Small Cap Value Report (Mon 23 Sept 2019) - TCG, OTB, SOS, XLM, BILN, BRY

Monday, Sep 23 2019 by
65

Good morning, it's Paul here.

Many thanks to Graham for covering last week's reports, which gave me the opportunity to grab a relaxing & enjoyable week in the sun, in Malta - highly recommended by the way, if you've not been there before (sunny, friendly people, low crime, food & accommodation much cheaper than Greek islands, mosquitoes not too bad, interesting history/culture, everyone speaks English, and they drive on the left).

Estimated completion time of today's report - I'm starting early today, so should be finished by lunchtime. EDIT at 13:12 - it's taking longer than expected, so I'll carry on writing this afternoon. Revised completion time, 5 pm.  Actual completion time: 23:39 - there we go. Does it actually matter?

Today's report is now finished.



Thomas Cook

Talking of which, the really big story today seems to be that Thomas Cook appears to have gone bust, according to press reports. The BBC is saying it's gone into liquidation (i.e. ceased trading), rather than the more usual administration process (where an insolvent business continues trading for a while, as a buyer is sought for its viable parts).

It's been obvious for several years that the shares were worthless, because the group was very clearly insolvent, with vast, unrepayable debt. However, its day-to-day operations were supposed to have been in the process of being rescued by a bail-out from its major Chinese shareholders.

Press reports this morning are saying that the group has ceased trading with immediate effect, leaving huge numbers of holidaymakers stranded. What a mess. The Government, CAA, etc, are apparently hiring large numbers of charter planes to repatriate massive numbers of stranded holidaymakers. That sounds like a gigantic undertaking, difficult to manage due to its sheer scale.

Here's the 7 am RNS, confirming liquidation.

Let's hope the repatriation process is not too gruelling for its customers. Although I did read an article in the Telegraph yesterday, claiming that Thomas Cook customers in a Tunisian hotel were essentially taken hostage - locked in by security guards, if they refused to pay the hotel directly for holidays they had already paid for through Thomas Cook.

What read-across might there be for other shares? I imagine that TUI AG (LON:TUI) could see positive sentiment, as a major competitor goes bust. Although it depends if any parts of…

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Thomas Cook Group plc is a holiday company. The Company's segments are United Kingdom, Continental Europe, Northern Europe and Airlines Germany. Its hotels and resort brands include Sentido, Sunprime, Sunwing, Sunconnect, Smartline and Casa Cook. It has airline operations in Belgium, Scandinavia and the United Kingdom. It has a fleet of over 90 aircraft under the Thomas Cook Airlines and Condor brands. It operates from approximately 20 source markets in Europe and China. Its Sentido brand has operations in Germany, Austria, Switzerland, Belgium, Hungary, Poland, Netherlands and Czech Republic. Its Smartline brand has operations in Germany, Austria, Switzerland, Belgium, Hungary, Poland, Netherlands and Czech Republic. Its Thomas Cook brand has operations in Germany, Austria, Switzerland, Belgium, Hungary, Poland and Netherlands. Its Sunprime Hotels brand has operations in Germany, Austria and Switzerland. Its Neckermann brand has operations in Germany and Austria, among others. more »

LSE Price
3.45p
Change
 
Mkt Cap (£m)
53.0
P/E (fwd)
0.9
Yield (fwd)
n/a

On the Beach Group plc is a United Kingdom-based online travel agent. The Company operates in two segments: Core and International. The Company's core segment conducts its activity through the United Kingdom Website (UK). The Company's international segment conducts its activity through Swedish Website (eBeach.se). The Company is an online retailer of beach short-haul beach holidays, primarily targeting customers in the United Kingdom under the On the Beach brand. The Company's technology platform enables customers to package the constituent components of their holiday (including flights, hotels and transfers) to build custom-made holidays from a range of flight and hotel combinations. The Company offers customers a range of flight and hotel products bookable through online channels (including by desktop, mobiles, tablets and applications) and over the phone. The Company's subsidiaries include On the Beach Beds Limited and On the Beach Travel Limited. more »

