Small Cap Value Report (Thur 26 July 2018) - FB, BATS, FRAN, BON, ARW
Good morning!
I've been having a listen to the Facebook ($FB) earnings call this morning.
Mainstream media is talking about an imminent "bloodbath" in tech stocks, as the Facebook share price is set to fall c. 20% and the other FANG stocks (Amazon, Netflix, Google), and tech stocks in general, are set to drop back. Some hysterical language is being used (CNBC).
A 20% fall in the Facebook share price would indeed be huge in dollar terms, as the market cap was previously in excess of $600 billion.
I think It's still much too soon to announce the death of FANGs/tech, however. The Facebook share price will still be up compared to where it was a year ago.
If you look at the bare numbers, you see that Facebook's Q2 2018 revenues are up 42% compared to Q2 2017. The disappointment relates to the outlook, as the rest of the year is likely to see growth slowing down. But I don't see why long-term Facebook holders would be panicking.
Stocko algorithms like it very much, too. It will have a bit more value later today (although slightly less momentum, I guess)
As someone who is a net buyer rather than a net seller of stocks, it would suit me personally to see a big sell-off in the NASDAQ and for this to spread FUD (fear, uncertainty and doubt) to other stock markets. But I reckon it's still too soon to call the top.
Incidentally, If you're interested in US stocks, and maybe haven't traded them much before, it's important to familiarise yourself with the EDGAR company filing system at the SEC. The terminology of the system does take a little bit of getting used to. It's worth it, though. I have found that US company disclosures are very clear.
Right. onto some UK stocks, which is what you're all here for!
Today, I'm planning to look at:
- Franchise Brands (LON:FRAN) - half year results
- Bonmarche Holdings (LON:BON) - trading update
- Arrow Global (LON:ARW) - acquisition & trading update
- Kape Technologies (LON:KAPE) - trading update
In big-cap land,
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Disclaimer:
All my own views. I am not regulated by the FSA. No advice.
Facebook, Inc. is focused on building products that enable people to connect and share through mobile devices, personal computers and other surfaces. The Company's products include Facebook, Instagram, Messenger, WhatsApp and Oculus. Facebook enables people to connect, share, discover and communicate with each other on mobile devices and personal computers. Instagram enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends. Messenger allows communicating with people and businesses alike across a range of platforms and devices. WhatsApp Messenger is a messaging application that is used by people around the world and is available on a range of mobile platforms. Its Oculus virtual reality technology and content platform offers products that allow people to enter an interactive environment to play games, consume content and connect with others. more »
NSQ Price
British American Tobacco p.l.c. is a tobacco and next generation products company. The Company's tobacco product range includes cigarettes, fine cut (roll-your-own and make-your-own tobacco) and Swedish-style snus. Its segments include Asia-Pacific, Americas, Western Europe, and Eastern Europe, Middle East and Africa (EEMEA). The Asia-Pacific segment includes its operations in various countries, including Australia, Pakistan, Malaysia, Vietnam, Japan, South Korea, Indonesia, New Zealand and Bangladesh. The Americas segment includes its operations in various countries, including Brazil, Mexico, Canada, Colombia, Argentina, Chile and Venezuela. The Western Europe segment includes its operations in various countries, including Germany, Denmark, Switzerland, Belgium, France, the United Kingdom, Romania, Spain, Italy, Poland and Croatia/Balkans. The EEMEA segment includes its operations in various countries, including Russia, Ukraine, South Africa, Turkey, Egypt, Nigeria and Algeria. more »
LSE Price
Franchise Brands PLC is a multi-brand international franchisor. It has a network of over 450 franchisees in approximately 12 countries. Its brands include Metro Rod, ChipsAway, Ovenclean and Barking Mad. ChipsAway brand provides small to medium area repair technology repairs, such as bumper scuffs, paintwork scratches, minor dents and kerbed alloy wheels to the automotive industry. Ovenclean brand provides oven cleaning service to all domestic oven brands and models, including electric ovens, gas ovens, ranges, microwaves, hobs, extractor fans and also barbecues. Its Metro Rod is a specialty drain clearance and maintenance services provider. It offers high-pressure water jetting, drain or sewer lining, excavation, electro mechanical cleaning and fat and grease management. Metro Plumb offers a focused range of plumbing services mainly to the emergency insurance market. Barking Mad is a provider of dog home boarding services and pet care franchise, and also provides dog sitting service. more »
LSE Price
31 Comments on this Article show/hide all
In reply to post #385494
Hi Francis, not much for me to say on British American Tobacco (LON:BATS) except that I'm a happy holder. I've put a couple of sentences in the report. Wish I'd added more below £40 but oh well! G
In reply to post #385509
thanks for that doublelutz
I hadn't picked that up this morning, but you are quite right. good spot.
