Small Cap Value Report (Thu 27 Feb 2020) - TPT, MNZS, MACF, AMO
Good morning, it's Paul here with the SCVR for Thursday.
We'll do what we can. It's all a bit difficult at the moment, isn't it! Ploughing through results statements is the last thing I want to do at times like this, when we're all worrying about our own shrinking portfolios. Never mind. See the header above for the companies I'll be covering today.
Estimated time of completion - a bit later today, by 3pm.
EDIT: I've just got a text reminding me that they're fitting my apartment with a smart meter, so I won't have any electricity for a couple of hours. This will delay me. Hence revised completion time of 5pm. Sorry about that.
EDIT at 17:30 -today's report is now finished.
Still, we need to keep focused on the fact that times like this do throw up interesting opportunities, as well as causing pain.
Topps Tiles (LON:TPT)
Share price: 59.3p (down 25%, at 10:15)
No. shares: 195.0m
Market cap: £115.6m
Trading update (profit warning)
Topps Tiles Plc is the UK's largest specialist supplier of tiles and associated products, targeting the UK domestic refurbishment and commercial market and serving a retail and trade customer base from 361 nationwide retail stores and four commercial showrooms.
I last reported on TPT's figures here on 8 Jan 2020. Whilst the sales performance for Q1 (Oct-Dec 2019, as it has a Sept 2020 year end) was poor, at -5.4%, the company was able to point to a big improvement within the quarter (LFL sales down -7.2% in the first 8 weeks, bouncing back to -1.4% in the last 5 weeks of Q1). Therefore, weak sales looked like a blip, perhaps caused by the political uncertainty prior to the 13 Dec 2019 election result.
Unfortunately, we're told today that the sales trend has deteriorated again, to -5.5% LFL sales in the 8 weeks to 22 Feb 2020 (Q2 to date). As we know, a decline in sales at high margin retailers, feeds through to a geared impact on profits. It's fairly easy to set up a simple spreadsheet to model this. Consequently;
With most of the period complete, the Group now expects that first half profit will be significantly below the prior year level. As a result, management expect adjusted profit before tax for the 53 weeks ended 3 October 2020 will be materially below the bottom end of the current range of market expectations1.
1 The current range of market expectations for adjusted profit before tax for the 53 weeks ended 3 October 2020 is £13.5m to £14.5m
Many thanks to the company, and its advisers, Citigate Dewe Rogerson, for providing this helpful footnote, which saves us all time in not having to search around for the figures.
The company says it is acting to cut costs, and improve cashflow.
If demand is weak, then it might need to discount prices, to drive sales, hence weak sales often goes hand in hand with weaker margins too. Nothing is said about that today.
Revised forecasts - these have been deeply slashed. This year is now forecast to only make 2.9p adj EPS (down 58% on last year). Forecasts for next year, and the year after that, are barely above 3.0p.
This looks fairly disastrous to me, and I cannot see any reason to hold the share at c.60p, which is a PER of about 20 - arguably far too high, given that the business really seems to be struggling.
I don't think they can explain away a 5.5% fall in LFL sales from macro factors. The real reason is probably competitive pressure.
Balance sheet - looked OK previously, but with much reduced profitability, the bank debt doesn't look so comfortable now. Consequently...
Dividends - although nothing is said today about divis, I think the company would be wise to suspend divis, and focus instead on paying down bank debt. The yield here was the main reason for holding the share, so with that possibly now under threat, or reduced to forecast 1.5p (yielding only 2.5%, if you get anything at all), then the share looks unattractive.
My opinion - this business had seemed resilient until today, but I think the bull case has really gone out of the window with this update.
Nothing is said about coronavirus, but if (as seems likely) people may not want to spend on travel/holidays, then possibly they might decide to do some DIY at home? Topps also mentioned a time lag before the improved housing market feeds through to a possible improvement in H2.
Despite falling 25% today, my feeling is that the share needs to fall considerably more before risk:reward would start to look attractive. People who hold on can only hope that trading improves. If it doesn't, then the next stop could easily be 40p for this share, I suspect.
Last night's StockRank was super-high, so unfortunately we have to remember that StockRanks can't predict profit-warnings. The score is likely to fall considerably now, as price & earnings momentum plunge, and valuation will also become less attractive as the share price has not fallen as much as forecast earnings.
My commiserations to shareholders, we all feel the pain when a profit warning hits. It's just a case of deciding what to do. A knee-jerk reaction to rush out and buy more, looks the wrong decision to me in this case. The share hasn't got cheaper today, it's actually more expensive now, on a forecast earnings basis.
It's now at chart support levels, but will that matter, given the deep cuts to forecasts?
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John Menzies (LON:MNZS)
Share price: 339p (down c.5%, at 11:42)
No. shares: 84.3m
Market cap: £285.8m
Trading statement (update on impact of COVID-19)
John Menzies plc, the global aviation services business, today provides an update on current trading.
- Cost-cutting in 2019 is delivering results.
- Positive commercial momentum in 2019 has continued into 2020
- Refinanced bank facilities in Jan 2020, of £325m to 2025
- Coronavirus has impacted operations, in Macau, and elsewhere when handling Chinese airlines
- Situation still evolving, limited visibility beyond March 2020 - so difficult to assess full impact
- Current estimate: £6-9m reduction in 2020 profits (assumes virus subsides towards end June)
- Mitigating impact through cost control
Conclusion -
Given the otherwise underlying positive momentum of the business, this headwind is disappointing, but the Group is well positioned to manage it effectively and return to our positive growth trajectory for this year and beyond.
I think it's very helpful for companies to quantify the profit impact, as has been done here. Investors have rewarded this clarity with just a 5% share price fall today. Although as you can see below, the market had already heavily discounted this known issue before today;
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Note also that this share was in a long-term downtrend before the coronavirus issue surfaced.
Two questions arise;
1) Is coronavirus going to be petering out towards the end of Q2? Who knows? But if it's not, then another profit warning here would be likely.
