Small Cap Value Report (Mon 13 June 2022) - MRK, RBG, GTLY, TGP, SOM
Good morning! It's Paul & Jack here with Monday's SCVR.
Mello is back with its virtual events tonight at 5pm, with three companies presenting plus a talk from Gervais Williams and the ever popular BASH. Stockopedia subscribers can get free tickets with the code FREE1306. You can sign up here.
Agenda -
Paul's Section:
Here is some material I wrote up over the weekend, my notes from 2 recent webinars with management -
Marks Electrical (LON:MRK) - a really impressive & comprehensive webinar with the CEO & CFO. This looks a good business, with lean overheads enabling it to make a reasonable profit margin. Management come across very well, and being entrepreneurial, and on the ball. It's going on my watch list.
Revolution Bars (LON:RBG) (I hold) - a trade magazine interviews the CEO. There's lots of positive stuff going on here, despite tough macro conditions.
Jack's section:
Gateley Holdings (LON:GTLY) - ahead of expectations full year trading update is reassuring given the share price falls seen across this part of the market (Knights Group in particular). But Gateley is faring much better than Knights and probably deserves a modest premium to some of its peers. At 13.3x forecast earnings though, I think the shares are fairly priced rather than cheap.
Tekmar (LON:TGP) - c30% fall in share price this morning as the company announces a formal sale process, on account of not having enough cash to execute its turnaround strategy. Increased pressure on working capital and a precarious financial position, so it’s not initiating the FSP from a position of strength.
Somero Enterprises (LON:SOM) - a solid (if short) AGM update, with more detail expected in July. The stock looks cheap here, but there is a risk of earnings falling if macro conditions worsen. FY21 was also much more profitable than average, but if this level can be maintained (which so far appears to be the case for FY22) then the shares will have to rerate at some point.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.
We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).
A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.
Marks Electrical (LON:MRK)
89p - market cap £93m
I reviewed the recent results for this online electrical retailer, here last week.
It seems a good company, but my main concerns were whether the seemingly high net profit margin was sustainable, and that the valuation of the shares still seemed a bit toppy, with an IPO premium still in there.
Equity Development laid on a webinar late last week, 55 minutes, link to recording here.
I took detailed notes of the key points - not comprehensive, or verbatim, so as usual my notes might contain errors [hopefully not] or omissions. Subscribers here on Stocko seem to like it when I type up my notes, so I hope this is useful. Obviously I’ve added my personal comments (in brackets) below, which are subjective.
CEO - Mark Smithson - seems grounded, entrepreneurial.
CFO - Josh Egan - younger, seems switched on.
Good dynamic between CEO & CFO - i.e. CEO not overly dominant.
I didn’t catch the first 4 minutes, but from that point -
Some one-off benefits to profit margins during the pandemic (as I thought, but good they are being transparent about this)
Nearly 1.9 staff (average) one each van now, compared with 1.3 in pandemic - cheaper, but customer service not so good.
Marketing costs have risen to 5.0% of revenues - this is now the ongoing rate. Marketing was cheaper during the pandemic.
Other overheads are only 5.5%-6.0% of revenues, we’re very efficient.
EBITDA margin of 8-10% is sustainable in future (good to know, as I was worried it might still be excessive)
Delivery costs to customers are up 5%, but offset by higher density - i.e. more deliveries on each van trip, as revenues rise.
Fuel costs are up, but not a big proportion of costs.
Trade payables - in the 50s (days) - suppliers have increased our credit lines, which is helpful.
Low capex.
Operating cashflow conversion from profits, will be c.100% in future.
Key advantage - everyone is under one roof in Leicester, so very easy to manage - simple, but optimal.
Very good IT.
Based in Midlands - so it’s 5 hours to Cornwall or Glasgow - ideal location.
Top 10 brands are 66% of sales.
Learned from Hotpoint, not to put too many eggs in one basket. They unilaterally took away ⅔ of MRK’s profit, when MRK had become too dependent on them, so won’t happen again (good to hear mgt mention things they got wrong, and what they learned from it).
Focus on selling premium products - makes sense for many reasons, e.g. higher value on each van, less damage to product in transit due to better packaging, better instructions so fewer customer enquiries.
Extended warranties - we do sell add-ons, but we don’t rely on them. No balance sheet risk, as warranties are done via third parties, and we take a c.20% commission.
TrustPilot - we look very carefully at 1* negative reviews, to see what’s gone wrong & fix it. Example was a TV ad did really well, but volume of orders overwhelmed us, and Trustpilot reviews dropped as a result. Lesson learned, not to over-advertise.
We deliver almost everything ourselves, own vans/drivers is key part of the business.
Brand awareness - only 7% of public aware of us - this is an opportunity in future, to grow it.
AO.com is a very good business, has grown considerably.
We’re after the John Lewis customers - premium products.
CEO talking about the CFO - Josh has become a marketing guru, he’s all over the numbers (Paul: is this ideal? Surely the company should have marketing specialists in house?)
Rapid diminishing returns from online ads, so have to be careful with spend.
TV ads - expensive, but we’re doing some on Sky, and recently the electrical brands want to share the costs with us, to promote their products - a new development, exciting.
Marketing emails - we don’t send too many. One per week, maximum. If we do more, then we find the impact is negative, as people unsubscribe & database shrinks.
Transport - we’ve got 24 vans, and 120 driver/installers. Ordered 21 new Mercedes vans at a good price recently - good lorries are a necessity & are depreciated over just 3 years, then they’re free.
Warehouse space is currently 215k sq.ft., with better (higher) stacking of product. Operating 24/7 now.
Staff - work 4 days on, 4 days off - they love it! Motivated & well paid staff, paying at top end. Rewarded financially for good reviews. Paid extra to carry heavy/bulky items into customers houses, e.g. US fridge/freezers. Properly trained on how to handle different products - all have different features & installation/handling requirements.
Key point - we want to control our own destiny, not rely on third parties - e.g. own logistics (not third party couriers), own fuel tank (1 month supply in house), 2 mechanics for minor repairs to vans, own IT people.
Capacity - could do c.£250m revenues from existing site.
Relocation - eyeing a move to a much larger local site, 600k sq.ft.
Strengthening management team as the business grows.
Listing on the stock market has been a big advantage in recruiting people - CEO: I didn’t foresee that.
Avg revenue per employee is a key KPI, ours is £514k. Higher than competitors, which are £300-400k.
Major domestic appliances - market is down sharply in April, value down 12% (volume down 18%). We were UP 20% in April.
80% of our sales are “distressed purchases” (Paul - I’m not sure what this means, maybe when something breaks down & needs an urgent replacement? Needs clarifying).
Increased competitive pressure currently.
We’re not just grabbing market share, we want profitable growth.
Huge market - we only have 1.6% market share.
Competition? - we’re cheaper! And we deliver free, next day, using our own trucks. (Paul: we need to verify this, tried over the weekend on a price comparison site, but it’s not as simple as it looks. Have any readers compared prices?)
Overhead is now in place for a larger business.
“Stick to what we’re good at”, as my father told me.
My opinion - this was all music to my ears, so of course I have a much more positive impression of MRK than before the webinar. Trouble is, that nearly always happens with webinars! In a way you could argue there’s something badly wrong, if you don’t want to buy the shares after a good webinar.
