Small Cap Value Report (Thurs 17 Feb 2022) - BVC, CKT, UBG, IHC
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Good morning, it's Jack & Roland here with Thursday's SCVR.
Agenda
Jack's section:
Checkit (LON:CKT) - group revenue down, but annual recurring revenue is up by 43%. This transition will continue to weigh on results as the non-recurring side declines, but it could result in a fundamentally more valuable enterprise. It remains loss-making though, and forecast revenue growth appears modest, so I’m neutral for now.
Unbound (LON:UBG) - a positive update for Unbound given the valuation. The recent changes (this was Electra Private Equity) appear to have caused some shareholder churn which has driven the share price down. Trading is good, moving in the right direction, but FY profit before tax is a negligible c£0.2m. If management can execute on their medium term targets, then the stock looks cheap, although I’m waiting for more detail in the prelims.
Roland's section:
Batm Advanced Communications (LON:BVC) - this Israeli medical device and tech company has upgraded its 2021 guidance for the second time in six months. The commentary seems positive to me, but I’m struggling to get a clear picture about the outlook for 2022. More research may be needed to understand whether BATM will be able to hold onto its pandemic gains.
Inspiration Healthcare (LON:IHC) - medical equipment supplier Inspiration has upgraded its guidance for the year ended 31 January. I have a positive impression of this founder-led business. Although current broker forecasts suggest a cautious outlook for the next 18 months, my view is that this stock could reward patient investors.
Explanatory notes -
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Jack's section
Checkit (LON:CKT)
Share price: 46.98p (+6.77%)
Shares in issue: 108,008,562
Market cap: £50.7m
This is an intelligent operations platform for the ‘deskless worker’ - hospital workers, lab technicians, restaurant workers and more who together account for a good chunk of the workforce. Checkit digitises this data, which is otherwise spread around various physical file copies in multiple locations, and brings it under one digital roof. The result is an app for workers that leaves them better informed, with better visibility over and context of their tasks.
There are endless examples of existing businesses being disrupted by more agile digital-native competition with better access to real-time data, so I can see why there could be a demand for something like this.
Checkit CEO Kit Kyte says there could be around £560bn of business technology spend in the deskless worker space over the next 3-5 years. I take that figure with a pinch of salt, but it does highlight a potentially attractive opportunity.
Trading update for the year to 31 January 2022
- Total revenue -7% to £13.3m,
- Annual recurring revenue +31% to £6.8m,
- Non-recurring revenue -29% to £6.5m
Annual recurring revenue as of 31 January was up 43% to a better-than-expected £8.2m, with bookings growth of 95% giving confidence in delivering strong ARR growth ‘in FY23 and beyond’.
The lag in recurring revenue percentage growth compared to ARR reflects the acceleration in ARR of contracts signed during H2, so presumably ARR is the more ‘current’ picture. Recurring revenue accounted for 51% of total revenue in the year, but was 75% of total in the last three months. That sounds like good momentum.
Non-recurring revenue declined in line with management's expectations.
Cash at 31 Jan was £24.2m, up from £11.5m, thanks largely to £20m of net proceeds raised in a placing.
Diary date - preliminary results to be announced on 28 April 2022.
Conclusion
The stock is down by about a third from its highs back in June 2021. Given the £24.2m of net cash, it is cash rich.
It’s still loss-making though, with poor relative momentum, and forecast revenue growth is underwhelming.
The group does talk a good game - there’s a big addressable market, which remains underserved according to the CEO.
The shift to recurring revenue might cause a short term hit to profits, but it could also make for a more valuable enterprise in future. Assuming, that is, that Checkit’s solutions are in demand. So there could be an opportunity if you have confidence in the longer term SaaS prospects. In fairness, the growth in annual recurring revenue does sound encouraging.
I’m not sure if the short-term optics of this shift to recurring revenue are priced in though. The shares are up this morning, so perhaps they are, but I also suspect there is scope to disappoint at some point in this transition if one declines by more than the other rises.
In the meantime it remains loss-making.
I think I’d rather wait until the group is further along in this transition, at which point the demand for its recurring revenue services might be a little clearer. The StockRanks seem to agree that, statistically, based on the existing financial data, it might be better to hold off for now.
Unbound (LON:UBG)
Share price: 57.7p (+13.14%)
Shares in issue: 42,258,128
Market cap: £24.4m
Trading update for the year to 30 January 2022
Paul has covered this one extensively in the past, both Elta Private Equity and now the spun off Unbound. You can find his posts on the Discussions tab of the StockReport.
Unbound Group plc is the parent company for a group selling a range of brands focused on the 55+ demographic. Unbound Group will build on the solid foundation of Hotter Shoes, its current main business, to grow value through its curated, multi-brand retail platform supporting the active lifestyles of the 55+ demographic with a range of products and services.
Hotter Shoes, a digitally-led retailer of comfort shoes, has a growing database of 4.6m customers. Things seem to be going well here, and the group announces a partnership with Marks And Spencer (LON:MKS) to sell Hotter products on M&S’s Brands platform. Initially, Hotter will offer 32 products directly on M&S.com but this should increase to 75.
This follows agreements with other retailers including John Lewis, Next and The Very Group to sell Hotter products online as part of its digital-focused growth strategy.
That aside, trading for the year looks good. Q4 revenue is up 10% with a gross margin of 61%, despite supply chain challenges. That strikes me as a good gross margin, all things considered. The UK manufacturing facility provided a level of resilience here, and availability improved during Q4.
Revenues for the full year are significantly ahead of last year, up 16% to £51.9m and double-digit revenue growth across both digital and retail channels. This was helped by a 16% increase in average selling prices, suggesting all of the revenue growth is down to price increases and not volume growth.
