Small Cap Value Report (Mon 14 Mar 2022) - MORE, CBOX, FNX

14th Mar '22 by Paul Scott

77 comments 9895 reads

Good morning, it's just Paul here today, as Jack's taking some well deserved time off!

Agenda -

Paul's Section:

Hostmore (LON:MORE) (I hold) - my review of the in line figures. Everything looks fine to me, apart from a slightly soft current trading update (LFLs down 3% in first 8 weeks). Forecasts have already factored in increased costs, and there should be good profits coming from new site openings on very attractive rental deals. Looks fully funded to expand with 3 different formats. Very cheap in my opinion. But households might rein in discretionary spending as inflation bites.

Cake Box Holdings (LON:CBOX) - an in line trading update, and sensible management changes are announced. Will shareholders put the accounting/audit problems behind them now, or could the new CFO want to kitchen sink the next numbers? How will institutions (selling) react? Is this going to reassure them, or do they just want out?

Fonix Mobile (LON:FNX) - excellent interim results, with simple, clean numbers, that I can't find any fault in. This looks a decent GARP share, so gets a thumbs up from me. Cash generative, paying decent divis, and growing nicely, with a solid outlook. Also has very sticky, repeating business from established clients. There's lots to like here, as a long-term hold.

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.

Hostmore (LON:MORE) (I hold)

83p (down 10% at 09:10) - market cap…

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rmillaree

14th Mar '22

Alphawave Ip (LON:AWE)

Somewhat surprised by the muted reaction on Alphawave Ip (LON:AWE) this morning.

Is it me or have they provided no details of the financials of the buisness being acquired - i can expect the market reaction to be somewhat muted AT BEST if they are splashing out $210 mill cash without providing any financial info for what they are buying - apologies if info is there and i have missed it.,

As a company that has been accused directly of being somewhat less than kosher in the past i would have expected they would go out the way to provide some flesh on the bones ref history of what they are buying !!!!

Vsihv

So you agree that the free cash flow is not £32m ;)

I should perhaps read more carefully but tired numbers on a tired brand - have better things to do with my time.

If the "real" free cash is anywhere near 32m, I am happy to be corrected. If holders (potential holders) take a 2nd look on the back of my comment and find that this trendy, fast growing chain with positive competitive backdrop is available at 3x free cash, by all means back the truck up.

Wish you all the very best!

davidjhill

I don't mean to be rude but if you had listened to any of the presentations since the short report you would know this. At H1 stage none of the revenue was attributed to Verisilicon or CPP. You have clarity, you just haven't listened.

One of the things I quite admire (in a perverse way) of short attacks is their ability to convince investors there is something wrong without offering any real proof. It is highly effective for the shorter and quite long lived. It's probably manipulation but it's clever.

Btw there is also nothing necessarily wrong with a JV where directors have some connection to each other as long as it is disclosed. Particularly when the JV is with another business that is well known in the market in which they operate and has several billion in revenues already. It doesn't make the revenue less genuine! But these days throw mud and it will stick.

Caper4

I never eat in any restaurant unless they accept corkage as my wine is better than the restaurant and a hell of a lot cheaper, including any corkage charge !!

I am not as pessimistic as you, but I agree it’s nuts at the moment to invest in any stock with poor liquidity . Have cut my portfolio by half and all now are easy to trade

Heavens above you lot don't do much research do you?

Hostmore (LON:MORE)

Would love some clarification from Paul or anyone cleverer than me ref the quoted free cashflow number of £31 mill.

Seems clear to me that to arrive at the £30.6 mill quoted free cashflow they need to add back £13.6 mill of "finance expenses" as if they dont exist.

If these finance payments are quasi "lease related costs " as appears to be the case for the majority of the total (£10.1 mill of £13.6 mill) - it just seems plain silly to quote a number than ignores this cost with out caveating up that fact. Ref EBITDA Paul has sensibly used the lower pre IFRS number here so as not to confuse.

Must admit though i have a low expectation that the £13 mill should taken back out as its all as clear as mud but i am defaulting to that being the case until someone can evidence its not a real "rent related cost to the business" .

gringo

I agree Caper. I have some long term holds but anything new has a stop on it, and only liquid shares.

I was buying a few showing momentum/volume changes at the end of last week, think the US markets are forming a base for a rally in the short term. Just my gut feeling based on sentiment and fear, so who knows. There does at last seem to be some institutions stepping in and buying on selected companies in the UK.