Key points for me, are that MRK seems a lean, efficient business model, operating from one site in the Midlands, and delivering within 5 hours to most of the UK. As management explained, this is so much simpler than trying to manage multiple warehouses all over the country, with lots of things going wrong, and wasting resources moving product between warehouses.
This also might limit the scale of MRK though. How much larger can it grow, and still be kept a simple, efficient business?
Revolution Bars (LON:RBG) (I hold)
15.25p - market cap £35m
Interview with CEO, Rob Pitcher
I came across an interview last week with Rob Pitcher, CEO of Revolution Bars. It’s here, and well worth watching if you have time. If not, then I’ve typed up the key points below. I think this interview demonstrates that a lot of progress has been made behind the scenes, but at the moment the stock market isn’t interested.
In my opinion, once macro, and stock market conditions have improved, then this share could be worth double the current market cap.
The below are just my notes, not a verbatim transcript.
What’s the mood at Revs? Optimistic, but a bit less optimistic than 3 months ago.
Property market - not as tenant-friendly as we’d hoped. 2 or 3 competitors are looking for similar sites to us, and we recently lost out to one of them for a new site we wanted.
Competitive socialising is a big content at the moment, and is popular with landlords. (see XP Factory, and also Revs has trialled its own gaming/bar concept, Playhouse, see more below). We might slow down a bit on new site acquisitions, because we think there will be better opportunities this coming winter.
Currently negotiating on 4 new sites, mostly former retail sites. Also we like former bank branches.
New formats have been trialled -
Founders & Co - trialled in Swansea site (existing, under-performer, so reformatted) - the concept is a bit like a community hub, with bookable rooms for flexible events, 4 independent catering outlets, a coffee shop, barbers, yoga classes, etc, all outsourced. Revs just runs the bar. So we sub-let some of the space. Also pop-up retail for local small businesses. Community feel, all day trading, it’s a brilliant place to hang out. We’re desperate to find a second site, this is a good potential roll-out.
[Note that the Trip Advisor reviews are excellent].
Playhouse - retro competitive gaming, together with food & cocktails. High margins. Fab pizza - absolutely brilliant - we’re no.1 restaurant in Northampton on Trip Advisor [Paul: I’ve verified this, and the reviews are superb]. We even have a beehive on the roof, the honey is used on our deserts & drinks. Vintage games on first floor, including a racing track. Revenue share of games income. Could be a good use for legacy (i.e. under-performing) sites - as we’re taking the same money from Northampton, but higher profits.
Concept proven, and is good enough to do standalone sites, not just conversions of existing.
Sustainability/environment - we’re founder member of zero carbon initiative. Staff like it, and it’s a fashionable thing to do at the moment. But it’s also morally the right thing to do, to be a first mover. When I grew up in Australia, the ozone layer was the big thing. I’ve now got an 8 year old daughter, and when she asks me what Revs are doing for the environment, I want to be able to say, we did this, and this…
Positive knock-on effect with staff & customers. Although our customers don’t want this stuff rammed down their throats. They come to us on a Saturday night, to have fun with their mates, and to forget about the world’s problems for the evening. So we put what we’re doing on our website, and quietly get on with it in the background.
Our team really care about the environment. We have a “zero hero” in every site, who come up with ideas. One said, we don’t need the passion fruit in pornstar martinis (best selling cocktails), and we were using tons of them, air freighted in from South America. So we’ve now switched to a paper picture of a passion fruit to garnish each pornstar martini! [Paul: nice idea, but actually I used to enjoy slurping the seeds out of the passion fruit. Oh well].
Our Reading branch of Revs de Cuba is now a low energy bar. We’ve published all the energy saving measures, so that independent operators can use our research & work to lower their own energy consumption too.
We’re trying to take a leadership position on the environment, it really is trying to save the planet.
Staff - our team are young. Our culture is very strong, the strongest ever maybe? Team looks to management to do what we say we’ll do.
Most management have done basic roles in the business earlier in our careers (I started as a KP [Paul: don’t know what a KP is, sorry!]
Very flat, open door structure. We often work in the bars. There’s no secret, we just listen really hard to the team. We can effect change quickly.
Recent staff survey had highest ever participation, at 85% of 3k staff.
Wellness of the team is really important to us.
Ordering App - pre-pandemic this had been on the pending list for ages! Had to do it in pandemic, when trading was restricted, the order & pay app became 90% of our business! This fell right back once restrictions lifted, but has settled at 15-18% of revenues, as guests like the app, as they don’t have to queue at the bar when it’s busy - ordering from table means they spend time with friends, and drinks are delivered to the table.
1.1m registered users of the app. Just employed a head of digital marketing, so we can start to monetise our customer database.
Question about share price.
It’s frustrating. When I joined Revs, people at HO seemed obsessed with the share price. My focus is on the business. The stock market will catch up. The current share price is not a reflection of the business. It frustrates me. Being stock market listed is brilliant - shareholders supported the business twice in the pandemic, with £15m and a £21m fundraises.
Question - will you be a consolidator, or get taken private?
I prefer the former! We have looked at some acquisitions, very much on the agenda, got to find the right one. Our existing team is capable of running a bigger business.
Question about tax.
We have good access to Govt for our size. Business rates is the main focus of our lobbying. Hospitality pays far too much tax. It’s got to change, but that could take a couple of years.
The future? It’s foggy. Costs are rising, wages, utilities, ingredients, it all hurts. Plus consumer uncertainty. But going to bars is an affordable luxury, even in a recession. We hope people will still come out, and we lift their spirits!
Rob signs off.
Hosts comment that he’s such an impressive operator, will surely get a bigger job in future [Paul: I hope not!]. There’s such clarity there, Rob’s really good at simplifying things.
My opinion - interim results from RBG were good, and current broker forecasts for FY 6/2022 strike me as far too low, even allowing for some likely softness in more recent trading. That said, RBG is rapidly refurbishing its existing sites, which has an excellent 2-year payback - i.e. it attracts business from competitors. With so many sites being refurbished, I suspect RBG is more likely to beat undemanding forecasts than miss.
Also, I’m quite excited about the new formats that have now been successfully trialled. This means RBG now has 4 brands, all of which can be rolled out.
It also has a strong balance sheet, with net cash, so can fund expansion & refurbs itself.
It’s obviously a pity that shareholders were so badly diluted in the pandemic, with the share count rising from 50m to 230m. So the share price won’t ever get back to the giddy heights of 200p+ when Stonegate bid unsuccessfully for it. What we didn’t know at the time, was that RBG’s sites were under-invested, and starting to struggle. Then the pandemic came. So we are where we are. Forget the history, all that matters is whether RBG shares are currently a good investment. It seems clear to me that the answer is yes. I’ll be increasing my position size when funds permit.
.
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Jack's section
Gateley Holdings (LON:GTLY)
Share price: 210.08p (-0.91%)
Shares in issue: 119,276,639
Market cap: £250.6m
Trading update for the year ended 30 April 2022
A lot of these professional services firms have been hit by the small cap downturn, with Knights in particular getting crushed (for company-specific reasons), so it’s encouraging to see this ‘ahead of expectations’ update from Gateley.