LSE Price
413.8p
Change
-0.3%
Mkt Cap (£m)
544.3
P/E (fwd)
15.8
Yield (fwd)
1.0

Sosandar PLC, formerly Orogen PLC, is a United Kingdom-based company that operates an online women’s wear platform. The Company’s clothing categories include dresses, jackets and coats, knitwear, shirts and blouses, tops, skirts, trousers, jeans, leggings, footwear, leather and suede, occasion wear, work wear, autumn trends, velvet and holiday shop. Its footwear products include Pewter Metallic Chelsea Boot, Red Leather Ankle Boot, Velvet Cylinder Heel Ankle Boot, Black Leather Stud Detail Ankle Boot, Black Suede Closed Toe Mule, Grey Velvet Court Shoe With Jeweled Brooch, Black Suede And Pewter Metallic Court Shoe, Black Leather Front Zip Ankle Boot, Leopard Print Leather Chelsea Boot, Steel Blue Leather Snake Print Ankle Boot And Black Suede Knee Boot. It also offers latest edit of day-to-night dresses, on-trend separates, luxe leather and outfit-topping shoes through its platform. more »

LSE Price
18.5p
Change
 
Mkt Cap (£m)
30.1
P/E (fwd)
n/a
Yield (fwd)
n/a



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40 Comments on this Article show/hide all

ken mitchell 23rd Sep 21 of 40
10

In reply to post #515676

cafcash.

You could well be right that the Sirius mine will get built, BUT very high chance current shareholders will be wiped out. So anyone buying Sirius’s shares now should be prepared to risk total wipe out. There is a chance of a very dilutive equity fund raising, but surely a strategic partner is more likely?

Most likely could be a strategic partner with deep pockets. e.g a sovereign wealth fund (Qatar sovereign wealth fund already an investor).

But that would mean future gains from their project (Sirius ambitious estimate is $30 billion by 2030) will end up in foreign hands, instead of U.K. getting the full benefits. This happens so often with brilliant UK projects.

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rwalford 23rd Sep 22 of 40

Interesting paper by £BUR about their Fair Value Accounting principles on their website. Worth a look.

Edit - I mean Burford Capital - no idea why that has not shown up as it is meant to. 

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jonesj 23rd Sep 23 of 40

1 Mines are outside my circle of competence and there are other sectors I need to learn about first.

2 I perceive a problem with incentives. If a mining company has a very large capex project which may take years, with marginal economics, there might just be a temptation to underestimate the costs to get the initial round of funding away. Then everyone is on the gravy train for a few years and with some luck, the economics for the incremental funding look better when production is nearer. Of course, I could not say if any company does this, but it is difficult to believe there is not an incentive to get the ball rolling in this way.

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Paul Scott 23rd Sep 24 of 40
10

In reply to post #515641

Hi myayield,

Paul - any chance you could comment on French Connection and Staffline.

Disclosure: I hold long positions in both these shares.

French Connection (LON:FCCN) interim results - I was hoping for more of an improvement in H1 trading, but the explanation given (phasing of wholesale orders into H2 this year) is perfectly reasonable. Mgt commentary is very straightforward here, Mr Marks tends to tell it how it is. Good outlook for the full year, and it's a heavily H2-weighted seasonal bias every year. Bulletproof balance sheet remains, and valuation continues to be nonsensical, given that it should be modestly profitable for the full year despite £10m in retail losses. The sale process - at a guess, it sounds like there must be some interest, but possibly not at the sort of price Mr Marks wants to achieve?

I think waiting 6 months could be a nice 100% profit from the current price, so am very happy to hold, and buy more when funds permit. 30p or lower is an absolute steal, in my view.

Staffline (LON:STAF) - profit warning is obviously annoying, but my main reason for holding this share is the high likelihood of a takeover bid from its 29.9% Singapore shareholder, which paid 160p & 180p recently for the bulk of that stake. Hence my money is on a 180p full takeover bid in the not too distant future. The profit warning might help in that regard, by making a 180p bid appear more generous compared with a new, lower, 112p share price post profit warning.

As always, DYOR, this is just my current view, which is subject to change at any time.

Regards, Paul.

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Laughton 23rd Sep 25 of 40
2

In reply to post #515746

rwalford - are you on the "new" site and could this be the reason why Burford Capital (LON:BUR) doesn't show as you expected (I'm sticking to the old version).

Currently ploughing through the 46 pages of Fair Value Accounting "explanation".

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davidjhill 23rd Sep 26 of 40
3

In reply to post #515711

from what I can determine on Sirius Minerals (LON:SXX) the principle lender concern is around certain higher risk capital items. This is broadly the sinking of the mine shaft and certain aspects of the tunnel. Reading between the lines (and I could be wildly inaccurate here) my suspicion is that the JPM facility for $2.5bn was predicated on the bondholders taking the risk on the capital items. ie that the terms of the facility were structured in such a way that they could only be drawn on certain development milestones being achieved, in this case the mine shaft and tunnel. I am therefore a little circumspect that market conditions were the excuse rather than the cause.

