Small Cap Value Report (Thu 11 Feb 2021) - SUS, GMR, THS, TED, SHOE

10th Feb '21 by Paul Scott

67 comments 12840 reads

Good morning, it's Paul & Jack here with the SCVR for Thursday. Jack has written most of today's report, many thanks for that, which gave me a bit of a break, after a manically busy year so far.

Timing - I (Paul) will be writing more sections this afternoon, so we should have a full report up by about 4pm.

Agenda -

Jack's Section:

S&u (LON:SUS) (Jack holds) - trading update FY 01/2021 from this motor & specialist lender

Gaming Realms (LON:GMR) - Trading update for FY 12/2020

Tharisa (LON:THS) - AGM statement from this S.African miner

Ted Baker (LON:TED) - Incorrectly titled "Notice of Results" - this is actually a Q4 (ending 30 Jan 2021) trading update

Paul's Section:

Shoe Zone (LON:SHOE) (I hold) - Also incorrectly titled, "Date of Final Results" - this is actually a trading & liquidity update

Jack’s Section

S&U (LON:SUS)

Share price: 2,200p

Shares in issue: 12,133,760

Market cap: £267m

(I hold)

S&u (LON:SUS) is a sensibly-run, profitable operation with a good growth track record trading at a modest multiple. There will always be question marks around credit lending but from everything I’ve seen, S&U appears to act in good faith, puts a lot of work into vetting the financial quality of its customers, and seeks to build sustainable relationships.

The company was founded in Birmingham in 1938 and grew steadily before floating on the stock exchange in 1961. In 1992 it expanded its home credit loans business with the acquisition of Wilson Tupholme before founding Advantage Finance in 1999, which has grown to become one of the UK's leading specialist motor finance providers. Home credit loans was sold in 2015 for £82.5m, and then Aspen Bridging was launched in 2017 to provide property bridging finance for individuals and business borrowers.

So today the group has two trading subsidiaries. Advantage Finance offers loans of up to £15,000 for car deals and accesses its market through brokers, direct to dealers and through re-finance from loyal customers. Aspen Bridging lends up to £2m per deal with an average loan of £500,000 to the property refurbishment market.

Lewis Robinson wrote a great blog post on S&U last year (here). It spurred me on to investigate more closely and take up…

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Camtab

11th Feb '21

Re Tesla and Bitcoin, I really enjoyed Bill Blain's piece this morning. https://morningporridge.com/th...

SundayTrader

Checkit (LON:CKT) used to be Bulgin, a well-known electronics distributor. This was sold off a couple of years ago, with most of the proceeds returned to shareholders, and the remainder applied to building up the Checkit business. The "edge" is in food distribution, and similarly safety-conscious operations, where they offer a solution to monitor that specified conditions are being met. I don't hold, but it is an interesting early stage growth stock.

chrisgb

Thanks.

OldSchool05

Yes, i think that is correct re GMR.

Almost all recurring. Assume that the licenses are issued for a period of time and then fee is based on player spend.

All performance based on player spends per game per operator. More successful the game the more license fee will come in.

My feeling is that the Chairman, as a 20% + shareholder, is hoping for an exit as a takeover bid for GMR at a point in the future. These types of business can be valued on a multiple of sales (most successful x 12 - x 20 sales).

Therefore on 2021 sales of approx £13m (forecast) you could be looking at a valuation of £150m to £250m for the right buyer. Vs around £100m now.

If other US licenses come through then it would seem to be ripe for takeover by a US business to me.

Thornabian

I agree and the market is very volatile at the moment but I think at this stage investors need to look beyond the next few weeks. With not much of the high street left, there will be a few stand-out companies for clothing left when people do eventually venture back out into the world.

I think the public mindset is still very much in the "this will never end" phase but when events, office work, weddings, summer parties all resume (a matter of when, not if) and people go out to buy a nice outfit and not something made from cheap Nylon online, they will only have a few places to go.

It was interesting to see the analysis today on the impact of the vaccine on reducing hospitalisations quicker than it is expected given the decreasing rate of cases (32% vs 20% cases drop in the last week). Similar things seen in Israel with their vaccine program:

https://www.ft.com/content/eb3...

https://www.cityam.com/pfizer-...

We might actually see some things open again in March/April.

Hi Timarr

It does feel a lot like the Govt and its advisors like Patrick Vallace (refused to be drawn on vaccine positive results on efficacy today) are now just completely afraid of going on record for any direction, after receiving so much bad press for the failed promises of the past.

However, there are some promising trends in the data that the vaccine is having an effect. It is early days to see a significant difference but hospitalisations in the past week dropped 32% from care homes and 28% in all settings which should roughly correspond with the rate of cases from the week prior but that was only ~20%.