The company notes that, per Factset, consensus expectations were for revenue of £133.5m and adjusted PBT £20.9m
- Revenue up c13% to not less than £137m (with organic growth of 10%, up from 6.5%),
- Underlying adjusted PBT up c11% to not less than £21.5m,
- Profit before tax up c10% to not less than £18m,
- Adjusted earnings per share up c7% to not less than 14.1p,
- Net cash down from £19.6m to £10.4m (partly due to M&A and dividends returning),
- Net assets of not less than £70m,
- Proposed final dividend +10% to 5.5p and total dividend +13.3% to 8.5p.
The group enjoyed strong activity levels, with organic revenue growth from legal service lines up c.9% alongside exceptional organic growth of c.24% from consultancy service lines, which included three acquisitions: Tozer Gallagher in July 2021, Adamson Jones in January 2022 and Smithers Purslow in April 2022.
The Corporate Platform grew by c.18%, buoyed by the continuing strength of the UK M&A and Private Equity markets. The Property Platform grew by c.15%, enhanced by greater market share and larger transactions The People Platform saw a return to significant growth across both its legal and consultancy service lines, where combined revenue grew by c.40%. The Business Services Platform contracted by c.10%, as some long-term litigation projects stalled alongside new instructions not yet reaching billing thresholds.
On Business Services, Gateley expects the timing of ongoing and new projects to result in an improved FY23.
Total headcount at 30 April 2022 of 1,368. Average number of professional staff increased by 3.8% from 770 to 799.
As flagged previously, full year audited accounts will be delayed into September as the group implements a new financial accounting system. Gateley started to update the system in May, its quietest month of the year, to limit any potential impact.
Outlook
Trading at the start of the new financial year is in line with the Board's expectations, with the Group continuing to meet the challenges of the well-reported and ongoing inflationary headwinds. The considerable organic and acquisitive opportunities to develop the Group's Platforms further, combined with Gateley's diversified and resilient business model, underpin the Board's confidence in the prospects and the continuing growth of the business in line with current market expectations.
Conclusion
Good results, with a successful return to recruitment generating organic revenue growth of over 10%. With total revenue up 13% and underlying PBT up just 11% though, questions over longer term business model scalability remain.
Near term growth looks possible as long as inflation can be managed - there is still £16.1m of gross cash (including the new £30m Revolving Credit Facility) for further legal and consultancy services M&A and organic growth potential.
Concerns of a looming recession can’t be dismissed though and would likely have an impact on business here. Gateley itself flags inflationary macro headwinds. With such significant wage costs, navigating those conditions could be tricky. Double digit wage inflation is already happening here and this could continue, so that will have to be managed.
But the company has so far exhibited relatively low earnings volatility and consistent revenue growth, which to my mind suggests it could fare better than some others out there. Gateley is also developing a good track record for dividend payments which might help to allay some of the agency risk fears.
Management claims that the business has grown every year since 1986. March and April are typically the strongest months of the year and were again very busy in FY22, with staff utilisation back above the targeted 85%. That compares favourably to a quieter March and April at Knights at the time of its profit warning.
It’s a good operator, but given the outlook I think a forecast PER of 13.3x sounds fairly priced at the moment.
Tekmar (LON:TGP)
Share price: 27.49p (-27.51%)
Shares in issue: 60,960,234
Market cap: £16.8m
Interim results for the 6 months ending 31 March 2022
Big share price fall here, with nearly a third of the market cap wiped out this morning. It’s an extremely illiquid share, you’re only reliably going to buy or sell around £800 worth so I won’t spend too long on it (is it just me, or has small cap liquidity in general fallen off a cliff recently?).
Tekmar designs, manufactures and supplies subsea stability and protection technology to the global offshore energy markets, predominantly Offshore Wind.
- Revenue down from £13.9m to £13m,
- Adjusted EBITDA loss of £1.8m compared to a loss of £1.1m in the previous period,
- Loss before tax up from £2.2m to £3.3m.
To be honest, the interim results are not as important as the news in a separate announcement that the group says it is now looking to sell itself.
Over the past year Tekmar has taken steps to improve its financial position, including enhancing its banking facilities, improving the efficiency of its contract tendering systems and more recently raising net proceeds of £3.7 million from a placing and open offer. However, despite all the steps taken, the Group's balance sheet has not been rebuilt and strengthened as much as Tekmar's board of directors ("Board") would have preferred in order to fully execute its growth strategy and address the industry headwinds and uncertainties that still remain.
Whilst the Group is currently operating with sufficient working capital for its present requirements, the combination of sustained trading losses and increased pressure on working capital mean that the Group may not have the necessary cash to make all the required investment to deliver fully the turnaround strategy to return the Group to profitable cash generation within the timescale targeted by the Board.
Conclusion
In my opinion, this highlights the importance of paying attention to low financial health scores and Quality Ranks, particularly in the current environment. High quality shares may disappoint on growth or become too expensive, but you won’t see them having to suddenly sell themselves on account of sustained trading losses and a lack of cash.
It reminds me of this quote by investment fund manager Anthony Bolton:
When I analysed the stocks that have lost me the most money, about two-thirds of the time it was due to weak balance sheets. You have to have your eyes open to the fact that if you are buying a company with a weak balance sheet and something changes, then that’s when you are going to be most exposed as a shareholder.
We all know the difficult conditions companies currently face, so extra care should be taken around companies with weak financials. Commiserations to any shareholders out there.
Somero Enterprises (LON:SOM)
Share price: 380p (unchanged)
Shares in issue: 56,048,246
Market cap: £213m
AGM statement for the five months to 31 May 2022
A very short communication, here’s the key paragraph:
In the five months ended 31 May 2022, the non-residential construction market remained healthy and therefore trading has been tracking well. Consequently, the Board expects revenue, profitability, and cash generation to be in-line with the full year ending 31 December 2022 guidance provided in the 09 March 2022 final FY 2021 results statement.
Diary date - a more detailed trading update will be provided in July.
Tracking back to the March update, the group commented:
Momentum has continued into the current fiscal year and the Board expects 2022 will be a profitable year with healthy cash generation. Following an extraordinary year in 2021, with remarkable growth and record revenues and profits, 2022 revenues are expected to grow at a modest rate, and with the investments for future growth being made, 2022 EBITDA is expected to be comparable to 2021.
Conclusion
FY21 adjusted EBITDA was $47.8m. Given year-end net cash of $42.1m, that would make for an FY22 EV/EBITDA of roughly 4.7x.
Somero has some excellent profitability metrics, perhaps unrivalled among stocks trading on a single-digit forecast PER. Clearly cyclical and macro concerns are weighing on the shares.
In my view, the stock looks cheap but it’s never been particularly expensive in the past. I still think that there is good upside potential at a trailing twelve month PER of 7.6x and a dividend yield of 6.6% though.
Add in the net cash position and it seems like there is a lot of bad news priced in, but then again there’s the chance FY21 earnings represents something of a peak.
If you look at Stocko’s expected FY22 dividend of 48 cents, it’s on something like a 10% forecast yield which seems anomalously high. If the market rallies then this stock could really fly but for now it remains unfavoured and investors are clearly wary of taking on cyclical risk. I suspect this is one of the better single-digit PE stocks knocking around in a cheap market.
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76 comments
Just for interest, purchased a new washing machine from Marks Electrical Marks Electrical (LON:MRK) ordered on Friday, delivered and installed today (Sunday) fantastic communication, by text and at least 6 emails keeping us updated, delivery drivers were excellent, and very efficient, reckon around 18 per van daily orders daily and around 400 miles daily (fuel costs got to hurt), although paid extra for the installation and removal of all packaging and the old machine and I guess within reason they can increase delivery charges
Overall competitive and impressed, on my watchlist now!
I thought AO World (LON:AO.) was good, but these are just as good if not better, plus I prefer Marks Electrical (LON:MRK) fundamentals
Fuel costs will obviously be more, but as someone who has driven for a living for the last 15 years, fuel is just 1 small part of the expenses. Overall it has probably added about £100k a year onto their costs. Wages will be their highest expense.
Thanks for sharing your experience though, and I hope you have added a review on trust pilot!
"distressed purchases" - is Retail speak - it broke today and customer needs it to be replaced like NOW or tomorrow at the latus.
Tungsten sell or wait?
???
Revolution Bars (LON:RBG) Paul says"Most management have done basic roles in the business earlier in our careers (I started as a KP [Paul: don’t know what a KP is, sorry!]"
KP is likely to be Kitchen Porter, not sure if anyone esle has mentioned, but I reckon that is it.
Why no mention of Steppe Cement Steppe Cement (LON:STCM) today?
Blimey
Having been investing for longer than I care to remember and learnt from many mistakes, my approach is to buy something of value when nobody wants it, whether that happens to be shares, property or other asset. It may well get cheaper in the short term, but given patience, I believe this is the foundation of successful investing. On this basis I am a buyer in the current market.
The conundrum is recognising the value on offer and being brave enough to commit when every man and his dog is disinterested. Christopher Mills at Harwood Capital I would suggest is a particular exponent of this art.
Each to their own and as they say not one size fits all.
Good luck in whatever approach you take.
Given the massive rise in bond yields, perhaps looking out for any companies with big pension schemes. I can see many deficits being wiped out and replaced with surpluses. A pension surplus is essentially an asset since it could potentially be cashed in via an insurance company.
Balanced out by inflation, which should increase scheme future liabilities? Not like-for-like for sure, so there will be certain scenarios there there is opportunity.
Nominal yields have recently increased more than future inflation expectations (so real yields have risen) - would expect this to be positive overall, although would differ for each scheme and depend on any hedging arrangements.
Renold with their previously mentioned pension deficit springs to mind! We could be in for a very pleasant surprise with this part of their business, come results day. (I hold).
That you Jack for your comments on Tekmar, all accurate and than k you for your commiserations -- once again I should have known better.
I can only see things getting worse from here for Tekmar (TGP) I hold.
The main lesson for me is that I just held on to these for too long purely on a 'hope' that things would get better. And if I'm being totally honest with myself I wanted to avoid crystallising a big loss. Thats me behaving illogically and emotionally - a bird in the hand and all that. I really must learn this lesson.
Tekmar (LON:TGP) (I hold)
Thank you RutlandRam - that summary pretty much nails it for me. Having been out of touch for a week - I am catching up (Tuesday) and am content to see how it plays out - but they have a very weak hand to play in my view. Significant risk of going bust - despite their assurance that they have enough to carry out the work contracted. Can only think that the main institutional shareholders said - No More - when they went back cap-in-hand after only 4 months.
Seems strange to be yelling - I'm for sale - with no potential customers announced but then we don't know whats happening under the covers and it might be that they are keen to flush out any interest whilst they talk with other parties. The recent US contract may stimulate some interest from across the pond as they ramp up for off-shore wind?
I still like the business, the market position and the market opportunuity - unfortunatly that will be for someone else to benefit from.
Mea Culpa. Totally avoidable mistake on my part. I recognised the balance sheet risk and the flaky track record - but still underestimated the level of risk, especially in view of global circumstances compounding their problems. over estimated the competence of management and failed to act on the continuing degradation in operating performance. As well as choosing to overlook the legacy issues. Very difficult learning lesson for me - I knew the balance sheet was too weak. But still allocated capital to it, Albeit I limited my investment.
What an idiot! Indeed, I am my own worst enemy.
cheers
Mark
Paul, I hope you see this. I wanted to ask you whether you had wished you had done nothing back in 2008 when the markets collapsed last time and you suffered those losses.
Obviously, I am not Paul but from what I understand he was leveraged and facing margin calls in illiquid shares and doing nothing was not an option. He often cautions against the twin dangers of leverage and illiquidity.
I'm on Mello Monday today at 5pm talking about alternative trusts. Hopefully it will be interesting so I'd encourage everyone to watch.
I am of a more contrarian opinion, in that it might be a good time to be buying ( buy when others are fearful etc).
This is my first taste of a bear market, i have only been investing a few years so it's all new to me at the moment. On days like this i try to remind myself that most equities are falling due to market specific factors, and nothing company specific.
I am around 50% in cash, so if there is further drops i have some ammunition to deploy should i need it. Some very interesting posts this morning!
Good luck all.
I think when to buy is the question no one has the answer too. A lot of wiser people than me continue to suggest we are not at the capitulation point yet which would suggest the bottom and certainly when you look at the NASDAQ and some of the tech valuations they could also have a long way to go still.
I have been drip feeding into the market personally since Russia started their attempted invasion and continue to do so with each drop. I am still keeping quite a lot back though.
I think when to buy is the question no one has the answer too. A lot of wiser people than me continue to suggest we are not at the capitulation point yet which would suggest the bottom and certainly when you look at the NASDAQ and some of the tech valuations they could also have a long way to go still.
The problem is that no one is really wise in these situations, it's just that some people get lucky. A year, or even six months ago, most people were buying stocks but now are too sacred to do so at far lower levels. If you think of equities as long term earnings streams rather than short term capital gain (or, at the moment, capital losses) opportunities then it's clear that we should be buying when the market is falling, not when it's rising.
Yet if we buy we almost immediately see losses. So we don't buy, and stocks carry on going down. It's psychologically difficult.
Having been in this situation many times before my response is the same as it ever was - use the monthly investment options across my ISAs and SIPPs to drip money into shares that I think offer long term growth potential. Plus set a raft of deep in the money buy orders in the sure and certain knowledge that if the market ever crashed to the point of them being executed I'd be too terrified to buy anything of my own volition.
In the end just buy companies that make money doing useful things and which have little (and preferably no) debt. Either things will work out OK in 3 or 4 years time or we'll all be eating each other.
timarr
"In the end just buy companies ..."
What works for you, may be a disaster for someone else. Your approach makes sense for someone with the majority of their investing life ahead of them. It makes a lot less sense for someone close to, or already in, retirement. For them, too high an equity allocation and "long term growth potential" are both things that are best avoided, particularly when interest rates are rising.
It's also something that needs to be thought through in the context of an individual's approach to portfolio management as a whole. For example, many adopt stop losses. The combination of your approach and stop losses would work well 90% of the time, but in a significant bear market, it would be throwing away money.
