Small Cap Value Report (Mon 23 Nov 2020) - AA., CINE, CER, CDM

23rd Nov '20 by Paul Scott

74 comments 11756 reads

Good morning, it's Paul & Jack here with the SCVR for Monday.

Timing - there's a fair bit to cover today, so we might over-run the 1pm official finish time. I'll make a note here once we're done, as usual. Today's report is now finished.

Agenda -

Aa (LON:AA.) Update on Possible Offer (Paul, done)
Cineworld (LON:CINE) Significant additional liquidity secured (Paul, done)
Codemasters Group (LON:CDM) Interim results (Paul, done)
Cake Box HY results
McBride AGM Trading Update (see tomorrow's report)
Carr’s Final Results (see tomorrow's report)
Cerillion Final Results (Jack, done)

This part written by Paul

Aa (LON:AA.)

Share price: 31.5p (down 6%, at 08:12)
No. shares: 622.8m
Market cap: £196.2m

Update on possible offer

It looks as if things have moved forwards in a positive way for shareholders (anything above 0p is a good outcome, in my view);

The Board of Directors of AA (the "Board") notes the recent press speculation and confirms that it has received a non-binding proposal from TowerBrook Capital Partners (U.K.) LLP and Warburg Pincus International LLC (together the "Consortium") regarding a possible cash offer of 35 pence per AA share for the entire issued, and to be issued, ordinary share capital of the Company (the "Proposal").

On 27 October 2020, AA announced that commercial discussions and due diligence were progressing with the Consortium. The Company confirms that these commercial discussions have advanced and that following a period of due diligence have led to the Consortium submitting the Proposal.

The bidders intend to inject more equity, and help refinance the huge debt mountain.

AA’s Board says it has considered all options, and would be willing to recommend this 35p bid

My opinion - this is a lucky outcome for AA shareholders, who were in such a weak position vs debt holders, that a wipeout for equity was a considerable risk.

Is a higher competing offer likely? It’s always possible, but the greater risk is that the bidders might pull out, and that could easily end up with equity worth little to nothing.

Therefore, in my view, the logical thing to do is to accept the 35p offer, if it becomes formal. Actually, if it were me, I would sell in the market now, just in case the bid falls…

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dustyie

23rd Nov '20

As a codemaster Codemasters Group (LON:CDM) shareholder myself , I'm very disappointed with the management , one has only to look at other companies in this sector and see there growth numbers for example Corsair gaming £crsr who makes gaming accessories who recently beat estimates. see link below
This sector is forecast to grow at 13% annually for next 7 years, see second link below
https://ir.corsair.com/news-releases/news-release-details/corsair-gaming-reports-third-quarter-2020-financial-results
https://www.grandviewresearch.com/industry-analysis/video-game-market

Martin VT

Re £Boo, In my work I have been involved in moral panics (eg mental health or learning disabilities scandal in a hospital or care setting). One quickly learns that whatever the organisation that is trying to do to address the concerns, it doesn’t matter, they have to continue to adopt regret, humble apologies, action ‘we are taking/have taken’, ad nauseum. And then one day it stops. The ‘concerned’ people have had enough, the issue is too old, whatever, it just falls away.

So my only concern is not what the media say, but rather what £Boo demonstrates as their actions to put these issues to bed....and as you say to also continue to deliver excellent growth! I look forward to their next results.

Chrisp

Excellent work Paul on Codemasters. I have ben a shareholder for some time and of course they've done really well as have a lot of gaming companies but I just don't understand accepting a bid at this level. Bid looks very opportunistic to me and I don't want shares in TTWO.

FREng

Paul

You commented positively on Carr's (LON:CARR) 's trading update on July 15th. Today's results look better than the consensus estimates in Stockopedia for Revenue and Profit but not for EPS, which I don't understand as the share count hasn't changed. What am I missing?

Braemar Shipping Services (LON:BMS) seems to be very illiquid. Maybe that's holding it back.

thirty fifty twenty

Braemar Shipping Services (LON:BMS) certainly this morning it was a very tight market. but over the past few months i've found it ok to deal most (but not all) days i tired. for me, i am value investor and see the opportunity to buy steadily and wait for the mgt restructuring efforts to be complete and then (hopefully) be recognised by the market over a couple of years

Dojosan

In respect of - News announcement @ 22/11/20 https://www.itv.com/news/2020-11-21/chancellor-rishi-sunak-to-announce-500-million-package-to-support-mental-health-services

Perhaps a beneficiary would be Kooth (LON:KOO) . I hold.

