Small Cap Value Report (Thu 13 Jan 2022) - ASC, CARD, CIR, CSP, QXT, SAG, FIF
Good morning, it's Paul & Jack here with Thursday's SCVR.
The volume of updates overwhelmed us yesterday, but the ones we missed were just in line with expectations, and didn't move much in price. When it's busy, we focus primarily on unusually good, or bad updates, as those are the ones that move share prices.
Brief preamble - inflation
By the way, one reader comment yesterday seemed to think I'm trying to set myself up as an economic forecaster, and (rightly!) cautioned on the futility of this. Just to clarify, when I do a preamble on the market, or the macro picture, I'm just airing my current thoughts on it, driven by news, as a discussion starter in the comments section. That also sets the scene for my investment decisions. For example, at the moment I'm not going to be buying any UK shares on toppy valuations (high PERs), because that type of stock has sold off big time in the US over the last year. The UK often follows the US, hence I feel risk:reward could now be unfavourable for highly rated shares. If they were still booming in the US, then I'd be more sanguine about paying up for a growth share here.
CPI inflation hitting 7% in the USA yesterday is another key piece of news, although the market seemed to take it in its stride (already anticipated?). That level of inflation hasn't been seen in the US since 1982, so it's bound to have a big impact on many companies. Inflation, and what happens because of it, is probably the biggest single issue we need to consider right now.
Look at Accrol Group (LON:ACRL) yesterday, which issued a profit warning due to higher input costs, but saying that it would pass them on to customers, but with a delay, thus hitting short term profits. Not good enough for the market - it hit the already battered shares by another 19%. So we ignore this issue at our peril.
Whereas Portmeirion (LON:PMP) has also suffered issues with cost inflation (especially freight), but grew sales more than enough to cover it, and issued a positive update yesterday, 9% ahead of profit guidance, leading to a 13% share price rise.
How on earth do we anticipate this? It's very difficult, and I think we just have to resign ourselves to getting some right, and some wrong. Or sitting on the sidelines, and buying back when companies issue positive updates. That means paying more for good performers, but it also avoids profit warnings. Everyone has their own way of doing things.
Interestingly though, a broker note for PMP points out that when freight costs reduce, that will provide a future profits tailwind, as the 2021 comparative numbers should be easier to beat. Especially since customer demand is high for PMP, so it's enjoying increased sales which could continue.
Lots to think about!
Agenda -
Paul's Section:
Asos (LON:ASC) - brief comment. Reassuring, in line trading update. Price rises being implemented, and expecting supply chain to improve. Hence good tailwinds for next year. I think sector sell-off looks overdone (Asos down over 60% in 9 months). Could be a buying opportunity perhaps? Moving to main market from AIM next month. I don't currently hold, but am thinking about buying back in.
Card Factory (LON:CARD) - this trading update starts off positively, but then delivers a bombshell at the end, with a huge increase in costs flagged up. Market doesn't like it, understandably, it's a profit warning for next year.
Countryside Properties (LON:CSP) - profit warning & unexpected CEO departure from this mid cap housebuilder. I briefly cover it, because there might be sector read-across for other housebuilders, and building supplies companies, possibly?
Science (LON:SAG) - another impressive trading update, following a series of good updates in 2021. I continue to like the look of the numbers here - strong earning growth in the last 2 years, very strong actually, helped by acquisitions. Valuation looks reasonable. Worthy of a closer look by readers, I think.
Finsbury Food (LON:FIF) - a reassuring update for H1. So far FIF has been able to mitigate increased costs & supply chain disruption. Looks a nice company, on an undemanding valuation, I like it.
Jack's Section:
Circassia (LON:CIR) - turnaround is gathering pace here. The company is now EBITDA positive and underlying cash generative, with revenue up 20% at constant currency rates. The market cap is already quite big relative to earnings so a lot depends upon continued growth of the group’s NIOX asthma products, but it’s a large market and the situation is becoming less risky.
Quixant (LON:QXT) - looks interesting. Founder/chairman remains largest shareholder. Ran into trouble before Covid, and lockdowns have since impacted. Some signs of quality though, and no equity dilution over what has been a difficult period. Solid balance sheet and possibly conservative forecasts, so could do quite well over the next year or two
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.
We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).
A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.
Paul's Section
As regards larger retailers, I see both Sainsbury and Dunelm issued positive updates yesterday.
J Sainsbury (LON:SBRY) says it's gaining market share, and raised profit guidance to at least £720m for FY 3/2022.
Dunelm (LON:DNLM) says it's trading "materially ahead", and shares rose 5% yesterday. It's an excellent business, and the shares look priced about right to me (PER of 18.2)
Asos (LON:ASC)
£2.24bn mkt cap (yesterday's close)
This update looks reassuring, and could be a turning point for the shares maybe, which along with other eCommerce companies, have been battered in the last year (Asos is down over 60% from its recent peak in March 2021).
Key points -
“Robust results” in “challenging market conditions”
Guidance unchanged (for FY 8/2022) - revenue growth of 10-15%, and adj PBT £110-140m
Moving from AIM to main market by end Feb 2022 - I wonder if that might attract more institutional buying interest?
Biggest market good - UK revenues +13%. USA good, +11%. Weaker: EU +2% and RoW -15%
Price rises being implemented
Gross margin low, at only 43.0% (down 400 bps), but expected to improve
Returns rate normalised
Supply chains expected to ease - encouraging
My opinion - this update is much better than I feared. I’m currently sitting this one out, but think we could have reached a turning point today. Stockopedia shows the forward PER as 21.5. Growth is slower now, so maybe a lower PER is justified? I can’t see it getting back to previous stellar rating of a PER over 50.
Maybe competitive threat from Shein over-stated by investors? As Asos sells a lot of decent brands, perhaps Shein is less of a threat?
Asos is only heading for a low c.2.9% profit margin this year (£125m profit mid-range profit guidance, divided by c.£4.4bn forecast revenues), hence actual profit is volatile. It's never achieved a decent profit margin.
As supply chain problems ease, there’s scope for profit improvement next year maybe?
Overall - looks good, and I imagine there’s upside on the current share price. The sector sell-off is starting to look overdone to me.
Card Factory (LON:CARD)
Mkt cap £217m at yesterday’s close
Card Factory plc, the UK's leading specialist retailer of greeting cards and complementary products, announces a trading update for the eleven months ended 31 December 2021.
Company’s summary -
Trading ahead of Board expectations for FY22
Upward trend during the year, recovering “towards pre-Covid-2019 levels”
Dec 2021 good, similar to Dec 2019
11 month sales £337.3m (20.5% below 2019, mainly due to stores being closed for 20% of trading days, in early 2021 lockdown)
Online sales still very small, at £22.2m - CARD has missed the huge online opportunity that Moonpig (LON:MOON) and others grabbed from under their noses. Very poor.
Stores are outperforming market average footfall data
Net bank debt reduced to £60m (down from £87m at end 2020) - this is very encouraging, although we’d need to see the full numbers to be sure there are no stretched creditors, or other factors that flatter the year end figure. Has caught up with deferred rents & VAT, but £7m deferred rents remains, so I would add this back to net debt.
Supply chain disruption - managed well, only a small impact
Full year guidance for FY 1/2022: PBT £7-10m
Target remains >£600m revenues by FY 1/2026
Outlook / Inflation - this sounds bad, a £30m increase in the cost base!
This sounds like a profit warning to me -
The Board remains confident in delivering year on year revenue growth in FY23, towards the level delivered in FY20; however, EBITDA margins are expected to reflect significant inflationary headwinds. Whilst actions have been, and will be, taken to mitigate these headwinds, including price increases and a renewed focus on driving business efficiencies, the pressures will not be fully offset, resulting in lower profits than previously anticipated by the Board.
The Board expects that the combined impact of unmitigated headwinds; predominantly the increasing cost of freight but also the impact of inflation on staff costs and utilities; plus investment in headcount, IT and development of the online platform to support the delivery of the strategic plan, will add approximately £30m to the pre-Covid FY20 cost base net of mitigation.
Looking further out, the Board expects a number of these cost headwinds to subside, and the Company to be able to further mitigate certain cost pressures. In addition, the Company should realise the benefits of the growth investments.
Further details will be provided at the time of results.
My opinion - it was going so well, until the last bit about a huge increase in overheads, and lowering profit expectations (no figures provided) for next year.
The company is off the critical list, with debt now under control.
But the profit warning for next year, due to a huge increase in costs, and remember this is relative to pre-covid costs, kills off the investment case for me.
This very much reinforces my concern in the preamble about cost increases. It seems as if companies have to be delivering strong sales increases (price rises, and maintaining/increasing volumes), to be able to absorb rapidly rising costs.
Remember that the minimum (or is it living) wage is going up over 6% in April 2022 too, heaping misery on companies that employ a lot of staff. It causes a knock on effect up the ladder too, as higher paid staff seek to maintain their pay differential to lower paid people.
I’m steering clear of CARD. It looks financially stable, but it’s missed the boat on internet greetings cards, and costs seem to be soaring. Not good, on an initial glance. Let’s see what changes happen to broker forecasts.
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Countryside Properties (LON:CSP)
Down 18%, at 08:25
Unexpected CEO departure suggests there’s been some falling out at Board level.
Trading in Q1 (Oct-Dec 2021) has been below the Board’s expectations.
Further update in 8-10 weeks
Q1 figures provided, which look poor - adj operating profit more than halved vs Q1 LY
Cladding - a current issue in the news. Says provisions were made last year, so has some exposure to this issue. Industry-wide solution is mooted.
My opinion - none, as it’s too big for these reports. I’m only mentioning it because the price is down 18%, and there might be potential read-across to other smaller housebuilders, and suppliers of building products, which might be impacted, if the housing market is slowing down? Or this could be company-specific? I’d be wary of builders at the moment, due to the cladding issue - Govt obviously wants to avoid the taxpayer paying remediation costs. I wonder if they might look at some kind of levy, or windfall tax on housebuilders?
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Science (LON:SAG)
455p (up 1% at 10:13) - mkt cap £207m
Trading Update (FY 12/2021)
This looks really good -
The momentum reported during 2021, which resulted in multiple profit forecast upgrades during the year, continued through the final months.
As a result, 2021 will be another record for Science Group with revenue in excess of £80million and adjusted operating profit anticipated to be in the order of £16million, an increase of over 45% on the prior year (£10.9 million) and more than double that reported in 2019, the year before the pandemic outbreak.
An excellent update, but it seems it was already baked into the price, as it’s barely moved today.
All divisions doing well, and figures benefit from acquisition of Frontier.
Acquisitions - this sounds interesting, so 2022 and beyond are likely to see more deals -
The past year has seen significant corporate activity, including the acquisition of a strategic shareholding in TP Group, a royalty buy-out and the acquisition of Magic Systech.
