Small Cap Value Report (Thur 19 Mar 2020) - KETL, DTG, ADBP, MARS, ESC, RTN

19th Mar '20 by Jack Brumby

101 comments 10704 reads

Good morning!

This is the placeholder, for your early comments.

Today we have:

Escape Hunt (LON:ESC)
Ab Dynamics (LON:ABDP)
Portmeirion (LON:PMP)
LoopUp (LON:LOOP)
Everyman Media (LON:EMAN)
Tclarke (LON:CTO)

Cheers

Jack

We are currently experiencing a barrage of Leisure updates as operators scramble to process the implications of a sustained lockdown and consequent financial aid packages. These updates are worth a dedicated report in themselves.

I haven’t had the time to properly process some of these updates but there could be some high risk / high reward opportunities. I do stress the “risk” part, though - there is the very real possibility of equity getting wiped out in these uncertain times, and we are still in the early stages. There were some huge share price moves yesterday - in both directions.

The companies going up were:

Cineworld (LON:CINE) +152% to 54p
Marston's (LON:MARS) +43% to 32p
Hollywood Bowl (LON:BOWL) +41% to 100p

Some companies going down included:

Carnival (LON:CCL) -34% to 620p
Revolution Bars (LON:RBG) -32% to 16.75p
£SSP -29% to 151p
Mitchells & Butlers (LON:MAB) -19% to 113p

There is still a lot of uncertainty hanging over pubs, bars and other leisure and retail outlets. Forecast earnings don’t count right now and the market doesn’t know how to value these shares.

At some point I would like to take a look at these companies, but there may not be time today as the RNS feed is already filling up. At present, I feel like there are two big plays in this market:

Quality, growing companies trading at a discount, and
Companies with bombed out shares that are priced to go bust but will ultimately survive.

What does everyone else think? The top option is much less risky. Most of Leisure now falls into the bottom. There are also a lot of “do nothing” investors out there who have picked companies they have conviction in and remain fully invested. If you can handle the volatility and are confident in the companies you own, that is a totally valid position to be taking.

I’d like to…

Unlock with Email

Unlock with Google

Already have an account?
Login here

679paul

19th Mar '20

It can be lonely at the best of times being an investor. At the moment I feel this board alone is worth the subscription…..

Rusty2

Is there some good news I don't know about?
I'm seeing in my portfolio, what's left of it, a bit of a bounce today, is anyone else seeing this, Ab Dynamics (LON:ABDP), Judges Scientific (LON:JDG) and Unilever (LON:ULVR) are a few that are well up, on my watchlists I'm also seeing many risers. There are a few clangers as well such as Begbies Traynor (LON:BEG), what happened there I don't know, thought they were a safe investment in this situation. Some big falls but then a bounce back such as Dart (LON:DTG), interesting times.

Mechanical Bull

I suggest reading William O Neills "How to make money in stocks". His argument is that there are specific technical factors which point to when the market bottom has been reached and is unlikely to drop lower. The main thing to look for is a move of at least 2% on higher volume in one of the major indices 4--7 days from the most recent low. The point s not to go in at the absolute bottom, but to go in once a trend has started. Upward volume is critical because this indicates the start of institutional buying, which will tend support stock prices. The FTSE hit a new low today - it is possible that this is is bottom but O'Neill would reset the clock and wait for thar rule to come into effect.

Like most people I am finding this market very difficult. However, being aware of these rules is really helpful isettling my nerves.

Interest point about volume, is this available on Stockopedia for indexes? If not where is a good place to find it. The FTSE was down today but is now up about 1% on the day. Oil prices are up also.
The US indexes are also up but is this more dead cat bounces?

TStubbs

I read an old post on a private bb for ex LIFFE traders, there was a post from Dec18 where a very experienced chart trader could see that the chart had just signalled that the market was going to turn bear in a huge move, they posted to get ideas on what could be the catalyst?

