Small Cap Value Report (Thu 20 Aug 2020) - AO., IGP, VTU, LOOK, FUL, CHH

20th Aug '20 by Paul Scott

42 comments 8905 reads

Good morning, it's Paul here with the SCVR for Thursday.

Today's report is now finished.

As usual, this is initially an empty article, so that subscribers can add your comments about the 7am news releases. Then I'll be writing up the main article, section by section, throughout the morning. Official finish time is 1pm.

Today I will be looking at;

Ao World (LON:AO.) - brief comment on strong revenue growth

Intercede (LON:IGP) (I hold) - more colour given on recent big contract win with US Dept of State

2 car dealers reporting today, so I'll review both - Vertu Motors (LON:VTU) (I hold) and Lookers (LON:LOOK)

Fulham Shore (LON:FUL) - update

Churchill China (LON:CHH) - interim results

Van Elle Holdings (LON:VANL) - Final results - sorry I ran out of time, so didn't look at this in the end.

I probably won't have time to catch up today on a small backlog, because my niece is coming to stay for a week, so I have to get everything organised for her visit. Hence an early start today, and 1pm finish at the latest.

Brief comment;

Ao World (LON:AO.)

196p - Mkt cap £925m

Trading Statement - this online electrical retailer has issued an impressive update this morning, in terms of sales. As you would expect, with competitors' physical stores closed, it's done well during lockdown. I'm not sure what growth rate the market is expecting, but this does look impressive;

The trading momentum announced at the time of our preliminary results in July has continued and the significant change in demand for AO's products and services has been maintained. As a result, in the four months ended 31 July 2020 we have recorded strong year-on-year revenue growth in the UK of 58.9% to £401.3m and of 91.5% to €74.3m in Germany¹....

The demand for AO's products and services has been sustained since competitor stores started to re-open at the beginning of July. This reaffirms our belief that this is a structural shift in demand where customers have found a better way to shop the electricals category.

Competitors also have websites. of course.

Medium term uncertainty due to covid & Brexit.

Nothing said…

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Silver Moon

20th Aug '20

Nettle, why don't you try opening a new tab by right-clicking on, for instance, the link Intercede (LON:IGP), to bring up the Stock Report. You'll be seeing the Company name as the header. Further more it is a great learning tool to get to know tickers.

Silver

Terry Dickens

I like the new photo.

Paul Scott

Hi John,

it would be a great help to novices such as myself, if you also included a sub-heading with the actual names of the companies.

Fair point. I sometimes put in a list of the company names near the start of the article, so I'll try to remember to do this every day.

The reason I use tickers in the main header, is because that field is limited in length, so when putting full names in, there's only room for a couple.

Best wishes, Paul.

Wimbledonsprinter

As you say, N+1 Singer’s forecast for Ekf Diagnostics Holdings (LON:EKF) (I hold) assume that there will be no follow-on orders for PrimeStore MTM contract manufacturing, after current orders expire in September. This seems unlikely as Covid is not going away, testing is increasing and they have previously had orders renewed. Hence, I understand why you would expect further upgrades for FY20. Indeed, I would assume it more likely than not that PrimeStore MTM orders will still be going out in FY21 - and so far there have been no upgrades by the brokers of FY21 numbers.

Still the key question is it right to value the company on basis of a multiple of its traditional diagnostics business plus the value of its stake in Renalytix Ai (LON:RENX) (plus now Trellus Health) plus the DCF of the PrimeStore MTM business (viewing it as a one-off project)? I think this probably is the right way to value the company and on this basis I think the current share price can be justified.

If the market decides that it wants to value the PrimeStore MTM profit stream also on a meaningful PE multiple - which is possible (justified or not) if the contracts keep getting renewed - then I think the share price could rise considerably further.

Mkeenan88

Hi Paul,

What are your thoughts on Covid providing peak to internet/streaming companies?

Do you think this is a high point watermark for the likes of AO, Netflix, spotify ect?

If you didn't get Netflix during covid when will you ever get it? If you didn't use AO during covid when will you ever use it? etcetera.