The 63% gross margin is encouraging though, and the group’s database of email addresses is up 35%, from 767k to over one million.
EBITDA should be up from -£0.9m to around £5.5m and profit before tax will improve by c£6m to not less than £0.2m. Not much right now, so the company needs to grow. Net debt has also reduced by more than £6m to £8.5m.
Outlook
Management is confident in achieving the medium-term growth targets for both Hotter and Unbound as outlined on the Capital Markets Day in September 2021
Revisiting the capital markets doc, some of those targets are:
- Mid teen % annual growth in online UK direct to consumer
- Mid single digit % annual growth in offline UK D2C
- Double digit % annual growth in Hotter Digital Partnerships
- Mid teen EBIT margin over medium term
- Annual capex spend of £2.5m
From an Unbound Group perspective, strong progress has been made in developing the new multi-brand ecommerce platform with a launch planned for this summer.
Conclusion
This does look quite good at these levels, but the shares only look cheap if management can hit medium term targets. The forecast rolling PER is pushed up by negligible profits in FY22, but FY23 forecast is for 3.8p of normalised EPS, which would make a PER of 13.3x.
The historical financial data is clearly distorted by the group’s changing structure. What’s more important is that Unbound is well financed and growing. It’s not hugely exciting growth, but then again the valuation is undemanding.
It looks like sellers have pushed the share price down. That shareholder churn could be presenting us with an opportunity.
This is a £22m company generating more than £50m in annual revenue and targeting a mid-teen (let’s say 15%) EBIT margin. Even assuming no revenue growth, that would be £7.8m of annual operating profit and earnings per share of around 14.7p in the medium term.
It looks like it’s potentially the wrong price to me, execution risk aside. If you attach even a 10x earnings multiple to the medium target (my own, not company management, but it’s worth noting Edison has 8.3p pencilled in for FY24E), then that would imply a target price of 147p. As things stand, the company is barely profitable this year, so a lot does come down to execution in the years ahead.
It’s still early days for Unbound and there’s a lot to prove, but the current valuation seems undemanding so it’s worth doing some more digging here I think. I’m not familiar with the management team, and more of a track record would be good, but there are enough positives to make it interesting.
Unbound remains a Highly Speculative micro cap with a 606bps spread on the shares, so that’s also something to consider. The share price could move quite quickly in either direction.
I can’t see a date for the preliminary results, but they should be out in the next month or two.
Roland’s section
Batm Advanced Communications (LON:BVC)
Share price: 49.3p (pre-open)
Shares in issue: 440.5m
Market cap: £217m
Trading update & notice of results
“Full year revenue and EBITDA for 2021 slightly ahead of market expectations”
Diary date: Full-year results due on 28 February
This Israeli tech company specialises in networking and cyber security solutions and medical laboratory products and services. The shares have traded on the London market since 1996. There have been some peaks and troughs along the way, so good timing has been required to make money from this stock:
The surge higher in 2020 reflected the investor rush for companies with exposure to Covid-19. Revenue from BATM’s medical division doubled to $129m in 2020 due to a surge in sales of Covid-19 test kits and critical care ventilators.
This strong performance continued into 2021, offset by weaker revenues from networking following the sale of one operating subsidiary in this division.
Today’s FY21 update does not mention Covid-19 specifically, but does refer to “significant growth in the Group’s Diagnostics units of the Bio-Medical division”.
Trading update: Today’s update guides for revenue and EBITDA to be ahead of market forecasts for 2021. This is the second upgrade in six months, as BATM also raised expectations alongside its interim results in August last year.
BATM seems to have achieved significant improvements in profitability in 2021, offsetting lower revenues. Here’s a snapshot from the half-year results:
Although revenue is expected to have fallen back towards pre-pandemic levels in 2021, earnings are expected to be higher than in 2020:
BATM’s medical division appears to have continued to drive strong results in 2021. However, I’m a little unsure how to interpret the guidance for 2022.
Outlook for 2022: Today’s update comes across as bullish to me. Management report “a substantially higher backlog from operations than at the same point last year”. Strong momentum from 2021 is said to have continued. 2022 is expected to see “significant growth in line with market expectations”.
What’s puzzling me is that as we can see from the graphic above, broker forecasts suggest that while BATM’s revenue will rise in 2022, its earnings will fall. I’m not sure how this squares with today’s guidance for growth in 2022.
More detailed broker forecasts I’ve seen elsewhere support this view, suggesting that both EBITDA and earnings could fall by 35%-40% in 2022, versus 2021.
My view: Ahead of today’s open, I estimate that BATM shares are priced at around 20 times 2021 forecast earnings, after factoring in a modest upgrade.
However, lower earnings forecasts for 2022 suggest the stock’s P/E multiple for this year could be close to 40x – perhaps too high, in my view.
BATM’s business has evolved significantly over the last two years.
- Medical growth has been strong due to Covid-19, but how much of this will persist beyond the pandemic? I’m not sure.
- The networking business suffered in 2020, which the company blamed on travel restrictions affecting sales. There’s been further change in 2021, with the sale of the NGSoft business. However, underlying performance excluding NGSoft appears to have weakened during the first half of last year.
I’d need to understand more about 2021 performance and the outlook for 2022 before I could take a view on this stock.
BATM’s 2021 results are due on 28 February. I hope to circle back then and take another look.
Inspiration Healthcare (LON:IHC)
Share price: 102p (+5% at 09.20)
Shares in issue: 68.1m
Market cap: £69.7m
Trading update and notice of results
“The group is expecting to exceed market expectations for the financial year ended 31 January 2022”
Diary date: Full-year results on 4 May.
