Small Cap Value Report (Thu 17 Dec 2020) - BOO, GDWN, TUNE, FA., JDW, RBG
Good morning, it’s Paul here with the SCVR for Thursday.
Timing - update at 13:00 - I'm back from lunch now, so will do a few more companies this afternoon, Revolution Bars (LON:RBG) (I hold) is next on the agenda. Then possibly Safestyle Uk (LON:SFE) & anything else interesting-looking. Please remember I can't cover everything, so am trying to focus on things that (a) I understand, and (b) look interesting. Update at 23:53 - RBG section finally finished, that was challenging! No time for any more, so see you tomorrow. Today's report is now finished.
Christmas
There’s still plenty going on in the markets, and of course last-minute Brexit negotiations, despite us being barely a week away from Christmas.
My family usually have a get-together in Cheshire, about a dozen of us, from 6 households around the country, but we’ve decided to cancel it this year. Since the vaccine roll-out for the vulnerable has already started, why on earth would we want to potentially risk anyone’s health (or even life), just to have a get-together a few months before it is safe to do so? As an investor, I constantly weigh up risk:reward for my portfolio. Hence it was an easy decision to cancel Xmas - the upside wasn’t worth risking anyone’s health. My idea is that we could have a deferred Xmas in summer 2021, and pretend to be Australian!
As regards coverage here, I’ll be on hand to write SCVRs every day the market is open for trading over Xmas/NY, including half days. Sometimes there are profit warnings, and erratic price movements on low volume, creating occasional buying/selling opportunities, so I find it pays to keep an eye on things. Plus of course deal or no deal, unrelated to Noel Edmonds.
I usually do an end of year review, covering what has & hasn’t worked for me. It’s certainly been a rollercoaster of a year, so I’ve got enough material to write a book! Although the SCVRs, over the past 7 years, have effectively been dozens of books, in terms of word count! No wonder I can now touch-type, without ever having consciously tried to learn.
We did once try to make a book out of a year’s worth of SCVRs, summarising them, and looking at what happened next with the key shares, but it was such a mammoth task there was no way I could do that on top of the ongoing workload.
I do want to re-read the SCVRs from Jan-April 2020 again, to remind myself how the covid situation developed, and the extraordinary market gyrations. Anyone whose portfolio survived this year reasonably intact, has done well.
Obviously for all of us who’ve had bereavements this year, that’s always on our minds still, but life has to go on, with a focus on the future, whilst fondly remembering happy times from the past (and quietly forgetting about the arguments lol!).
Boohoo (LON:BOO)
My favourite share (and by far my largest personal holding, recently increased even more).
Many thanks to GloucesterBob for posting a link (here it is) into yesterday’s comments section, of the video of the Parliamentary proceedings, where The founder & Exec Chairman of BooHoo, Mahmud Kamani, along with 2 colleagues to assist him on the detail (it’s a very big group now), offered to appear as witnesses to the Environmental Audit Committee follow up meeting (online) on the subject of Fixing Fashion.
This is riveting for BOO shareholders, highly recommended you find the time to watch the video. The BOO part starts at 16:23, and lasts just over an hour. I can’t embed it, as it’s not in youtube or vimeo format, the only types that work here.
I’ve taken detailed notes on the whole thing, and will write up a summary when time permits, maybe over the weekend?
I found some of the early answers a bit scripted/evasive, but once they got into their stride, the BOO team make a great job of explaining in detail the extensive steps they’ve taken to sort out the supply chain ethics, and ESG stuff generally.
The main thing from my point of view, is that it’s clear the Chairman is now fully onside, 100% onside, with making the improvements necessary. Whereas a few months ago, I think he was more focused on rebutting accusations, and defending the company from what he saw as a personal attack on him & his family. Now he’s clearly bought-in, big time, into the whole “agenda for change”. Maybe this could be a turning point, who knows?
Agenda
Please note that I added a section on Frp Advisory (LON:FRP) late afternoon, into yesterday’s report. There seems a lot of reader interest in that one, judging from the thumbs ups in a comment relating to it. It looks quite good, as a value/income/contra-cyclical share.
Today I’ll be looking at;
Goodwin (LON:GDWN) - Half year report published yesterday - shares fell almost 10% (Paul, done)
Focusrite (LON:TUNE) - AGM trading update - only mentions revenues, not profits, so of limited use!
Fireangel Safety Technology (LON:FA.) - Encouraging signs emerging from this serial disappointer?
J D Wetherspoon (LON:JDW) - Tim Martin rants about covid/lockdown at his AGM
Revolution Bars (LON:RBG) - Preliminary results & another rant about Govt policy
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Goodwin (LON:GDWN)
Share price: 3075p (down c.9% yesterday)
No. shares: 7.36m
Market cap: £226.3m
This is an engineering group, with a controlling family shareholding.
Here are my previous notes, reviewing Goodwin’s FY 04/2020 results, worth checking to set the scene. The confident outlook comments in August don’t seem to have followed through to the interim results, which seem lacklustre. The Chairman’s statement summarises H1 well -
The pre-tax profit for the Group for the six month period ending 31st October 2020 was £5.8 million (2019 £7.4 million) a 22% decrease on revenue of £62.6 million.
The Group cash flow and banking headroom are in line with the Board's expectations, and the order book remains robust at £174 million as at 31st October 2020 but caution is needed with the Covid-19 uncertainty delaying some capital projects and the downturn in the oil and gas industry, which is now likely to be a permanent feature and so a smaller percentage of our targeted business going forwards.
Hmmm, I’m rapidly losing interest.
Outlook - clear guidance here -
With the upcoming completion of several radar systems in East Asia, the commencement of manufacturing works across our nuclear contracts and, hopefully, an improving Refractory Engineering Division performance, we expect the second half year pre-tax profits to be similar, if not improving on, the first half of this financial year…
Balance sheet - looks OK overall, but is dominated by large fixed assets. There’s a fair bit of interest-bearing debt too.
My opinion - on a very quick review, I can’t see anything interesting in the numbers. It achieved 55.4p diluted EPS in H1, and says it should manage the same or more in H2, so FY 04/2021 looks set to be at least 110p EPS - a PER of 28 times - why so high?
I think the market must be pricing in higher future profits, maybe from the nuclear boxes contract? This looks like the type of share where you have to really get into the detail of its products & prospects, because there’s nothing obvious in the numbers to justify a valuation of 28 times, in my view. So I’ll move on.
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I’m going to experiment with putting up briefer comments, then adding in the detail & hyperlinks later, to see if I can cover more ground, without getting bogged down. So here goes:
Focusrite (LON:TUNE)
AGM Trading Update
"Since the year end demand for most of our products has continued to be strong. Consequently, revenue in the first quarter was substantially greater than the equivalent period in the previous financial year.
As mentioned at the time of the announcement of the final results for the year ended 31 August 2020, the Board remains conscious of global factors that could adversely impact our operations, which it will continue to monitor."
Focusrite has a 31 August year end, so it’s about 3.5 months into FY 08/2021.
We need information about profits in trading updates, which isn’t given today. Surely they could have said that we’re comfortable with full year forecasts, or something similar?
I can’t find any broker updates today, so cannot really take this any further.
On the existing broker consensus figures on Stockopedia, note the lovely upward trend over the last 18 months, no doubt helped to some extent by lockdowns - although other parts of Focusrite have been hurt by lockdown (e.g. the subsidiary that supplies large speakers for events) -
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My opinion - at a share price of 1020p currently, and 28p forecast EPS this year & next, then the forward PER is 36 times - clearly investors must be banking on it beating forecasts to justify such a rich rating.
The group’s track record has been superb since it floated in 2014.
Probably not for me, purely on valuation grounds.
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Fireangel Safety Technology (LON:FA.)
13.75p (up c.30%)
Trading Update
It has appointed a new Interim CFO with an impressive CV. Orderly handover underway.
Strong trading in November - this all sounds good:
Following the Company's announcement on 5 November 2020 in which it commented that October had been its highest revenue month in the year to date by some margin, the Board is pleased to announce that this positive trading momentum has continued. Group revenues for November were significantly higher than October and up 20 per cent when compared to the same month the prior year.
This performance has been driven by the Company's Trade and Retail sectors with both business divisions delivering revenues in November which were materially higher than any other month this year. The Group's Trade sector made particularly strong progress, delivering the highest level of monthly revenue for three years.
Overall, higher sales and improved product mix have driven a recovery in gross margins in Q4 2020 which are now close to pre-lockdown levels.
My opinion - I had a quick look at this earlier, and looked at its interims for the 6 months to 30 June 2020. This showed losses, underlying operating loss of £(2.7)m - in addition to heavy losses in 2019. So the group looked to be in the last chance saloon, although it successfully refinanced with a £6.1m equity raise, and a £3.2m CLBILS loan. Therefore I think it looks as if survival should be possible, especially now trading seems to be improving. Inventories are too high.
For me, the company's poor & erratic track record means that I don't trust in its ability to have a seamless recovery. Having said that, it's looking better today (or less bad!) than it has done for a while, so there might be a (risky) opportunity here maybe?
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We’ve got two ranting landlords today, Wetherspoons & Revolution Bars (I hold)
J D Wetherspoon (LON:JDW)
This is quite strange, even by Tim Martin’s usual standards. The entire announcement is a rant about Govt policy on covid, and how it’s been based on incorrect information, in his view. He says that lockdowns do more harm than good, and provides sources which he’s relying on in appendices.
"The situation for pubs is dire. All pubs in the UK (as at 16 December), apart from a handful in remote areas, are effectively shut.
"Less than half are able to open as restaurants, only serving alcoholic drinks with a meal - but that is not what pubs were designed for, and is not usually profitable.
"Since the government often relies on false information, rather than truth, its outcomes will inevitably be poor.
"The sources of government information, especially SAGE, in which academics predominate, have often been faulty.
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At the end he does actually mention Wetherspoons -
"Due to the conscientious efforts of its employees, bankers and shareholders, and to the loyalty of millions of customers, Wetherspoon may be in a better position than some companies and individuals.
"However, 70% of our premises are shut today, despite expenditure of many millions in compliance with health regulations. In addition, over 50 million pub visits have been registered, using the track and trace system, and there have been no outbreaks of the virus reported to the company."
My opinion - I don’t want to get into a discussion about Govt policy on covid, but the bit above that I've bolded, re track & trace, is surprising. I can understand the frustration, given that JDW strenuously implemented all the measures required by Govt (as I confirmed from visiting 4 sites near me), nobody has been reported to the company as having been involved in an outbreak, yet they're forced to shut again.
It’s interesting that hospitality bosses are now pushing back against Govt policy in stronger language than I’ve seen before. Which brings me on to…
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Revolution Bars (LON:RBG)
Share price: 22.5p (up 10%, at 13:20)
No. shares: 125.0m
Market cap: £28.1m
(I hold)
Further liquidity secured; well positioned to emerge stronger
Revolution Bars Group plc ('the Group'), a leading UK operator of 74* premium bars, trading under the Revolution and Revolución de Cuba brands, today announces its preliminary results for the 52 weeks ended 27 June 2020 ('FY20'). The Group's bars were closed throughout the last 14 weeks of the trading period.
*Bars as at 27 June 2020. The Group currently operates 67 bars.
Blimey, these accounts are quite complicated, due to so many unusual things happening during, and post FY 06/2020. It’s taken me hours to plough through all the commentary & figures, nightmare!
I’ll just summarise the main points, and flag up any new things below;
Trading well before covid hit, with H1 adj EBITDA up on last year
Covid/lockdown had large negative impact in H2, and in the current financial year, as expected
Statutory loss of £(31.7)m, mostly caused by £21.9m in exceptional costs - relating to lease & fixed asset write-offs (non-cash) - NB no covid-related costs have been classified as exceptional.
Trading figures really don’t matter at the moment. All that matters is cash burn, and available facilities, and if the group has enough headroom to survive? It looks like it does, which is the same conclusion I came to at the last trading update, we’ve just got more detailed numbers today.
Most important new information - NatWest yesterday relaxed the loan facility, so that an £8.5m reduction scheduled for June 2021 will not now be required. This is excellent news, as it means the bank facilities are now mostly available until end 2021 - by which time trading should have been back to normal for a while, we hope.
Net bank debt as of now is £19.5m.
