit.
I saw Peel Hunt appointed as new broker a few days ago. Would you see an equity raise as a necessity or would this be more positive ie opening up for offensive moves.?
Clearly, I am a holder - happy and optimistic on Morses Club (LON:MCL) long term despite falls this year (and very unhappy, pessimistic on £NSF!).
Went into one place for a bakery snack and cup of coffee on Sunday. They had re-opened their sit down area having previously only done take away during the lockdown. Moderately busy I would say. They have reduced staff and are not taking part in the £10 Mon-Weds scheme, which I thought odd. But the person I was talking to wasn't able to say why.
Note that the government has changed the metric to something called 'cases' or 'infections' which are increasing because we are doing much more testing rather than hospitalisations / ICU / deaths which are on a steep downward trajectory. Surely this is what we want in the absence of a vaccine - more mild infections - so that some form of herd immunity is obtained. Yet the government is using 'cases' as a justification for either enforcing lockdowns or threatening lockdowns. And the criteria for that is around 40 'cases' per 100,000 - in the whole of London this would be 4,000 people - about the same as home game at Leyton Orient.
It is surely obvious to all that we have to prioritise the economy, the treatment of other, more serious conditions like cancer and children's return to school.
In Southend things were buzzing at the weekend and it was really great.
Although can't disagree with your priorities. I do think early intervention with lockdowns when cases raise would be less damaging to the economy, other medical conditions, and children's education.
BSV
Hello kgb1953
I would agree with the sentiment of your post entirely
Surely this is what we want in the absence of a vaccine - more mild infections
I would say though the issue with covid is that it can start spreading again exponentially very quickly - so they do have to draw a line in the sand somewhere with an acceptable background level of cases so we dont have peak 2 similar to peak 1 - or are forced back into complete lockdown again which is nightmare scenario 1 economy wise (my presumption) . I think the current somewhat cautious (some may say we are not cautious enough and they could be correct !) approach till we get more data on lockdown exit makes sense - its very hard to put the genie back in the bottle if the cases increase exponentially again. One thing local lockdowns do is remind people that their actions can and do make a difference - most may ignore but as long as enough see sense to keep some sort of lid on it.
I guess finding any sweet spot is impossible and even if we do find sweet spot many will probably say thats gone two far one way or both ways.
Hi HollandSmith,
Nice work here. One formatting suggestion which would just be icing on the cake if possible. I read this on a desktop browser - so lots of screen real estate, but even so the link column is squished up.
Could you instead try putting this content as the first line in the "highlightinner" column? As a kind of header there? That would give the whole table more horizontal space to expand into without losing any information.
Thanks, Jared.
Had lunch last Wednesday (5th) at a quality restaurant in the West End, just off Piccadilly., a deferred get-together from the beginning of March - that was the time when BoJo was still thinking the virus would stop at the Channel, but we decided too risky .
Last Wednesday was a warm sunny day, the restaurant has a big and shady terrace which was pretty much full when I arrived. We decided on indoors (big doors &windows were fully open), fewer people indoors leaving plenty of room for distancing with mostly two tables between occupied ones. By the afternoon people were coming in for cream teas.
I wasn't expecting an empty restaurant but was surprised at how many were there. Also a surprise that none of the staff were wearing any form of PPE. The tube on the way back to the mainline station was quite packed; there I felt a little concerned. Mainline train was fine, very few passengers, with plenty of empty seats so well away from anyone else.
Down here in Devon the 'Eat out to Help out' scheme has meant that every pub for miles around is booked solid for Mo/Tu/We evenings. Also went to Salisbury last weds and struggled to find anywhere for lunch that was available for walk-ins. Not sure what the rest of the week is like, but I'm seeing a lot of custom flooding in.
Gyms etc... Anecdotal stuff here.
Bumped into the manager of my old Health Club, the Health Club has a pool, saunas, lifting kit and two studios (with an attached spa with 6 treatment rooms).
Gym memberships in January 2020 were 3500 members, average membership age was 45-55 years and 60 % female members. There is always a bump in Jan Feb for memberships, average was around 2750 monthly as an average over a year.
Members this last week 450 in total, mass cancellations. Only members attending are hardcore users, The spa is picking up but at 25% utilised compared to prior year month on month.
Already made 6 team members redundant and is presently calculating “moth balling” for 6-12 months v staying open.
Are Investors worried about restaurants and bars closing again when schools open? Personally, it seems like a good time to visit just in case they do.
BSV
With pubs and restaurants only able to operate at significantly reduced capacity due to social distancing, there is clearly a need to try a divert some custom away from the traditionally busy times of the week to the quiet times while at the same time getting a significant part of the economy moving again. The Eat Out to Help Out initiative seems well designed to do that. I took advantage of it last week and shall do so this week and next week too.