2) How significant is £6-9m reduction in 2020 profits? I can't find any detailed forecasts, but Stockopedia gives us £27m post-tax, which at 19% tax, becomes £33.3m PBT. Assuming that's correct, the £6-9m would represent between 18-27% of 2020 profits - quick a hefty chunk. But it's a one-off factor, that would be quickly forgiven I think, assuming the optimistic scenario of the virus subsiding, does actually happen.
Just in case that broker's consensus is calculated on a different basis to the company's own reporting, which often happens, I'm looking at last year's accounts, FY 12/2018, which show adjusted PBT of £44.1m, but lots of adjustments, which lower statutory profit to £12.5m (on continuing operations).
Balance sheet - this is the problem. I've flagged many times here, that MNZS has a weak balance sheet, which is very much what you don't want when there's some kind of crisis. Last reported at 30 June 2019, NAV was £85.5m. Removing the £175.2m of intangibles, takes us to a negative NTAV of -£89.7m.
The remaining balance sheet comprises heavy fixed assets (all those trucks & baggage handling equipment that we see at airports, with the Menzies name on them), funded by heavy bank debt. There's also a whacking great receivables book, of £266.2m. My worries there are that the business is clearly under-capitalised, and overly indebted. Plus, if airlines start going bust, then MNZS may not be able to recover some receivables.
Plus it's at risk of further disruption from coronavirus.
My opinion - I don't see this as a good investment to start with. With the added losses & risk relating to coronavirus, then I really wouldn't want to try bottom-fishing here, it looks far too risky for me.
Debt is far too high for me, and a prolonged coronavirus impact could lead to covenant breaches. Sure, the banks would probably waive those, but it could conceivably end up with shareholders being asked to stump up more capital, in an equity fundraising. That would likely be from a position of weakness, hence possibly at a low price.
The dividend yield of nearly 6% also looks precarious to me. Very heavily indebted companies really should not be paying big divis. This could be cut if conditions worsen, possibly.
Also note that brokers forecasts were already slashed deeply, before coronavirus surfaced.
I think there are much better, less risky places to bottom-fish right now. than this share.
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Macfarlane (LON:MACF)
Share price: 96.4p (down 3.6%, at 15:54)
No. shares: 157.8m
Market cap: £152.1m
This is a packaging group.
Macfarlane Group PLC achieved sales of £225.4m in 2019, (2018: £217.3m) a 4% increase on 2018, with 2019 profit before tax growing to £12.0m (2018: £10.9m), 10% ahead of 2018.
This marks the tenth consecutive year of profit growth. The performance in 2019 was in line with market expectations and was achieved against a well-publicised backdrop of economic uncertainty resulting in weaker demand.
Balance sheet - is mainly goodwill & intangibles, so it's been acquisitive. Strip that out, and NTAV is only £6.6m - adequate but not strong.
Current trading - sounds OK -
2020 has started well and profitability in the year to date is ahead of the same period in 2019.
My opinion - looks a reasonably good company, at a reasonable price. The forward PER looks good value, at 11.5
Stockopedia likes it;
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Amino Technologies (LON:AMO)
Share price: 128.5p (down 4.1%, at 16:23)
No. shares: 76.0m
Market cap: £97.7m
Amino Technologies plc, the global provider of media and entertainment technology solutions, announces its preliminary results for the year ended 30 November 2019.
This company reports in US dollars.
Revenues are down 13.2% to $77.2m, but margins are up, so adj operating profit is down 9% to $10.2m
Current trading and outlook
· Solid order book and sales pipeline visibility for FY20
· Confident of further significant growth in software and services revenues in the year ahead
Dividends - have been a stand-out feature of this share, with generous payouts for quite a few years now. Given the weak balance sheet (see below) I wouldn't put an reliance on generous divis necessarily continuing.
Balance sheet - used to be strong, but they spent the cash pile on acquisitions. So now it's weakish.
NTAV is negative, at -$9.3m
My opinion - neutral.
That's all I have time for today.
Best wishes, Paul.
Disclaimer
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102 comments
It seems there is some indication that Corvid19 (coronavirus) may be bi-phasal, in that when someone who has had it once (phase1), appears to have recovered, it might linger in the body and flare up again (phase 2).
It means that the economic effect might last longer than
some people expect
... a bit like your post - which was also bi-phasal I see! ;-p
Simoan
I agree that sometimes the comments include too much general discussion with the excellent and detailed updates from Paul getting ignored. And that certainly applies today. But I see this week as a bit of a one off in that market falls have been exceptional (and Dow Jones down another 800 just now). Not wise to ignore big issues currently confronting investors.
And such a big question affecting so many shares is if this is the start of a major bear market with Coronavirus the trigger. And this is dominating my thoughts this week. Paul hinted that his thoughts could be similar and he may well be finding it harder than usual this week to motivate himself to spending a lot of time analysing Companies. And the more so if there is little subsequent discussion on any of them.
As for missing nuggets of info , surely one way round that is to scan the comments and focus on any getting well recommended. Also fwiw it’s amazing that some subscribers don’t make far more use of the masses of quality information and facts and figures on this site and are only interested in the comments here. Seems a waste of the subscription. Agree that the Small Company reports are a MUST. But so much more here beyond those.
btw... though the very thorough updates from Paul are brilliant when later checking out those shares ( as well as on the day) I also like the brief summaries as Paul has just done on a share I hold, Amino Technologies.
If you have a moment on Friday Paul I would be interested to hear your thoughts on BATM Advanced Communications. "The Israel-based firm says it has developed a new diagnostics kit to detect COVID-19 and has started production of the kit at its facility in Rome"
Novacyt SA (LON:NCYT) already has a test, so BATM are not the only company to be producing a kit.
The indiscriminate selling of shares which we are now seeing beggars belief and just goes to show what a complete lottery share investment can be sometimes. We are seeing some shares dropping over 20% over the week even though they are highly unlikely to be affected by the repercussions of this flu strain. Personally I'm only interested in growing my dividend income so this may turn out to be a good opportunity to buy more dividends at a cheaper price.