Cash burn is running at approximately £0.4m per week. Therefore, assuming all bars are shut after Xmas, until Easter, then I make that 15 weeks to end Mar 2021. That’s £6.0m in additional cash burn until end March 2021, taking (my) forecast net debt to £25.5m by the time sites are forecast to re-open. That looks comfortably within the available facilities, which are now;
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Refurbishment programme - new information provided today shows an improved return on investment (ROI) on the refurbs done in FY 06/2020, delivering a 58% annualised ROI - improved from 45% ROI achieved in FY 06/2019. This is good news. 3 new refurbs are planned for H2, again good news, and implies that the group has some cash flexibility.
Going concern note - as you would expect in the current circumstances, there is a going concern note, but it’s not a severe one, as management has a reasonable expectation that it has enough liquidity.
Bank covenant - pleasingly, there is only one covenant - cash headroom has to be adequate for the next 6 months. This sounds like a covenant designed to flash red if cash is likely to run out within 6 months. That’s sensible, but of course it would need to rely on forecasts, since it’s forward looking. So I might raise a query with the company, to get a better understanding of how this would work in practice.
Base case - scenario planning is provided, which everyone owning or thinking about owning this share should read carefully. The base case scenario looks prudent to me - sales from Jan-Mar 2021 of just 16% of historic sales, so that's assuming most sites are closed. Then re-opening forecast in April, with some restrictions, achieving 75% of historic sales, improving to 90% in July & August 2021.
Personally I would be looking for dramatic upside on this base case after April 2021, because I reckon pent-up demand from a young customer base, could see revenues & profit go through the roof once restrictions are lifted. The Govt has already indicated that April 2021 is expected to be when enough vulnerable people have been vaccinated, to lift restrictions, hence that is the timescale RBG is planning for, sensibly.
Furlough is expected to benefit the group until end Mar 2021, and it’s just been announced that there’s a further month extension to end April 2021, which could give a bit more leeway. The lowest point for covenant compliance is March 2021, with £2.5m headroom under this scenario.
Severe but plausible scenario - even worse assumptions, with zero sales in Jan-Mar 2021 (makes little difference to profits though, as would be loss-making anyway under base case), and only 60% of historic sales from re-opening in April-June 2021.
In this severe version, the Mar 2021 covenant is tight, with only £1.2m headroom. The company’s modelling seems to imply a lot less headroom than my figures of using the £0.4m per week cash burn suggest. So I’ll raise a query with the CFO to clarify. There must be something I’ve missed.
If you think the situation will be even worse than that, then clearly this share is not for you!
Overall then, it looks as if the bank covenant position could be quite tight at end March 2021, which raises the possibility that a small top-up placing of say a couple of million quid might be needed to push it over the line. With bars about to re-open, I can’t see that would be a problem. But if bars are not likely to be allowed to re-open in April 2021, then we could have a problem. Not insurmountable though. For that reason, if progress with vaccines is slow, and covid remains a major problem in spring 2021, then we have to be prepared for the possibility that RBG (and many other pubcos) would need to raise more cash from shareholders. At this stage then, I wouldn’t say we can rule out a small additional placing in the spring, if there are further delays. It’s possible, albeit not likely, I think is probably a fair assessment.
Balance Sheet - this is also complicated! It looks awful at 30 June 2020, with NAV negative at £(33.0)m. However, of that, the IFRS 16 entries relating to property leases are;
Lease assets £70.7m
Current lease liabilities £(10.2)m
Long term lease liabilities £(103.0)m
Net leases impact on NAV £(42.5)m
Therefore writing off all the IFRS 16 entries, which is the way I (and many other investors, analysts & banks do it), NAV turns from £(33.0)m to positive £9.5m.
You can also add on another £15.0m (say £14.0m less costs) from the equity fundraising which was done after the year end. That would bring NAV up to £23.5m - reasonably OK.
Three factors need to be taken into account;
- Post period end, the company did a CVA (in Nov 2020), and with other lease surrender deals, this means that when normal trading conditions return, there shouldn’t be any significant loss-making sites remaining. Therefore the next balance sheet at the interims as at 31 Dec 2020 should show an improved picture. The balance sheet by 30 June 2021, providing trading has returned to normal, should also then dramatically improve, as the lease asset is revalued upwards to reflect that there shouldn’t be any significant onerous leases by that stage. For these reasons, we should probably be viewing the June 2020 balance sheet as a temporary aberration, not representative of how it will look in future.
- Re-gears have been used in some cases, to achieve lower rents by agreeing to a new, longer lease. This is good for RBG, as re-gears are only done in situations where a loss-making site can become profitable, due to a rent reduction. Hence although the lease liabilities go up, due to the longer term, the commercial reality is an improvement (lower rent each year, hence higher profits), which would be reflected in a higher lease asset once trading returns to normal.
I’m going to run through all this with the company shortly, to solidify my understanding of the situation.
Tax losses have increased, so future profits on re-opening won’t be taxable for a while.
My opinion - sorry, this section is rubbish, I might re-write it tomorrow, but I’m too tired to do it now.
Overall I’m happy with the situation -
Insolvency looks highly unlikely, but we can’t rule out a small top-up placing, in a downside scenario in the spring of 2021 - that doesn’t bother me, as the amount would be tiny, and easily raised.
Vaccinations happening now is a game-changer, and should allow pubs to trade normally by Easter (hopefully before), those that survive until then anyway.
I think there’s huge pent-up demand amongst young people, who’ve been deprived of late night drinking/dancing for a year, by the time re-opening happens hopefully in April 2021. I don’t think the public are likely to tolerate continued restrictions by then. So expect an absolute bonanza for RBG, with reduced competition too (e.g. Deltic has just been bought out of administration, but only 42 out of 53 sites will re-open), plus sadly numerous independents possibly won’t survive until April 2021. I think this should give RBG an opportunity to generate big cashflows in 2021, and get debt down quite rapidly - remember this business is highly operationally geared.
I remain of the view that this share could be 40-50p within 6 months - based on it being able to produce say £15m EBITDA pa, and assuming about £30m net debt, put it on an EV/EBITDA of 7 times, and that’s £105m EV, less £30m debt, so £75m equity, with 125m shares in issue, arrives at 60p per share - which more than supports my 40-50p price target.
Remember also that RBG is going to emerge a better business - they’ve got the rents down, ditched the loss-making sites, reduced overheads, and have battle-proven management & staff, probably with a much closer bond having been through this shared experience together.
Put that all together, and I see a good future in the pipeline. Then the remaining sites can be refurbished, not a huge cost, typically about £200k each, driving further growth with a high ROI now proven. They allude to being able to pick up other new sites at low rents in the coming months too, so maybe deals could further add to future growth & profits? The next 3 months is the best time to be picking up bargains, after all.
For investors, this is not a time to be mired in negativity about case numbers, deaths, etc. , sad though they are. Equity markets look forwards, and there seems a very clear road map to a post-covid world within 3-4 months, at least as far as it affects RBG. Hence I’m excited about the outlook for this share, for the above reasons.
Management are terrific too, by the way - hard-working, hands-on, and ambitious. Plunged into a crisis quite soon after joining, CEO Rob Pitcher (supported by his CFO) have handled things very well. It must have been a helluva job to keep the show on the road, with stretched finances, bars closing, re-opening, re-closing, etc.
I've not copied it here, but Rob has some highly critical words in today's commentary about Govt policy. Clearly sector bosses are at the end of their tether with the way the sector has been treated. It is appalling really. Look at Deltic - a decent, profitable business, said to have been worth c.£100m before covid. Now it's bust, with the shareholders losing everything, because of Govt edict that they couldn't trade. Doesn't seem fair to me. There again, should the taxpayer compensate every owner of every failed business? that's not very palatable either.
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All done for today, see you tomorrow!
Regards, Paul.
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147 comments
As an ex-employer ,now retired, I have a couple of comments which I would like to contribute regarding the Boohoo interview.
To those parlamentary members and officials who so poignantly blamed Boohoo for the state of things, and who were demanding that Boohoo solve the problems in someone else's company, I would ask:
Where have your factory inspectors been these last 20 years?
Where have your tax inspectors been all these years ?
What have the Leicester MPs been busy with if they did not get a hint of the problem until the recent report ?
Boohoo might ( only might) assume some moral responsibilty in contributing towards fair working and pay conditions but the full blame must fall on the shoulders of the British institutions .
I take for granted that the Boohoo team were biting their tongues,hoping to calm the waters and look forward but we are talking about Britain,not some third world country.
The defence of the workers is primarily a Government responsibility and they have not been up to it.
"However, 70% of our premises are shut today, despite expenditure of many millions in compliance with health regulations. In addition, over 50 million pub visits have been registered, using the track and trace system, and there have been no outbreaks of the virus reported to the company."
I think that Tim Martin avoids the issue that people might well be involved in an outbreak but are unlikely or unwilling to report.
Covid is virtually everywhere - but apparently not in Wetherspoons?
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Thanks for including an Agenda in recent commentary, I find this most useful when in a rush
Thanks Philip. I'm now updating the agenda only as I start each section, so that we no longer have that annoying thing where I put up a list of what I want to cover, then inevitably get bogged down with things, and half of them don't get done. I recently tore a strip off someone for complaining about that, but once I'd calmed down, could see their point of view, so changed the way I do it! It's very pressurised doing these reports & having to deal with the comments as well.
Regards, Paul.
XLMedia (LON:XLM)
Bare with me. I'm not as good as Mr Scott and Co....
https://www.stockopedia.com/share-prices/xlmedia-LON:XLM/news/xlmedia-plc-us-sports-acquisition-urn:newsml:reuters.com:20201210:nRSJ1956Ia/
"Under the terms of the definitive documents for the acquisition, XLMedia will pay upfront consideration of USD$12 million in cash and issue 7,954,546 new XLMedia plc shares (representing an aggregate value of USD$3.5 million), as well as potential future contingent consideration of up to an additional USD$9.5 million, based on net revenue performance of the acquired business, payable over three years to the end of 2023.
Application will be made to London Stock Exchange for the newly issued shares to be admitted to trading on AIM, and such admission is expected to become effective on 15 December 2020. Subject to certain limited exceptions, the sellers and founders have agreed not to sell, transfer, or otherwise dispose of the newly acquired shares for a period of two years after the closing of the acquisition.
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6,109,468 Shares traded today, dropping the price 18%
I am wondering if some kind of dilution or admission into the LSE has caused the activity and share price drop today.
For me personally, this drop has really ruined my day. Can't exit acceptably at this price.
Boohoo (LON:BOO) : I've just watched the Boohoo section of the Parliamentary Environmental Committee video. I think Boohoo's approach is commendable .
However, it's reminded me why I'm so glad to be out of the whole corporate nonsense in Britain. Here's a guy who's family came to the UK from Uganda in the late sixties and has built a multi-billion business, paying tax in the UK, supporting the UK economy, employing UK residents in the UK....but the establishment is determined to have a go at them. Of the committee members who had questions for him, I don't thing any of them apart from the chairman had a clue about how a business runs. Their objectives were not to seek answers but push their opinions for their own purposes.
Will the additional ESG Overheads that Boohoo (LON:BOO) are undertaking make them more efficient, drive down costs and make for a better product or bog them down in paperwork that ticks boxes elsewhere but doesn't really change what they fundamentally do.
I hold, and plan to hold some more soon!
£BOO. Paul, Ive listened to the full video. I thought the BOOHOO team were very patient. The female MP from Leicester was particularly incompetent.
My confidence in Boohoo has increased and I own a load of them myself.
They did very well. I thought the MPs were leftwing and poor....
If you’re holding Revolution Bars (LON:RBG) or any other hospitality stock I’m sure it’s very tempting to have the beer goggles on and say to yourself it’s going to be fine, they are going to survive and when this crisis is over they will do great because there will be less competition and pent up demand. It must also be tempting to talk up the upside because at least subconsciously you’ll be thinking that you’ll then be able to get out with a lower loss.
But if you don’t hold and as a consequence don’t have the beer goggles on
Why invest in a business that is just surviving when you could invest in a business that is thriving?
Why invest in a business so subject to the unpredictable evolution and spread on the virus?
Why invest in a business where you don’t know if you’re open or closed from one week to the next?
Why tie up your money for at least another 4-6 months in a business with a millstone round it’s neck, there’s an opportunity cost to that?
The management can rant away as much as they like about track and trace, or doing everything asked of them, or perhaps their hospital isn’t at capacity yet, and it’s so unfair and not their fault, and they’ve worked very hard and so on. And it would be pretty heartless not to have sympathy for their situation, so I am sympathetic. But as an investor if a steamroller is on the loose why deliberately stand in its path.
Hi GrahamF,
Whilst you've highlighted some of the risks of investing in hospitality stocks, I would argue that you're not considering the potential reward, and in turn adjusting your position size to manage the risk.