Or take the approach to profit warnings advocated by this site. Selling on profit warnings makes sense on average, but combining that with your approach in the middle of a recession would only amplify losses. If we are to head in to a recession, even a mild one, we can expect a wave of profit warnings.
There are many approaches to successful investing. The right approach depends greatly on personal circumstances and needs to be something that can be stuck to through thick and thin. That means it needs to be assessed carefully against all market and personal circumstances, including the seriously nasty.
What works for you, may be a disaster for someone else. Your approach makes sense for someone with the majority of their investing life ahead of them. It makes a lot less sense for someone close to, or already in, retirement.
I wasn't suggesting anything for anyone else, I was merely pointing out what I'm doing. If people want to invest but are vacillating about it then automating the process and doing it over a long period removes a lot of the psychological biases involved in the process.
However, I should point out that I am very much approaching retirement and am heavily reliant on my equity portfolio to avoid a sad and improverished old age. Despite that, I certainly don't think I'm "throwing money away" by investing in stocks and being prepared to accept what could be an eyewatering level of drawdown (*). Anyone that measures their portfolio based on its peak value is bound to spend a lot of time feeling disappointed.
timarr
(*) In my investing life I've experienced one drawdown of over 40%, two of over 30% and at least half a dozen of over 20% (I've lost count). This hardly counts as a bear market - yet.
"In the end just buy companies ..."
If that's not a suggestion then I can't read. In contrast, describing what you do would be: "In the end I just buy companies ...".
I posted my comment because, for the reasons I gave, it is also a bad suggestion. It is right for some, but unhelpful or dangerous for others.
If that's not a suggestion then I can't read. In contrast, describing what you do would be: "In the end I just buy companies ...".
OK, fair enough. Loose lips and all that.
To put this into perspective though, the post was in the context of previous posts today on the psychological difficulty of deciding when to buy or not in a bear market. My (and my alone, no recommendations) preferred approaching of dealing with this is by dripping money into the market gradually.
This worked out very well for me in 1987, 2000, 2008 and other corrections. Whether that will turn out to be the case in the very different conditions we find ourselves in today is another matter.
timarr
As you may know it's called "dollar cost averaging" and is a good strategy ... so long as the investor is observing overall constraints on the percent of their portfolio in any asset class, including stocks. The "market" that funds are dripped in to should be the global asset market, including bonds, cash and hard assets. An allocation of 100% stocks is just super risky for the average person nearing retirement.
It used to be accepted that the percent of stocks in the portfolio should = (100 - age). The world has changed a bit since those days but not enough to void the good sense behind this rule entirely. See here:
https://www.investopedia.com/a...
"Target date" funds that implement variations of this rule are still hugely popular today and make great sense for passive investors. I have happily suggested (yes suggested) these to people who have asked me and for whom they were a good fit. I would not have suggested that they invest entirely in companies. For a skilled investor the rules may be different, but this is very much the exception, not the norm.
If we are in a bear market then we haven't even got started yet. The big bear markets of 2001/2 and 2008 saw the S&P lose around 50% - so far it is only down around 20%. No idea where we go from here, but I know all my best gains have been after I added risk following earlier big dips - particularly 2009, the Brexit vote in 2016 and the Covid crash in 2020.
Somero Enterprises (LON:SOM) I hold. On a PE of 7.3 and divi yield of 10% you would think this would be a screaming buy. The market obviously does think that the company will continue with the current level of earnings.
Even though my holding is well underwater (what isn’t?! Ergomed (LON:ERGO) Sylvania Platinum (LON:SLP) Bioventix (LON:BVXP) MPAC (LON:MPAC) ) I am biased towards Somero. It is a good company, well run, with a good balance sheet and I think will do well over the next 10 years. Remember Amazon only has 15% of US retail. They will need a lot more warehousing over the next 10 years to scale to the 30%+ of US retail that they will take in the next 10 to 15 years.
On £SUP A vaping company is off limits for me.
There is a big vaping problem at my 15 year old son’s school. He doesn’t vape (being whole food plant based (like me) and a bit of gym rat (Not yet like me!)) he is conscious what he puts in his body. He summed it up quite well when he said would you put something made up of about 50 chemicals (most which we don’t know) and where the product is made in China? A crazy product. 70 years ago you could vaguely forgive smoking, we, the general public didn’t really know how bad it was, but there is no excuse for vaping.
I think the legal, ethical and health issues for vape companies could be pretty bad five years down the road.
We of course all have our ethical boundaries but vaping is beyond the pale for me.
Just my two pennyworth. (I was 20 years ago a 40 a day man/idiot).
Regards
Michael
Hi Michael,
While i cannot disagree with your ethics re vaping, I imagine current thinking is that it is less harmful than smoking tobacco and if it as seen as a step to packing up altogether rather than an alternative then it is acceptable. Personally i had smoked for 40 years, although more socially and not heavily, and after trying vaping i had given up both within 6 months and am very grateful.
Richard
That is a fair point and I have heard it before. But in that case it should be a prescription med not available for 18 year olds to buy. And if it helps people quit the evil weed (I did it with patches and the love of a good woman!) that is good but teenagers?!
Apologies for the digression from stocks.
Smoking was on its way out without the need for Vaping... I have a neighbour who never smoked but now Vapes, Teenagers who never smoked or intended to smoke but are now vaping. My mum eventually gave up smoking in her 60s but started vaping in her 70s. Irrespective of health effects, It's addictive and like smoking has the potential to be a lifetime liability (both consumer and the NHS). Companies like Supreme know this, which is what makes it potentially investible. Irrespective of moral stance (glass houses and all that), Supreme is not for me personally as they have some premises not too far from me and all I can see when I walk past it are lightweight shelving units full of boxes with people outside smoking & vaping. Just looks like an old school cash and carry warehouse but am sure there is more to the company than that (I hope!).
https://www.nhs.uk/live-well/q...
if you think saving millions of lives worldwide is unethical more fool you MichaelFBS - presumably your ethical stance extends to oil, alcohol, fast fashion etc. etc.
I was careful to point out that we all have our own ethical boundaries and that I don’t try inflict mine, unlike the ESG crowd, on other people. Just that for me tobacco production and vape production were beyond my limits.
So no my ethical stance does not extend to oil, fast fashion etc etc. That was the point I was trying to make. I am sorry it was unclear.
Regards
Michael
*doesn’t think.
Any chance of a look at today’s announcement that James Fisher (FSJ), the struggling marine services company, is looking for a new chief executive? It is a sure sign that its long promised turnaround is taking a lot longer than expected to materialise. Eoghan O’Lionaird, hired as CEO from Spectris less than three years, is leaving, but will hang around until a replacement is found.
Fisher used to be a highly rated blue chip. When O’Lionaird took the helm in late 2019 FSJ’s shares were trading above £20 and it was earning a return on capital(ROC) of around 12%. Now the shares are well below £4 and the company has axed its dividend.
The Covid pandemic and the upheaval in energy markets, can explain part of the weak performance. But O’Lionaird inherited an over-indebted business suffering from several ill-judged acquisitions, and the delay in sorting out these challenges may be behind his departure.