Well the indexes are down around 11% this week. Yes some shares have been hit hard but it is difficult to quantify how this virus will effect companies. We don't know how far and how quickly it will spread. Yes some are looking oversold, I'm considering some of the larger oil companies, they have decent dividends if maintained.
Once again I feel my investing strategy would be frowned upon by many posters. I have only one rule when it comes to events like the Coronavirus outbreak and that is do absolutely nothing. I must admit I did make a small exception to this rule at the start of the outbreak as I bought a few shares in Tristel but I have not sold any of my holdings. The coronavirus outbreak will of course eventually go away, probably as the weather warms up in the summer. A vaccine is likely to be developed within a year, if not before, to provide ongoing protection if necessary. I am a retired microbiologist and realise it is difficult for anyone (including me) to predict how long the Coronavirus outbreak will last, or if it will become a pandemic so why would I sell any shares in response to the oitbreak when I do not know what is going to happen? The shares I own are high quality non-cyclicals which are quite resistant to recession so they will all bounce back after the Coronavirus panic is over.
I'm in the same camp, doing nothing. I call it the deer in headlights strategy.
Me too , do nothing until the clouds lift and perhaps the virus stories actually say something positive , like number of deaths / infections falling or cure found etc. Its sometimes difficult to do nothing but in the past doing nothing has indeed usually if not always been the correct action as we must remember markets rise over time. The question always is how long a time period do we wait for markets to start rising again !
piworld have just published the Diaceutics (DXRX) presentation at ShareSoc London, February 2020, by CEO Peter Keeling, here.
Tomorrow, we'll be publishing a charming video, an interview with The China Dolls investment club. A group of retired ladies who set up their club 20 years ago. In 2018, they had the top performance, of the ShareCentre investment clubs. They talk to us about how they set up, how the club is run, their share picks and much more. Some light relief from these torrid markets.
Coronovirus: Its not only the direct quantifiable impact that is worrying but the knock-on impacts.
e.g. share valuations have increased rapidly, combination of growth expectation of fundamentals (revenue, profit growth etc) but also momentum (PE expansion) .
While the fundamentals will take a short term hit, global GDP hit probably in low single digits, its the second area (momentum) where if we see a contraction, its enough to push most stock market indexes to bear territory (20%+ down from peak). And then from there, it might be a self-fulfilling cycle to the bottom.
We've all benefited from stock market gains over the last few years that have outpaced actual EPS/Profit growth. Now we might see the reverse happening rapidly.
Dividends - although nothing is said today about divis, I think the company would be wise to suspend divis, and focus instead on paying down bank debt. The yield here was the main reason for holding the share, so with that possibly now under threat, or reduced to forecast 1.5p (yielding only 2.5%, if you get anything at all), then the share looks unattractive.
Paul,
If I remember rightly from when I held Topps Tiles (LON:TPT) a couple of years ago, the dividend policy is quite rigid and they fix the dividend cover to 2x. So it will be cut and more than likely suspended if EPS collapses.
All the best, Si
Topps Tiles (LON:TPT) - I had a detailed look at this a few weeks ago. It used to be very investable company.
Over 10 years (2009-2019) they've managed to improve their gross profit margin, up from 59% to 62%, despite the currency hit following the Brexit vote in 2016.
But overheads have run away. Over those 10 years revenue per outlet is up by just 8%, but overhead is up by 30%.
It does look like competition is making them work a lot harder for their revenue, and it's no longer an attractive investment.
Started nibbling at a few small caps now
For example SCS (LON:SCS) I understand their supply chain is under stress but they have considerable cash reserves to see themselves through.
Likewise Concurrent Technologies (LON:CNC) is a favourite and seems to be recovering today.
Air Partner (LON:AIR) obviously not popular due to airline exposure but strong balance sheet, net cash position.
I'm sure my timing is too early but happy to buy cheaper when it's on offer
I'm reading the Hans Rosling book currently. Now there's a man who had the data and knew how to use it. I suggest more people read it and get a grip.
It's a very good book that everybody should read.
It's a very good book that everybody should read.
Yes. A very good and enlightening book. A much better use of anyone's time than reading what the Stockopedia coronavirus experts have to say.
All the best, Si
So China reports 433 new cases and deaths now down to 29 today. Compare that to the chart and you will notice it is quite close to the optimistic curve (only a little outside).
Also note the sharp decrease in deaths.
So many opinions, so little knowledge. Isn't that what Twitter is for? This bit of the internet is meant for discussing small cap shares.
Personally I would prefer to read any number of polite and well intended opinions than a single pompous, hostile trolling post. Posts of that nature would indeed reside better on Twitter. Perhaps you might like to take your own advice?
Don't worry yourself, John. I'll be gone in December and you won't have to read any of my posts again. Until then...
BTW I think it's more pompous to tell everyone else what your trading etc. how much cash you have etc. Who the hell cares!
"Don't worry yourself, John. I'll be gone in December and you won't have to read any of my posts again. Until then..."
thats still another 10 months away!?!
thats still another 10 months away!?!
Yep. More's the pity! Do you think I want to pay over 200 quid a year to read the kind of rubbish on this thread today?
Simoan.
It's true that coronavirus has domintated the comments today but that's because of its big efffect on markets this week. And simple answer if not liking the comments then don't read them!
Also there's so much more to Stockopedia than this discussion board, with the stock report page for each share for starters.
Ken,
I appreciate your comment. However, I pay my sub pretty much only to read the SCVR so if people are being out of order and not discussing the shares that Paul spends his time analysing each day, then I feel I have a right to speak up. As one of the few people to have commented on what Paul has written today, I of course write from a position of self-righteousness :) However, it is no surprise to me that Paul might sometimes wonder why he bothers making the effort when there are so many self-indulgent comments that add no value to anything, or even acknowledge there is a main article he has taken the time to write. Perhaps I'm being old fashioned but to me it's just plain bad manners.