Even so, due to the excellent operating cash conversion, enhanced by the Group's first equity fund raising in over a decade, at 31 December 2021 the Group had gross cash of £34.3 million and net funds of £19.0 million.
In addition, Science Group signed a new £25 million revolving credit facility with its bank in December.
The Group's robust balance sheet and undrawn facilities, enable the Board to continue to explore further corporate development opportunities in the year ahead.
Dividends - final divi will be 25% up, but still only small at 5p. Not really a reason to buy this share, but nice to have while you wait for further capital gains (hopefully).
Commentary also mentions sharing the upside with employees, through profit share & bonus schemes. I like that, as it helps build a good culture, and retain good people.
Broker update - many thanks to Liberum for providing an update on Research Tree. It says today’s update is a 7% profit beat against forecast.
Forecast for FY 12/2022 is raised by 3%, but is slightly below FY 12/2021.
Valuation - looks reasonable, considering earnings have almost tripled from 2019 to 2021. The forward PER is about 17 times, which assumes no earnings growth in FY 12/2022.
If you think earnings are likely to continue rising, then this share could be cheap.
If you think earnings are likely to remain static, or grow slowly, then it’s probably priced about right.
My opinion - we like SAG here at the SCVR, and have reported positively on it several times before. It looks a decent GARP share.
Also I think management seem to be good at acquisitions. So maybe this could be another star acquisition vehicle? (like Judges Scientific (LON:JDG), or Sdi (LON:SDI) )
I don’t really understand the business, or what drives its business model, so my opinion is of limited use. Just to say that the figures look really good, and it’s worth readers taking a closer look. It would be worth scrutinising each division, and maybe do a sum-of-the-parts type assessment. Let us know what you think, as I’ve got to move on to the next thing.
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Finsbury Food (LON:FIF)
98p (down 1% at 10:24) - mkt cap £128m
Finsbury Food Group Plc (AIM: FIF), a leading UK speciality bakery manufacturer of cake, bread and morning goods for both the retail and foodservice channels, announces an update on trading for the six months ended 25 December 2021.
Revenues look OK -
The Group delivered a robust H1 performance, notwithstanding the external challenges being faced by the Company, with total sales of £166.5m representing an 8.9% increase versus the corresponding period in the prior year. It also reflects a 4.4% increase on the first half of FY 2020 (30 June to 28 December 2019) which was a period unaffected by the pandemic.
This growth in sales has been driven by a stable performance in UK retail (+1.5%), a continuation of the robust recovery in foodservice (+25.9%) and a 32.3% increase in the Group's Overseas division.
Supply chain / inflation - sounds as if things are under control -
Throughout H1 the Group has faced persistent pressure from input cost inflation, staff shortages and other supply chain disruptions.
It has been able to successfully mitigate the impact of these pressures to date through commercial negotiations, operational improvements and other supply chain initiatives. It will continue in the same vein given further inflationary cost pressures are expected in H2.
In addition, the impact of Omicron on foodservice consumer demand and production disruption due to staff members required to self-isolate remains unpredictable, but the Company has a successful track record of navigating challenging market conditions, and will continue to use its experience as it works through the second half.
Diary date - 21 Feb 2022, for interim results (6m to 25 Dec 2021)
Webinar details -
…presentation for retail investors on the Investor Meet Company platform at 4:00pm GMT on Tuesday 22 February.
My opinion - the company has done well to mitigate supply & cost disruption.
I see the valuation as attractive, with a forward PER of 9.6
Today’s update reassures that it’s got the situation under control.
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Jack’s section
Circassia (LON:CIR)
Share price: 46.05p (pre-open)
Shares in issue: 418,461,921
Market cap: £192.7m
This came up as one of David Thornton’s 2022 picks on a recent Vox Markets chat I took part in. I’ll summarise his run through, as he knows the opportunity better than I do:
- Recovery stock,
- ‘Neil Woodford-backed disaster’,
- Phase 3 drug failed,
- New management (ex-Bioquell) has come in, backed by some ‘sensible’ shareholders (Christopher Mills has quite a big holding),
- They turned Bioquell round and sold it, could be a similar outcome here,
- The key target for mgmt team is that all their incentives get paid out at 62.4p,
- Mandate to clean whole thing up and to focus on asthma diagnostics (see NIOX), which is a huge market but a surprisingly small number of people get this test,
- It’s quite a cheap primary care test where you blow into a tube which gives you a reading - a ‘razorblade’ type business,
- Disrupted by Covid GP access,
- Decent acquisition candidate,
The shares were in the high 30s at the time of that talk, so you can see they’ve picked up a bit in the weeks since.
That’s a market cap of £192m on trailing twelve month revenue of £27.1m and double-digit million net losses, so the assumption is that the group’s asthma test starts generating a lot more business quite quickly. It could well happen, although I have no particular insight into the treatment at present.
Execution of business strategy delivers EBITDA ahead of expectations
Revenue growth of 20% on a constant currency basis to £27.9m, with recurring revenue stable at 84% of total. Gross margins are also holding steady at 68%, and the group is adjusted EBITDA positive for the first time at c£0.6m.
New distribution arrangements in the US and China could drive further growth. A renewed sales and marketing focus on these two large markets results in operating costs falling from £27.4m to £18.4m, a 33% reduction.
The result is that EBITDA for the NIOX business (the asthma treatment) rose from a loss of £6.8m to positive £2.3m.
Unaudited cash was £12.6m as of 31 December 2021 and Circassia generated £1.1m in cash in the second half once the discontinued COPD business is excluded.
Preliminary Results for the year will be released on 22 March 2022.
Conclusion
The shares have increased recently in the run up to this announcement, which shows the group is trading ahead of revised expectations. It’s the kind of situation where more knowledge of the management team and product is required. You have to invest with a bit of faith that the team can execute, as we don’t have the comfort of historical data or reassuring StockRanks.
Companies change though, and it’s a plausible story: previous management mistakes, distressed institutional selling compounding the share price drops, and a new management team parachuted in to execute the turnaround and realise value for shareholders.
Operationally, the direction of travel is clearly positive and if management can realise their incentives at 62.4p, that implies around 35.5% of potential upside. It could be more of course, should NIOX prove to be more valuable.
I don’t have much of an edge here, but there are promising signs: increasing revenues, decreased operating costs, a refocused sales and marketing strategy, a move to EBITDA positive and underlying cash generation. It doesn’t look like cash burn and equity dilution will be a concern.
So the share price has increased but the investment case has been somewhat derisked and Circassia does appear to be approaching an inflection point. It’s a totally different business to the one that floated back in 2014, with potentially long term growth in a defensive industry. The market cap is already quite large though at £193m (pre-market open) so I’d want to be a little more comfortable on the scale of the opportunity.
On that note, the group says that asthma affects over 340 million people worldwide with 1,000 deaths every day, and that NIOX is the market leader in FeNO testing.
Quixant (LON:QXT)
Share price: 180p (+4.96%)
Shares in issue: 66,450,060
Market cap: £119.6m
It’s been a fairly volatile ride for shareholders of Quixant over the past few years, so an operating history that will take some unpacking to understand what has gone wrong in the past and why (hopefully) that would not happen again.
I wonder how many shareholders from five years ago remain on the register? It looks to have been a pretty bruising experience so far.
There’s been a steady improvement in the price since the initial Covid drop though, it’s possible that the shares offer good value if the company has enacted self-help initiatives. Shares are up around 4% this morning.
The Group had a strong finish to 2021 and expects to report full year revenue of $87.1m, ahead of market expectations
Quixant helpfully notes that the current range of forecasts is revenue of $78m-$80m with a consensus of $79m and adjusted profit before tax of $4.9m. There’s been robust demand across both the Gaming and Densitron divisions. It looks like a roughly 50:50 split in terms of revenue between the two as of the half year report.
Gaming - Founded in 2005. Gaming hardware platforms and software solutions for wager-based gaming and sports betting.
Densitron - Acquired in 2015. Specialists in ‘human machine interaction’ (HMI). Control Surfaces provides displays and computing software for people to interact with. Control Systems includes integration software for the likes of Channel 4. Product Catalogue offers a range of displays and computing components.
Profit before tax is expected to be ahead of expectations, which have barely moved since the initial Covid markdown. There have been a couple of positive updates in the interim, so I imagine forecasts are pretty conservative and stand to be beaten.
The PBT progress is despite ‘continued pressure on margins presented by electronic component shortages and price inflation’. These pressures are expected to continue ‘into at least the second half of 2022’ however.
Net cash has increased from $15m in June 2021 to $17.6m at 31 December 2021.
Conclusion
There’s been a clear Covid impact here, forecast to recover but not immediately to FY18 or FY19 levels. Paul has written previously on a profit warning here.
Ignoring Covid for a second, there are some positive signs: double digit operating margins and ROCE, net cash, free cash flow generative, Quality Rank of 90. The non-exec chairman and founder remains the largest shareholder.
It’s worth noting that back in 2020 before the big downwards Covid adjustment, FY22 EPS forecasts were for 28c or so. If it can get back to those FY18 levels then obviously the shares look quite cheap. FinnCap covers the company, so subscribers should be able to access their broker notes on it. As I said above, I suspect the forecasts might prove to be too conservative.
There are some signs of a good business here, one that appears to be valued by its customers if website testimonials are anything to go by.
Quixant did have problems pre-Covid though, to do with key customers losing market share, so it’s been a tough 2-3 years for the company. That will require a bit more research, but I quite like what I see at first glance so further investigation probably is warranted. Worth noting that through that period there has been no equity dilution.
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137 comments
Ridavies re Menhaden Resource Efficiency (LON:MHN)
As you have identified, this is a small Investment Trust with a relatively high 1.25% annual management fee.
Secondly its remit is unclear, it is difficult to determine what stocks are within/without its Investable Universe. In the companies own words : "The Company invests in businesses and opportunities, delivering or benefiting from the efficient use of energy and resources."
Thirdly, the AIC classify the company as falling into the IT Environmental sector in which there are only 2 comparator companies. Menhaden Resource Efficiency (LON:MHN) has badly lagged Impax Environmental Markets (LON:IEM) over the past one & three years performance-wise:
Clearly the NAV discount will narrow if either the performance improves or investor action successfully calls for a wind-up. Patience is required for either of these outcomes.
£tm17
I'm consistently amazed by the foresight that some market participants have. For example, it's incredible that, with no insider trading at all, the market marked Team17 down by 7% today before they announced a placement.