In reply to post #385559
I second the request for Kape Technologies (LON:KAPE), please
In reply to post #385574
Thanks Graham. I wish I'd added more too!
cheers
Francis
In reply to post #385559
Hi James, I'll try to fit Kape Technologies (LON:KAPE) in. Cheers. G
A late request for a look at the OMIP Half Year results. Thanks.
“Some hysterical language is being used (CNBC).”. Is there ever any other sort of language on CNBC? :-)
Thank you for the great reports over the past few weeks. Amazed at how you find the time!
I like FRAN Graham but it is one of those that will always to be too expensive to buy for me. Private Investors are big in it and I know at the Investors Conference last year it was tipped as one of the presenters stocks of the future. Perhaps a bit of bad news in this one would be good?
The fourth AI presentation has been published: Machine Translation by Mihai Vlad, VP, SDL (LON:SDL)
Great insight to the challenges and opportunities of translation through machine learning.
https://www.piworld.co.uk/2018/07/26/newgate-redleaf-ai-conference-sdl-neural-machine-translation-the-toughest-challenge-in-ai/
This is the fourth of seven presentations given at an AI conference given by Redleaf PR.
In reply to post #385464
Afternoon Mark,
Great suggestion there re: Arrow Global (LON:ARW). I'm intrigued, and you'll read in the report that I've now opened a small (tiny) long position in the shares. I'll have to dig a bit deeper to figure out just how risky it. It's extremely leveraged, but if it does a good job managing its own debts (and its customers' debts) then I can see there is potential for the equity to do really well. We shall see.
Cheers!
Graham
Final results from Goodwin (GWDN) are worth a read. This is a family run ( 6 Goodwins on a 9 person board ) business which has managed to broaden its foundry base both geographically and in terms of higher tech in house designed products . A lot of history in the Statement and a large increase in the annual dividend ( 97%) with a significant change in dividend policy going forward .
In reply to post #385649
re: Franchise Brands (LON:FRAN)
Which conference was that, Camtab?
In reply to post #385674
Thank you Graham for taking a look at Arrow Global (LON:ARW). I'm glad it has intrigued you too. I think I'm coming off the fence in favour but will keep the position size small for now and see how things develop. Hope it's been interesting to other readers too!
In reply to post #385689
Franchise Brands (LON:FRAN) is 27.9% owned by Nigel Wray. The Wray family owns the company that runs the UK Investor Show.
Just a quick note re £FB (Facebook).
I'm not a chartist, but see there was a drop from $185 to $152 (18% drop) between 16th and 27th March this year. Then a rise to last night close of $217 (43% up from $152 low).
Although the March drop wasn't as dramatic, %age and period (days as opposed to one day), I'm wondering if this is a temporary blip.
I've just seen LSE:2FB (Leverage Shares 2x Facebook ETC A) and wondered what this was all about - If anyone knows.
Sorry for posting about a Huge-cap during trading hours.
In reply to post #385674
I think it is worth calling out that Arrow Global (LON:ARW) activties are not just the servicing of the various portfolios it has acquired.
