Small Cap Value Report (Mon 15 June 2020) - covid/macro, BOTB, IDOX, CBOX
Good morning, it's Paul here, with Monday's SCVR.
I've pre-written a few general thoughts over the weekend, so am posting this first bit early, on Sunday evening, to get you started nice and promptly on Monday morning.
Estimated timings - I should be able to get things wrapped up by 1pm official finish time
Edit at 12:14 - wonders will never cease, today's report is now finished (early!).
Covid-19 latest thoughts
Personal stuff - I decided to get a covid-19 antibodies test last week, at a private GP, which was the Abbott Labs approved test. It cost £95, and involved a nurse taking a vial of blood from my inner elbow. The result came back 2 days later - confirming that I have indeed had the virus, evidenced by my blood containing antibodies. There was never really any significant doubt, for the heart-breaking reasons I've explained before, but it’s good to have it confirmed.
Experts don’t seem to know, or agree on, how long the antibodies last, but it should at least give short term immunity apparently (some suggest maybe 6-12 months? Who knows?).
Incidentally, the nurse told me that the DIY testing kits, that use a finger-prick blood sample, are not reliable, and can be difficult to use. She said that getting enough blood from a finger-prick is difficult, and some people have had to prick their finger multiple times, to get enough blood out. Also, she told me that the blood in your finger tip may not necessarily contain antibodies, when blood from a vein might do. Hence there's a greater risk of false results. It seems best to get a test done properly at the doctors, rather than buying what might be a useless kit off the internet.
I did gently query the nurse's experience, and she replied that she had being doing blood tests for 28 years. "So you're getting the hang of it then?!", I quipped with a twinkle in my eye & broad smile, and we shared a laugh. "You were very brave, you didn't even flinch", she complimented me. I hate needles, but just close my eyes and talk incessantly, which does the job of making it bearable.
Knowing that I've got antibodies in my blood has given me a sense of freedom. I had Mum round and cooked her Sunday lunch, more comfortable in the knowledge that I could hug her without fear of killing her inadvertently. But I still wash my hands frequently, and especially on arriving home from any trip out, just in case. Anyway.
Key issues - moving on from that, we’re getting a deluge of information daily about covid, and it’s difficult to know what’s next. The key issues to me seem to be these;
Treatment/vaccine - absolutely key. If scientists are able to find a way to treat, or completely stop covid-19, then that would be wonderful for humanity above all, but also mean that sectors such as travel, hospitality, retail, would immediately soar, as normality would be priced-in. To a certain extent that’s already happening. Then after a while, those shares would probably be likely to fall back somewhat, once investors re-focus on the crippling financial disaster which has befallen them, and how long it's going to take to repay all that debt, and not be able to pay dividends for x years. Why buy the equity, surely the bonds would make more sense? In this crazy, artificial financial world, anything could happen.
CNBC reports increasingly positive noises from large pharmas, that a solution could be in the pipeline. I don’t know what to think on this, so have to just mark it down as a major uncertainty.
Number of cases/ second wave - this scares me witless, and there’s been some very worrying recent data showing that cases are significant, and rising, following lockdown easing, in some US states - e.g. California, Texas, Florida, and Illinois. US stock markets set the tone for global markets, so (as we saw last week) when US investors get the jitters, then it spills across to shares in the UK. It’s increasingly looking as if this virus could be around for some time, and hence damage the chances of economic recovery. Another full lockdown couldn’t possibly happen, as the financial & human cost is too high. However, what if people are too frightened to go out again and hospitals fill up again with more cases? That scenario would mean more economic damage. For this reason, my growing optimism in recent weeks has taken a knock back, and I’m probably leaning more towards caution now, than I was last time I reported here last week. It's a very fluid situation, so being willing & able to change our minds, is utterly crucial, if the facts change, or seem to change.
Insolvencies - the pre-pack administration of Quiz (LON:QUIZ) (I’m long) and the CVA of the leisure division of Restaurant (LON:RTN) - closing a large number of its restaurants permanently, has given me a jolt too. This brought home the reality that many retailers and hospitality companies have no option other than to undertake some form of insolvency. Expect more to come. This is extremely bad news for owners of shopping centres, and employment. For that reason, I decided to sell half my positions in Hammerson (LON:HMSO) and Newriver Reit (LON:NRR) late last week. Better to lock in a decent profit, and play it safe, I think.
Re-opening of retailers & pubs - the scuttlebutt I’m hearing here is more positive. Apparently where shops are re-opening, they are doing busy trade. Footfall is down, but basket size is up, I'm told. This is both in Europe, USA, and UK. Therefore, I’m hoping for a boost to my portfolio this week, from shops reporting decent opening trade, and in July when restaurants re-open too. Let’s hope we get some decent weather, to draw in customers. I see it as our patriotic duty to spend freely, to help these businesses get back on their feet, which is what I’ll be doing. There’s pent-up demand, and many households have spare cash, since they’ve not been able to take holidays, eat out, or go shopping.
Awful Q2 & H1 figures - are in the pipeline. With little in the way of broker forecasts, I remain of the view that the UK and US markets could get a big shock from the full extent of how bad company results are being hit through the shutdown, and increased costs of re-opening. Hence I’m nervous about this. UK markets in particular could panic sell, especially in small caps, once we actually see how bad the figures are, especially if that coincides with a second wave of covid cases. Therefore I’m looking to top slice holdings if they do well on the re-opening of the economy, and move more into cash.
