Small Cap Value Report (Mon 5 Oct 2020) - SAGA, CALL

5th Oct '20 by Paul Scott

62 comments 9215 reads

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

A very unusual RNS list this morning - there's literally nothing in my area to report on, so I had a lie in.

We do have a couple of loose ends from last week;

Saga (LON:SAGA)

(I hold)

A reader queried my comment that the ship loans are "ringfenced". I had that in my head, but went back to check, and think I might have got that wrong. There was a mention of covenants re the ship loans (to finance its 2 new cruise ships, which Saga owns). If there are covenants, then it sounds like the ship loans may not be ring-fenced after all, so my apologies for what looks like an error on my part.

I've emailed the IR contact for Saga, querying the terms of the ship loans, and will pass on any details that they furnish me with, if I get a reply.

Cloudcall (LON:CALL)

91.7p - mkt cap £35.6m

(I hold)

The share price has been creeping up since recent results. I had a quick skim of the interims, and didn't see anything of interest, but since it's a very slow news day today, I'll circle back to it & review the numbers here.

Thanks to harrinr for pointing out, in the comments below, that a US investor has increased its disclosable stake in CALL. There are now several US investors holding notifiable stakes, which augurs well (I hope) for a rising share price, and possibly bidding interest from America. They value growth/tech companies at multiples of what AIM does. CALL has successful operations in the USA (42% of H1 revenues), as well as the UK.

AIM investors may be rather tired of the story, characterised by missed targets & frequent fundraisings in recent years, but new investors coming in fresh probably see it a lot more optimistically. That could be getting rid of the stale bulls keeping the share price down, so all good.

Interim Results

CloudCall (AIM: CALL), a leading cloud-based software business that integrates communications technology into Customer Relationship Management (CRM) platforms, is pleased to announce its unaudited interim results for the six months to 30 June 2020.

RESILIENT FIRST HALF GROWTH DESPITE IMPACT FROM COVID-19

I'm not entirely sure I would call these numbers "resilient". With largely recurring…

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barnetpeter

5th Oct '20

I think old favourite Revolution Bars (LON:RBG) is about as good as you can get in the hospitality sector as a punt at about 10 pence. Valued at below the money raised in the recent rights issue with the core business valued at nothing. So if you are going to take a decent punt here is the one I think. Of course it has every chance of going bust ...but that's the gamble. Someone was willing to pay 200 pence for this company not that long ago so I look at it as option money. Mr Ward can take the hit it seems if it goes to the wall and thinks the chances of recovery are very good. I hold and have bought a few more recently but it really is with punting money and with the understanding that administration is possible.

Another old favourite Newriver Reit (LON:NRR) is beginning to rally from a low of below 0.43p. This reit has a stack of pubs and is selling assets to raise cash. At the lows it was yielding nearly 40 per cent (the dividend has been suspended for now of course) based on previous payments and you wonder what price if a vaccine appears?

Plenty will make a fortune in these markets but you need a lot of hindsight.

QARPY

Over the weekend I watched the Saga (LON:SAGA) investors presentation with the view to find out if, for the current share price, I get an insurance business with two cruise ships on top, for free. I quickly realized that is not the case, with monthly cash burn of 6m-8m in Travel Suspension mode as already pointed out in this blog. That would have been too good to be true.

Anyway, two things jumped at me:

The whole core assumption is that cruises will restart in 2020. We now know they won’t. So their Key Downside scenario is now the de-facto scenario. Good news is that they state the following “headroom available to covenants in all reasonable modelled scenarios post capital raise”. However, I have the feeling that all their numbers are based on a “central scenario” and not on this Downside scenario
I could not find how much is the capital repayments of the two ships. These payments will start in April 2021, whether the two ships will “set sail” or not in April 2021. Do we know what the impact of these payments would be on their balance sheet? Why was this detail omitted (disclaimer: it was a 2 hours long not-so-exciting presentation so I might have missed this detail)

mort1980

Woooo!!! Another contract win for Novacyt worth £460 million ????! More than the market cap of the company???? Add this to the previous two contracts...

completely agree. An RNS is necessary and material for this contract win to attract institutions.

Tortoise investor

Does anyone have any idea why Vertu Motors (LON:VTU) is up significantly today? it's up higher than other motor dealer shares but I can't see any news, tips from Investors Chronicle, or anything promises from the chancellor about anything to do with cars that might explain it! The volume is about double the average so perhaps just a big buyer in the market? Results due on Wednesday. I appreciate there is more positive sentiment around today so maybe that's the only explanation.

PhilHofGrowYourDough

There's this one too for £63m? ... http://bidstats.uk/tenders/202...

Discodave4

R—G

The payments for Spirit of Discovery (extract from their H1 results RNS 22nd Sept 2017):

‘The first and second stage payments for Spirit of Discovery were made in February 2016 and July 2017 respectively. Two similar stage payments will be made during the construction period (18 months, and 12 months prior to delivery) funded via cash resources of the Group. The remaining element of the contract price is due on delivery of the ship, and the Group entered into appropriate financing for this on 21 December 2015.

