Small Cap Value Report (Thu 11 Feb 2021) - SUS, GMR, THS, TED, SHOE
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 a starter position as the management sounds canny and prudent. And why wouldn’t they be? The Coombs family makes up quite a lot of the Major Shareholders list.
The bottom line is S&U has steadily grown earnings per share over many years, with no shareholder dilution in the past six years. While 2021 will likely bring an end to this EPS growth run, the longer term direction of travel looks to be positive.
It fares well across the StockRanks and is classified as a Super Stock, so it looks like the algorithms are telling us something as well.
This is a trading update for the period from 9 December 2020 to the group's year end on 31 January 2021.
It’s mostly text, so here are the key quotes:
The Group's trading remains robust and profitable… Demand by customers in both divisions remains strong and collections quality continues to be good.
We are planning for a significant rebound to pre-Covid motor finance transaction levels as lockdown restrictions ease this year, and a substantial increase in business at the Aspen property bridging business.
Borrowings have fallen to £99m from £103m and gearing is down to 55% from 58%, reflecting cash generation at Advantage partially offset by additional investment in Aspen. S&U is also providing a second (reduced) interim dividend this year of 25p per ordinary share (2020: 36p).
Motor Finance
In the past 2 months new deal transactions have reached nearly 80% of the comparable period last year and this is increasing. Record application numbers continue and Advantage’s new deal transactions for the year as a whole total around 15,600 with customer numbers at year end of just under 63,000 and net receivables of around £247m.
Repayment quality remains good and Advantage talks of the ‘sustainable relationships’ it has with customers. The number of payment holiday has reduced from 15,000 at the peak to below 4,000, and in January monthly collections improved to 90% of contractual terms due.
So it does seem as though Advantage's customer analysis and product range help create a well-received and swiftly recovering credit service. This segment’s latest Trustpilot consumer rating was 4.8 out of 5.0.
Aspen Bridging
Aspen has seen net receivables rise from £29.6m to around £34m in the period, with new transactions consistently beating budget. The deal pipeline here has more than doubled and S&U has invested a further £4m in the division over the past two months. Looks to be quite a lot smaller than Advantage for now.
Conclusion
Earnings will likely be hit in FY21 but I continue to have a favourable impression of this company. The management team seems engaged and aligned with shareholders. There is a track record of profitable growth and double-digit returns on capital (under more ‘normal’ circumstances). And it looks like there is good growth potential, too, combined with a modest forecast earnings multiple of 13.5x.
An economic recovery won’t be a straight line upwards but prospects, on balance, look brighter than they did six months ago and well-run, prudent companies like S&U will likely still be around to capitalise. As you might expect from a family firm, there has been no shareholder dilution over the past year. In fact none over the past six years - again suggesting an operation that is sensibly run for shareholders.
Gaming Realms (LON:GMR)
Share price: 33.9p
Shares in issue: 287,092,375
Market cap: £97.3m
Gaming Realms (LON:GMR) is a stock with some buzz about it.
A Financial Summary that is a sea of red losses, combined with low revenue versus the market cap (albeit with good forecast growth), and consistent cash burn have ruled it out for me so far but congratulations to holders. This kind of riskier high-growth proposition is where you can hit it big if you have the conviction.
Of all the losing ‘Styles’, Momentum Traps are the most likely to outperform. And GMR has indeed been on a strong run.
The company develops and licenses mobile gaming content, and owns the Slingo brand and IP. Some of you might know it - it is ‘one of the world’s most well known game formats’. Successful gaming IP can be a tremendous asset, sometimes undervalued even at conventionally eye-watering price/earnings multiples.
And it does look as though GMR occupies a promising position in a large and growing international market. Slingo is advertised almost as a new genre of games, which is novel. I don’t have any insight into whether or not this is true, as I have never played these games. If the group is correct in that there is massive demand for its Slingo games then GMR could have a scalable platform for rapid growth.
It is certainly winning a lot of contracts, which is intriguing. It is not yet cash generative though, and the low Z-Score rightly flags up liquidity and profitability concerns.
That aside, this is a short but positive update for the full year to 31 December 2020.