In conclusion - I haven't got a clue what markets are going to do, and nor does anyone else. On balance though, I'm nervous, and looking to sell more than buy in the coming days. But let's see how the news pans out, and be willing to change our minds if the facts change.
We don't give advice here, just opinions. Therefore everyone needs to make up your own minds about your strategy & how you handle all of this chaos. My number one strategic thought at the moment, is to keep flexible, and if I'm in doubt, then I'll back off and move more into cash. I'd rather miss out on upside, than end up crashing out again, like I did in 2008, through over-confidence and gearing. It takes so long to recover from a wipe-out, that experience has taught me it's better to play it a bit more safely, and walk away bruised, but still in the game, than to go down with the ship.
Remember that those trading algorithms which were so bullish, chasing the market ever higher on momentum, are not even slightly committed to that view. As soon as the trend changes, they could not only close long positions, but reverse into short positions. And back again. It all feels very volatile.
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Best Of The Best (LON:BOTB)
Share price: 925p (up 15% today, at 08:23)
No. shares: 9.38m
Market cap: £86.8m
Best of the Best plc runs competitions online to win cars and other prizes.
We've had a series of forecast upgrades over the past year, about 4, from memory. Despite that, the figures released today for FY 04/2020 have beaten even the revised forecasts.
EPS: actual results: 37.44p adj diluted EPS (LY: 17.61p) - up a remarkable 113%!
The numbers look very clean, I don't see any funnies. There are no adjustments to the latest figures, only to LY, to strip out the effect of a one-off change in VAT status.
We're getting another special dividend! 20p this time, since the company once again has accumulated surplus cash. Plus a normal divi of 3.0p.
Outlook - is confident, and mentions several times that the new financial year (from 1 May 2020) has started well, e.g.
We are pleased that BOTB has delivered increased revenue and profit ahead of our expectations. The cash generative model and robust balance sheet presents an excellent platform for continued future growth. The initiatives taken to reorientate our marketing strategy toward an online-only model have proven successful, giving us confidence for the new financial year which has started very encouragingly.
We are confident that our streamlined, digital business is well positioned to take advantage of future growth opportunities, and I look forward to updating shareholders on our progress in due course.
Broker update - this is really striking. The house broker has greatly increased forecast EPS of FY 04/2021. The old figures I've got show it was unrealistically low at 28.1p, but has today been raised to 69.8p! The latest note raves about the operational gearing being achieved, and its successful digital marketing strategy.
My opinion - regulars here will know that I've been keen on this company for some time. Even so, it is performing well above what I expected, so am absolutely delighted with progress.
It's impossible to buy any shares in it today unfortunately. My broker lamented that, "The market's crashing, but I can't get filled on the one share clients actually want to buy!"
Take the new forecast of 69.8p, and put it on a PER of 30, which is easily justified by the growth rate (it probably should be higher than that), and we're at a share price of nearly £21. That looks realistic to me, providing nothing goes wrong. Hence loads more upside potential from the current level is possible. It's important not to "anchor" to the old share price of £3-4, as that's been blown away by much higher earnings, and rapid growth still to come.
Note the high StockRank, especially quality and momentum scores. The low value score is actually not relevant, because the existing broker forecasts are way too low. Hence that should reset to a higher value score once the revised forecasts feed in.
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Idox (LON:IDOX)
Share price: 41.2p (down 5% today, at 09:29)
No. shares: 443.1m
Market cap: £182.6m
Idox plc (AIM: IDOX, "Idox", "the Company" or "the Group"), a leading supplier of specialist information management software and solutions to the public and asset intensive sectors, is pleased to announce its unaudited half year results for the six months ended 30 April 2020 ("H1 2020").
I'm really not interested in this company, so am just going through the motions briefly reviewing its interim results today.
Key points;
- Organic revenue growth of 10% looks good
- Recurring revenues are 53% of total - again pretty good
- Revenue visibility for FY 10/2020 is good, at 90% - in line with expectations
- Net debt reduced significantly, to £14.3m
- New bank facilities of £35m, have been fully drawn down
- EBITDA - meaningless, as there are so many adjustments & costs excluded, including capitalised development spend. Impressive EBITDA profits disappear into losses at the statutory post-tax level.
Balance sheet - awful. NTAV is negative, at £(39.2m)
Dividends - none for now, but the company does say it intends to reintroduce a divi for the full year. I doubt it will be very much though, given the weak balance sheet.
Outlook - this sounds good;
The assessments performed and disclosed in our FY2019 reporting in early April remain valid and the current year financial performance is expected to be in line with existing expectations.
Cash collection during the pandemic has exceeded our expectations, and operationally the Group continues to win new work and deliver services largely as anticipated.
We have seen a greater slow-down in new EIM business than anticipated due to the recent pressures in the oil and gas sector. However, the benefit of its high levels of existing recurring revenue means it is not reliant on winning new work in this area.
All other parts of the Group remain robust as expected despite the impact of the Covid-19 pandemic on the global economy.
Net debt at 31 May 2020 was £14.0m, including £32.2m of available cash following the full draw-down of banking facilities.
My opinion - I wouldn't buy this share, due to its weak balance sheet, and over-reliance on bank debt.
However, that may not bother you. There's a fair argument for being more relaxed about balance sheets for software companies, which typically receive money up-front from customers, and have a lot of recurring revenues.
I've not ploughed through all the narrative, but the key sections seem to be showing that Idox is performing well in these turbulent times. Therefore, it could be worth a closer look perhaps?
I also have concerns over its poor cash generation. Note from the cashflow statement that most of its operational cashflow came from increased payables.
