Small Cap Value Report (Thurs 02 Dec 2021) - SOS, BLV, OMG, ULS, BBB
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Good morning! It's Jack & Roland here with the SCVR for Thursday.
Agenda -
Jack's section:
Sosandar (LON:SOS) - a quick catch up of results earlier in the week. Trading ahead of expectations and navigating current supply chain pressures well. There's a lot of growth priced into the valuation, but there's a big prize at the end of the road as the company approaches a profitability inflection point.
Belvoir (LON:BLV) - trading ahead of expectations, although the property sales market is expected to normalise next year. Long term growth prospects remain intact and the group pays a useful dividend, backed up by resilient lettings income. A good buy and hold candidate with a proven, steady, and relatively low risk growth strategy.
Bigblu Broadband (LON:BBB) - a period of change here, with the disposal of UK and EU operations followed by the sale of most of its stake in Quickline. Cash returned to shareholders and used to pay down debt. Australasia doing well, Nordic restructuring coming to an end. I’d like to see signs of profitability beyond the adjusted EBITDA level.
Roland's section:
Oxford Metrics (LON:OMG) - a strong set of figures showing a return to 2019 performance at this software business, whose results were hit by lockdowns last year. I like the technology and can see plenty of scope for growth. But I’m concerned by a lack of consistency and long-running losses in the Yotta division.
Uls Technology (LON:ULS) - this conveyancing technology firm appears to be making progress and has plenty of cash to support its growth rollout. However, the business remains loss-making. Success will depend on the quality of the group’s offering and the competitive landscape. Still quite speculative at this stage, in my view, although potentially quite reasonably priced.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.
We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).
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Jack's section
Sosandar (LON:SOS)
Share price: 33.5p (pre-open)
Shares in issue: 221,108,332
Market cap: £77m
A quick word on the Sosandar update earlier this week. This is a widely followed ecommerce stock that looks to have turned a corner over the past year or so. It probably listed a little too early and has since had to raise cash a couple of times from shareholders, but now it appears to be reaching that all-important inflection point.
What’s more, recent trading has been so strong that it’s possible current consensus forecasts are undercooked.
You’re now being asked to pay up for these growth prospects though. Sosandar’s market cap is currently more than £70m on forecast FY22 revenue of £24.4m (which will most likely be beaten), rising to £38.5m in FY23.
If it’s the real deal, then the prize at the end of the road could be a multi-billion pound market cap. Easy to say that, of course, and much harder to execute, but the team’s doing well at the minute.
Looking ahead, whilst we are cognisant of ongoing supply chain challenges, we continue to mitigate the impact and our long-term growth strategy remains unchanged. The Company is trading ahead of market expectations for the full year and we look forward to a successful second half and beyond.
Highlights:
- Revenue +184% to £12.2m,
- Gross profit +207% to £6.9m, gross margin up from 52.3% to 56.5%
- Net cash of £7.4m following a fundraise and significant investment in inventory ‘in order to meet growing demand from all customers including third parties’.
KPIs are improving: active customers up 41% to 191k, conversion rate up from 2.58% to 3.91%, average order frequency up 19% to 2.21x per annum, and average order values maintained at £86. Cost per acquisition is currently half that of pre-pandemic levels, which is encouraging.
The strong trading at third parties is probably the most notable development here. These are top tier names - Marks And Spencer (LON:MKS) , Next (LON:NXT) , and John Lewis. Sosandar’s products are selling well in all of them.
As intended, the funds raised through the equity placing in May 2021 have enabled us to further increase our ability to meet the proven and growing demand from our third-party partners. We began to accelerate the increase in inventory levels during September with autumn revenue stepping up substantially. We intend to continue with this strategy over the second half of the financial year.
The positive trajectory continues: revenue for 1 October to 29 November rose by 120% year-on-year, reflecting consecutive record months. EBITDA positive in both October and November, ‘demonstrating the group's trajectory towards annual profitability’.
Conclusion
Management has its eyes on the prize here:
We believe Sosandar is well on the road to becoming a substantial business and a sustained success.
There’s a lot of growth priced into the current valuation, so it’s all about where you think the company is headed. The growth rates are eye-catching but they have to be at these levels. In order to push the shares higher in the short term, I would speculate that Sosandar has to not only beat consensus forecasts, but also a couple of ‘whisper numbers’ likely doing the rounds that are factoring in further upgrades.
That matters less if you believe in the long term prospects, and I know a lot of private investors do, some of whom have been following this company and talking to management for years now.
Hopefully we are now beyond the days of equity dilution as growth accelerates and the group reaches EBITDA profitability. Shares can rerate further at such inflection points.
It looks like the StockRanks have recently reached a step change in their appraisal of the business.
Belvoir (LON:BLV)
Share price: 239p (pre-open)
Shares in issue: 37,292,113
Market cap: £89.1m
This is one of the UK’s largest franchised property groups, with six brands and a network of 439 offices. Belvoir focuses on residential lettings, property sales, and property-related financial services. The latter is a differentiator as the group has stolen a march on competition in this lucrative area and its Brook division is the largest appointed representative of the Mortgage Advice Bureau (holdings) (LON:MAB1) .
It’s a high quality business, with double digit ROCE and profit margins, good cash flows, and double digit five-year growth CAGRs.
