Small Cap Value Report (Thur 12 July 2018) - ASC, PMP, INDV, DTG, POLR

12th Jul '18 by Graham Neary

40 comments 13607 reads

Good morning!

The World Cup dream is over for another four years as far as England is concerned. No shame in getting to the Semis, though.

Some stock market news on the radar today:

ASOS (LON:ASC) - trading statement
Portmeirion (LON:PMP) - trading update
Indivior (LON:INDV) - guidance below expectations
Dart (LON:DTG) - final results
Polar Capital Holdings (LON:POLR) - AuM update

ASOS (LON:ASC)

Share price: 6055p (-7%)
No. of shares: 83.6 million
Market cap: £5,062 million

Trading Statement

ASOS is far too big for this report. It has knock-on effects across fashion retail in general, so I keep half an eye on it.

It has a year-end in August. This update completes the picture to June.

Good:

Gross margin up 130bps, ahead of plan
Market share growth continuing

Bad:

FY 2018 sales set for the lower range of guidance (+25% to +30% growth)

Neutral:

FY 2018 PBT to be in line with consensus
Medium term guidance unchanged for +20% to +25% sales growth p.a., 4% EBIT margin.

It's a very low EBIT margin, whatever way you look at it.

That doesn't necessarily mean poor returns for shareholders. ASOS's return on capital has been very good:

So I don't automatically rule out a company with a weak operating margin. If it generates lots of sales relative to its asset base, it can still generate fine returns (the metric you need to check for this is asset turnover - it's on the StockReport).

The ASOS valuation remains at the adventurous end of the scale, however, and the share price is highly sensitive to changes in sentiment.

I can see forecasts for net income of £81 million in FY 2018, followed by £100 million in FY 2019 and £125 million in FY 2020.

I suspect that these forecasts require a strong showing relative to the planned 20%-25% p.a. sales growth. So if forced to choose either way, I would bet that the negative drift in EPS forecasts will continue through FY 2019 and FY 2020:

It's continued growth in market share looks inevitable, though.

Whereas before I might have shorted ASOS…

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Graham Neary

12th Jul '18

Thanks Gromley & Paul.... I'm sure plenty of lurking holders will appreciate your honest views on INDV! Cheers. G

ericb

They do seem to have some valid reasoning behind the issues, and again the future is bright. But i dont know these people well - is it a massive scam (again) or a genuine business ??

Mike Rawson

I'll send you a version with white.

barnetpeter

Wey Education....WEY interesting comments by them admitting their last rns was not as clear or positive as they intended. Bought some yesterday at 13 pence and it looks like this is now due a strong rally. A previous favourite here I know

Chipspa

barnetpeter, I can't find the WEY comments you have mentioned. Please could you post a link

schober

Re INDV ........... From over there ..
https://seekingalpha.com/article/4105968-indivior-fall-generic-suboxone-arrives
https://seekingalpha.com/article/4126314-indivior-vivitrol-threat-suboxone

Those fat margins were always under threat!
IMHO you can forget Suboxone the qu now is how much will Sublocade make? (& also rbp 7000)

JonBirdy

https://uk.advfn.com/cmn/fbb/thread.php3?id=41670031

Comments above on Wey Education (LON:WEY) Not even new news! I also bought some more yesterday to add to my existing holding so was somewhat (and pleasantly) surprised to see this big rally today on no announcement from the company.

JamesrWilson1989

One comment on a forum and suddenly the value of the business is an extra £3.6M // + 20% !?!?

"The decline we have seen in the Wey share price, which is hurtful to all the board of directors who are either shareholders or hold options, has not been one characterised by big moves. Instead, there has been consistent small selling of parcels of shares. None of these has been particularly large but as we all know, it only takes more sellers than buyers to drive a price down. I get the registrars reports regularly and the market makers are not sitting on large numbers of shares and so other shareholders are taking the opportunity to buy shares from those who lack patience at these attractive prices because the number of shares sold has to equal the number of shares bought"

That is surely insider trading?

Would rather the director focus on the business as opposed to looking in detail about the number of buys & sells in the market.

grishas

Thanks Gromley and Paul for your comments on INDV (I am one of those lurking holders).

To me, the unusual feature of this stock is that in the past it bounced back really quickly after each correction (it happened a few times in the last couple of years). This is different from an average stock behaviour after a profit warning which has been described in an excellent paper on profit warnings by Ed Croft. I don't really understand why this happened in the past - normally I would sell a stock on profit warning immediately, but such reaction would have been a mistake with INDV in the last couple of years.

Andrew L

Actually looking at it and with Polar Capital Holdings (LON:POLR) that means four out of the five stocks covered were over the £400m threshold. No problem with that I guess it just means that the threshold isn't that strict. I just ask as some people commenting here before about a stock have been told it can't be covered as it is over the £400m threshold.

Albertos

Think the difference this time is that the company itself no longer wishes to forecast its results.

Implies there is now considerable uncertainty as opposed to we will fight them on the beaches etc etc...

My view, DYOR NAI, is this is too difficult, too risky, a one product organisation which is under attack. This has featured in the NAPS but 15 mins research tells you quants don't tell the whole story - just look at the share price graph - its share price has be written-down by 100's m a few times.

Phil

Edit: Talking about INDV - not used to the new system.

LilliputTom

I am a holder of Indivior (LON:INDV) and agree with and appreciate the comments today.

Holding this stock is clearly a gamble, both on the outcome of litigation but also, I would suggest, on how America decides to tackle the opioid epidemic.

There is a much wider debate happening (an age old one, I suppose) over the merits of abstinence vs medication in the form of Subuxone and now new generics.