Yep, unfortunately happened with some holdings of mine in the past before profit warnings as well... :/
OFF ALL TOPICS - SKIP IF OF NO INTEREST
So back in March 2021, I tried to transfer cash balances from mine and my wife’s ISAs at Psigma to ISAs at Hargreaves Lansdown. Despite the FCA suggesting on their website that such transfers should take no more than 20 working days (why even that long?), the transfers actually took 74 days for my wife’s transfer and 83 days for mine. Welcome to the club I hear you sayI But remember these were transfers of cash, not shares. So I went away and did a consequential loss calculation. After all, we pay these portals handsomely and we should be able to expect them to get the basics such as cash transfers right. Anyway, I based my calculation of my losses on my trading performance over the period when I should have had access to my funds making due allowance for cash held during that time. The total consequential loss for my wife was over £6k and for me was nearly £7k. Hargreaves Lansdown admitted that they had screwed up (how could they not?) but offered me only interest on the cash which, of course, makes no sense at all as I can point to my cash/equity split at the time as proof that I would not have held the transferred amounts 100% in cash. I put my cases and calculations to the Financial Ombudsman. That’s what they’re there for, right? To hold financial institutions to account for their incompetence? So that they don’t, like airlines, just add the costs of regulation into their risk models. My claims to the Ombudsman were submitted on 30th July having waited the obligatory eight weeks for Hargreaves Lansdown to look into the matter and decide that while, yes, they were at fault but no, they had no idea how to calculate my foreseeable, consequential loss. Oh well, at least they managed to respond to a claim marginally more quickly than it took them to do that most basic of tasks – transfer my cash.
Anyway, fast forward (pun intended) to January 2022 and, despite several polite enquiries to the Ombudsman as to when I might expect my cases to be allocated to a Claims Handler, I have eventually been assigned a handler for both cases. Why am I posting this here? Well, I did post about it some six months ago and said I would keep the community updated and nobody told me not to. Also, I am still interested to hear from any informed posters as to whether they have had any success either with the Ombudsman or through the small claims court with consequential loss claims against financial institutions for gross incompetence where liability has been admitted by the defendant. I am happy to share details of how I have set out my cases with anyone who, like me, isn’t ready to allow such incompetence to go unchallenged. If we allow these companies to continue to behave in this way when we have a free resource whose primary purpose is to hold the financial institutions to account, we only have ourselves to blame. Anybody, who knows a good lawyer in this area would also be very welcome as I am minded to go down the MCOL route should the Ombudsman fail to find in my favour
IMO
Your only chance of any redress is a proper legal case which will involve financial risk. I had what i thought was a water tight case against British Gas which i took to the Ombudsman, who threw it out. I could not believe it, but the Ombudsman is funded by the Energy providers so no surprise i suppose, i took them to court and just before we went in the BG representative came up to me and asked me how much to settle. Shocking.
Very pertinent to todays climate, if you have a fixed rate tariff with BG ( and probably other suppliers) for Gas and Electricity when they send you a renewal notice and an offer of a new tariff as soon as you accept this ( usually a couple of months before your existing tariff expires) you will be put on the new more expensive tariff immediately. Now we all know that that must be wrong especially when they dont tell you.
I have made two complaints recently against HL and although no real big loss of money was involved the replies i received after the 8 weeks reminded me that they do not give a ~~~~ about any customer service.
Good luck
Richard
I had a problem with HL also, transferring some cash, from my ISA to another provider. The first transfer form they said they never received, I did not believe them but I can't prove it. The next form they did receive but did not do the transfer for about 6 weeks, so all in all it took about 3 months to just to do a cash transfer. HL were not helpful ay all, seemed all they cared about was keeping hold of my money for as long as possible. The problem is I have to do again soon.
Hi
The only difference in my case is that HL admitted on tape that they had received my forms - and they have to produce those tapes to the Ombudsman or in court. I made sure that I confirmed who I was speaking to at HL then emailed them to confirm what had been said.
I have heard on other forums of a noticeable increase in lost transfer forms at HL implying under-staffing at the beginning of 2021 due to the increase in customer accounts during lockdown. I am hoping that the Ombudman will take a dim view of any under-resourcing as an excuse.
Re transfers what ever you do don't get involved in whats termed in-specie transfers you think cash is slow its positively hyper-sonic compared to this method i have known these in-specie transfers with just one fund/share take over six months to a year to complete.
Many thanks for your helpful response, Richard - exactly the kind of encouragement I needed! I will definitely go down the MCOL route if necessary - I have enough experience of that route to know that the burden of proof is slightly skewed in my favour. And the publicity will be of more harm to them than to me. For the moment, I will trust that the Ombudsman will resolve it, but I will continue to post useful updates until the community tell me not to.
Whilst being wary of clogging up the SCVR with stuff of no interest to most , I think you should know . . .
In my case the claim handler only accepted evidence from BG , BG had denied that I had spoken to a certain member of staff, and the Ombudsman accepted that , which was what my claim revolved around. I was furious with the Ombudsman service for not taking a balanced view that is why I sued BG.
Be aware .
Thank you again for comments about your experience
Financial risk? The cost of lodging a case with small claims is only £205 if you’re claiming for £5k. There’s no further charges even if you lose the case. If HL do decide to contest the case they’ll spend a few thousand in legal fees. Obviously he’ll be making 2 claims one in his name and one in wife’s name. I’d resolve one case at a time.
Yes, that's my thinking also
I’ll bet my hat on the fact that the ombudsman will do absolutely nothing. I’ve raised cases with them before and also waited 6 months for them to assign an 18year old to handle the case. They don’t work on a what’s right basis but just pour through the small print.
I would certainly go down the small claims route if you can. It’s a real inconvenience for them to defend as it will be held at your local courthouse and magistrates tend to look down on the defendant if they don’t turn up to defend. First step should be to complete the forms and send a copy to the chairman of HL stating they have 14 days to take appropriate action or claim will be lodged. HL may make an offer to keep you quiet but you’ll also be stirring things up internally if the Chairman gets involved.
That's helpful advice, thank you very much
Sorry I missed this completely mammyoko.
I have had similar problems at least so far as it involves transfers, in this case from iweb to AJBell for my ISA (I left my SIPP with iweb). In my case some shares were left behind in the iweb account which I subsequently wanted to sell and could not as the iweb account was in limbo and frozen for 6 months (!!). The shares declined by 30% or so and iweb made good the difference without reference to the Ombudsman after they sold the shares and then transferred the cash. I also received a small sum from AJBell as they were part of the story. I think two factors were coming into play here - the existing back office systems for many brokers could not cope with the surge of business during Covid lockdowns and back office staff working from home did not help matters.
I have to say iweb have treated me well over many years which is why I decided to leave my SIPP with them. The only problem with iweb is they offer limited or even no access to some markets including large swathes of the Canadian market which is why I moved to AJBell. It turns out that AJBell are unable to offer the access they said they could in an email .... hence the modest payment. I am trying to make up the courage and patience to transfer my ISA again to a decent broker who can offer wide access to global markets. Compared to my investing friends in Australia and New Zealand, we UK investors have a very poor show to deal with.
Yes, New York charts here. Looks a huge spike in cases in current outbreak and deaths and deaths perhaps 50% of Jan 2021 levels. Hard to be that confident with reporting delay distortions around this time of year perhaps https://www.worldometers.info/...
I note with interest the gradual share price rises of insurance companies (Aviva, Legal and General, Prudential).
This is partly related to the rise in yield of treasuries. This is very helpful to the insurance companies. The US Federal bank is doing three actions: gradually stopping QE, rate rise and considering selling some of the massive bonds on its book.
all three are good for insurance companies during the 2022.
Not only that but life expectancy rates have been lowered recently because of COVID and this has an effect on their Pension liabilities. I have been watching Legal & General (LON:LGEN) which i have held before.
Richard
Not only that but life expectancy rates have been lowered recently (COVID) and this has the effect of reducing Insurance Company pension liabilities.
Richard
Agree I hold several of the big insurers which look excellent value, very resilient cashflows and should benefit from from higher rates. I would add Phoenix Group (LON:PHNX) to that list too.
Are you sure that interest rates rising are good for Phoenix Group (LON:PHNX) ?
I might be completely wrong, as it was a struggle to find all the relevant risks and sensitivities in their annual report. But I was under the impression that higher inflation would increase profits, but higher interest rates would decrease.
I might be wrong as as always, insurance and pension funds are very complex financially to analyse so I have stayed away....
I appreciate that I hold different things in different family members portfolio's, so my mum has been a longer term holder of Legal & General (LON:LGEN) and Phoenix Group (LON:PHNX) both bought for income and doing what they say on the tin. Legal & General (LON:LGEN) in the green, Phoenix Group (LON:PHNX) in the red but coming back up in the last couple of months (both at the maximum size holding I am comfortable with so I didn't average down on Phoenix Group (LON:PHNX) ). She also holds Aviva (LON:AV.) this is very green, but been up and down a bit along the way, interesting to see what happens once all the legacy business are gone, the resulting cash is utilised (assuming special dividend) as I am happy with the rump business as a "income share" but don't want to see the cash spent chasing UK business acquisitions. I would note that I am a customer of Aviva so have my current employer's pension there as well as the various insurance products I get as part of my contract - overall happy, not a great pension offering but is a smallish pot and have managed to find the options that will do for now.
The interesting note is that I have been looking more at the NAPS portfolio that Ed has set up and Legal & General (LON:LGEN) has come up when I ran the QM part of that screen at the weekend, and was in the top two financials. Which creates a thought of some growth in share price with the income. But the surprising part was the number of large caps that were in the top 18 (2 in each of the 9 sectors).
I would also assume that there are going to be more people chasing income this year, or looking to move away from money in the Building Society as the 0.25% rise is not really helpful against a 4-5% inflation rate, now whether there is purchase within the market against specific shares (which is what I am doing for most of the family) or purchases of income funds (my dad and step-mum hold this type of stuff through the building society advisor) I cannot say. I would not put the house keys on it, but happy to have a stake.
Thank you
Tommy
I (or a family member) hold Legal & General (LON:LGEN) Aviva (LON:AV.) Phoenix Group (LON:PHNX)
Legal & General (LON:LGEN) I do hold in my SIPP, but I think you must mean VM not QM as Q score only 25. VMs are packed with financial stocks. I do hold Aviva (LON:AV.) also but sold half this morning, it's had good a good run.
Mobile Streams (LON:MOS) I know a few follow on here and wondered why price was on a tear this morning. Looks like they have signed a gaming contract starting at $120k p/m for first 6 months. This months revenue now exceeds $120k and looks to me like it will be circa $200k p/m from next month once you add up various numbers.
still on about 8* revenues here but they do seem to be gaining a huge amount of traction so if revenue keeps growing then lots of this should fall straight to the bottom line. Now it's getting very strong revenue growth I need to revisit and see what stable operating costs should be as I think that's the inflection point where the company valuation switches to multiples of profitability.