As for coronavirus and the markets I'll quote from the Hans Rosling book:
"Critical thinking is always difficult, but it's almost impossible when we are scared. There's no room for facts when our minds are occupied by fear"
Sounds like he was writing about the comment section here the past few days!
I take your point about not reading the comments but it's difficult to do this without missing a nugget of information in amongst all the noise. I live in hope! The coronavirus noise is just the latest outbreak of panic amongst the residents and anyone that wants to discuss it can easily start a separate thread and leave the SCVR comment section for discussing small caps. Perhaps that would be too polite...
All the best, Si
"Do you think I want to pay over 200 quid a year to read the kind of rubbish on this thread today?"
"if people are being out of order and not discussing the shares that Paul spends his time analysing each day, then I feel I have a right to speak up"
The SCVR is a community led by Paul with Graham. Comments are on a range of things, usually relevant to that date. There's no rule that they have to be about small companies reporting on the day (though that is the focus of the analysis), and neither Paul nor Graham restrict their comments either. It has always been like this, which, being a frequent commentator you must already know. None of the comments above have been out of order even if you consider them rubbish.
Personally, I think the posting/commenting freedom enhances the value of the reports and makes for a more thought provoking read.
And the impact of the coronavirus on the stock market and economy is by far the biggest issue affecting everyone's portfolio at the moment.
The SCVR is a community led by Paul with Graham. Comments are on a range of things, usually relevant to that date. There's no rule that they have to be about small companies reporting on the day (though that is the focus of the analysis), and neither Paul nor Graham restrict their comments either.
Fair enough, as long as people are at least writing something about the stock market, shares etc.. I don't have a problem much either. However, there have been so many off-topic posts this week it is beyond belief. Lots of unrelated discussions on viruses by total non-experts using data from unknown sources and even videos of some bloke in his front room claiming to be a doctor - always dodgy, Harold Shipman was a doctor too!!
It has always been like this, which, being a frequent commentator you must already know.
No it hasn't. This week has been particularly bad although I did comment similarly at the end of 2018 in the last big market pullback when people were equally panicking and writing similarly off-topic posts. It helps no-one to write such posts, least of all the author - the power of commitment and consistency is only reinforced by putting it in writing in a public forum.
I guess we'll have to agree to disagree. Personally I've been very busy at work, so no sign yet from customers that the world is about to end. I'm also deciding what to buy with my cashpile and how quickly to deploy it. How greedy to be when everyone else is running around like headless chickens?
All the best, Si
Hi Si,
I enjoy reading your posts and you make good points that in times of turmoil the comments get a bit hung up on that rather than more specific company issues. And as you also say when it happened previously it did quickly return to ‘normal’. In this small community in the small corner of the investing and internet world, acceptance of people’s choice to focus temporarily on wider events that are, at least obliquely relevant, may make the overall experience smoother.
You mentioned that you won’t be here come December. I hope this is for subscription reasons as opposed to health.
With respect,
J
John,
As far as I know I'm in rude health, thanks! Although we'll have to wait and see how my body reacts to the imminent virus we will all be getting...
Good luck! Si
I hope you don't bring that egotistical attitude to your investing !
I hope you don't bring that egotistical attitude to your investing !
Why? I'm probably one of the least egotistical people you'd ever meet - anybody would think it's me that writes posts about what a smart arse I am, trading this and that, going 100% cash etc. I don't. Mainly because it is utterly meaningless willy waving. Without knowing the context of someone's personal financial situation it is worthless information and a waste of time for anyone reading.
My ego is just fine thanks and safely in its box.
Something to bear in mind is the ftse100 & smallcap & s&p500 indicies are not yet down 10%, this isnt a lot historically for a correction, historically the s&p has fallen 20% every 4 years. My portfolio of small cap growth shares down a lot more than the index but it pays to look at history, and consider if these are bargains yet. Also look at the year high & low of even ftse100 stocks, some look cheap compared to last week but not to 9 months ago. Recency bias seems to me to be more acute when there are large falls. I nearly bought some stocks yesterday until i ignored the 3 days % falls and looked at the wider graphs.
Some look good value, OTB, US booking.com owner, hostel world, ... if it all stops tomorrow but way overpriced if panic in travel sets in.
Have a plan, 10% fall in chosen index, do nothing, 20 % invest cash/sell bonds snd buy your watch list. Etc
I think we should use this as an opportunity to learn so that the next time something like this happens we are better prepared to deal with it especially EMOTIONALLY. I wrote the following in my diary (I suggest everyone should keep a diary of buys, sells, lessons learned and your emotions). I find it invaluable.
Putting aside all the human/population impacts and questions we have about the Coronavirus which reading the press is frightening (whether it is justified or overly dramatic) as this is a Stock forum I would ask is this an amazing buying opportunity or a catalyst for a major correction.
My two cents opinion at the moment would be opportunity - Travel and Leisure shares are being pounded if they drop 50% from recent heights and the virus dies out in the spring would this not be an amazing opportunity? If markets fall 20% as a result of the virus is this not a amazing buying opportunity (I am talking about the FTSE as that is what I trade).
Historically global economies tend to bounce back strongly after such negative events and markets over the long term rise historically = opportunity.
Playtech (LON:PTEC) Morining Paul,
If you get time can you have a glance at Playtec. Their Report looks a bit complicated and I, for one, would appreciate your view.
Nice chart but looks out of date...
the CNN Fear and Greed index has us at 21, "extreme fear". Anywhere below 10 has historically acted as a very good buy point in the months that follow.
The following is from the Economist and shows that even in the pessimistic scenario they expect Coronavirus cases to have dropped to pretty much zero in March. If you follow the actual path it is following the Optimistic scenario.
Of course we also need to watch other cases around the world and see how well contained these prove to be but if a lot of the current stock market falls are based on China and any supply shock it would suggest factories will be fully operational pretty soon and consumption demand could follow quickly.
That chart was obviously produced a few weeks ago and is for China only. We are now practically at the end of February and cases are currently multiplying in multiple countries.
but the point is that China predicts that even in the pessimistic scenario the supply shock will be limited. The market is used to and understands demand shocks, it doesn't understand supply shocks, hence some of the price reaction we are seeing.