James Fisher's dream is to transform itself from a traditional shipping and marine services company and into a specialist high-tech business servicing the marine, offshore energy and defence industries.
A comparison of FSJ’s recent performance with that of Ashtead Technology (AT.), which also specialises in high tech marine services, suggests that it is possible to prosper in this area despite all the current economic and political headwinds. Perhaps, a merger between the two companies could solve FSJ’s succession problems?
I see that US 10 year treasury yield is up again this morning at its highest since 2011. Obviously, no surprises with inflation at 8.6%.
It would seem to me that there is little chance of any form of sustained recovery in US share prices (and, inevitably therefore, UK share prices) while such financial repression continues. Surely, US rates are likely to continue to head upwards? I have little idea these days (having been a bond trader in a previous existence) of where yields might settle but it would not seem implausible to me for 5% on the US 10 year, which is quite a way from here. Can't quite understand why there isn't more carnage in the bond market.
Is anybody more optimistic than me about inflation, bond yields and the consequent destruction of value for UK small caps? I appreciate that, in the real world, there's little connection between US inflation and the financial health of UK small caps but with many even well-performing UK small caps 50% off their ATH, it's impossible to ignore the market's connection between the two. And really, it's not possible to disagree with the market that the future value of many companies' earnings is going to be lower and that that those lower earnings also need to be discounted using higher rates for longer. It feels to me that current prices are, if anything, still based in many cases on irrationally high multiples if rates remain high for the next three years or so as some seem to be predicting. Rates further out - especially when you get to five years plus - contribute so little to the value of a share that any optimism for such forward rates can't have much impact on the current price.
I'm sitting on around 50% cash having made some very premature drips of cash into the market on the way down but am now reluctant to buy anything, however 'cheap' it might appear. Talking to others, I have heard similar reluctance. Sure, there are going to be some powerful rallies that traders who are more agile than me will take advantage of, but the current situation looks as bleak for share prices to me as it has done in the nearly forty years that I have followed the markets. It doesn't feel to me as if we have reached anywhere near the bottom and so I am resigning myself to losing nearly 10% on my cash over the next year as the near certainty of that doesn't outweigh, for me, the lower probability of losing another 30% on UK small caps from here.
Sorry to be so gloomy and very much hope that somebody can persuade me not to be.
There are also several other factors to consider: the 'white elephant' being Covid in China, the Russian-Ukraine conflict persisting longer than anticipated. The world bank warns period of stagflation as in the 1970's. I too remember back in 2000/2001 as investors anchored on dotcom era valuations and failed to adjust, many continuing to buy the dip all the way into financial oblivion. My mantra at the beginning of the year was '2022-2023' might be dangerous to my wealth and I would rather hold cash (about 60%) than lose more than 10% (inflation predicted by year end) on the buying the dips. I may well be wrong but over 40 years of trading the markets, I am of the opinion that there still more bad news to come and the markets have not capitulated as yet. Its a bear market and perhaps recession for 2 years. Who knows?
You have to be clear what your investment goal is. If it is to generate positive returns every quarter, year no matter what, then you need a certain setup and include lots of financial instruments, not just long equity. Or you stick to long equity, but you then have to aim to be an amazing stockpicker, only those few shares that go up in a down market.
If your investment goal is just to beat the index, then it's different. Of course, that could still mean absolute losses. But over a 10yr, 20yr horizon a consistent beat will compound to some really stunning returns. Even if the market ends up flat at the end of those 10 years, 20 years. This strategy allows one to stay just in long equities.
It's an old concept of timing the market versus time in the market. It is often the case that investors rush to buy the market , being scared that they may miss opportunities if they stay out of the market for too long. Interestingly, it's a question of buying at decent opportunity versus waiting for great ones. Over the long term, the return of the latter is exponentially higher than the former. This then creates a question of when one should invest at the time of great opportunity. These occur less frequently and at times when fear is at its most extreme. There is normally a window of a few weeks ( as it was during the Covid low) when investors benefit with investing in well researched companies with great potential.
Great comment and not gloomy, just well reasoned realism IMO.
As to bonds no idea, as to small caps no idea.
40% in cash Anglo Asian Mining (LON:AAZ) and £SLP. Whether that will work I also have no idea.
Regards
Michael
Mammyoko
Is anybody more optimistic than me about inflation, bond yields and the consequent destruction of value for UK small caps?
I’m afraid I can’t see anything optimistic at all, especially after reading John Auther’s dire report this morning on inflation over the pond. Also, todays US futures are heading down again.
I'm sitting on around 50% cash having made some very premature drips of cash into the market on the way down but am now reluctant to buy anything, however 'cheap' it might appear
I’m about 26% cash and I can’t see myself buying any new shares for some time. Some of my holdings include £SPOG £SGLN £GDGB £PHSP . Repositioned some funds at the weekend to buy more of the yellow metal.
I share your negative outlook on the economy and markets, but that doesn't make me "gloomy". This environment also creates opportunities. How about shorting? Current circumstances are ideal and I see no sign of an imminent change.
If you don't like shorting and just want to preserve your cash, how about putting some of it in dollars? In the globally synchronised downturn that we are heading towards, the dollar will probably be king, not least because of those high bond yields you are anticipating. It will almost certainly be stronger than sterling. With today's negative update on the UK economy, expectations for short term UK rates are falling, with 1.5% being a possible ceiling. Meanwhile on Friday, expectations for equivalent short term US rates went up to close to 3.5%. That's quite a yield gap. Throw in a Brexit trade dispute with the EU and things could get ugly for the £ and consequently pretty bullish for $/£. Even in cash you don't need to lose 10%.
But if all you want to do is leave your cash in sterling, how about looking at it this way. The value of your cash can only be measured in relation to something else. If you choose to measure it in relation to consumer goods, it is declining in value by 10% pa, true. But it sounds like you're not intending to spend it on consumer goods, it sounds like you're intending to spend it on shares. In that case, you're using the wrong measure. Measured in relation to shares, the value of your cash is increasing at 30% pa and looks quite likely to continue doing so.
You're absolutely right - the consolation for 50% of my portfolio being down 35% plus is that my 50% cash holding's purchasing power in terms of stocks that I like has increased. That consolation only works if I have the courage to turn the cash into equities!
I also am questioning why I don't have the courage to short an index - say the AIM 100. Could it be because I don't yet believe that shares could half again (which is what I feel I would need to believe as the potential 'reward' for the 'risk' that the short is 20% off side from a bear-market spike)? Or could it be because I feel as if I may have missed the big move down -10 year yields have already doubled so how sure am I that they could go to 5%? Or (more likely) could it be that I spent several painful parts of 2021 short of the FTSE when everything looked unbelievably (to me) optimistic?
I feel paralysed by indecision. In terms of equity-purchasing power my cash seems to be increasing in value (although, as you say, the reverse measured in terms of consumables or commodities). But is my reluctance to turn the cash into equities the result of fear, inertia or greed for a lower entry point still? And what could occur that would change sentiment enough to reverse the trend? Russia declaring 'victory' in Ukraine and grain exports resuming? It feels unlikely that Russia and Ukraine will be resolved comprehensively enough to prevent oil and commodities continuing to boost inflation.