Fortunes are tied to the property market to a degree, but residential lettings provide a more stable income base, and debt levels are manageable, so it’s resilient despite cyclical exposure.
The shares have been inching downwards recently, perhaps on fears that we are at something of a market peak. But these companies were not given much of a chance at the onset of lockdowns and they have since prospered, so I would not be too quick to dismiss the prospects.
Belvoir currently qualifies for the Neglected Firms screen, which is a surprise given its strong track record of profitable growth and dividends.
Trading update for the year to 31 December 2021
The Board is delighted to report that trading in the ten months to the end of October 2021 was ahead of management's expectations, with both of the Group's divisions, property and financial services, achieving year-on-year growth.
The property division achieved gross profit growth of 29% and accounts for 77% of group gross profit. Income from lettings was 21% up year-on-year resulting from ‘unprecedented demand for rental properties with rents increasing in all areas of the UK’, as well as the acquisition of Nicholas Humphreys (a student lettings network).
Meanwhile, income from sales was up 65%, mainly a result of the strongest market for property transactions seen since 2007.
The financial services division (18% of group gross profit) continued its strong growth with gross profit up by 39%.
Belvoir's network of mortgage advisers increased by 21% from 202 at the start of the year to 245 by the end of October, driven by both organic recruitment and the acquisition of Nottingham Mortgage Services, the mortgage arm of The Nottingham Building Society.
The Group remained focused on meeting the demand for house purchase mortgages for much of 2021, and now, given signs that interest rates might rise, are benefitting from a busy period for remortgages. The ability of our advisers to switch between different product sales and our substantial client base provide a very resilient and agile business model for our financial services division.
The group's operating activities continue to be highly cash generative underpinned by Belvoir's significant recurring lettings income stream. Net debt is down to £2.7m (31 December 2020: £3.7m) despite having deployed £4.0m of cash in March to acquire the Nicholas Humphreys network and £0.6m in July to acquire Nottingham Mortgage Services.
Outlook:
Current substantial pipelines of house sales and written mortgages support our end of year forecasts. Consequently, the Board expects that the performance for the full year, in terms of profit before tax, will be ahead of management's expectations for 2021 and substantially ahead of 2020.
Conclusion
A good long term hold candidate with solid growth and income prospects. There’s always the risk of a market crash, but these companies habitually maintain strong balance sheets and have resilient cash flows, so any serious decline in share price can be treated as an averaging down opportunity depending on your time horizon.
The past year has been an exceptionally strong sales market, due in part to the extension of the stamp duty holiday. This came to an end in September and so the market will likely normalise in 2022. Belvoir itself has ‘seen a predictable slowing in the number of new instructions’. But the fact remains this is a good company outperforming expectations, on a forecast PER of 14.7x (10.4x trailing twelve month free cash flow) and paying out a forecast dividend yield of 3.6%.
Forecast earnings per share are set to reduce slightly year-on-year.
Still, the valuation remains attractive in my view once you consider the group’s relatively low risk, established strategy and its potential to continue to grow Lettings and Financial Services-based income.
Bigblu Broadband (LON:BBB)
Share price: 72.5p (+4.77%)
Shares in issue: 58,326,120
Market cap: £42.3m
Speaking of inflection points, one is forecast for Bigblu, albeit profit growth beyond FY21 looks fairly muted.
This is a provider of alternative super-fast and ultra-fast broadband services. It looks like a frustrating hold so far for investors, though, who have had to fund revenue growth in these loss-making years.
The two StockRank upgrades so far in 2021 have been driven by improving Quality and Momentum scores.
On 10th June 2021 it disposed of Quickline (QCL) for £48.6m, a return of up to 5.8x the cost of the group’s investment over a three-year period, with capital returned to shareholders. This is a positive, which differentiates it from other serial loss-makers that often show a chronic desire to consume, not return, capital.
A fundamental responsibility of the Company is to deliver shareholder value, and, in this regard, the Board were delighted to return c.£25.9 million in cash to shareholders, equivalent to 45 pence per share, in October 2021. In addition, the Company was also able to use the cash received following the Disposal to repay its debt facilities in their entirety and secured a new RCF, with our lead banking partner Santander.
The focus now is on the group’s two international businesses: SkyMesh, an Australian satellite broadband provider that targets customers in rural areas outside of the fibre footprint; and its Nordic satellite and FWA broadband business that has been restructured. Bigblu retains a small stake in Quickline as well.
During the period, BBB delivered growth across all four of the Board's key metrics: customer base, revenue, EBITDA and free cash flow. As a result, the Directors remain confident in the future growth prospects of the business, and the Board will continue its focus on ensuring it can maximise the inherent value within the Company and deliver further shareholder returns.
- Customer base at end November was c60k (FY20 57.2k), with strong organic growth in customer numbers in Australia offset by ongoing pressure on customer numbers in the Nordics,
- Revenues increased by c 15% to c.£27m,
- Adjusted EBITDA improved by c10% to c.£4.5m,
- Net cash at 30 November 2021 of c.£5.0m
The group notes good growth ‘with significant opportunity to further accelerate customer numbers, revenue, EBITDA, and free cash flow’.
SkyMesh has become the clear market leader in Australia and has been named Best Satellite NBN Provider for three years in a row to 2021. The group has more than 50% of the market share of net new satellites.