It could be argued that there is potentially a 100% upside in RBG current share price if all goes well with the vaccine roll out, whereas an alternative less risky "safe" stock may offer only 10% upside for example in the next 6 months.
In this scenario £1k invested in RBG would return the same as £10k invested in the "safe" stock.
Whereas you could suffer a total wipe out with RBG and your loss would be the same as only a 10% fall in the "safe" stock...
So it depends on your attitude to risk, doesnt it? Many people if offered a definite 10% return vs either the loss of their money or doubling it will take the former. The psychology of investing is a theme of one of the best books ever written - Thinking Fast and Slow by Daniel Kahneman. There is also a recent book by Morgan Housel called 'The Psychology of Money'.
Hi Graham
There is much in what you say and I can't help in large part but agree. However I tend to adhere to the mantra that one way to be successful in the stock market and life in general from a financial perspective is to buy an asset of value when nobody wants it. The difficult part of course is identifying the value. It is also highly unlikely that one will buy at the bottom and such an approach often requires inordinate patience. In addition to reasoned judgement a little luck also helps.
Outside of the stock market, the UK housing market is I think a good example. In the early 1990s house prices slumped and took sometime to recover, but recover they did. If you had bought a reasonable property in a good location you would in due course have made a very handsome return.
I remember when Costco first arrived in the UK, the widely held view was that it would 'kill' the likes of Tesco, as a consequence the share prices of all UK listed supermarkets fell dramatically. If you have bought Tesco or Sainsbury at the time you would again have made a handsome return over a relatively short period.
Anyway enough of my musings and back to the present and hospitality stocks. I would stay away from most listed companies in this sector, but there are a few that I think are worth considering on a 2 to 3 year view. My main considerations are management, balance sheet and asset backing.
in my view Revolution Bars (LON:RBG) is not investable. However the British pub will still be here once the pandemic has past. I would not therefore be adverse to a modest investment in either Fuller Smith & Turner (LON:FSTA) or Young & Co's Brewery (LON:YNGN), both are competently managed in my view and well capitalised relative to their peers with a largely freehold estate in London and the south east.
I have a small number of shares in Fuller Smith & Turner (LON:FSTA), which I have held since before the pandemic, so am perhaps a little bias. On balance I am down about 30% on my entry price. It is the smallest holding in the portfolio, which I am happy to retain and will add if offered a silly price by Mr Market.
All the Best
Charlie Munger recently gave an interview to Caltech in which he emphatically made the point that one of the biggest challenges he has faced is overcoming his own biases. I suspect that a form of bias may have crept into the decision making of some private investors in the hospitality industry. Are they investing based purely on the merits of the case or are they lending their support to an industry with which they empathise?
As a former investor in J D Wetherspoon (LON:JDW), I have a great deal of respect for Tim Martin. But his business model appears doomed until COVID-19 is conquered. And even then, it’s unclear whether it will be as profitable as it once was. New habits may have formed such as a preference for drinking at home rather than in a bar. And even though Wetherspoon owns the freeholds to a large proportion of its sites, the value of this real estate in a post-COVID world is debatable. Working from home and online shopping may have permanently devalued these, mainly, centrally located property assets.
I hope that I am completely wrong but I fear that private equity insiders will snap up chains such as Wetherspoon for far less than their genuine value. These are not normal times and there may not be a return to business as usual.
Do you have any evidence for that?
It was a natural conclusion that I initially formed during lockdown that behaviours would take a very long time (if ever) to revert to the old normal.
However, I honestly no longer believe that. All of the, circumstantial, evidence I am seeing suggests that across the age spectrum there are significant numbers (certainly not everyone) who would return to normal just as soon as it were legally permissible, even if not recommended.
Once we are "saved by the vaccines" from Covid-19, I think people that will change their behaviour because the next pandemic could be just around the corner will be as rare as hen's teeth.
It is looking increasingly likely to me that the "new normal" (post Covid) will be pretty much indistinguishable to the "old normal".
From an investment point of view, however, I can think of three key changes (just off the top of my head - there are probably more.)
3a. This may leave gaps for new start-ups to fill the gap. 12-18 months ago I saw far too many high street cafes opening up & failing - if I ever had any unfulfilled aspirations to open a cafe, I would probably be putting my plans in place now for a Feb/March launch.
All imho obvs.
your points are even more relevant to holiday related companies, theyre not going to get back to normal in 2021.
However, people will eventually start taking holidays again and some of those stocks are at bargin prices right now, those with patience should make money
Why? Because RBG shares (I hold) should be worth around double what they are now, with a time horizon of 3-6 months, as I explain in the article above. The market is starting to look beyond covid, that's where the opportunities are.
P.
Revolution Bars (LON:RBG) (I hold)
Hi Paul
I came to pretty much the exact same conclusion as you and have pencilled in at least c.100% upside in about 6 months from today's share price.
I've factored in a re-opening from 1st May for prudence, not April 1st.
I was worried about the need to pay deferred VAT payments in 2021, but the company has confirmed that this is only due in 2022.
If there are any delays to the May 1st re-opening assumption, then I imagine the company will be able to raise funds to support them for just a few more months.
Another good sign for when they do re-open: they have closed 13 bars, that generated a combined annual cash loss of £1.9m, for £3.1m - impressive.
When you factor in that the company:
Then this looks a bargain at today's share price.
Fingers crossed we've not missed anything.
Cheers
A
Youve missed out that £10m is EBITDA but when debt has ballooned from £10m to £30m that's back down to £8-9m from extra interest.
Then there is the urgent need for refurbs. They say 5 year cycle for capex. At 70 bars that's 18 a year. They're well behind last two years. Each bar is approx £225k. If it's back to 18 a year then that's £4m a year. So that brings the cash flow down to £4-5m. An OK range at today's £25m market cap and £30m net debt. But not a bargain in my books.
Revolution Bars (LON:RBG)
Hi Dahokolomoki
Thanks for the input.
To clarify one thing - I don't actually use EBITDA and in my post only made mention to underlying cash generation, which I have assumed will be £10m pa.
Onto your points:
Excluding working capital movements of £3.1m and after capex on the existing estate of £2.9m the group generated £4.1m in H1 2020.
Weighting is slightly H1 skewed, but not by much.
So cash generation of c£8m-£10m for a company which I expect will have an EV of £50m.
On top of the repressed and horney UK population, I'm also hoping for a boost from the World Cup/Olympics this summer, but that might be pushing things given the poor performance during previous summer events.
A
“ Why? Because RBG shares (I hold) should be worth around double what they are now, with a time horizon of 3-6 months, as I explain in the article above. The market is starting to look beyond covid, that's where the opportunities are.”
If they had been a strong business before lockdown then that would be more plausible in my view. But they weren’t. Sure, there will be an initial pent up demand but there’s a strong possibility that will abate quickly. Do they have pricing power to be able to command good margins? Will they struggle to get good, low cost labour if there are shortages of some types of staff due to Brexit? Will stronger competitors out compete them? Will they find their best bar managers have got fed up and left? That “should” encompasses many risks.
This is a company that was weak going into the crisis. It might be a more valuable weak company coming out of it.
Hi Graham,
Re Revolution Bars (LON:RBG)
This is a company that was weak going into the crisis.
That's incorrect. If you look at the interim results for 6m to 31 Dec 2019, the last accounts before covid struck;
Then covid hit, and everything was turned upside down.
Let's not re-write history, to suit a bearish point of view!
Regards, Paul.
Not rewriting history Paul.
There’s no way
“LFL sales had turned positive, at +1.2% for the 6 months”
is a sign of a strong company. 1.2% is barely inflation. It is barely covering cost increases.
We’ll have to agree to disagree. I hope you’re right obviously and hope this will come out well for you in the end after being such a bad call so far.
XLMedia (LON:XLM) now 2,210,161 shares -19.8% 28p
Somebody has a bad case of anxiety.
Stuck in hospital with the dreaded lurgy for nearly 3 weeks your reports are the highlight of my day!! As an aside someone new about AVON I could see it with TA but too buggered to get out! Never thought it would happen to me..
I did wonder if Tim Martin of Wetherspoons was fed incorrect information on Brexit as well.
I do wonder if Tim Martin of Wetherspoons is a bit of a plonker
"I do wonder if Tim Martin of Wetherspoons is a bit of a plonker"
I love him. I was impressed how his business has its operating procedures together in spite of the restrictions. I also like his straight taking. He's one of those rare business leaders who knows what his customers want and buy.
I agree. He steps up where others fear to tread. Has gone from a mad idea about saving his local to buying the Royal Pavilion in Ramsgate, possibly one of his most audacious projects yet. A building on the sea front nobody was courageous enough to take on. Don't get me wrong I much prefer the other end of the spectrum, the micro pub. I am of that age, quality not quantity, although will give it a good go in the right mood. and regret more heavily after. Really interesting guy and good luck to him. It must be agony to have fought so hard and against the grain to come up against all this. He tells it as it is. Went to a grammar school in Northern Ireland during the height of their troubles, I think emigrated to New Zealand for a bit and has a grand child he sets aside special time to be with each week because of his condition. A true warrior and entrepreneur. I might not agree with him a lot but god bless him! We'd be truly XXXX without people like him
He's right though isnt he? Basing policy on a test that has a high false positive rate is the root cause of the problem. I was in Southend this morning - we went from Tier 1 then lockdown, then Tier 2 and now Tier 3. How is anyone supposed to run a business when all those changes have occurred in a two month spell? My won experience is that restaurants and pubs have done all that could be asked of them and it must be galling for them to see the public able to go in and out of shops while they are close.
Southend has a case rate of 330 per 100,000 or to put it less dramatically 3.3 per 1000. And for that all the hospitality gets closed down.
I thought we'd done that one to death already - during the summer the test positivity was about 0.5% for quite a while. Nobody has explained how the false positive rate could therefore be higher than that.
There is an argument of course that the high level of amplification for the PCR tests means detecting very low level infections that are unlikely to be ill (or even possibly infectious).
However, that is not really relevant (nor is the fact that 330 cases per 100,00 = 3.3 per 1,000).
The absolute number of cases reported makes for good headlines but does not really drive policy. It is the trajectory.
I think it is generally accepted that increasing (actual) cases lead to increasing hospitalisations which lead to increasing ICU demand and increasing deaths.
"Protect the NHS" was part of the original mantra because as best I can understand NHS capacity is the KPI here.
Breaching NHS capacity will not be tolerated - once you understand that you get a better feel for what the government will do.
I saw a report today that NHS bed occupancy is currently below this time last year (although still above target). That leads to the inference that all this is unnecessary , but that is utter nonsense - the lower level of bed occupancy has been achieved by two things : (1) Restrictions and (2) Further postponements of routine treatments.
One subject on which I may tend to agree with Mr. Martin is that we have not been presented with the evidence that pubs have been a major transmission vector. It seems intuitive that they might have been, and pictures of non-socially distant drunks reinforce that perception. Some data however would be useful.
Does anyone remember the screams in early July how can the pubs be open but not the schools?
Now the boot is firmly on the other foot and there seems to be more evidence of transmission in schools than was ever presented in relation to pubs.
However, whatever we think the government "should" do from an investment perspective it is more important to consider what the government "will" do. Boris's Merry little Christmas, suggests to me that pubs won't be set free anytime soon.
The PCR tests on which the tier system, the lockdowns and all the other restrictions are based have been proven unlawful in a court case in Portugal. That is aside from many epidemiologists, professors etc. saying the same thing for the last six months but nobody wants to listen to them. We have a casedemic not a pandemic.
https://off-guardian.org/2020/...
Hi Marigold - Not sure why you get down voted for stating facts? For what its worth I reduced the red number...
It's certainly not the case that it's a "casedemic" not a pandemic. I'd assume that's why the post got down votes - it got mine for that reason.
I did wonder if Tim Martin of Wetherspoons was fed incorrect information on Brexit as well.
I love Tim Martin, 'Spoons is a great business, but he's completely bonkers.
J D Wetherspoon (LON:JDW) produced an update the other day comparing the UK's lockdown response with Sweden's non-lockdown. Of course, the King of Sweden has today unusually gone public and criticised Sweden's CV-19 policy. You couldn't make it up:
https://www.investegate.co.uk/...
To get a flavour of TM's approach to facts the UK / Sweden statement gives us a clue . There's no mention of the differences - that Sweden has a lower population, significantly lower population density or a completely different social consensus - Swedes treat goverment advice as rules, whereas Brits treat it as a vague guideline to be observed in the breach.
