Small Cap Value Report (Mon 20 April 2020) - Covid-19 Update, DFS, AML, PFD

20th Apr '20 by Graham Neary

82 comments 10483 reads

Good morning! Graham here.

Covid-19 update

I've already written lots about this subject. It's the topic right now.

Since I last wrote about it in the SCVR, the most important news stories and things I have noticed are:

The UK lockdown was extended for 3 weeks, to the first week in May. The PM continues his recovery.
We can look forward to a staggered reopening of the European economies. It is likely that schools will open first in most countries, and the hospitality industry will open last. See the most recent proposal by UCL economists.
New cases and deaths with the virus are falling pretty much everywhere, according to official data - see Worldometer.
The capacity of the healthcare system has not been exceeded in the UK, nor in most other countries (but patients with other conditions have not received their scheduled, elective treatments).
Localised studies show high levels of asymptomatic infection and the buildup of antibodies in local populations.
Demonstrations against the lockdown policy have started taking place in the USA, Germany, Israel, and India. The severe economic consequences of lockdown are causing millions of people to go hungry, including in the UK.

After all of this, the FTSE has roared ahead to c. 5800.

I was very bullish around 5000, and I still have a long trade on the index (opened a few months ago), but I'm currently neutral in the short-term.

Even if the policy of near-total lockdown ends soon, I don't believe that we will get the pre-Coronavirus economy back straight away.

For a start, there are likely to be social distancing rules and guidelines for a long time. These could be a major drag on the retail, leisure and hospitality sectors if they limit customer numbers or if they cause some people to deliberately avoid places where crowds may gather or where irritating rules have to be followed.

Secondly, I don't see how the unemployed and furloughed masses will be able to start spending again soon. For those living from paycheck to paycheck, even a 20% pay cut (if they are on the UK government's job retention scheme, for example) is a major blow to their spending power.

A severe financial shock can have long-lasting effects both on an individual, and on the wider economy. We have just witnessed a financial shock like no other.

In the US,…

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LumpedOn

20th Apr '20

As we seem to be having another virus focus day today, here’s an interesting one for the data crunchers amongst us. Please move on if you don’t enjoy data-mining ! But like-minded, data-driven souls may too find this intriguing, and it may help with pass a couple of lockdown hours….

I believe I am right in thinking that the press and TV report “daily COVID-19 deaths”. And there follows much debate about approaching, being at or past the peak, although focus now seems to have moved to a 2nd peak – interesting in itself. All of this informs debate on lockdown duration and restarting the economy.

It is now clarified that the data is hospitals only, and is drawn from NHS statistics in which England numbers dominate the total, and are freely available at https://www.england.nhs.uk/statistics/statistical-work-areas/covid-19-daily-deaths/

But this data is not daily death data – rather it is daily released data showing which deaths have been coded as COVID-19 over preceding days, as far back as the earliest change.

So the data released yesterday shows the total deaths coded / re-coded as COVID-19 spanning back to March 20^th, data released on 18^th April shows coded deaths spanning back to March 14^th etc. A very different statistic to “Daily Deaths”, and nowhere close to being a sexy headline in the media.

This attracted my interest so (as I am bored today) I collated all the daily data available on the links, and arranged it by calendar day, to see how long it takes to form a (mostly) complete daily total – about 14 days in fact – and what this cut of the data shows. My view is that “real” daily deaths for 19^th April will not be known (at least unless the “lag” which keeps being discussed is removed) until about the 3^rd May, and consequently, and by manual totalling, 4^th April is likely the most recent accurate total.

However, as the data appears surprisingly consistent, at least in terms of an 80:20 build of the total, it is possible with a bit of trend analysis and extrapolation to form a view on the likely daily counts, and on the peak. Check it out and see what you conclude. I’m all set to check my assumptions daily now, as each new day’s data is released.

I am not qualified to make public pronouncements or predictions, and am in no way trying to dilute the impact, seriousness etc. of the situation and its impact. But I like accurate facts and data, and do think that the press and TV should be giving the nation a true and balanced view to help us all rationalise things, and ultimately make decisions – exactly as the good folks here on Stockopedia do for companies, and apparently the Swedish do for their citizens.

Apologies to those expecting a bombshell conclusion, but I did say at the start to move on if not data mining inclined! Just as with analysing companies, this kind of exercise helps me better understand the changing narratives and actions, and form my own views as to likely outcomes - and whilst we all agree doing that on companies is futile at the moment I like to keep my brain sharp.

Trident

Interview with adviser to Chief Swedish Epidemiologist (used to be Chief himself but now retired) fwiw

https://www.youtube.com/watch?v=bfN2JWifLCY&feature=emb_title

Late addition:

This video may have been posted earlier by another contributor

Rhodie Jonners

That’s interesting because stock report says 48.49% is free float, which tallies, but the 4 institutional can sell at any time and so can the 20% remaining outside the institutional holders, so sort of 60% is free? I still think with average daily volume of in excess of 100,000 shares per day, there should be enough liquidity for the spread to be far lower than it is. Perhaps they need to have more than 1 broker? Really appreciate your input, it does explain a lot.

ezlifeme

Rhodie you are most welcome - One newish area of the Stocko data set I always refer to when DMOR

raggedtp

Would love to see your chart/sheet!

simoan

Sweden - I understand the science and I trust my government and health authorities. I respect distance from others and realise the importance of protecting those at risk and can continue without a lockdown but alter my behaviours.

USA - I don't understand and distrust the science I trust my president and distrust my local government and health authorities and I don't want to continue with lockdown or change my behaviours. (MAGA crowd.)