FY20 revenue and adjusted EBITDA are expected to be c.£11.2m and c.£3.1m respectively, reflecting a ‘record month in December due to the Company's content licensing business, which has continued to go from strength to strength.’
That looks to be a useful revenue beat versus FY20 forecasts of £10.8m and broker notes suggest previous adjusted EBITDA forecasts of £2.7m, so that record December really looks to have knocked it out the park.
The licensing business grew by over 100% during FY20, launching with 26 new partners, including Tier 1 operators DraftKings in the U.S., as well as Sky Betting and Gaming and PaddyPower Betfair in the UK and Europe.
That positive momentum reported above has continued into the start of FY21, with new launches of its Slingo content in Italy announced with both Goldbet and Sisal. Key contracts in the US, including a multi-state contract with BetMGM to provide content through a direct integration.
GMR has also been granted a provisional supplier licence by the Michigan Gaming Control Board, which will allow all Slingo Originals content to be provided to Michigan's licenced online casino operators. This licence, alongside its existing New Jersey licence, will further strengthen Gaming Realms' US operations, where it is continuing with the application process for a licence in Pennsylvania.
Conclusion
The growth prospects are promising, and with this type of valuation they should be. Twenty-six new licensing partners in 2020 plus market entry into Michigan, Pennsylvania, and Italy in 2021.
There could be some regulatory risk here, with the UK Gambling Commission recently introducing new regulations. It looks to have had little impact on GMR, but there’s always the chance further regulation does affect its operations.
At c£100m market cap, that puts the company on 20x FY21 adjusted EBITDA (forecast to be £5m, having been raised up from £4.5m on the strength of this update). That could still prove to be a bargain if future growth is exceptional but I don’t yet know if that’s the case.
What I can say is revenue looks to be accelerating and there are some substantial, nailed on growth catalysts, so there’s plenty of scope to continue surprising to the upside. There’s probably some punchy operational gearing here as well, so it's definitely worth a closer look.
And with software companies, it pays to do further due diligence on things like capitalised development costs. The balance sheet isn’t the strongest either, so the company needs to start translating its profits into meaningful cash generation soon.
Tharisa (LON:THS)
Share price: 128.7p
Shares in issue: 268,476,314
Market cap: £345.5m
(I hold)
Tharisa (LON:THS) is a low-cost platinum-group metal (PGM) and chrome co-producer which operates the Tharisa mine on the south-western limb of South Africa's Bushveld Complex. This mine has an estimated open pit life-of-mine of approximately 14 years, and a further estimated underground life of mine of approximately 40 years.
It’s in the Stockopedia Investment Club, so you can read the full pitch here. As with Sylvania Platinum (LON:SLP) , the company looks very cheap but this has a lot to do with the tremendous strength in PGM spot price (and Rhodium in particular), so these companies have commodity price risks to consider. But PGMs are indeed in high demand as a result of entrenched environmental trends.
Potential taxes are also a concern.
The key quote is:
Demand for our commodities remains extremely robust and with industry leading exposure to the PGM basket price, we remain confident that the operational performance will translate into healthy financial results, as was already evidenced at last year's results. Pleasing too, is the strong increase in prices for metallurgical chrome, whose price was lagging those of other steel commodities.
But there is also some comment on the South African government’s proposed export tax for chrome. The group says ‘this proposed tax will not provide lasting or coherent support to the ferrochrome industry and the only sustainable and viable aid to this downstream industry is subsidised electricity pricing.’
Conclusion
Tharisa is a riskier stock with both upside and downside potential.
The proposed tax is something to keep an eye on. As a general point, these South African PGM producers stand to make some fantastic profits if PGM spot prices remain at current levels, so it is a risk that authorities will look to take a slice at some point.
The political environment is a concern here and jurisdiction, as ever, is an important risk factor.
There are also a couple of interesting AGM votes to look into.
But here’s the 15y chart for platinum, palladium, and rhodium prices. This is probably the most important single point for Tharisa.
Whether these spot prices are a new normal driven by changing demand around environmental sustainability, or are simply a bubble, is key to the investment thesis.