The financing represents a twelve year fixed-rate sterling loan, backed by an export credit guarantee. The loan value of approximately GBP245m will be repaid in 24 broadly equal instalments, with the first payment six months after delivery. The effective interest rate on the loan (including arrangement and commitment fees) is 4.29%.’

The payments/financing for Spirit of Adventure (extract from their Preliminary Results for the year ended 31st Jan 2018):

‘On the 20 September 2017, the Saga plc Board approved the purchase of the second cruise ship, Spirit of Adventure, with an earlier delivery date of August 2020, and the Group exercised the option in December 2017. The financing for Spirit of Adventure represents a 12 year fixed rate sterling loan at an overall cost of approximately 3.3% per annum fixed, backed by an export credit guarantee. The loan value of approximately £295m will be repaid in 24 broadly equal instalments, with the first payment is due 6 months after delivery. On the date the finance was entered into, the Group purchased Euro currency forwards totalling £211.5m which represents 72% of the cost of the ship.’

Don’t know about the covenants, see if Paul gets a reply.

The Ox 2906

Remember two weeks ago a cruise operator entrepreneur took a 5% stake. He might have some plans for the cruise side of the business.

fundtechinvest

From what I can piece together re Saga (LON:SAGA) the debt re ships look to be broadly as follows .

Spirit of Discovery £245m drawn Jun 19, repayable in 24 instalments of £10.2m commencing Dec 19.

Spirit of Adventure circa £285m (based on numbers in slide Paul showed in Fridays SCVR) repayable in 24 instalments of circa £11.9m. Ship was delivered last week so assume loan now drawn down with 24 payments of £11.9m, originally scheduled to commence in Mar 21.

Debt waiver granted until end Mar 21 - total £32m per recent RNS (so effectively circa £20m re Discovery and £12m re Adventure). These amounts to be amortised over 4 years therefore increasing repayments from 2021 to 2025

Also Saga announced recently they are extending suspension dates on cruises until Feb 21 (Adventure) and Mar 21 (Discovery). They also announced running ships at capped capacity of 800 passengers which represent 80% of available capacity for both ships, together with other Covid friendly measures (https://travel.saga.co.uk/travel-updates/coronavirus-cruise-passengers.aspx). These measures will undoubtedly impact margins.

£SAGA Sorry Discodave4 I have just posted above re debt not realising you had done so. Apologies for that especially as you’ve done a more thorough job than me.

Funderstruck

Patrick. Suggested by the Cockney Rebel last week as a possible recovery due to new board. I believe he has a strong following.

Harry Hindsight

What is the Japanese term for "boiling hot water on frog" - can't see it in my candles notes. Centamin poured hot water on me on Friday, my third mining 'no strike'. Think I'll go ETF's.

Even James Bond could not defeat Dr Covid.

xcity

Fits completely with the text books.
Whether it achieves the desired impact or total disaster depends on a range of factors, many of which involve predicting behaviour. It's about sticking your finger up to check the wind and having good judgement. All the mechanisms available have undesirable side effects.
So far, the US has done well, we've done OK and Europe has done badly (north OK, south dreadful). Can't rely on it always going well, but printing is the only sensible option for now.

thanks Discodave4 and fundtechinvest for taking time to share info re debt. And Peter M to remind me of the cruise operator entrepreneur.

I have to admit Saga (LON:SAGA) is tempting me but I have not made any move yet.

No problem

PerpetualValue123

6th Oct '20

Paul, regarding Saga, I think you have to apply your own NTAV test here.

NAV 31-7-2020: 556 million
Minus Goodwill 718
Minus Intangibles: 57
Plus net equity proceeds 140m

creates NTAV after equity raise of -80 million

with a Adjusted Net Debt (excl. Cruise) of 275 million. But add the debt of the two cruise ships over here and then leverage is huge. Currently real market values of these cruise ships will definitely be lower than the book value (original cost value) of these cruise ships.

I don't see the attractiveness of the investment here.

Paul Scott

7th Oct '20

Hi Martin,

Fair points, well made.

But once the new cruise ships can cruise, then they're valuable assets. I don't see the loans to buy them as structural debt. They're asset funding debt. Covid is not likely to last forever, is it?

This is pivotal to re-rating the shares. I love it that people see the debt as insurmountable. That's likely to change quite soon.

Regards, Paul.

Sorry Susan. Yes, as I said in the article, I do hold CALL. Fair point, I forgot to mention at top of the article. I shall amend it now.

peterg

8th Oct '20

But what will the long term effects of the Covid mass infections on cruise ships have on the market? I wouldn't be surprised to see the cruise market take a long time to recover fully - if ever. It has become pretty bloated, will covid mark the peak? It's not an area I'd want to invest in at present.

Small Cap Value Report (Mon 5 Oct 2020) - SAGA, CALL

Saga (LON:SAGA)

Cloudcall (LON:CALL)

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Paul Scott

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