Small Cap Value Report (Thu 26 Mar 2020) - RBG, RTN, INCE, QUIZ, LOOK
Good morning, it's Paul here with the SCVR for Thursday. As usual, it's initially just a placeholder article, for readers to add your comments from 7am.
The article should be finished by 1pm. Edit at 11:58 - let's extend the timings, so I can get more done to make up for a late start. I'll keep going until about 3pm. Update at 19:10 - sorry, I couldn't manage any more today, so today's report is now finished.
I needed a lie-in today, so am running a bit late. I had a funny turn last night, and was struggling to breath for a while, but that passed after about half an hour. In all other respects, I feel much improved this morning. After the initial 5-day assault on my body, the virus had a second attempt to kill me in days 6-8, when things seemed to be getting worse. But I have to say this morning, it really does feel as if I've turned a corner & am improving considerably. It's all about getting plenty of rest.
Life is very different at the moment, as I'm sure it is for you too. I can hear lots of children playing in the flats & gardens behind us here in Islington, and I wonder how difficult it must be for the millions of parents who are forced to stay at home, and try to keep children entertained & happy, whilst restricting their movements. It must be a tremendous challenge, I certainly don't envy them.
UCLH are doing a wonderful job looking after John's Mum. They rang yesterday to say that she's now losing her kidney functioning, which together with only being able to breathe through a tube in her lungs, means the outlook is bleak. They're putting her on dialysis, but there's really only a glimmer of hope.
So my time is mostly being spent supporting John, reminiscing about the happier times, and preparing him for what seems like the inevitable, with lots of tears flowing. The statistics I see on the news each day were just numbers, but now we're likely to be in those statistics.
As regards the Government actions, I think they are right to throw massive stimulus at this. We're waiting for news of what help the self-employed are going to get. Most of my extended family are self-employed, and in all cases they've seen work completely dry up - e.g. beauty treatments stopped, all musical gigs cancelled, etc. One highly trained professional in my family has just applied to stack shelves at Aldi - and why not, if it keeps the wolf from the door?
I think we're heading for several months of massive unemployment, and real hardship for millions of people. I cannot see how Govt schemes can possibly get up to speed in sufficient size, to make enough difference. They're probably wide open to fraud as well.
BUT, when I do back of the envelope sums for e.g. Revolution Bars (LON:RBG) (I've been buying more of those), then I think the business should survive. I've also bought Restaurant (LON:RTN) for the same reason. Their biggest cash outflow is wages, and the Govt is going to cover 80% of that. The next big cash outflows are VAT and PAYE/NICs - again, those are effectively on hold for now. Business rates also on hold. Suppliers don't need to be paid, because there are no incoming goods needed. That just leaves rents. March quarter day occurred yesterday, and press reports indicate that even large & successful Primark is demanding a rent holiday from its landlords. In normal circumstances, landlords can send in bailiffs. But if a shop is not trading due to Govt edict, then the landlord has little power.
Put all the above together, and I reckon that many hospitality/retail groups should actually survive for say 3 months without trading. They'll probably need refinancing, but in the meantime, banks should step up, using the Govt guarantee scheme.
There was a very interesting announcement from restaurant group Tasty (LON:TAST) which confirmed this crucial point;
Even with these full closures, with the cash preservation measures previously announced, the Directors continue to believe that the Company has sufficient financial resources for the foreseeable future. [source: TAST RNS, 24 Mar 2020]
and the previous day it said;
The Company will seek to mitigate the revenue loss by implementing cost-cutting measures such as cessation of capital expenditure and seeking preferential terms from landlords and suppliers as well as relying on Government support for employees' pay and VAT and business rate holidays. Concurrently, the Company is taking measures to ensure staff retention where possible.
Given the Company's existing cash position with no debt, the Directors confirm that during the period of shutdown and assuming it is successful in implementing the cost cutting and cash preservation measures referred to above, it has sufficient financial resources for the foreseeable future.
[source: TAST RNS 23 Mar 2020]
This should have wider read-across, and is I think very encouraging. Some retail/hospitality shares have been priced to go bust, but could actually survive & recover in due course, for the reasons given above. It's obviously high risk though, but this is where some of the multi-baggers could be, in my view.
The key thing is to focus on cashflow now, not profits. It's a given that many companies are going to be reporting awful trading in 2020. All that matters, is whether they can manage their cashflow for survival and recovery once the virus is in retreat.
I've just seen MrC's spectacular early doors reporting on numerous companies - bravo, can I add my thanks to him for this superb service.
I'll only be able to dip into a few of those, so will get cracking on that next.
Ince (LON:INCE)
This financial services group withdraws profit guidance, and cancels the divi.
If you recall, this company did a bombshell fundraising at a deep discount earlier this year. I'd been warning about its badly stretched balance sheet last year.
This is a time to be picking up high quality companies at bargain prices. I don't see this share fitting that category, so it's of no interest to me.
Quiz (LON:QUIZ)
As you would expect, business has been hit hard by coronavirus, with physical stores now closed.
The cash position is stated 1-day before rents were due, so this is likely to be falling now;
As at 24 March 2020, the Group had net cash of £8.3m. In addition, the Group has a £2.0m overdraft facility and a £2.0m working capital facility available (the "Facilities"). The Facilities are scheduled to expire on 23 April 2020 and the Group is currently seeking their renewal. There are no financial covenants applicable to the Facilities.
Given the Govt guarantee scheme, it might be possible to renew bank facilities.
Common sense cash preservation measures are being taken;
The Group is continuing to take steps to preserve cash by eliminating non-essential spend, postponing capital projects, substantially reducing stock intakes and deferring payments wherever possible.
Quiz is also a wholesaler, and supplies via Dept Stores (who collect in the cash & remit it onwards to Quiz). In the current circumstances, I imagine Quiz would be finding it very difficult, if possible at all, to collect in its receivables balances.