Having assessed the opportunity in this region, we continue to believe that, whilst the organic growth remains highly impressive, this growth could be accelerated by certain partnerships or acquisitions in the wider Australasia region. As announced earlier in the year, SkyMesh has signed an agreement with Kacific to provide services into New Zealand and will sign its first customers before the end of 2021.
Bigblu has acquired the customers and assets of Clear Networks in Australia. The purchase price was AUS$ 2.4m (£1.3m) with an additional possible $0.5m earn out. Pro forma customers, revenue and adjusted EBITDA for Clear for the period to July 2021 were c2.2k, AUS$3.2m and AUS$0.5m respectively, so 0.75x sales and 4.8x EBITDA (excluding the earn out).
Bigblu Norge's infrastructure upgrade program has been completed and includes the demounting of the most unprofitable masts.
Bigblu has been focused on improving the identified infrastructure (approximately 55 towers) to now offers speeds of up to 100 Mbps. As part of this process the company demounted approximately 100 loss making sites and ended the period on c.9k customers.
The Nordic business has also recently entered into a distribution agreement with Telenor to provide next generation superfast broadband via wireless 5G and has successfully delivered its first customers in Norway on this service.
Conclusion
The Quickline disposal could be a good catalyst, providing an opportunity to both return £25.9m of cash to shareholders and pay down £8.4m of debt just as the group approaches consistent profitability. That said, free cash flow is so far not keeping pace, with ongoing high levels of capital expenditure.
That could mean the company is building something really substantial (if growth capex), or it could mean that its operations are just very costly to run (if maintenance capex). This is particularly relevant since Bigblu appears fond of reporting adjusted EBITDA. If maintenance capex is substantial then I’m not so sure we should be skipping past depreciation and amortisation.
This one requires more work into the actual business model and economics. I don’t have a view at present, but it sounds like the company has been through some serious changes over the past 18 months or so, selling its UK and Europe satellite operations first and then disposing of most of its stake in Quickline.
Skymesh looks like it has built up a good position in Australia, but the Scandinavian operations are being restructured. The former sounds like the more promising opportunity. Such scattered geographic markets is slightly puzzling, although operations have been simplified after the sale of its UK and EU operations.
I remain neutral for now as more time is needed to get to grips with the changing investment case, and the company has struggled to generate profits beyond its favoured ‘adjusted EBITDA’ measure, so I’m still unsure on the economics here.
Roland’s section
Oxford Metrics (LON:OMG)
Share price: 126p (pre-open)
Shares in issue: 127.0m
Market cap: £154m
“Positive outlook with both divisions experiencing a strong start in the new financial year”
Oxford Metrics has two divisions, Yotta and Vicon.
Vicon uses camera-based systems to capture human motion and integrate with the digital world. Customers include all 10 of the world’s largest gaming companies, movie studios and the healthcare sector.
Yotta provides infrastructure management systems - for example OMG software is said to manage around half the UK’s street lights.
Today’s results appear to be slightly ahead of consensus forecasts. They show improved profitability and substantial top-line growth compared to 2020, albeit adjusted profit is still lower than in 2019. Management commentary is bullish on the outlook for the year ahead, suggesting a return to growth in key markets.
This stock has been a multibagger over the last five years.
But on 43x 2022 forecast earnings, OMG shares are already priced for growth. That’s reflected in Stockopedia’s High Flyer designation, too. My goal here is to see if today’s results can justify expectations for further gains.
Financial highlights: Revenue from the entertainment sector was hit by lockdown last year but has recovered strongly. Today’s results cover the year to 30 September 2021. For a more meaningful comparison, I’ve compared these with 2019 results:
- Revenue: £35.6m (unchanged vs FY19)
- Annual recurring revenue: £7.4m (+20% vs FY19)
- Adjusted pre-tax profit: £4.8m (-12% vs FY19)
- Adjusted earnings per share: 3.59p (-9% vs FY19)
- Operating cashflow: £14.5m (+88% vs FY19)
- Net cash: £23m (+67% vs FY19)
I’m encouraged by the increase in recurring revenue, which I think has been driven by an increase in the use of Yotta software to help manage remote working environments.
This aside, trading levels seem to have returned broadly to levels seen in FY19. We now need to see a return to genuine growth.
Cashflow statement: I’m pleased to see that cash generation has remained strong. Although this was aided by some favourable working capital movements, I don’t see anything to be concerned about here. This is clearly a cash-generative business, something that’s apparent from the StockReport:
The increased dividend looks affordable to me.
Balance sheet: OMG’s net cash position equates to more than five years’ capex, based on last year’s cash outflows of £4.2m. The company’s cash reserves comfortably cover all of its near-term liabilities, so I don’t see anything to be concerned about here.
Profitability - a story of two halves? What interests me more is understanding the profitability of this business. I’ve some concerns here, as I’ll explain.
Starting at the top level, the quality metrics shown on the StockReport are acceptable but do not seem that exciting to me, for a growing software business:
One potential concern is that operating margins seems to have trended lower since 2015:
Today’s results show a group operating margin of 9.3% and return on capital employed (ROCE) of 9.1% - both are slightly ahead of the TTM figures. That’s consistent with improving trading in H2 FY21.
If I strip out goodwill and intangible assets (from acquisitions), then I get a return on capital employed of 14.1%. That’s an approximation of the ROCE that would have been generated if the company’s assets had all been developed in-house. It’s better, but still not that exciting for a tech business, in my view.