Inspiration Healthcare is a founder-led medical technology group that sells neonatal intensive care and operating theatre equipment around the world, through a network of distributors into over 75 countries.
The group’s products include a range of own-branded products used for respiratory management and thermoregulation (such as patient warming for newborns). Inspiration is also a distributor itself in the UK and Ireland, supplying solutions to support surgical procedures and infusion therapies.
Trading update: Helpfully, Inspiration’s board has provided updated numbers today, so we can compare these to existing forecasts.
- Revenue for the year to 31 January 2022 is now expected to be £41m, up 10.9% on FY21.
- Adjusted EBITDA is expected to be “not less than £6.2m”, an increase of 10.5% on last year
- Operating profit “is similarly ahead of expectations”
Looking at the Stockopedia broker consensus, this revenue guidance only appears to be marginally ahead of the existing consensus figure of £40.6m.
However, today’s guidance for adjusted EBITDA of at least £6.2m is significantly ahead of the £5.6m forecast by house broker Cenkos in October (available on Research Tree). So I think this could be a meaningful upgrade to forecasts.
2022/23 outlook: No financial guidance has been provided for the FY23 year today. However, chief executive Neil Campbell says “demand for our products remains high around the world and we enter our new financial year with confidence”.
Mr Campbell also confirms that Inspiration’s new manufacturing, tech support and R&D facility in Croydon is on schedule to become operational in April. This will bring many of the group’s operations together under one roof.
Continuing momentum? Inspiration’s revenue growth took a step higher in 2020/21, after several years of more modest growth:
Broker forecasts now suggest a further pause, although today’s upgrade suggests to me there may be room for optimism here.
It’s worth unpicking the FY21 gains to understand what’s changed in the business. One element of last year’s growth came from £7.3m of one-off Covid-19 revenues.
A more significant increase came from the acquisition of neo-natal ventilator manufacturer SLE Ltd for £18m in July 2020. SLE generated £16.1m of sales and a pre-tax profit of £1.5m in 2019. Its addition effectively doubled the size of Insipration’s business:
The SLE acquisition was funded by a placing, resulting in some dilution:
However, this strategy protected the balance sheet, which continues to show a net cash position:
The question now is whether Inspiration can deliver a return to growth, without the one-off benefits of Covid-19 sales or a big acquisition. Earnings growth has been inconsistent in the past, although the medium-term trend has been upwards:
Broker forecasts for the next couple of years seem to suggest caution. I’d guess this may reflect the impact of the loss of Covid-19 revenue, coupled with limited visibility on future growth.
Stockopedia’s algorithms are also taking a cautious approach. The stock is labelled as a Falling Star and has a very mixed set of factor scores – although note the high QualityRank.
My view: Inspiration’s share price performance over the last year has certainly not been inspiring. However,my feeling is that this may reflects the distortion caused by Covid-19 rather than any weakness in the company’s execution.
I think this may be a situation where shareholders have to decide whether they trust the long-term vision and execution of management. In this case, I think Inspiration probably deserves the benefit of the doubt.
If we dig into the 10–year accounts tab on the StockReport, we can see that turnover has risen from £1.7m to £37m over the last 10 years. Inspiration has reported an after-tax profit each year since its 2015 flotation on AIM.
I’m also attracted to the group’s steadily improving profitability and strong balance sheet (hence the high QualityRank):
Founder-CEO Mr Campbell has been with the business since 2003. He reversed the business into AIM stock Inditherm in June 2015 and still has a 6.5% shareholding today. I felt that Mr Campbell came across well, when I saw him at a ShareSoc presentation a few years ago.
Although acquisitions have helped to boost growth, my impression is that they’ve been well targeted and aimed at strengthening Inspiration’s presence in its core markets, rather than expanding indiscriminately.
Admittedly, the shares don’t look obviously cheap at current levels:
I can see some downside risk here if FY22 and FY23 performance disappoints. However, if I held the shares today, I would certainly continue to do so. My feeling is that this business could benefit from a return to normal conditions after the pandemic.
I’ll be interested to see the group’s full-year figures in May, but for now I have a broadly positive view.
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60 comments
Just a quick reminder to all readers in the South that we’re expecting to be hit by 80mph winds tomorrow morning. If you haven’t done so already secure anything in the garden that you don’t want turning into a missile.
Any thoughts on what companies will benefit from the storm? Obviously DIY stores should do a roaring trade in fence panels. Anyone know of large scale generator rental companies as I suspect there is going to be a lot of power outages in rural areas.
I you want a reminder about a great storm don't forget that of 15th/16th October 1987!!
Try following some ambulances ? Just a thought .
Zytronic (LON:ZYT) announcing a firm start to their share buyback, up to 15% of shares outstanding. Impressive. Authority granted last March 2021 AGM, so looks like they waited till the last minute before the authority expires (before this year's AGM, 3 Mar 22) to deploy their cash. But it also implies that their recent trading is doing good. Further authority sought at this year's AGM to extend the buyback till the end of Mar23, so one year.
What irks me is that they did the announcement at 4:10pm. Could they not have waited till after markets closed, or tomorrow morning? The only people that benefitted from a 4:10pm announcement were MMs and day traders, and you can see from the price action today that the prices spiked to close up 10% higher. This was not information that could not have waited an extra 20 minutes to announce.
(I hold)
Moneysupermarket.com (LON:MONY) (I hold)
I was wondering whether anyone here had an opinion on this one.
I previously held a small holding and have subsequently topped up twice this week, including today after the results announcement.
As you can see I like it a lot.
Even though I like the numbers as they are now:
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In the meantime cash generation after capex in 2021 was c£70m (or £78m if excluding 2020 deferred VAT payment.)
The current market cap is c£1b.