My opinion - neutral. I honestly don't know if Quiz is going to survive. The cash position suggests it's at least got some time to tread water. But its niche of special occasion wear is going to be dead right now, with no weddings or celebrations going on, there's no need for anyone to buy its garments. That doesn't augur well for the future.
Lookers (LON:LOOK)
This car dealers has caught my eye, because its shares are up 36% today, despite a Covid-19 update.
Shares tanked on 11 Mar 2020 when it announced delayed results, due to discovery of possible fraud.
Covid-19 update - all sites are now being closed. Exploring options to keep some servicing & repair services going.
Govt support will help;
We welcome the measures announced by the UK Government to support businesses through this unprecedented disruption, including the Job Retention Scheme, the deferral of direct and indirect tax payments and a business rates holiday for retail premises. During 2019 the Group paid c. £16m in business rates across its portfolio. The Board intends to seek all possible government support in order to help protect our colleagues and the future of the business.
The Board has agreed (unspecified) temporary adjustments to their remuneration. I think it's generally important that Board members take pay cuts in the current circumstances, at all companies.
Financing sounds OK;
As reported in the Group's year end trading update the Board expects to report net debt at 31 December 2019 of approximately £62.0m (2018: £86.9m). The Group has a £250m revolving credit facility with five banks with a term to March 2022. In addition, the Group continues to enjoy the benefit of a strong property portfolio with a net book value of c. £317m (as at 31 December 2019) (81p per share).
Car dealerships generally have a lot of valuable freehold property, therefore these should be quite secure investments, despite difficult times.
Potentially fraudulent transactions - investigations ongoing
Outlook - too early to estimate.
My opinion - I can't see any particular reason why this share would be up 36% today.
Like everything else, business will recover in due course. In the meantime, heavy losses are likely to be incurred during the shutdown period.
In my view, valuations are now looking attractive. I started buying Vertu Motors (LON:VTU) shares yesterday. I like the fact that car dealers are crammed full of valuable freehold property. In my view, most should have the balance sheet strength to survive, and then there's likely to be pent up demand for new cars (which these days are sold on affordable leases) later in 2020.
Apologies for today's report being sub-standard. See you tomorrow.
Regards, Paul.
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70 comments
I think there is probably a new thread here ‘option money’
Revolution Bars (LON:RBG) paul mentions 5:1 , its an asymmetric bet
One I've always followed but never invested in is Arena Events (LON:ARE) they set up the stands/tents etc for golf so many public events, golf masters etc. Was 10p, did a fundraising yesterday i think for £10m, either bust or big rise?
What else is option money? Any ideas?
I do think, ignoring the massive s&p bounce, this ain’t over till..., a lot of discussion here about companies surviving a few months, they should all be valued at option money if thats all they can survive.
Law of unforeseen consequences here, FRENG said about restaurants binning food, other bills etc, to think a whole world economy mothballed for months and wakes up like nothing happened... goes into the bucket of wishful thinking, surely ?
Just don't call me Shirley.
Hussman Funds monthly commentaries are required reading, but today's commentary titled Navigating Turbulence , covering COVID-19 and the stock market slide, is awesome.
I cant help but think the general sentiment towards this crisis passing is massively under estimated. I keep seeing estimates of 3-6 months. If our country manages to get control of the spreading and are able to suppress it in 6 months then that is great. But that is only taking into account one country, data suggests the whole globe is out of sync when you consider where they are in the outbreak.
For example just today there are 6 countries in europe all posting 'new' cases above 1000, and this isn't even a true picture, its a lot worse. USA is climbing drastically as you would expect. China 'apparently' has increased 67 today, which on the face of it is enough.
But the point I want to get my head around is after a handful of countries have got it under control, and you are ready to reduce restrictions, what others are likely to reduce there's at the same time? I cant help but believe that the pain in world trade and travel just continues and I have come to the conclusion this is going to take a lot longer than we wish to believe.
I do hope I am wrong but I find it very hard evaluating stocks such as Dart (LON:DTG) and On The Beach (LON:OTB) even if there is huge pent up demand.
Source:https://www.worldometers.info/...
Paul , wonderful news to have you back with us , I hope you can see from the comments left how much you mean to us , your humble readers. Take care my friend.
Paul, I hope you and the other people you live with make a complete recovery, especially John's mother.
Do you think French Connection are now underpriced at 4.2p to buy, given all the government help that they can get and they referred to in their last announcement?
Perhaps the following comments are inappropriate as it’s up to Paul how he handles such a terrible situation, including being very unwell still himself.
But, unless doing these updates is a way of taking your mind off it all, isn’t it otherwise way beyond your call of duty, especially when you are clearly struggling, and that’s on top of John’s Mum being so ill and the stress and unhappiness that has brought?
btw I’ve found your updates on how Coronavirus panned out for you (and still is) very informative but also alarming, assuming you and John’s Mum have no underlying medical conditions. So thanks for covering that too.
Very best wishes.
You reflect my sentiment Ken.
I was just getting down to a place to put my comment which was going to be:
Paul, I've given your report a thumbs up today and I mean it more than ever before when I've done so. To hear what you are physically going through is awful but a relief that you are recovering. Then to hear of the deterioration of John's mum has really shook me and I don't even know her. This Covid-19 is very real.
How you can focus and be so professional at a time like this is beyond me and full credit to you. I even feel bad for reading the full report here because I'm thinking of the bigger picture, health before wealth.
Stay safe everyone.
An interesting academic debate has broken out between Oxford and Imperial College Epidemiological modelling analysts.
Oxford are stating that their analysis suggests that the current infection figures could mean the virus has been in the UK population since mid Jan. They further say, this being the case there is likely to be widespread herd immunity already. This would also tend to indicate that the disease is predominantly mild for most infected, and it could have a quite a low death rate factor, due to a much higher denominator than is apparent.
Coincidentally one broadsheet is saying that Patient 0 for the UK may have been found, being a small family that were holidaying in an Austrian ski resort and returned in mid-late Jan. Apparently the ski resort is being accused of covering up infections that were taking place, and persons may be prosecuted.