However, drilling down into the results reveals a big difference in scale and profitability between Vicon and Yotta. I think this may go some way to explain the group’s lacklustre profitability.
Vicon generated a pre-tax profit margin of 12.7% last year, or 24.6% on an adjusted basis. This division also accounted for around 75% of revenue.
Yotta has reported a pre-tax loss every year since at least 2018 (the earliest I checked). Even using the more favourable adjusted pre-tax profit figure, Yotta only generated a margin of 9.9% last year. Yotta’s revenue has also only grown by 10% since FY18.
My view: I agree with management’s view that the group’s technology is likely to have an ever-increasing range of applications. One example is the rapid growth in tele-healthcare during the pandemic. Another is the increasing prevalence of augmented reality applications.
The company says that while it lacks the scale to compete in all relevant markets, its strategy will be to place an increased focus on core markets, while broadening its reach by licensing its intellectual property to other organisations.
That makes sense to me and could drive steady growth in recurring revenues.
However, I’m concerned about the Yotta business. Revenue has only grown by 10% in four years and the division has been unprofitable throughout this period.
This performance is placing a drag on group profitability. I wonder if the Vicon business would be more valuable and faster-growing as a standalone operation.
I’d want to do more research to understand the pathway to profitability for Yotta if I was a shareholder.
My other concern is valuation. Broker forecasts suggest margins will improve over the next couple of years, driving double-digit earnings growth. Even so, I’d suggest this outlook is already baked into OMG’s valuation:
While I think this is an interesting business with significant potential, I feel the shares are probably up with events at the moment. For now, I intend to maintain a watching brief.
Uls Technology (LON:ULS)
Share price: 70.8p (-2.4% at 09:05)
Shares in issue: 64.9m
Market cap: £46m
This conveyancing software company is a new one for me. It has three main divisions. The main business is eConveyancer. This is a conveyancing comparison service that allows customers to get conveyancing quotations from ULS’s partner solicitors.
Alongside this, ULS runs DigitalMove, which is a digital platform for managing the conveyancing process. The group also has Legal Eye, a risk and compliance advice business.
The sale of the Conveyancing Alliance Limited (CAL) business for £26.4m last year has left ULS with plenty of cash, but no profits. The challenge for CEO Jesper With-Fogstrup, who joined at the start of 2021, is to return the group to growth and profitability by pursuing a digital strategy.
How is he doing? Today’s results suggest a mixed picture, in my view:
- Revenue: +48% to £10.2m
- Gross margin: 40% (H1 2020: 38.8%)
- Underlying pre-tax loss: £(1.5m) H1 2020: £(0.64m)
- Cash balance of £23.1m as of 30 September. No debt.
Cash flow: Cash burn during the first half of the year was just under £1m. At this rate, ULS should be able to operate for the foreseeable future without running out of cash. That’s good, as it means the company should be able to invest in growth without constantly having to dilute shareholders to stay in business.
e-Conveyancer: The sale of CAL has led ULS to refocus its efforts on e-Conveyancer, which is now the group’s main business. This service is typically used by mortgage brokers and lenders to find conveyancing deals for borrowers, although there’s also a B2C offering.
e-Conveyancer has seen a 10% increase in the number of active introducers using the platform over the last 12 months, resulting in 28,866 conveyancing instructions.
Since its launch in 2003, ULS says this service has helped 835k consumers buy, sell or refinance their home.
To put these numbers in context, ONS stats show that there were 674,263 property sales in England alone during the year to 31 March 2021. So e-Conveyancer still has a small share of the market, with plenty of room for growth.
Management is now focused on broadening the reach of this service, through both B2B and B2C channels.
DigitalMove: This is a newer service that provides a digital platform to track the conveyancing process. ULS says 90% of e-Conveyancer cases are now on DigitalMove, so the focus has turned to attracting a broader range of users. This is expected to improve margins.
One big hope is a pilot offer for estate agents. I can see this could be a growth opportunity, although I’d want to do some research into existing competition before extrapolating too far. I can imagine that Rightmove, among others, might be targeting this territory.
So far, ULS says that DigitalMove has handled 60,000 instructions, achieving significant time savings for customers.
Outlook: Mr With-Fogstrup’s outlook commentary includes a lot of bullish remarks about the UK housing market, but very little concrete guidance on the outlook for the business.
Although I agree that the macro environment has been and remains supportive, this won’t necessarily translate into growth for ULS.
My view: As a potential investor, I’d want to do more research to understand the quality of ULS’s technology and the competitive landscape.
For now, the group’s financial position looks bulletproof to me, giving management a clear runway to invest and deliver growth.
In terms of valuation, we don’t have much to go on here. Assuming a similar revenue growth rate during the second half of this year, then we could see full-year revenue of c.£25m. With £23m of cash on the balance sheet, the current market cap of £46m doesn’t seem too excessive by current market standards.
Only one broker forecast is shown on Stockopedia, suggesting revenue of £28m and adjusted earnings of 4.95p for FY22. However, this seems quite optimistic to me. I have a feeling that it’s an outdated forecast from before the CAL sale.
I’ve not been able to find an updated note for ULS on Research Tree (house broker is Numis).
On balance, I think there could be an interesting story at ULS. But I’d want to do more research before taking any position.
