Small Cap Value Report (Thurs 4 Nov 2021) - SNWS, TPFG
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Good morning, it's Paul & Jack here with the SCVR for Thursday.
Agenda:
Jack's section -
Smiths News (LON:SNWS) - business in structural decline but predictable cash flows, large revenues, a low PER, and reassuring turnaround progress mark this out as a value opportunity worth paying attention to.
Property Franchise (LON:TPFG) - solid quarterly results from the UK's largest property business. Along with Belvoir (LON:BLV) and M Winkworth (LON:WINK) , these are robust, cash generative companies that could grow steadily over the long term, although some concerns over property market prospects likely persist.
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to cover 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.
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Jack’s section
Smiths News (LON:SNWS)
Share price: 38.9p (+1.04%)
Shares in issue: 247,700,000
Market cap: £96.4m
This is the UK’s largest distributor of newspapers and magazines. It’s a structurally declining business, but still a large one with over £1bn revenues, long-term contracts, and predictable cash flows.
The group’s in turnaround mode, with Tuffnells and its pension scheme now offloaded. Bank debt is reducing and dividends are resuming. So it looks like what needs to happen is happening. Still, the shares trade now on an historic PER of less than 4x.
It’s perhaps not the sort of company you’d want to hold forever, but it’s very possible at these levels that the recovery progress is not priced in.
Performance ahead of expectations, with dividends restored
Highlights:
- Revenue -4.7% to £1,109.6m,
- Adjusted EBITDA (ex leases) +9% to £42.6m,
- Profit before tax +10.8% to £30.9m,
- Earnings per share +11.3% to 10.8p,
- Free cash flow +120.2% to £24m,
- 1.5p dividend declared,
- Bank net debt -33.2% to £53.2m.
Revenue from combined newspaper and magazine sales declined by 4.7% in line with our long term expectations of market trends. Magazines, which attract a higher margin, performed more strongly than newspapers, with a particularly good performance from one-shot titles, including stickers and albums. Performance varied across the year with sales being 11.5% down in H1 2021 but up 3.1% in H2 2021.
The performance is ahead of full year market expectations, with sales in line with pre-COVID trends and above target cost savings of £6m across operations and central support functions. Cash generation has been used to reduce bank net debt and recommence dividend payments.
The group does note, however, that ‘recent inflationary pressures on distribution costs [is] tempering expectations for FY2022’.
Financial health -
Our capital management goals were aided by the successful renewal of our banking facilities in November 2020. Good progress has been made in improving the key metrics of Bank Net Debt, free cashflow and capital expenditure, and we are on track to reduce Bank Net Debt to 1x EBITDA, ahead of our initial target of the end of FY2023. As a consequence, in July 2021 we reinstated the payment of regular dividends which we regard as an essential element of our ongoing capital management objectives.
Usefully, the group explicitly details its average net debt for the year, which few companies actually do. The difference is notable.
It should be noted that, as a consequence of the timing of payments and receipts, intra-month debt typically fluctuates by up to £40m across the payment cycle, with average net debt of £82.6m (FY2020: £98.8m). Looking ahead, we are on track to reduce Bank Net Debt to 1x EBITDA, ahead of our initial target of the end of FY2023.
Pension scheme -
Smiths operated a defined benefit scheme, the news section of the WH Smith Pension Scheme which, as at 28 August 2021 had an IAS-19 pre-tax surplus of £14.8m (FY2020: £15.2m). It’s closed to new entrants and future accrual.
The Trustee of the news section of the WHSmith Pension Trust has confirmed that the Company will receive the benefit of the cash surplus which will arise on the wind up of the scheme following the buyout of the scheme by Legal & General in March 2021. The surplus (net of professional fees and tax) of £8.0m is expected to be paid to the Company during November 2021. The proceeds will be used to reduce net debt in line with the terms of our banking agreements.
Outlook and current trading - Smiths expects to continue generating profits and cash to pay down net debt and pay out dividends.
Although some uncertainty remains, the immediate outlook for our markets suggests a continued stabilisation of sales and a gradual improvement to the prospects of those retailers most affected by the pandemic.
Inflationary pressures in distribution labour markets began to impact the business in August 2021 and have increased since the period end, however. Currently, the group estimates the impact on EBITDA in FY2022 to be in the region of £2m after mitigation.
Trading in the year to date is in line with the board's expectations.
Sales and margin this year have been boosted by the European Football Championship and England's successful run to the final, together with an increase in Pokémon sticker collectables as children went back to schools. The benefit of these two opportunities in the year amounted to circa £1m of EBITDA. Although they will not be repeated in FY2022, the FIFA World Cup finals should once again boost sales in the first quarter of FY2023.
Jonathan Bunting, CEO, comments:
By focusing on our core competencies, we have returned a strong performance, ahead of market expectations. In doing so, we have met our key strategic targets for the year and strengthened our capability to deliver for all our stakeholders. Looking ahead, we face increasing inflationary pressures and must continue to focus on managing costs, but we have clear plans to do so, underpinned by a flexible business model that is a robust foundation for the delivery of shareholder value.