Operating Profit for 2021 was a 'low' £73m, with competitors in the past selling at x20/x25 OP multiples (confused.com/gocompare respectively both sold at these multiples in the last 12 months)
= £1.4b-£1.8b valuation at 2021 OP levels for Moneysupermarket.com (LON:MONY) .
Based on today's guidance I am expecting Operating Profits of c£88m in 2022.
I should also add that I'm a big fan of companies naturally ranking high in web search results. These are enviable positions to be in and it's often hard to dislodge them.
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So by all metrics, the valuation seems too low and I'm not sure what I'm missing. Perhaps I'm missing nothing and I just need to wait until the share price realises that it should be higher.
In the meantime there is a c.6% yield , which looks safe given the high levels of cash generation.
Any thoughts would be appreciated.
Cheers
A
Just on the Energy Comparison revenues at £MONY
My view is that FY22 will see lower revenues than FY21. The assumption I have is that up until Aug21, energy revenues were probably "normal". Then we saw a steep drop-off from Sep21 to Dec21, due to the spiralling cost of energy above the price cap.
We will see zero/minimal revenues from Jan22 to Apr22, as already guided by the company. The price cap goes up in Apr22, but not enough IMO to cover the true cost of energy. So there won't be any cheaper fixed or floating deals for customers to switch to. So my assumption is still zero revenues from Apr22 to Oct22. The price cap then goes up again then. I have no idea whether it will catch up to real market prices by then. Or if/when market prices plummet this year.
Anyways, my view is that I am expecting Energy Revenues to be lower YoY in FY22 vs FY21.
Insurance should be stable, seeing how they make positive noises of the regulatory changes in Jan22 not having a massive impact... yet.
Travel revenues should recover this year, but its been a slow start so far in Jan and Feb.
All in all, I haven't done my detailed analysis yet (going to this weekend), but my gut feel right now from a skim of the results is that FY22 results won't be materially higher than FY21 (like-for-like without Quidco, of course higher with Quidco).
How much to pay? I would argue its ex-high-growth at the moment, but probably a single digit revenue growth yearly going ahead, and I'd only be willing to pay a PE of 10-15x for this, given a big risk/dependency on Google search that is out of the company's control.
Moneysupermarket.com (LON:MONY)
Hi Boon
The company has already guided zero Energy revenues in 2022. I personally am assuming zero Energy revenues in 2022 and 2023.
It's worth adding that Broadband switching revenues were £25.3m in 2021.
I think this was a fairly new revenue stream for the group as in Q4 2020 revenue here was only £3.1m
On the topic of new Revenue Streams, there was one comment in the Presentation today on MoneySavingExpert starting a Car Insurance comparison services from this year. I think this will generate decent additional revenues in the future.
Fingers crossed.
I've actually assumed most revenue streams are stable in 2022, with travel understandibly making the largest recovery (but still well below pre-covid levels.)
I have also added £60m to account for a full 12 months of Quidco revenues (vs 2 months in 2021), which seems reasonable.
To be honest, even if my £88m FY22 Operating Profit is too high, I'd be completely comfortable with the £73m OP in 2021 repeating itself - the share price would still seem cheap, as I explained in my previous post.
Well I hope so anyway.
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Onto your point about Moneysupermarket.com (LON:MONY) being ex-growth, I think one thing to add is that they generate enough cash each year (£100m pa pre-covid; £70m pa now) that they can simply buy their growth. As they have done with Quidco.
Also, as I mentioned with the Broadband switching revenue above, I'm a firm believer that these sorts of companies are so dominant that they will always find ways to optimise and grow.
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That's an interesting point on being at risk of Google's algorithm changes. I listened to the recent Pinterest call and was surprised to hear that they had lost web traffic in November for exactly the same reason. And Pinterest is obviously a big online player.
But you're right this would always be a risk. Although presumably the company is doing everything above the board - unlike, for example, Xlmedia (LON:XLM) who were blatantly being naughty funnelling traffic between their different websites many year ago and eventually got caught out - and presumably any changes would hit all the comparison websites.
On your PE multiple, I'd probably agree with you, if it wasn't for the gocompare and comparethemarket takeovers last year, which sold for much more.
Anyway, thanks for sharing your thoughts. It's always good to hear more bearish comments - I do have a tendency to get carried away with the positives every now and then,
Cheers
A
Sorry, for Unbound (LON:UBG) iS the valuation of 165p by Edison.
Edison have just released broker update giving a DCF valuation of 165p.
Re Unbound
This has been taken from page 20 of recent interims for Elta, I remember when this was voted on in 2019!
Share Premium
The Company cancelled its share premium account and share redemption reserve in July 2020, increasing the distributable reserves by £157.8 million, to facilitate the distribution of the Company’s targeted returns to shareholders. Issuance of the 690,566 ordinary shares at 530.0p each in settlement for vesting of the SoVP in May 2021 has created a further £3.5 million in the share premium account.
I see NAS has announced today that it has, through a related entity, entered into a contract to purchase 13.2% of John Menzies (LON:MNZS) (I hold) at 605p and that this price would be the minimum if it were to takeover. Does anyone have any thoughts as to where this may be headed?
Delighted to see - the ONLY share in my portfolio that has had a cracking 2022! :)
Champagne tonight
That's already more than I was expecting them to bid for John Menzies (LON:MNZS), so I'm happier than I was. If the bid goes through it has to be at least 605p by the rules - I'm guessing 625p would do it?
Anything over £6 a share would be great but yes I reckon around £6.25-£6.50 would do it. I bought only £5k's worth in July-21 at £3.15 but I'll take an 85%+ return in 6 months any day of the week.