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51 comments
Lots of unknowns over future PGM demand, seems electrification is going faster than expected and there is also significant supply of PGMs from scrapped ICE vehicles. Big unknown is hydrogen fuel cell adoption which would lift platinum demand, but solid state batteries could make fuel cells unnecessary for all but HGVs
In Roland's section on Pendragon (LON:PDG) yesterday, I was a little surprised that he did not mention the possible future part which may be played by Hedin Group which is currently the largest shareholder at around 26%. The group has been a shareholder since 2019, and has built up this shareholding significantly since then.
Earlier this year the Hedin Group voted against the pay package of the CEO. Also Anders Hedin, company owner, has made a number of statements which may indicate a wish to play a more active part. One such this year was ‘Since Hedin Group first become a shareholder in January 2019, we have supported Pendragon in its mission to regain its position as the leading automotive retail business in the UK and we are pleased with the positive steps the company has taken this year.'
More recently, with the increased stake in Pendragon (LON:PDG), he said ‘We are supportive of the management and look forward to work constructively with the board to continue with Pendragon’s success, to the benefit all stakeholders., (though clearly was prepared to intervene in e.g. the CEO proposed pay deal).
I make reference to these points in the background of the recent offer for Marshall Motor Holdings (LON:MMH) at a substantial premium. Roland's analysis was presumably based on the ongoing value of the business. I raise these points because the Pendragon (LON:PDG) situation is perhaps potentially more dynamic than the analysis of the fundamentals would indicate. Perhaps Mr Hedin is thinking of the times when the SP was around 27p 3 years ago, or 32p 5 years ago.
In absolute deference to Roland, this contribution is based on surmise with some recent history ( Marshall Motor Holdings (LON:MMH) bid) and Hedin's large increase in shareholding. I am an absolute fan of Roland; I cannot fault his analysis yesterday in any way; if I were even 1/10 so successful in picking winners as he is I would be a much richer man. However, sometimes as a reader and contributor one can enjoy the freedom to add a bit of spice to the raw data.
I am a holder, of course.
Thanks to Mr. C. for pointing out that Gear 4 Music (LON:G4M) under the RNS heading "Completion of Acquisition of AV Distribution Ltd" had included a trading update. That it was in line with revised expectations was good given the wobbly at the interims just over 2 weeks ago when trading in Europe was reported to be slower than expected.
Just a general comment. I was out and about Christmas shopping in Glasgow yesterday and and for a week day the main shopping areas were pretty busy. Thought I would pay particular attention to a couple of favoured stocks of members so I visited the 2 main Ted Baker shops, not much stock compared to past years and not very busy at all, quite disappointing really, also ventured into the main Superdry store which was rammed full of stock but again not very busy.
On a more positive note TGI Fridays Hostmore (LON:MORE) ( I Hold) was very busy, queue at the door to get in and most of the restaurants in general pretty busy ( had to wait 10mins myself to get into Cranachan in Princes square for a bowl of Cullin Skink.) so latest variant not having to much effect on christmas lunches it would appear.
You can't beat a good Cullen Skink.
City Of London Investment (LON:CLIG) has anyone got any insight to why there is such a large volume of trades today? Whilst I cannot see what the trade is there has been at least one >£2m transaction in the last hour...
No news just wondering if one of the Tipsters has said something, or whether it is just a stop loss heaven having dropped below £5?
Cheers
Tommy
I hold
Hi re City Of London Investment (LON:CLIG): spread is always all over the place I would imagine that with the large trade/s and volume being way over the daily norm someone wanted out or to reduce a position and had to take a slight hair cut on the nomral ems bid price.
Terry Dickens - you must have been away yesterday:
https://www.stockopedia.com/co...
Clinigen (LON:CLIN) and the madness continues. A possible offer.
Have you ever had a surprise and spat your coffee out. That must have been what happened yesterday morning. The person writing the subject of the RNS suddenly found out there was a possible offer, spat their coffee out and mistyped the subject of the RNS missing out the word NOT.
I just saw an e-mail telling me that Interactive Investor is being acquired by abrdn.
No change to fees or ii branding and retaining separate regulated entities so no impact on FSCS protections.
For those interested in potential deep value*, an EGM has been called today by problematic special situation Dolphin Capital Investors (LON:DCI) today. I hold.
They are in essence, trying to realise EUR152m of property assets in Greece, Cyprus and Croatia. The current market cap is £37.5m. In terms of NAV, we're talking about deteriorating NAV of 14p versus SP of 4.15p - so there's some margin of safety there?
This has been a very long running saga. A lot can be gleaned from today's announcement (and the recent H1 results), so I won't bore everyone trying to sell the proposition, other than to say the proposals seem sensible and designed to further reduce costs (and thus arrest the NAV erosion), eliminate conflicts, and pursue the realisation more aggressively but without creating a forced seller narrative.
Needless to say this is for the super patient.
* if you believe the valuations!
Uls Technology (LON:ULS) For me is a special situations type opportunity where those researching now could see significant upside. The new CEO has indicated future revenues from DigitalMove platform has the potential to exceed current group revenues. Investor Meet Company presentation and Q&A was very insightful.
Agree that the upside is unproven but they have put together a strong team and the sector they operate in needs digital disruption. Entry now is more risky but also bigger upside if all goes to plan. You also have downside protection with significant cash pile, existing market share and a new platform and products just about to roll out and get commercialized.