Conclusion
After generating 10.8p of earnings per share, Smiths now trades on a lowly PER of 3.6x, which looks too low given the cash generation, net debt reduction, and dividend payments. Free cash flow per share works out at about 11.3p, big numbers for a 38p share price (as of yesterday’s close).
More work must be done on the balance sheet, although progress so far is encouraging. The pension scheme has been offloaded and net debt is reducing, but the current ratio is just 0.83x. Net tangible asset value is a negative £60m, so risks remain here. Dividend payments are a sign of progress, but perhaps using this cash to build more of a financial buffer would be a prudent move.
A key point here is that Smiths has fairly predictable cash flows, though. The core business benefits from exclusive absolute territorial protection (ATP), long-term contracts with suppliers (publishers) and strong relationships with customers (retailers). This means that revenues are quite predictable, allowing management to focus on the turnaround.
Smiths has delivered a robust performance over a difficult period, and has managed to reduce costs as it continues to restructure its operations. At present, the FY21 dividend yield of 3.9% exceeds the PER of 3.6x, which is rare these days. These things are always cheap for a reason and there are of course risks with inflationary risks growing but nevertheless, Smiths looks like an intriguing value opportunity at these levels.
Property Franchise (LON:TPFG)
Share price: 296p (-1.33%)
Shares in issue: 32,041,966
Market cap: £96.2m
(I hold)
Last time I looked here, I was surprised to find the shares looked no more expensive than they looked before nearly doubling over the past year. This is in part due to a fortuitously timed acquisition that increased TPFG’s property sales business just in time for a surging market.
Aside from valuation, these property franchise groups tend to come with great profitability metrics, resilient lettings cash flow, and operate in a large market with plenty of runway for growth. Their fortunes are tied to the wider property cycles, but TPFG has a good track record of profit growth.
The Directors are pleased to confirm the Group continues to trade in line with market expectations for the full year.
Highlights:
- Group revenue increased 126% to £17.9m (2020: £7.9m), with like-for-likes up 34% to £10.6m,
- Management Service Fees (royalties or MSF) up 72% to £11.3m, +29% LfL to £8.5m,
- Strong cash generation with net debt of £2.8m after borrowing £12.5m to fund the acquisition of Hunters in March 2021 (30 June 2021: £5.4m net debt, 30 September 2020: £nil).
Post-acquisition, network income has increased 84% to £119.7m, with LfLs up 30% to £84.3m. The sales agreed pipeline is strong despite the ending of the stamp duty holiday, standing at £28.2m on 30 September 2021 (£29.5m on 30 June 2021, £31.0m on 31 March 2021).
TPFG is currently managing 73,000 rental properties (up from 58,000 last year) and EweMove - a slightly controversial acquisition - now kicking on, with 46 new territories sold (2020: 6) and 161 territories under contract as of 30 September 2021 (2020: 116).
Gareth Samples, CEO, says:
I am delighted to report that after announcing record results at the half year, we have continued to trade strongly. Whilst the market would benefit from increased stock of properties to let or sell, we have continued to achieve significant transactional activity. Most notably our sales agreed pipelines continue to be replenished, even after the three peak months for residential property completions this year. Beyond the buoyant market we are pleased to see our strategic initiatives delivering and are confident they will continue to drive growth going forward.
Mello Investor presentation - TPFG management will appear on Mello on Monday 8 November 2021 to update investors on trading since the half year.
Conclusion
The shares look reasonably priced to me - a forecast PER of 12.5x and a forecast yield of nearly 4% for a company with good quality metrics and growth prospects.
There is the potential for softer markets in the medium term but so far things like the ending of the stamp duty holiday are not yet having too much of an impact. Still, the pipeline has come down slightly and a concern remains that, after emerging from lockdowns in remarkably good shape, these companies are now reporting peak good news.
Nothing’s certain but I think the long term prospects are solid here, though. It’s entirely possible that shares will fall at some point in the coming years depending on how the property market plays out, but the business model is strong and the company should be able to survive such downturns and even use them as consolidation opportunities.
Macro considerations aside, the group is profitable, cash generative, growing, and well placed to take market share in a large and fragmented market. Financial services is a useful new growth driver and EweMove is on track to double its operating territories within two years by the end of FY22, so TPFG looks well positioned to grow acquisitively and organically from a profitable and cash generative base.
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92 comments
Property Franchise (LON:TPFG) (no position)
One thing to note from today's update is that there appears to be quite a drop in Hunters revenue from Q2 to Q3 (the acquisition was March 19th, 2021, so it's actually Q2 + 11 days.)
This drop could highlight an underlying weakness, seasonal trends or I've made a mistake somewhere.
That aside, it seemed like a good update, with strong Ewemove territory sales.
No position yet, but I do wonder if I should have one.
Cheers
A
For any interested in the hybrid property market, here is an extract from the TwentyCi quarterly property report:
https://www.twentyci.co.uk/wp-...
some cracking comments today's unfortunately have no idea what stock they refer to.
Come on guys/gals use a ticker, it's not hard.