Fantastic post David
Hi David,
Many thanks for your attempt to add some sanity to today's comment section. The rest of it is pretty much unreadable garbage.
All the best, Si
Good Morning Paul Do you have any further thoughts on Cloudcall (LON:CALL) from Tuesday I appreciate your busy but any additional comments would be appreciated
No, I covered everything I wanted to say about Cloudcall (LON:CALL) in recent updates. There haven't been any further trading updates, so there's nothing for me to say. I don't comment on day-to-day price movements, my stuff is newsflow-driven.
TMV points out that coronavirus is already causing more people to be sent home to work remotely. Maybe Cloudcall (LON:CALL) will benefit.
I haven't sold a thing this week, so obviously sitting here very worried right now. Losses have been big, but I don't believe it's going to continue for that much longer. I have cash that I'm ready to use for when it all turns. Best decision I made was to sell all my Dart shares last week, which was my second biggest holding. I did this partly based on Paul's advice regarding travel stocks, so thanks for that Paul!
I’m reading elsewhere that because so many flights have been cancelled that the cost of airfreight has shot up, someone to beware of if your company uses airfreight, will this effect £BOO
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That is counter intuitive. One would have thought with no goods to export planes would be empty and thus prices slashed.
But most countries it is life as normal, so there are plenty of goods to export.
Maybe the following is rubbish and I might soon agree as events unfold. But right now this all seems like a worldwide overreaction to what is mostly a mild illness, and so mild in many cases that people don’t even know they’ve got it. And it’s likely that already there are thousands of people who have or have had Coronavirus in Countries only reporting hundreds or reporting only a handful of cases.
So it’s very likely it is already a pandemic and the numbers with it will explode. But aside from the very elderly and those with existing serious medical conditions ....so what? We don’t make all this fuss about flu and the inevitable deaths from that and shut down everything to try and contain it. Everyone just gets on with it, and work, travel, factory production etc etc continue as normal.
So surely very soon now Countries will wake up to what seems patently obvious, and accept that cases everywhere will be widespread, but for the vast majority getting it no worse, and arguably less so than flu?
As soon as that happens and life returns to normal, so share prices might well recover fast, albeit with far more profits warnings (which if causes are temporary effects of Coronavirus could well be good buy opportunities) to come.
The one big concern is if this morphs in to something far more deadly.
The death rate is much higher than flu making it difficult to change tack. A vaccine is still months away but effective treatments are possibly much closer. WHO have identified 3 potential treatments currently being tested with first results just a few weeks away. With effective treatments to bring down the mortality rate, that might justify a return to normality. But who knows...
Which companies make them..is that known?
$GILD are manufacturing the antiviral drug Remdesevir which has been proven against Ebola and other Coronaviruses in the past - it is now viewed by the WHO as the most realistic option until a vaccine as such is developed
some big gains for Gilead on the speculation in the past few days
https://www.pharmaceutical-tec...
How do you know this ? It could be much lower. As I understand it you can have it without showing any symptoms, therefore we don't know how many have contracted it.
Yes there maybe loads of cases still unreported, many are asymptotic and in some areas it takes around 7 days for the test results. So from infection to being reported it can take around 2-3 weeks. Many mild cases may never be tested and even in China there have been problems with being tested. Having said that some of those may well die. I'm reading that some people have recovered and then tested positive again later.
largely agree with you but your disdain for the lives of the elderly and ill is not pleasant
Investornot1.
Sorry if my post gave you that impression. Totally unintended. The last thing I meant was that I couldn’t care less if the already sick and elderly die from Coronavirus! I was simply stressing how mild (so far) Coronavirus is for most getting it, except UNFORTUNATELY for some elderly people and those with other existing serious health conditions.
I knew what you meant but I did have to think about it, not everyone can do this. I am not on Twitter or Facebook so perhaps I have a higher intellect ?
I've been thinking the same Ken. I'm starting on antibiotics for a mild chest infection which at my age means there's a (Covid-19) target on my back! Anecdotally the practice nurse thought the virus will not be contained.
The Chinese do now seem to have decided that it is more important to protect the economy than the 2% who may succumb to the virus. It is possible the markets will see this in a positive light as it is the counter measures, not the virus which have economic consequences.. . People have been pointing out on here some inflationary consequences of the virus such as increased freighting costs. I'm no economist (can anyone point me to a good article?) but the major weapon against inflation, interest rates, is no longer available. I see Hong Kong is already experimenting with "helicopter money" with every inhabitant being given around £1000 to spend. This in itself is concerning.
There will be a hit to the global economy when the full impact to supply chains becomes clear but the big worry is if it triggers something far worse.
I agree that corona will pass without the dire predictions coming true, but it felt like we were due a pull back and this could be the trigger.
the S&P is up 30% in a year, but earnings are down, the PE ratios and EPS are being kept in shape with share buy backs fuelled with Trump tax cuts and him allowing overseas profits to be brought back with lower taxes. world wide growth is slowing, big european ecomomies are contracting, china just shut up shop for a week, India has a reckless prime minister, in fact many countries have elected idiots etc etc
the exact trigger from 1929 is unknown, sometimes markets act like dominos
hope i'm wrong, not sure why i felt i needed to be the voice of doom this morning, bring on the thumbs down i can take it
ambrosia
Agree with everything in your post. US market is as highly valued now as it was before the 1929 crash.
So many shares are on very high ratings and so vulnerable to big falls.
But not so sure about the long out of favour value shares often with PE in (sometimes low) single figures and big dividend yields that look safe. My own investment focus had been on those for a good while.
In big stock market crashes is it the shares that are way overvalued that crash, and not hose that have already crashed to multi year lows?
It is not just the elderly and the ill that dieting though that is why this a problem. Yes this well blow over in the next month or so, flu is seasonal and most of the effected areas are in their winter still.
Yes, the numbers so far are small in the scheme of things and hopefully will remain so. Thoughts for those affected.