Edit - Johnson Matthey commented on platinum, palladium, and rhodium on 10th of Feb:
Supply shortfalls have driven rapid price gains, with platinum trading at six-year highs and rhodium and palladium close to record levels. A shortfall is expected for palladium and rhodium this year as well, the third consecutive annual deficit for rhodium and the tenth for palladium, Johnson Matthey researcher Rupen Raithatha said.
Platinum may see a third consecutive annual deficit in 2021, depending on how much metal is stockpiled by investors, he said.
All three metals are used in catalytic converters to reduce harmful emissions, and tightening environmental regulation is forcing auto makers to put more into each vehicle. Platinum is also in demand by other industries, for jewellery and as an investment.
End of edit.
And then there are the risks to consider, as outlined above. So a cautious relative valuation is probably deserved and there are obvious risks, but even so the disconnect between share price and current PGM prices is stark at present.
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Ted Baker (LON:TED)
Share price: 100.2p
Shares in issue: 184,608,786
Market cap: £185m
Today’s Q4 trading update was mislabelled ‘Notice of Results’ this morning.
Ted Baker (LON:TED) fell from grace quite spectacularly a couple of years ago, the share price down in flames amid tumbling profits and allegations of unwanted hugging. It was quite the story.
Since then, a new management team has been enacting a turnaround strategy. I took a closer look back in November (here) and left unconvinced. It seemed as though a lot of ‘turning around’ had yet to take place and management targets might not imply that much share price upside after the enormous dilution caused by last year’s steeply discounted fundraise.
Marks And Spencer (LON:MKS) looked a better (though still imperfect and risky) contrarian retail bet given its resilient free cash flows and long operating history. It also has a less dramatic (but still vitally important and complex) turnaround to execute on.
Since then it’s interesting to note that MKS was outperforming until its recent share price slide, while TED has underperformed the market.
Q4 highlights:
- Revenue fell year on year by 47%, with a ‘material negative impact from the COVID pandemic.’ Store closures have been an issue and, when stores were open, footfall shifted towards out-of-town and neighbourhood retail locations. There has also been a decline in outerwear and occasionwear demand during the Christmas period.
- Splitting this out, Retail sales fell 47% due to temporary and ‘selective permanent closures where commercial lease agreements could not be reached with landlords.’ eCommerce sales decreased 1% and represented 63% of total retail sales (2020: 33%). Wholesale and licence revenue decreased by 44%.
- The China, Hong Kong and Macau JV continues to see robust sales growth, with 14% sales growth during the period and 33% on mainland China.
- Net available liquidity was £199.7m comprising £66.7m of cash and £133m of bank facilities. The Group did not draw on any bank facilities during the period and the Group has material liquidity headroom against anticipated peak cash requirements in September/October 2021.
TED mentions a new eCommerce platform, ‘which will significantly improve functionality and flexibility’ remains on track for launch at the end of Q1 2021. But still, to register a decrease in online sales at this moment is slightly concerning.
Good progress has been made in cost savings: annualised saving of £31m and rent savings of £3m in line with upgraded targets. However, there will be up to £5m of incremental costs associated with Brexit, reflecting extra duty and shipping costs.
Meanwhile, trading continues to be impacted by COVID-related restrictions, with ‘material negative impact from physical store closures across Retail and Wholesale channels.’ TED now assumes an ongoing materially negative impact across both channels from store closures until end May 2021, followed by a phased recovery until the end of the first half.
Conclusion
If TED can last through this tough period, the prize is a less competitive High Street with much lower rents. And planning for channel and store closures until the end of May 2021 seems sensible as things stand today.
But online should be a promising growth avenue and yet, somehow, sales have not grown here.
There’s brand value, of course, but brands can fade. Especially in fashion (although TED does present itself as a ‘global lifestyle brand’). But the risks are severe and I feel as though TED’s position is more precarious than management is letting on.
There is a disconnect between the upbeat management tone and tough trading results. Management’s task of executing this turnaround in the face of a once-in-a-lifetime global pandemic is not one to be envied.
Perhaps they’ll pull it off, but I have a blanket rule right now to steer clear of companies that had pre-existing issues before Covid. If I held shares, I would be very mindful of the risks, my exposure, and be braced for the real possibility of permanent loss of capital if things took a turn for the worse.