Further to this, over 85s hospitalisations tend to fall much slower than other age groups and cases tend to pass up to them over time, but hospitalisations in over 85s are falling slightly faster:

Israel has shown a -39% drop in hospitalisations for over 60s vs a +15% increase for under 60s between Jan 16 and Feb 6th/

As our statistics follow this trend, it will be hard for the government to continue the lockdown and makes another lockdown less likely.

However, the perception of public opinion is the tail wagging the dog of government at the moment; let's see how long it lasts.

I'm going to ask a rhetorical question but shouldn't the JD ExeCh have known that he needed bonded warehousing on both sides post-Brexit? It was only on the govt transition website for about 6 months. Other companies even built distribution centers in the EU in time (I can think of Thg (LON:THG) being one for sure.

Seems like an odd comment from JD, even Ted Baker (LON:TED) were expecting higher costs if I remember correctly - but that is just going off my memory so don't hold me to that one.

nathantrader

MTI listed LSE I would have thought uk rules apply!

timarr

I'm going to ask a rhetorical question but shouldn't the JD ExeCh have known that he needed bonded warehousing on both sides post-Brexit? It was only on the govt transition website for about 6 months

I think bonded warehouses are different - they're used to avoid actually importing into the country where they're situated, so you can onward import to the real destination. That's needed if you're importing from a third country to the EU via the UK to avoid paying two sets of tariffs but is no help at all if you're just exporting from the UK to the EU.

In fact it was widely reported that the Department for International Trade stated that setting up EU distribution warehouses to overcome export issues was "not official policy". Although every exporter of any size seems to be doing it. Presumably EU importers will do the same here, seems like boom time for warehouse companies.

But I'd agree, I can understand smaller companies not being able to prepare because they couldn't afford the costs, but it seems odd that Jd Sports Fashion (LON:JD.) didn't. Although I don't think Boohoo (LON:BOO) did either, if some of the reports here are correct.

davidjhill

I still hold and wasn't approached. I wouldn't dismiss a raise out of hand but there was commentary at year end trading update that suggested not (that doesn't mean they wouldn't of course but within 2 months feels unlikely)

"With the recent fund raise we have, we believe, ensured we have sufficient cash reserves to see us not only through the current crisis, but to take the company into profitability."

They had £1.9m in the bank and in Dec sold 11,000 of the new units so revenue should have been north of £1m for the month so I would guess at £2.5m going into Jan and maybe more as they had already invested in stock for the home VR that will have unwound. Would have been helpful to give us the cash position though - would help stop the speculation!!

I disagree that the home VR is candy. If they can replicate similar interest in the US this year that would equate to 120,000 units if we assume 6* the population = an £8m revenue opportunity. Not to be sniffed at given their market cap.

The rise in price and timing coincided with the rise in prices in the likes of other covid recovery stocks and a not dissimilar %age so I'd be inclined to put it down to that. I think they are going to be very well placed assuming covid restrictions ease before summer particularly in the US.

sharw

No -

"Which companies are subject to the Takeover Code?

The Takeover Code applies to any public company which has its registered office in the UK, the Channel Islands or the Isle of Man, as well as to some private UK companies. It also applies in part to some companies incorporated in the European Economic Area which are listed in the UK.

The London Stock Exchange has many non-UK companies listed on it which do not have a registered office in the UK,Channel Islands or Isle of Man and are therefore not subject to the Takeover Code. However, such companies often build in provisions within their constitutional arrangements which seek to replicate certain aspects of the Takeover Code and which should therefore be analysed at an early stage".

from https://www.addleshawgoddard.c...

Wimbledonsprinter

I don’t know about the raise but I have held Immotion (LON:IMMO) but when testing their products (eg at the O2) I have not been that impressed. At Christmas I bought the “Lets Explore Oceans” for my 23 year old son ( I know it is aimed at 7 year olds). But he works for a VR development company and he was not impressed. So since then, it has gone onto my very back burner.

Francis - there is also an executive interview on Edison that you can find on Research Tree as well. I haven't watched it yet but is on my list of things to do. I've been in the share since Bulgin and done pretty well. It's on my long term hold list. I bought more at 35p recently as that seemed like a bit of a bargain. I back management as much as anything but like the concept and like the move to recurring revenues. Once it gets scale I can see this attracting a high multiple but until then probably sum of the parts. For me it might take 5+ years to mature as an investment but when it does I think the rewards will be multiples, so my annual compound target return rate remains intact. I'd like to time it but feel fairly certain I'll miss the upswing when it comes so reconciled myself to an almost private equity type hold.

mojomogoz

You could be 100% correct. My spidey sense interpretation of RNS, no figures, price move and past actions of the company is that a raise is in progress and insiders have been approached...100% a guess.