It also ignores serious underlying differences - Sweden spends, on average, $1000 a year per person more on healthcare than the UK does. As all investors know when you compound that investment difference over a decade it makes a huge difference to health service provision and preparation. Up until now Sweden has been in no danger of seeing its health services overwhelmed.
To fund that Sweden has far higher levels of taxes and much lower dispersion in earnings which leads to lower levels of deprivation. And areas of deprivation tend to have persistently higher levels of CV-19 - quite why is speculation but is probably something to do with more people living closer together, doing jobs which don't allow for social distancing and which they can't afford not to go to if they feel ill.
So you could argue that the losses born by Wetherspoons this year are taxes deferred by underfunding health care services. But I wouldn't want to be anywhere near Tim Martin when someone suggested that :-)
But the general point is that his pronouncements are always heavily based on cherrypicked information and examples to support whatever point he's trying to make. It's not evidence, it's propaganda.
timarr
Bugger
XLMedia (LON:XLM)
No RNS yet but XLM is down 16%, at least 1.2% of the company traded, 1,178,810 volume so well above average.
Someone is dumping stock.
Afternoon UK_Investor_888. in these topically ESG times I presume you meant to say B****r! in which case your sentiment is quite understood. (You may well have time to edit as well)
Is this one where the traders have gone in and pushed Xlmedia (LON:XLM) upwards, I think that at least one of the "known" names has talked about this stock a lot including one PI World interview, see the note from Tamsin below, and now some are taking profit and once something like this moves I can imagine there are a lot of stop losses triggering and those who chased the trade trying to get out due to the short term loss?
Purely speculation obviously, but thinking of some of the pain that I suffered earlier this year and lessons I am trying to implement every day...
Tommy
XLMedia (LON:XLM) My trigger is 50p. 45p has been touched twice but its not enough for the pain endured for me.
The issue is there's no news scheduled until March 2021 and so no thrust.
Hi Paul - talking of books, whatever happened to your biography you were writing? I was very much looking forward to it, although appreciate you've got enough on your plate with daily SCVRs! Thanks for your contributions; I find your thoughts, insights and analysis invaluable and have made me a better investor.
Thornabian, thanks for the update on your portfolio actions...you must be absolutely minting it this year.
Particular congratulations at stepping from high duration growth to cruddy value and now back to high duration growth. I trust if value bounces some more you will report back to us how you shimmied your portfolio with success once again.
I have no particular view on Thg Holdings (LON:THG) your latest high duration call.
It seems to be a sort of posher and bigger version of something like Innovaderma (LON:IDP) , Warpaint London (LON:W7L) or Brand Architekts (LON:BAR) . The daddy comparables in UK are Reckitt Benckiser (LON:RB.) or Unilever (LON:ULVR) ....
Its already 1/7 of the way to RB in market cap and perhaps 1/10th in terms of sales (assuming £1.3bn this year). Obvs RB going through a tougher period and price a bit deflated.
Most of revenue (near 85%) comes from beauty and nutrition (approx 50:50 split) which is why I mention the above comparison companies.
Can you tell me a bit about THG Ingenuity ("wholly in-house developed, proprietary, end to-end e-commerce technology and operating ecosystem")? It's about 9% of revenue but it's the sexy tech platform bit and when they name drop partners brands like Nintendo this is who they mean. However, their accounts don't really break out much about this...
2019 AR states that they secured a 'pipeline of contracted' SaaS revenue in Q1 2020 alone of £200m for Ingenuity and mentions that their largest client is £100m (which may or may not be from Q1 deal). This revenue is multi-year so not all now....which seems verified by the Q3 TU whereby 'high margin Ingenuity commerce revenues' grew to £5.1m in Q3 2020 (I think they mean quarterly revenue but it might be for the year). Meat of the Q3 update here:
Ingenuity is curious though. Total division only growth at 3.9% ytd (10% Q3)...now call me cynical (that would be unfair but up to you guys)...but Ingenuity seems to be largely the internal THG IT department and I wonder if its revenues are attributed from services it provides to Beauty, Nutrition and Lifestyle (ie some really posh expensive gym-leisure complexes it owns in Manchester for the Manchester jet set, 3 altogether I think...footballer's wives etc). THG don't break out the numbers but the Q3 report shows Ingenuity Commerce figure of £5.1m seems to explain a lot of the overall mundane growth of Ingenuity so is a decent clue that bulk of Ingenuity is a rather mundane revenue stream ....and if it were coming from outside the group through SaaS etc contracts today I'm sure they would shout about it (maybe it does and they have...I haven't read much on THG...asking you for the answers really).
Important to know re Ingenuity as really that is where the valuation of biz is at surely? Or is it being priced high as a sort of conglomerate of smaller beauty and nutrition brands? This latter route to high expectations is fraught with problems...anyone who uses high end hotels, spas, gyms, etc knows that 'the product' shifts rapidly in consumer taste and perception. A biz can hold the ground with switch ups etc but it takes corporate muscle too and perhaps one of those bullet proof mega brands...which THG isn't!
To round out I note that the company does have significant capex and development spend and this hits free cash flow and means they carry a debt level that is over half of revenue (which they don't yet make actual cash profit on). So growth is not yet cheap for THG or past an operational inflexion point...do you see one or is this the Amazon of narcissism and we wait through 10 years of reinvestment to come out much bigger?
Let me finish by not beating about the bush....THG seems a tad hype-y...I know, I know, very unlike you to promote this sort of stock...so perhaps you can give us a detailed appraisal? Perhaps post up your knowledge and insights on a separate post. I'll happily engage there as I'd be very keen to own a global UK platform biz at the right price.
For sure there are impressive things re THG...its entrepreneurial growth and global presence for example. But it looks a lot like a conglomeration of beauty and health brands with a few flagship experiences (in one city in north of England!) with a potential tech platform biz thrown in (with revenues that are less than 1% of total revenue and close to 0.1% of market cap)
mojo
They couldn't be more different from Thg Holdings (LON:THG) 's business model.
I agree with all investment discussion but not always investment views.
I congratulated you on your deft trading (I assume you wanted praise and recognition for it!?).
You made a strong statement re Thg Holdings (LON:THG) and I had some questions based on my very cursory analysis. You are much more expert and can put me right.
I think readers of SCVR would welcome your facts against my uninformed conjectures ...after all I suspect there are many holders or interested
I would believe that you want my response if your comment wasn't so facetious.and I was a fool.
I do find it funny that you argued with me here about Boohoo (LON:BOO) at 250p saying it would go bankrupt, you argued with me when I said I bought value, you now argue with me because I said I sold them and you argue with me that Thg Holdings (LON:THG) isn't a good company by misquoting old numbers.
And yet, I have never once heard you recommend an investment.......
Thornabian - to be fair to Mojo he provides thought provoking comments. We don't always agree but we don't have to. I prefer to have someone that looks at an alternative version to my own and then I can play that out against my own thesis and see what gives. If nothing else it gives me a downside or upside scenario to consider.
In fact he and I have generally agreed on two stocks in the past and both of those have proved highly lucrative : Tremor International (LON:TRMR) at 80p now 340p and Reach (LON:RCH) at 60p now 140p so to say he only shoots down others trade ideas is also unfair.
Nobody should be recommending investments. We should be sharing ideas and the melting pot of thoughts here on those ideas should help each of us gain an edge in our own decision making.
So in your opinion, was I sharing an idea or recommending an investment?
You will see below Paul questioned the profitability of Thg Holdings (LON:THG) in response to my comment, and I provided some reasoning for that which people can take or not, but Paul did it in a very different way to Mojo who was frankly facetious and I won't respond to it.
"And yet, I have never once heard you recommend an investment......."
I'm just pointing out that the purpose of this forum is not to recommend but to share thoughts. As long as they are well reasoned then they are valid irrespective of like/dislike/neutral and can be quite valuable given that they are provided freely and may be confirmatory or contrary to our own views. I wouldn't want people to stop posting contrary views to my own for fear of me taking offence for example as I would be the poorer for it.
That is not why Mojo wrote that post, or why he made it a new topic to have it at the top and didn't just respond to my original post. Frankly, for those reasons and the way it is written, I will not respond to it and yes it does matter if someone writes facetious responses falsely veiled as 'contrary opinions'.
If his response was a genuine counter-argument to Thg Holdings (LON:THG) I would engage.
Asking for me to explain my reasoning and trying to ridicule the fact I have said a company is good are two very different things.
Thorny! How about a wager? In 2021 I bet a pint (mello or somewhere like that) Lloyds Banking (LON:LLOY) beats Thg Holdings (LON:THG) -> that should give everyone a laugh and me a lot of egg on my face for backing a donkey
I also own Barclays (LON:BARC) but with chronically low interest rates and no way of them being able to rise, even if inflation does, I wouldn't put much hope on banks particularly outperforming due to paper thin Net Interest Income and Rates Paid Beta beyond a rebound of 30% or so but I think that has largely happened already.
Thanks David. I don't really need defended tho and I accept I'm a bit of an a-hole.
Thornabian - maybe don't answer me...but I'm sure others would be interested. After all, if you are correct then Thg Holdings (LON:THG) is a great long term multibagger and fits what a lot are looking for. I just tore a few simple holes based on a very cursory analysis...I often do this as I'm interested in being put right. Often I hate a stock before liking it...I can never get to love.
I'm often wrong.
For example, this year I've lost a decent amount of money on Aa (LON:AA.) and absolutely everyone knew I was wrong and told me so....and so they proved right.
Another is Time Finance (LON:TIME) ....I think its super cheap and is high and defensible margin that will grow...but it got hammered this year as everyone knows that trad financials are rubbish. I've bought more.
I've had many other howlers.
My role in this drama is to be a bit of an a-hole. I've always been disagreeable....though quite personable in flesh. I view every stock I own as some sort of b'stard child...this is my orientation...I see their problems and I always need to be careful not to annoy mgt too much
It sounds like your main issue with Thg Holdings (LON:THG) is Ingenuity which is fair enough because it is the least mature part of the business but that isn't a bad thing in terms of forward guidance. Thg Holdings (LON:THG) has warehousing in 16 countries, manufacturing in 4, services 120 countries, 155 courier services on the Ingenuity platform, the upcoming launch of a 300,000 sq. ft, and Europe’s largest, studio and digital content hub and has data centres in 29 locations.
The idea of Ingenuity is to provide several layers of service (customer layer/service layer/data layer/possibly facilities later) to the many brands which don't even engage in it. E.g. Nintendo - they don't have advanced e-commerce, warehousing, distribution or data analysis of their brand, sales, consumer behaviour etc.
This is what Thg Holdings (LON:THG) have patented and packaged up. It is what Amazon are really good at for third parties and arguably their most valuable component. This is still a relatively small part of the overall Thg Holdings (LON:THG) business at the moment but has a market size potentially in the tens of billions and not many companies are doing this - most companies provide one small part of the service and generally not in a good way but Thg Holdings (LON:THG) have the infrastructure to do it and 20 years experience of doing it themselves.
More directly to your points, revenue for Ingenuity alone has increased 212% in 2020 v 2019 with 81% repeat customers. You are right the total of £200mio revenue is over multi-year contracts but this has only been scaling since 2017 and the distribution network itself for the company increased 55% in 2019 with the introduction of the Poland 800,000 sq ft center and the additional warehousing in Asia.
Also note, international sales now make up over 50% and Japanese and Korean growth is above 50% across the group. The growth rate shows the scalability of the business and overall gross margins have increased to 45%, which is a 33% CAGR over 3 years.
Since the start of Ingenuity being fully rolled out, the total Thg Holdings (LON:THG) has gone from c.£700mio revenue to £1.2bn revenue in about 3 years and EBITDA from c.£70mio to c.120mio, with Ingenuity alone expected to reach £150-200mio per year in the next year or two but has potential to be much higher as more companies are onboarded and margins will improve as they do because it is a scalable repeat service for each client.
The problem with Aa (LON:AA.) and many companies like it, is they have no service or product which can be scaled or provide compounded growth and why they are generally cheap. Several years ago, I once bought £BT. because I thought it was cheap and the financials looked attractive but the business was a mess and the market was shrinking on a gross level and due to so much competition, complete mistake and I changed my investment approach because of it.
Thanks for your response.
Why would Thg Holdings (LON:THG) compete directly in Amazon's lane? The corporate interest cannot be in distribution related economics (physical and digital) as that is a hard competition area...so what is their profit driver-differentiation in Ingenuity? And why only 3.9% ytd growth in the area? Is it as its mainly an internal IT function at the moment?
Clearly, the valuation of THG is driven by the pzazz of Ingenuity. Investors believe they are buying a platform winner company. But what is the nature of this winning area? And why so modest in size now, with modest growth if it has all these high profile clients?