I think the issue is the 2% mortality rate for an individual person is worse than seasonal flu. If I had it and was facing 1 in 50 odds, I'd be Not Happy and I'd expect the government to react, which they have.
Thus, the drop in markets is somewhat orderly, in that it's reflecting the economic impact of reactions and containment. Also a dose of flight to safety, i.e. sell stocks, buy bonds, gold.
The markets will move instantly on fresh news now. If cases rise, then sell. If companies give unexpected profit warnings, sell. If cases reduce and China get back to work, buy.
So, the underlying SCVR case for this forum will be to pick up any good quality shares on the cheap that have been sold off due to general derisking. Timing's tough though as the news flow is unpredictable.
It may seem like an overreaction if you are one of those unaffected by it. If you look at the figures the rate of seriously affected people is actually terrifying if this were to get past the phase of containment and spread to the population at large in any uncontrolled way. Presently in Singapore there are 93 cases and of these 7 are still in the ICU in critical condition. Yes, you read that right - this is a rate of 7.5% of those infected being in critical state despite being cared for in one of the most advanced and best-equipped countries in the world for medical services. Many are middle aged and otherwise healthy. The overall global infection rates show those in the middle aged group being the worst affected in terms of numbers and percentage of total (and men more than women, but they have yet to figure out why that is). There is a general misconception circulating at the moment that this can only hurt you if you are frail - this is nonsense. Whilst I do not think the global rate of those in serious condition will settle at 7% (I seriously hope not) even if it were to be 5% with serious complications and 2% death would you want to gamble on those odds and just hope that you are not one of the 5 in every hundred that ends up on a ventilator? If you think about in terms of your immediate surroundings it starts to get a bit more real. I was on a bus this morning with a seating capacity of 60 people. I got to running numbers in my head on the way to work and realised than, on average, 3 people on that very bus would be critically affected. Try the same for the cafe you are in, or the single tube train you are on (or, worse, the football stadium you went to at the weekend). It's a scary thought, and suddenly you don't feel quite so safe anymore. I have a scientist friend who tells me that there is very little chance of stopping this spreading and that this is generally accepted already in the scientific community - essentially the containment measures at the moment are all about just buying time for them to find an effective treatment before it does spread faster and further. If they do, and if they find it fast enough to be able to ramp up production of the correct drug and distribute it globally then we may all be lucky and escape with a mild outcome. If not, and if it takes them perhaps a week too long to find the right treatment, or if some of the ingredients and supplies they need for the drug are manufactured in China (see e.g. extract quote below from a recent Washington Post article) which has already been hit badly by the virus making production times a lot slower there) then the outcome could be very different. It's a race against the clock - let's pray the researchers win the race ahead of COVID-19.
----------
"There is no single accounting of the percentage of active ingredients in U.S. drugs that are manufactured in China, but it’s significant and growing. The Food and Drug Administration has said approximately 80 percent of active-ingredient manufacturers are located outside the United States, and for some key drugs, China is the only supplier. For instance, China produces the ingredients found in almost every antibiotic and blood pressure medicine and hundreds of other drugs. Thus, China has a virtual monopoly on the ingredients required to manufacture critical medicines."
Nobody has mentioned infants, just elderly and infirm. I note that everyone has to die sometime and hopefully rich, but what about the kids?
I read (think it was in the Times) that no one under 10 has died from the virus.
It gets increasingly nasty with age and underlying health conditions such as heart disease.
Mortality rates on children under 9 is only 0.2%
It may seem like an overreaction if you are one of those unaffected by it. If you look at the figures the rate of seriously affected people is actually terrifying if this were to get past the phase of containment and spread to the population at large in any uncontrolled way. Presently in Singapore there are 93 cases and of these 7 are still in the ICU in critical condition. Yes, you read that right - this is a rate of 7.5% of those infected being in critical state despite being cared for in one of the most advanced and best-equipped countries in the world for medical services. Many are middle aged and otherwise healthy. The overall global infection rates show those in the middle aged group being the worst affected in terms of numbers and percentage of total (and men more than women, but they have yet to figure out why that is). There is a general misconception circulating at the moment that this can only hurt you if you are frail - this is nonsense. Whilst I do not think the global rate of those in serious condition will settle at 7% (I seriously hope not) even if it were to be 5% with serious complications and 2% death would you want to gamble on those odds and just hope that you are not one of the 5 in every hundred that ends up on a ventilator? If you think about in terms of your immediate surroundings it starts to get a bit more real. I was on a bus this morning with a seating capacity of 60 people. I got to running numbers in my head on the way to work and realised than, on average, 3 people on that very bus would be critically affected. Try the same for the cafe you are in, or the single tube train you are on (or, worse, the football stadium you went to at the weekend). It's a scary thought, and suddenly you don't feel quite so safe anymore. I have a scientist friend who tells me that there is very little chance of stopping this spreading and that this is generally accepted already in the scientific community - essentially the containment measures at the moment are all about just buying time for them to find an effective treatment before it does spread faster and further. If they do, and if they find it fast enough to be able to ramp up production of the correct drug and distribute it globally then we may all be lucky and escape with a mild outcome. If not, and if it takes them perhaps a week too long to find the right treatment, or if some of the ingredients and supplies they need for the drug are manufactured in China (see e.g. extract quote below from a recent Washington Post article) which has already been hit badly by the virus making production times a lot slower there) then the outcome could be very different. It's a race against the clock - let's pray the researchers win the race ahead of COVID-19.
----------
"There is no single accounting of the percentage of active ingredients in U.S. drugs that are manufactured in China, but it’s significant and growing. The Food and Drug Administration has said approximately 80 percent of active-ingredient manufacturers are located outside the United States, and for some key drugs, China is the only supplier. For instance, China produces the ingredients found in almost every antibiotic and blood pressure medicine and hundreds of other drugs. Thus, China has a virtual monopoly on the ingredients required to manufacture critical medicines."