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Shoe Zone (LON:SHOE)
(Paul - I hold)
55p (down 4%, at 12:42) - mkt cap £27m
Good thing I checked, as this update is a lot more than just giving the date of the results. They did the same thing on 26 Nov 2020 here.
28 Oct 2020 I reported here on its full year trading update, where guidance was for a loss before tax of £10-12m.
Diary date - final results for 52 weeks ended 3 Oct 2020 will be released on 8 March 2021
Revenues - £122.6m, down 24% on LY, as previously guided
Revised guidance today - a statutory loss before tax of £(14.6)m is worse than the £10-12m previously guided due to IFRS 16 lease adjustments. Not anything to do with trading, so that’s fine.
Liquidity update - this is reassuring -
As previously announced, the Group continues to have a material net cash balance sheet position, and the Board continues to anticipate that the Group has sufficient liquidity available to it, assuming there are no further material COVID-19 related restrictions mandated by the Government over and above those already known.
My opinion - I’m not bothered about IFRS 16 adjustments. It’s a really bad accounting standard, that messes up P&L, balance sheet, cashflow statement, and net debt reporting. The sooner it’s repealed, the better. All we need is some disclosure on leases in the notes to the accounts, in particular onerous leases. The old system just needed a tweak, not a complete overhaul. Therefore the value of the shares doesn’t change, just because IFRS 16 requires a larger write-down.
A CFO for another company walked me through the impact of IFRS 16, indicating that it will savage balance sheets being reported now, but as the economy recovers, then we should see the balance sheet deficit on leases (low imaginary asset, and high liabilities) reduce sharply, as trading becomes viable again from most sites. Therefore care is needed with these numbers.
The liquidity situation sounds OK, and I don’t have any concern about SHOE’s solvency. If you think (as I do) that retailers should be able to open up again quite soon, then there could be nice further upside here. My notes here on 28 Oct 2020 indicated that I saw 100% potential upside on this share from its then price of 36p, quite a bold call. We’ve recovered to 55p already, which is up 53%. Oh, we’re halfway there. Let’s hope I’m not just living on a prayer!
I hope management don’t buy the business back on the cheap, before we’ve had a chance to see more upside from a re-opening of retailers in the coming months. With most of the vulnerable already vaccinated, and hospital numbers falling rapidly, I don’t see how the Govt can keep restrictions going for much longer. Hence for me, the re-opening trade is very much alive, and I think SHOE is a good way to play it. Allowed to trade normally, it should return to being a decently profitable business. Although management is heavily downplaying the potential for future divis, I think they want to greatly strengthen the balance sheet, having been scared by the impact of covid shutdowns.
I’d like to see a greater focus on growing online sales.
NB the broker consensus forecast numbers are outdated, so ignore them.
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67 comments
Re Tesla and Bitcoin, I really enjoyed Bill Blain's piece this morning. https://morningporridge.com/th...
In the past there have been a few holders of Immotion (LON:IMMO) commenting in here. I did hold a small speculative position before covid at 7p, bought quite a bit more at 2p ish and then sold at 4p ish for a little loss. I liked what mgt were doing and thought them the right guys for the job (in that CEO is real ducker and diver entrepreneur sort and very sharp from product perspective etc). Covid was a really badly timed event for them as they were on cusp of sustainable profitability IMO and then they are hit v directly by closing of entertainment sites. Super bad luck. I sold as I felt that further lockdowns magnify risk greatly and the move into 'sanitisation tech' and at home VR experiences is a distraction and the latter in particular may prove a drag in that needs some capital investment to create more experiences and a market for what they do (so a lead time to profitability that mgt can't really countenance right now if they are really going to push their big out of home VR experiences to success)
As ever, I'm probably wrong etc ;)
Anyway...the RNS yesterday was interesting. Long and full of exciting things...but light on financial details. SP down 10% despite all the positive news. Then today its off another few percent.