Here's Knights Group (LON:KGH) interim results presentation given to analysts on Tuesday. Video & podcast. Buy and build legal and professional services business. CEO David Beech is very ambitious. They seem to be executing well, and look to continue to expand beyond legal to other professional services. They cover the financials and their growth strategy.
Tomorrow, we have a brilliant PIWORLD Sell it to the City with Cockney Rebel defending his title against, Leo Investor and Daniel Jones. A 10 mins pitch to Andy Brough, Judith MacKenzie and Stephen English with 8 mins of pertinent questions and discussion. Great watching. Who will win and go through to the next series? Take a look and please consider putting yourself forward for the next one. A great challenge, and you could win a lunch with one of the fund managers.
Everyone's asking when the Creightons (LON:CRL) webinar will be available. Give us a little time, but we'll have it in due course, on PIWORLD.
Accrol Group (LON:ACRL) are having a challenging time with cost inflation, as per their update this week. A shame because they were doing so well. Management will update us next Thursday 20.1.22 at 12.45. Register here.
Last but not least, we have the Stockopedia/PIWORLD StockSlam next Wednesday 19.1.22 at 6pm. A live event hosted by Damian Cannon where 10 private investors pitch their best stock in 3 mins. Fast and fun. Register here.
Circassia (LON:CIR) (no position)
There seem to be a lot of positive comments on this one, so I hope people don't mind me throwing in a few negatives for balance:
Annualised Operating Costs (including D&A) look like they will be c£22.3m next year.
Assuming operating costs are relatively fixed, there will still need to be a large ramp up in revenues for the company to become meaningfully profitable and justify the c.£200m market cap (in my opinion.)
From my notes the company indicated that £33m revenue was their breakeven level, which would imply gross profits of £22m @ FY21's 68% gross margins.
Some numbers below for anyone interested in the history.
(NB: there's a £c.1.6m benefit in H2 somewhere - I've added it to the Exceptional/Bal line for now.)
In China, a competing product is supplied to the market by Sunvou Medical.
There have been a few delays here, the most recent one being about a month ago - here.
FDA approval is yet to be granted.
Despite the company looking very expensive, I remain interested due to the apparent market growth potential. For now though, I am planning to remain on the side lines
Cheers
A
as I said it appears artificially expensive but it will get sold. That's pretty much explicit from management and major shareholders.
prices for this type of product roughly 6 or 7 * revenues. on a 1 year forward look revenues expected around £38m+ equates to 63p plus cash of maybe £20m or 5p = 68p
I think they can do much better than this but even on a 12-18 month view that's a 50% upside
At current revenues of £28m market value for a trade sale is about current share price (excluding cash) so you could probably sell it today for circa 50p though management are clearly incentivised not to do that and I'd be dismayed if they did.
Can't read too much into half yearly revenues as business has been quite disrupted by covid over the last 2 years and this has certainly stunted growth. Again with Omicron. They are also now using partnership sales which for the coming year should start to take effect.
In a nutshell risk/reward looks decent to me from here. Headwinds easing, fair market value is above current share price so downside looks quite floored and now profitable.
Circassia (LON:CIR) (no position)
Hi David
You said: "prices for this type of product roughly 6 or 7 * revenues."
I'm genuinely curious whether there are real life examples of this, or if it's something management have indicated.
Given the lean cost base, I am personally wary to value on a revenue basis - I imagine synergies for any acquirer would be limited especially if, as you say, sales are being externalised to 3rd parties.
---
Interesting comment on not looking at half-year numbers. I would ordinarily agree with you, but my belief was that primary care in most markets would be back to normal by H2, and I wouldn't expect Research revenues to be impacted at this stage. There wasn't enough detail n today's update to see where the H2 drop is coming from.
Anyway, Chris Mills is apparently a smart man, so I can only assume that I'm missing something obvious in the prospects here. As I mentioned in an earlier post I'm still intrigued and look forward to seeing some numbers to back up the story.
Cheers
A
hi Abtan
The 6 or 7* is from broker using real life recent transactions I believe.
The synergies are huge. Basically a company with a global distribution capability will just merge it into an existing function, strip out pretty much all costs and take as much as 70-80% margin. Much of Circassia (LON:CIR) spend is sales, marketing and admin, which will all go including board spend etc. The company is now moving into partnerships as well but £30m is based on own sales. You could see as much as £20m profit contribution to an acquirer I believe from this alone. Mills and the new CEO have been there before, that's why the incentives are set at 63p as they know exactly who to approach to sell to when the time is right. This is all a pre set up. The main component in my view is getting the revenues up towards the £40m mark. If you think this team can achieve that then the sales valuation looks after itself.
I imagine there's no rush anyway judging by market reaction. I view it as a 12-24 month play with a good risk/reward profile.
"The 6 or 7* is from broker using real life recent transactions I believe."
The actual sales multiple suggested in today's Singer note on Circassia (LON:CIR) is 3-7x NOT 6-7x. Unhelpfully the analyst doesn't provide his comparator group of medical device companies.
I think it's important to build an argument on facts rather than beliefs otherwise this forum will simply fold into an exchange of Chinese whispers of things we were told by a bloke down the pub.
"this forum will simply fold into an exchange of Chinese whispers of things we were told by a bloke down the pub."
Hmmmm full circle done if we end up back at Paulypilots pub - oh the landlord is still the same young face :)
In the Boohoo (LON:BOO) trading update on 16th December the footnote read;
'The Group intends to provide a trading update for the year ending 28th February 2022 in early March 2022'
So it looks like there may not be any January update this year.
Not a small cap, but I know there's some interest in IP Group on this board. They released an update today, which to me read positively, apart from one sizeable qualification (ONT share price, see below).
The full year profit is high this year at above GBP425m, although this is not directly relevant to the valuation. The 'hard NAV', which is more relevant to the valuation was, at 31 December 2021, 165p, which was well above my estimate of about 145p-150p, and positive compared to the current share price of 115p. Plenty of scope for a closing of that premium. On top of that, the co is currently buying back up to 10% of its shares, as long as the share price is below the hard NAV. There's been a bit of debate recently about the benefits (or otherwise) of buybacks, but I think they are good for a share where valuation is based on its NAV. Less shares = higher NAV per share.
The obvious downsides that I see are:
Any views wanted please.
Cheers
Chris
GarryC in case you are reading I replied with my pennyworth on Volex (LON:VLX) to your comment yesterday about how the share price tanked over the past three months.
I hold.
Regards
Michael.
Thanks Michael, I don't look at my old rants. Volex (LON:VLX) - did not know if trouble with supply chain, copper prices, Turkey or the recent US acquisition that Mr Market was aware of rather than just momentum taking it down. Goes in the ever expanding 'coffee can', think will rename it a 'bucket'.
In the US hold Encore Wire $WIRE £WIRE a similar business and slightly bigger.
Does anyone know when £boo is due to update the market? I don't see anything on their website unlike asos.
BOO updated on 14 January in 2021 & 2020
From boohoo update on Dec 2021 ..... I have paste it below
Notice of trading update
The Group intends to provide a trading update for the year ending 28 February 2022 in early March 2022
AUM Update today from Polar Capital Holdings (LON:POLR)
The market hasn't taken it well, and indeed the sell off started a few days ago. I would class the update as neutral myself (or even mildly positive) and no cause for selling. Maybe the growth isn't as strong as hoped but it's on target for meeting expected results.
Here is an extract from an Equity Development note out this morning:
This AUM update is in line with our previous forecast, while the increase in performance fees between Sep 21 and Dec 21 results in a small increase of our FY22 basic EPS forecast from 56.1p to 57.4p.
Our fundamental value remains 1,400p per share, which after the recent share price fall to 700p (closing price on 12 Jan 22 - see chart on right), is now double the current share price.
We also highlight that Polar still trades at a large discount compared to peers. Its PE ratio of 10.3 is around one third of the peer group median of 31.0 (see page 2). We maintain there are sound reasons for a significant change in rating.
The full (short) document is here:
https://www.equitydevelopment....
Hi Doug
I currently do not hold, I had bought as income with growth share. When it started dropping I sold out (when it went through £8 from memory) as I am trying to protect capital right now, as I am still slightly down from January 2020. So a hybrid strategy of sell if something drops 10% from peak, or 10% stop loss (unless obvious reason such as an end of day spike down).
Polar Capital Holdings (LON:POLR) went straight back into the watchlist, basically happy to own I am just waiting to see a consolidation or start to move back up to reenter.
I think that they are a really good company, just that typical once something starts selling you either have to take the long term hold (ignore) or be prepared to sell and buy back later. Obvious risk is the price goes back up on the day you sell, which is typical for me that inflection point. But more the wider discussion of do not fight the market is something I am trying to apply to my logic right now and override my emotion, so similar rule has taken Volex (LON:VLX) and Begbies Traynor (LON:BEG) off my current holdings list, going to buy again just not today!
Tommy
Hit my stop on Polar Capital Holdings (LON:POLR): today agree quality company in a sector full of mergers and takeovers but personally think its going to need the tech and health care sell off to abate before it starts to head north again, performance fees way down in rns today which is to be expected given growth assets being out of favour at the moment.
Back on the watch list for a suitable re-entry point.
That's the problem with investment in fund managers that specialise in specific sectors or asset classes; hugely volatile share prices over the years based on the desirability of the underlying asset class and performance.
One only has to look at Record (LON:REC) which was in the doldrums for many a year, until currency funds became quite hot again for some time, and when they saw AUM inflows the shares have shot through the roof.
Hi Paul and thoughts on Halfords (LON:HFD) or to big. Looks like it moving into car repair and services with not many new cars about seems a good idea for next few years an d better margins. Looks cheap but weigh ted around mot dates
Notice that National Tyre and Autocare have just merged with Halfords, not sure how this will effect the numbers but should be positive IMHO.
Hi Paul
Just wanted to say thank you for pointing me/us in the direction of the John Campbell YouTube channel.
Yesterday he analysed data out of the states on Omnicron and while a more virulent form of sars-cov-2 could come along, my personal interpretation, for its worth, is that Omicron and the data out of the states marks the beginning of the end of the pandemic. Now how to profit from it!?
The analysis is at:
https://youtu.be/TrVGymR-jFU?t=250
Regards
Michael.
I haven't watched the video, so I don't have full details of what he is counting and why, or over what period. But the NYT shows covid deaths in NY as dropping to around 1-2 a day in early Dec, and beginning to rise around Christmas. Which was around 2-3 weeks after the covid infection rate started to rise, due to Omicron. Deaths averaged out at around 12 a day on yesterday, the 12th Jan, but given the 2-3 week lag between infections and deaths they've got a long way to rise yet before they peak. NY is clearly has clearly front run much of the states with Omicron infections, and vaccination rates in many other states are lower, so US peak deaths have a way to go, and the figure of 1 seems to bear no relation to the reality on the ground. No doubt Omicron is less lethal than Delta, but we are long way from being able to say with confidence "it's over" - not the first time some have said that - or that future variants, which there will be, will also be less lethal. Lets hope that's the case, but overoptimism won't help deal with it.