When you look at the balance sheet, according to the trading statement it has a portfolio of c£984m (spread across a number of jurisdictions but all converted back into sterling).
However, the last annual report states it actually services Euro 16.0bn of assets in the UK & Ireland, Euro 6.8bn in Portugal, Euro 5.0bn in Benelux and Euro 25.6bn in Italy. So collectively it services Euro c53.4bn of assets.
When you look at the employees, UK & Ireland has 626, Portugal 359, Benelux 402 and Italy just 77. Given that they are in the NPL market, pretty much all of their assets will either be in arrears or shortfall.
Employees per Euro bn of AUM by area:
UK & Ire: 0.26bn / employee
Portugal: 0.19bn / employee
Benelux: 0.12bn / employee
Italy: 3.32bn / employee
Clearly, the Italian debt is getting managed in a very different way to the rest of the debt. This may well be explained in the AR but I've not had the time to look
Noting my comment re limited time, what my next stop would be to understand the extent to which Arrow have actually invested in these portfolios (and therefore exposed to the performance of them) or whether they are just acting as servicer. Annoyingly, they don't provide a segmental analysis by region and nor do they spilt out revenue by type (i.e. loan collections which are due to them as opposed to servicing revenue where the cash collected is due to a 3rd party).
Under IFRS10, requirement to consolidate portfolios are based around the criteria of control - one of which relates to the ability of their own performance to generate variable return. The fact the majoirty of these loans are not consolidated suggests that they are servicer rather than beneficial title holder. This means the beneficial title holder could move servicing away either on contract expiration or because of poor performance.
However, I'd be inclined to say that NPLs will be quite sticky with the incumbent servicer - more so than prime books as invariably any migration results in downwards perfomance on collections.
I have no doubt they have opportunity to generate savings by integrating platforms from their acquisitions. However, given the regulatory frameworks differing within each country, I suspect opportunities in front line operations would be less able to gain efficiencies other than within the country itself. 4 or 5 servicing systems can't be particularly efficient but then I guess that is the price you pay (I don't think they will own the proprietary systems).
Anyhow, enough waffle from me.
Cheers,
0inK
Re. Arrow Global (LON:ARW)
I held for a long time, then sold 3 months ago after the Q1 results. The Q1 loss was disappointing but the way it was worse - lots of very positive headline numbers and a quarterly loss not mentioned until page 37482. The share price fall 3 months ago may have been triggered by Berenberg (?) starting coverage with a sell recommendation saying that £ARW’s sources of reallly cheap debt are drying up as a result of which debt is becoming more expensive and so margins are under pressure.
Arrow say that they have very efficient systems for tracking down old non-performing consumer debt and then arranging repayment plans that work for the debtor and (because they bought the debt at a 90% discount) for Arrow too.
The Arrow asset management business is a capital light version of the same business. Instead of buying the debt they use their systems to recover funds for the third parties who own the debt. I am not sure how the new acquisition would fit this model unless they already hold delinquent debt for chasing.
If I remember rightly, ARW are not particularly worried about recessions. I think they said that they survived the last recession quite well (before IPO when they were owned by RBS).
I hope that lot is useful to someone.
I would consider buying back in except that I am currently trying to sell down my holdings so that I have more cash for the next rainy day (or maybe more cash to buy some water bottles in this heatwave).
I have liked Arrow Global for a few years
However they came under a large shorting attack from a major US hedge fund recently.
I don't really have much interest in going against their analysis.Plus their short position will always be a drag on share price growth.
Graham, what do you make of the following research:
https://www.ft.com/content/88c486be-7491-11e8-b6ad-3823e4384287
I have always respected Jim Slaters views. The principles outlined in Zulu support purchase of SUS and ARW both of which are currently in my watch list.
In reply to post #387979
Both look all round OK but the Net Debt - Ouch!