The 5-year chart is not good at all;
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Cake Box Holdings (LON:CBOX)
Share price: 163.0p (c. flat on the day, at 11:32)
No. shares: 40.0m
Market cap: £65.2m
Cake Box Holdings plc, the specialist retailer of fresh cream cakes, today announces its full year results for the twelve months ended 31 March 2020.
This is quite interesting for what it says about current trading, with the franchised shops having re-opened on 1 June 2020;
Current trading
· As at 1 June 2020, 131 of the 133 of all stores had reopened, offering a limited menu of products
· Improving trend since stores reopened. Week commencing 1 June 2020 showed positive like-for-like growth
· 75% of stores currently trading2 at pre COVID-19 levels3
· Started delivery of cakes with Uber Eats and Just Eat in May and most recently Deliveroo.
· Online sales since the period-end were up c.60% compared to the previous year period
That's really encouraging. This very much reinforces my view that people are keen to return to shopping on the High Street, having been deprived of it for nearly 3 months.
Results for FY 03/2020 - unremarkable. Revenues up 10%, but adj PBT down 5% to £3.8m.
My opinion - I've long suspected that much of its profit probably comes from selling new franchises, but the figures are not split out. It doesn't interest me as a potential investment, but today's update on current trading looks strong. So it could be worth a closer look, possibly?
I'll leave it there for today, thanks for tuning in & leaving your comments.
I'm going to head into Bournemouth town centre after lunch, to see what non-essential retailing re-starting looks like!
Best wishes, Paul.
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71 comments
Hi Paul. I've checked the admission documents for £CBOX . It says that in the year to end Mar 2018, that 77% of revenue came from sales of cake sponges & other cake ingredients. (It's appropriately shown for a baker as a pie chart! Ha Ha) The cost of a franchise has not gone up much since then. So I don't think we need worry about whether most of their income is coming from selling franchises.
Online gambling / gaming etc has done well during lockdown as punters had time and furlough dough on their hands. With redundancies looming and those lucky enough to keep their jobs returning to work, will this area of discretionary spending hold up?
Looking at the free broker note this evening on Best Of The Best (LON:BOTB) I note the estimated 69.8p EPS for 2021 is based on anticipated revenue increase of 57%. That would be historically high here and there's little rationale given, so I am wondering if it's a tad optimistic? But even if we assumed say 50p EPS next year, which does feel more than achievable, I don't think the share price is over-valued.
As others have noted this one isn't without risk in the long-term from regulatory action (it's regarded as a prize competition involving an element of skill - which is open to interpretation) and it could be taken private.
I hold.
Patrick,
I think we need to take into account the track record of management at Best Of The Best (LON:BOTB)
They've always been prudent in the past, and in the last year in particular, when online marketing has clearly hit the spot, they've under-promised & over-delivered. 4 forecast upgrades, plus a 10% beat as the cherry on top today.
Ask yourself why such a management team has now authorised a house broker note today with a massive increase in growth expectations? Seems obvious to me - because they think they can not only achieve the forecasts, but exceed them.
Don't fight against it, join the party!
Regards, Paul.
Ooooh. I see I'm getting a red thumb pounding tonight. Loving it from you clueless mofos. You guys will appreciate the wondrousness of my inshite re option 2 as option 1 isn't allowed once you grow up a bit.
Let me offer something else for a thumbing...
Jeremy Grantham is an old simple value investor with a bearish bias. If you listen to what he says its not much above everything's fecked except what young Elon's up to at Tesla plus a few of those other FANG-ish things...which he can't tell you to buy but that he would love to tout really. So he's just 70% in VC as its super sexy and it makes him feel young and hip and in the game.
Jezza lost faith with value about 20 years ago really. All the GMO processes are heavy users of momentum and trend following input on top of the value...but they had to keep value and not go all way to the other side as that was the brand that people pay $$$ for
Back at the ranch (ie the asset mgt firm he helped form but no longer has any investment input) they are buying non-US and EM value stocks as the model tells them to. As the US is a significant part of universe and its too expensive to buy that means they must be low weighted equity beta.
Basically, Jerry's in his dotage and he's lost the plot.
I do like your posts Mojomogoz, and for some reason I always particularly like the ones which get the most thumbs down
but i'm still not buying into the £AA
mojomogoz,
Please could you moderate your tone to something more constructive.
I'm not happy with your comments today - they're just rude. We all have off-days, but please sort it out.
Thanks, Paul.
Dear Mr Scott
Please refrain from moralising and bullying
There's nothing much rude I said yesterday just some dissonant opinion. I'll give you 'clueless mofos' is a bit tart and perhaps I should have refrained...but I saw it as a bit of play with my red thumb followers (who I know love me). No-one was injured in the process...unless they have a very fragile ego. Please tell me anything else that is anywhere near immoderate or unconstructive from yesterday. Really you are saying I shouldn't express opinions that are non-consensus or a little hard to process at times. I've been through that loop many times professionally
So it looks to me like you wish to encourage a sort of sanctimonious and bullying mob behaviour. I'm not bothered about it all and enjoy goading the wannabe bullies a bit. Very low from you to join in.
Your new crown of piety doesn't rest easy on your head given many things you have said in the past....I'm sure stocko have had a word with you about that. Don't displace your grievance on to me.
Shame on you Mr Scott. Nevertheless I'll continue to read your comments sometimes. Some of the commentators are very insightful.