If a rally does come I'll use it to rejig my portfolio and move to more cash, not get sucked in. Dont want to spend the summer lull (tho maybe not this year?) fully invested.

portugull

I listened to the Investor Meet Presentation today with Hostmore (LON:MORE) and I thought the CEO and CFO did a good job and I felt they were both very much on the ball.

Some points I picked up in no particular order.

Rent to Revenue in 2022 on New Sites 4.9% compared to 11.9% on Old Sites.

Table Top Order & Pay at Table a big success. Driving up spend per customer.

Outdoor Dining could be very popular if we get a good Summer and CEO thinks this strategy will prove popular.

100% Tips go to Staff. I like that.

Head Chefs have all been on Training Course with good results.

The Estate is very new overall so no major CAPEX.

Net Debt to EBITDA 0.3X

April will mark bail out time for many operators as Paul has mentioned.

I hold but 44% down!

£MORE

In this regard thats 3 separate posters as far as i can see - being me , Vsihv and ExpectingValue who seem to think the £32 mill is simply an illusion as it seems to exlude what is practicably speaking some (or all?) of the rent payments - which would make quoting the figure as useful fact nonsensical. Are you still standing by the fact that the £31 mill is real cashflow and includes a fair deduction for "rent due" for the year ?

I am happy to email the company for clarification if you are sticking to your guns on this one.

BnB

I agree with BnB. Alphawave Ip (LON:AWE) is on my bargepole list

To be clear - I own AWE. I just recognise that the market is waiting for more data. Possibly with good reason.

The conference call today has added more colour and FY21 results are due out within a month or so.

Covid rates in Hong Kong are something else.

If this spreads, and China is sticking with zero covid then this could have far reaching consequences. Numerous cycles of absolute lockdown/reopening are bound to effect supply chains/inflation.

Tomwebster25

thanks for the summary. I like the look of hostmore but the trust pilot reviews are awful.
would be great to hear from the company how they are addressing , was maybe covered on investor meet ?

Harry Hindsight

There is the thought that perhaps recent IPO's should be given a wide berth till a few results under their belt, maybe even a year or two.

Personally eating out will take some time to readjust - not scared of the bug but just happier cooking at home and not having to go out in the cold. The youf however are of a different disposition - as long as getting funded.

Building supplies (and cooking) are essentially commodities - not just oil gas gold nickel etc, always in the news - now we hear about vegetable oils, grains, plywood, gypsum, cement - all the boring cheap as chips reliable easily available or were - steel a big one (reinforcement, beams, most of construction has something even your house).

Let's hope this is the 'toilet roll' issue from early days but costs will rise across the board for commodities. Revenue does not always equal earnings unless they can pass it on = inflation. Cost to build the house, cost to buy the house, increased mortgage deposit and higher interest rate to buy the house. Back to property as the hedge on inflation, unfortunately likely to become a societal issue at some point.

Hedgecutter

Tracsis announced the purchase of US rail tech firm RailComm which is in the same tech space as the company. Probably outside your preferred area Paul, but any thoughts would be welcome.

Just for clarity, I bought a small initial holding this morning. I've been watching Tracsis for some time, but looking for reduction in the share price, given the wide spread.

I'm thinking Berkshire Hatherway and Amazon (before they split the share). Construction, food, cake etc will watch with interest.

Boon

The market is starting to think this latest COVID "wave" in China might be more serious than previous ones. Vaccine shares like Moderna are up quite a bit today, and CSI300 Index down quite a bit.

Zipmanpeter

15th Mar '22

"Back to property as the hedge on inflation, unfortunately likely to become a societal issue at some point."

Already is an issue. Rent+utilities is close to 50% of income for young adults add food inflation greatest for basics, NI charges etc and who would want to be in their 20s (financially speaking!!). I have a 19 and 21 year old and see their coping mechanisms - I think gyms will do OK as for £25/mnth you have a place to go and activity to get you out from your tiny room share/parents house! It is a shame we cannot invest in food banks as these will be another "winner' in the next year

In contrast, the best situated are the top 50% rich, elderly on inflation adjusted pensions who have paid for their houses and are seeing rapid capital appreciation. Even energy inflation is less of an issue for them in truth since they can afford to pay for/already have good insulation and solar panels etc. At worst, they can choose to downsize, pocketing a huge capital amount. Unlike the young they have also saved over P2Yr because Covid has kept them home. We need businesses whose core audience are the affluent over 70s.

So go Saga (LON:SAGA) and £UBG (Disc I hold)

Small Cap Value Report (Mon 14 Mar 2022) - MORE, CBOX, FNX

Hostmore (LON:MORE) (I hold)

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Paul Scott

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