Deaths in New York State on 11th January were 293, which is higher than the previous peak one year ago. Omicron seems less deathly but number of cases are far higher, there are currently around 80k cases per day in New York State, one year ago it was around 20k per day. How many deaths are due to Omicron, I don't know. We don't know if the peak has been reached yet, deaths have been rising in the US and in the UK this week.
So as you say this is not over yet.
IMO all the death figures are meaningless unless you say 'with' or 'of' the flu virus and whether there was comorbidity. Also how it compares with the same period 2 years ago.
IMO all the death figures are meaningless unless you say 'with' or 'of' the flu virus and whether there was comorbidity.
We're talking about covid, not flu. And it's really not true that death figures are meaningless if you don't distinguish those with or without comorbities. In 2020 Heathline in the US estimated that 60% of the population had comorbitities that increased covid risk, so we are not talking about a small proportion. And if covid knocks 10 or more years off the life of someone with diabetes or cardiac issues that doesn't make their death less consequential. People with comorbities are not all about to die in the next week or two.
Hi Peter
Campbell is not counting anything he has extracted the data from two papers prepared by medRxriv on cases of Delta and Omicron variants in Southern California between 30th November and 1st January and where the Delta variant was still dominant (the US is behind the UK, EU and South Africa (96% Omicron).
https://www.medrxiv.org/content/10.1101/2022.01.11.22269045v1
https://www.medrxiv.org/content/10.1101/2022.01.11.22269045v1.full.pdf
The papers were making comparisons between the virulence of Delta v Omicron, something that is now not possible in the UK, for example, because there are not enough cases of Delta in the population.
I accept this is one study but quite a large one and the figures are striking. I post below a screen grab of the figure for cases with Delta (complimentary to the one above).
Further a chart from his programme the day before of the number of patients on mechanical ventilation in the UK shows that though the number of cases has exploded over the past two weeks (the estimate is of some 7 million + inventions over this period) the number of patients on mechanical ventilation has remained flat because omicron infects the upper respiratory tract rather than the lungs and in addition patients are spending 3 1/2 days in hospital as opposed to 5 to 6 days.
One can monitor this oneself at:
https://coronavirus.data.gov.uk/details/healthcare
I would watch his programmes they are informative in general (in a way that MSM and Sage/government are not) but the information is relevant to what investment strategy one adopts coming out of the pandemic.
Regards
Michael.
On Circassia there is a video on the excellent PI World speaking to Christopher Mills where he talks about it in a bit of depth. Harwood Capital, of which Mr Mills is the CEO, bought a 18% stake in Circassia in September last year.
They have a seat on the board for a NED by the looks of it, and seem to be working very closely with the new mgt. The investment case is that Harwood seems intent on doing the co. up for sale, at around 60-70p, from (a pretty bad) memory. I'm assuming Harwood and mgt. think that's a fairly achievable price, hence the share options price mentioned by Jack.
Seems to be going to plan so far, experienced management team who have been in life sciences their entire careers by the looks of it. Mgt. and Harwood all seem to be pulling in one direction, with some decent momentum behind them, so fingers crossed.
Incidentally, it looks like there might have been some informed gambling on this share yesterday. Not saying that was dodgy, but...you know...I am.
The key here is the sale. A purchaser could be extracting £20m+ profits by my calcs buying this business. Basically you strip out all the sales and marketing into your own infrastructure. Someone could easily pay 20* that or more. I have a sale price of between £400-600m. Why? because this is a very big market and relatively untapped. By owning the asset if you have large global distribution you not only extract the profit contribution but can also grow revenues much more quickly. So a highly scaled outfit could get sales to £75m and £50m+ profit. Then you've paid 8-12* which is reasonable. That translates to between 90p-130p as share price if the sale transpires, so there is plenty of room for the 63p incentive plan to kick in.
I'd be entirely on board with that if it did happen, and can see your logic. Take a look at the video I linked to above, I'm pretty sure Christopher Mills was targeting GBP250-300m sale price, although his (admittedly optimistic) view made that sound a base case price.
yep - interesting. Any sale would depend on market conditions at the time and other factors such as how scalable / efficient the purchaser is, whether they can drum up competition bidding etc. Sprue Aegis being a classic. I was massively disappointed with the first bid but Harwood managed to up the price massively. I'd hope the same will be true for Circassia (LON:CIR) but nothing is certain (particularly in the land of M&A). Most purchasers will start by downplaying the synergistic implications to low ball a bid as you'd expect and do similarly. Thats why todays announcement is so important. It's now cash generative and growing quite strongly on its own. That's a far better position to be coming from. Shareholders won't be clamouring for the exit at any price and have no worries about the cash position of the company or ability to self fund. Ideally I'd like to see revenues around £40m and PBT maybe £6-7m so that standalone its on a PE of 25 before management engage in a sale. I think that's where they will get biggest upside from an acquirer but we shall see.
I obviously hold and looking for 25% p/a so targeting 70p - 90p over 2 to 3 years so the timeframe fits in with my thesis of getting revenues to £40m+ and achieving a sale in that time.
Or it could have been "tipped" by someone who is widely followed, thus creating much buying by the many followers.
"We don't talk about share issuing and shareholder dilution much on Stocko do we!"
I thought we did!
We certainly do . Paul Scott is always very quick to remind subscribers to look out for dilution.
Richard
"We don't talk about share issuing and shareholder dilution much on Stocko do we!"
This is complete twaddle! We focus very closely on dilution, and I always mention it when a company has issued a material number of new shares, in the SCVRs. It's absolutely key.
Doug seems to have latched onto an unusual method of valuing and assessing companies (which has some merit in it), and has all the fervour of a religious convert! ;-)
Remember that different investors have different ways to value shares, and no specific method is right or wrong.
P.
I was going to leap to your defence (but you beat me to it!) because I think quite the opposite. You often point out that we must look at the share count pre and post Covid when analysing a share.
Until you brought it up it was not something I had thought about.
Easyjet (LON:EZJ) is a good example:
Share price since 1 January 2020 down from £13.20 to £6.19
Share count up from 397m to 539m
On top of that borrowing has gone from £756m five years ago to £4446m now.
Easyjet might be a recovery play (I do not hold) but I am not sure I would be holding it for the long term!
Regards
Michael
Increased share count is important. However this must be measured against EPS.
I'm very happy if a share count doubles so long as EPS is growing too.
What matters is the sum total of share count multiplied by EPS. Admittedly your shareholding may be diluted but you have a smaller share of a much bigger pie. That's fine by me.
Agreed but the point is that people may look at the profit figure and say whoopee profits are back to where they were in 2019. In the case of Easyjet (LON:EZJ) £466m in 2019 but they will forget to take into account that the share count is up circa 80% and the company is more heavily indebted and therefore a very different investment proposition.
Regards
Michael.
No mention of the dilution above for Asos when it is such a huge factor for this business.
The fervour of a religious convert. It may appear that way when I seem to swimming against the tide of QE fueled hot stock valuations. I don't see all that Stocko does as being driven that way, I certainly agree with the ScS and Plus500 assessments, but the short term bubble hype has certainly influenced Stocko writers and readers, which is in line with what has happened with the broader market.
I have been investing since 2007/08 and SIPP investing since 2009. My approach has been broadly the same throughtout that time, although I have become increasingly aware of fake earnings, i.e. earnings which are allegedly retained but never reach the balance sheet as tangible equity growth. Probably nearly a third of all earnings declared on average are not genuine, i.e. they never reach the balance sheet - this does not make them fraudulent necessarily, it is just easy to exaggerate declared earnings. Some business are 100% clean in this area but many decalre earnings that are far greater than 1/3 exaggerated.
My SIPP returns were verified by the DT last April (at 17x up withoutt additional inputs, under the pseudonym Bogdan Branislov). Of my 4 SIPP compounding doubles since May 2009, my last double has taken c6 years, far longer then the first three. QE and easy money creates bubbles which is never going to help me. Going forward, a little inflation will likely return us to monetary normality, which should support my approach more strongly. Having said that, it has not worked out too badly for me since 2009.
I would also say that the tangible surplus assessment is not a rigid screen based approach, it is a starting point and an essential ingredient, but my assessment of a business covers a range of considerations.
"My SIPP returns were verified by the DT last April (at 17x up withoutt additional inputs, under the pseudonym Bogdan Branislov)."
This is about the fourth or fifth time you've felt it necessary to talk up your own results recently. I'd hoped that you pipe down having been thoroughly discredited in the Macfarlane thread.
Is a 'tangible surplus' lacking in other areas of your life?
Do you think anyone ( with a bit of common sense ) investing from 2009 onwards has lost money??????
John P. Hussman PhD? As far as I can tell, the Hussman Strategic Growth Fund has lost almost half of it's value since 2009. Someone please tell me I'm mistaken!
Thought to improve the Stockopedia "Alert" function - add the ability to include a note with the price alert for example "Buying Opportunity" or "Triggers management share bonuses" etc.
For example Circassia (LON:CIR) in the report above has a good example of a trigger to set with a suitable comment/note to remind you why you set it in the first place.
Based on yesterdays SCVR. The Fed may have backed away from monetary tightening due to market reactions or the threat of a recession in the past. But, they will not do so when inflation is high, they dare not, do not count on the Fed or the BOE being accomodating to markets from here.
The FAANGs (or FAAAMs) not being expensive. The only meaningful way to value such stocks is by their tangible surplus generated - dividend added to tangible equity growth, expressed as a % of MCap. This is a measure of the actual wealth that the business generates for shareholders relative to MCap.
At current profit levels these businesses generate a tangible surplus between c0% and c3.5% of their current MCap, averaging around 2.5%. c5% tangible surplus is typically a fair price. So FAANGs (or FAAAMs) prices could easily fall by 50% from here in time and even then would only be at a fair price not a bargain price. And that assumes that current profit levels are maintained. Higher interest rates could impact their margins and their tax avoiding dexterity has made them few allies among regulators, which will likely create stronger regulatory headwinds going forward. Hence, only 50% price falls over time might be optomistic.
Asos - on the face of it Asos appears to be growing its net tangible equity by over 2% per annum. But then, we move to the share issuing! We don't talk about share issuing and shareholder dilution much on Stocko do we! 26% dilution over 4 years. Incorporate this into the tangible surplus and Asos is shedding tangible equity at the rate of c4% pa, year on year.
Of course Asos has been making acqusitions and correctly generating intangible assets. But sooner or later, intangible assets have to create tangible wealth for shareholders, no sign of that with Asos.
You might also want to look at the share issuing record of Portmeirion.
FAAAM stocks ?
Do you mean MAANA stocks ?