Best wishes
Your mojo
PS I accept I'm very often wrong...but what I can do about that other than move on
Please tell me you haven't shorted the Dow again Paul!
Please tell me you haven't shorted the Dow again Paul!
Let us not speak of such things.
Well done Paul on BOTB.
Great analysis and call.
Makes up for the fashion frogs you have kissed a trifle enthusiastically.
Much appreciated.
Everything is risk:reward, and how well (or not) management execute.
Therefore some ideas work, and others don't. We're trying to predict the future.
Above all, DYOR.
I am sure we all agree Macro is a shocker to predict. So no predictions here but I was talking to my old mum today who was asking what she should do with a few pounds she has. Having looked at all the alternatives I am not sure the market isn't the best option at this point. The problem is in such a binary situation one change of course and it won't be and that will be expensive to those left holding the baby.
Apropos of Paul's opening remarks, I've just been into Lewes (OK, it's only small but it is the county town of East Sussex) and still very quiet. I'd say only 50% of shops have decided to open but hardly any of those with people in.
Maybe more choose to open later in the week but if owners of closed shops are monitoring what's happening then they may not think it worth bothering.
Lots of traffic about though.
Deleted
Also, she told me that the blood in your fingertip may not necessarily contain antibodies when blood from a vein might do.
Paul well done, love your daily column, but can this be right about the blood in your fingertips being different to the blood in other parts of the body. I am no doctor but surly the blood circulates all around your body? We must have a Doctor in the house, maybe he could clarify.
Keep up the good work
Not a doctor, but I do understand the issue.
It's about contamination through the puncture wound, the finger prick can pickup lymph fluid and such like as well as the drop of blood. Not a particular issue for simple tests like blood sugar levels (unless you have been eating sherbet) but evidently it could confuse antibody tests.
If you take blood direct from the vein you just get blood.
Cake Box Holdings (LON:CBOX) if you are interested in assessing their growth, you can join us today at 4.15 for the management webinar. If you miss it you can watch the recording which will be on our website by tomorrow. https://research.equitydevelopment.co.uk/news-and-events/cake-box-full-year-results-webinar-with-qa
Jeremy Grantham GMO dude is really only stating the obvious, markets at near all time highs, economy could quite possible be the worst ever, highly likely markets are due a pull back. More relevant is Howard Marks borrowed phrase I'm sure ‘Nobody Knows’.
We have so much potential bad news it makes sense to have a balanced portfolio & cash in reserve. Taleb for instance makes a lot of sense, 90% very safe & 10% in high risk, options. Thats very safe & moon shot type but a balanced portfolio just makes sense. And that is balanced across all assets ( not oh i am now 100 % in cash apart of course my pension which is all in mutual funds! - 100% of your entire worth in cash is quite a thing).
The potential bad news is there everyday, and today the media is on 2nd wave again. Every day will bring new worries, such as today ‘salmon the cause of the new china outbreak’
This was in a market the size of 160 football pitches ffs!!! China is so big on every scale, but wait, how much fuel is this to the ‘safety first’ culture particularly inside Boris’s head.
So....it can now be spread by food, uh oh, lets think for a moment where that could head. All pre cut fish and meat stopped, chlorine washing of all food, so many new jobs though, C19 potato testing officer. Normally a joke but not today, all fish banned tomorrow, wouldn’t bet against it.
Back in February was posting here its not the virus its the government reaction. I’m not a super forecaster, i didn’t imagine a global lockdown, but there is now so much potential for media & government overreaction & that is going to surely keep the markets extremely volatile for a while.
And why you need balance and cash, or as jessie livemore said ‘ sometimes go long, sometimes short & sometimes just go fishing’ . After 3 months of this I’m tempted by the latter.
Interesting comment!
Had not heard the Livermore comment before but sounds like he didn’t follow his own advice as remember he blew his brains out at the age 63.
Excuse me for asking the blindingly obvious, but if Covid becomes asymptomatic, what is wrong with having it? Especially if it confers immunity.
Back on topic I note that RLE collected over 80% of their rents last quarter. They may have halved the divi for now but in my view they are hanging in there.
Nothing. But them any individual doesn't know if they will be in the asymptomatic group (possibly about 80%), or in the group that ends up ventilated on intensive care for weeks (possibly 5%), but if you are like BoJo (male, over 50, overweight) the chances of the latter are a bit higher.....
Do you feel lucky, punk?? (to coin a phrase!)
Dave
(edit: just to make it clear, this is a tongue-in-cheek response - gotta keep things light-hearted these days!)
I think that depends on your definition of asymptomatic.
Leaving aside the unresolved questions about the potential for asymptomatic cases to spread infection and possible further viral mutation, the problem for an individual with having Covid asymptomatically is the potential it has for causing insidious damage that the person catching it isn't aware of. It's more of a vascular disease than a respiratory one and the damage it causes isn't limited to the lungs. It can cause inflamation of the heart and damage to the liver and kidneys. There are cases of heart attacks and strokes resulting.
I haven't looked into this element of the Covid-19 picture much, but there are some studies suggesting that even asymptomatic case can suffer permanent lung damage. Too early to understand this fully I think.
For my part I'd rather not have it symptomatically or asymptomatically
And the obvious time to get would have been over the last couple of months whilst the hospitals have been empty !
Hi Paul
Thanks for the interesting comments on Idox (LON:IDOX). Thought it just worth mentioning that they have been doing a fair of reorganisation over the past few years - hence the poor revenue growth and rubbish ROCE. This sort of situation can offer opportunities for a better future - software companies are expecially liable to these sort of pauses. I don't hold, but it is going on the watchlist for the first time in some years.