Gross margin is before capex, intangible investment, commissions etc....as a business they are cash flow negative
Aa (LON:AA.) will be a very durable and scaling brand for years to come...it just wont be publicly listed due to crazy debt levels and spineless management
EV/Sales of 3x for all parts but Ingenuity puts the EV/share at 865p, way above the current price. It is hardly overvalued. that is at current levels and not including the fact they just upgraded growth a couple of weeks ago.
They would compete in that space because most big brands want their own brand identity (not listing on a platform like Amazon) but want a complete e-commerce, data package which is world class.
Ingenuity isn't the internal IT function, it is a separate segment which they have just hired 500 extra people for and the YTD number looks like a by-product of revenue recognition in the current period, their YoY growth is 212%.
I make EV/sales £6.6bn / (expected) £1.5bn so its 4.4x
This is a touch high but okay for a moderate margin but fast growing business if the growth is believed to be sustainable. A reasonable argument might be 3x retail so £2.7bn which means that Ingenuity is £4bn or >40x sales....which I go back to saying lacks evidence of external clientele. My suspicion remains on reading some info (quickly and shallowly so an expert can provide counter evidence) that most of Ingenuity's current revenue is actually from internal sources but THG don't break this out clearly.
I note that 2019 annual report leads with Ingenuity discussion so its clearly what they are selling as most important...which is interesting given the scale and investment to date in other businesses (not that the listing effectively funded a near gross £900m of debt (borrowing plus net receivables) that were generated in support of the non Ingenuity parts of the business. (They had £300m cash too so net £600m debt).
As per my extract from Q3 update above, ytd Ingenuity growth to end of Q3 was 3.9%. The Ingenuity Commerce section grew 171% (£5.1m revenue as compares to £35.4m for total THG Ingenuity...which I believe is internal still based on disclosed info but not sure of). Note that although not disclosed it seems that the Ingenuity revenue in 2020 ytd has been falling excluding Ingenuity Commerce.
Thg Holdings (LON:THG) has top line growth but it doesn't show margin yet and the historic figures are quite inconclusive in showing it has the potential so show good margin IMO
The conversion of THG Ingenuity wins to £££ seems slow. If they won £200m alone in Q1 then I'd expect more than £5m revenue in Q3? If the 'pipeline of contracted' SaaS business is £200m (funny wording...its either contracted or its a 'pipeline', ie potential, biz?!) and that only rolls off at £20m pa is that a £200m bit of business or is it notionally what you would get from the contract if it rolls for 10 years? I'm maybe being a little unkind here but maybe not. This is a funny. Business that IPO have been known to hype.
Its not a simple business and ongoing capex, development and expense could be high. I'd suggest that normally successful scaling platform businesses start narrow and gradually build complexity. Whereas THG seem to have gone broad spectrum quick. To my eye this makes for risk of downside and/or growth pauses.
Its quite possible that this stock keeps going up, particularly if Nasdaq growth names carry on doing so, but it is hard to see in the fundamentals disclosed why £7bn market cap looks right...by comparison Boohoo (LON:BOO) looks cheap and quality and Games Workshop (LON:GAW) a give away.
I think their cash balance is much higher from the IPO so the EV would need to deduct that but I can't find that number, either way, 3x sales is very low for a business growing at 40% YoY with gross margins of 45% at CAGR of 30+%. Segments are growing at a much higher rate so just taking this blended growth doesn't even show the full picture when looking at a current multiple.
Ocado is trading at 12x EV/sales I believe, last time I looked.
Your second from last paragraph epitomises UK investors and why US has so many mega companies. You quote Amazon now with a whim in a frame that no company can compare but for 15 years it was considered a terrible company with sky high capex, then all of a sudden, it no longer needed to spend and it was facilitating a significant minority of the world's trade.
Investors always underestimate operational leverage and exponential growth factors. They compare a factory spend today to a multiple of sales today and think "how can it possibly earn more than X times the cost of that factory or technology - therefore it seems expensive", when in reality, they earn many, many multiples of the outlay from many years to come.
As a general comment, time value of money is also effectively very negative too, so I would upgrade growth over stable earnings generally given the extreme increase in fiscal spending, central bank balance sheets and the global M2 money supply increasing by a third this year ($5 trillion).
If time value of money is negative then any business you cannot see the end of today has infinite value if we assume there is notional growth and 'negative money' (ie interest rates) are reflected in discounting. This is an argument that can justify anything...
...perhaps you mean that your stocks will touch infinity before my stocks.
Sounds like well reserved gold miners are you perfect stock?
It doesn't mean it is infinite, it just means the normal effective incurring of interest on a global level has been reversed ($1,000 today being worth more in the future is reversed) due to 76% of debt being at negative rates and the only thing which can counter that is a global increase in the money supply to reverse deflation to a point of 'normal' incurring of interest again. We have just seen that increase in the global money supply. There is price deflation from a previous borrowing of money from the future and the solution has been to borrow much more from the future.
It is a strange concept because it means earning cash flow tomorrow should theoretically be easier than today, but once it switches back to being inflationary, money overall is worth less and Gold miners might be a good place to be. It is worth more to have your money tomorrow than today and then for it to receive interest or be in something which is immune to inflation.
Why I say growth companies, which are much more keen to change, should theoretically earn even more.
PS just caught this.
I have never argued that Boohoo (LON:BOO) would go bankrupt. I have always said it is operationally superb businesses. I have expressed scepticism on some aspects of corporate governance and elements of the quality of its growth (based on my efforts to reconcile cash to earnings back in 2018 when I owned a bit and was trying to work out if I should own more). But mainly I think I called you out on comparing boo to Amazon. I don't think I've ever commented on the morals of Leicester etc (I did say that I thought calling the QC inquiry was a bad knee jerk move...which I still think but the view is I'm wrong on that). I have always said I see that boo may go up lots from here. But I can't catch every ride, only the ones that I understand and can happily risk assess.
On Thg Holdings (LON:THG) I've quoted and pasted in the most up to date numbers...which I had trouble matching to old numbers eg 'pipeline of contracted' SaaS business at £200m in Q1 2020 alone....but they seem to be reporting £5.1m of external revenue (for either Q3 or YTD, not 100% clear and probably the former).
I have written up a number of companies positively or negatively.
Congratulations on your boo return.
PPS I'm not red flagging you!
We can agree to disagree but I certainly seem to remember you saying something like it is more likely to go bankrupt.
P.s. I find the red flag very funny, I must be doing something right!
I meant to respond to Jack’s excellent commentary on LON:TSTL (my biggest holding) in Tuesday’s SCVR which I wholly agreed with. Basically, good but fully priced. Background.
Jack from Tuesday:
“There’s a big potential catalyst for the share price in the form of its planned expansion into US markets, but access here depends on regulatory approval. Once you’re in, this is a useful barrier to entry so it’s a situation worth keeping an eye on”
From brief Co statement:
And regarding the US expansion, Tristel says ‘very encouraging progress has been made in our FDA test programme for Duo for Ultrasound, and we have received positive feedback from the Canadian regulator on our Duo for Ophthalmology submission.’
The group also expects to conclude distribution arrangements for its Duo product range in India before Christmas.
My thoughts:
I was busy on the day but have had time to mull over the language used in the update – “very encouraging” is odd wording to use to describe a process that has so far taken years and cost a large amount of cash (for a smallish Co.) It makes me think good news is imminent. Today has seen the share price reach a record high so maybe I am not the only one to think this.
Additionally, I’ve always believed that, if they crack the US they will become a takeover target – and we’ve seen some big multiples on M&A in the sector.
AFC Energy a United Kingdom-based industrial fuel cell power company. Had good news yesterday with a major new partnership. One of Primary Bid's better placings (placing at 16p in June this year; now broken above 50p). Disc; still holding my allocation. Would be interested in a summary / article on some of these "green energy" stocks if a member can point to one. (edit Stocko is suggesting AFC Energy is actually Arsenal Football Club if I use the £).
Must mention bitcoin today. Went up by over $2500 dollars over night at one stage to an all time high of $23,764. That was an incredible move and I suspect we may see a further sharp rise as and when the USA issues trillions of dollars in a further support package. Imagine being short overnight (wince!).
I do not understand the market myself; virtual currency seems to be as worth the same as pebbles on the beach to me. I think virtual miner Argo Blockchain (LON:ARB) is the only UK listed stock in this area (disc I hold albeit now at zero cost). I find it mind boggling myself. A company holds something that does not really exist physically and overnight it makes millions of $ because that nothing moves up hugely. No reason why bitcoin cannot go to $50,000 if people are prepared to pay that I guess.
Arsenal Fc Ord (OFEX:AFC) a United Kingdom-based industrial fuel cell power company.
Well, as a Gooner, I reckon they might as well be given their recent performances.
timarr
Morning Paul re Goodwin (LON:GDWN)
I have to declare this is a major holding for me & has been for some years now..& it’s a company I know fairly well
First thing to point out that their y/e is April..& as there are no f’casts the last 2 reporting periods have both had significant Covid impacts ..which gives you the PE of 28
I wouldn’t view that P/E as any better a guide to the future than the current P/E of say Revolution Bars (LON:RBG)
Covid impact is felt most keenly in the refractory powder division where their biggest end markets are the jewellery industry which was heavily hit by lockdown..especially in India where Goodwin have a significant presence ...Covid also impacted oil markets which are still major end customers for the Engineering division
The story here is of a business that was *the* best listed investment on the LSE for 20 years..TSR was over 10000% ..then the oil price crash of 2014 took a wrecking ball to their business model
Goodwin has over the last few years reduced cyclical risk & widened their market opportunity by concentrating on diversification of end markets by upgrading & broadening their capabilities way beyond those of nearly all competitors, in particular they extended the 2018 summer closedown to install a custom designed casting facility for castings of up to 35 tonne
they are now one of only a handful of companies globally with this capability..they also upgraded the installed machine base across the Foundry & Engineering function to ensure these super large castings could be designed, cast, radiographically inspected in a unique capability facility..at least in Europe
& they also upgraded the whole Goodwin Engineering facility with CNC machines of similar scale & roof crane capacity on the same scale
So why is bigger better?
Firstly..it vastly reduces competition..especially if (as here) it is combined with the highest levels of metallurgical expertise involving high performance duplex alloys that each have their own attributes & idiosyncrasies throughout their manufacturing process & in service thereafter. Some of the alloys they use are patented as are some of the methods of manufacture & even the equipment utilised ... providing a ‘moat’
The reason it reduces competition is that most foundries rely on volume component production runs to reduce tooling costs & complexity...that ends up as commoditisation & therefore favours low labour/energy cost economies.
Goodwin have instead moved to the bespoke ultra large complex castings end of the market where technical skills & capabilities are vastly more important than price.
What has been largely overlooked is the impact on the order book of this, Goodwin spent over 4 years gaining accreditation to supply high value castings to the US navy...They’ve spent £5.5M building a new facility to deliver this contract..it goes live in January/Feb 2021
The £174m order book only applies to the engineering division but at near record levels it gives them excellent visibility on the next 2 years of turnover..in amongst that order book is only 2% of the largest order they’ve ever received which is for nuclear waste storage box construction..this starts from next year & will run for years to come
Goodwin also supply castings for the Royal Navy ‘Astute’ class subs.
it also creates a classic vertically integrated business that will enjoy inherent margin & process control advantages vs most competitors who are only present in part of the production chain.
So in summary they have built a much bigger more robust business with much less exposure to O&G than in years gone by
I think that this company is a classic re-invention story that is little understood by the market as a whole
Hi rhomboid1
"I think that this company is a classic re-invention story that is little understood by the market as a whole"
Unfortunately, for all the company's strengths, which you have so ably described, Goodwin (LON:GDWN) do very little by way of their RNSes to share this information with the market.
Hello Rhom. We are privileged to have an appearance! Thanks for the Goodwin perspective
Thx Paul for your comments on Boohoo (LON:BOO) about to watch the video now.
[EDIT] The video I am watching the questioning of Kamani et al starts at 1 hour 43 mins 40 seconds. SO not sure I am watching the correct video as Paul says it starts at 16:23.
Boohoo is currently 12.8% of my pf and I am finding it hard to resist increasing exposure as over the past five years I have made more more money from the stock than any other company - about a quarter of all my profits.
Regards
Michael
Well played MichaelIFBS!
Kamani comes across as a a really investable guy.