The FAANGs (or FAAAMs) not being expensive. The only meaningful way to value such stocks is by their tangible surplus generate
As you keep asserting. But to the eyes of this observer they are magnificent compounding machines which own the keys to modern existence. Microsoft is an annuity on the digital world, Facebook offers a billion pairs of eyes to advertisers. Alphabet is literally the toll booth of the online universe. Amazon owns half the cloud and is the world’s biggest retailer.
There comes a point where a business buyer, that’s you or me, needs to stop worrying about the tangible value in the price and starts thinking about the extent and duration of the future earnings. Your focus on tangibles runs counter to the well established trend globally for the most valuable companies to be those based on intangibles who consistently grow by compounding their earnings.
Alphabet is valued at the S&P500 average. Facebook is lower than the average. To describe these as overvalued - simply because your inflexible model decrees them so - is to put your head in the sand. Alphabet is a 50 bagger inside a decade whose PER has rarely stepped over 25x. Think about those gains, made at a low risk relative to the indices, and ask yourself whether other valuation strategies might have some merit after all.
I have no argument with the assertion that pre-earnings US tech is expensive. Some of my holdings are on very daunting price to sales and give a very volatile and sometimes painful ride. But FAAAM, on average, is decent value and, if those names were vulnerable to this year’s interest rate rises, which have already been acknowledged by the Fed, there’s no sign of them being more vulnerable than any other part of the market.
Doug2b,
In your post above you said:
“The only meaningful way to value such stocks is by their tangible surplus generated - dividend added to tangible equity growth, expressed as a % of MCap. This is a measure of the actual wealth that the business generates for shareholders relative to MCap.“
I think someone else (or maybe it was you) described a similar formula here quite recently, and it would seem to me to be an eminently sensible method of measuring the value of any stock.
As a novice here I should be interested to learn where on Stockopedia one can find the figure for tangible equity growth for each company. I can’t seem to see it.
Could you perhaps be kind enough to show a worked example for a particular company that would assist a dummy like me?!
In your post above you said:
“The only meaningful way to value such stocks is by their tangible surplus generated - dividend added to tangible equity growth, expressed as a % of MCap. This is a measure of the actual wealth that the business generates for shareholders relative to MCap.“
Please don't get taken in by this. Anyone who thinks their method of company valuation is the "only meaningful way" is trying to pull the wool over your eyes. That's the opening line of all snake oil salesmen.
All the best, Si
In terms of stocko screens, as far as I can see you can’t pull out the change in net tangibles that easily. You can screen for overall asset growth alongside dividend size.. Put in say 3% for each and you will have a pile of candidates for further consideration, which is useful. Although by the time you deduct the intangible growth and allow for share issuing, few will make to the required 10% surplus.
I can do a worked example for you and highlight the required data sources, but I will put the ball back in your court before I go to the effort if you don’t mind. i.e. you tell me which company to use as a worked example, pick one of your favourites.
Can't you do a worked example of something you have bought?
Thanks for your reply and your offer to do a worked example. What about a topical share here on Stocko, such as Volex (LON:VLX), which I don't own but whose recent share price slide might be out of kilter with its value?
He wrote about Volex in the Telegraph.
TL:DR he was as dismissive of Volex as he was Macfarlane.
Boohoo would also be another good example - would be interesting to see where it fails in relation to Dougs criteria. I have certainly thought booho hasnt done a terrible job at retaining profits within the business over the long term - when comparing to asos they seemed a more efficient machine. Does is simply fail on being expensive or due to the money that was used to buyout the minorities or due to having gone of the rails recently ref an over heavy investment phase that has of yet generated didly squat.
Okay, Volex, Bohoo and I will throw in a couple of my own, CAML and FORT as they are slightly more complex and interesting examples within my holdings. I need to seize the remaining daylight now, I am building some steps, but I will assess the tangible surplus for the above, one post for each company, starting tonight, on this thread completing by tomorrow morning.
I will assess the tangible surplus for the above, one post for each company, starting tonight, on this thread completing by tomorrow morning.
It's obvious you and I don't value companies with the same approach and I did see fit to pounce on what I personally consider to be your plain silly valuations of big FAAAM. But I do appreciate the different perspective you are bringing and I look forward to seeing your calculations.
Nevertheless, I can only go along with other contributors in encouraging you to heap less scorn on alternative valuation strategies. Your tangible surplus cannot be the only valid metric simply because it has missed every winner of this century from Amazon to Tesla to NVDIA and I'm pretty sure it will miss all the future ones too!
Fight your corner please - but with some respect for alternative approaches. You seem to have landed on - even perfected - a winning strategy. But just as this is a market of stocks, not a stock market, so this is a game that can be won with a variety of tactics.
Volex - I use Morning.... for this, to get the full data I have to pay, there are other free routes to ge the same data I believe, probably slightly less effectively, but Morning... is what I use. Do I suggest that Morning.... is a replacement for Stocko? Not at all, both useful so I pay for them both but very different functions.
I use 5 year data to assess the changes over 4 years, yes! one year change would be 2 year data, 4 year change is 5 year data. I also have to 10 year data which I like to look at just to see the very long term trend, gives me a wider feel for the business and how it coped in previous phases/cycles.
Volex - Total assets 2021 = 184m, 2017 = 46m. Change = 138m.
Intangibles increased by 101m over the same time period, so net change in tangible assets = 37m. Divide by 4 to get average annual increase in net tang equity over the past 4 years = 9.25m. Divide by current MCap of 497m = c1.9% of MCap. Add that to the divi of c1.1% and we get a provisional net tangible surplus (TS) of 3%, before we consider share issuing. Bear in mind that a TS of around 5% to 6% is typically a fair price, above 7% may well be a bargain, around 10% or higher is what I am looking for, although I may accept a sligthly lower figure, perhaps around 7% if I am confident over higher returns in the pipeline.
But all this is irrelavent for Volex due to the share issuing. This business is addicted to share issuing. 2017 = 89m shares 2021 = 163m shares, an 83% increase, over 20% each year. This roughly means that the genuine TS after share issuing is minus c17%.
That makes Volex a share issuing ponzi scheme, this is no business at all, it exists by issuing an average of over 20% additional shares each year. This has been going on for a long time, back in 2014, there were only 60m shares in issue. You could run any business doing absolutely anything like this, or for doing nothing more like, there is no need to make any kind of genuine profit when you raise c20% of the MCap in cash each year by share issuing, I mean for crying out loud! Reminds me of Quindell Portfolio a little, remember them, different sector but real similarities.
A business like this if it acquires will generate intangible assets, that is unavoidable, but those acquired businesses must in time generate tangible returns for the business and its shareholders
I trust that this was all flagged up by any analysis of Volex that you may have been given!
Bohoo - over the past 4 years, total assets increased by 372m, but intangibles increased by 83m, therefore the net increase in intangibles was 289m. Divide this by 4 to get the average annual increase = 72.25, divided this by the MCap of 1.41bn ans you get 5.1%, i.e. the provisional TS before we look at share issuing. Over the past 4 years the sahre issuing is 10.4%, i.e. 2.6% pa on average pa.
Deduct this from the 5.1% and you have a TS of 2.5%. Roughly twice a fair price and roughly 3 times a moderate bargain price. And this is after the recent price crash. The share price for Boohoo is highly unattractive now, prior to the price falls the share price was madness, pure madness.
Forterra - they are opening a new brick plant later this year. Quite rare that a genuine new brick plant is opened in the UK. The licensing and permitting is endless and takes years to negotiate. The build also takes years, you have to base the plant very near to a suitable clay source and because of the time scales, you just don't know where the house building cyle will be when the new brick plant comes on line. Oh and yes, a new brick plant is very expensive requiring years of investment.
In the UK we have to import about 15% to 20% of our bricks, mainly from Holland. There is no prospect of this production gap closing in the forseeable future, even with Fort's new plant. Bricks are heavy relative to their selling price and are therefore expensive to import, this gives a considerable pricing moat to UK brick makers within the UK market.
Fort issued c7%, just under, additional shares in 2020. Normally I would frown on this, but not on this occasion. In 2020, Fort's spend on the new plant was high. Then came Covid, none of us knew quite how deep the resulting economic disruption would be. Fort took the decision that there is a first mover advantage to share issuing. i.e. if Covid had dragged the UK into a genuine depression, then it would have been too late for Fort to issue shares and their spending commitments on the new plant would have left them vulnerable, so they issued the shares. The extra cash was not needed in the end, but they made the right call under the circumstances.
Anyway, the share issuing is factored into the TS calculation as above.
Net tangible equity increase, annual average over the past 4 years relative to MCap - 5.7%. Dividend, conservatively expected to be c3% this year. Share issuing from 2020, average over the past 4 years 1.7%. Put it all together and there is a tangible surplus currently of c7%. But the new brick plant comes on stream in H2 this year, this will increase both output and operating margins. Major upgrades on another of Fort's other brick plants also begins this year.
Basically, Fort is a buy now, despite the drain that the new plant development has made upon the business over recent years, especially as part of the high investment phase coincided with Covid. With the new facility coming online, the buy case becomes compelling.
Fort are quite obsessive about under promising and over delivering. The closer to comissioning we get the more they play everything down, but the scale of the new Desford facility relative any other brick plant currently operating in Europe is all in the public domain. Brick forward contract prices are significantly up now relative to inflation. Whether private or social or both, a lot of houses must now be built within the UK over the next decade.
Doug 2b,
Thank you for taking the time to explain how you arrive at the figure for a Tangible Surplus. I see you have some detractors who don't agree with your methodology, but I for one find it very useful to learn about different methods of valuing/assessing a company's worth as they all help to form a better perspective. There are plenty of examples from history where people (frequently politicians) have chosen to ignore evidence that is staring them in the face, simply because it does not chime or fit with their thinking, and they have been seriously embarrassed as a result. Your method seems to me to have much to recommend it and I am most grateful to you for sharing it.
I don't think anyone has a particular problem with the methodology - it works for some companies. You know, like small brick producing companies that just chug along making their products.
Here's a question for you - what do you think the copyright to Iron Man is worth?
Because Doug's method says it's worth zero. Make an Iron Man movie you can sell the rights to for years? Not worth a thing, not a tangible asset, share holders being ripped off.
Dougs valuation technique is a throwback to the Ben Graham era (1950’s – 1970’s), a time when Balance Sheets were loaded with tangible assets. Ben Graham even had success with his Net-Net technique of investing in stocks whose Current Assets exceeded Total Liabilities.
However, since that era intangible assets (patents, trademarks, copyrights, acquisitions > book value etc) have grown to become the largest asset underpinning enterprise value.
https://www.oceantomo.com/intangible-asset-market-value-study/
When an ‘old economy’ stock like Forterra (LON:FORT) builds a new (tangible) plant, this is included in Dougs calculations but if for example it was expensing R/D or Sales/Marketing expenditures then these would reduce its Tangible Surplus, regardless of how much value these actions created in subsequent years.