@Sunday trader. I've kept a vague eye on £idox since they first were first floated as a small planning software company in the dotcom boom of 20 +years ago. They seem unable to go more than a few years without major surgery. Whether it is the incompetence of successive generations of management or inherent in the nature of the business/model, I don't know, but unless they spend some time exhibiting solidity we've no reason to think that the leopard has changed it's spots. Numerically at today's 44p share price it has trebled since December 2000 ie 6% growth per year, but the price range in that time it has been 4.4p to 75p so time it correctly and you could have walked away with 17 times your money but time it incorrectly and you could have lost 90%. It has historically been a traders share rather than a buy and hold. Each generation of management wants to be exciting. Not for widows and orphans.
I don't hold Idox.
Hi Richard, Thank you for the perspective - I have only been aware of them for about the past four years.
If R moves up buy the market on any dip. Do it quickly as there will not be much time to do it.
(See comment above)
See there's some macro comment kicking about today. I know GMO (Grantham and Inker) quite well from the past. Great investment management business and I'd give them my money. However, they fall right into the trap...
https://www.stockopedia.com/content/were-all-fomosapiens-now-621583/
The above is clearly the killer macro inshite for all.
Welcome back, Paul. Belated happy birthday wishes. As ever, a wonderful report.
the management of BOTB are doing an exceptional job but returning money to shareholders?
surely there could be some really cheap companies wanting to sell up in the current turmoil. Why aren’t the management of BOTB looking at acquisitions ? Or growing into other areas. The lack of ambition is disheartening
the management of BOTB are doing an exceptional job but returning money to shareholders?
surely there could be some really cheap companies wanting to sell up in the current turmoil. Why aren’t the management of BOTB looking at acquisitions ? Or growing into other areas. The lack of ambition is disheartening
This seems a very churlish attitude. When you have a company achieving such a high rate of organic growth, why on earth would you want management wasting their time pursuing acquisitions? I have no idea, but personally I'd want them to just keep on doing what they're doing because they're obviously doing something very right.
All the best, Si
I agree with that. I just wish their ads didn't appear before every YouTube video I watch. I'm a shareholder, not a punter!
Sorry but I def do not agree with that Azhar. The stock is currently top of the risers list, up 55% and looks to be going higher over the next year or so (markets permitting). Up 5 fold since the lows this year....and many members here will be making a lot of money because Paul has been so keen on it. The company seems to have found something they are really good at and want to concentrate on that. The stock market is full of companies that have done well at something and then decided to branch out into an area they did not understand, often with disastrous consequences.
I love the special dividends. Warren B was asked when is the best time to sell a stock and he said "Never" or something similar. Must admit I have not found many stocks like that but BOTB tick that box for me. I am not tempted to sell because I know I probably could not buy back. It is my type of stock too (a type of gambling stock!)
Also they are now running new midweek competitions: "A pub chef was left stunned to find out he had won a brand new Porsche worth £47,000, plus £10,000 in cash. S has always wanted a Porsche, and his dreams have now come true thanks to being the third winner of BOTB’s Midweek competition which started during May". From the East London local press last week.
So I say well done to the BOD, to Paul and congrats to other members holding!
There are obviously doing a fantastic job. That is not in doubt. Not complaining about the organic growth they are achieving. But I wonder if they can make better use of the excess cash they have. Dividends although nice are normally for companies that don’t see any other better uses for it.
I wonder how long you’ve bin holding botb as they are subject to any new laws and regulations the government decides. A couple of years ago the government introduced new guidance son vat and botb were hit hard and retraced over 50%. So clearly diversifying would eliminate some of those risks but hey clearly you guys no more than me.
Azhar I don't think this particular site is about knowing more than you but about us all presenting our thoughts and coming to our own conclusions. Yours is a perfectly valid consideration. I am a fan of finding what you are good at and doing it some more rather than entering a field I don't know how good I am. Not clear to me there are many similar businesses to BOTB (I might be wrong) and so our management team are entering no mans land. Not attractive to me as a holder. Wealth generation is no easy game.
Paul: "Another full lockdown couldn’t possibly happen"
This sounds like one of those definitive statements about the future that you criticise other people for! In my opinion, fwiw, another full lockdown is perfectly possible, despite the economic impact.
R remains stubbornly high. It is reported to be above 1 in the south west, and not much below 1 anywhere in the country. The data is probably not very accurate in the details, but the big picture can be confirmed from multiple sources. Now people are talking about opening pubs with 1m social distancing. Seriously?? We haven't even made a proper attempt at opening schools again yet.
What happens if R starts going back above 1? What are the possible responses and what will work? This country's efforts on testing and tracing continue to be extremely disappointing, leaving us only blunt instrunments to tackle any future waves. If the choice is beween another lockdown, or allowing a second wave to build to "save" the economy, what choice will the govt make? I'm not asking what choice any of us would make, I'm asking what choice the govt would make, given which of their policies have been popular with the public so far.
There is a lot of optimism and impatience around at the moment. These feelings are very infectious, but unfortunately the virus is immune to them. A second wave remains likely and the policy response to that remains unclear.
I watch Germany's R number via https://www.rki.de/DE/Content/InfAZ/N/Neuartiges_Coronavirus/Situationsberichte/Gesamt.html. (Released on a daily basis and report in English). Germany are a few weeks ahead of us in terms of opening retail, hospitality etc. I realise a direct comparison isn't possible, but it gives an idea of how other countries are coping with easing the lockdown. It also gives a daily R number and a 7 day average R number. It hovers around 0.6 to 1. If it was to move up significantly (ie 1.5, 2 etc) then I'd be looking at my stock holdings. It's a good website for developments and analysis of COVID, rather than reading the mixed stories in the UK press.
