Small Cap Value Report (Tue 13 April 2021) - DLAR, TLY, RBG, SOS, QUIZ, BILN, HRN

13th Apr '21 by Paul Scott

71 comments 13220 reads

Good morning, it's Paul & Jack here with the SCVR for Tuesday.

Timing - update at 14:01 - I've still got a couple more sections to write, so estimated finish time today is 16:00. Update at 16:00 - today's report is now finished.

Agenda -

Paul -

De La Rue (LON:DLAR) - A reassuring trading update for FY 03/2021. At top end of (tight) range of £36-37m adj operating profit, so in line with expectations really. Don't forget the £15m p.a. pension recovery cash outflows, which are material to the valuation.

Boohoo (LON:BOO) (I hold) - a separate post here - I comment on the announcement of acquisition for £73m of a Soho office block, plus the recent 1.2m sq.ft. (leasehold) warehouse in Daventry. The group is gearing up for major expansion, with new brands acquired recently, such as Debenhams, Dorothy Perkins, Wallis & Burton. NB. