Small Cap Value Report (Mon 9 Nov 2020) - EKF, GYM, WGB, CWD, OTB

9th Nov '20 by Paul Scott

166 comments 16779 reads

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

Mello

This evening Jack will be joining the panel for Mello BASH (Buy, Avoid, Sell, Hold), with 5 new investment opportunities up for discussion. It’s part of the popular virtual Mello Monday event that runs from 6-9 pm and includes a variety of insightful presentations.

If you are interested in attending, Stockopedia subscribers can get 50% discount from their tickets by using the coupon code MMStocko21 at the checkout. You can register here or see the full lineup here.

Pfizer vaccine news

Breaking News - I’ve just heard on the BBC TV that Pfizer has announced positive results from its covid-19 vaccine trial, with c.90% effectiveness in preventing the disease apparently. It is already in production, with a stockpile being built up, to hopefully be released once it finishes testing, and has hopefully got all the necessary regulatory approvals.

Coincidentally, I commented here last week, that I think we’re overdue another rally on shares that have been hit hard by covid. The market is meant to look forwards 6 months, and it seems that we should have made substantial progress against covid in 6 months’ time, with better testing, and vaccines possibly. We’re spoiled for choice in terms of bargain small caps that are priced almost to go bust, yet have strong recovery potential. I reckon a lot of money could be made from buying the right shares around now.

Also look at all the takeover bids happening now. That’s another indicator that there are pockets of value in the UK market. I do think small cap investors generally seem to be far too cautious at the moment, not looking beyond the current situation of temporary lockdown & rising covid cases. There’s a good chance that this thing could be under control quite quickly, which means we’re being offered some terrific bargains by Mr Market. Sorry if it’s unfashionable to sound upbeat, but rightly or wrongly, that’s how I see things right now.

Wow - The Dow futures are up c.1300 points to 29,600, and FTSE 100 up 240 pts to 6140 (around noon). It will be interesting to see if those levels stick, or if we’re just seeing shorters carried out on a stretcher?! Clearly the market is taking this news from Pfizer very positively.

Agenda

Here are today’s most…

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matylda

How did you sneak back in?

Have you not heard that we have left the EU now?

Seriously though, good to see you back posting. I am struggling now to remember why you left us, but I think it was something family related - I hope that all went well?

If all goes well - maybe catch up with you in Chiswick in a year or so.

Rusty2

9th Nov '20

That’s seems odd. Clear on my PC monitor, on the iPad they are a bit small but I can still read the share names even with my dodgy eyesight. Maybe it’s a new site issue?

Chris Brown

I wasn't very happy with my own experience of On The Beach (LON:OTB) either coniston. Due to travel in September, paid £1,350 up front. Jet2 cancelled the flights in July: On The Beach sent us cancellation notice saying they would refund their proportion immediately, but airline may take longer. Well Jet2 sent us £1,250 directly almost immediately, but nothing from OTB so I messaged them a couple of weeks later. Today's update reminded me I still hadn't received my £95 from them, so I sent them a grumpy message this morning and they say it's now finally been refunded today - although £20 deducted. I reckon they would have just kept it, if I hadn't chased again.

Dojosan

£PTRO - I do not hold - looked into this one in some detail before - just saying it as it is 1/ Spread is big so hard to trade 2/ Management have failed to deliver on their expectations now at least 3 times 3/ Obvious that moat is weak given that their shift to ARR has not worked 4/ recent rebound in SP was due to Simon Thompson ramping it 5/ Today's RNS really was a fine display of damage minimization and a lot of excuse making. Coincidental timing of contract award with annoucement of lower rev? mmmmm...

Alas patience turned out to only be a 3 hour wait!

Gromley

{Vaccine}

Yes Herbie,

I picked that up later and I think there was a later figure somewhere around about how much the UK might get in the first tranche.

Numbers aside I thought the UK Gov press conference was much more on message. JVT was precise (and adorably prickly) as ever and even Boris avoided the hyperbole.

The takeaway for me was - encouraging but does not make a difference before spring at the earliest - it was not that difficult so why the Journo question "does this mean we can hug granny at Christmas" - strewth!!

I still feels to me that the markets over-reacted somewhat today (even accepting that the markets are supposed to look 6-9 months ahead).

I constantly fail to read the short-term mood of the market, so my opinion means little, but I am not rueing any stocks that "got away" today - they will either come back to me or they wont.

Not as interesting as WGB, CWD, OTB, SNWS and DTY :)

40% agreement there from me.

But

Lordyjordy

Wow. I read on here a a good few comments about bombed out sectors could be ripe for an upswing. I particularly liked Paul's write up on saga. I actually made a list yesterday that included jet 2 and saga to do a bit of digging. Get home turn my computer and boom! Unbelievable moves today. I avoid all news sources recently as I just can't take the misery so I didn't hear the vaccine news.

Question is what now. As gromley says above some of this seems to be an overreaction in my view.
I found this on line
https://www.sciencemediacentre.org/expert-reaction-to-pfizer-and-biontech-reporting-interim-results-from-phase-3-covid-19-vaccine-trial/

The main points seem to be
the large majority of us even rolling into next summer won't be vaccinated. So lockdowns, WFH extended well into next year.

There are still large question marks over it's effectiveness on the older age groups.

Will general populations be willing en masse to actually take the vaccine.

This vaccine requires very cold storage (-70c) which apparently many uk health centres don't currently have a facility to do on this scale. (Possible picks and shovel investment here?)

Length of protection unknown.

2 doses are needed. 1st one the another 2 weeks later and immunity a week later - so a month here.