So this would tie in with the Oxford analysis (which is disputed by some academics). Oxford are saying that they will liaise with further parties, including an NHS blood sampling exercise that is due to take place, and say that the results of this may further influence their findings, and the results could be seen in the next few days.
They haven't knocked the Govt policy, as this has important immediate effects, but could well have importance as to when policy changes, if it is even accepted.
Personally, I think the Govt having followed the Imperial College model will now exercise an abundance of caution and will want to see some results from widespread kit testing first.
Again, from a personal perspective I have always felt this virus has been around longer than anticipated, and sense there may be some truth in the Oxford analysis.
My personal OPINION (I am layman, although have been studying Epidemiology over the last few months and realise that the majority of the differences to what I have spent most of my career on are nomenclature) is that there are apparent flaws in both arguments, but the biggest flaw is certainly in the Oxford study. If we are already at or near "herd immunity" then what is causing the current near exponential rise in cases?
I think we all know - that for the UK - reported cases is at least an order of magnitude out, but Oxford cannot really back-up their assertion of a broader disconnect,.
"Patent 0" is really an archaic concept, in most circumstances. Given the level of globalisation it seems to me that in the UK we have "Patient Zeroes" in the hundreds if not thousands.
Whilst there may be some post event historic value in identifying all of these patient zeroes, given that we know that many people have entered the UK either suffering or as carriers, then in terms of any effective response to the crisis this is entirely irrelevant.
I am far from being a doomster on this situation but I am frankly dismayed that so many of our global "big brains" seem to be focussing on trivialities and proving themselves right.
Thanks Paul, for all you do to continually make the investor community a much better place,, glad to hear you are on the mend, and battling through personal adversity, we are all thinking of you
I can confirm what Gromley says.
Sunetra Gupta is the mother of one of my daughter's friends. Nobody in Oxford who knows her thinks she is plausible and we all think that her suggestion is both incredibly irresponsible and in keeping with her attention-seeking character. While it is likely that the total number of infections is much higher than the official number, there is nowhere near enough evidence that it is on the scale that Gupta has suggested for it to be sensible for her to make such a statement. I would say that she should stick to novel-writing but, having read some of it, I can't even say that.
Ooo - ouch !
The Oxford analysts say that they will flex their analysis against blood analysis results, so this will give some indication of whether they are on the wrong track or not.
We know that academic debate can be quite vicious, and the Oxford study has already been accused by one their critics as 'polishing a turd'.
I am no statistician. But I don't think the current testing indicates we are in exponential mode until we have further data sets, and of course a true exponential rate for itself usually occurs at the early stage of spread, and nothing is stopping the growth of number of infected. Factors such as hand washing, social distancing, and isolation all have an impact.
I guess as with the science based modelling we should follow precautionary principles, until or unless, some real world facts can disprove them or otherwise.
The fact that the disease has been in the UK probably mostly unchecked for probably a month and half from mid Jan suggests maybe we are further along the curve of growth, than anticipated.
I am open minded
I guess as with the science based modelling we should follow precautionary principles, until or unless, some real world facts can disprove them or otherwise.
That's one of the smartest things pointed out on this thread today.
It's Pacal's Wager: if it is spreading exponentially and we don't take action to stop it then the consequences are severe in terms of human life; even if we only think this is probable we should take the action necessary to minimise the human cost - which includes mitigating the economic consequences being suffered as a result of the lockdown.
What we can't do given the empirical evidence from other countries is assume we can do nothing.
The problem with science is that it takes a long time to come to roughly definite solutions and time is the one thing the modellers don't have right now. The difference between Ferguson's team, the Oxford group and the NESCI group is that only the former are making life and death decisions: that biases your view to be very conservative. And rightly so.timarr
Paul, I'm so sorry to hear about John's mum. You are all in my thoughts.
Completely separately, we've just published the Eagle Eye Solutions (LON:EYE) H1 20 analysts' presentation, given last week. It's worth a listen if you've been following EYE.
https://www.piworld.co.uk/2020...
Tomorrow, we'll be publishing the second part of the interview with Fund Manager, Andrew Hollingworth.
Stay well everyone!
Great to have you back Paul. So glad you and your friends are recovering but devastating news about your friend John's mum. So sorry to hear that she is worse. Fingers crossed for you all.
Yes, some minor differences I think, but that's it. Thanks.
Paul, great to have you back! Having a coffee and reading the SCVR is the highlight of my morning. All the best to your friends and family in this difficult time. Any thoughts on the DISH update this morning, extended the funding runway until the end of the year. I know you hold, hopefully, restaurants will open soon and sign up momentum will resume prior to raising again and avoid dilution of existing holders.
Hi adsyaw,
My latest thoughts on DISH (in which I have a long position) are that it makes sense to pause recruitment of restaurants during the current shutdown. I'm encouraged that the cash position should be OK until the end of 2020, which gives time to get through this crisis.
The way I see it, is that the telesales business model was (albeit briefly) proven in Jan & Feb, with a big increase in restaurant recruitment in many new towns & cities. The share price was rising again, and got to about 4p. The Chairman bought a decent load of stock at about 3.6p I think?
Due to coronavirus, we can now buy in the market at 0.8p, so personally I'm backing up the truck, and have accumulated nearly 10m shares. I think it could be a 10-bagger from here, that's just on pause. Once the economy starts up again, restaurants are going to be desperate to attract customers, ideal conditions for BigDish really.
Highly speculative, but we only have to look say 6 months forwards, and there's a clear case for it being worth a lot more than it is now.
Definitely not for widows & orphans, just my opinion.
Regards, Paul.