Hence this technique has missed the shareholder value created by Amazon, Facebook, Alphabet & Tesla – remember these companies didn’t exist 30 years ago yet today are valued in excess of £4 TRILLION.. all supported largely by intangible rather than tangible assets.
The point that you make is interesting for a couple of reasons:
1. There is a Ben Graham overlap in the sense of paying c50p for every £1 worth of value, i.e. the margin of safety. Also, all value and value growth approaches tend to originate from Ben Graham.
2. The reference to price and net asssets is often made and I can see why, but actually this is not the case. Take ScS for example. That is not a business requiring a high tangible asset base at all. It has a lot of tangibles because it generates the cash asset at such an extaordinary rate relative to its MCap. i.e. the business does not need to have a high asset base at all as part of its operations, Plus500 is another example that I hold, but it does need to generate net tangibles at a hoigh rate relative to its MCap.
Facebook and Amazon have always been difficult to value. Apple I looked closeley at in 2011. I knew less then and if I had equated the sahre buy backs correctly I would have likely bought Apple in 2011. We were only a decade after the dotcome cash back then. It did at the time seem implausible that Apple would maintain its dominance for much longer in such a competitive sector at the time, but they did. But like I say if I had been analysing fully as I do now, I think that I would likely have bought Apple around 2011/12.
Tesla I currently hold a small short position, which I may enlarge of the price goes up. Tesla could gain 50% of the current global car market at industry beating margins and still be grossly over priced. A cult has formed aroud Tesla. For Tesla to justify its current price, it will need to develop usable self drive softwear in a way that nobody else can manage so that the automotive world beats a path to its door and pays a huge premium to Tesla as the worlds provider of this softwear.
Not going to happen!
Doug. Thanks for your efforts. I actually like Forterra as a business, moaty, good returns on operating capital. It only fails my tests owing to its highly cyclical nature and weak growth rate.
My concern is that your strategy to minimise risk of loss leaves you scratching around old economy companies in highly pro-cyclical sectors. This is itself a huge opportunity cost. You are thinking like an investor - I applaud that. But you aren’t thinking like a business owner.
Entrepreneurs concern themselves with market and opportunity and they seek to lock into positive long term trends. Nat Rothschild at Volex is one such individual and he has done a superb job building his conglomerate to key into megatrends like cloud computing, automation and electrification. When you buy shares in Volex you participate in Nat’s vision and this has been highly remunerative for shareholders.
Many ways to skin a cat and all that!
You’re valuing a company that has historically grown at 40% on the figures from two years ago (ie because you’re using simple averages you’re effectively looking at the net asset increase two years ago).
Madness, pure madness.
Interesting comment Doug2b but I don’t think I really understand parts of it! Can you explain:
“The FAANGs (or FAAAMs) not being expensive. The only meaningful way to value such stocks is by their tangible surplus generated - dividend added to tangible equity growth, expressed as a % of MCap. This is a measure of the actual wealth that the business generates for shareholders relative to MCap.”
I have’s the calculation but I would imagine that the sum of the tangible assets of Meta, Amazon (maybe this is the exception), Alphabet, Apple and Microsoft are just a rounding error in relation to the sum of the intangible assets. The value of these companies is surely in the intangibles not in the physical assets that they have or am I getting the wrong end of the stick. The network effects and monopoly positions that these companies enjoy.
Thanks.
Regards
Michael
I do not hold any MAAAM stocks but intend to purchase in the coming weeks.
Michael
If you wish for a cheap way into gaining exposure to Alphabet & Microsoft then maybe consider the Investment Trust Menhaden Resource Efficiency (LON:MHN) .
This Trust currently trades at a 27% discount to NAV i.e. you are paying 73p for a £1.
Yet 40% of its asset value consists of its holdings in Alphabet & Microsoft:
Strip these two out and you are now paying 33p for 60p of assets i.e. a 45% discount.
Currently there are no large activist shareholders on the register so it appears unlikely that a winding up / other immediate means of narrowing the discount will occur near term.
Hi Doug, could you please include Luceco (LON:LUCE) in your calculations. It is down 39% from it's high to its current 310p price. With its EPS rising, I believe LUCE is worth nearer to 460p which is getting on for 50% more than its current share price. Many Thanks.
Thank you. I will certainly take a look.
Hello Epsilon. Thanks for that. If it so valuable - a genuine question - why in your opinion isn't the SP movement more positive? Also quite a small IT - £95m. Any thoughts welcome
ridavies re Menhaden Resource Efficiency (LON:MHN)
You're right this is a small Trust & hence allied to this it has a relatively high 1.25% annual management fee.
Secondly, the Trust has a confusing remit. In its own words "The Company invests in businesses and opportunities, delivering or benefiting from the efficient use of energy and resources." it's not clear from this what their investable Universe includes or excludes.
Thirdly the AIC classify the Trust as belonging to the IT Environmental sector in which there are only two other comparator companies. Menhaden Resource Efficiency (LON:MHN) has lagged Impax Environmental Markets (LON:IEM) in both the past 1 and 3 year periods;
The discount at Menhaden Resource Efficiency (LON:MHN) will be narrowed by either by an improved portfolio appreciation or by shareholder action to wind up the Trust. Clearly either of these will take time, so patience required.
See above, Volex for detailed method. It is quite logical when you see it set out.
There is nothing wrong with intangibles, there is a reason why they exist in accounting - goodwill from purchase acqusitions. But ultimately these intangible assets must generate tangible wealth if the husienss and its shareholders are to benefit, so that is what I am assessing.
Hi Doug, your method of calculating the investability of a company and what it is valued at through its TS (Tangible Surplus) is an interesting approach and it possibly could be another method to assist investors research into which shares to invest in.
It's only a suggestion Doug, but maybe it may be worth you starting a separate forum whereby you evaluate the TS of each company which Paul & Jack discuss each day. It would interesting to see whether you TS figures show if a share is a bargepole job or whether its worth more research as a promising company with strong fundamentals.
David.
Seems that windfall tax proposals are all the rage (note on Countryside Properties (LON:CSP) & housebuilders). What with the opposition parties calling for one on oil & gas industry why not go the whole hog and propose one on all beneficiaries of the pandemic E.g. pharmaceutical companies especially £PFE (but notAstrazeneca (LON:AZN) as there vaccine was sold at cost!), supermarkets, online retailers, WFH beneficiaries, M & A houses, law firms and not to mention big fat bonuses for investment banks.! All in all a crazy idea that seems to be gaining traction. Shareholders beware!
What about the big losses Oil companies suffered when oil prices were around $20 in 2020?
That is purely an offset for future profits!
That's if they are still around in the future.
Circassia (LON:CIR)
Jack - this is a business that is going to get sold in my view. It would fit a much larger outfit which would strip out many of the overheads into existing infrastructure (sales & marketing) and leave the business highly profitable even at todays revenue levels. I would expect to see a return to 2019 revenues and higher this year which suggests at least 20-25% revenue growth. At that point the NIOX business is very valuable to someone who has strong global distribution. At £30m+ revenues this could easily translate to £20m+ of profitability to the right buyer so you can see where the upside comes in even at £190m market cap.
It's great to see the new management have turned it around though and is now cash generative as that takes any strain off needing a sale. They can grow organically in the interim resulting in a much stronger negotiating position. I'd be surprised if Circassia (LON:CIR) hasn't been bought in the next couple of years though personally.
Interesting update on Circassia (LON:CIR) thank you. First came to my notice when David Thornton promoted it on StockSlam April 2021. Bought the following morning, ignoring the Sucker Stock rating! That was a profitable evening's StockSlam listen as also promoted TekCapital and Beeks Financial Cloud, thank you all those involved.
I note that Astra Zeneca own 17% of Circassia (LON:CIR)
Is Card Factory (LON:CARD) the Blockbuster Video of the greeting cards world? Will we all switch to online cards like we did with VHS.
We have largely switched online already haven’t we? I’m a lot happier to get a WhatsApp message with picture or video from the grandchildren than a shop bought card. Home made cards are another thing of course but that doesn’t help £CARD.
Re Card Factory (LON:CARD) - " We have largely switched online already haven’t we?"
The data says, and even Moon Pig agrees, we have not - yet. We buy physical cards for parties and events late and and on impulse and not everyone is good at online manipulation required to create a physical card online. Only a minority think an email style 100% online card is a substitute.
Nevertheless, the direction of travel is clear ie online is growing much faster than offline which is probably structurally declining in low single digits overall (with a big step down due to Covid lockdowns). Its not clear what will happen to say children's and other parties when "normaility" returns.
FWIW - I had held onto CARD precisely because I felt that physical cards will hand on a lot longer than people think and CARD is close to last man standing on a much cheaper to rent High St/Retail park. That pricing power is demonstrated by revenues staying broadly flat even as footfall has gone done 20%. It's scale and cashflow should enable it to remain a profitable player and get a 3rd player share of online and online+gifts; I think it targets 10% online share by 2025/26. Not impossible with its brand salience in the space - if it gets it act together.
However, I am now thinking of selling since the previously highly profitable vertically integrated model should not require an extra $30Mn of costs next year unless this was to radically up its game in online or in some other way that is not being promised.
Hi Zipmanpeter
The update says that the rise in costs is "predominantly" down to freight costs. On the face of it, these should decline at some point - even if not as soon as I imagine the Card Factory (LON:CARD) directors would like. So I would guess there is an uplift in base costs of more like $10Mn than $30Mn - I would have thought the business case was not being invalidated as much as you suggest. Mind you, I don't hold, and am personally wary of consumer-facing businesses based on a model of shipping in masses of stuff from far way, but Card Factory (LON:CARD) looks to me in a better position than many of them.
Card Factory (LON:CARD)
Is Card Factory (LON:CARD) the Blockbuster Video of the greeting cards world? Will we all switch to online cards like we did with VHS.
That reminds me of the time blockbusters ceo simply laughed when Netflix offered their business up on a plate for $50 mill - he thought that internet thing will never catch on.
Personally i think their shops do enough useful convenient stuff (tat?) that they have plenty of shelf life left in them - so that has not been a major worry for me . Would others agree ?
I would have thought for ref wrapping paper and minor stuff associated stuff like its as easy or easier and cheaper to pop into store rather than sort online for most bods? - thats not to say it might not hurt if there is a gradual drift away to online if their online presence isnt taking an approrpiate market share in that regard.
Hi rmiralaree,
I have never considered Card Factory (LON:CARD) as an investment precisely because I think it serves a rapidly dying market. My daughters' generation (mid-20s) and below do not send cards at all - physical or on-line, doing all their congratulations via social media (interestingly, not Facebook, which is also considered old hat). I do not see this changing.