This is hot off the press, so early safety evaluations are due the end of this month and long term evaluations take 2 years. Obvious issues could arise here.

On the whole I personally think this is very encouraging and my guess is this is a turning point in the whole saga. Apparently if this vaccine works others have a high chance too and may be easier to make/transport. The question is what does this mean for share prices and the economy. Paul Are you still looking at saga today thinking its cheap. It seems to me a lot of these companies are going to have to go through an extended period reporting negative numbers for a good few quarters yet. With the expected market gyrations following vaccination news flow. What happens if negative side effects are found etc.

I do think some uk shares look good value at the moment e.g. compass group, jet2, Saga if you look long term.

Would like to know other readers thoughts and look forward to Paul and jacks scvr tomorrow.

hayashi22

Who would have thought that Boohoo (LON:BOO) is now seen as a covid play. Lots of crazy moves today..mostly on AIM.
Wonder if price moves were in part triggered by inability to trade on various sites. AJ BELL a complete disaster once the vaccine news broke. Amateurish.

sharw

Yes, welcome back - and here is a reminder for Gromley:

https://www.stockopedia.com/content/i-read-the-news-today-oh-boy-8-nov-2019-527471/

davidallen77

got on Halifax about 4pm poor wide spreads too

viday

10th Nov '20

Viday

A most interesting presentation. more deep dive tech themes please

TheArb

Mark, there is an arbitrage in CDM as it is a stock and cash offer. The terms are 120p cash plus .02834 Take Two shares for every Codemaster. Therefore you can theoretically buy CDM and simultaneously short sell 0.2834 Take Two shares. Using an exchange rate of £=$1.32, an example would be to sell .02834 Take Two at $165 , that would be $4.676 received, converted to £ = £3.57 plus £1.20p = £4.77. If you can buy CDM in the market below £4.77 you lock in a profit and benefit from an improvement in the offer or a counterbid. You close the position by delivering the Take Two you receive against your short position. The risk is the deal falls apart and you have to sell your CDM lower and buy back your Take Two in the market.

I see Take Two shares were down nearly 9% yesterday, so this offer is even worse than the original price. I’m waiting for a better offer,

peterg

smatthews1

After digesting some of the recent news regarding the vaccine, it looks inevitable that there will be a priority order for the treatment. This is some basic information from gov website:

This interim ranking of priorities is a combination of clinical risk stratification and an age-based approach, which should optimise both targeting and deliverability. A provisional ranking of prioritisation for persons at-risk is set out below:

older adults’ resident in a care home and care home workers¹
all those 80 years of age and over and health and social care workers¹
all those 75 years of age and over
all those 70 years of age and over
all those 65 years of age and over
high-risk adults under 65 years of age
moderate-risk adults under 65 years of age
all those 60 years of age and over
all those 55 years of age and over
all those 50 years of age and over
rest of the population (priority to be determined)²

Therefore this vaccine could be double catalyst for Saga (LON:SAGA) as I imagine majority of their travelling customers will be fall under some of the first priority groups to be vaccinated. Obviously this is will take a lot of time to work through the system, but it looks like their share price could re-rate quicker than some sectors i.e. nightclubs.

Paul Scott

12th Nov '20

Yes, I think SAGA could be a 5-bagger from here, once its travel division & owned cruise ships are operating again in 2021, and the rest of the business benefits from new mgt back to basics approach. This is a tarnished, but incredibly valuable brand. The insurance division is highly profitable.

Debt is fine - the c.£550m cruise ship debt costs 4.3% pa and has covenant waivers until June 2021, I cannot see any reason why that wouldn't be extended. Ships should generate £40m EBITDA pa each, there are 2.

Recent fundraising paid off most of the bank debt. Plenty of liquidity.

What's left? a £250m bond, which is cheap, and not repayable for several years. SAGA reckon they can pay it off from cashflows.

I see SAGA worth 500p+ based on likely earnings in future, once travel resumes.

The founder's son paid 405p in new money for most of his recent investment.

It's a steal, in my view. DYOR obviously, as always.

Best wishes, Paul.

Just to be crystal clear, I talked about people TRADING, not investing.

Personally I never use stops on my investments, just on occasional (usually terrible!) trades :-)

Boon

28th Dec '20

The question is - are cruises still risky economically for Saga, if they can't vaccinate their staff?

Presume even if all their passengers are vaccinated, but crew aren't. If there is an outbreak, then the cruise is cancelled - as staff will have to isolate, who will serve the passengers! That would be refunds all round.

Plus even if all passengers were vaccinated, as long as staff have the virus, because the vaccine is only 95% effective, then 5% of passengers would still be at risk of catching COVID

I'm sure cruise liners, can arrange for staff to be vaccinated, if they have not been already.

If the passengers have been vaccinated, then the virus will be about as deadly as flu?

One issue could be visiting ports if there are cases on board. Many countries will not have had the vaccine until later than the UK or some other western countries.

ken mitchell

Why can’t the crew be vaccinated?

One big plus for Saga compared with the likes of Carnival (that bb posters sometimes ignore) is that Saga also have their insurance business and where they led the way with innovative and successful (so far) 3 year fixed price policies, and a big general travel business. So it is not dependent just on their 2 new state of the art cruise ships. But demand for those, with forward bookings is large, and during 2021 the survivors in the Travel and Hospitality sectors should be envisaging a much brighter future.

The share prices have to some extent anticipated that recovery and hence some have rocketed already, but arguably Saga has lagged so far. Potential for a significant relating?

Small Cap Value Report (Mon 9 Nov 2020) - EKF, GYM, WGB, CWD, OTB

Mello

Pfizer vaccine news

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Paul Scott

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