On 23 March, I referenced a paper critiquing the Imperial College model that is advising the government on the Covid-19. See https://necsi.edu/review-of-ferguson-et-al-impact-of-non-pharmaceutical-interventions
Two of the authors have written an article in today's Guardian Journal entitled: "No. 10's science is almost science free". I get the paper version of the Guardian and I can't give an online reference. The authors are: 1) Professor of risk engineering at New York University, 2) President of the New England Complex Systems Institute. They are highly critical of the UK governments' policy. One paragraph sums it up, viz. 'The error in the UK is on two levels. Modelling and policymaking. First, at the modelling level, the government relied at all stages on epidemiological models that were designed to show us roughly what happens when a preselected set of actions are made, and not what we should make happen, and how.' A later paragraph takes a side-swipe at Dominic Cummings 'love of complexity and complex systems (our speciality) which he appears to apply incorrectly'. The last line in the article reads: 'The obvious policy left now is a lockdown, with testing and contact tracing: follow the evidence from China and South Korea. We have wasted weeks, and ones that matter with a multiplicative threat.'
I hope to goodness that is their plan now.
The Professor of risk engineering that you refer to is Nassim Nicholas Taleb, well known as author of Black Swan among others.
From googling your quote, I assume that this is the same article with a slightly different title:
https://www.theguardian.com/commentisfree/2020/mar/25/uk-coronavirus-policy-scientific-dominic-cummings
Another interesting article I came across today on Covid-19 and how the world will likely change over the coming 18-months and beyond.
Apple News Link
Only time will tell how accurate the expert opinions are but it might help people determine which market sectors to invest in, avoid, and an approximate timeline for market uncertainty.
Expert opinions in my experience are often wrong.
You’re not wrong...I should have put the word expert in inverted commas.
What evidence based solutions does this fella propose. He shouts lockdown, lockdown but offers no practical advice on how this could be implemented overnight in a non-authoritarian & democratic society. Let him explain what should have happened on January 26th and how he thinks the UK would have reacted in lockdown. What would this have even looked like. Army on the streets, Police on the streets, how would he have enforced his lockdown on Jan 26th? It's easy to lob bricks and claim my way is better when you are not accountable. The moment an author turns their argument into a personal rant against someone they clearly doesn't like, then credibility is lost.
There's a problem with anti Boris/Cummings commentators saying anything to criticise government actions even if it means reversing their own views.
EG - https://order-order.com/2020/03/27/lancet-editor-slams-government-for-listening-to-his-advice/
(highly biased website but surprisingly good on evidence at times)
"In normal circumstances, landlords can send in bailiffs. But if a shop is not trading due to Govt edict, then the landlord has little power."
That's not strictly true. If a tenant fails to pay rent then a landlord can evict them immediately simply by taking possession of the property, and the reason the tenant hasn't paid is irrelevant.
In practice, of course, most landlords are very unlikely to evict, as the chances of being able to re-let are minimal at present, and they'd rather have a non-paying tenant than no tenant, if only to avoid having to pay business rates.
Finally, can I add my best wishes to yourself and your family Paul, and also thank both you and the splendid Mr Contrarian for continuing to produce your reports, which are greatly appreciated.
Hi Clissoldkid,
Interesting, thanks. Presumably then tenants would need to make sure they do pay the rents on their best sites, in order to prevent the landlord seizing the property? I presume that the landlord would have to serve some kind of legal notice, and give the tenant time to pay rent arrears, before they could seize the property?
Regards, Paul.
Sorry for the delayed reply, which you may not now see. No, although a landlord has to give 7 days' notice before sending bailiffs in to collect rent they can nearly always forfeit (i.e. cancel) the lease at any time after the date for payment of rent has passed.
Forfeiture can take place by `peaceable re-entry'. This means that the landlord just waits till the property's unoccupied - at night or the weekends normally, but nowadays any time if the shop's closed - and just change the locks.
The tenant can apply to the court for `relief from forfeiture', and this would normally be granted if they pay all the outstanding rent and legal costs.
Not sure what companies you will get a chance to look at today, but Airea (LON:AIEA) updates today.
Interestingly the net assets, which are principally cash and freehold property are £13.9m, which is above the market cap. Obviously small and illiquid, but with the business thrown in for more than free this looks an interesting special situation.
Revolution Bars (LON:RBG) Revolution Bars
RBG share price has dropped from around 70p to 16p so the market cap is now £8m.
I’m not an expert on retail at all, but noted Paul’s comment above so I skimmed over their last results.
Last update on 18 March RBG said “The Group's net debt position as at the end of week 37 (last week) was £10.5m” but unfortunately no update on cash or credit lines. Looking at the interim results for the 26 weeks ended 28 December 2019, we see:
Gross bank debt 11.5m
Credit facility runs to December 2021 with available credit varying between £21.0m and £18.0m
cash equivalents were £3.1 million
If the gross debt held at 11.5 and net debt is 10.5 so cash is 1m then
So perhaps we can say they have available credit line of 21 – 11.5 = 9.5m plus 1m cash = 10.5m cash access.
In terms of their run rate costs, for the six months there were:
19.4m cost of sales
56.4 operating expenses
4.4 exceptionals
2.6m in finance costs (mostly leases)
So, assuming all the bars are shut for six months, the staff sent home and paid on the government 80% scheme, RBG don’t pay the other 20% (they don’t have to) ignore exceptionals, don’t order any inventory so cost of sales is out, really that leaves 2.6m finance costs and some unknown portion of the expenses for central costs. Also, there will be a trail of bills to pay from previous orders. Perhaps this is one month’s cost of sales? That’s 3.2m. Paul mentioned VAT, NIC and rates are on hold.
Given the possible cash headroom they might survive six months in suspended animation.
Hi jwebster,
Yes I did similar sort of calculations. I also think Rev Bars (in which I hold a long position) could survive quite a while in suspended animation. That would rely on the bank playing ball, but why wouldn't they? Debt is not excessive, there are other bars groups with far worse debt problems.
Another thing to consider with RBG is that it has some very profitable flagship sites. Its most profitable site (Manchester) makes a profit of £3m p.a. for example. Therefore it would be perfectly feasible for the company to agree with the bank that, once normal market conditions return, it would put its top site up for sale. That might raise say £10-12m at a guess, which would be enough to clear all net debt.