BoD defence slides imply that management think it's worth £9.61 per share. Obviously, there's a strong chance that that number is just for public consumption and they would be happy to accept a (much?) lower offer. But NAS have played their hand now, this isn't the type of business that's easy to build organically, previous deals in this space have been at an EV/EBITDA of over 10x and those have been to PE who clearly are more likely to pay less than a trade buyer and there's still plenty of time for another bidder to appear. Profits, particularly in the short-haul business in the US are set to grow strongly. If the BoD's 'forecast' of EBITDA of £101.7m is out by even £10m and using a multiple of only 10x EBITDA still implies a price of £8.40. Perhaps a price of £7.50 might persuade the BoD?
interesting article in the FT today (rare for them to engage with UK midcaps, but I suppose it's because the predator is a Kuwaiti co ;-) ), which suggests there is not a raft of other potential suitors. I know that Cockney Rebel, for one, believes that Swissport, for example, would be interested in a stab at this.
I did wonder if they were acquiring MNZS shares while they can in order to strengthen their position in the event of a different bidder emerging? That would be nice. The likes of Swissport must be at least considering their position.
This is further evidence of the LSE valuing companies at pathetic valuations. That a trade bidder is willing to pay 605p per share for 13% of the company when it has been unable to break through the 330p area for months tells you all you need to know.
The recent correction has brought the FTSE all share and AIM all share back to Jan 2018 levels while the NASDAQ composite is double that level and the S&P 1500 is up 59% over the same time period.
Lots of discussion elsewhere about Henry Boot. Recent analysis has identified some of the extreme undervaluation concerned, but despite my making the point to the publication concerned again and again, the key point still seems to be missed. i.e. Boot is very attractively priced relative to its book value. Boot has over 90k plots, remarkable for a business worth only c£400m, even more remarkable for a business that only generates just over half its profits from the land development business. But wait, it gets better. Over 90k plots is a land bank similar in size to Persimmon, so how is the book value so low? Answer: because most of the plots are planning promotional agreements, i.e. Boot don't own the plots, not on the books as assets you see. The returns for the planning promo agreements are pretty good, i.e. Boot gets paid a generous cost coverage and then also takes 15% to 20% of the final sale value for the plot.
So putting it all together, the majority of Boot's forward profits will come from planning promo agreements, which do not sit on the balance sheet as an owned land holding would do so. Of course they don't, otherwise Boot's book value would be well over £1bn, i.e. three times its current MCap. i.e. Boot is grossly under priced. I have yet to find a publication writing about Boot that seems to be able to grasp this point about the book value and the planning promo agreements. Nothing complicated about it really, most of the info is in Boot's reports, the gaps were filled in by the helpful FD. He did concede however that trying to explain these points in the annual reports did tend to create a world of confusion among readers, I hope that I have not done the same, I really don't see how I can have.
Henry Boot (LON:BOOT)
I am firmly with you here regarding the hidden gems that boot has - i am a holder myself , i guess the market glosses over that due to it being constuction (rcession big contracts going wrong) and there being no obvious "quick outer"
The market might be right here - if the true profits they deliver over the next 10 years only grow 3% a year and they have the same solid hidden assets in 10 years the i would expect shareprice growth to be modest over the next 10 years. Having said that its a nice company to have tucked away in ones portfolio as the value may out at some stage - bid - company pointing out to market teh "latent value" - the latent value itslef resulting in profit windfall. So i would agree you are 100% correct and the market is probably irrational for ignoring you with the one caveat that they will still need real earninsg increasses IMHO to out the value. In that regard they seem as positive as they have even been so i will be a happy holder. Note i bought at 250p ish so there is some tentative signs that the value might be starting to out itself here long may that continue. On the flip side i would possibly be happy topping up here so it remaining ata cheap price may not be all that bad if that gives me the chance to unleash value.
PS If you get your chance to run your magic forumla over two companies detailed below that would be great - no worries if you dont.
Up Global Sourcing Holdings (LON:UPGS) has updated this week - it meets the zulu criteria - it may come out ok on your formula although the acquyisition before year end and increased share count complicates things somewhat . Also Ig Group (LON:IGG) price has come off a bit - they may get penalised slighly for older profits not being up at levels reported from 2020 onwards - also they have had a reasonably expensive us aquisition with new shares being issued - other than those flaws seems a very solid cash making machine at present .
A couple of points. Boot has traditionally been viewed as a steady dependable operation that is unlikely to generate much growth. Indeed until around midway through last year that is how I tended to view Boot, then something caught my attention and I started to look deeper. The tangible surplus - tangible equity growth added to the divi - assuming the divi returns to 2019 levels shortly, which I am confident will happen, is around 8% of the current MCap per annum. Of course the tangible surplus is the wealth generated for shareholders and is by far the most important valuation metric. In terms of earnings growth and the outlook for an even higher tangible surplus going forward, whilst the calculation is not a precise one as in past years' acreages of land were often quoted rather than plots, doing the usual acreage to plot conversion, it does appear that Boot's land bank has grown by around 65% since 2014. This fact tends to slip under the radar as the plots are mostly planning promo and although a very lucrative arrangement for Boot, they will not impact the book value. We should therefore see significant earnings growth going forward from Boot.
The other point was in relation to the markets perception. You speak with a certain respect for the wider markets capacity to value a stock. Most investors, fund managers and analysts do the same. Indeed, it is always unwise to dismiss the markets view lightly, the wider market can often see risks that the individual may miss. However, sometimes circumstances conspire to lead the market to make a huge overesight. I rely upon the market doing this from time to time. The market has got it massively wrong with Boot, I am now convinced this is the case. But, as ever, the market will, in time, realise its mistake, assigning an appropriate share price for Boot which is significantly higher than the current share price.