What are people's thoughts about Property Franchise (LON:TPFG) options? There were 300,000 at 1p taken up in May of this year. The share price was rangebound between 2014 and 2020, and has only picked up this year at a time when the market has been pumped up by Government intervention. The options scheme is even more generous at £BLV. I quite like the look of both companies, but would welcome other people's thoughts.
I watched a Presentation by Smiths News (LON:SNWS) today hosted by the Investor Meet Company and one important point I picked up was that Smiths News expects to receive £8 million early in the New Year as a result of the sale to Legal & General of their Pension Scheme.
This will be another significant cash receipt in enabling the Company to rapidly reduce their Bank debt. I hold.
Litigation Capital Management (LON:LIT) (I hold)
For anyone interested Litigation Capital Management (LON:LIT) have now generated:
For context the current market cap is £130m.
---
The 2 cases won so far this period cost $AUD 7.7m to fund, so there is still $127m invested in cases that are yet to conclude.
Thanks Abtan
Re Smith's News, the P/e of 3.6 is somewhat misleading as it is going to take around 3 years of retained profits to fix the balance sheet, which in a gently declining business needs to be done, so for me thinking of the P/e as being 6/7 is more realistic for comparison purposes. If print is going to be around for the next 15/20 years, and if management avoid wasting money on diversification efforts (and they have done a very good job on sorting out the company so far) this does look very cheap.
"Re Smith's News, the P/e of 3.6 is somewhat misleading as it is going to take around 3 years of retained profits to fix the balance sheet,"
Repairing the Balance Sheet appears not to be a priority for the company, as evidenced today by the upping the dividend payout.
Reducing the outstanding Bank debt appears to be a higher priority. Today's RNS refers to reducing the net debt to below 1x EBITDA , which seems likely to occur in the current financial year. Moreover, when you include the outstanding receipt of the £8.3m for Tuffnells, it would appear that the company will be debt free within the next two years.
Thought Ten Entertainment (LON:TEG) trading statement was interesting. Sep/Oct still growing 30% on 2019 comparisons despite management expectations of the mid teens. Upgraded to a profit for the full year despite being shut for 20 weeks of it and a better cash position too.
Broker forecasts for 2022 have been left conservatively unchanged and stock trades at 14* those earnings, but it appears at least to me, that those numbers now look quite light given how trading is going (broker has had to upgrade 3 times already this year but has consistently left 2022 the same) , so could well be room for future upgrades.
Ten Entertainment (LON:TEG)
I am content holder too at present (350p could be an exit price for me if seen soon).
I am not getting too carried away with the exceptioanl lfl stats - there has to be some sort of reversion to the mean at some stage here - albeit if more stuff is booked online they may have had some efficiency gain sfrom covid which would seema bit bizarre.
Just need the current duopoloy with Hollywood Bowl to continue - ie we dont need any new entrants coming in charging silly low prices. It does seem like this company has a decents sector niche at present .
yeah agree. I expect lfl to moderate too, though frankly even at +10% lfl going forward would give a very nice investment return. Have a similar price target of 330-370p for now. Cash generation looks very strong. Let's see how the Christmas period plays out.
Further re Hostmore (LON:MORE) ;
Group management are locked up for 365 days..except a one off allowance to sell a 1/3 ... Im not so bothered about absorbing the shares as the signal it could send. S Welker is not on the board and therefore I do not believe locked ... but according to the prospectus holds 8.4m shares... obviously Sherbourne were a SIGB shareholder and will have also owned shares outside the SIGB vehicle. I think their position is wrapped up in this 8.4m prospectus number. I tried to follow the position through the Electra Private Equity (LON:ELTA) registered holder announcements but its hard to establish what may have been sales or change of beneficial ownership. Although there were trades north of 600 in June I take the prospectus for what it is unless anyone can shed light on it.
So through Welker, Sherbourne look to have a disclosable position. We will just have to watch the holding RNS. Anyway, if so, its good news re trading etc since you can be sure nothing wonky will be about to happen ( which is always the fear if share price is falling for no reason).
The shares were pretty stable pre demerger at 590... with is 230m market cap. 75% of that was £172m ... and then you get the little rinkydink that 3:1 .. would have been 147p with 117m shares but turned out being 126m with incentive shares... and thus some value lost. The look through from 590 is 136. They were always going to fall to reflect this... then the confusion over allocation and ability to trade and you have a little storm.
The broker PT is based on 10x EBITDA ... 210....and best guess short term is recovery to 160 or so...assuming all well with COVID etc...so current price attractive enough. Good luck all.
Remember that 10x EBITDA equates to a PE ratio of around 20-25x for this sort of business (which seems a bit rich to me). I'm not a big fan of EBITDA as it flatters earnings.
Agree but between 15 and 20... seems reasonable enough... 15x 23 earnings gets you 210... I'm no fan either but if these nos have been low balled which if I know Sherbourne they have, then 22 and 23 EPS of 10.8 and 14.1 with get upgraded and think the mkt will be happy enough.
TCan’t fathom why none of us seemed to realise pre £ELTA demerger what with hindsight seems blindingly obvious!