A market crash / change in direction is always going to be unpredictable on the timeline, but don’t underestimate the value of charting it gives you heads up there first. In this case just over a year warning.

MichaelFBS

Thank you Jack.

peterg

And I think many younger people would start squealing too when it affected their families - their parents or gparents dying

Wilbraham

Sorry. Although I can give some credit to support/resistance in the very near term (as it has some logic in terms of where trader psychology eg avoiding crystallising losses etc) it seems to me a real stretch to believe that levels of 5-6 years ago have any relevance to buy/sell decisions today. After all, how many current holders bought their stock in 2014 and haven't adjusted their holding up or down since? To my mind long-term S/R has no more relevance than all sorts of other TA indicators (200DMA, Fib levels...) - it may exist in a very weak form but only because a cohort of traders believes in it.

Not to mention the unquantified fuel hedging losses alluded to in DTG's recent statement. 2019 accounts I thought said they hedged up to 90% of their anticipated fuel for the year. Ouch!

Whether the needs of 99% of the population should be sacrificed against the loss of 1% of the population is a very difficult question.

That is a very misleading way of posing the question. True, most young people will not die as a result of Covid-19. But they, and the economy will be affected.

- Many of them will need hospital care. Letting the infection "let rip" will lead to many younger people not getting the care they will need, for Covid, or other issues.

- There are economic costs to that, staff off sick, health service costs .... Even with no restrictions many younger people will choose to stay off work, or avoid packed pubs rather than risk getting it, even if their chances of death are low.

- Most young people have familes, including older generations, or those with health issues who will be at risk. Losing them, or the risk of it, will not be appreciated by many of those young people.

Pretending this is not a very serious threat to both population and economy is not an option. The actions that have been taken, for example by China, and are beginning to be taken in most parts of Europe, are pretty much unavoidable. But what a good govt can do is the utmost to protect not only businesses and the economy, to allow as rapid a recovery as possible, but the welfare and livelihoods of the all workforce, including the self employed and those on zero hours contracts.

timarr

Why are the government inflicting this pain on the economic and social fabric of our country when the incremental death rate over and above that from seasonal flu and other health conditions is relatively low.

Well, the Imperial College estimate of deaths in an unmitigated scenario is over half a million. There is no plausible scenario in which NHS capacity can be scaled up to handle the level of admissions that would imply - the NHS currently has around 6,000 ventilators. There wouldn't be a family in Britain that wouldn't be affected.

So I doubt the government could survive if it allowed that to happen and in any case isn't it a hallmark of a civilised society that we protect the weak and the poor?

Although the fall in many stocks' share prices have been unpredictably precipitous investors need to look at themselves as much as at external factors. Of course, some losses are inevitable in these situations but were people taking on too much risk prior to the crash in the happy delusion that markets can go only one way?

20%, 30% or even 40% falls in markets are not uncommon and usually happen once a decade on average. Should we really be encouraging the government to let thousands of people die in order to save the economy and protect us from our own poor risk management?

The economy always waxes and wanes and the markets were, in patches, significantly overvalued before the crisis hit. Valuing an airline - even one as good as Dart (LON:DTG) - at over 20 times earnings is not sensible - the industry is subject to all sorts of exogenous factors and anyone with a grasp of market history knows that such companies never make good long term investments.

And yes, lots of very good companies have seen precipitous share price falls - but in many cases they are still trading way above 2008 levels and on earnings yields that are - to be polite - optimistic given the current outlook. Where not directly impacted by the pandemic many investors are holding on in the hope they will recover. And they may, if the crisis passes in 3 months, humans are nothing if not myopic. But they may not.

However, we need to look forward, not back. Regret is pointless and as the late but very great Phil Fisher said:

“With the possible exception of the 1960’s there has not been a single decade in which there was not some period of time when the prevailing view was that external influences were so great and so much beyond the control of individual corporate managements that even the wisest common stock investments were foolhardy … Yet every one of these periods created investment opportunities that seemed almost incredible with all the advantages of hindsight”

Stay safe everyone.