ULS:LON (I hold) sits along side CNIC with the investment from Kestrel who have a hands on approach to both these companies as their biggest shareholder (about 100 purchases in the last 20 months!) for co founder Ollie Scott, now managing Kestrel partnership. Well supported by institutional holders too 72%.
Certainly its early days and the housing market appears to be running out of houses since the summer frenzy. I believe the current house transaction time is up to 5 months through the conventional system which is clearly ludicrous. Uls is looking to disrupt that and speed the process up as successive governments have failed to make improvements by making it a one stop service. That in itself doesn't necessarily make it a great investment but the 60,000 contracts in the first year or is it 6 months (?) looks like a very strong start. Not sure how the costs work out by comparison with conventional solicitor/broker/ mortgage costs but I think if its going to save money, time and most importantly save contracts from falling apart because of all the faffing about at the least it has to be much applauded
Where is Paul?
Did I miss Something?
He's away this week. Got Jack and Roland's expertise.
OK, thanks. I was getting worried, I must have missed it.
Seems to have been working every week this year so deserves a good break!
Good morning, Jack. Re your comments on D4t4 Solutions (LON:D4T4) yesterday, I was a little surprised your comments and conclusion were not made in the context of the board's decision earlier this year to forego profit in the next couple of years to invest heavily in their products and geographies.
At the time, they announced the launch of Celebrus Fraud Data Platform (FDP), opening up an
entirely new market opportunity for the Group, and now report a solid pipeline of
opportunities with new and existing customers, with many currently testing the
application.
As for their more standard range, they have just released an update with the release of new Celebrus CDP 9.4 incorporating functionality which they claim is unrivaled in the market. No doubt we will see whether the claim is fulfilled and valuable..
The SP at the time, and since, was and has been punished. However, I believe that a report on their performance could be better seen in the light of their ambitions. Whether they will be fulfilled is quite another matter!! Needless to say, I am a holder.
Thank you for your continued fine reporting, and quick response to separate queries when requested.
Electra Private Equity (LON:ELTA) updated second interim results this morning contains most of the information investors have been clamouring for. Obviously the company can't do much about the investors who need to sell shares. However the valuation split between Unbound and Hostmore (LON:MORE) at the demerger is laid out. Its pretty much as we have assumed. For Hostmore (LON:MORE) not much new info other than to reassure on trading and strategy and clearly bang the drum on valuation, which is to say a double discount has opened up since their demerger valuation already reflected the issues that have transpired.
For Unbound the issue of cash and non core assets is addressed and using a combination of table 1 and 2, Id say you have at least £12m. Longer term you have an outstanding insurance claim for business interruption which could yield the same.
Overall I would say the statement is helpful, particularly to Unbound. I own £MORE.
Electra Private Equity (LON:ELTA) although the Hostmore (Fridays) part has been getting a lot of attention in this board, I think the Unbound (Hotter Shoes) part of the demerger is looking very interesting indeed. According to today's update Unbound nav per share is 107p on a discounted basis, or 173p on an undiscounted basis (mainly relating to demerger risks which obviously no longer relevant). Therefore on a c60% discount to NAV, which itself seems to be conservatively calculated.
On an ev/ebitda basis looks even cheaper (under 4x by my calculation, with 8m cash). Importantly, Hotter Shoes reporting strong trading, with aspiration to grow its platform with new 3rd party brands, so this looks quite a decent business.
The big sell off (-45% this month) must have been driven by institutions who have no desire to hold such a small company, but this gives great opportunity for private investors in my view.
Finally, they mention existence of an insurance claim which could be worth up to 15m but which has no value on balance sheet. So this could be worth over half market cap and basically thrown in for free.
Electra Private Equity (LON:ELTA) cash is £8.2m & retains £4m of Hostmore shares but Hotter itself has £17.1m of debt (see 'Board Valuation'). So that's £4.9m net debt unless I've misunderstood.
Also a £2.2m property investment.
Sorry I was somewhat confused by adding the group cash to the nav calc. I’m sure it’s technically right but slightly disingenuous. Edison have just released a note with more nos to poor over - clearly a cheap share.
Re Electra Private Equity (LON:ELTA) -
The most important news in the unaudited results and commentary was that:
1. "In H1 FY22 (ending July 2021), Hotter generated EBITDA of £2.5 million from revenue of £25 million. Third quarter sales of £12.7m were up 9.2% on the prior year with gross margin improved from 56.2% to 65.8% (all on FRS basis)."
So business continues to trade well if not spectacularly (and the detail implies stores are still a loss-making but the digital is growing fast so on a mid term basis, more positive than the headline)
One thing I did note was that in the fair value estimate, the assumed EBITDA multiple used this year was 11.1 vs 8.6 year ago (Note 7). This is "an unobservable figure" and I guess last year sentiment was more negative as we were earlier in the Covid pandemic. However, worth noting this small shift adds (11.1/8.6 - 1 = ) + 29% to the valuation!
2. Hotter is said to be currently extending existing debt facilities "whilst at the same time reducing its gross debt from £17.1 million to £12.1 million". (This seems to be coming from cash held in the parent business so just part of arranging the wind up. ) So Hotter will have gross debt of +/- $12Mn at birth vs $5Mn EBITDA. I did not see an expected net debt figure.