Regards,

Michael

simoan

Body language doesn't look great though! Why the crossed arms? Paul's sheepish smile tells me Jack told him what he really thought about Revolution Bars (LON:RBG) :)

All the best, Si

Bluesky Ventura

Revolution Bars (LON:RBG) and Bigdish (LON:DISH) both covered in small cap dog of the day

https://www.stockopedia.com/content/small-cap-dog-of-the-day-bigdish-dish-648973?order=createdAt&sort=desc&mode=threaded

BSV

Bigclaw

I think you may mean selflessly?

nettle

A great many thanks. When you put the list of companies near the start, that is excellent, and a sufficient help. Especially to lazy people such as me!

RDHOWARTH

Redrow (LON:RDW), Springfield Properties (LON:SPR) and Crest Nicholson Holdings (LON:CRST) are the main stocks that qualify here. Crest Nicholson Holdings (LON:CRST) is a special sit - it has created its own disaster and is by no means out of the woods. Its house prices fell 17% last reported, very odd and it has debt. It makes perfect sense it has underperformed all others dramatically. That doesn't rule out it being a recovery candidate.

For the other stocks the answer really isn't that complicated. Despite always being the most expensive Persimmon (LON:PSN) has shown itself to be deserving of its rating and relative standing. It preserved cash through the Covid experience, helped by the timing of its period end. Never the less they go into H2 with plenty of cash and conservative land buying policy.

The others incl. Redrow (LON:RDW) and Springfield Properties (LON:SPR) are different flavours of weaker balance sheets. All the builders talk of balance street strength but the truth is far from that. I now remember why I flipped my Springfield Properties (LON:SPR), they carry quite an aggressive net debt position and it would not be a surprise if they raised additional funds. Taylor Wimpey (LON:TW.) moved early and carried on buying so they diluted the equity 10% and played a more aggressive recovery from the off. This could be right... time will tell. I have always considered Bellway (LON:BWY) well run, but its net debt position is zero with facilities broadly balanced by land creditors... and so whilst they could draw on Govt facilities if things deteriorate, I think raising equity would be preferred. That leaves Redrow (LON:RDW), which is smallish. They have net debt of £126m plus a £350m revolver. They are scaling back London and have had to take impairments. Shifting strategy mid Covid is not ideal.

So the quick and dirty conclusion is that the market has only really been willing to back Persimmon to get through the current crisis. If Covid is over then for sure, the others will follow and close the share price performance gap. However, you certainly cant rule out equity raises should we suffer again in H2. Even Taylor Wimpy has pretty much spent its additional funds and so if its strategy remains to stay in the market buying land then further equity raises cant be ruled out. They may be best positioned after Persimmon though.

My conclusion is that Persimmon strength does not necessarily encourage me to throw money at the sector until Covid II retreats. I would go liquid and probably look at Taylor Wimpey and Belway first, followed by Redrow and Vistry. Crest would require much more work.

RichardK

Jack, welcome to the regular team, with Paul. I have enjoyed your previous contributions, and look forward to more frequent ones.

Perhaps you would tell us what are your strengths and weaknesses; e.g Paul's great strength is retail, a he rarely does financials. mining, or oil and gas.

Richard

Why are you replying to me? Do you think I care about your thinly veiled wind up attempt at Paul? Or for that matter anything you write? I don't!

I have investments in about 60 companies, so my brain is not up to learning 60 tickers. But your tip, about going to the right hand panel, and scrolling down a bit is, is really useful. I wish I had spotted that before.

apologies I thought you had an interest in £RBG. I've posted it separately from you now.

Brookeda

Incredible thought how they have turned 700m into 250m in three years.

Richard Goodwin

A divorce or house purchase perhaps, where he has a need for a defined value of money against a variably priced asset (the shares)

Graham Hacker

Hi Paul - Always grateful for all your meaningful comments, clear & to the point

Thanks Graham!

smatthews1

"I am wondering whether with fewer big holidays abroad and concern about using public transport there may be an uplift in car sales at the moment"

I was considering the same and I think that is a fair assessment, although I would take a complete guess that they might just maintain a flat rate in sales from this point forward, I.e. I wouldn't expect to see an uplift from here. I think the longer term economic damage to the economy could be enough to weigh heavily on this sector. The uncertainty that Covid brings would be enough for some people to keep their motor for a little bit longer.

Small Cap Value Report (Thu 20 Aug 2020) - AO., IGP, VTU, LOOK, FUL, CHH

Ao World (LON:AO.)

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Paul Scott

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