Recently ipo-ed. An excellent write up can be found on https://martinflitton1.wixsite.com/privatepunter/post/kooth-plc-09-09-20

Strong list of inst. Investors (includes a PE firm).

BULL POINTS:

- online therapy is probably the way forward with counselling (faster turnaround, convenient access vs commuting etc)

- mental health awareness and its importance is increasingly growing in 2020

- government pumping in £500 million into mental health package. Likely beneficiary is Kooth (LON:KOO) (Per AIM admission doc : The Directors of the Company believe there is potential to replicate Kooth’s success to date in providing services to children and young adults into the NHS adult market. The NHS spends around £11 billion annually on adult mental health services and the Company has identified a potential £300 million addressable market for Kooth Adult. The product was launched in Q4 2018 and is gaining traction. As at 30 June 2020, Kooth Adult had 10 customers contributing £500,000 annual recurring revenue to the Group )

- Kooth are targeting corporate market as well (reduce sickies, increase productivity). Per AIM Admission doc - A research report by Deloitte published in January 2020 estimated that mental health-related issues cost UK businesses up to £45 billion annually and that every £1 spent by employers to tackle mental health related issues results in a £5 return on investment. The Directors believe there is a £150 million addressable market in the UK. Kooth Work was launched in Q2 2019 and as at 30 June 2020 was delivering £260,000 annual recurring revenue from its eight customers. )

- Opps to license our software to overseas healthcare providers + earn license fees. Co. Is beginning to explore them.

- Rev for H1 FY 2020 (YE 31^st Dec) vs H1 2019 – YoY circa 50% growth.

- Net cash of circa £8mn (after listing and paying off the oan of £5.3mn @ 30/6/20 + is from the PE firm that is a shareholder. That should give a few years runway.

- Rev is recurring

BEAR POINTS

- Spread is 400bps

- still loss-making (strong rev growth though).

- stock liquidity may be low – given 85% is owned by insti. Investors

- receivables high - £1.4mn 2019 – mainly NHS – so not much of an issue

- Intangible NA are high – due to mainly software dev.

AIM Admission doc - https://investors.kooth.com/wp-content/uploads/2020/09/x_174048-Project-Peace-Admission-as-printed.pdf

BTW - Lord Lee and the Naked Trader are shareholders.

Key Driver – Additional spending of £500mn by gov + willingness to outsource NHS non-core services to 3^rd parties likely will benefit £KOO. Usual caveats – dyor

mevans6890

We do not know whether the directors have been offered roles with the purchaser or whether it is just the opportunity to cash out that makes it so attractive to them

Regardless it seems v clear they are not working for shareholders

Even more absurd, on the face of it, than them accepting this offer it would make no sense if shareholders vote this giveaway through.

Equally given the performance of the business surely there must be a counter bid - even wholly cash at say 550 p would be vastly superior

This is all so odd that maybe there are things we don’t know - I’m afraid I always think of Patisserie Valerie, as well as a few others!!

Laughton

re Codemasters Group (LON:CDM) :-

"Frank Sagnier, Chief Executive Officer of Codemasters, and Rashid Varachia, Chief Financial Officer of Codemasters, along with the senior executive management team of Codemasters intend to remain with Codemasters following completion of the Acquisition and will continue to lead the Codemasters business within Take-Two's organisation and its 2K label"

I wonder if they've already negotiated their remuneration packages?

Susan123

This is a shout out for those questioning the Boohoo (LON:BOO) drop....note this comment does not point to cause of the drop it's just a bit of intel on market sentiment for anyone interested.

According to the FCA's daily shorts list (23/11/20) we can see that 1.75% of the share cap is shorted at present.