Is there a raise going on? I no longer hold so wasn't approached...but if you do hold and company/broker approached you re whether you wanted to be inside on some news and you said you didn't want to be taken inside then that would be a tell...anyone? (it not a breach of inside info to say that they asked you to come inside for info and you said no!).
That the sp had moved up meaningfully in recent couple of weeks on no obvious good news is a hint the price was being plumped up for a raise too?
I'm going to guess they will go quite big this time. At least £5m to give them a run at their installation VR (I think it could be >7 and two years of growth funding)....maybe they will also fund their at home stuff but my (cynical) hunch is that that is just some candy to entice investors and it'll be back-burnered once customers open theme parks etc again.
The above is all very speculative...ie guesswork and not stuff I know
Views?
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.
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
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.
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.
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
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.
Well Wellies are selling online for SHOE Paul - up 253% - I guess peeps are flock to the country from the towns?
Sort of vindicates the case for JOUL to some degree too I guess.
I hold SHOE and JOUL for the record and agree about the retail bounce back
https://www.retailtimes.co.uk/...
On Tharisa (LON:THS) - I wonder if any readers have found a good source for upto date chrome prices, which seem to be rebounding from the low levels around $140/ ton, where it has been stuck for most of 2020.
For the Platinum Group metals, there are ample sources - IG index has upto the minute platinum and palladium prices and Johnson Matthey reports daily prices for rhodium.
This is what I've been using:
http://www.asianmetal.com/Chro...
i have been told about two US companies that hold various Britcoins...one is Marathon Patent Group , the other is Grayscale Britcoin Trust . DYOR
And ?
piworld interview: Charlie Morris - All About Bitcoin!
With the febrile activity in bitcoin and Elon Musk's Tesla adding $1.5bn to the party, we felt we had to get a very basic overview of how to value it and the moving parts. This week, I caught up with Charlie Morris who is the Founder and CIO at ByteTree.com, and advises on alternative assets, to hear how bitcoin is valued, and other aspects of this digital currency. Video & podcast.
If you're interested in digital currencies more broadly, I recommend you listen to Erik Townsend here, of Macrovoices, who discusses how he sees digital currencies evolving, and even adoption by central banks. Video.
Separately, I hope you've seen the notification of the Stockopedia/piworld StockSlam, next Wednesday 17th February, 6-7.30pm. It is going to be a cracking evening of entertainment and brilliant tips. Damian Cannon will be hosting the evening, where ten esteemed investors pitch their best stock idea. Each will give a 3 minute pitch, followed by audience questions. It's popular, judging by sign-ups so far. Register to join via this link.
Today it is being announced by Checkit (LON:CKT) (I hold) that they are being forced to restate their accounts to reverse some of the intangible asset impairment charge taken in June.
This is highly unusual and deserves a bit of comment. In June last year, with COVID raging, Chekit wrote off all goodwill from acquisitions (£7.3mm) and all of their capitalised development costs (£2.0mm). They are now going to write back an unspecified amount at the request of the auditors.
There are two ways to look at this: -
- the company took a properly cautious view of the value of intangible assets and should be applauded. My own preference is to look at goodwill and the capitalization of development costs as things I like to see written off fairly aggressively anyway. Not least is the near impossibility of arriving at a sensible valuation in a constantly changing environment.
- the other view, taken by the auditors, is that the assets remain valuable and there is no supportable reason to completely impair them. This purist view can be matched by a cynical view that the pandemic gives perfect cover to "kitchen sink" these values and therefore helpfully flatter subsequent results.
There is probably no right answer, but we need to keep this in mind as future results are analysed
Dear All,
I have moved by heat map posts to their own thread here: https://www.stockopedia.com/co...
Hopefully that will remove some noise from the SCVR. I will continue to post some SCVR specific heatmaps here so long as you find them of value.
Here are my heat maps for today (prices as at ~10:45am).
Small Caps with RNS news today ("N!!" in bottom row of the heatmap tile means report / update today):
Big movers today in the SCVR world (moving more than a 20d EMA of the ATR against either yesterdays close, or today's open):
PS: My apologies for my recent absence, the current lockdown (or more accurately the combination of school closures and being married to an NHS key worker!) have significantly impacted on my ability to perform 'extra carricular' activities.