Why communicate differently from before? Last time they laid out numbers as they know important but this time they didn't. I take that to mean that financial position has not improved with Xmas and Jan trading. In addition I feel they have changed the mood music on Uvisan and its a product they are backing again whereas before it was back burner.

On home VR the guy they have working on it reportedly (Ian Hetherington? Might have spelled wrong) is a kosher real player from the game/home entertainment world so if he's really working and not just being paid to be an advisor he has the skill set and the contacts to open a market for them.

All that said, personally I think they should drop the home VR as I believe it will become costly to serve if they are going to do with scale and they have an opportunity to scale and prove out in their out of home VR which is exciting IMO and can create a scalable and stable revenue. I believe the problem with home VR is that it will require quite a lot of further investment and development. What they did end of last year was on the fly and fitted with the times. I bought for my brother and his young kids and they liked it....but its one experience and they want more quickly. That is a long way off at the moment (ie later 2021) and its not really content that they can charge too much for until they have more...

...it leads to more complex promotion and charging dynamics. I feel they would need to take some upfront investment costs to ensure they have a product with, say, 5 experiences at least, at least 2 with the initial product, etc. Can they charge more than £60 for product and 2,3 experiences? How much for each new experience to download? Maybe £10, might be nearer £5...its one and done like a movie, it ain't a game. So they need big partners and decent distribution and not just some Facebook driven curiosity sales....

...so I think they will back burner it and focus on out of home VR.

I'm interested. I'm not getting it though...and path needs clarified IMO

Thanks. Brother's kids quite liked it...but I bought for them and I don't think he would (expensive for what it is etc)

I don't the O2 experience is them at their best. They put a lot of supporting stuff around their bigger experiences like Mandalay Bay that make it quite an experience. I've never been to it (I've been to the Mandalay Bay prior to this attraction and its pools and experiences are great for this) but I saw some detailed plans and it looks the biz

There are certainly some inconsistent messages that come out of the company I agree. Backburner, not back burner etc isn't ideal for investors looking to chart a path so I get that makes people wary. My own view, which could prove wrong of course, is to break the company down into component parts and look at each one on its own merit.

I think Uvisan is "blue sky". I value it as zero but actually being endorsed by HP and the new full room sanitisation in minutes product is extremely interesting in its own right. If I were them I'd divest that by way of inspecie transfer into a new listed vehicle and I would raise money for that - but separately. I think told right and with sales and a decent capital raise investors might well go mad for that at the moment. Sitting in Immotion (LON:IMMO) its got zero value though for me until proven otherwise.

I rate the Out of home VR very highly and agree with you that it is extremely interesting longer term. The Mandalay Bay and this new contract are big money makers (if they are open of course) and once we return to normal I think that business can create a very scalable and high value revenue stream, well north of existing market cap.

The in home VR though is almost a business in its own right as well and it will require investment but actually it does act as a complementary model and there is potential for cross sell. Imagine you enjoy the out of home experience and at the gift shop you can buy the in home VR with different content. Several thousand people a day going through your out of home VR venue experience - 5% of those buy the in home kit : you can generate cross sales of 200,000 units a year before you even start doing online sales. Feels like something the company needs to be doing, particularly given the relative success Oct-Dec this year.

Boon

Yes, the hospital trends themselves lend to exiting lockdown in Apr/May.

But that's ignoring the effort to stop the South African variant spreading in the UK. Also related is still more certain evidence of vaccine efficiency against the SA strain.

That's what is driving ministerial caution at the moment.

I have somewhat the same conclusion having tried their experience at one of their centres in London. Haven't tried the home kit, but saw the vids.

They don't own the hardware so using third party so that's a risk in the fast evolving VR hardware market. Risk of having inferior hardware vs competitors is real. Been on current platform for 2-3 years?

Their USP is content creation. But is there really a moat? For example all Aquariums and Attractions already do cinema type video screening shows. But you don't see one company dominate globally. Because any content production house can make them. As VR content becomes easier to make, does Immotion (LON:IMMO) studio still have an advantage?

They definitely have first mover advantage and less competition now. But looking a few years out I'm not sure.

13th Feb '21

I agree but the most relevant data to the SA variant for the UK is the J&J trial which is a viral vector vaccine like the Oxford vaccine and had similar case efficacy but 85% efficacy against severe symptoms and hospitalisations and 100% efficacy against death.

Pfizer RNA vaccine efficacy was even higher for all three criteria against SA. The amino acid variations were only on the spike protein and not the main body of the pathogen and less than 1% of the total amino acid make-up of the virus.

Small Cap Value Report (Thu 11 Feb 2021) - SUS, GMR, THS, TED, SHOE

Jack’s Section

S&U (LON:SUS)

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Paul Scott

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