3. Mgt will get 7.8% of company at launch as an incentive and it is unclear (to me) what the costs of launch are going to be - which surprised on the upside with Hostmore!
However, the report at Sept 21, saw the value of Hotter at 33.5Mn (including a 30% discount for being unlisted and listing risk ) and 59.4Mn. There is cash and assets but also listing fees to take care of. If these net off off, which looks about right plus we deduct the 7.8% of the company Mgt team will get on listing, then in Sept, Mgt "reasonably" valued the listed company at 59.4-5.1 = 54.3 Mn vs 24.5Mn today.
That quite a wide margin of safety if you believe the numbers and think the business is in a good position for the medium term based on supportive trends and decent financial position.
I was very reluctant to take part before the Hostmore demerger but I think Unbound looks a good prospect that is trapped into a poor moment to launch. Valuation of digital businesses has dropped, Covid is rising, some sellers are forced etc).
Biggest effect may thus be the big guns need to complete the wind up of the Trust and move on. (You often see the same when the big multi-nationals sell off small brands).
I now hold Elta (for Hotter/Unbound) and don't intend to look at them again seriously for at least 12months and a couple of accounting statements.
Sosandar (LON:SOS)
Perhaps the quickest route to profitability for Sosandar would be to make a cheeky all share offer for Hotter?
I'm sure your comment on Sosandar making a cheeky all share offer for Hotter (Electra Private Equity (LON:ELTA) ) was tongue in cheek - but based on these numbers, it would make a tasty snack for someone in the future.
Another SCVR favourite Saga (LON:SAGA) comes to mind! Hotter shoes from Saga anyone? or how about JDWilliams? I am doubtful it will be big enough to really create a really big 50+ platform much as I would like to believe but I think it will do enough to be attractive as an add-on to someone else if it active buyers in the age group are meaningful.
There's a bit of an update from Unbound Electra Private Equity (LON:ELTA) today that doesn't show up on the news feature on Stockopedia today. You can find it here though.
Has anyone made a stab at what pre or post tax profits look like at Electra Private Equity (LON:ELTA) ? (Unbound/Hotter Shoes). I've been meaning to have a stab at it to try and get a better sense of valuation against its current share price.
For Unbound £ELTA... you have about £15m EV for £5m EBITDA I think... so mega cheap. I "think" the register may take more sorting out since its such a small holding for old Electra Private Equity (LON:ELTA) holders that most institutions won't even do the work. Its too small. The move to Aim will only accentuate this. So the register needs completely rebuilding. For Hostmore (LON:MORE), I "assume" most investors were aware of what they owned, and aside of the mandates that can only hold Investment Trusts, will keep their shares. Thus this should be a quicker fix.
This RNS has given a lot of info people wanted. Indeed it does look cheap. I believe the EBITDA will be closer to £6m which will give even greater value at current price.
In a similar vein, and also noting that Stockopedia main commentators rarely if ever cover resource stocks, Tharisa (LON:THS) also reported results today. Revenue up 47% and operating profit up 104%. Dividend up 157% to US9c per share.
Tharissa results, which on the face of things are 'not too bad', were presaged in a trading statement a little over a week ago, following which the SP promptly nose-dived.
Tharissa's stock price has been pretty much bogged down for years relative to star (albeit highly volatile) comparators like £SLP. I do not understand but suspect Tharissa shares may well dive down again today. No rhyme or reason!
EDIT: PBT up 144% to US$ 76m.
I hold tharisa and think it's a good company, but there's a world wide abundance of platinum heading into 2022 and I think that could be the reason for the dives.
True ref. platinum but Tharisa (LON:THS) 's performance is mainly associated with Rhodium. The price of Rhodium has eased in 2021 associated with the fall in new car production due to chip shortages. But that will unwind over the coming months and rhodium demand for catalytic converter manufacture is likely to soar.
Besides, Tharisa is little different from Sylvania Platinum (LON:SLP) in this respect and Sylvania's price is still trending upwards, taking the longer view at least.
£THS I guess that’s the problem, electric cars don’t need CATs and the market is maybe looking way ahead. (That’s Rhodium’s main market isn’t it?)
I'd be surpised if the market was taking as long a view as that. Production levels of ICE vehicles are not going to fall all that quickly because there are huge parts of the world where the infrastrucure for EVs will not be in place for a very long time ... and where journey distances that vehicles need to be capable of between refuelling stops are significantly longer than in crowded countries like the UK.
Also emissions standards have been tightened in major vehicle markets (like China) which will increase the demand for rhodium in catalytic converters significantly over the next ten years or more.
It's an illusion to think that the shift towards EVs is going to extinguish or majorly reduce the demand for ICE vehicles in just a few years.
Re Tharisa (LON:THS) (I hold).
I agree but you don’t need that much of a shift in demand for ICEs to have a significant effect on the supply /demand imbalance for rhodium - where supply is largely fixed. My understanding is that 90% of rhodium is used for catalytical converters. The price of rhodium and palladium will one day collapse as production of ICEs decline. The next move though might be up, as the automakers boost production whenever the chip supply chain issues are resolved. Euro7 (and similar in China) is coming in in 2024, which will also add demand for rhodium.
Platinum, iridium and ruthenium seem to be the metals for the hydrogen economy. So Tharisa should benefit here - but how big an offset remains to be seen.