This is the first in the piworld 2020 round up interview series. We catch up with some of our fabulous guests from the year. Here, in the video or podcast, Cockney Rebel aka Richard Crow tells us his performance ytd (35%), what went well Xaar (LON:XAR), what didn't go well Kingfisher (LON:KGF) and the holding he's most bulllish about for 2021. CR's usual frankness and aplomb. Enjoy!
To follow in this piworld 2020 interview round up series: the lovely Paul Scott, Richard Leonard, Leon Boros, John Rosier, David Thornton, Mark Slater & Stephen English.
Wishing you a very happy and prosperous 2021.
Oh, and don't forget today 1pm, join us for the webinar with £RAI. Management: Soraya Narfeldt, CEO, Lars Narfeldt, COO & Andrew Bolter, CFO will deliver a brief overview followed by Q&A.
To attend register here.
I see Xaar (LON:XAR) is currently up over 11% on the day. I wonder if this is because Richard named it as the share he's most bullish about.
I am really looking forward to the rest of this series, the guest were all very interesting first time round.
Finding the Boohoo (LON:BOO) session an interesting watch. I would just comment that all zoom (or similar) presenters should have a little name plate - particularly where the viewers may not know all the players.
There is a webinar with Mirriad Advertising (LON:MIRI) today at 1pm. Hear from the CEO and FD as they discuss the rationale for the successful fund raise, progress on Music Alliance, US Tier1 streaming service and Tencent
Opportunity for Q&A following presentation.
https://us02web.zoom.us/webinar/register/5016070903344/WN__F1KkAoWQfa_mDzjgrr8LQ
Avon Rubber (LON:AVON) , i am not a holder but it has been on my watch list for ages and i have always felt that i have missed the boat, but with todays sharp drop is this an opportunity or a warning? Any ideas?
To be honest re Avon Rubber (LON:AVON), I suspect the market has been a bit generous with the fall today (14% as I write this) given that Jeffries have suggested a 20% cut in earnings on the back of this and on top of the already very punchy rating. Clearly a quality and well-run company, but I think this might cause a pause in the market and beg the question as to why this kind of business was ever being valued at over 20x forward earnings. I suspect its critical if it holds £30 over the coming days. I'm sorry for losses to any holders. All the best, Will
thanks wil , thats why i couldnt bring myself to invest, always thought it too dear but the price just kept going up. i will work out what id like to pay and keep an eye on it,
Not an easy question. I've held LON:AVON long term and have been richly rewarded. The share price has been on the rise all year and the valuation got very punchy. Any bad news at this multiple is going to be punished in the short term. That said the certification has caused a delay ( if I understand it, the business has not gone away) and the news about the NATO orders is significant in my view. This is a quality Company with a very large barrier to entry and one which funds will want to hold for the long term.
I sold a batch @ 4275 and am tempted to buy it back. But I accept reinvesting profits is always easier than entering anew.
I'm in the same boat re Avon Rubber (LON:AVON), sold half at 4250p and going to run the rest. Thinking about buying back when the fall is done. It has many new orders, long term contracts and a large moat, also a good acquisition recently. Believe the NATO one is for 10 years.
Avon Rubber (LON:AVON) - always wondered how would deliver on continual orders for their kit. Thinking a takeover by a large yank.
Here are my heat maps for today (prices as at ~9am).
Overall state of the market by ICB Industry classification:
Key to the Industry heat map contents:
SVCR world filtered to 'interesting' instruments ('interesting' means: reporting soon or recently; trending; breaking out; increased volatility - volume / ATR up; moving more than a 20d EMA of the ATR):
Big movers today in the SCVR world (moving more than a 20d EMA of the ATR against either yesterdays close, or today's open):
Small Caps with RNS news today ("N!!" in bottom row of the heatmap tile means report / update today):
And finally the key to the heat map contents:
The heatmaps are ordered by Stock Rank™, and are limited to the top 75 instruments. I define Small Cap using the Stockopedia Small Cap Size Group definition: Market Capitalisation between GBP 50 million and GBP 350 million.
The heatmaps are images and will be resized by your browser to fit your screen. If the heatmaps images are too small to read on your screen, right-click on the image and select 'Open image in new tab'. This will open the heatmap in a new tab in your browser where they can be zoomed as necessary.
I use heatmaps a lot and generate many (from my own application and database) to help focus my research. I use them to help me quickly find instruments which pass my basic 'tradeable' criteria (a 'T' in the top-right of the heatmap tile, meaning: profitable; low-debt; reasonable liquidity), have a high Stock Rank™ and Quality Rank, and are trending (Tr+ or Tr++) or breaking out (Br+ or Br++) ideally on increased volume (V+). I then research the identified instruments in more depth using the Stockopedia StockReports.
How (or indeed if) you use these heatmaps is up to you, I contribute these SCVR related ones here in the hope that others may also find them interesting or useful. I aim to post sometime in the morning when I can, but sometimes work / family and other priorities get in the way.
greensiax
I have held Steppe Cement (LON:STCM) for a year or so, attracted by the very high stocko rating and huge divi yield. I realise there is Kazak political exposure, but still wonder why this is so cheap - am I missing something?
Agree on Boohoo (LON:BOO) as I've written here before. With all the covid/non-covid and brexit/non-brexit plays, growth is still outperforming.
Value had a good run and I tilted heavily to value on the announcement of the Pfizer vaccine approval and 90% efficacy, but after a 30-40% gain I've tilted back in to growth and it is outperforming again recently. I still kept some of the value non-covid plays like BP and Easyjet.
The growth stock I'm now most confident on leveraging up into the future is Thg Holdings (LON:THG) - The Hut Group. With its distribution network (building the largest UK development in UK history outside London at 2 mill sq ft.) and patented technology and e-commerce network, it can and is leveraging this to provide these services for third party clients.
Their clients include: Johnson & Johnson, L'Occttane, Nintendo, Mercedes, Honda, Boots, Hotel Chocolat, Homebase, Nestle, Elemis, PZ Cussons Beauty, Burt’s Bees, Nuxe, By Terry, Revolution Beauty and many others which they have been adding to recently.
They also have their own solid brands: MyProtein, LookFantastic, Coggles, MyBag, GlossyBox, Zavvi etc.
I can see this as a great business model to leverage and the share price is already performing strongly as investors are starting to notice the solid growth, which was recently upgraded from 32% to 40% after BlackFriday sales.
Thanks Thornabian,
Coincidentally, I've been meaning to look at Thg Holdings (LON:THG) so your summary & link was very helpful.
It seems to have very similar revenue growth trajectory & size to BOO (I hold). Yet it doesn't make any profit, and is valued at twice BOO (which makes a profit of almost 10% of revenues)! How does that make sense?
Similar story with FarFetched - a very apt name, given its insane valuation (something like 4-5 times BOO, despite being the same size and losing money hand over fist).
It's obvious to me which one is priced wrong, out of the above. Well all 3 look priced wrong, but only 1 is cheap!
Regards, Paul.
In 2019 alone Thg Holdings (LON:THG) spent £160 mm building the Polish 800sq ft service centre and spent roughly £37mm on bulking out Ingenuity (the e-commerce and distribution they will sell to third parties).
In 2017 they finished their major UK distribution centre of 1mm sq ft and are building another huge distribution centre and head office by Manchester Airport, which is strategically significant as they own two of their own supply planes.
They have another major distribution center of around 800sq ft in China and are planning to expand on their two distribution centres in the US which are less than 100sq ft.
Bare in mind Amazon has 198 distribution centres but they all mostly 150 sq ft in size, other than some of their major sites in the US.
So the capital outlay is high now (earmarked around £1bn I believe which is the main reason they listed) but they have grown organically until now at a high rate and are still outgrowing the capital spend and on an adjusted EBITDA basis, are growing at 20-30% per annum.
I see this as a strong positive for leverage in the future and expect margins to increase over time. Gross margins on their own brands are well above 30%, depending on which brand and the Ingenuity margins are in the 70% region because it is service based on leverages off their existing e-commerce/technology patents and distribution network.
FarFetch on the other hand, seems to be more at the whim of third parties so not sure it could operationally leverage as much but I'll admit I haven't looked into them in as much detail.
I would also like to add, the papers were very unkind to Matt Moulding (the founder) just like the Boohoo founders and claimed he had a "Golden ticket" over share rights and showed pictures of him at parties to try to make out he was a partier and wasn't serious. It is quite obviously not true, he only has a veto over foreign takeovers for 3 years, it doesn't impact any other shareholder rights and there was talk recently the FTSE rules might be relaxed for things like this to make it more appealing for self-made founders to list on the FTSE without having their company bought out in a hostile take-over.
You can youtube Matt and find many videos of him and personally I really like him, he seems very committed to the business (as he would be with all his wealth in it) but the media have made a habit of scaremongering over UK founders of companies.
Now if they could only whip Zavvi into shape and get them to deliver my black friday order........
I have that same issue with a Zavvi but I did order a pre-order with no set release date so I can't blame them. :)
Agree with this. I bought on the IPO, partly because I had experience on the brand through my wife! Papers were keen to portray a 'player' but reading his interviews he didn't sounds like anything of the sort. He came across to me as very passionate about THG. Plus I like anything that's not only selling physical goods, but can also leverage a platform for revenue opportunities.
Agree, technology+consumer is always a very good mix, especially those which are obsessed with the customer experience. It is always a good sign and a common theme in probably all the big growth stories over the past 20 years; Amazon, Apple, Tesla, Samsung, Alibaba, Tencent, NVIDIA, Boohoo, ASOS, Ocado, Just Eat and there are many more with this approach that have grown over 20-30% CAGR and are expensive but stay expensive for that reason.
I do hope your sq ft are k sq ft!! Otherwise we're talking small house size.
And how can we wean people off the high falutin term CAGR? What's wrong with old fashioned % pa?
You can't show multiple years of growth without saying CAGR unless you quote every year and it would be misleading to do so anyway because if it falls one year and you take a new % on that number it is distorted.
e.g. 100 decrease 20% to 80, then increase 20% to 96 - not 100 again.
Great last paragraph!
Morning Paul - Just struck by Kin And Carta (LON:KCT) a company I have not come across before but looks very interesting and among the major gainers this morning. Have you reported on them in the past..?
This is St Ives transformed from an old fashioned British printing company to a high tech advertising/marketing company that is building up its business in the US. I made money previously on the old company and then again on the new company but got out earlier this year before the price completely collapsed. I failed to get back in which was a mistake and do not hold. I consider it a business run by ambitious people with good prospects.
Hi bohenie
You don’t need to ask about whether Paul had made previous comments. If you enter the Discussions tab in any company page it will then list previous comments by Paul or any other writer on Stockopedia.
And yes Paul had commented on Kin And Carta (LON:KCT) without enthusiasm a couple of times this year.
thanks to you both - I had not appreciated this is the old StIves and thanks - I now know where to look...for discussions.
At the risk of being trampled over - Do you think we should be limited to no more that say 3 or 4 short comments per day....?
Do agree on Boohoo (LON:BOO) as I've wrote on here before.
Even with all the covid/non-covid, Brexit/non-Brexit investment plays, growth is still the overriding outperformer in the market.
Value had a good run and I bought in on the day the Pfizer vaccine was announced but after a 30-40% rally, I've tilted back in to growth - whilst keeping some of those positions in Easyjet and BP - and growth has been outperforming again recently.
My new favourite growth stock is Thg Holdings (LON:THG) - The Hut Group, when you read about the distribution network they have built (currently building the largest development in UK history outside of London with over 2 mill sq ft) and particularly the licenced technology and distribution platforms, it is very promising indeed to leverage it into the future by bringing companies in to their networks. They have already agreed contracts with many companies to build their online, e-commerce and distribution networks based on their own patented model.
Their clients include; Johnson & Johnson, Groupe L’Occitane, PZ Cussons Beauty, Homebase, Hotel Chocolat, Nintendo and several more, with several contracts added recently.
They also have their own solid brands like MyProtein, LookFantastic, Coggles, MyBag, GlossyBox etc.
The share price is already performing strong and I think at around £7bn it is still very cheap to what it could be. There is also a potential FTSE rule change coming which will allow it to be listed on the FTSE. (Matt Moulding currently can veto a take over but has no other special rights and this might be allowed on the FTSE soon, but isn't yet)
Thanks for the link Paul on the Environmental Audit Committee meeting involving Boohoo amongst others. I was very impressed overall by the Boohoo team and trust their presentation will reassure those who may mistrust the companies values and intentions. Of course there are some who have a vendetta against the company and will never be convinced . Just hope the short sellers take a big hit and move on . Boohoo is also by far my longest position and will remain so for the foreseeable future
Boohoo (LON:BOO)
My favourite share .