As a listed company, it also has the potential to raise fresh equity from the stock market. That wouldn't be wise now, but the price of bank support (under the Govt guarantee scheme) could be a side letter indicating that RBG would do an equity raise to reduce bank debt later this year, or next year.
Overall then I think it has options available, and should survive without too much difficulty. Management are very level-headed, and were demonstrating a good turnaround before coronavirus struck. Therefore I'm looking at this being potentially a 5-bagger from here, if things pan out alright. Not without risk, but personally I'm buying heavily around 16p. It could go wrong, but risk:reward strikes me as potentially very good. People are going to want to party like it's 1999 once all this is over. Coronavirus is going to be the defining thing for this era, like WWII was for our grandparents' generation.
Regards, Paul.
(From 26th March) Yes I did similar sort of calculations. I also think Rev Bars (in which I hold a long position) could survive quite a while in suspended animation.
Paul, I have held my shares on Revolution Bars (LON:RBG) partly because I have made similar models/assumptions - except I am less optimistic at resumption. (Yes at end WW2 there were huge street parties - for a couple of days then it was back to powdered egg for 5 yrs I believe. Consumption missed in FMCg/F&B is consumption gone.) It will be a long road back - especially as I think premium pricing will be especially hard to achieve; from lots of high margin cocktails to fewer, lower margin drinks. I also think healthy living will promote non-alcoholic drinks and people drink less of these over an evening since the "beer goggles" effect is not so present at 1am in the morning.
Anyway, for me there are 2 calculations at he moment i) can the firm survive the first 6M and ii) what does the market look like after that. Presume you look at in in a similar way but I come from a FMCG Marketing point of view and am consistently too optimistic. I need a more rigorous tool.
Can you share what your (I assume) excel model looks like to evaluate this. In circumstances like this do you do full discounted multi-year cashflow models or something simpler to investigate a broader range of less certain outcomes. Will DYOR
When you are well, something like your Loungers IPO videos talking through HOW you model would be fantastic......but we all have plenty of time now to wait for you!
Another thing to consider with RBG is that it has some very profitable flagship sites. Its most profitable site (Manchester) makes a profit of £3m p.a. for example.
BTW Re DYOR, how do know these things? I read a lot but never seem to turn up such nuggets. Perhaps this is also something you could comment on to help educate and teach us how to DYOR better, By definition we all have access to Stockopedia.
You're a lovely man Paul! Get well soon.
hi Paul,
I’m sorry to heart about your friend’s mum. There are some existing drugs being tested on patients and I think some have shown encouraging signs. There’s a link here to a free-to-read FT article. I don’t know the protocols but I wondered if doctors are willing to let patients take them.
https://www.ft.com/content/91b...
Andrew
Hi Paul, hope you are doing okay. It would be great if you could comment on the update today from Rockrose Energy (LON:RRE)
I don't think Paul comments on oilers
Ah okay thanks
Anyone been watching Newsnight?
Really tired of Emily Matiss's snarky sub-Paxman style. Obviously difficult questions have to be asked and answered, but some media types speak as if they are the peoples champion when they talk to ministers who are desperately trying to keep ahead with events whilst no doubt getting third hand info passed to them in a complex scenario.
I really do think some are getting the tone wrong, and is it any wonder that no-one wants to go on their programmes?
Its not as if they are being Trump like, and saying no problem here, move along.
Having watched the interview you refer to, Emily Maitliss asked the right questions in a courteous manner.
The problem was that the government had made incorrect statements about having many more ventilators than the NHS actually had.
Yes, the minister squirmed at being asked direct questions and wouldn't answer them. He tried to avoid giving truthful answers.
In retrospect, Emily's questions were spot on. We need ministers who can deliver solutions and talk about facts, not waffle and make fanciful forecasts.
Given the S&P 500 futures jumped up immediately after the jobless claims were published it would suggest market participants were expecting worse figures.
"The initial jobless claims figure, just out, and shows that 3.283m people filed for unemployment support a week ago. An absolutely huge, historically bad, figure."
Yes very high. Although GS was banding around 3m a few days ago. SPX hardly moved on the news so looks like this number was already priced in. See how it goes on the open.
News from the US a few minutes ago. Not good.
"
12:34
US JOBLESS CLAIMS SURGE BY 3 MILLION
NEWSFLASH: More than three million Americans signed on for jobless benefit last week, as the Covid-19 outbreak hit the US economy hard.
The initial jobless claims figure, just out, and shows that 3.283m people filed for unemployment support a week ago. An absolutely huge, historically bad, figure.
That absolutely shatters the previous record of nearly 700,000 back in 1982, and is a clear sign that the US economy is being battered by the coronavirus outbreak.
It’s much worse than most economists expected, and means millions of households across America are feeling severe financial.
It’s much worse than most economists expected, and means millions of households across America are feeling severe financial.
I've seen similar statements to this elsewhere - but the question has to be asked - when did "most economists" make those preditions? If it was not less than a week ago, or even less, they would be pretty meaningless. The world, and the markets have been moving on.
I'm nervous about buying restaurant groups at the moment. I hear that some are having to despose of longer-life food stocks that are going out of date and to empty freezers. They will have other continuing costs, such as insurance and the 20% not covered by the Government of the wages of retained staff. They may get a cash grant if they are eligible but I can't calculate whather that will cover these other losses.
In a few months time, the plan as I understand it is to relax the lockdown briefly and close it down again, wait to see whether the infection rate had picked up during the relaxation and judge when to relax lockdown again on the basis of that evidence. In other words, whilst waiting for a vaccine to have been developed, tested, produced in huge quantities and administered to the whole population, the plan is to infect the population sufficiently slowly to build up herd immunity whilst keeping the rate of infection below the level that swamps the NHS. That could conceivably take a couplle of years or more. And then there's the end of the Braxit transition period. It looks like an extended recession is inescapable. Will there be significant civil unrest, in view of the wealth disparities in the UK?
If that's how it plays out, I wouldn't want to own a restaurant business.