Well if you need to set up a straw man and then add in gross generalisations and ridiculous biases... However, this doesn't stand up to scrutiny. Your description of the US in no way relates to California, for instance, a state with a population 4x that of Sweden with world class Universities that blow anything in Sweden clean out the water when it comes to education. Last time I looked California had far less virus deaths than Sweden as well.

But let's not let facts get in the way of a good rant.

Ramesh Vakani

Very good article on AML - Small investors should be careful

Paul has explained in simple English

Jeffvshepherd

This is my current thinking. The markets are still depressed therefore there is plenty of fear. The greedy believe that sooner or later lockdown will have to be lifted to avoid total economic collapse so are buying well capitalised companies that they think can weather the storm.

I think the question to ask is is there enough fear at the moment to be greedy?

timarr

The problem is that you're dealing with proper uncertainty. If, when lockdown is lifted, the economy restarts reasonably smoothly and there's no spike in infections then many (although not all) share prices will recover from here. If, on the other hand, there's a second wave of coronavirus then we're into another lockdown and markets will crater.

The problem is ... nobody knows. Because nobody can know.

But people - and markets (which are just lots of people) - don't handle true uncertainty very well, so they seesaw between fear and greed, take random variation in market movements as meaningful, desperately analyse bits of data - which they mostly don't understand - for enlightenment and listen to people who aren't really experts, but are persuasively confident, for advice.

With hindsight what we should do will have been obvious, but anyone who thinks now that they know for certain what will happen is deluding themselves. The best we can do is take the few things we do know, try to think through the likely impacts and decide how best to hedge our bets.

Oh - and remember - although markets always recover that's not true of all of the companies in them and while cash is a option in uncertain times, if inflation kicks in it's lousy place to keep your money. Ultimately both greed and fear can see you in the poorhouse, although greed will get you there faster if you make the wrong decisions.

Welcome to the madhouse.

andyd

actual spread appears to be more like 10-12.5%, today's trades below

barnetpeter

For posterity may I record that May oil finished at minus 37.63 dollars a barrel. First time negative in history. Will not be the last I guess.

The negative rate reminds me of a story at the bottom of the recent dip. Buy shares in oil tanker and oil storage companies as capacity will run out. Another idea I didn’t follow

TotalGeek

Si...

I was in no way inferring that US citizens are not well educated, hence stating (MAGA crowd) not US citizens or for that matter Californians. It is not bias as I have heard them interviewed and this is their believe although I understand that they also need to get back to earning a living.

Ramridge

Also for posterity, this is a chart I am going to forget any time soon.

2ShedSam

21st Apr '20

How does one get to grips with PPE shortages? Its either there or it isn't. I guess the Mayor of London has the answer. Create even more demand by telling everyone to wear a mask. Every mask and pair of surgical gloves I see wondering around deserted streets is one less mask and pair of gloves for a frontline worker. Wash hands, maintain social distancing and smile! works just as well as masks for most social settings in a lockdown situation. Masks may have a role to play when exiting lockdown but not during lockdown.

I suspect Mr Khan is aware of a tsunami of masks coming on line and wants to take credit for when the Government advises the appropriate use in social settings (probably on Public transport) as part of a coordinated strategy. (Its Political point scoring not leadership or insight)

Is 100k antigen tests a day really helpful to an unlock strategy? I can see the merit for large scale reliable antibody testing but how can you criticise a government when the tests have not yet been developed. I personally would have preferred that all efforts were focused in this area. Instead the baying wolves demanded 100k a day antigen tests so I guess that's what we will get and we can continue to tell people what they already know. Bit like baying wolves demanding the ventilators that were never required.

I wouldn't hold your breath on Nicola! Why does she have to wait a week if she has all the answers? In reality, she will continue to attend the Cobra meetings and at an opportune moment brief the press in advance of a formal announcement. Same way she has done throughout the Covid crisis. (Its Political point scoring not leadership or insight)

I will of course check out your recommended podcast.

mark1308

My thoughts exactly for some time , I really worry what this is going to do to the economy in the long term. Is all this money printing really going to work or can we be heading towards the mother of all recessions ? I add that I am normally a very glass half full sort of person just not over this.

Says 8.52am for me too !

shanklin100

Graham

Thank you for your write up on £PFD. I agree the net debt are BS are complete disaster areas but do think yesterday's RNS mean its wrongly priced.

Cheers, Martin

Brilliant Leader

You are not alone ezlifeme, I too saw people discuss buying tankers/storage plays but completely ignored it, due to multiple rules/biases (don’t invest in O&G, don’t invest outside my circle of competence, don’t invest directly in US holdings). All sensible rules that generally keep me out of trouble but on this occasion, a clear opportunity missed. Hey ho! Hindsight investing is always the easiest.

Cheers
Simon

Sorry, I'm not great at acronyms and had no idea what MAGA stood for. It's very easy to use the US as a whipping boy because they have a cretin for a president and some newsworthy rednecks, aided by Jon Sopel's constant anti-Trump bias on the BBC, but it sadly does not paint a true picture of the country.

The point I was really trying to make is that we shouldn't be listening to experts from Sweden explaining how they've got it right and everyone else is wrong - it's too early and they are just talking their own book. In particular, my understanding is that it is the scientific community making the decisions and not the Swedish government. That's great because at the end when it turns out horribly they can all keep their jobs and fire a few scientists who can just go back to their day job.

California has handled the virus far better than Sweden, where the approach seems little more than scientifically sanctioned euthanasia. If that is how a highly educated civilised society operates, I'm glad I don't bloody live there!

All the best, Si

Small Cap Value Report (Mon 20 April 2020) - Covid-19 update, DFS, AML, PFD

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Graham Neary

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