Henry Boot (LON:BOOT) (no position)
HI Doug
Thanks for sharing your thoughts on this, it had me intrigued that there might be a bargain here and who doesn't like one of those?
You said:
"trying to explain these points in the annual reports did tend to create a world of confusion among readers, I hope that I have not done the same, I really don't see how I can have."
I must admit to being somewhat confused!
I checked out the Hallam Land Management Limited accounts at Companies House and the value of the land bank is indeed categorised as Inventory on their balance sheet and it was valued at £115m in 2020.
For completeness, Henry Boot, the parent company, has land/non-rented property worth £160m in their 2020 Annual Report.
You mentioned that £BOOT have the same # of plots as Persimmon (LON:PSN), which is more or less correct, but that the former only take a 10-15% profit from each sale. I would therefore expect Persimmon (LON:PSN) to have a land bank on their balance sheet valued at c£2b.
Persimmon's Land Bank was valued at £1.7b in 2020 so the numbers makes sense and therefore Persimmon should be valued much more than Henry Boot (LON:BOOT) .
I'm not saying Henry Boot isn't a good business, but I don't understand why there's an assumption that is should be valued as highly as Persimmon, when the former essentially only own 10-15% of the profit of the #plots available to them.
If I've misunderstood something, I'd be really interested to understand what it is.
Cheers
A
Boot do recieve 15% to 20% of the sale value for planning promo agreements in addition to all their costs back - I have that straight from the horses mouth. For owned land holdings, the builder or land developer also has capital tied up for many years before construction is complete, which eats heavily into any price uplift. Only 12% of Boot's land holdings are actually owned - this is an up to date figure, again straight form the horses mouth, which makes the price to book remarkable even though to value Boot on price to book overlooks the majority of the businesses forward wealth creating capacity. Like I say, planning promo is a very healthy arrangement for Boot.
BATM - interesting how the price suddenly spiked in 2020, before the market quickly came to its senses again. Share issuing has averaged around 2.5% of the MCap pa over the past 5 years, i.e. regular shareholder dilutution. Tangible equity build up averages around 4% pa, but most of that obviously comes from the regular share issuing. Add in the small divi of c1.5% and you get an average anuual tangible surplus - divi plus tangible equity growth - which is about 3% of MCap. 10% is what you should be targetting, 5% to 6% usually indicates a fair price or thereabouts. 3%, nothing doing here, wealth creation for shareholders is pretty weak relative to what you are being asked to pay.
re: Batm Advanced Communications (LON:BVC) there’s ongoing discussions about whether they can continue to dual trade on the FTSE and TASE in Israel - but looks like it’s going to the latter explains SP weakness last couple of months - so well worth researching before diving in (I don’t hold)
Gear4music Holdings (LON:G4M)
Good News. The share price has not dropped today (yet !!)
Please explain your thinking.
Indeed the share price has fallen horribly on a decent update, luckily I top sliced but having bought March 2020 ish I still have a decent holding.
Give it time. Actually I'm waiting forGear4music Holdings (LON:G4M) to drop further so I can top up. Sooner or later they're going to get the new Spanish & Irish distribution sites up to speed and there'll be positive news. But I'm another that agrees with the posters from yesterday that this company will continue to grow so it is just a matter of being patient. It's one of my largest holdings.
Re Unbound (LON:UBG) - The trading update is (I hope) part of a bigger corporate PR outreach plan to simply put the company on the radar of investors.
Confirming an EBITDA of £5.5Mn in a company growing +/- 10% pa and dug in with the elderly, the wealthiest segment of the population in a company with a mkt cap of only £23Mn makes it interesting to me at the current price!
Similarly, from an establishing the company point of view, adding M&S to Next/John Lewis/Very is very good and says it working with good brands who could give it some scale and certainly legitimacy even if this is not where it wants to grow.
However, on a public market it also invites questions
1. Adjusted profit figures exclude exceptional items primarily relating to IPO transaction costs. Like others, I thought the reported £12Mn Numis fee but at least it was for listing mkt cap £132 Hostmore (LON:MORE) For £23Mn £UBG this sum would be mad, a trade sale would have made much more sense. Has the IPO cost been announced? It wasn't mentioned and make a big difference to debt carried and thus agility.
2. Like others, I noted ave. reported prices rose by 16% but revenue only 10%. Unless I am told something on mix or promo level used, this implies volume down – is this the right strategy. Answer is maybe yes/maybe no…..- but it had better be explained well ! Personally, having watched the investor presentations, Mgt is my biggest doubt now it is standalone.
However, I hold since it is cheap and I love the market niche it is focused on – if it can get it right, it could do very well over time - or, more likely be a tasty snack for someone else. Saga burnt off its ancillary businesses in its latest relaunch but is an obvious brand anchor for an over 55s platform over time.
I understood that the 10% growth is Q421 v Q420, while the 16% rev growth is FY21 v FY20.
Re your comment on Unbound (LON:UBG) " I understood that the 10% growth is Q421 v Q420, while the 16% rev growth is FY21 v FY20."
I said "+/- 10%" as you are right but I think the more recent trend is more conservative and reflective. Anyway, at this point, the exact % doesn't matter so much as it seems to be going up not down as it emerges from a massive change from predominantly shops to online. The business focus in the next 12M is around range extensions and digital partnerships so a modestly increasing base business is only I need to see.
Unbound (LON:UBG)
On an IFRS basis, Hotter is expected to generate adjusted EBITDA of approximately £5.5m for FY22 (FY21 loss of £0.9m). Profit before tax and exceptional items for the year is anticipated to not be below £0.2m, an improvement of over £6m compared with the prior year
I guess the obvious question for someone standing on the sidelines is should be be valuing this company on multiple of EBITDA - in which case the company seems cheap as chips.