Mti Wireless Edge (LON:MWE)
I hold. Still learning at this game.
So the principal shareholder owns 32.57% of the company. Why doesn't the takeover panel code apply?
Does this rule apply only to an incoming shareholder if so is this a situation we are heading for at Uls Technology (LON:ULS) potentially if that 28.51% holding keeps increasing?
So the principal shareholder owns 32.57% of the company. Why doesn't the takeover panel code apply?
It's because for the 30% rule the trigger is passing the threshold by acquiring shares. There are many reasons a shareholder may already own 30%, including a previous failed bid.
if so is this a situation we are heading for at Uls Technology (LON:ULS) potentially if that 28.51% holding keeps increasing?
Only if the stakeholder is aiming for a takeover. If not they'll avoid going over 30%. It won't happen by accident.
timarr
thanks Timarr
The Takeover Panel states: "The rules set out in the Code have a statutory basis in the United Kingdom, the Isle of Man, Jersey and Guernsey".
MTI Wireless Edge (LON:MWE) is an Israeli company.
Oh, I thought it was based on where they are listed?
MTI listed LSE I would have thought uk rules apply!
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...
Hi Paul and Jack, I'd be grateful for either of your views on Ted Baker (LON:TED)
Likewise, since TED put out a trading statement entitled 'Notice of results'
Sure, a section on Ted Baker (LON:TED) is in the pipeline, should be up by c.1pm.
many thanks Paul
Fantastic thanks Paul!
For the second time this year a bidder has withdrawn from proceeding against one of my holdings - Marston's (LON:MARS) AND £ENT. In both cases they are well run companies (IMO) with good organic potential where the bidder would have had difficulty in extracting extra value.
Good morning Paul and Jack,
It would be great to get your opinion of Checkit (LON:CKT) results today. A third of the market cap (£33m) in cash (£11.5m); £13.2m revenues, mostly recurring although growth was stifled last year to 3%; US (due to recent acquisition) UK and Europe expansion plans. For a relatively early stage B2B tech firm but with quality blue chip clients it seems very undervalued to me and has a experienced leadership with lots of skin in the game and a good track record in delivering shareholder value. Edison note this morning suggests SP should be north of 70p. (I hold as of this morning).
Cheers
Francis
Are the historical figures for Checkit (LON:CKT) on Stocko real? It seems that in 2018 the revenue fell from £29m to £1m, and in 2020 the revenue was £9.8m, the operating profit was £-16.5 and the net profit was £73m. Does anyone know the history here?
On a general note, workflow SW is a crowded market. Where is its edge?
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.
Thanks.
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.
Sigmaroc (LON:SRC) has a great update on a new green brick.... likely to add to £SRC's upside, gaining momentum now
2 interesting things about this announcement: 1 - they don't say what replaces the cement in the product's formulation (is it even patented?); and 2 - there is nothing about the product online, despite SRC saying it had inital trials last year, and nothing even on SRC's own website.
Re £SRC the low carbon concrete block as a Marketing tool is interesting and I picked out this from the RNS "Greenbloc is only the start of a range of sustainable alternatives (my bold) to our product offering as we Invest, Improve, Integrate and Innovate."
I think we are likely to see sustained environmental focused innovation this decade - even in sleepy areas like concrete blocks - so at least they are thinking about it (although I agree I think is not so significant (no patent of value of sales mentioned and will likely be matched by others in this case).
But being on the back foot on this will be like ignoring online in the last decade in retail: wake up too late and you are gone! Something to look for in our investments.
£boo got smashed for being behind the curve on ESG , Sigmaroc (LON:SRC) are ahead, and could become leaders, just needs Gov to step in a force greener builds..... which they are doing and then this product could become the standard as opposed the new, this could well become the future of construction and be one of many products that reduce the CO2 aspects of new buildings.
Great to see that Sigmaroc (LON:SRC) are doing this rather than the big boys.
I've been listening to a podcast from BBC which states that the manufacture of concrete runs globally to 5 tons per person per year. Lot of energy required plus CO2 is released when limestone is heated. Bigger impact than aviation.
https://www.bbc.co.uk/sounds/p...