We have been going to restaurants for the last few weeks and will continue to do so. Tend to go mainly for lunch and, more often than not, we are the only customers . Naturally,since the beginning of the month,business has increased on the days the £10 off scene applies,and the restaurant owners I have spoken too are fairly confident that the scheme will encourage more to return on the weekends.
Went to our local Indian early yesterday evening and it was nearly full .
Pubs in Richmond also heaving with the majority of customers drinking outside in this hot weather.
We stayed in a UK hotel which was extremely well organised in dealing with the risks associated with Covid-19. We will not take advantage of the Eat Out, to Help Out scheme. A Government, basically shamed by Marcus Rashford into providing food support over the summer - cost £120million, then spends £500million on this scheme, when there was already pent up demand following the lockdown. It’s a scheme that’s also at odds with Fat Boy Johnson’s (5’ 9” 17.5 stone, BMI 37 on entering hospital) obesity announcements. Get two Big Macs for the prize of one!
Hi Jack could you give your opinion on Morses Club (MCL)
Looks interesting to me Bullsnbears, have just finished the write up
Didn't see this, thanks for your thoughts.
My morning smallcap tweet:
Supply@Me Capital (LON:SYME) CentralNic (LON:CNIC) Quixant (LON:QXT) Mirada (LON:MIRA) Morses Club (LON:MCL) Thinksmart (LON:TSL) Open Orphan (LON:ORPH) Superdry (LON:SDRY) Dekel Agri-Vision (LON:DKL) Lokn Store (LON:LOK) £June, Ideagen (LON:IDEA)
Supply@Me Capital (SYME) MOU signed with leading Middle East Investment Company for first Inventory Monetisation platform pilot in the region. [SP=0.06 Cap=21m]
Centralnic (CNIC) guides H1(June) rev $110m up 121% and adj EBITDA over $15m, comfortably trading in line with market expectations. [SP=82.9 Cap=157m]
Quixant (QXT) CFO scarpers in 2 weeks . He is thanked. [SP=117 Cap=78m]
Mirada (MIRA) commercial launch of Iris multiscreen solution in the US Virgin Islands. Delight but no £££. [SP=70 Cap=7m]
Morses Club (MCL) Collections in the HCC division for July increased to 98% of normal from 91% in June. Shelby Finance collections 'above 80% to terms', better than pre-covid. [SP=51 Cap=67m]
ThinkSmart (TSL) settles suit against Carphone Warehouse for £1.45m inclusive of costs. Why does co not mention that it claimed £20m? [SP=29.5 Cap=32m]. I hold.
Open Orphan (ORPH) £4m contract from a global pharma co to be the sponsor of and provide a respiratory syncytial virus human challenge study trial, expected to be completed by the end of Q1 2021. [SP=13.33 Cap=89m]
Superdry (SDRY) Q1 better than initial expectations with rev down 21%. Gets £70m Asset Backed Lending Facility to 2023. [SP=117.9 Cap=97m]
Dekel Agri-vision (DKL) July crude palm oil prodn down 13% but price up 5%. [SP=2.26 Cap=10m]
Lok'n Store (LOK) new enquiries and move-ins at an all-time high in July. FY self-storage revenue up 6.3% and occupancy up 6%. [SP=578 Cap=171m]
SEC Newgate guides H1(June) ahead of management expectations with rev up 252% (acquisition boosted) and pretax €1.5m (no comparator). [SP=NA Cap=NA]
In line: Ideagen (LON:IDEA)
Another good set of HY results from £DGOC.
Diversified Gas and Oil consistently delivers and for anyone looking for a reliable income they yield over 10%. Maybe too large for you to comment on but readers may be interested in the strong cash generations, production growth and operating cost reductions. The management team is led by Rusty Hutson Jr who have a great track record of consistent delivery. Long life, low-decline predictable production looks very attractive in this environment, Further bolt-on M&A likely to continue. Qtly Divi 3.75c a 7% increase
Meet mgmt. and ask them your questions at our next webinar on Wednesday at 4pm. Register here
https://us02web.zoom.us/webinar/register/4815957753589/WN_qT9gtei1SVOy4CQVQafkTw
I, for one, would welcome a trained eye looking at these numbers. As usual with DGOC, trying to understand their reports is like trying to hit a moving target and there are many moving parts.
It is perhaps a shade too big to cover here Yellowstone but many thanks for flagging the results and providing some context. If I can free up the time I'll watch the Wednesday webinar with interest.
Good Morning!!
That table is much better Holland Smith, no sideways scrolling needed now.
HollandSmith...Gifted is a term rarely applied to anyone but if you do not realise the value of what you have achieved and are doing , look in the dictionary for the definition of the word Genius .Enough said.Tony
I have never been associated with these types of words! But do have to wonder, if you use these with me, what words can describe the likes of Edward Croft, Paul Scott or Jack Brumby!?
Thank you!