Or pe in which case the value is small due to virtually nil profits.
I suspect the truth must lie in between the two metrics - but how close to current ebitda can we expect with regard to future "cash profits being made by the business". It really is a company where we need to have full broker notes showing how all the main numbers are expected to pan out for ye 31/1/2023 and ye 31/1/2024 - not sure if that info exists in public form or may crop up soon. Certainly a dyor excercise with more ??? that voila at present until such time as we can be slapped in the face with clear picture of what management expect the "clean numbers will show". I am guessing the clever here already have that picture in their head.
Unbound (LON:UBG) There is an Edison note from about two weeks ago.
It really is a company where we need to have full broker notes showing how all the main numbers are expected to pan out for ye 31/1/2023 and ye 31/1/2024.
Edison recently published a 20 page note with detailed forecasts to Jan 2024.
Their 2024 operating margin estimate of 9% seems conservative relative to Unbound (LON:UBG) s medium term target of mid teens.
https://www.edisongroup.com/pu...
Unbound (LON:UBG)
Thanks for that - thats exactly was i was after - cheers
Certainly looking at those numbers the company is expecting to do £5.9 mill operating profit and £4.7 mill PBT ye 31/1/2024 (thats next year now folks - bring on my zimmer frame!!!)
So as long as they remain on track for those target they do look reasonably cheap at present - if only it was as simple as the company hitting those numbers in two years time - i certainly can see the potential here for significant uprating in shareprice if company could perhaps perform better than this note expects. Will be interesting to see how reality matches up to this fancy document.
Thanks to Edison and the company for making this info publically available.
At the moment i remain firmly on the sidelines.
The Unbound (LON:UBG) update looks very uninspiring to me. Management are very excited about a listing on M&S and a growing email list, neither of which translate to concrete sales.
Management also say they are confident in achieving medium-term growth targets outlined in the capital markets day, but they expect us to trawl through the video to find out what they are.
The share price is over 50% down since the demerger, it's dropped heavily prior to results, add in the £11m demerger fees to Numis and we have a £22M company with barely any profit with a questionable management team.
Anyone that has actually done any real DD on Unbound (LON:UBG) and Electra will know that the £11m demerger fees were not what was paid at all. It was heavily post float share price target weighted. Given the flop of the float nothing like £11m will be paid.
Next years PBT estimates are on Research Tree. I'd recommend you look there as it is available in a 20 page analyst note. Numbers look conservative to me. You need to understand that this years numbers are a melting pot of Electra plus Hotter and don't really fully reflect the business going forward. That's why EBITDA in this case is a better proxy. Next year EBITDA should be closer to £7m and interest + capex should be circa £2.5m so this means we can expect roughly £4 to £4.5m free cashflow from the core shoes business.
So it is trading on around 5* free cashflow but also remember the insurance claim that is pending and could add £10m+ to the bank balance taking them from net debt to net cash if it works out. That hidden potential value is in the price for free and will remove negative interest so would also be earnings accretive.
Finally you really need to distinguish between the Electra management team that was responsible for managing a collection of private equity assets that they sold, and then finally demerger the last two (Unbound (LON:UBG) and £HOST ) to the management team of those respective businesses. They are very different and I don't think you'd say either are "questionable" in terms of their pedigree in running similar businesses successfully.
"Anyone that has actually done any real DD on Unbound (LON:UBG) and Electra will know that the £11m demerger fees were not what was paid at all. It was heavily post float share price target weighted. Given the flop of the float nothing like £11m will be paid."
Where can/could I have read the terms of demerger fees? I could never believe the £11m fee was without comeback. I'd like to learn to do better due diligence in the future. Thx in advance for any help or advice given.
(Although the site has a DYOR ethos, at a real coal face level, there is little discussion of HOW best to do this and whilst this is is infinitely variable, I am sure there could be a useful Stocko guide in this.)
hi Zipmanpeter
It was on a capital markets call when investors were questioning how £11m in fees could be justified.
In terms of DYOR for what its worth I will generally do the following in order
1) Look at Stockopedia and see what the headline metrics are telling me
2) Read all the RNS including a few trading updates to get a picture of whether there is any hidden slippage / change in story. Usually this also gives me clues as to any hidden value that may not be apparent. eg why EBITDA might be a better valuation metric than normalised EPS and PE or vice versa.
3) Find any recent management calls on platforms like Investor Meet Company, PI world etc. Research Tree has quite a good aggregator function on its events tab. These presentations often given better context around results. You can read body language of the CEO and generally lots of difficult questions get asked. I find nuggets of info come out of these Q&A that you don't find written down. One of those for me was the debt level of Hotter shoes. I appeared as though it would be £13-14m of net debt but only on the call in answer to a question did we understand there was circa £6m of cash sitting on the Electra b/s that meant it was really £8m. In the same call we learnt about the up to £12m (I think, or was it £19m ??) insurance claim.
4) Then I go to Research Tree and find any analyst notes. I look at whether my calcs marry up to the analyst and if not, why not. What have I missed or is the analyst being uber conservative or not updating numbers. I read more about the analyst view of the market opportunity etc. This is usually my last line of DYOR. I don't wish to get swayed by an analyst. I'm looking to confirm my hypothesis or understand any diffs. They can also be good for understanding market valuations of businesses. Either what has been paid for competitors in recent history or peer listed values. Whilst RT is a subscription service at £25 p/m for an aggregation of many of the analyst research notes and presentations feels like a bargain to me for a serious investor.
Obviously there is much more DYOR you can do such as personal experience of products/services, mystery shopper type stuff. If you walk past Fridays on a Thurs night and it is packed then something is clearly resonating with the customer for example.