Paul,
too much emotion, you of all people should know the rules :-))
Which ever makes the most money is going to be the favourite share.
Dicktrade, there's no emotion involved at all.
This is why (graphs below) BOO is my favourite share. It's an amazing growth company, reasonably priced. Simple as that. Perhaps you misunderstood what I meant by favourite - which to me means that I see the biggest upside on the share price. I might use a different word in future, to make that clearer.
Paul,
it was a tongue in cheek remark, i too hold and i knew exactly what you meant.
but investing is not supposed to be emotional .
@Dicktrade,
I would say investing is always emotional unless for sociopaths or machines. Otherwise why do we get such heated discussions here? The challenge is to recognise the emotions and work with them rather than being led by them. Easier said than done but all the more satisfying when it works.
Fireangel Safety Technology (LON:FA.)
Thanks for flagging this one up Quilleron. I hadn't noticed how bombed out this share is now with a market cap of just £14 mill and shareprice of 11p (thats pre opening calcs looks like price has opened up by 10%+) compared to over 300p peak.
This does seem an interesting turnaround proposition - the company was making 6-9 mill pre tax profit back in 2014 and 2015. Not sure if it still has all its former income streams in place but it does look like a company that has potential if even half of its former glories could be found thats providing material dilution is not needed in the meantime - thats probably main quetsions (1) will they make clean decent profits going forward (2) is balance sheet enough to see them through if that is the case. From memory (which may be wrong) i think thye have gone from one operational disaster to another in recent times - if that is correct it may at least give one hope if they can do the basic right of making some reasonable margin non the sale they do have.
If you can have a look Paul that would be great.
They went through a very costly and disruptive legal dispute. You can get the details from the annual reports over the last few years. It has since been followed by various issues, including over-stocking, that the management blamed on the distraction of the dispute. I think they have a fairly good product at the basic level (I've a Fire Angel CO alarm bought via Amazon, but it wasn't expensive and there's a lot of competition.) I've been waiting for recovery since the legal case was resolved (I hold) but it hasn't happened yet. The IoT products have been on the radar for a couple of years now, but only one major sale up until now - maybe there are more behind the latest update.
Interesting update from Bidstack (LON:BIDS) this morning. Tiny and loss making technology company that sells advertising space into video games. The company appears to act as a hybrid between a technology firm and an advertising broker.
Claims revenues will exceed market expectations for the year and makes out the company is at a turning point in a brand new market. Year end is 31st Dec yet it makes no claims on numbers - it’s 14 days away.
Expectations were £1.5m of revenue for 2020 though Stocko says that the expectation is £2m, so still pretty early stage. Company expected to burn through £6.5m of cash both this year and next so possible placing on the cards.
One to keep an eye on. I expect the Minervini followers will be looking at it though it might be too small for them.
So, a new market area with a lot of growth potential, still loss making but maybe on the cusp of being profitable? Not for widows and orphans. We’ll get a better idea in the New Year when we get the actual numbers and maybe some revenue guidance for 2021.
I’m long, but this is firmly in my “Punt” portfolio. One rule of my punts portfolio is only invest what I am prepared to lose 100% of, so a small position.
Bidstack (LON:BIDS)
Interesting i await with baited breath for a virtual james bond to be seen throwing a fully pimped up explosive virtual can of fevretree at one his mortal enemies in the next bond game presented by Frontier (no they dont officially have the franchise yet - just speculation on my part)
Probably more chance of a virtual James bond Sipping a virtual fevertree drink in a virtual drinking establishment than me doing the real thing anytime soon - sigh.
when BIDS released their interim results in August, they talked about expecting the full year revenues to be “in line with market expectations” for the full year. I couldn’t find any broker reports so I wrote to them to ask what figure their announcement referenced. They never replied. For me it’s hard to invest, even if the story seems nice, when the numbers are so unclear. Why couldn’t they put numbers in today’s announcement now we are so close to end of year?
the big problem with Bidstack (LON:BIDS) was that they (like many before them) were way too bullish about the time taken to achieve revenues at scale. There was lots of PR and positive noises/interviews etc but the revenues did not come through as planned. I would say they were maybe a bit naive in how quickly disruptive in-game ad tech would be adopted. This scenario created a stock that went to what, 40p and then straight back down to 6p again, so there will be plenty of stale bulls selling out on the way back up I expect.
However, that said I find the tech and concept very interesting and it is one of those businesses where revenues could just explode and get very meaningful very quickly. The advisory board is a who's who of the industry. That whole J curve effect on rapid adoption. The problem is judging adoption uptake and timing. Can they hit b/e quickly enough to avoid dilutive raises etc.
I'm a bit on the fence - would like to see hard numbers and growth before committing anything meaningful to a trade so is a pity we got no numbers in the trading update.
I'm invested (a small amount), but have previously sold twice when I have applied my more rational brain. I have been a fan of the concept of in-game advertising for years and was enthusiastic about Bidstack (LON:BIDS) when I learnt about them.
I still have high hopes but I recognise this one might need to be bailed out to realise its dream. The technology is basically programmatic advertising applied to videogames. But the extra challenge here is that they are also having to effectively create the advertising real estate too by working with games developers.
As you mentioned, a lot of convincing both games publishers and advertisers to adopt is required. I'm hoping (praying) that this one will explode once the industry and advertisers get their head around it.
Would be most interested Paul, to have your view on Fireangel Safety Technology (LON:FA.) which I picked up recently as a recovery play. Was impressed by their Internet of Things (IOT) capability and increased legislation around fire and CO safety. Scottish legislation has been delayed but is likely in 2022 https://www.bbc.co.uk/news/uk-...
Revolution Bars (LON:RBG)
Results today. Some quite strong language here...
"The UK Government's actions towards wet-led bars and late-night hospitality are nothing short of scandalous. It has little evidence to justify the severe restrictions that have been imposed and it is deliberately sacrificing businesses and people's livelihoods. The recent grants of GBP1,000 per pub as compensation for being deprived of our most important trading period is derisory and insulting, and underlines a complete lack of understanding of the costs associated with businesses of this nature (even when they are shut) or any sympathy for the consequences of their inept decisions"
Interesting RBG say they would survive the following scenario:
"The directors have also reviewed a severe but plausible downside scenario which assumes that the business is subject to an enforced lockdown (zero sales) until the end of March 2021 (Easter) with sales return at 60% of the normal historical pre-COVID levels between April 2021 and June 2021, after which trading is similar to the base case forecast for the remainder of 2021"
Would be interested in your view Paul if possible.
I am surprised to find out amid the woes of Revolution Bars (LON:RBG) that a new IPO from another outfit called Nightcap (which is buying London cocktail club) is so positive about its outlook.
I suspect it's a brilliant time to be in the hospitality game if you have lots of cash and little in the way of trading venues! I think the founder of Pizza Express described todays conditions as being representative of the conditions he found when setting up that business. Once in a generation. Landlords desperate to do deals, high streets decimated but pent up demand for the right product. If you have the cash you can basically easily hire very well qualified staff at reasonable value (someone mentioned to me that they put an advert for a sous chef; usually get 20 applications; got 900 !!), you can take out leases with zero upfront payments now even on quality sites and often a rent free period. Some of these sites are already set up and equipped from other unfortunate hospitality businesses that got killed by the covid shut down so kit out costs are lower too. From the carnage there will be some glorious opportunities in my view for rollouts as long as they are cash rich. Haven't looked at Nightcap but suspect that's why they are bullish.
I hold Revolution Bars (LON:RBG) myself at an average of around 25p and whilst I believe these guys will be very profitable and cash generative once we are all released back into the wild they do look hamstrung by the debt in that it will prevent them from picking up and taking advantage of the carnage. They look like a survivor rather than a clear winner.
Another placing on the cards perhaps for Revolution Bars (LON:RBG) . Perhaps that's why Paul is unusually quiet on this today? He was made an insider previously.
My calculations suggest Revolution Bars (LON:RBG) likely to go bust without another placing. Wish all holders luck and hope it done at a reasonable price.
BSV
I suspect it's a brilliant time to be in the hospitality game if you have lots of cash and little in the way of trading venues! I think the founder of Pizza Express described todays conditions as being representative of the conditions he found when setting up that business. Once in a generation.
Agree. Back in Aug 2020, David Page ex of Pizza Express, also said:
Personally, I think best placed are those brands like his company's Franco Manca which were already on a roll out track with proven concept, menu, supply chain etc. New brands always take time to grow and within 3 years the best sites in the current 'gaps' will have healed over.
I have held Fulham Shore (LON:FUL) for some time as their approach of every day low price, limited menu and distinctive product (sourdough pizza) was already geared at the value conscious. Hopefully they can now kick on.
Biggest risk is that total eating out market declines as people switch and stay in with Deliveroo etc. That favours those with the biggest Marketing budgets. We will see.
I agree Fulham Shore (LON:FUL) well poised for aggressive rollout. But suspect they will need a bit of equity top up too to realise that, but then will fly.
Their concept lends well to Deliveroo and the likes too. They're currently very active on those platforms with marketing.
Hi Paul
I too wondered if you might have any thoughts about today’s £RBG prelims. However brief.
Thanks
Paul, I disagree with your £30m net debt level for Revolution Bars (LON:RBG), when things go back to normal.
Your model assumes £0.4m a week cash burn until end March and assumes no more after. However, it's going to take some time to ramp revenues back up again, and whilst govt says April, history shows these big govt rollouts often are delayed. Just look at ramping up testing capacity, track and trace, etc.
Also, presume RBG will need to ramp up working capital for reopening of trading. So net debt will be higher.
And then if business rates come back 1st April, that's another big blow for cash flow and net debt.
On top of that, has RBG accrued alot of VAT that needs to be repaid around the same time?
For me it looks like another equity fundraising is inevitable, probably £10m.
The are also well behind their refurb schedule, which is causing poor trading in their shabby locations. Meant to be 18 a year at 70 bars. Last two years is behind, this year will be behind, will they be competitive as a venue even with less competition?
No, you're wrong about Revolution Bars (LON:RBG) needing a £10m fundraising. If you read the RNS, even the plausible downside scenario gives them (just about) enough headroom on the existing facilities, at the low point in March 2021. and that assumes zero revenues in Jan-Mar 2021.
I've challenged the CFO on the figures today, and came away happy that they've been prudent in their assumptions.
Also, presume RBG will need to ramp up working capital for reopening of trading. So net debt will be higher. And then if business rates come back 1st April, that's another big blow for cash flow and net debt.
It's the other way around actually. I confirmed with the company today, and they've mentioned this before, that customers pay cash, before supplier are paid. Therefore it generates cashflow from the moment the doors open.
Business rates - isn't all payable at once, it can be paid in instalments. Likely that the Govt should give some kind of relief, or phasing in, from April 2021 onwards, which should be OK.
Management are saying that bars likely to be opening some time during April. Hopefully at the start, but furlough scheme being extended to end April this week, suggests it could be end of April maybe? They think bank facilities are enough to avoid breaching the 1 covenant. And even if covenant is slightly breached at March 2021, they believe bank highly likely to waive it, given that bars would be about to re-open. Hence they're talking about a possible very minor breach, which would only require small, bridging finance.
The strength of the banking relationship is demonstrated by Nat West agreeing this week to defer repayment of something like £8m in June 2021, in order to allow the accounts to be signed off clean.
It's right that we're checking & challenging the numbers, but after doing my due diligence thoroughly, I'm happy the funding situation is fine.
Regards, Paul.
Hi Paul,
A small correction re £Boo, I believe the correct terminology (according to DM etc) is that they are ‘hauled in front of the Committee’! ;)
Overall I too thought Boo did well, and my big takeaway is also that the Chair really gets what the issues are and has real buy in to the Agenda for Change stuff as important, business critical and essential to his commitment to Leicester and its manufacturing base.
Press reaction seems muted. Reuters and Telegraph, were brief but positive. DM brief and incoherently negative, and Guardian negative, with headline suggesting that Chair had threatened to take manufacturing overseas (as opposed to the fact that he didn’t do that and doesn’t want to, but others do).
But overall a good performance by them, and interesting snippets of what Boohoo are doing and thinking. Some muddled thinking from some of the MPs...
On Boohoo (LON:BOO) has the company indicated how much of a hit to op margins they will see, from more ethical supply chain and sourcing?
A key investment case for Boohoo is that good margin and also their ability to offer good value to customers too.
Lower margins for £BOO is a possible outcome from improvements to supply chain and sourcing. However two things: it was not Boohoo (LON:BOO) who were not paying their staff or their taxes it was the owners of some suppliers. So yes change should definitely hit some of their margins. or indeed revenue if they are one of the companies deselected by £BOO.