Brilliant website - thanks for flagging it. It shows what can be achieved with efficient testing and contact tracing. The info on specific outbreaks is impressive. The UK can't even say how many of those tested positive have recovered.
Hi cmpeckham,
Paul: "Another full lockdown couldn’t possibly happen"
This sounds like one of those definitive statements about the future that you criticise other people for!
That's a fair cop, I'm guilty as charged! ;-)
Regards, Paul.
I would agree that while Paul was being definitive I do think a full (with emphasis on the word full) lockdown in the UK is not very likely. I just cannot see how the economy or government finances could handle it. Possibly lockdowns in particular geographical areas but a full lockdown to me seems unlikely. I hope I am right.
Here in France where we (Except Paris) partially exited lockdown more than a couple of weeks ago:
And there appears to have been no spike in numbers.
Fingers crossed.
'R' isnt the issue. Its the number of people who get seriously affected and die. 'R' is OK if its healthy people getting it like Paul. This is very low for healthy people of working age and children. Most of the evidence is that the first phase of this lockdown may have been warranted but we should have been out of it by now. We simply cant afford another one. All the furloughed staff will instantly become unemployed. We have to learn with it. I think its less than 3,000 people under the age of 65 have died.
If anyone ever wonders whether the subscription to this is worth is I bring you £BOTB. Whilst I am firmly in the DYOR group and disagree on some of Paul / Graham views (thats part of the fun of investing) I was made aware of companies like BOTB through this and bought some in 2017. As a relatively new investor (about 5 years) this stock is now the biggest in my portfolio (after some recent AMZN top slicing.) Thanks Paul and Graham for their daily thoughts and words.
Hi Brookeda,
That's great to hear! I hope lots of other readers also bought into BOTB, although it's so illiquid that picking up a stake takes time & patience.
You see, we do sometimes get the odd stock right! ;-)
I find that my portfolio only needs 1, or sometimes 2, big winners each year, and that more than mops up all the losses on other things.
Best wishes, Paul.
I would say you guys get most of them right... except few odd ones ..belated birthday wishes Paul.
Agree completely. Always DYOR but flagging companies like Best Of The Best (LON:BOTB) is why I pay to read this blog . My portfolio has avoided being in the red for last couple of weeks thanks to Best Of The Best (LON:BOTB) which is a miracle in this market. Thanks so much Paul.
Re Best Of The Best (LON:BOTB) - Results are obviously excellent and operational gearing is fantastic. However, to raise a bit of a contrarian voice, if I were still holding, I would be selling today.
Yes, increasing revenue less variable marketing mostly passes straight through to bottom as IT costs/prizes are largely fixed, marketing is now working well online and their is lots of room for organic expansion still - including driving overseas sales.
However, when it was small, the big gambling companies left the space alone. If BOTB grows, what is to stop someone with deeper pockets and a bigger database coming along. I don't see much that is hard to copy. As first mover, they have a good brand and history so they are unlikely to go away fast. But a market valuation of $75Mn?
Other risks include changes in regulation, being sold/taken private given dominant ownership shareholding of founder or demand falling off sharply in a consumer recession on a very illiquid stock. All arguably small risks but cumulatively they add up and all of them could be Thanksgiving turkey risks : all seems great then a bombshell hits to mix my metaphors
Having been alerted by Paul a couple of years ago and seen its potential as it moved online, I sold out very happily at 650p in May - since when the price has more than doubled ! You have to believe in a very stable & profitable future to buy in now.....so probably a good time to be selling.
I would highly recommend listening to the Patrick O’Shaughnessy podcast conversation with Jeremy Grantham of GMO:
http://investorfieldguide.com/jeremy-grantham-an-uncertain-crisis-invest-like-the-best-ep-177/
Very sobering.
Then follow this by reading GMO’s latest letter “Uncertainty has seldom been higher”
https://www.gmo.com/europe/research-library/1q-2020-gmo-quarterly-letter/
Towards the beginning of his part of the letter he writes:
“This is why Ben Inker, our Head of Asset Allocation, is nervous and this is why you are nervous, or should be.”
I am nervous.
Regards
Michael
“This is why Ben Inker, our Head of Asset Allocation, is nervous and this is why you are nervous, or should be.”
I am nervous.
Michael,
It's easy to be attracted to others who agree with you. You really need to ensure you don't just read things that confirm your own biases. This will cost you a lot of money in the long run - been there, got the T-shirt! As an investor, you always have to have a certain nervousness, but you really shouldn't let that completely control what you do. You need to find a balance (which is easier said than done) and it helps a lot if you maintain focus on a long term plan rather than get side-tracked by the short term.
If you haven't already, I suggest you read Superforecasting as mentioned by Paul and others. These people you mention don't really know any more about the future than anyone else hereabouts, and you have to read what they write in that context.
All the best, Si
Hi Si
We obviously have a very different take on where we are and where we will be say 18 months from now. I don’t know whether you have listened to the podcast/read the newsletter but he is very careful not to make predictions, indeed the title is a true reflection of the letter “Uncertainty has seldom been higher”, in that he is not forecasting anything because the circumstances make it almost impossible. (Superforecasting is on my kindle but not yet read).