ACounsell

I agree just look what happened, albeit with a time delay, to holiday bookings in Tunisia (remember the beach atrocity) and Sharm el Sheik (remember the blowing up of a passenger plane). The average Joe to use your description will always want cheap holidays and the associated sunshine regardless of the real or perceived risks.

Yes I think you are right, especially if they have been in quarantine for a while. Even now it difficult to convince some people not to travel.

WarrantStar

I agree that Joe will want his holidays. But whether or not he will be able to afford them is another question. If he has no overtime, or no job or no business then he won't have any money for any holidays.

StockMaster quotes volumes on US indices but you'd need to dig into what it really means. Is it total volume traded of the index constituents? Price weighted? The figures are confusing so I expect I'm wrong: eg for today they're showing 262.78M for ^GSPC which is dwarfed by 795.80M for ^DJI which is a far narrower index, so that can't be right. They also don't quote a recent average volume. But whatever, all their charts show greatly hiked daily volumes recently. Obviously anyone with a data feed can knock up a program to calculate whatever volume figure suits them - and I'm sure all the investment banks will do so for their clients.

Other proxies might be ETF volumes from the big providers, or futures volumes from the relevant exchanges - I expect the latter may be more reliable. Like you, I expect trends in volume figures are more relevant, so long as you're using a consistent source.

aflash

As it turns out the intra-day volatility was such that the support level mentionned was met and the close was above the resistance I referred to. Where will it go from here?

On your general comment it is standard practice for Technical Analysts to look at prior price levels.

HumourMe

20th Mar '20

Interest point about volume, is this available on Stockopedia for indexes?

What I'd also like to see is the trend of the advance-decline line for each major market. Straightforward to calculate if you already have the information. Stocko already calculate this daily, so I'd have thought this easy to add. I've asked for this in the past, and it is probably sitting somewhere in the queue. In good times people care less about these things, but as a perma-bear my default is that 'Winter is coming' and I'm actually looking for contrary evidence.

rmillaree

I just need to know whether companies will survive or die. If the government is going to provide unlimited support does that remove the jeopardy?

From what perspective - shareholders current ownership of that business? or that buisness in general ? they are two completely different things - and i would say its only the latter that will have any help whatsoever.

I think the recent extreme share price reactions tell you everything you need to know - take Marstons Marston's (LON:MARS) as an example. Judging by shareprice decline - it's over a 50% expectation that shareholders will be diluted to close to oblivion. It's nil solice from a shareholders point of view if Martsons is still going in 12 months time with private equity or replacement equity taking all or 90% of the future upside. This is where strong balance sheets come in- 90% decline in shareprice then 10 for 1 rights issue then buisness back to where it was will destroy your initial investment almost to the same extent that would have happened had the company gone to the wall. I guess all Boris and most people care about is that Marstons are still in existence in 12 months time employing people - share owners knew the risk they were taking when they bought the shares. I hold shares in Marston's (LON:MARS) - doh. Like any recession the weakest will vanish completely.

Does a sale of the business become more likely?

I would say the forced passing of ownership from current owners to someone else with some deeper pockets or ability to strike a quick deal is highly likely to be commonplace.

It's all guesswork though as to where any of this will end up

john652

Volumes would be nice, intraday stock price charts would be great, ie the '1 day', essential but stocko dont provide them.....!!

Howard Marx

The daily US data for both NYSE & NASDAQ listed stocks is available for:

breadth (advancers vs decliners, advance volume vs decline volume)
leadership (new 52week Highs, new 52week Lows)

Historical data : http://unicorn.us.com/advdec/

Daily updates : https://www.wsj.com/market-data/stocks

Small Cap Value Report (Thur 19 Mar 2020) - KETL, DTG, ADBP, MARS, ESC, RTN

Unlock the rest of this article with a 14 day trial

About the Author

Jack Brumby

101 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...