I have hedged with spread bets short the Dow and Dax, which has provided some mitigation, spread bet on gold early last week worked out well, trimmed a few and closed a few, 50% in cash sat on my hands trying to resit the urge to buy, its hard to know what to do watch and wait seems the best idea.
So glad that I have stop losses in place. A lot of shares sold automatically and will lead to a clean up of my portfolio. I have kept my Strix (LON:KETL) shares as this still appears to be a sound company.
After taking a much more informed approach to investing, my portfolio was making good growth. But the unexpected event of Coronavirus has caused all the ground to be lost. I'm looking long term so things should pick up again but low risk funds look increasingly attractive. I'll sit on cash until things look more stable.
Hi Rusty
I agree, Strix (LON:KETL) is a company I like very much and will look to buy back in at some point. I am somewhat surprised that the share price is holding up so well given that its main production facility by some distance is in China. I will also look to add to Volex (LON:VLX) once the dust settles, whenever that might be?
Good luck
To sell or not to sell?
For me it depends if you are a trader or investor. My trading account is all cash at the moment as I am a momentum swing trader (short-term) using stop-losses. My larger long-term investment account (Dividend and compounding) is all stocks/bonds and will continue to hold unless fundamentals of specific companies change and/or they cut their dividend.
I agree with sparkler about market timing and dividend compounding and will go further that there is nothing worse than a long-term investor selling when the market is volatile as the chances of selling high and buying low is very difficult thing to do. Just let those dividends buy at the temporary bargain rate as historically markets rise.
If anything I am trying to control my temptation to add to my long term investments and instead looking to take/find rational entry points in this falling market (I haven't yet pulled the trigger).(FTSE 6550-6700 is my current thinking for a buy point for my long term investment portfolio as these are the daily/weekly low points of Dec 2018)
Good morning Paul
Difficult to ignore the markets depressed mood with small caps in particular being walloped, but it is part of the territory of investing so I am trying to be sanguine and take a detached view. Thus far I have, apart from selling or reducing a few stocks with particular exposure to China such as Volex (LON:VLX) and Strix (LON:KETL) sat on my hands. Anyway enough of my rambling.
I would appreciate your thoughts on Amino Technologies (LON:AMO) which reported prelims this morning. All in all fairly promising and in my view operating in a market that has good growth potential, There is also the added bonus of a very nice dividend.
All the best
Hi Paul - I see there is a new IPO this morning
"Inspecs (AIM: SPEC), a designer, manufacturer and distributor of eyewear frames to global retail chains, is pleased to announce the admission of its entire issued and to be issued ordinary share capital to trading on the AIM Market of the London Stock Exchange ("AIM"). Admission will occur at 8.00 a.m. today, under the ticker "SPEC" and the ISIN: GB00BK6JPP03.
The Company has successfully raised GBP23.5 million (before expenses) by way of a placing of 12,051,282 new Ordinary Shares with institutional and other investors at a price of 195 pence per Ordinary Share (the "Placing Price"). In addition, 36,171,506 existing Ordinary Shares have been placed on behalf of Selling Shareholders at the Placing Price, raising gross proceeds of GBP70.5 million. The Company's market capitalisation on Admission is GBP138.0 million. Peel Hunt is acting as Sole Bookrunner, Broker and Nominated Adviser."
I note the 70.5 million GBP of existing Shareholders selling out at the IPO which tells me that the usual is happening - original owners cashing out into the IPO may be a sign to go short on this one... bare in mind I have not read the admission doc and this is just a quick thought...
Feels uncomfortable, but these are the times to buy is it not, as Mr Buffett would say?
If someone could disabuse me of the notion that the natural propensity of the FTSE is to naturally rise over time because of inflation theoretically raising profits in nominal terms (in the same way that people in jobs hopefully get a small percentage increase every year).
Of course overlaid on that is volatility introduced by macro factors and sentiment, but where is everyone else going to put their money nowadays? Ultimately I think people will have to return to stocks.
There’s no blood in the streets yet!
“But you've lost a leg!”
“Nah, it’s only a flesh wound.”
NMC Health (LON:NMC) shares have been suspended.
CEO removed, CFO on extended sick leave. Initial reports (last night) indicate some irregularities.
Muddy Waters' credibility probably up a few notches this morning.
It's other recent UK short Burford has also under performed hugely in the last 3 months and issued a profit warning recently as well with results due next month.
Although the fallout for investors in the targeted company is difficult to stomach, short sellers serve a valuable role in highlighting opaque accounts and suspect practices.
I buy on fundamentals and TA and generally sell on TA, therefore, as you would expect, I'm largely out of the markets now and have been for a little while.
I suspect when the recovery happens it'll be quite sharp initially, but may be a false dawn as the relative cheapness of stocks will be based upon forecasts that are not fully informed. There is little doubt in my mind that sufficient damage has now been done that profit warnings will emerge throughout the year.
Patience will be the investors friend in 2020.
What is TA? I’m a bit dim this morning.
Technical Analysis, but TBH I only use the most basics of methods, as I don't believe in some of the more esoteric mumbo jumbo out there.
Glad you asked
Those of us without the nous or means to mitigate the severe impact of this event have no option but to sell out, sit out or try to ignore the daily noise and hysteria surrounding this issue. The valley may be deeper and wider than previous related slumps, but as long as we can see the steep hills rising in the distance we shouldn't lose our long-term perspective. It will pass....it always does. Easier said than done, but it does help writing this overlooking the beach in Central Vietnam.
it’s a bit of a bloodbath out there, £dtg down almost 40% since Monday. Paul called it about not wanting to own any travel stocks right now. It’s a bit early maybe but good time to check your watchlist, things have seemed toppy for a while but not many buyers out there it seems. Obviously still could be a ways to go and risk remains high. My question is, when do we hit peak uncertainty? Things seem pretty uncertain right now!