Instead of an IPO in 3rd quarter it became a much less attractive demerger in 4th quarter. And why the name change from excellent well known brand name TGI to Hostmore? And why Unbound instead of Hotter Shoes? Also that Numis failed to promote the demerger was obvious to some investors (but not this one!) and hence presumably the selling and falling share price ahead of the demerger. Add the switch to AIM and the fact that brokers and presumably most investors big and small , were unprepared for and unaware that the demerger was happening and are still unaware, so no wonder it ended up a complete shambles with a further fall in the ELTA and Hostmore share prices post demerger, instead of the gains many of us had expected.
IF Paul is still confident about his valuations then both Hostmore and ELTA could be stunning buys at current prices. Anecdotal evidence shows TGI sometimes fully booked. I added to my Hostmore stake yesterday.
Dear oh dear Ken, I guess you can prove anything if you choose your own facts?!
16 June : Further to the announcement on 21st May 2021 of its intention to demerge TGI Fridays ("Fridays"),
Hostmore PLC is the name of the new parent company for Electra's hospitality brands Currently they have two brands - Fridays & 63rd+1st.
Unbound is the parent company for Hotter Shoes. There are plans to develop beyond footwear, hence the need for a parent company
Apologies, I stopped reading your post beyond the fourth sentence. It started poorly, & was getting worse!
Re £SNWS
Many thanks for the write up Jack.
Does anyone have any news on the final Tuffnells instalment? I believe somewhere around the £6m mark was still due to Smiths as final payment for sale of Tuffnells?
£SNWS - Yes, it's clear if you read today's accounts. It states £6.5m was received on 2nd November in line with original agreement of 18 months post Completion of sale. See Note 11.
This is a highly capable management team IMO, delivering on what they set out.
Thanks OldSchool!!
When the sale of Tuffnells was announced in Apr 2020, Smiths News (LON:SNWS) announced "deferred consideration of £15 million. This consideration is payable in three tranches between 18 months following Completion and the third anniversary of Completion".
So post the receipt of £6.7m last month, it would appear that £8.3m remains outstanding, due in July 2022 & Apr 2023.
All good news in paying down the debt of Smiths News (LON:SNWS) .
Will you be doing an update on Gattaca (LON:GATC) (LON:GATC) after today's inline trading update. Fairly sizeable drop in price today. Seems to be well short of broker targets. Maybe there are hidden dangers within the business.
check out the Liberum note on Research Tree : they say results are bang in-line with their expectations so not sure why you think they are well short of broker targets.
net cash now makes up 1/3rd of the market cap. EPS of 13.6p for this coming year expected and company said they were trading in-line.
so on a cash adjusted basis sub 10* earnings. or PE of 13 for this year + cash.
Look reasonable value to me but I guess it depends on whether you consider the investment in their STEM capability as driving the expected revenue growth or not. They've had a chequered history but have changed management so not sure quite how much of the previous mgmt culture still exists.
I was looking at the Stocko price targets of 270p and with today's fairly lareg drop in price it seems to fall very short of that lofty target.
Where do you find Stocko price targets?
Rustbucket, is this not the Stocko price target? near the bottom o the Stock Report. I don't hold Gattaca (LON:GATC)
Silver
I see brokers forecasts.
The term "Stocko price targets" confused me, I thought there was some new feature.
Yes sorry I mean the price target on the Stockopedia page collated presumably from an average of broker forecasts perhaps?
Yes I see now. I would not take much notice of broker forecasts, not very reliable in my opinion.
Ah - Sorry, I see what you mean now. I thought you were referring to a fall. I generally ignore price targets from brokers, though if Gattaca (LON:GATC) can deliver on revenue and profit expectations then I guess a PE of 15 + cash of around 70p might equate to something similar. Seems market remains sceptical though.
It is an illiquid stock this so any move down / up is probably somewhat exacerbated.
Would love thoughts on Metro Bank (LON:MTRO) please. I hold - up on confirmed talks with Carlyle. Thoughts on offer price?
same here, holding, no idea where this could go to
Request please for Paul's thoughts on Superdry (LON:SDRY) , where today's upbeat comments from Dunky don't quite gel with the numbers in the TU.
Is anyone following Deepverge (LON:DVRG) , they put out an RNS for upscaling production of a product this morning which I think is a big plus
For anyone waiting, it looks like Hostmore (LON:MORE) shares have now appeared in IG accounts.
Hostmore (LON:MORE) Yes, thanks, but now only worth 116p. Not impressed.
No - it was a catastrophically handled IPO (de-merger) in my view. If it were my company I'd be shooting the advisors.....rather than creating the promised shareholder value they have cratered it 25%......I presume there are no claw back clauses on fees unfortunately, so £11m appears to be daylight robbery for such a mess.
That said it doesn't much change the fundamentals of either business but as posts below have intimidated the inept management of the IPO has had the effect of creating a "rush for the door" which, until satisfied and cleared, isn't going to do any favours to the share price of either business alas.