Then there's the question of how the Government debt is to be reduced. If it's monetised, it seems to me that the FX markets will have to rebalance exchage rates and I can't see why the UK would benefit. I currently expect inflatuon to increase significantly, which would redistribute wealth from asset owners to those with debts. If it isn't monetised, then taxes have to rise sharply once the economy can stand it, or wealth has to be confiscated from those who have it. That's not a good time to be running a restaurant either.
Sorry to be so pessimistic! Please respond with the optimistic scenario, if only to cheer me up.
"Will there be significant civil unrest, in view of the wealth disparities in the UK?"
Give me a break. Having spent the first 26 years of my life in a very working class area I would say that the only people who worry about wealth disparity are a small minority of very left wing persons particularly students who have had no life experience.
Before this arose it was the time for the Government to borrow everything it can at low rates of interest. I guess some people like myself are always optimistic and others worry about things that usually never happen.
I think people will start to realise that wealth inequality does lead to poverty in these circumstances
that won’t be the case in many countries especially South Africa where I live. Just wait another 4 weeks or so. Hope I am wrong but many of the poor people living in atrocious conditions probably have little to lose by rioting
"Will there be significant civil unrest, in view of the wealth disparities in the UK?"
Fair challenge. I don't think there will be unrest over wealth disparities. But, a severe drop in relative living standards would upset many.
A scenario for fun (and just that) is large fiscal deficits and no growth -> market swamped in Gilt issuance funding the virus policies -> buyers strike and interest rates rise regardless of base rate (BOE loses control over the price of money) -> counter intuitively the pound drops looking through rates to the hugely expansive money supply -> the BOE steps in with further QE infinity and mops up the deficit funding Gilts -> pound keeps dropping -> imported inflation bubbles up -> foreign investors take fright and dump pound and gilts -> pound falls further, inflation spikes, interest rates rise -> BOE panics buys more Gilts and raises base rate to defend the pound -> fails ----> kaboom, off the the IMF (again!)
I don't think this is very likely, but always worth keeping some investments abroad, gold, etc. especially if you are working on a long term horizon or planning to retire abroad.
Strikes me there could be more than a germ of truth in your just-for-fun hypothetical scenario.
"Then there's the question of how the Government debt is to be reduced ..."
Why does it have to be reduced? What do you expect to happen if it isn't? We know that debt to GDP can be a lot higher without major issues. Ours was 3 times higher after WWII than it is now. Japan's is 2.5 times higher than ours now.
You seem to assume that we will be forced to reduce debt, but we wont. A sovereign currency issuer, that only has debt in its own currency, is not like a household or a business. We are not subject to the same constraints. Equally, we do not have to either monetise debt or increase taxes if we choose no to. Those may be choices we make but we wont be forced in to them. We would only monetise debt if we were experiencing accelerating deflation.
The market is crying out for more of our debt. Since January, the yield on the 10yr has halved from 0.8% to 0.4%. Our debt has become a lot more popular. Why would that have happened if we were really heading for some kind of debt crisis? Investors are happy to lend us money, long term, at negative real interest rates. It's clear they don't share your scepticism. The market is evidently much more concerned with deflation than the inflation that you are worried about. I'm on the side of the market.
All else being equal, low govt debt would be better than high, but it is not the primary isue you make it out to be, or indeed something that we necessarily need to take action to resolve. There are bigger priorities. There will be no point in us reducing debt in a way that damages real GDP growth and that point will be understood by the market.
That makes 10 year of austerity a political choice rather than a necessity. That may be true, but admitting that it's true could play into the hands of an opposition party at the next election.
I think that the debt may be fine until you have to refinance it. Who can predict what interest rates will be when that happens? What seems absolutely fine now could be an extremely expensive millstone around our necks further down the road. The era of ultra low interest rates may not last for ever. So, we all better hope we’ve managed to pay it down before that happens.
However, in the current situation, I think we have little choice but to spend shed loads of money in the short term.
The Austrian government has already issued 100yr bonds which traded as low as a 39bp yield recently. The QE programs have been the main buyers. All governments will issue, all central banks will be the buyers. What will £1 trillion be worth in a 100years time on repayment ?
These are crazy times. Everything is built on an edifice of debt and the “solution” is more debt. I’m not sure how it ends.
I know what you're saying about austerity, but that's not entirely true. What we're seeing now is exceptional one-off expenditures. That's a different issue to the austerity program which was focused on reducing recurring government expenditure.
Proponents of austerity argued that we needed to reduce the ongoing size of the state, in relation to the economy, and that this would increase the dynamism of the private sector. There is a kernel of truth in that arguement. It was never true to say simply that debt was too high, but that was probably the easier message to give.
If they had any sense, they'd reframe the austerity history as being about how reducing general spending allowed them to spend lots more on the NHS, because that's the essence of what really happened.
Hope you've seen the worst of it Paul and if there is an upside to you being ill it's that you've been able to provide help and support to your friend at an extremely difficult time.
I am a qualified professional but have started working at a store local to me just to get out and do something. I was also a shareholder so it's been interesting to see how the business operates and how busy it's been. Very busy last week but footfall has fallen a little this week.
Awful to hear about your friends mother, and her situation. I hope for all it can turn the corner, but if not, it sounds like you are being a terrific support to him. Statistics will never convey the heartbreak, but at least we can hope they will slow down to prevent more suffering and sadness.
Sorry to hear about your personal circumstances Paul, hope you personally get better soon and keep up the good work supporting John.
On the investment side, although I agree with you that hospitality companies should survive the initial onslaught, the question is what will the demand be when the initial isolation etc period is over. I'd have thought that a lot of people will be poorer, with less disposable income for things like meals out. I don't know what the answer is, but I'd be very wary of assuming things are going to return to normal any time soon.
Welcome back Paul . Glad you’re well !
Speedy recovery to your friends Mother I really hope she gets better very very soon.
God Bless.
My morning smallcap tweet: Part 2/2. 34 companies in total, a record I hope will never be matched.