What has cost me a lot of money is not responding to my own impressions that had led me to believe that the market was heading south back in late January/early/mid February and I did not act on it.
In my opinion if Grantham, Buffett and a few others are nervous it would be arrogant of me not to be also. Personally I think that the markets are currently deranged and this is caused by central bank money printing and investors not focusing on the fundamentals which are just awful for companies and stock prices (and do not forget individuals, the most vulnerable of who will be effected most).
The world has never been through anything like this before (and I include 1929 when highs were not re-attained for 25 years) and yet markets, politicians and central bankers think it can be shrugged off by turning on the printing presses. It can’t!
I fully except that confirmation bias is one of the more dangerous biases in life and in investing but until somebody can explain to me why what we are going through is not a major issue for the world stock markets, I continue to remain nervous. And for that reason I will keep a large part of my pf in cash and gold because I believe that is the right thing to do until the markets wake up and smell the coffee, not because Grantham or anybody else agrees with me. If I am wrong I will have missed out but the downside risk is far greater than the upside potential in my opinion. And in the end that is what it is all about.
Regards
Michael
We obviously have a very different take on where we are and where we will be say 18 months from now. I don’t know whether you have listened to the podcast/read the newsletter but he is very careful not to make predictions, indeed the title is a true reflection of the letter “Uncertainty has seldom been higher”, in that he is not forecasting anything because the circumstances make it almost impossible. (Superforecasting is on my kindle but not yet read).
FWIW I don't have a take! So we can't possibly disagree :-) The point I was making was that you need to be careful about confirmation bias, that's all, and you should seek out contrary views whenever possible.
Basically, I don't have to have an opinion. It's hard enough trying to find good companies to invest in and then knowing when to sell or buy more, adjusting your portfolio for risk etc. without taking into account second order effects within the economy and trying to predict the future. This kind of economy level stuff is above my pay grade, and consequently of no interest to me. This falls under Howard Marks' "know what you don't know" rule.
I appreciate some people enjoy these kinds of discussions and commentary by Paul and others but I confess I have not read the article you linked to - I was only reacting to the section you quoted. Maybe you've not noticed, but you will not find me taking part in macro level discussions. Sorry to disappoint!
All the best, Si
Hi Michael. I agree. I love Patrick O’Shaughnessy's podcasts. Also worth a listen is the Robin Griffiths interview on PI World. Whilst Simoan's comments are also valid, I do feel that these commentators have experience worth taking on board. If we are just living through a sucker rally then the downside potential will be significant even for those with a long term horizon.
Thanks for recommending the podcast. I think Jeremy Grantham is always interesting as he has such a broad range of interests and genuinely works internationally including in China where he has a lot of knowledge. . I think it is in that letter you cite that he cover the decline in the sperm count of males in the UK. Really concerning for this country's future but where else have you read about that? :)
Yes he has a wide range of interests and it was on the podcast he talks about sperm counts, water, insects, over farming, climate change and advises young people if the want to go in to “finance” to go into venture capital because that is not a zero sum game.
I found him fascinating even if it did confirm my own biases!!
One of the issues concerning me is the 'mania', particularly in the US, of new investors playing in the stock market. Using leverage and driven by social media, its become an easy gain. Hats off to investors so far but this can change rapidly and wipe people out and stocks like Hertz for example can go back to being bankrupt! I remain cautious and patience is key. I agree with the comments about taking down the gross.
I don't buy the talking heads about retail moving the market - just priming their excuses for missing out on the quarter - there was no volume if you wanted to take in size blah blah blah.
A lot of instis were short- need to cover. Market makers are (typically) short volatility, so when volatility spikes they need to chase to hedge. HFTs are probably front running any retail flow.
If the super smart instis believed that the market was extremely overvalued, they would take the other side of retail!
Baupost raised additional capital in March/April I believe. Oaktree were buying AirBnB paper in March.
All of that said - I am certainly more bearish than bullish on markets and think the economic outlook is somewhere between a swoosh and square root.
In any case, getting back to 2019 levels of activity / debt adjusted return on equity will be a long hard slog for most.
Apologies if my prose is not sufficiently vague - my actions compensate! :D
P.S. Happy Belated Birthday Paul - might want to wait a bit before hitting Primark (Hold Associated British Foods (LON:ABF))
Hi Paul
Very lucid thoughts from you given that it was your birthday!!
The fact that you are antibody positive is good - hopefully it means you will have lasting immunity (provided the virus doesn't mutate significantly). We've all had the test at work (NHS) with the vast majority being negative...... Does make me wonder whether there has been significant numbers outside of major cities.
Anyway, wonder whether you might have a look at Idox (LON:IDOX) today? Also looks like good results from Best Of The Best (LON:BOTB) - glad I managed to buy in during the drop having had it on my watchlist for ages.
Thanks
Dave
Restrictions may be easing in England, but here in Wales we still remain fully locked down (and I believe the same in Scotland?) No shops have re-opened and travel restricted to 5 miles. Next announcements here will be the 19th of June.
So far the county I live in (Ceredigion) has all but missed the virus. Only 40 odd cases since the start. As the Times once said " The good thing about Ceredigion is it is so far from anywhere. The Bad thing about Ceredigion is it's so far from anywhere"
Just sold most of my holdings, markets are getting to hot. Will monitor and re-enter when I think it is appropriate. In the meantime I will hunt for high quality stocks that are highly cash generative.
Please post a list ;)
I second Philip999
The outbreak in China is a bit perplexing. They think that it has somehow come via imported salmon.
