Small Cap Value Report (Mon 27 July 2020) - RBG, HEAD, VANL, CPC, KBT, BOO, KNOS

27th Jul '20 by Paul Scott

67 comments 11569 reads

Good morning, it's Paul here with the placeholder for Monday's SCVR, put up so that members can post comments from the 7am RNS.

Please see the header for the company announcements which have caught my eye today.

Estimated timings - the morning went by in a flash, so I'm having another go at adding some more sections after lunch. Looking to finish about 4pm.
Update at 15:54 - today's report is now finished.

Tourism shares (e.g. airlines) are down sharply today, as a resurgence of covid-19 has led to the UK Govt re-imposing a 14-day quarantine on tourists coming back from Spain (apart from Canary & Balearic islands). Sod's Law kicked in for me, as I booked a trip to Malaga for September, so am hoping the quarantine restrictions might be lifted by then. Although for me personally, I've worked from home for the last 18 years, so quarantine at home would be little different to normal life. In any case, who's policing it? The only practical difficulty would be buying groceries.

Gyms - I've seen some alarming stats about the willingness of clients to return to gyms. CNBC reported last week that a massive 59% of gym clients say they do not intend to return, instead intending to cancel gym memberships post-lockdown. That's a staggeringly high figure, which if people do what they say they intend to do (not always the same thing), then it would cripple the sector. The argument is that people have found other ways of exercising during lockdown.

There's an interesting article here about attitudes towards gyms in the UK. Attitudes might change as we go back into colder weather in the autumn/winter, where exercising outdoors becomes even more unpleasant than now. The problem is surely heavy breathing when exercising, which you can often see in strong sunlight projects saliva far & wide, and profuse sweating. All in an enclosed environment. That's surely a deeply unattractive proposition to visit a gym, with a nasty virus still in circulation, and likely to remain so for some time? Hence I'm keeping well away from Gym (LON:GYM) and Pure Gym (LON:PGYM) shares.

Revolution Bars (LON:RBG)

Share price: 18.5p
No. shares: 125.0m (after placing shares admitted today)
Market cap: £23.1m

(I'm long)

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Paul Scott

27th Jul '20

Tell me about it, I've certainly made every mistake in the book. But you recover, and learn from those mistakes (sometimes!)

Laughton

Re Gyms - reported that gym equipment sales have boomed since March so I wonder if many have realised that there is a lot of money to be saved by having your own set up at home? Also a lot of time saved in not having to travel to and from gym.

Obviously can't work for everyone - you need some available space to set things up.

Old ManFit

Quite a few in the WhatsApp lifting group have done just this , the cost of a decent set of weights, squat rack and bench is around £1K + - so I can't see them coming back after spending that much. Shame most of the decent equipment manufacturers are private eg. Rogue, York Barbell etc..

UK_Investor_8888

Gyms were bug ridden airless under ventilated filthy drama-filled torture chambers before the lockdown... I go back to mine tonight to see what's there.

You have to book in, the classes/spin sessions are halved at capacity which means most customers will be disappointed, and the puke/sweat fests like HIITs and BodyCombat for now has disappeared.

A buddy of mine specialising in Online Coaching however says he's seen a surge in client bookings.

Ted Striker

Mate of mine works in a Royal Mail sorting office. For the first three months of lockdown, he says he only moved boxes of wine or gym equipment.

STOKIE

Thanks for the link much appreciated

Zipmanpeter

Re Gym (LON:GYM) - Note sure how we got here today as no RNS etc but...although they are high risk of an open/close/open /cycle over next 6-12 months, long term I am sure they will be back.

My son and his friends still want a Love Island body and will not be spending £1K on equipment. They have neither the capital nor the space. Politically, it also looks as if there may be a sustained push to get everybody fitter - Boris in shorts anyone!. At least some of this will translate to gym visits (which are cheap/visit if you x2/wk = 8+ visits/mnth for say £15-20/mnth. Compare that to a cinema or pub visit for cash-strapped 20&30 year olds!). Same is true for personal trainers /outside boot camps. These work fine outside when the sun is shining, they will be less attractive at a drizzly 5C

What will likely be hit very hard are local authority gyms, often surprisingly expensive and dragged down by expensive attached swimming pools plus other mid- to upmarket gyms. At the other end small, financially weak gyms without good digital systems and advertising may go bust. So medium to long term you can see a case for market polarising and the biggest part going to low-cost chain gyms like Pure Gym and Gym Group with good Marketing budgets. The latter at least has cash to survive (following 41Mn equity raise in April at 150p, 9p over current price).

So my only concern on re £GYM group is that they have been paying premiums to get long leases on sites near transport hubs - hubs that will be much less valuable in the short run with high unemployment and/or lots of working from home and potentially a drap long term. However, on the upside they (and new competitors?) will be able to expand more cheaply - new leases on retail parks will be dirt cheap! But with a national brand and small box formats established & rolling out, I think they are well placed.