Tandem (LON:TND) Jaywing (LON:JWNG) BigDish (LON:DISH) Sareum Holdings (LON:SAR) Catalyst Media (LON:CMX) Intelligent Ultrasound (LON:MED) IQGeo (LON:IQG) GYG (LON:GYG) Tern (LON:TERN) Van Elle Holdings (LON:VANL) MPAC (LON:MPAC) Vianet (LON:VNET) Amiad Water Systems (LON:AFS) Bigblu Broadband (LON:BBB) Hargreaves Services (LON:HSP) Non-Standard Finance (LON:NSF) Brickability (LON:BRCK) Topps Tiles (LON:TPT) Knights Group (LON:KGH) Boku Inc (LON:BOKU)
Tandem (TND) FY rev up 20%. EPS up 25%. Final div 3.04p + special div 2p. Net cash £5m (£4.9m). Had no shipments from China in Feb but still time to recover some of the lost production. Some major customers carried stock forward into this year, will impact sales. Believes FY21 can be strong but prepared for it to be seriously impacted by COVID-19.
Jaywing (JWNG) CEO scarpers. He is thanked. New CEO appointed.
Bigdish (DISH) marketing team furloughed so no further growth in restaurant numbers is expected until restaurants re-opened. Has cash until Dec, prev Q3.
Sareum (SAR) remains fully operational, although management's effectiveness may be impacted if restrictions are increased. To date there has been minimal impact on the Company's network of Contract Research Organisations.
Catalyst Media Group (CMX) H1 EPS down 22%. Main asset is 21% holding in Sports Information Services (SI). SIS's cash resources will be impacted by covid, SIS has £58m cash.
Intelligent Ultrasnd (MED) FY (end Dec) rev up 11%. Post-tax loss £4.2m (£3.4m). Co has implemented cost-saving that will enable the EBITDA for FY20 to remain in line with expectations. Expects to have sufficient funds to continue its simulation and AI business activities for the next twelve months, when rev from first AI software licence agreement expected to be generated.
Iqgeo Group (IQG) £1.8m expansion of contract with Tokyo Electric Power Company (TEPCO). This is already in expectations. Current backlog not materially impacted to date but covid may slow the rate of new orders.
GYG (GYG) maintaining operations in most of its locations in Northern Europe and USA, with a reduced level in Spain and France. Strong start to Q1 but too early to accurately predict covid impact. Cash & facilities sufficient to continue trading in the foreseeable future.
Tern (TERN) "Steering the ship in times of crisis will require course corrections and smaller maneuvers which we are modeling." Iceberg ahead cap'n.
Van Elle (VANL) guides FY to Apr below market expectations. "COVID-19 is now having a significant, direct impact on the Group. Many customer sites, particularly in the housing and regional construction sectors, have closed in the last few days, with some suppliers also suspending operations." Co will enter discussions with its bankers and other debt providers on medium-term financing options. Cancels div.
Mpac Group (MPAC) covid having an immediate impact, restricting customer interaction and site-based work. Guides order intake will be lower than expected. £19m net cash, 'very well positioned'. Passing final div.
Vianet Group (VNET) guides FY end Mar in line. Closures of pubs, bars and restaurants will have a material effect on almost all Smart Zones customers. Too early to predict impact on Smart Machines business. Confident co "has a cash runway well beyond the period which the Government has indicated as being the likely duration of this crisis."
Amiad Water Systems (AFS) FY pretax slumps to $0.1m ($4.8m). Warned in Dec. Co "entered 2020 with a higher backlog than at the same point in the prior year and expect growth for both the Irrigation and Industrial business units." Mindful of potential disruption to trade caused by the COVID...well-positioned for sustained profitable growth when normal business resumes."
Bigblu Broadband (BBB) Q1 positive. "COVID-19 situation may provide opportunities for us to support customers who sit outside the fibre footprint, we may be prevented from installing them due to government restrictions. That would result in increased "in flight" customers and may impact the timings of sales."
Hargreaves Services (HSP) no meaningful impact yet from Covid but can't assess the potential impact on the Group's trading performance over any clear timeline. £50m bank facility due to expire in Aug so some sweaty talks ahead.
Non Standard Finance (NSF) guides FY in line. Has cut lending volumes significantly across all three divisions. "We are however continuing to offer credit, subject to our detailed assessment of affordability, where there is an urgent need." Passing div.
Brickability Group (BRCK) guides FY (March) EBITDA in line with expectations. Has closed sites, working with suppliers on a return to delivery schedules as soon as possible. £22m cash and £10m undrawn credit.
Topps Tiles (TPT) guides material reduction in expectations for revenue and profit in H2. Shops closed. £20m of cash on hand plus £11m accordion facility (that's a new one to me) which is subject to lender approval. "In the event of a 12 week closure of retail premises, followed by a further quarter of materially reduced sales, when combined with the support detailed above, the Group believes that its cash reserves will provide it with good levels of liquidity for the remainder of the current financial year."
Knights Group (KGH) FY (Apr) trading in line so far. Covid: limited impact on revenues and cash flows. £23m undrawn facilities based on current market expectations for c.£17m of net debt at YE.
Boku (BOKU) Trends seen in Jan and Feb continued into March with "significant increases in new users of the Boku Payments Platform, particularly for streaming video services and gaming in those countries hardest hit by COVID-19...Transaction processing on existing customers is continuing unaffected."
London Security (LSC) closed most of its offices and that many of its engineers have stopped working.
Reach (RCH) first 12 weeks in line but too early to assess impact of COVID. Expects hits to ads, print circulation and events. Has net cash of £20.4m revolving banking facilities of £65m.
Mr C at the best of times your output is timely, focused, sometimes amusing and always most appreciated
In these unprecedented times you have surpassed yourself and I applaud you
actually I was thinking investors should line the streets and applaud Mr C.
8am seems a suitable time . .
Crikey Mr C, you deserve a Sports Direct size mug of tea for all that this morning!