After swabbing and checking multiple surfaces in a local market it seems to have been narrowed down to cutting blocks upon which the salmon was prepared.
Salmon products originating from the market have been tracked and withdrawn from sale wherever possible.
Morning all, my watch list pretty much all went into reverse last week, with bond yields falling, oil and copper falling, VIX roofed it and the $ picked up. A deflationary backdrop - the reverse of the last few weeks.
I take a few trend following services and and interesting observation would be that the although the moves were significant and Thursdays falls, the most since March, they were not enough to break trends.
We are forecast to fall this morning, if these falls rally to somewhat unch by the end of the day, things remain inconclusive technically. As of Fridays close we are hovering around trend lines!
Personally I think a reality check is coming. However when I listen to brighter folk than me, I find the inflation and deflation arguments equally compelling. However both cant be right and the inflation view has much better implications for stocks. As usual QE and money printing sits in the middle of the debate and lets face it, if PHD economists cant agree then what hope have we. This is why I prefer to watch bonds and commodities and let them tell me what the market view is. The down move last week was a deflationary shift.
The spike in VIX doesn't tell you much about the next week or two other than we remain at elevated levels. So prices will ping around a lot. The hedge fund solution to this is to reduce gross - what does this mean? It means, take all positions down, shorts and longs, by a percentage. This makes your portfolio, long or short, less volatile.
My morning smallcap tweet:
SThree (LON:STEM) Metro Bank (LON:MTRO) Croma Security Solutions (LON:CSSG) Integumen (LON:SKIN) Hemogenyx Pharmaceuticals (LON:HEMO) Feedback (LON:FDBK) Mobile Streams (LON:MOS) MobilityOne (LON:MBO) £7DIG Best Of The Best (LON:BOTB) Idox (LON:IDOX), Collagen Solutions (LON:COS), Evgen Pharma (LON:EVG)
SThree (STEM) H1(May) tradng: net fees down 7% and 12% in Q2. Net cash £31m.
Metro Bank (MTRO) may buy the peer-to-peer lender RateSetter.
Croma Security Solutions Group (CSSG) expanded contract worth £5m PA for 1 yr with further 2 yr option.
Integumen (SKIN) £400k loan facility at 5% PA.
Hemogenyx Pharmaceuticals (HEMO) trial using its humanised mice to produce covid antibodies.
Feedback (FDBK) £5.5m placing and OO at 1p, a 9% discount. Needed for marketing and development of Bleepa, the app which allows medical staff to securely view and discuss high quality medical grade images on mobile devices.
Mobile Streams (MOS) wins two contracts for delivery of data insight, intelligence and visualisation services using the Streams platform. No numhers.
MobilityOne (MBO) absurdly tardy FY(Dec) trading. Rev up 35%. Pretax £1.18m (-£1.36m). Gets extension for finals to Sept, and it blames covid.
7digital (7DIG) extension for finals(Dec) to Sept, and it blames covid.
Best Of The Best (BOTB) FY(Apr) rev up 20%, EPS 37.51p up 112%. Recent sales ahead of management's original expectations.
Idox (IDOX) H1 rev up 13%. EPS-cont -0.23p (-0.59p). Guides FY in line.
In line: Collagen Solutions (LON:COS) Evgen Pharma (LON:EVG)
Looks like a reality check on the markets today! There has been reports of a fresh covid outbreak in China.
Been thinking about China. Their summers are extremely hot and humid, for the most part. This tends to drive people back in doors to air cooling systems that are not always the most efficient.
So in a way they have from a behavioural perspective this is almost like a mini winter, where people are to some extent pushed back indoors, whereas having been through a spring period, they would have been enjoying the nice English spring/Summer-like temperatures encouraging people to be outside.
So there may well be a rise in cases out there, as indoor life encourages spread especially with reduced ventilation.
Chinese people however are much disciplined at wearing masks than the British.
I noticed a busy town centre near me in the UK with hardly anyone wearing masks. A queuing system at Boots was a hit and miss affair, with it not being clear and people being asked to come out having not noticed that there was a queue, and the bumping people in queues by people who weren't paying attention. It was a bit chaotic, and I think they need to regularise pedestrian traffic, so that those queuing areas are zoned off from people just drifting by.
Not a great reflection on the Council or some of the shops that they haven't really thought some of the issues through. But I guess we are in a learning curve.
Those floor markings look good in photos when the stores are empty but I imagine they are not so much use when people are walking and standing on them.
I've not been in a shop since the start of March and I'm not going back while this 2 metre business is still in force. Internet shopping and click & collect work fine.
You just have to remember we are a nation where 95% of people think that they are above average drivers.
For all the sensible people who in the "good old days" would stand back from the tube/train door to let people off, would wait their turn at the bar or any other example you would care to chose, there are those who step off the kerb in front of the bus with their ear plugs in and nose in the phone, try to push onto the train whilst people are still trying to get off, or just do not use the basic common sense we assume they have.
We are pushing for a cultural change, ask anyone who has been involved with restructuring a business, changing processes or anything similar this is one of the most written about subjects but one of hardest to do
Welcome back Paul to what just might be an interesting week..The opening of shops will of course be a bit of a bell weather moment..let us all hope people get out and spend , even if it’s a little, it will all make a difference to our high street stores and their nervous staff , who must fear for their futures .You must be so happy to be able to hug and spend time with your mum..?. By the way ,my wife saw your picture of the dinner set you purchased from Portmeirion and ended up buying £180 of products, so thanks for that.