CO@ and concrete - Yes I have heard the (urban myth?) story that a windmill onshore has a larger cost in CO2 from its concrete foundations that it save in its working life
?? It's the first thing I saw when I went to to the Sigmaroc (LON:SRC) website. It's one of the articles that scroll across the home page. There's a link to this video
My morning smallcap tweet: RNSs provoke bile attack
Omega Diagnostics (LON:ODX) One Heritage (LON:OHG) Brandshield Systems (LON:BRSD) Location Sciences (LON:LSAI) Petards (LON:PEG) Checkit (LON:CKT) Heiq (LON:HEIQ) Eden Research (LON:EDEN) Gaming Realms (LON:GMR) S&U (LON:SUS) Clear Leisure (LON:CLP)
Omega Diagnostics (ODX) Gov't contact to provide manufacturing capacity for COVID-19 lateral flow antigen tests. "The intention is that as soon as the DHSC has access to a test that has successfully passed a performance evaluation, the test will be licensed for Omega to manufacture." Expects significant volumes of tests but not in this FY. Guides FY)Mar) rev down 19%. [SP=93 Cap=167m]
One Heritage (OHG) £550k placing at 30p, a 36% discount. That's a disgrace for a 6% dilution. Don't directors realise this is a real cost to shareholders? Buys property for £725k. Related party shareholder loan facility bumped to £7.5m (£5m) as contingency for construction finance loan. [SP=47.97 Cap=NA]
BrandShield Systems (BRSD) guides FY(Dec) rev up 37% and ARR up 71%, based on a consolidation with its Dec RTO of Two Shields. Lots of excitable prose. [SP=23.75 Cap=27m]
Location Sciences (LSAI) guides FY(Dec) rev down 12%, EBITDA -£0.77m (-£1.7m). Blames covid effect of location-based advertising industry. Admin costs but 41%. "The outlook for location-based advertising is poor due to the overall impact of the pandemic on the location-based advertising industry, with mainstream media agencies now focused on media delivery rather than adopting new technologies, especially those which risk limiting delivery scale such as Verify." Co will options. Enough cash to 2022. Two dies leaving to cut cost. [SP=0.66 Cap=4m]
Petards (PEG) guides FY(Dec) rev c.£13m down 17% and adj EBITDA loss slightly better. Order book over £12m. [SP=13.1 Cap=8m]
Checkit (CKT) guides FY(Jan) rev up 6%. Expects 'operating result' (?) 15% above mkt exp (prior to any adjustment related to prior year re-statement). Outlook - accelerating its growth plans in both Europe and in the US. Will restate FY20 to reduce impairments. Makes a change from companies restating due to shenanigans. [SP=50.4 Cap=31m]. I hold.
HeiQ (HEIQ) wins 4 year contract for Viroblock NPJ03 worth $1.5m min in laundry sector. Client trills that it's "an important milestone in our journey to create textile treatment solutions". Oh please. [SP=176.5 Cap=222m]. I hold.
Eden Research (EDEN) time yet again for EDEN to fess up its march to the future following a another year of hype: Rev £1.6m (£2.0m) and pretax -£2.6m (-£1.4m). Blames covid and delays to product approvals. "We are proud of the resilience we have demonstrated." I've seen resilience in a chocolate fireguard. [SP=14.9 Cap=57m]
Gaming Realms (GMR) guides FY(Dec) rev c.£11.2m and adj EBITDA c.£3.1m. Where are the comparatives? Positive momentum continues into FY21. [SP=34 Cap=98m]
S & U (SUS) FY(Jan): trading robust and profitable, despite the 'induced coma' of the economy. In last 2 moths wew deal transactions have reached nearly 80% of prior. 2nd interim div of 25p (36p). [SP=2200 Cap=267m]
Clear Leisure (CLP) £680k placing at 0.6p, a 12% discount, to keep the lights on and selective further investments. [SP=0.66 Cap=4m]
Mr C - I always appreciate, and am grateful for, your contribution and this morning shows why - highlighting more ridiculous language ( Eden Research (LON:EDEN) and Heiq (LON:HEIQ) ) and small shareholders being kicked in the teeth again ( One Heritage (LON:OHG) ).