My point re Hostmore (LON:MORE), I was not able to sell my shares until today, which I think is wrong, some platforms you could sell on Monday, I believe and no doubt fund managers could have sold but many PIs, were unable to sell until yesterday or today, that's my point.
Yep - but that also comes down to handling. By not giving everyone access at the same time creates panic and wave selling. Those without stock then desperate to get their hands on it and sell.
Hostmore (LON:MORE) ... I now own.
The Numis note is now out .... nothing new for those of you who have followed the story. Forecast net debt this year is £30m. Forecast EBITDA next year, a COVID recovered number, is £30m. Easy enough to remember. So EV at 120p = 180 ... which is 6x EBITDA. Their target for what its worth is 210p.
Clearly a number of private investors saw demerger day as some sort of catalyst ...and were spooked by the share price falls. A situation not helped by various treatments by platforms where Hostmore (LON:MORE) shares were not available to trade nor details of the split being received, being posted. This delay has caused a minor panic in PI world... hence the reaction. TBH the same was true for institutions they just don't panic, we would regularly be shouting at our back office because they hadn't posted such allocations. However we knew what we would ultimately receive. Private Investors don't have the same confidence and so as the shares fall think they have got something wrong and worse still, somehow everyone else can sell but not them. In the modern digital world there really isn't an excuse for these delays and the mayhem it causes. The key is not to panic though.
Im just looking through the prospectus re lock ins... and will report back. The situation re Electra Private Equity (LON:ELTA) is a little different because the large institutions will have a very small position. Say their Electra Private Equity (LON:ELTA) pre split was 100bp of the portfolio they now have approx 20bp in the remaining stub...and so you are likely to see plenty of stock being sold for a while. The EV of the business is potentially ridiculous but until this flow dries up it won't matter.
Whilst I wouldn't rule out either business been bid for you should remember both were on sale for some time, but failed to achieve board price expectations.
Does Numis set out any EPS expectations or profitability indications?
For 21, 22, 23... EPS 4.4, 10.8, 14.1 off PBT 5.5, 16.1, 21.1....
Boohoo (LON:BOO), I note that there seems to have been an agreement / settlement on the US court case that is within existing provisions, so a plus for boo today, I'm just wondering if this is now the first of many cases to come especially as £boo seems to be settling.
Property Franchise (LON:TPFG) are presenting at Mello on Monday - should be worth a viewing. Have issued today an in line update with pipelines remaining strong. Noticed that the founder / Chairman sold 1m shares at £3 yesterday (still holds 7m shares) - no reason for sale given - might this be a concern?
re Property Franchise (LON:TPFG) Richard Martin (and wife) have sold some every year since 2018 by the looks of things.
2018 850k
2019 1.3m
2020 810k
2021 1m
He still has 22 % of the company.
Id rather he didnt sell any but personally dont see it as a problem.
Purplebricks (LON:PURP) :
Profit warning out.
Drivers:
Shortage of houses has led to profit warning.
£PURP has had to absorb increased staff costs thanks to a change in the status of the estate agents it recruits. Purplebricks agents were self-employed, but company will move them to full employment contracts.
And numerous current and former agents who hired by Purplebricks that were classed as self-employed are preparing legal action against the company. They argue that, despite their formal status, they acted as employees and are therefore entitled to holiday pay and pension contributions.
This company appears to be a disaster, and frankly if they have not been able to successfully lay claim to sizeable market share by now with commensurate regular profitability then they are unlikely to do so ever.
The property agency arena has been crying out for decent internet based competition to the usual High St suspects, who by and large offer average service but charge exorbitant prices. They also only seem to offer a one-dimensional seller based product.
Just wish I had the answer as why it hasn't worked, or better still why the gap has yet to be filled successfully. Meantime there have been several abortive attempts, Tepilo springs to mind, who by personal experience were dreadful. The sector seems to be trying to consolidate, but no sign of serious public take-up yet.
Purplebricks (LON:PURP) is also getting killed by a business called Strike that offers the same service as Purplebricks (LON:PURP) but for free! Strike makes its money from getting its customers to use its in-house legal teams to complete the sale. Any customer that previously would’ve used Purplebricks (LON:PURP) will now be using Strike. Strike is growing very rapidly and Purplebricks (LON:PURP) is going to have to cut its prices significantly. Game over.
Purplebricks (LON:PURP) (I hold)
Interesting comments on Strike Nebraska1977, thank you.
I genuinely wonder how their no fee proposition will fare with the market so slow right now. And how much of an advantage a "free service" will have next to a company like Purplebricks (LON:PURP) which is now offering a money-back guarantee if they don't sell your property?
Another thought - will Strike's freelance LPEs be leaving for the stability of more permanent income in these slow times?
I should also add that I have no idea how Strike is being funded. The last time I looked at their accounts at Companies House, they were haemorrhaging cash. I know they have deep pocketed funders though, so perhaps this isn't a long term concern.
As a side note I think it's important to point out that Strike's free service is definitely not comparable with Purplebricks' paid service.
The last I checked, Strike would actually be more expensive than Purplebricks if a vendor decided to buy all the Strike add-ons for the comparable service.