Long-term political risk in South Africa (and Zimbabwe going forward) is also an issue for the valuation. While Tharisa generated >20% FCF yield in FY21, most of this will get reinvested for long-term growth. My takeaway from this morning’s ImC presentation was to not expect any change to the c15% div pay-out policy or any share buy-backs.
I thought the IMC presentation useful, as holder already. They seem bullish about the Zim project. Along with the chrome beneficiation projects, there is more to Tharisa the company than the current price of rhodium at the Tharisa mine. I think the share price reflects the speculative nature of UK PIs with respect to mining. If you put forward a retailer with a 6% div now and a pathway to being 50-60% bigger in three years, I think the discussion would be very different. You can tell I was enthused this morning (!) and will look to buy more on any weakness. I'll take 6% + 15% p.a. I think UK plc faces as many disruptive threats as this company. Frankly, I think many tings are highly valued, mining is a dirty word, but its essential nature will come through in a year or two.
And by the way, I wasn't keen on hydrogen 10 years ago, but I see it coming now for various applications, and stainless steel will be needed for a number of power storage technologies that look to be maturing soon.
I don't have the figures to hand but I think you'll find that many of the major auto manufacturers have cut production by as much as 40%. Hence the current bull market in second hand cars!
Having watched the IMC presentation with Tharisa £THS I think many of the downside detractions mentioned here may be offset by the Vulcan beneficiation plant and the new operations in Zimbabwe especially if the option agreement that was mentioned in the presentation are signed off during December. It seems to me that they are trying hard to mitigate the macro elements that they cannot solve. I have not put this in a proper forecast you understand just a gut feel that this is too cheap
Happy holder after yesterdays dividend
What is Euro7?
I would guess its the next set of emissions standards for cars - Euro 6 being the current standard.
Re rhodium demand, 80% of demand indeed comes from vehicle catalytic converters.
The UK is planning a ban on the sale of new passenger vehicles powered by internal combustion engines by 2030. Canada & California are targeting 2035. Other regions of significant auto sales including the EU & China have yet to decide.
But with the share prices of Sylvania Platinum (LON:SLP) Jubilee Metals (LON:JLP) & Tharisa (LON:THS) all trading on FORWARD P/E's of less than 5x, share prices of all there are clearly ahead of events.
Sylvania Platinum (LON:SLP)
But with the share prices of Sylvania Platinum (LON:SLP)all trading on FORWARD P/E's of less than 5x,
I have been keeping an eye on this one - but at current spot prices is the expected PE less than 5?
They only made $8.4 mil net profit q1 so * 4 = $33.6 mill - thats ridiculously simplistic number but if market cap is £236 mill - thats nothing like p/e of 5 on most recent 3 months.
Ie is the danger that the market knows then p/e isnt really 5 its just that current expectations havent come into line with reduced current prices they can expect? - palldium and platinum seem to have continued the slide down with regard to spot prices. Note this share was below 50p as recently as last year - are volumes being extracted materially different from sub 50p levels? or is the massive spike up mosly aligned with "prior peak prices" that do not exist now?
I am fully awre of rock solid balnce sheet etc - i am just worried that the pe practicably speaking aint gonna be anything like 5 * comes year end whatever the stocky numbers are now.
Sylvania Platinum (LON:SLP) last results the net profit was $99.8m, say £75m. So the P/E was around 3.
This year forecast is $75m n. profit.
Sylvania Platinum (LON:SLP)
I am aware of the forecasts for this year and and the prior year booked figures figures - my undeducated point was that spot prices have dropped massively from the peak of last year - a reduction from $100 to $75 based on curent direction of spot prices looks optimistic ? thats just based on quick butchers for q1 which was a measley $8 mill and the general trend of spot prices - not saying they won't make $75 mill it just looks all rather sketchy. My calcs are so sketchy here you would like to think they should be ignored and we should default to current stocky numbers which preusmably tie in with current broker or company expectations?. Will be interesting to see how q2 comes out though based on current spot prices.
I just watched the Tharisa (LON:THS) presentation on InvestorMeetCompany - which was recorded.
Taking deals that have been done in the sector recently they estimate a $1bn asset value for the Tharisa mine vs the current ~$450m market cap for the whole business.
They were asked about and said they had discussed share buybacks but decided against, preferring to stick to their current strategy.
Anyone who says that they think they are 50% undervalued - a stratospheric sum, ludicrous really - but who doesn't want to put money behind that statement - should be treated with a pretty healthy dose of scepticism IMO
Jubilee Metals (LON:JLP) some excellent results relating to their period YE Jun21.
I know SCVR doesn't often report on mining companies, but Jubilee Metals (LON:JLP) are very similar company to Sylvania Platinum (LON:SLP) which is followed by many on here. I have been a follower (holder) of both for a couple of years and like them both very much.
It would make a nice trio were it pay a dividend as with Ariana Resources (LON:AAU) andAtalaya Mining (LON:ATYM) did this Fall.
In the same space Tharisa (LON:THS) also reported this morning
Jubilee are in a sweet spot right now. A lot of development work has been done and with copper production ramping up next year, growth is just about nailed on. Very happy to hold.
Platinum was trading at around $900 / oz in May as against $700 today. It's all about chips - when the auto industry once again has a reliable supply of semiconductors I think you'll see the price move. Sylvania (mostly geared to rhodium) has declined in recent months.