There is more you can do of course, but these are my core elements that give me an overall picture of the company, its trajectory and particularly transparency of its financials.
David - this is incredibly useful.
I wonder whether Stocko might get all of these elements together and, as PI's, we could try and use these tools to effectively evaluate a company. We could all contribute - some could analyse and some could mystery shop and share experiences...
Davidjhill,
I really appreciate the time and trouble you've taken to respond with this note on the realities of DYOR research. I do all the elements you outline (I think I even asked the Q you reference!)
I will reflect on and maybe trial Research Tree. My portfolio/time spent on investing is growing and maybe I need to believe the extra cost will pay for its itself. In general I try to trade infrequently and keep my costs low but some things are a false economy. I always used to invest in market research when I was in a corporate career. It would take very few disasters averted to make it pay out.
I hear you on personal visits/mystery shopper (on consumer stocks, less possible on mining companies!) but always worry about non-representative samples. It does show you what their offer is though.
If you get research tree you can get a 25% discount with the 14day trial. Just use discount code -nakedtrader
Apparently Google will stop tracking ads on Android devices in next two years. We know a similar move by Apple has heavily affected companies like Best Of The Best (LON:BOTB) so presumably this will affect particularly e-commerce companies that rely heavily on online marketing? https://www.thetimes.co.uk/art...
Yes, definitely would be a big impact to online marketing targeting and efficiency. But I'd be very surprised if the 2 year timeline did not get delayed.
No - not at all. Just because Google and Apple stop tracking cookies doesn't mean online marketing efficiency goes down. That's just nonsense. It is changing the way in which targeting will happen but companies like Silver Bullet Data Services (LON:SBDS) already have products that increase efficiency in a cookie free world. Check their recent announcement for some details. The likes of Bango (LON:BGO) are doing it via payment data. The likes of Tremor International (LON:TRMR) on video / connected tv couple with their own data targeting.
Its not just the targeting, but also the conversion reporting, which is then used by optimisation algorithms to find similar users (who are more likely to want to buy - affinity).
I have already seen the impact of the iOS impact on my marketing campaigns at the business I work with. But I concede that I only see the impact on just the business I work in, not others in the industry, so we might be the outlier.
suggest worth looking at Silver Bullet Data Services (LON:SBDS) and in particular their recent announcement if you want to understand post cookie world marketing.
Re Unbound, profit is profit in these testing times, Elta results in March and I believe they should have some cash left with them? We have also not heard anything of the premium share account monies of £157m mentioned in the recent interims!
Positive Trading Update from Unbound (LON:UBG), the makers of the Hotter shoe range this morning. Although their plan is to build on other companies coming into their fold, a la Joules (LON:JOUL), their current programme is to get onto other retailer brand web programmes. They announced the latest one this morning with M&S though this adds to the one they have with £NEXT and others already. Hopefully and expectedly they can build on these linked programmes and their own expanding data base.
They have had the same problems with sourcing and transport headwinds as many other companies but unusually for footwear, they do have their own manufacturing facilities in the NW of England, importing primarily components which are less bulky and costly to transport.
No mention of their US business hopes, but they have plenty to go at right here in the UK for the moment.
The transition of Unbound (LON:UBG) and Hostmore (LON:MORE) from a PE company to retail businesses was poorly and expensively handled by ELTA and their brokers Numis (£12m mentioned in fees), and they may still have the issues of shareholders who want to be invested in PE rather than retail businesses. Hopefully they can attract more retail investors like ourselves and there wont be a significant share overhang as a result of the transition.
They should get onto Mello and InvestorMeetCompany asap! I have suggested to Mello that they should be invited soon! The sooner the better to build interest in this potentially strong business targeted at the over 55s, the ones who have the money!
My wife and I have been Hotter users for a long time. I have recently ordered and received some more shoes and slippers. Same high quality and comfort. Very pleased with the way the brand is going. Now its time for the shares SP to move in the same direction.
Yes Unbound (LON:UBG) update reads well, although the company is still barely profitable - it says PBT expected to be not less than £0.2m. Would probably want to evidence they can deliver decent profit before getting involved here.
They've written the update in a positive manner. I'm not so sure that achieving like 4 like sales of 10% more than this time last year is anything hugely exciting given we were in lockdown (I think we were, although I might be wrong).
I continue to hold; however, not expecting fireworks today. Hostmore (LON:MORE) is where I do expect a substantial re-rate when families start dining again without restrictions.
Re Unbound (LON:UBG) (I hold) I'm not keen on the update.
I don't like that they've led with the M&S deal, somewhat burying the TU.
The 16% y-o-y rev growth is also entirely price increases. I suppose this shows they do have a good pricing power, but worrying there was no volume increase at all. I suppose it could be down to sourcing challenges and lockdowns.
Not sure I agree with your take re lockdown, Viz. I would expect this to depress the market for shoes.
Despite what I think is a luke warm update, this seems incredibly cheap to me, so happy to keep holding.
Good point about price increases potentially being behind rising revenue with £UBG. Something to keep in mind with all shares at the moment!
Must admit that while my wife likes Hotter Shoes, I am struggling to see anything very positive in the Unbound (LON:UBG) update. Do I need some rose-tinted glasses?
What are your thoughts on Elta regarding the monies of 157m in the premium share dealing account announced in the recent interims ?
What are your thoughts on Elta regarding the monies of 157m in the premium share dealing account announced in the recent interims ?
Norton, £ELTA and/or Unbound (LON:UBG) do not have a premium share dealing account.
Are you thinking of Ig Group (LON:IGG) ?!
As mentioned by Jackster 97 this morning , I believe that Elta has money in its account . Will this money be distributed to Unbound share holders ?