However, on the plus side, if that is correct, then some of the broker notes I have seen suggesting that a £500m raise is needed to unlock the full finance package might well be right. I suspect a strategic investor and/or an equity raise might well achieve this as there are a number of very well capitalised and incentivised parties involved.
There is no guarantee of that of course. This failure has damaged management credibility and the government flip flopping between support doesn't help either.

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aston_22 23rd Sep 27 of 40

In reply to post #515646

Yes, I also bought in a couple of months at around 51/53p level and did very nicely selling out at the time of the 80p share buy-back.   The stock was featured in the SCSW newsletter before the buy-back, which helped to accelerate the share price northwards.   

I bought in today for two reasons 1) the fundamentals, cash-backed, good divi at this price level.  2) as a longer term play on the potential of the US betting market.  (The other share racing ahead in this niche is GAN - I don't hold.)  

You're correct to sound caution, as I notice a subsidiary CEO sold his entire share holding of 500K during July/Aug this year.

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Phil Dunphy 23rd Sep 28 of 40
4

Any technical traders here? Be good to get some advice. I have been researching a share and the share price is being suppressed although OBV has increased significantly in the last few weeks and MACD indicator showing upward trajectory after buy crossed the sell couple of weeks ago. The OBV seems disproportionate, I believe the company is a takeover target and don't know if Market Makers are keeping the price down or something else is going on. I normally invest based on business strategy / positioning and P&L - so I normally just look at technical indicators as an added value versus main view. But think this is telling me something interesting. Be good to understand what the above means and if it is just normal.

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wildshot 23rd Sep 29 of 40

In reply to post #515771

The subsidiary CEO you refer to, is that Inbal Levi? She was relieved of her duties and maybe that affected her judgement in selling out???

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ExpectingValue 23rd Sep 30 of 40
12

In reply to post #515776

I would recommend regressing the flimflam against the whippyscotch and only buying once the hopdoodle finally turns a sunward gaze 

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ExpectingValue 23rd Sep 31 of 40

In reply to post #515746

I think you're spot on with mining incentives. There is a lot of institutional drive to underestimate costs and get projects going. 

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doublelutz 23rd Sep 32 of 40
4

In reply to post #515776

Phil - it would be good in future if you gave the name of the company. Clicking on your name and seeing recent posts it may be IGG, If so why do you think market makers are keeping the price down. It has gone up by about a third over the past three or four months. Would the market makers please keep the prices of my shares down in a similar way! In my opinion charts should only be used to support a decision made based on other factors. The chart is now at a resistance point. Will it carry on going up or drift down. Who knows!

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clarea 23rd Sep 33 of 40

In reply to post #515571

Thanks for the write up Paul good to see French Connection (LON:FCCN) ticking up a bit today near the close.

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Paul Scott 24th Sep 34 of 40
1

In reply to post #515846

Hi clarea,

Daily movements on small caps don't mean a thing, especially at the moment, with terrible sentiment & hardly any liquidity.

The prices are set by tiny and occasional trades. Bigger investors cannot buy or sell at the moment, in many small caps, so we're really in a largely false market.

All that matters is our eventual exit price. What happens in between buying & selling, doesn't really matter, the way I look at things.

Regards, Paul.

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Rojo 24th Sep 35 of 40
1

I agree with you that Jump bikes are brilliant.  Also I saw the Sosander ads last week at Kings Cross.  They were very striking and appealing

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kidznet 24th Sep 36 of 40

I saw the Sosander ads at Waterloo tube station last week and I agree - very striking & appealing. They definitely seem to be spending their increased marketing budget well.

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tagware 24th Sep 37 of 40

Paul you should ask them for a touchscreen to help in the RSI. Of course, this will mean no greasy chips etc. But, does help and nowaday the screen cost is small.

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Phil Dunphy 24th Sep 38 of 40

In reply to post #515826

thanks for your response. It’s Staffline, and it’s been on my list for a while as Paul mentioned the 29.9% which I knew before it was posted on here. But I’ve been biding my time as normally suppress the share price further to 1) Buy it cheaply / make the bid price more attractive to get a slam dunk or 2) get in when it’s in distress. Like I said I only look a technical analysis as an add on. Trying to think if there’s something fundamental happening underneath via the volume of trades...

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Phil Dunphy 24th Sep 39 of 40

In reply to post #515811

Thanks for that. I hope you feel all big man now. 

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Nick Ray 24th Sep 40 of 40
2

In reply to post #516061

Paul you should ask them for a touchscreen to help in the RSI. Of course, this will mean no greasy chips etc. But, does help and nowaday the screen cost is small.

I switched to a trackball. Seems much better for the wrist. Don't think I'd go back!

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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