Ten Entertainment (LON:TEG)
Placing seems prudent although it only raised £5m. Compare with earlier statement on cash "We currently have cash balance of £20.5m, a further overdraft facility of £2m and undrawn RCF funds of an additional £2.8m. This totals a liquidity headroom of over £25m"
Insiders stumped up for 200k of the shares
With the government support they said "The Board are confident that a combination of our own self-help actions, our financing facility and Government support, will provide liquidity comfortably beyond the end of the calendar year"
It's another option bet on their survival. Share price down about 50% so potentially a 100% climb back from here. Potential, but in terms of risk reward, I always compare these to Google which is down a more modest 27% but is sitting on $120 billion in cash.
Morning Paul - mind taking a look at Ten Entertainment (LON:TEG) this morning? Completed an equity offering overnight at last night's close - read as positive with decent insider participation. Might see more of this to come..
FW Thorpe released their interims after hours yesterday:
TFW (Investegate.co.uk)
A good order book gives them some confidence, and they have good stock due to Brexit preparations, but they anticipate disruption to delivery schedules.
Nice to see they're one of the few not to cancel the divi this year:
"As a result of this solid performance, and many years of prudent financial management, we feel our robust balance sheet is structured more than adequately to deliver an increased interim dividend of 1.46p (Interim 2019: 1.43p) for the six months to 31 December 2019. "
"Although the impact of the current crisis is uncertain, we cannot foresee a downside scenario where we are unable to manage business continuity for the foreseeable future by utilising our current resources."
My morning smallcap tweet: Part 1/2
FW Thorpe (LON:TFW) Online Blockchain (LON:OBC) Renewi (LON:RWI) Impact Healthcare REIT (LON:IHR) Knights Group (LON:KGH) Hostelworld (LON:HSW) QUIZ (LON:QUIZ) INCE (LON:INCE) SIG (LON:SHI) Aukett Swanke (LON:AUK) Stenprop (LON:STP) Ocean Wilsons Holdings (LON:OCN) Northbridge Industrial Services (LON:NBI) Intu Properties (LON:INTU)
Thorpe(F.W.) (TFW) H1 [last night] H1 rev up 9%, EPS down 18%. Div up 2%. £51.9m in cash/short term assets at end Dec. Highly likely however that Group companies will see considerable disruption to delivery schedules due to customers' and government containment actions, for at least the next few months, cannot foresee a downside scenario where we are unable to manage business continuity for the foreseeable future.
Online Blockchain (OBC) [last night] H1 EPS -1.56 (-0.84). Co "believes it has reduced its cost base sufficiently to ride out the current business environment and we are beginning to see the return of advertising revenues."
Renewi (RWI) FY trading in line. Cash at hand €100m, undrawn facilities of €95m. Leverag 3x, covenant 3.5x. "We expect a negative impact in the next financial year on waste volumes in the Benelux, but it is too early to assess the potential operational and financial consequences."
Impact Healthcare REIT (IHR) FT trading. ERPA EPS up 7.4%. Group's tenants have a strong level of rent cover, av 1.8x. LTV only 7%. Yesterday co had £22m cash plus £50m credit available.
Knights Group (KGH) FY to end Apr in line with no adverse change to performance so far. Co has "conservative gearing level and good liquidity."
Hostelworld (HSW) hit to Q1 EBITDA guidance inc to €5m from €3-4m. €20m cash. Refundable deposits €2.5m. Cancels div. "Group remains resilient in volatile market conditions."
Quiz (QUIZ) trading was in line until covid. FY (end March) will depend on "factors such as determining the recoverability of debtor balances, the adequacy of inventory provisions and the requirement for further non-cash store fixture and lease provisions." Net cash £8.3m. £4m of credit available.
Ince Group (INCE) covid now having a significant effect on UK business, having progressively impacted all of the international offices. Has uncertainty about the timing of collection of fees. FY to end March may not be in line. Cancels H1 div.
SIG (SHI) guides FY19 to end Dec in line. Jan & Feb LFL doen 11%. Co not experienced any significant sales impact from COVID-19 to date in the UK but trading has continued to be subdued. Expects significant hit to come. Cash resources of c.£135m.
Aukett Swanke (AUK) With most sites currently open and, social distancing in place, construction projects continue in most jurisdictions. Co expects to be able to continue to operate within current banking facilities.
Stenprop (STP) LTV 41%. Unrestricted cash £60m. Significant headroom for both interest cover and LTV loan covenants. It is too early to say with any accuracy what covid impact will be for property occupiers. Co "well placed to cope with a prolonged period of uncertainty."
Ocean Wilsons (OCN) Subsidiary Wilson Sons is "actively managing operational and financial levers to maintaining safe and reliable operations each day, including reduction in our capital spend and operating expenses." Gp has $78m in cash and equivalents and $104m of undrawn credit lines at year end. Cuts proposed div to 30c from 70c.
Northbridge Industrial Services (NBI) has confidence in the ability of the Group's trading to recover from a temporary downturn in the coming months.
Intu Properties (INTU) has only received 29% of Q rent (yr ago 77%). COVID-19 delaying regulatory approvals re disposal of intu Puerto Venecia, £95m won't arrive until middle of May at the earliest. May use Gov't support.
Thanks MrC. Hold a small position in Quiz (LON:QUIZ) I am afraid to admit (priced to fail, so just holding) - and could have cashed out a while ago for a big profit, but held on ... and on ... Cash position sounds a little bit better than I had thought ...
Good morning Paul - missed yesterdays SCVR, but just caught up on it now. Echo everyone elses comments wishing you and especially your friend's mother a speedy recovery. As it turned out, my test came back negative. Great to have you back!
After reducing hedges a bit, I took some profits in Royal Dutch Shell (LON:RDSB) and $TNP (recent bargain purchases - still hold core positions) yesterday and added a little to my S&P500 hedge. With VIX elevated and a lot of the good news out (i.e. Central Bank / Federal stimulus), see another down leg coming (although there are certainly some individual stocks that do look attractive).
GLA.