Cheers
A
Purplebricks (LON:PURP) (I hold)
Hi Gino123
You said:
"And numerous current and former agents who hired by Purplebricks that were classed as self-employed are preparing legal action against the company. They argue that, despite their formal status, they acted as employees and are therefore entitled to holiday pay and pension contributions."
I think it's worth highlighting that:
Cheers
A
Purplebricks (LON:PURP)
any successful litigation here would be a wider issue generally and impact any company that "employs" freelancers, not just the hybrid estate agents.
Ref your point 2 abtan I would completely disagree - employment status disagreements happen all the time - they always have done and probably always will do and.The outcome pretty much always depends on the exact specifics of the arrangement between the two parties and and over the years outcomes have been randomly unpredictable when squabbles have happened.To date very few of these squabbles have set a precedent for other companies -imho there is close to zero chance that the purple bricks outcome will change much. All that tends to happen is that when companies lose well publicised cases others that engage similar tactics might panic and put staff on books. Imho purple bricks were probably always the wrong side of the line here - if bods are getting regular pay checks and do not have other customers on self employed basis and are instructed what they must do in their job roles arguing self employment exists is possibly more likely to fail than win. It might seem ridiculous that the bods who agreed to take on the self employed work can complain and change history but this can happen and has happened before.
as you say in point 1 I think there is almost zero chance that purplebricks will defend their prior stance to the hilt so I think the dispute will be settled to sweep things under the carpet.
in some respects if the bods are doing what they did previously and are now employees the act of making them employees may have confirmed their prior treatment was wrong practically speaking.
Virgin Money Uk (LON:VMUK)
apologies for going OT with large cap comment update today seems ver ydecent , albeit this company is very much a plodder so expectations here from me are always low.
I am no expert in banks but the following comments have slightly spoooked me (SST outcome - stress tests) - i am hoping its standard covering your back type text - but i would like the company to be confident about propects rather trhan saying - hmmmm this next stress test is really important for us - ie should they not have a very decent handle on how they think they will be rated?
If anyone has any thoughts on whetehr this is likely to be rubber stamping exercise ref stress tests. The fact they have just reported good numbers and mentioned re-starting divi - it seems strange they would say they are reliant on these factors for what is presumably the most important thingin their business - stable capital framework.
Hoopefully theymaybe lucky if these stress tests are beingperformed when times are good rather than bad.
SST outcome around December 2021 and impairment outlook remain key considerations for the Group's long-term capital framework and dividend policy; expect to update at H1 22
In advance of the MPC announcement today, here are David Buik's views on interest rates, inflation and the many moving parts of the macro picture. A stream of consciousness! Lots of views on everything from the relationship between the Bank of England and the Treasury, outlook for taxes and where he will be investing in the current environment. Much on interest rates to begin with, which you can scoot through. Personally I think the second half is more interesting. Video & podcast.
Property Franchise (LON:TPFG) give an inline trading update today. Revenue up 34% like for like, to £17.9m. Strong cash generation, leaving the company with just £2.8m of net debt. Here is the H1 investor presentation from September.
Litigation Capital Management (LON:LIT) announce the succesful case outcome resulting in £9.8m in revenue to be received. Here's the full year results presentation from September.
Tracsis (LON:TRCS) announce FY results next Wednesday 10 November. Join us for the webinar with management & Q&A on Friday 12 November, 1.30pm. Register here.
Just listened to David Buick, fascinating stuff and I can highly recommend it. Many thanks Tamzin.
agree, highly recommended
Well done Tamzin on getting David Buik on. He gives a great (IMO) Macro overview and gives some very sensible investing advice at the end. Although I must admit to some Confirmation Bias here.
Richard
What a good and really balanced review of £SNWS. Well done Jack.
£bell - an encouraging trading update from this supplier of portable lightweight oxygen concentrators . Newly listed this year - Nigel Wray has 12% or so...a good sign? Be interested in Paul or Jack's views on Belluscura
As Sdi (LON:SDI) have posted an update I thought it would be a good time to ask a question. The P/FCF for SDI seems to be at a huge discount compared to Halma, Judges and Volex. Why would that be?
Smiths News (LON:SNWS) prelims. 'Performance ahead of expectations, with dividends restored'. I hold.
Smiths News (LON:SNWS) (I hold)
Thanks for the write up here Jack. Personally, I don't see a better 'value' share on the market at present than Smiths News. Management are doing everything they set out to do following the disposal of Tuffnell's early last year. They beat expectations despite the very real concerns over inflation/distribution that exist at present that I thought might hinder them more.
Yes the print industry is in decline but not at the rate today's share price indicates. Edison gave a thorough research note dated October 18th with an undemanding price target of 77p. They point out the barriers to entry for competition, the 'sticky' nature of customers and the predictable future revenues which are declining only at an average of 5% pa.
The company are presenting their results on Investor Meet at 12pm today which I look forward to watching.
Very positive trading update from Belluscura (LON:BELL) today - have already met 2021 trading targets (albeit modest targets), increasing scope of one of 5 distribution agreements, increasing contracted manufacturing volumes for their equipment for 2022......
