Small Cap Value Report (Mon 4 May 2020) - HOTC, ZOO, NBI, SAG, PDG

4th May '20 by Paul Scott

87 comments 10628 reads

Good morning, it's Paul here with Monday's SCVR.

Today's report is now finished.

I'm writing this just past midnight on Sunday evening/Monday morning, because my sleep cycle has gone haywire again, and I know readers like having something to get stuck into first thing. Plus there's been so much interesting press coverage over the weekend, that it's good to comment on it before the deluge of morning RNSs start.

Berkshire Hathaway AGM

This was held on Saturday, as a virtual meeting, rather than physical, due to lockdown. Warren Buffett looking very old now, he's 90 in August. Charlie Munger didn't want to travel to the meeting, which is understandable given the Covid risk at his age.

I've not watched the full report yet, just some summaries online. The key points seem to be;

Sold airline stakes, in 4 largest US airlines - saying it was a mistake to have bought them, and the aviation industry has changed due to Covid-19
Berkshire now has lots of cash, but can't find a good home for it - clearly suggesting they find equities over-priced now
America is unstoppable long term - usual message

I watch CNBC in the afternoons quite a lot at the moment, to keep informed of various peoples' views (there are some excellent commentators & interviewees on it). I like to spread my net wide and absorb lots of views & information, to then process myself. For some weeks, they have been querying where is Warren? He usually talks up US stocks in a crisis, but was strangely quiet this time. That did make me wonder if he was selling things before speaking out? Therefore this news about ditching his airline stakes is not entirely unexpected.

This has triggered a drop in the futures, which were about 35 points down for the Dow before Buffett spoke, and are now (Sunday night) down over 300. In this not at all alarmist article CNN is predicting a Monday morning market crash - or "Monday Massacre". CNN deserves praise for its excellent pun re airline stocks;

So, expect a little buffeting on Monday’s flight.

Phased lifting of restrictions

The weekend press is full of articles about the beginning of lockdown rules being eased in various countries, and of course what might happen next in the UK. Our Government seems to be trying to ride 2 horses at the same…

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timarr

4th May '20

I'm expecting loads of pop-up parties/raves to make a comeback with breakout sex areas....no way is social distancing standing in the way of partying much longer...

I think we should turn all the disused retail space into party venues and mixed sex dormitories and mandate that everyone under 25 is locked down in them for 3 months. Supply them with booze, condoms and pizzas and stand well back.

By the end of that the entire youth population will be immune and in the meantime we can all get back to work.

mojomogoz

Hydrus, I'm not expert in either stock. You are correct that their balance sheets are pretty bullet proof. TBH I missed the marketable securities.

But multiples and expectations are high and not many things keep moonshoting. IMO their multiples will come down and they will have less good time.

One of my current speculations (ie small and for fun) is long Russell 2000 and short FANG. I think there's not much more places for FANG share prices to go unless the others catch up.

Sounds like a business plan...

WhaleHQ

Re: £drt

I can't comment on price but I was thinking if european goverments demand a period of isolation upon entry what's stopping resorts from tailoring themselves to quarantine customers exclusively? Perhaps with each one assigned tourists from a certain country. I'll caveat this by saying it possibly wouldn't be for me, as site-seeing will go out the window, but if you're ok with that then there is little reason to leave the resort anyway as pools, activities, beach and restaurants can all be offered. Many people don't leave them anyway.

Yes it might be challenging to staff safely and a tough sell to local communities (who would likely benefit less from the influx than they would if their local was a standard non-quarantine resort )but combing this with rigourous testing surely could be a pathway out of this for tui & dart specifically.

I think he's been selling in batches for at least a month. I remember his holdings dropping below 10% around 3-4 weeks ago. In fairness if you watched the Q&A with him he seemed shocked he could sell so easily which tells you all you need to know about what he thinks the near term future holds for air.

Snoo

Think logistics-wise too difficult.

Personally I think there may have to be some real consolidation. I think Dart would be an interesting acquisition for Ryanair for instance. They would increase their pricing power at the regional airports as well as getting dominance of Leeds/Bradford. With Jet2 having predominantly the same aircraft as Ryanair (737-800) there also seems quite a lot of flexibility with regards to crewing.

I also think there would be a large amount of synergies to be had with the holidays side, as far as I can tell Ryanair have not made much effort on that side to date. The purchase price would not be onerous for Ryanair, and if I were a shareholder I think that would make more sense than dividends.

I do think there will be some more short-term pain for airlines. Some of the new (potential) measures seem over-reactionary. I do believe that while the virus may change certain things (for example, health checks at airports), in a few years time there will be little difference to how we take our holidays.

Aswainp6

The renewables seem to all be restating their commitment to pay dividends: fsfl, trig, nesf, bsif - generous dividends and have held up well in recent market fall. Some price pressures due to reduced energy demand but long term demand for renewables should hold up well.