So I remain sitting on my hands, oblivious to the huge array of potential opportunities that exist convincing myself that cash is the least worst option for someone who is tied by a need to understand their investment decisions at a time when it feels like there is so little clarity about how things are going to pan out.
The question of shorting the market makes you into a trader rather than an investor. Traders on the whole tend to lose money unless you are extremely savvy or lucky.
If you have a strategic plan in place then you will be not be paralysed by indecision. You have to decide what time framework you are working to and how to play the market in the different scenarios presented to you. There are a plethora of articles on investing during a bear/ recessionary environment.
Time out of the market is never idle as it give a greater opportunity to do your research in companies you wish to invest in.
If you believe all the bad news is already priced into the market then drip feeding should work well. On the other hand if you believe the worst is not over yet then it is probably wise to wait for that 'golden' time frame to invest. The concepts behind fear or greed are emotional/ psychological issues which govern how the markets move.
Sitting on your hand is never a bad thing as Warren Buffet says 'opportunities come infrequently. When it rains gold, put out the bucket, not the thimble'
best and good luck
Mind Gym (LON:MIND) full year 2022 results presentation to analysts by Octavius Black, Founder & CEO & Dominic Neary, the new CFO, including the Q&A. Video & podcast. A good insight how the training market is shifting to remote learning. 77% of revenue is remotely delivered. (This might be good for Learning Technologies (LON:LTG) or other online training providers). Overall Mind Gym (LON:MIND) revenue is up 24% yoy, or up 5% on pre Covid levels, adj loss before tax of £0.5m. Net cash of £10m. Outlook for FY23, robust top line growth expected and a return to profit leveraging the investments made in FY22.
Somero Enterprises (LON:SOM) gave their AGM update today, affirming everything is in line, the non-residential construction market is healthy, trading is tracking well. They are in line with March 22 guidance which indicated modest revenue growth on the extraordinary FY21 and comparable EBITDA. finnCap currently forecast Rev $138.8 (21: $133.3m); Adj PTP $46.3 (21: $45.9m) Adj EPS 62.8c (21: 61.3c). Earning in $ gives a favourable Fx tailwind. Trading on a PE of 7.5 with a divi yield of 10.3%. The price already reflects fears of recessionary headwinds. Their main business comes from ecommerce warehouses where robotic machines need very flat floors where in the main the infrastructure is still catching up with the continuing trend to ecommerce. Management are first class, the product is unrivalled, growth in FY22 forecast to be 56% up on 2020 and the 10% divi pays you while you wait. finnCap have a target price of 808p. It appears good value at 380p but what do I know!
Thanks for the comment, Tamzin. From listening to your past webinars with them, I can't understand who would sell at this price to 'make the market'. Somero Enterprises (LON:SOM) is like other small US businesses I have known, solid in being best in their niche and finding out how to grow that niche over time. It's one of the US equivalents of the German Mittelstand in my opinion. Only trouble is, we already have our standard maximum position size invested in them. Do I dare go further?!
Quite a lot happening this morning insofar as my portfolio of almost exclusively UK small cpas is concerned. All positive as far as I can tell and fails to reflect the battered share prices of the related companies in my view; so:
Really interesting earnings enhancing acquisition by Supreme (LON:SUP) of Liberty Flights Holding Limited that extends the formers reach in the vaping market. The latter reported revenue of £9m and EDITDA of £1.5m for the year to 31 Jan 2022. The financial metrics look reasonable to me. A maximum consideration of £14.75m including deferred consideration and a potential £5m performance based incentive.
Somero Enterprises (LON:SOM) trading in line as already mentioned.
Spectra Systems (LON:SPSY) announces that its investment in Solaris is gaining traction. Spectra Systems (LON:SPSY) owns 48% of the equity in Solaris and is a nice cherry on the cake insofar as my holding is concerned
"The Board is therefore pleased to announce that Solaris has received advance assurance from HMRC that it is a qualifying company for the purposes of EIS relief. The Board understands that Solaris is commencing the marketing of its financing round imminently.
Solaris has developed a proprietary optically based technology for the measurement, in medical clinics, hospital waiting rooms and the home, of blood plasma viscosity with pin-prick volumes of blood, in order to detect viscosity changes which are related to inflammation stemming from infections, cancers such as multiple myeloma, cardiovascular disease, Alzheimer's, and rheumatoid arthritis. The technology is a combination of low-cost hardware (a "LaserDrag Viscometer") and consumable test strips."
EKF Diagnostics Holdings (LON:EKF) has announced an improvement in its net cash position resulting from the receipt of $5.5m in respect of Covid related inventory in the USA. The following is suggestive of an earning upgrade
"The accounting effect of this payment will represent an enhancement to both revenue and adjusted EBITDA for the current financial year ending 31 December 2022, however the quantum of the enhancement is not yet confirmed. Therefore, the Board is not seeking to change guidance to analysts on trading and outlook for 2022 at this stage, but expects to provide an ordinary course of business update within the interim results announcement in September."
The Spectra Systems (LON:SPSY) announcement on Solaris sounds interesting. They have a product where there is currently already a sizeable TAM, and their product not only is easier to use but faster, and potentially cheaper. I guess the key hurdle, as anything, is medical regulatory approval. Which can take a long time. And also changing behaviours in hospitals, as well as insurers to pay for it.
So what does a fundraise for Solaris look like? Probably some outside money, with also use of some of Spectra's cash pile? And will the sum total of all funds required before they reach breakeven, be too much a strain on Spectra over the next few years? I don't know.
For me, there are so many small divisions in Spectra that could be big growth engines, but none of them have really taken off in a big way. Would be interesting to see some further progress, otherwise one has to assume that their innovation pipeline is a damp squib.
Why I'm still invested in Spectra though, is that even if they just delivered stable revenue and EPS for the next few years and none of their new innovation pays off, it is still at a decent valuation (14x with cash pile) and 6%+ dividend yield, both quite secure due the recurring, SaaS-like model. And even better than most SaaS, as their main product has a better moat from switching, long term contracts locked in. Not like Netflix, where recurring SaaS means customers that can cancel with just one month's notice.
(I hold in The Boon Fund)
Spectra Systems (LON:SPSY) (I hold)
Hi Boon
I personally wasn't sure what to make of the Solaris announcement. The product behind the business reminded me of Theranos (!) and I remain confused by the shift from authentication materials/processes to blood testing.
As you mentioned the underlying business is sound and keeps me interested for now. If Solaris took prominence in any sort of way, without revenue/profits to back it up, I'd be a lot more wary to remain a shareholder.
Cheers
A
Hello Abtan,
Spectra (in my view) is made up of a bunch of scientists who come up with interesting ideas some of which have been/will be commercialised. Much of the current revenue with their central bank customer is related to a development contract that funds the development of an improved security system which the Bank may/will subsequently utilise. Most of their R & D effort is devoted towards improvements in Security Systems.
The Solaris opportunity has been mentioned a few times by Spectra in the last few years. The idea of measuring viscosity of small quantities of liquid has come from the scientists, but the market it is directed towards is very distinct from the security business.
I would guess that Dr Nabaldy and his colleagues own the balance of Solaris not owned by Spectra (who I think own 48%.)