Belluscura (LON:BELL) is quick to highlight high demand and beating sales expectations but it's difficult to find any clear financial targets. Is anyone aware what these might be?
From today's RNS, sales targets were also "relatively modest" which suggests investors could be in for a shock once more detail becomes available. If everything was going so well, why not provide us with more detail?
From Vox article today
Accordingly, house broker Dowgate Capital Limited have upgraded their unit sales estimates to 300, 3k, 13k, 24k & 50k respectively for the periods 2021-25. In turn, driving up revenues & adjusted EBITDA to $111m & $34m by 2025, in addition to raising their price target to 150p/share vs 135p before.
Nice one, thanks Nick.
By no means a small cap, but note that Jd Sports Fashion (LON:JD.) has been ordered to sell Footasylum, a business it acquired in April 2019 by the CMA.
https://www.investegate.co.uk/...
Footasylum was purchased for about £90m (a big discount on its IPO valuation after a number of problems) so barely a rounding error for a £55 billion market cap like Jd Sports Fashion (LON:JD.) but a bit of a slap and will presumably take some time and effort to strip it back out of the wider business. While Jd Sports Fashion (LON:JD.) and Footasylum are in the same line of business not sure this is a compelling reason to force the sale given the relative sizes of the two. Wonder if there are any likely buyers in this space who’ve just come into a bit of cash after selling their favourite football franchise that might be interested?
Gus.
Very ugly trading update from Purplebricks (LON:PURP) today.
Their instructions down - 38% in HY to Oct21. This is worse than the industry trend they provide, decline of - 23%. Continuing to lose market share.
Cash pile rapidly dwindling. £16m burned in the HY.
Meanwhile they are continuing to "invest" in technology and changing their op model to fully employed agents. Despite the huge decline in revenue.
No stats given of any better performance in recent weeks in H2, which means things aren't improving yet.
Where will PURP open today?
Good summary, and potential read across to other shares relating to housing transactions such as Belvoir (LON:BLV)
There is quite a difference between Purplebricks (LON:PURP) and Belvoir (LON:BLV) (I hold the latter). Putting the franchise model to one side, Belvoir's main business is lettings so although they benefitted from an increase in house sales and will lose some revenue as a result of any decline it shouldn't have the same impact.
You're right that the lettings side of the business provides more forward visibility of earnings. However, according to my notes for £BLV the profit split in H119 (my notes need updating!) was 33% for financial services (only/mostly housing sales I think) and property sales. So not insignificant and a driver of recent growth. Personally I think Belvoir (LON:BLV) offers value even with the softening of sales as the business has been incredibly well managed and has grown profits year-after-year despite lettings fees, Brexit, and the pandemic.
But if Purplebricks (LON:PURP) sales are lower than the market average, it means they are losing sales to rivals?
Re Purplebricks (LON:PURP) Also worth looking at Property Franchise (LON:TPFG) TU out this morning. They are in the same sphere as Belvoir (LON:BLV) (I hold both). They report a strong sales pipeline. Reinforces Rustbucket' view below
steve
From memory most of Belvoir (LON:BLV) very strong recent growth was driven by the sales and financial services (which is related to sales), with lettings seeing only modest gains. Even though lettings make up most of the business, I think a sudden slowdown in sales could therefore have quite an impact.
So why were £BLV sales strong and Purplebricks (LON:PURP) down so much?
No idea about Purplebricks (LON:PURP) as don't follow them (never had a good impression of the business and always avoided). I'm think more about what happens next, and whether Belvoir (LON:BLV) could be hit by slowing sales over the coming months - as explained above I think this could have a reasonable impact.
The view from Belvoir (LON:BLV) management is that they will use any market weakness to acquire businesses. The dependable cash flows from the lettings business gives them the firepower to acquire in market downturns and they have a record of doing that.
"Where will PURP open today?"
Well, that was a terrible day. I'm now back to my buy in price and remain unsure of what to do next.
I must admit that I thought the share price might fall when an update came out, owing to a weakened property market, but I wasn't expecting such a drastic -37% fall.
A part of me feels like selling and buying back in when the property market starts showing signs of improving.
Another part of me feels like topping up, based on the following:
I think this is a game changer, because it makes me want to use it vs the previous model of paying £1,000 upfront and possibly not selling my property
Based on the TwentyCi report I posted on this page about 20 minutes ago the market share for the hybrid market is up 1.3% vs 2 years ago - it's still going in the right direction and Purplebricks (LON:PURP) is one of the big players.
It's a shame that a company specific market share wasn't revealed today.
For me a growing market share for Purplebricks (LON:PURP) is the most important thing right now; sadly we won't know this information until next month.
Any counter thoughts to the above would be most appreciated.
Cheers
A
Gattaca (LON:GATC) Preliminary Results for the year ended 31 July 21
Outlook
Given the current market conditions, our clients are finding it more challenging to identify and secure specialist talent, which plays well to Gattaca's expertise in delivering critical skills and talent for their businesses. With strong demand for STEM skills, and our investment in our people and technology, we are well positioned for growth.