Camtab

"This got me thinking that companies with sustainable divis are likely to be in much greater demand from investors who need income for retirement." I have increased my Record holding on just this basis Paul. Seems to me rock steady balance sheet and 7% dividend plus shares owned by managers is a good mix right now.

laurie

Please excuse the questionable source, but the current thinking seems to be that it is not possible to catch this virus twice.

https://metro.co.uk/2020/04/30/coronavirus-patients-cant-relapse-recovered-12635192/

Samsgrandad

Jarvis Securities (LON:JIM) a definite hold for me. A core holding since the shares were about 50p apart from a spell when I thought I was Warren Buffet and could do better elsewhere. Maybe worth revisiting your aversion to financials Paul when you miss out on a picks and shovels company like JIM making money whichever way the market goes.

Berksbee

LON:FIF I've also bought FIF recently - it's my largest holding in my "I'm a genius/blame Stockopedia" (GenBlast*) portfolio and was bought on the back of its QV score. Although I am under water right now I think my investment will prove to be safe. As you say - their main business is still trading and I would expect the food service element loss will be largely compensated by additional Retail sales. I for one am not eating less cake!! * Happy to share this with others if anyone wishes.

Caper4

Am amazed that sanitisers are not used in the U.K. already on entering shops/supermarkets etc. In South Africa ,this has been the policy for 5 weeks,and seems to be very effective. No one is allowed into the premises without their hands being sanitised,and also now everyone has to wear a face mask.

Gromley

I think we should turn all the disused retail space into party venues and mixed sex dormitories and mandate that everyone under 25 is locked down in them for 3 months. Supply them with booze, condoms and pizzas and stand well back.
By the end of that the entire youth population will be immune and in the meantime we can all get back to work.

Funnily enough I reached much the same conclusions (but wasn't brave enough to post it) when I reviewed the available ONS data last week. 4 out of 57 deaths (7%) for the week ending 17th April for the 15-24 age group were attributed to Covid, although there was not an obvious increase in total deaths for this age group (the numbers are too small to be statistically significant, but perhaps the covid deaths were offset by lives saved by not letting them out to do crazy dangerous things - thats not being a reactionary old fogey, but rather a recollection of the number of "near misses" I was involved in or witnessed!)

Trouble is how would you 'sell' such a strategy - browsing the papers today one of them (I'm guessing it was probably the Daily Mail, was warning of "social unrest" if the Government demanded the over 70s stayed home but set everyone free.

The police just do not have the resources to manage a mass demonstration from the pensioners lobby. What do we want? - Ooh a nice cup of tea and a sit down. - When do we want it? - ZZZZ!

No offence intended.!!!

Being more serious for a moment I do think that the unlock should include a good degree of demographic risk profiling, but getting the politics of that right is much much harder than getting the science right (and that is certainly not easy). The Government has today been attacked by all sides for their unlock plan - despite the fact that they haven't even told us what it is yet!

From an investment perspective : one needs to look at sector risk and opportunity - personally my views on this has shifted somewhat over the last few days and I think I need to sit in a darkened room to collect my thoughts.

Laughton

But look at the other categories of people at or near the top of the "at risk" league. Strange that none of the powers that be seem brave enough to suggest that these people might have to be locked down for an extended period.

I can't believe the government thinks that it can get away with segregating - expect serious civil disobedience and class legal action if they try.

The more I hear and read about the measures they are considering, the more I think they've completely lost the plot.

Disclosure - I'm not over 70.

Well yes, but the problem is that are objecting vociferously to the Government's proposals - but at this stage they have not actually proposed anything. Whilst they continue to tell us the are guided by the science ; which might suggest some degree of demographic segregation, there is no way that I can see that a Conservative government will actively aggravate the over 70s.

Whilst I am by nature a cynic, I do actually think that the plan for unlock will mostly be influenced by what is best for society as a whole. I might be over-optimistic in that, but I'm prepared to wait to see the proposals before I comment on them.

bryans1311

Whole-heartedly agree with your chocolate tastes! Lidl fin carre tastes great, and doesn’t contain any palm oil. I did treat myself to a bargain £1.99 Green & Blacks milk chocolate Easter egg at the weekend though!

greenhat2

what about Stuart lawley selling his c9% share of the company on Friday

he was an insider. Doesn’t bode well imo.

I’ll be next door selling fake ID’s to the over 25’s!

5th May '20

they have not suggested segregating the over 70’s. Just damn fake news. What they may decide is that the over 70’s with pre existing conditions,should continue to self isolate. Sensible really

The problem Gromley is that they seem to be led as much by public opinion as "the science" therefore if not enough people comment negatively about rumoured proposals then they are likely to take that as approval and go ahead.

Small Cap Value Report (Mon 4 May 2020) - HOTC, ZOO, NBI, SAG, PDG

Berkshire Hathaway AGM

Phased lifting of restrictions

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Paul Scott

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