Small Cap Value Report (Mon 10 Aug 2020) - FGP, IDEA, MCL, SDRY, ORPH

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10th Aug by Jack Brumby

48 comments 9039 reads

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?

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Today Firstgroup updates the market with this Statement re further government funding for bus industry, so let’s…

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peterg

10th Aug

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.

Logical David

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??

peterthegreat

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.

GrahamF

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.

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!)

maxistaxis

I think it's just been tipped again by Simon Thompson of IC. I don't hold the stock.

Trident

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.

Effortless Cool

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?

Silver Moon

Same here Housemartin, at 70+ we have had our three-score and ten years of taking on risk.

smegster

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....

Patxi

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.

betjeman

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/

davidjhill

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.

mark1308

11th Aug

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.

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 .

scarletblue

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.

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!

HollandSmith

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!

Chriskay

12th Aug

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.

Bullsnbears

3rd Sep

Didn't see this, thanks for your thoughts.

Small Cap Value Report (Mon 10 Aug 2020) - FGP, IDEA, MCL, SDRY, ORPH

Firstgroup (LON:FGP)

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Jack Brumby

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Small Cap Value Report (Mon 10 Aug 2020) - FGP, IDEA, MCL, SDRY, ORPH

Firstgroup (LON:FGP)

Unlock the rest of this Article in 15 seconds

About the Author

Jack Brumby

48 comments

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