Interestingly, Shadowfall are not there.....so perhaps they have moved on to other pickings......

fred9566

Hi Paul thanks for the reply -on the face of it you are correct but Thruvision has only been in its current form since November 2017 and prior to that it was a division of Digital barriers . It now focuses on loss prevention and border control markets .Sales have increased from £2.024 miilion in 2017 , £3.103 million in 2018 , £6.0 million in 2019 and £8million in the year to March 2020 . Without the effect of covid on aviation this projection would have continued - as well as the cash there is a good gross margin 48 %. Like you I would not normally look at something like this but I believe this could be a very interesting proposition as the effects and changes from covid roll out over the next 12 months . As you often say we are trying to look forward at least 6 months when looking at a share

Thanks for the reply

john652

Re Codemasters Group (LON:CDM) sure they have already agreed the current options packages will vest and pay and and then they get a load more, excellent for managers, stick up for shareholders, this type of takeover situation is not uncommon, third time for me. They will be staying on, as confirmed in earlier RNS.

Mark Penney

don't they have a responsibility to act in the interest of all of their shareholders?

Gromley

AFAIK Shadowfall never had a declarable short on Boohoo (LON:BOO) - Matt Earl is not that big league.

Aislabie

The problem that always arises in these situations is that if the dissenting shareholders win and keep the company independent who is going to enthusiastically run it? The management who have just been denied a large chunk of money and continued employment (if they want it)?
I am a holder and agree that the bid is too low, but while a higher bid would be better, a lack of a bid could be a serious problem. I am reminded of the great success the shareholders did (NOT!) have when Revolution Bars management recommendation of a takeover was voted down.

Tks Gromley – BTW I read and enjoyed your beginner guide to balance sheets post at the wkd:

So edit on the above:

There may well be more than 1.75% of the Boohoo (LON:BOO) issued share capital being shorted..but in terms of what is disclosable to the market this is what we know.

FCA Rules

A private share notification must be made when the net short position in shares reaches 0.1% of the issued share capital of the company concerned, and again at each 0.1% increment after that.

This relates to both increases and decreases of the position (including each time the position drops from 0.1% or above to below 0.1%).

A public share notification must be made when the net short positions of shares reach 0.5% of the issued share capital of the company concerned, and again at each 0.1% increment after that.

gari en desti

Hi Patrick. I hold £Saga, but wouldn't be surprised if the insurance take did continue to decrease.

I presume a large % of their target market is still not that tech savvy and so might just accept the renewal. Look at the outrage, mainly from this age group, at NS&I because they wont send out premium bond any more and it’s all online.

My mother is in this age group and I am helping with her become more tech savvy.

I also help her with quotes for travel, car and house insurance.

I have been shocked at the sky-high quotes I have got from Saga, in some cases 4x the price of other insurers quote.

Maybe Sage are happy to have such a massive profit margin for the clients who can’t be bothered or aren’t tech savvy to look elsewhere. But as more do become used to getting quotes on the net, Saga may find their insurance take dwindling, unless they stop ripping their customers off.

timarr

Me too, although only a taster stake. Fascinating company - it's a technology platform really:

Our technology is separated into three parts – the service for users, community/clinical engagement and insights and intelligence. We use co-production to build out our welcoming user friendly platforms. Our service users are provided with a range of different therapies and tools that they can use to set goals and receive support.

Our patient administration system has been designed and built with counsellors to ensure it meets the needs of therapeutic intervention and our insights and data technology is built in conjunction with our clients and research and evaluation team.

https://www.koothplc.com/about...

I'm really keen on tele-medicine providers, looks like an obvious area of growth, albeit one that's been impacted by the focus on CV-19 this year.

Berksbee

Useful 352 - I bought LON:BMS just after the recent results - liked what I saw and your analysis only adds to my view. Also, like you, I found it easy enough to buy - but maybe because it was a down day.

abtan

Thruvision (LON:THRU)

Fred/Sunday Trader

Thanks for sharing your thoughts on this company.

I didn't realise until now, but it's actually on my main watchlist (with no private notes sadly) so your comments prompted me to look further (again?)

It looks quite good actually - growing fast and not burning cash - and at least worthy of more research, so thank you.

Cheers

Small Cap Value Report (Mon 23 Nov 2020) - AA., CINE, CER, CDM

This part written by Paul

Aa (LON:AA.)

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Paul Scott

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