Notwithstanding evolving pandemic and macro supply chain factors, the business continues to trade in line with market expectations. We continue to invest to ensure sustainable growth over the long-term in our chosen markets.
Gattaca is a less resilient business than Sthree (LON:STEM) or Robert Walters (LON:RWA) as evidenced by the damage done by the pandemic. Revenues and eps will still not have recovered 3 years after the initial hit according to forecasts. This is a business that claims to be in the right skill segments but the numbers say otherwise. No wonder it is cheap.
Revenue, profits and eps are all down, why when other recruiters are doing well? Not sure I would trust the management. The margins are extremely low. Have a look at Robert Walters (LON:RWA), Sthree (LON:STEM) and Pagegroup (LON:PAGE)
Equity Development have issued a positive update today of Gattaca with a “conservative , “ in their own words ,valuation of 285p.
In order to be valued on the same basis as the higher rated recruiters Gattaca needs to produce results that are on a par. And there is no evidence of this in the numbers or the narrative.
Several points of interest emerge from the Liberum report issued today.
Firstly, a 23% increase in 2021 headcount suggests severe damage was done to the human capital of the business by the pandemic. To anyone with experience of the sector, the blithe observation that this recent headcount increase will set the business up for market share growth is laughable - does Liberum imagine there is no competition from already experienced and more capable consultants at competitors?
Secondly, the corporate improvement plan to focus on 8 key areas only emphasises how far behind the business lags Sthree (LON:STEM), not to mention several thousand single niche and more focused boutiques, which have been plowing the most profitable furrows for decades!
Thirdly, the change in payment terms for contractors from weekly to monthly, while good cash flow management, underlines the lower wage nature of the contractor base and points to the highly cyclical nature of (parts of) the business.
I couldn’t comment on whether this is still a good short term trade - it looks cheap although perhaps for good reason. But I wouldn’t be a long term holder.
Gattaca (LON:GATC) has the US legal action been resolved now, do you know?
The US is by far their largest market.
Sdi (LON:SDI) have put out what looks to me like quite a good update.
It looked positive to me too. Let’s see what the brains make of it!!
Bit meh I reckon for Sdi (LON:SDI) -> the multiple is high, they are implicitly flagging profit/cost pressures relative to revenue growth and its known that beyond fy22 has a cooling in revenues (Atik).
So as its a PI lovebomb stock expect a spurt out the gate of euphoria/relief....followed by a resumption of downward drift subsequently
Mojo, when you say the multiple is high it is on a par with it's peers. Arguably, on it's multiple of P/FCF it is on a discount.
They have increased their banking facilities and have cash in the bank. That can only mean further acquisitions.
The long term prospects remain good and it is in the right space to capitalise on opportunities.
CamRaid and others
I like to tease a little on Sdi (LON:SDI) and it always gets a reaction ....it seems decent enough and I'm just sceptical this is a premium business that should be on high multiple (I'm not a fan of peer comparison, particularly for something so small). I think the company is over loved and the investor narrative too plump for what it is. No denying its success as an investment over the years tho so I may just not see it and be wrong.
I'm sincere that today's update does contain a caution in it. Yes they may acquire some more and lift earnings. IMO this is low quality earnings growth and revaluation as there is no synergistic integration going on our developing integrated ability to grow and nurture. If, for whatever reason, SDI loses its high valuation then its loses a significant currency for accretive acquisition (tho does have debt and that is preferable).
I'm not expert on these businesses but I'd suggest looking at P/FCF at SDI and wondering whether is temporarily attractive relative to Halma (LON:HLMA) or Judges Scientific (LON:JDG) as Atik kicked out cash surprise around covid and the need for capital investment in bought businesses hasn't really shown through yet as they are quite recent. In addition, it may show that Halma and Judges invest to create growth whereas as SDI don't.
All the above are questions more than my established view
I have trimmed SDI after substantial gains with an eye to the 2022 drop-off in revenues. But I still like the long term story. Happy to let the rest run for now. Long term investing relies on putting your money in the hands of capable allocators of capital and the management team here has delivered so far.
Atik Cameras don't file a P&L in their accounts at Companies House. But they did back in 2017. Then revenue was £2.6m and inventory charged to the P&L was c£1.0m.
In y/e April 2021 we do see in the accounts that inventory charged to the P&L was £3.5m. If margins have remained the same that would suggest revenue of just over £9m in 2021. Group revenue for that year was £35m - suggesting Atik was responsible for about a quarter of that.
Pleased to see that SDI's strong progress continues. I was fortunate to buy these several years ago and even with a few top ups along the way my average price is extremely low. I like the fact that it is a fairly small portfolio, the CEO and Chairman have their arms around the detail, they buy and integrate well, and deliver strong organic growth in addition to the M&A. Seems a simple formula - I would love to find another 10 of them for my portfolio if other investor's have found similar. Only question mark for me is whether the next acquisition/s can offset the 'substantial' post-Covid decline in sales of Atik cameras. Time will tell but the SDI team has a lot of credibility and I trust there will be more positive newsflow in the coming months.