I hold, bought more in the crisis and expect to hold for 3 or 4 years so obviously believe in the upside case in the long run.

hayashi22

So presumably he doesn't need to visit the gym!

Hi Chris,

I had a quick look at the numbers for Bilby, but too tired to write it up, and it's tiny mkt cap.

The PER looks very low, based on adjusted EPS.

Regards, Paul.

Howard Gilbert

Agreed on you last comment Paul, although I have done that and survived! ALSO never sign as a guarantor for a family member either. If they default the lender will just come for you not the borrower. Harsh, but one has to protect one's capital for retirement. (I have never done it. I have given money to assist a project but will never act as a guarantor as I have heard too many horror stories. The worst one involved grand-parents losing their own house!!) Great article as always.

It was great Tamzin, I'm now catching up on the others. Thank you for making them available. They are an education!

Snoo

I don't think PureGym are in great shape financially - IIRC their parent had a large bond outstanding. I think they may be vulnerable in future.

I kinda of disagree that local authority gyms are expensive, at least the one under the Better brand. In fact I think Better have done a terrific job. They are a 'charitable social enterprise' so I don't even think they would even come under financial pressure. It could be even the reverse, as if government wanted to get more people fit, it could use the Better network to dish out free vouchers for activities.

For example, the Better gym in Stratford is £36.25 a month. TheGym prices are sneaking up - seen very few at under £19.99 now for London, and the Central London ones are quite pricey now (ie. Angel £31.99).

The Stratford Better gym is £16 a month more expensive but also comes with more modern equipment, discounted pool entry, and a superior range of classes. It isn't 24 hours but I feel this aspect is of little value unless you really need it.

I don't view this as bad value at all, for a user of the pool or spinning/pilates/yoga it's actually better value (you have to pay extra at GYM for those classes).

Been rather disappointed with GYM as a member. Their website basically fell over on the first day. An app which was supposed to show how busy a gym was and allow contactless entry also failed, and still hasn't been fixed. It also doesn't seem to run on the same database as the membership site, so you need a separate membership for it.

They have also seemed to price themselves out of the one-day membership, which doubled in price at my gym.

On this front, I think a centre like Better could have an advantage, especially for the casual user who just wants to pay as you go.

alpha2

Couldn't agree more Paul. The secret of personal guarantees is not to have any assets to back them up. My wife and I opened a small group or restaurants in the 80s and 90s and at one point were in for about 600k of bank debt and a similar amount of annual rents. We decided to sell our flats and put the money into the business to fund another restaurant. About the same time our very friendly bank manager was promoted and replaced by an obnoxious young turk. He insisted on doing a review of the business to include a schedule of our personal assets and liabilities.

The look on his face when we told him that we were renting and had total assets of about £16 was a wonder to behold.

Story has a happy ending as we found a greater fool in a greedy PLC.

Trident

On thing I do agree with is lauding New Zealand for its lockdown (or should that be lockout) seems very premature.

Of course in headline terms it delivers glowing reports in the short term.

Navishtrix

Re observation in RBG comments Many businesses are carrying far more risk than we realised.

Paul, you have often railed against the capitalisation of leased property costs on the Balance Sheet but have recent events made you reconsider your opinion on IFRS 16 as it shows the worst case and if you wish you can adjust the figures to suit your analysis?

Regards

Philip999

Re, 14 day quarantine when returning from Spain... Less people spending on holidays abroad, more people spending within the UK economy? Call me cynical!

ken mitchell

Thanks Paul for your (as always) excellent updates today.

I seem to be in a minority here and elsewhere in strongly agreeing with your views on BOO, and think current price is very good buying opportunity and a good chance of a second bite after that great run up from 35p. I would never have bought then but for your brilliant posts basesd on such detailed knowledge of the sector.

Short term BOO share price might be volatile if ethical investors sell, but I can’t fathom how any fund manager could not have known about how and where clothing retailers source their clothes. And some seem to be disgusted at iffy practices in the UK while turning a blind eye or ignorant about far worse conditions in sweat shop suppliers for many clothes retailers elsewhere like Bangladesh. Have they forgotten about that terrible factory fire there years ago where no fire regulations or ignored. In an ideal world working conditions and in the food sector (slum labour in the Fens) would be much better, but to single out BOO as the only such example seems ludicrous.

GloucesterBob

With regards to Revolution Bars (LON:RBG), an asset manager has just gone from zero to its largest shareholder with nearly 9% last Thursday, so someone far cleverer than me thinks its a good buy

ACounsell

As if to prove the error of my ways I wish I had read this article before baling out of £PAF!!

https://www.youinvest.co.uk/ar...

Caper4

Think you will find that many of us share the same opinion,but tend not to go on about it as much as the naysayers

Small Cap Value Report (Mon 27 July 2020) - RBG, HEAD, VANL, CPC, KBT, BOO, KNOS

Revolution Bars (LON:RBG)

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Paul Scott

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