Mr C on fire today! Lol
Tharisa (LON:THS) Wonderful tub-thumping AGM statement this morning
Very positive trading update from Gaming Realms (LON:GMR)
Revenue for full year 2020 up to c. £11.2m. Healthy leap in EBITDA but no steer on what level the adjustments are. That said very good movement in expanding in the US and launching with 26 new partners overall.
So, this appears to be making the change to being a profitable company. It would have been good if there had been additional info on their progress with gaining licenses in other US states and the market may not like that. Overall though, things are looking pretty hunky dory.
(I hold)
Edit - had not seen Paul has put his note on - Gaming Realms (LON:GMR) ( I hold) - results look to be reasonably ahead of the interims (Sept.8th) and the most recent update in Dec.8th. I can't find the answer but would be good to know if the content licences are one offs or recurring revenue type?
That’s a very good question. It hadn’t occurred to me that some of that business that Gaming Realms (LON:GMR) have might be one off. I would think though that they must have recurring revenues from these deals because otherwise they would run out of people to license with.
Interestingly, Jack mentioned the cash flow
“ It is not yet cash generative though”
It is annoying that they gave no guidance as to cash. And it is certainly true that they’ve not been cash generating in the past. However, it does seem likely to me that, with the EBITDA being so strongly positive now, they are generating positive cash flow now.
I wasn’t able to attend the Mello where they presented. Would be interesting to get people’s impression of the company from that presentation if anyone would care to share that?
Good point, Graham - it's possible that the strong top line growth and healthy EBITDA means GMR is now at an important inflection point re. cash generation. More detail here would be very useful
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.
At the Mello presentation they gave they said that all of the content licences are recurring based on usage.
Gaming Realms (LON:GMR) - Thanks Lgarvey , that is good to know. I was just listening to an interview with Gervais Williams of Miton Microcap (who owns it) but he didn't go in to much detail.
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.
Interesting comment in the Ted Baker (LON:TED) results which will have read across to many other companies trading in Europe...
"Following the trade agreement between the UK and EU signed in late December 2020, the Group anticipates up to £5m of incremental costs associated with Brexit, reflecting extra duty and shipping costs partially offset by a new customs warehouse capability."
Similar to the comments of the Jd Sports Fashion (LON:JD.) executive chairman the other day who said Brexit has cost JD Sports “double-digit millions” and was considerably worse than he feared.
Interesting comment in the Ted Baker (LON:TED) results which will have read across to many other companies trading in Europe...
The other interesting comment was this:
The Group now assumes an ongoing materially negative impact across both channels [Retail and Wholesale] from store closures until end May 2021, followed by a phased recovery until the end of the first half.
That seems like an abundance of caution, but it does seem to be the direction of ministerial thinking. Added to the rather confused messaging about summer holidays it looks like the government would rather keep restrictions in place for a bit longer if it means avoiding a fourth lockdown.
timarr
I'm glad to see the management team making more realistic assumptions. Ted (I hold) is definitely a waiting game, I remember the management team saying this would be a two year turnaround plan. They seem to be doing everything right now, so if the brand stays strong (which seems to be the case) during the transformation of the cost base, then we should be left with a very profitable business.
Ted Baker (LON:TED) Looking back at the August 2020 interims - inventory was valued at £90m with underlying cost of sales for the 6 months to August being £84m. Over 6 months' worth of inventory - which seems very high in clothing.
Compare to Next (LON:NXT) - Inventory at the July interims was £485m, compared to cost of sales of £919m - just over 3 months of inventory.
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:
https://www.ft.com/content/eb3...
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.
Thornabian
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 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.
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.
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.
timarr
Just published my conversation with David Flood from Elementary Value, giving his thesis for investing in Mycelx Technologies MYX - probably the smallest share listed on AIM :)
Listen on Google Podcasts
I mention Stockopedia on this episode too ;)
Great podcasts Jon-keep it up.
Thanks
Mark
Thanks for the kind feedback Mark.
You just gained another subscriber. Always interesting to hear from someone with a completely different investing style to my own.