SM
Supreme (LON:SUP) - interesting aquisition this morning - a smaller competitor in its vaping division.
"· Immediately earnings enhancing with further manufacturing and sourcing synergies expected post-integration;
· Significant product and customer overlap with Supreme across the Group's vaping category with potential to enhance margins across the enlarged business;
· Expands Supreme's access to the closed system vaping market, further broadening the Group's existing vaping proposition; and
· The enlarged product range creates a strong platform from which to explore a number of cross-sell opportunities across Supreme's existing customer base".
Equity Development has upped 'Fair Value' to 245p:
https://www.equitydevelopment....
Another step forward for Supreme as it aims to own the budget/ value vaping category in the UK. It wouldn't surprise me if there is a substantial synergy benefit and GM% uplift from overhead elimination, in-house manufacturing, centralised innovation, volume fixed cost leverage and of course additional distribution/ cross selling opportunities. If done well Supreme could build a humming, low cost 'centre of excellence' for vaping. It seems we will need to wait a few years though to see these synergies hit the P&L, given the integration timelines.
Are Boohoo (LON:BOO) going to announce a shares buy back? I hold and it looks like it was on the list of items to vote for at the AGM. I assume this will be good news for the shareholders? There is a trading update this week.
Not relevant to your specific comment Wornoutmk on £Boo but a comment on Boohoo (LON:BOO) specifically. Small Company Sharewatch guy recommended them last month as one of their top 3 featured companies, and this month have added it to their portfolio. He sold Tremor International (LON:TRMR) ('kept him awake at nights worrying') and his remaining shares in Kainos (LON:KNOS) to keep his cash levels up. He is also very positive on Superdry (LON:SDRY) though I can't say I am. I am concerned about purchase levels on therse types of products this year at least. Maybe its because I'm in the 'much older' age group!
The Superdry interest (I do not hold) might be because of the director purchase of £2.5m recently.
Stockopedia has a Momentum rank of Zero for £BOO!
Presumably because there isn't a negative Momemtum facility.
Boohoo (LON:BOO)
Havent looked in detail but the fact they can buy back shares does not necessarily mean they will do so. From memory its pretty standard that you havce something at AGM that gives you the option just in case you may want to - but that does not necessarily mean they will do so?
I personally i would be looking for a specific comment that "we will be looking to buy back shares"
Note boohoo have gone from cash rich company to cash poor company so whilst personally i would be more than happy for them to buy shares - it may be somewhat risky strategy if they are doing that with "borrowed cash". Personally if i didnt have confidence in their ability to generate good cash ignoring inesting for growth (and some element of efficiency improvemnts i wouldnt be holding these shares.)
How still in control of margins and what not i guess we will see soon - note looky as stocky it sugggests that theer is no end in sight as of yet to the constant broker downgrades that sem to be taking place - so on current fundamentals things don't look great do they? not really a massive surprise given current events. Note they are probably now at a place where they cant really afford for margins and what not to slip anymore in the future as we would then be at the point where profits are zilch ! albeit hopefully in 2024 investment will be tailing of so cashflow may be expected to be better than profits at that time - but then again if they want to keep growing !
Thanks for info, much appreciated
Somero Enterprises (LON:SOM) (I hold) providing a simple In-line guidance and confirming demand remains robust. This is good news as the SP is circa 35% off its peak meaning the dividend is now over 10%!
If you want to beat inflation look no further ;)
Paul - a KP is a Kitchen Porter - the lowest position in a commercial kitchen. As a student, I worked as a KP during a summer holiday and have to say you really earn your money.....
Same here. Hard work for almost zero respect or appreciation!
As a student, I worked as a KP during a summer holiday and have to say you really earn your money
Me too. But I kind of liked how I was treated by the chef who was very amused by my ambitions to become, as he put it, “a captain of industry” by cleaning dishes. It made me aware of how lucky I was to only need such work as a student top-up. And determined to treat those in the worst jobs with the most respect. A good experience.
nicely said.
Marks Electrical (LON:MRK) Does a up to 2 X 5 hour delivery journey work with fuel at the price it is?
I think it does. Obviously it will be more expensive to deliver to Lands End or Glasgow but they did mention that while fuel costs have risen, it is just a small amount of their expenses. Marks Electrical (LON:MRK) have been very careful to where they deliver to keep costs down and hence, they do not deliver to the very north of Scotland or islands.
£RBG Paul, KP = Kitchen Porter
Revolution Bars (LON:RBG)
Good morning Paul, Tekmar's results today (we hold) are more of the same, plenty of orders but no profits. You covered them on Feb 25th and thought they could be interesting albeit poorly traded. I can't resist small UK engineering companies but today's announcement that a sale of the company could be considered to further shareholder value, is interesting. If you have time -- what might it be worth and are there buyers who could use their undoubted technical skills?
Re Tekmar (LON:TGP) (no position).
This part of the CEO's report in today's interims sounds ominous:
The Group has been executing on its turnaround strategy at the same time as it
continues to work with industry partners to assess and address the industry
wide issues relating to legacy cable installations. Whilst the business is
managing this as part of its commitment to responsibly supporting its
customers, and the learnings complement its existing expertise and capability
and supports its strategic initiative to further diversify across the wider
lifecycle of offshore wind projects, it requires the Company to dedicate
significant engineering and senior management resource. The issues
surrounding the ultimate resolution of these legacy issues are complex and
multi-faceted and may be likely to continue to consume significant company
resource and senior management attention for the foreseeable future. For a
business the size of Tekmar this becomes a particularly onerous undertaking
alongside executing a turnaround strategy in a market environment which
remains challenging.
For a loss-making company with a weak balance sheet, to have unquantified (unquantifiable?) liabilities could be fatal. The SP is down 35% today and the share is illiquid. A trade buyer looks like their only hope.
Poor old Tekmar (LON:TGP) - up for sale. Foolishly I let quite a large position continue in hope, but I suspect the Board have never got on with one another (4 or 5 Head Offices for each little constituent, nearly all in the North-East), and a very unfortunate major investment in a factory in China, just as Trump messed things up , then Covid - now a big short position, and shares through the floor. Don't really know what to do. As Paul said earlier in the year, a fundraising was successful in the Spring, at a premium. Not helped by a recent Strategic Review which concluded a sale was a poor option. But, as JAVFS says, it has valuable skills, a booming market, and a good reputation: a good buy for someone with the energy to sort it out. A fairly large institutional holding as well. Can't bring myself to sell!
PS. Sold now - I suspect there'll be lowball bids only.
Tekmar (LON:TGP) sad to read the news today.
I note that 2 years ago Paul wrote "A while back, I found it very difficult to buy this share, as the market is so thin, so after 2 days trying, and only getting a scrap of shares I gave up. " Lucky escape Paul. Sadly I managed to get some!
Hey Paul. Thanks for the write ups.
Regarding distressed purchases with £MRK I believe what is meant is, a distressed purchase is something like a fridge, freezer or washing machine. During lockdown only certain shops were allowed to be open that sold essential items. Distressed items are classed as essential.
So basically, in times where money is tight, a distressed item is still likely to be bought as people do not want to be without the essential item.