John Menzies (LON:MNZS) Finncap (LON:FCAP) Topps Tiles (LON:TPT) McKay Securities (LON:MCKS) TP (LON:TPG)
Menzies(J) (MNZS) guides covir-19 impact £6-9m on the assumption that the impact of the virus subsides towards the end of Q2. Biz otherwise was going very well. Refinanced £325m debt to 2025 with improved covenants.
finnCap (FCAP) M&A deals slow to close, H2 will be breakeven. Thinks this Q1 will be better than H2 was.
Topps Tiles (TPT) first 8 weeks of Q2 has remained challenging with continued weak home improvement spending. Retail LFL -5.5%. Guides FY adj pretax materially below the bottom end of the current range of market expectations of £13.5m to £14.5m.
McKay Securities (MCKS) sounds in line
TP Group (TPG) wins £2m MoD contract over 2 years.
It's probably the worst decision I could have made but I sold everything yesterday
My plan is to sit it out until the the coronavirus issue is settled and the markets begin to recover
America hasn't even caught a cold yet...
Not yet but they reckon it’s is inevitable and it is not just a cold.
Yes it probably is, Meldrew! Predicting market movements is a mugs game. Every year highly paid analysts try to do just that and get it wildly wrong. The same is true for commodity prices, bonds, currencies and pretty much anything else. Who knows, you could have picked the year of the worst pandemic ever and equities are about to crash another 20% or more. But what if you haven't? Markets can rally very quickly when newsflow changes, as you sit on the sidelines wondering what to do. Then they rally some more as the bears jump back on the bandwagon. Good luck this time, but the long-term winner is to stay fully invested and re-invest your dividends to get that lovely compounding effect if you want to be rich in your old age!
sparkler, Thank you for your excellent advice. However, I'm well past retirement age so some of it is not relevant to my situation. For example, there was a time when I did reinvest my dividends.
I've taken a gamble with my, so far, profitable investments in anticipation that Covid-19 will not be contained quickly and the economic downturn will last a while and be deeper than some anticipate. There might be a recovery later this year but perhaps not. I think that China will be key to global recovery. I expect the markets to bounce back eventually. I also think that the event might result in some outsourced manufacturing being repatriated as countries like the USA realise how dependent they have become on China.
I am gambling that I will be able to buy my portfolio back at lower prices than I sold.
I wouldn't necessarily recommend my strategy to others.
I sold all my large/mid caps Monday a.m. but still hold most small caps as liquidity not there to sell regardless. Good news is small caps somewhat holding up.
Interesting experience there, it was simple to liquidate the large caps at the push of a button. Tried to sell a couple of small caps, but not possible, no bids aside from tiny volume! Reminds me to keep a balanced portfolio. It was interesting to see the liquidity difference on a big down day.
Plan from here is to
(1) review the log number of cases reported outside of China. This figure is still increasing.
(2) watch the price of oil - OPEC fiddling with supply aside, it's hard to fake the price of oil in 'reporting' and oil is a key economic input to China's and the World's activity overall.
(3) see what happens in Europe and the USA as a virus spread there will impact the two main GDP sectors, which means a new level of problems
Otherwise, who can time buying the dip? Too hard!
I did nibble at a few shares on the cheap yesterday, suspect I was too early though. Again interesting, gosh it was easy to buy some volume. Buy on fear, sell on greed etc. Or falling knife.
Impossible to pick the bottom. But some assets are getting cheap on a long-term basis. So tracking a buyers list daily, although not buying today. I noticed the SPX just touched it's 200 day moving average, which is a big deal for technical traders and CTA long-short funds. If it breaks down through that, the fun begins.
Interesting times!
"I noticed the SPX just touched it's 200 day moving average, which is a big deal for technical traders and CTA long-short funds. If it breaks down through that, the fun begins."
What do you mean with this? That if it breaks down through the average, it will likely fall much further?
In the USA there are funds which really are just momentum trackers across asset classes. They have various 'formulas' but they are essentially going long stocks when they are trending up and then selling and running short when the trend turns down. So, if SPX really did fall down below here, then some funds would sell more stocks, making the trend worse, for a while.
The 200 dma is just a number but because humans sit and stare at it on their screens, it becomes self fulfilling. I'm not a chartist, but pull up a chart of SPX daily since Jan 2019 and add a 200 DMA - you can see prices come down to hit it then bounce off. Humans in action! Or at least algo programmers. lol.
Regardless, I still think this will all come to pass eventually, and will be a buying opportunity.
My usual policy is to ride out the ups and downs of the market - worked fine for the brexit storms - but corona virus is fundamentally different. It looks to me like a high likelihood of becoming a world-wide pandemic, Aside from the impact in lives and health, the economic consequences could be serious and the impact on specific stocks hard to predict. Downside risk to me far outweighs the likelihood of a short-term recovery so I also have sold out this morning and will sit on the sidelines waiting for the new normal to appear before buying back in. I anticipate several months.
Hi Meldrew
There is a great line delivered by Jeremy Irons (one of my favourite actors) who says:
“If you're first out the door, that's not called panicking.”
So maybe you are the first out the door but though probably to late now you might want to read the following on cash:
Aswath Damadaran https://bit.ly/3a9c6iC
John Authers https://www.bloomberg.com/opinion/articles/2020-02-26/coronavirus-don-t-mistake-this-stocks-selloff-for-a-panic
Of dollars and data https://ofdollarsanddata.com/why-market-timing-can-be-so-appealing/ via John Rosier
Charlie Bilello https://compoundadvisors.com/2020/how-to-think-about-investing-cash-on-the-sidelines again via John Rosier
I am around 11% cash, 4.5% Physical Gold £PHAU, 22% Anglo Asian Mining (LON:AAZ) (which I consider a safety play but the market does not seem to agree) and finally 16% Rockrose Energy (LON:RRE) which again I consider a cash holding with an oil company thrown in for free.
Best wishes
Michael
I wrote my prior reply in rush (to get away from my screen and all the red!!) Should have said the line is from Margin Call towards the end.
I did the same last week. Sold a lot. Managed to do so just before the selling off really started.
60% cash
40% a selection of investment trusts, ones that keep a reserve in the good times to continue dividends in the bad times.