There was an excellent FT article on this in the magazine in June. I was surprised at how few of the rehabilitation centres in the US actually offer Subuxone or any form of medication (just one-third). Most favour abstinence....but they are now facing a new, unprecedented crisis.

Investing in this stock depends on how you think this will play out. There is a scenario whereby the medical profession and the evidence-base in support of Subuxone and Sublocade wins through and the drugs reach an ever wider group of people who need them. There is also a scenario whereby the existing pool of distributors and users of medication remains the same, but supply becomes split between many suppliers, each now making far lower profit - clearly that's what the market now expects.

In relation to the Dr Reddy's litigation, I note they will owe Indivior compensation for distributing during this 'at risk' period, if the litigation goes against them. It's so hard to say what the probability of this is.

I've ridden out previous falls, but as Ed points out, there is a big difference between external noise and the company withdrawing it's own guidance.

I'll be trying to decide whether to hold on for more detailed results on the 25th July, or sell before then.

***As others have been keen to note, please take my comments as an interested observed and holder, with no particular expertise in this area***

gus 1065

13th Jul '18

I’m not a holder of Indivior (LON:INDV) , but have watched closely for the past couple of years and been surprised how resilient it has been in coming back from a succession of regulatory setbacks.

The US judicial system, to a lay observer like me at least, seems anything but impartial (think comparative draconian treatment of BP (LON:BP.) over Deepwater Horizon to the US players involved, Foreign Banks vs. US banks over fines from sub-prime securities activity etc.) and it appears that the away team invariably gets the s***y end of the stick from the home umpire.

In a current Trump led environment of “America First”, a general hostility to pharma companies maintaining high drug prices and a massive opioid addiction epidemic, can we really expect a US court to find in favour of a small UK company trying to enforce patents that will increase the cost/reduce availability of available cheap generic alternatives provided by local US suppliers? Talk about swimming against the tide.

Gus.

handybrownone

Indivior (LON:INDV) - late to the debate but I used to work for the RB Pharma. They have done an amazing job keeping the generics from the film business for as long as they can. Reading between teh lines they are saying that although DRL were restrained they managed to ship a large amount of stock. I imagine several months of stock. The result of the preliminary injunction should be announced today. Even if positive the stock will have to sell through the system. I think its the end. If they fail in the PI it will probably trigger launch events in the settlements of the other companies like PAR. Therefore the only value is the brand new Sublocade product. Predicting peak sales from a few months sales is impossible. Also, a new approval is looming the 1m risperidone injection approval date is 28 July 2018 (not guaranteed). Peak sales are predicted only in 200-350m. I think they will sell this asset or license it. It requires a bigger US sales force.

At a MCAP of £2bn its cheap for a niche pharma company with all the assets it has. I always thought it is an easy take over. Perhaps once a couple more pipeline product develop further. I will be buying back in next week having been selling my entire holding steadily over the last few months.

danielbird193

Graham - if You Too Can Be A Stock Market Genius is one of your top three favourite investment books, what are the other two?!

mojomogoz

Hello handybrownone, what do you mean by "I think its the end"?

Reminiscences & Intelligent Investor.

MichaelFBS

I am amazed at the performance of Dart (LON:DTG)

I used to hold buying in 2013, doubling my relatively small holding in three years but sold a month after the referendum at 450p. A mistake but 2016 and 2017 were great years for me so I am not complaining, that said wished I had hung around.

But.... I am sorry to bring up the B word but the uncertainty surrounding airlines because of Brexit for me makes airlines uninvestable. Nothing has been agreed on airlines and currently only airlines majority owned by EU shareholders can fly point to point in Europe. I can see no incentive for the EU to do UK based airlines any favours, when they can favour their own airlines.

Note that you can not buy a ticket on EasyJet to run after 24th March next year.

As a final note I sold my very small leisure business 6 weeks ago because almost any form of Brexit will cause it to have to shut down, Of course I should add that the French buyer thinks otherwise. Only time will tell.

Gromley

15th Jul '18

Further news on Indivior (LON:INDV) , after hourse on Friday is was reported that they have been granted a Preliminary Injuction against DRL.

This replaces the Temporary Restraining Order that they had in place and continues to prevent DRL from shipping any more product until the patent litigation is concluded or until DRL on an appeal of the injunction.

In one sense this now puts "the clock" on the side of Indivior (LON:INDV) and that one might expect market conditions to return towards 'normal' during this period.

On the other hand it still seems quite high risk on a judgement that probably none of us are qualified to predict. In the event that Indvior ultimately prevail they would be due damages from DRL, but I also note that Indivior have been required to post security against the eventuality that either their patent is ruled invalid or not to have been infringed. So in the event DRL win damages may be due in the other direction.

I still think this is "too difficult" to assess, but expect that we'll see some degree of recovery in the share price on Monday.

16th Jul '18

Following on today's news from INDV (I am holding) - the share is up30% back to where it was before 11 July profit warning.

On 11 July they actually listed 3 things negatively affecting their revenues:
1) Dr Reddy (£25m hit on revenues)
2) Channel mix impact (£50m hit on revenues)
3) New product launch delays (£50m hit on revenues)

Now the 1st one was temporarily fixed, and the price is back to the same level as before the news. What about 2-3 - has the market just ignored them?! Or is it because there was another drop from the 500 level in mid-June following previous Dr Reddy news, so effectively the price has only recovered half of the value it's lost from the 500 level?

On balance, I think I should sell now before the 25-July release, while they are dealing with issue 2 and 3 in the short term, or have I missed something?

Thanks all,
Grisha

Small Cap Value Report (Thur 12 July 2018) - ASC, PMP, INDV, DTG, POLR

ASOS (LON:ASC)

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Graham Neary

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