Amongst the older generations, I suspect that a gradual transition from quantity to quality is occurring, to the benefit of the like of etsy and the detriment of Card Factory, which certainly sits right at the bottom of the quality food chain ("tat" is correct).
Card Factory (LON:CARD)
Cheers EC - your comments do make complete - as you say the generational shifts thing cannot be avoided and does seem to be speeding up as we go - i know some old burgers who would never have dreamed of even picking a mobile 10-15 years (other thann for emergencies) who are sneaky good at acting like a millenial when it suits them (they will never admit it tho) - as long as i can still buy my midget gems i am happy to be stuck in the past. In all likelyhood card could very well turn out to proper old school value trap - there certainly is slight signs that even half of their past glories amy not be returned too anytime soon.
Dang have i just rung the death bell for midget gems now ? - ok scrub that midget gems won''t exist next week thats a given seing as they are hate speech wrapped up in bobble of sugar :)
I think the analogy with newspapers is strong; the market will consolidate and die but surprisingly slowly and with what profit for the last man? Unlike say Reach, CARD does not have the scale of debt to kill it - although it must regret the special dividends of a few years ago and current supply chain costs are another headwind.
But my kids (21 and 19) DO send/give cards as well as congratulate online but mostly to people they see physically (ie they do not "send" cards partly because the price of a stamp is now so high relative to the card and they give for less traditional reasons (less Xmas, more Halloween and Driving Test pass). The habit is still deeply ingrained in the UK especially with the pre-digital generations who have many years left. At 55, I am estimated to have another 30+ years of tread left on the tyres.
I commented below that both CARD and Moonpig used the same data/ research and thus had surprisingly similar views on the rate of transition to online pre Covid and scale of residual card via physical retail. It will be interesting what research they cite as we emerge.
I also agree on the trade up in price. But as everyone else leaves the market, much easier for CARD to price up; and on very high high unit volumes an extra 20p/card really stacks up. Plus there is still a space for selling down-market "tat" in physical retail - wrapping paper, balloons, Claire style cheap earrings for teenagers on the way home from school.
I therefore think that CARD at some point becomes a value play. You may (probably rightly) think there are other better opportunities presently but I expect CARD will still be around and profitable in some form in 20 years.
Card Factory (LON:CARD)
Very tricky one to value here - i had a buy price set at 50p , and just missed out on the recent dip below that level before the spike back up. to 60p Really hard to say how things will pan out - the debt was the elephant in the room and they seem to be coping well in that regard. But equally important is their ability to churn out decent future profits and todays news is obviously more than a bit of a wobble -in that regard despite them being ahead of expectations for now (all slightly bizarrre) . I was thinking minimum profits of 30+ mill a year with the potential for materially higher - so it looks like that is simply not gonna happen short to medium term - is that a bit of a game changer short term ? probably for me the upside i thought would probably materialise ref profits bounceback aint there so that does change the investment case for now. I would presume management are doing the best they can to maximise what they have but the performanace as a whole has been anything but stellar anyway so i wouldnt say confidence is brimming.
I would say full marks to management here for such a forthright statement today with regard to future issues (i am hoping there is no dodgy ulterior motives for being so gloomy) , its easy to bury your head in the sand (especially when you have debt) and presume it might not be as bad as you expect it probably will - in some respects compared to where the shareprice has been for most of the time since covid those who chose to walk away now are not doing so at a terrible price.
Will be interesting to see what revised broker expectations come in at but i expect its not gonna be pretty. I would say this news does set bthe tone for future updates being very gloomy if things pan out as expected - the market probably likes doom and gloom unly slightly less than complete uncertainty.
Angle (LON:AGL)
Well, it is the 13th today 8-(
Ovarian cancer study sample analysis slower than planned
First submissions have been made in relation to CLIA and UKAS accreditation of
the Company's United States and UK clinical laboratories respectively. In the
United States, these processes are in hand pending results of the ovarian
cancer study …………….While good progress has been made in many areas of the ovarian cancer study, there have been some third-party supply chain difficulties attributed to
COVID-19. A key supplier has been unable to deliver certain reagents as
scheduled. ………….. Consequently, headline results for the study are now expected in H1 2022.
Separately, we remain on track to achieve the first ever FDA product
clearance, the gold standard for medical devices globally, for a system to
harvest cancer cells from patient blood for subsequent analysis, initially in
metastatic breast cancer. Ongoing and constructive dialogue with FDA continues
and a regulatory decision from FDA is awaited."
Angle (LON:AGL)
Change of emoticon as the share price has completely recovered from a near 10% fall 8-)
Seems like investors are now overlooking the ovarian delay and are concentrating on the FDA result, assuming this is very close.
Angle (LON:AGL) This has happened a few times recently, Xp Power (LON:XPP) was down 11% and then went to +5% in a few hours, is this marketmakers marking down the shares, before opening and then investors reacting to the RNS? Fickle markets. Of course some shares have done the opposite.
Rustbucket
£AGL No doubt MMs saw the RNS and dropped the price triggering some selling. Volume today is about twice normal so far but I know from comments elsewhere that the stalwarts used the dip to top up their positions, hence the quick recovery.
RE all comments to Angle (LON:AGL) and thank you very much. As my single largest holding - built up over some time - I can say it did quite spoil my breakfast between 0800 and 1030. Couldn't believe my eyes when I returned to see the SP. As you say, issues on key supplies are everywhere at the moment, and reassurance on discussions with the FDA are worth 100x more than a delay of a few weeks/months on an assay development. All IMHO of course. Frustration on the FDA issue presumably because of the expected - bottle-jam with applications on real drugs, staff of with Covid etc - have put back Angle (LON:AGL) probably a good 18 months to 2 years. A pity but we are where we are - or at least hope we are!
Hi Paul. Could you tell us when and why you sold Asos? It looks like you still held in mid December and it was one of your largest holdings last summer. I was surprised to read you no longer hold since at one point you said you were looking to hold indefinitely and weren’t concerned about a short term price fall. Thanks!
Morning GPChristie,
Hi Paul. Could you tell us when and why you sold Asos?
We've been through this before. Asos was in my margin (spread bet) account, and I was hit with a big margin call after markets tanked in Q4. So I had to prune positions where I had less conviction, one of which was Asos, in order to remedy the margin call.
I've recognised that my strategy of putting (intended) long term positions into a geared trading account, is not sensible, so am trying to move away gradually from that.
Also, after last year's experiences with big losses on shares like Asos & BOO (I hold BOO) I'm planning on being more flexible in future, and more willing to ditch things where there's uncertainty. That's because the market clearly does NOT look through temporary problems like supply chain, so I'm suffering unnecessary losses by doing so myself.
Hope that makes sense!
Regards, Paul.
Thanks Paul. Makes sense re avoiding buying long term positions on margin. Are you able to share which of your other holdings also got pruned completely?
Hi GPChristie,
Are you able to share which of your other holdings also got pruned completely?
Remember these are sales from my spread bet account, so I didn't necessarily want to sell, but was on margin call, so something had to go. Hence I still like these shares, but have less conviction on them than my main holdings.
From memory, I sold out of Gulf Marine Services (LON:GMS) , but have started buying that back this week.
Also I sold PMP (unfortunately!) and am planning on buying back at some point, when funds permit.
I've sold most of my Gear4music Holdings (LON:G4M) due to too many Director sells lately, and needing the money for margin calls. So am happy to watch from the sidelines, and maybe buy back later.
Loungers (LON:LGRS) - I had a small position that I ditched.
Also, I had to ditch Smiths News (LON:SNWS) and intend buying back at some stage.
I think that covers everything, but I might have missed something, as am doing this from memory.
All my core positions are intact, I'm pleased to report.
Regards, Paul.
Thanks Paul. That’s interesting.
Did you not read Paul extensive write-up around Xmas. I felt he shared a massive amount of info and was superbly honest and open. Worth visiting if you haven't seen it - I think it was a 45min video?
Steppe Cement?
I skipped summarising it as there were too many others today. It did say production was unaffected by the unrest in Kazakhstan. Great success!
Feel free to summarise it yourself.
Thank you Mr. C, almost spilled my coffee.
I guess Borat's view is as good as any when the Directors state:
"We are in the period of lowest sales of the year, and the directors do not
believe they presently have sufficient visibility on economic matters to make an accurate prediction on demand for 2022."
For those curious to know more, Jack covered this one in September. Worth a look, but anything trading on 7x with a 12% yield should be approached with great care.
The bacon bap of British investing -brilliant Mr C!
The Full English salutes you!
Too big for this report but fab Christmas trading results from Marks And Spencer (LON:MKS) today. Potentially a significant turning point as well: clothing and home has now stopped shrinking and is now in growth (+3.2% compared to 19/20 - i.e. pre-COVID). This is even more impressive given Marks And Spencer (LON:MKS) say that full price sales of clothing and home have increased by 45% over the same period. Up to £500m previously upgraded pre-tax profit now further upgraded to £500m minimum which is vague enough to leave room for another upgrade at results. Really wish I hadn't top-sliced on Omicron fears...
I liked the Marks And Spencer (LON:MKS) results also but the market has the shares down 5% so if you want back in buy now before the sale ends !?
yes v odd. According to some news reports it's because some investors were expecting a detailed further upgrade but that's very short-termist as a) I think Marks And Spencer (LON:MKS) have left the door open on that in their final results and b) the clothing and home growth is a clear sign that the business has turned a corner.
Morning all,
Excellent trading update from Science (LON:SAG) this morning ( I hold ).
Operating profit double that was reported in 2019, very strong operating margin, divi up 25%, plenty of cash for further acquisitions.
The board herald an "outstanding performance ".
£SAG
Morning JohnDoe - agreed an excellent update (I hold) and still undervalued in my opinion, possibly held back by the TPG shareholding which I must admit am not entirely sure this was a wise investment. Stockopedia appear to be behind the beat with this forecast profit of 7.7 million given previous trading updates, appreciating that at this stage its only operating profit provided of 16 million on trading update but still appears to be out of context.
Bid hasn't even moved! Disappointing...
Speaking of inflation - rising input costs lamented here in an operations update from Atalaya Mining (LON:ATYM) :
· During December 2021 and the early days of January 2022, energy prices in Spain have increased significantly due to the sharp increase in wholesale European gas prices. Should the volatility and current energy prices persist for a sustained period, Atalaya expects that its operating budget and production guidance for 2022 may need to be revised.
· The Company is actively monitoring energy prices on a daily basis and is identifying potential measures that could be implemented in response. In the event that energy prices remain at elevated levels for a sustained period, possible measures could include temporary modifications to the mine plan, curtailment of throughput during periods of peak energy prices or reductions in discretionary expenditures.
https://www.investegate.co.uk/...