As to Boohoo (LON:BOO) and their margins, they have the option to work closely with suppliers to improve working practice and efficiency in Leicester and they always have options, like most clothes companies, to source far more cheaply from overseas. The fact that the Chair was quite adamant yesterday that if anything they will increase their supply from Leicester rather suggests that they are not concerned about negative impact on margin.
Guardian being negative is hardly surprising, they are basically a communist paper. Along with The Independent, they are the most anti-capitalism papers in the UK.
agree 100%
Guardian being negative is hardly surprising, they are basically a communist paper. Along with The Independent, they are the most anti-capitalism papers in the UK.
They serve their readership in the same way all of the papers do. They're owned by the Scott Trust whose central objective is:
"To secure the financial and editorial independence of The Guardian in perpetuity: as a quality national newspaper without party affiliation; remaining faithful to its liberal tradition; as a profit-seeking enterprise managed in an efficient and cost-effective manner."
It's come to something when people equate liberalism with communism.
But it's pretty clear they don't like Boohoo. Today's article was poor I thought. But I could point to equally poor articles in all of our press, they've had a bad year in general.
timarr
This is the paper who constantly writes about equality of outcome and fervently argued for total lockdown in perpetuity, QR codes for citizens to move around, restrictions of freedoms. 'Liberalism' but not libertarianism and freedom.
I briefly refer to them to see a wide view of opinions but frequently cringe when I read it.
But this isn't a political board, just saying I wouldn't listen to them for investment opinion personally.
Would agree entirely on The Guardian. It is certainly not communist but possibly wants capitalism constrained more than I do. But more and more people are pointing out (Stephen Clapham on the IC Podcast was the most recent I have heard) that the rewards of capitalism have probably accrued to the providers of capital over labour in the past 10 to 20 years.
It and the FT are the only two papers I read with any regularity, though considering swapping the FT for the WSJ or even following this “advice” on Farnham Street “Why You Should Stop Reading News” https://fs.blog/2013/12/stop-r...
Regards
Michael
I'm of the opinion FT and The Telegraph provide a good balance as the FT has moved a bit more to the center left and the Telegraph is center right but both generally have good analysis of news and only a few bad articles; but that's just me and I would be lying if I said I hadn't ever made a rash investment decision (usually to sell) based on poor news which later turned out to be exaggerated.
I would agree there is a better way to direct capitalism in a way the Chinese have become very good at (one cannot deny their economic success) but I'm a big believer in small government generally and think it is better when govt set the scene and direction but largely move out of the way of private enterprise and innovation from the private sector.
In today's world economy of subsidies and where technology wins, and can be bought out or taken over, it has become harder for economies to succeed by the govt just getting out of the way though.
Would agree entirely on The Guardian. It is certainly not communist but possibly wants capitalism constrained more than I do
Frankly, it's often bloody annoying. But Nils Pratley is one of the best financial commentators around and they're open to publishing dissenting views unlike a lot of the alternatives. For all its many faults I think the media landscape would be much poorer for its absence.
There's a broader argument about the increasing disparity of wealth and whether this means that there's a case for constraining it. This happens on a cyclical basis as the economy goes through profound changes and regulators struggle to catch up with innovation. And so we go into periods where capitalism is constrained until all seems quiet, the shackles are lifted and then insanity breaks out again.
Really, though, all capitalism needs to be managed. Unregulated capitalism takes us back to dark satanic mills. Or, perhaps, clothing factories in Leicester ...
timarr
The wealth gap argument is solely pinned on the idea of an unfair economy. Life is unfair but economies are not. Malcolm Gladwell - Outliers, is an excellent book on explaining this. E.g. how being born in 1955 as someone interested in computing was the perfect year - Bill Gates, Bill Joy, Paul Allen, Steve Jobs and many others were born that year or two from it - the reason has to do with being 7-10 years from the release of personal coding equipment.
14 of the 75 richest people of all time were born in America in 1830-1839 and became part of the creation of the American railroads, and Wall Street and the financing of those railroads, or the commodities which transported on them. They were people from all types of backgrounds and not privileged class but born at the right time.
The wealth gap argument is solely pinned on the idea of an unfair economy. Life is unfair but economies are not. Malcolm Gladwell - Outliers, is an excellent book on explaining this
Gladwell's a great communicator but he's no scientist or economist. He much prefers an anecdote over data. Much like everyone I suppose. Once described as "America's best paid fairy-tale writer" :-)
As for the wealth gap - roughly speaking in the US or the UK if you're born poor you'll die poor. The people who run this country today are, by and large, the descendents of the people who ran this country a hundred years ago. Economic disparities set at birth persist across peoples' live and the fact that we can all point to a few examples of exceptions to that rule doesn't change the general truth of that.
Of course, how you go about addressing that can vary sigificantly, but there's no question that you have to address it directly if it's going to change. It won't fix itself. You can't pull yourself up by your own bootstraps if you don't have any bootstraps. Or boots.
timarr
If you are born poor, you die poor? Sorry but that is absolute nonsense. As someone who was born in the poorest part of the country and moved to the capital, I know first hand that is rubbish. People get out what they put in, yes some luck and circumstance comes in to play but people can overcome that.
There are a few through history who retain wealth and they don't stay the wealthiest for long or even close to it.
If you are born poor, you die poor? Sorry but that is absolute nonsense.
Really? Where's your evidence for that? Here's the UK government's own report on social mobility from 2019:
In this our sixth State of the Nation report we lay bare the stark fact that social mobility has stagnated over the last four years at virtually all stages from birth to work. Being born privileged in Britain means that you are likely to remain privileged. Being born disadvantaged, however, means that you will have to overcome a series of barriers to ensure that you and your children are not stuck in the same trap.
https://assets.publishing.serv...
But if you want to trade stories about someone born poor you're talking to the wrong person. I come from abject poverty in West Cornwall and was lucky enough to benefit from a Grammar School and government funded university education. That route is no longer available to kids today and ain't coming back however much we may wish it.
timarr
You were lucky. We used to DREAM of living in a corridor.
You were lucky. We used to DREAM of living in a corridor.
CORRIDOR! You were bloody lucky. We used to live in a cardboard box in middle of t'road!
And when you tell kids that nowadays they don't believe you ... :-)
timarr
Luxury!
Personally I might be more sympathetic to those wanting to "abolish capitalism" - whatever that means - if they weren't the same people who destroyed, deliberately, a standard of education for all that was once taken for granted. However, we shouldn't really be talking politics on this site.
"roughly speaking in the US or the UK if you're born poor you'll die poor"
The evidence around so called intergenerational social mobility says:
- Mobility in the US and UK is bad, as you say, in comparison with many advanced nations
- but both are better than most nations in the world
- the Scandinavians are world leaders and Europe is the best region of the world
- Poorer countries tend to be the worst
There are different ways to look at the issue but here is a useful graphic based on WEF data:
https://www.visualcapitalist.com/ranked-the-social-mobility-of-82-countries/
There is also a positive relationship between income equality and social mobility. The most unequal countries offer the least prospect of social mobility. The poorer you are at birth in relation to your rich fellow countrymen, the less chance you have of changing that situation. This is known as the "Great Gatsby Curve".
Not less chance. You have the same chance. Chance implies “luck”, genetics, hard work, willingness to take a risk and dedication aren’t luck
You mean less likelihood.
Agree - the truly Liberal (perhaps 19th century not Guardian woke!) answer is to be pro-market AND pro-good govt regulation......in tune with the idea you should be able to do anything you like providing it does not have a negative external impact on other people.
However, linking the politics back to investing, I do think that we are likely to see post-Covid, a rise in support for policies that support public goods (think better air quality, public housing, even more NHS/Social Care spending) along with policies that tax the wealthy (or at least reduce exemptions/loopholes/allowances) to pay for COVID recovery spending/debt reduction. Pension limits/ISA allowances/CGT changes must all be in the Chancellors sights
Of course the political discussion will be : who is wealthy!
As someone who has demonstrated a lot of social and economic mobility, up AND down the ranks, over the years that is very interesting question
What destruction that will cause to the economy. Thankfully, the Chancellor has voiced his objection to investment stifling policies and rightly so.
Ref the guardian.
I think their goals and real life have a bit of a mismatch
as a profit-seeking enterprise managed in an efficient and cost-effective manner."
I would like to see the sum total of cash the guardian has burned through in the last 15 years whilst at the same time holding out the begging bowl to readers and presumably also their "benefactors".
Ok the future may be different but they would say that wouldnt they - bit like a rich kids that constantly begs to their parents that they will be homeless if the generosity of said parent doesnt short term give them enough to blow on whatever they feel is "needed".
My morning smallcap tweet: Turbo Thursday with 19 companies
GYM (LON:GYM) Fireangel Safety Technology (LON:FA.) ASA International (LON:ASAI) Bidstack (LON:BIDS) Reach (LON:RCH) Kin and Carta (LON:KCT) Surgical Innovations (LON:SUN) Provexis (LON:PXS) John Lewis of Hungerford (LON:JLH) Alfa Financial Software Holdings (LON:ALFA) Safestyle UK (LON:SFE) International Personal Finance (LON:IPF) Deepmatter (LON:DMTR) Intelligent Ultrasound (LON:MED) Physiomics (LON:PYC) Wameja (LON:WJA), NWF (LON:NWF), Transense Technologies (LON:TRT), Netcall (LON:NET)
Gym (GYM) extends extra bank facility to June 2022. All gyms are open. [SP=212 Cap=352m]
FireAngel SafetyTechnology (FA.) positive trading momentum has continued with Nov up 20%. [SP=10.2 Cap=13m]
ASA International (ASAI) sounds positve apart from "India continues to struggle with collections remaining in the high seventies." [SP=225 Cap=225m]
Bidstack (BIDS) guides FY(Dec) rev above market expectations. How much? "Average order values increasing significantly and experiencing advertising agencies now including in-game advertising as a component in large media plans." [SP=5.8 Cap=23m]
Reach (RCH) hits 5m customer registrations. Q4 digital rev up 20%. [SP=132 Cap=412m]
Kin and Carta (KCT) sells healthcare communications business Hive for £13.8m. Hves pretax was £1.2m. [SP=104 Cap=175m]
Surgical Innovations (SUN) nationwide distribution agreement with existing US distributor, Adler, for full range of handheld surgical instruments. Worth c. $12m over 5 years. [SP=1.44 Cap=13m]
Provexis (PXS) £1m placing at 0.75p, a 6.3% disc, for additional working capital for growth in for Fruitflow+ Omega-3. [SP=0.9 Cap=19m]
John Lewis Of Hungerford (JLH) despatched sales and forward orders total £5.9m up 25%. Now offering finance facilities to customers. [SP=0.45 Cap=1m]
Alfa Financial Software (ALFA) guides FY(Dec) rev 5% above expectations. Outlook caution: "we expect a larger proportion of our work to be spent on upgrading existing customers to Version 5 and in the expansion of our global relationships under existing licences rather than new standalone projects...hese upgrades and expansions will generate a lower level of perpetual licence income next year. We do expect an increase in our costs as we return to a more normal level of working, along with the impact of the delayed internal projects noted above and with an increase in the levels of holiday being taken once the travel restrictions from the pandemic have eased. Whilst the late stage pipeline continues to develop well, we have a lower level of contractual visibility than we would like." [SP=124.2 Cap=373m]
Safestyle UK (SFE) Q3 rev up 9%, guides Q4 up 20% as mkt demand increases. So guides FY rev over £113m and U/L pretax -£4.5m. Guides YE order book up 75%. Guides FY21 significantly ahead of market expectations. [SP=37 Cap=51m]
International Personal Finance (IPF) the 'modest' reduction in collections effectiveness expected this winter has not happened, but continues to plan for a softening in performance in the coming months. Nov effectiveness 97% of pre-covid. [SP=92 Cap=206m]
DeepMatter (DMTR) wins 3 year contract with Thieme Chemistry for technical data services and access to the Group's proprietary algorithms. No £££. [SP=1.61 Cap=15m]
Intelligent Ultrasound Group (MED) ticker changes to IUG on Monday. [SP=15.44 Cap=41m]
Physiomics (PYC) existing client Merck commits to an initial tranche of projects for 2021 with an aggregate value of £270 [SP=5.49 Cap=5m]
Wameja (WJA) €25m Mastercard facility extended to March. Takeover by Mastercard was planned to have happened by now. [SP=6.35 Cap=142m]
In line: NWF (LON:NWF) Transense Technologies (LON:TRT) Netcall (LON:NET)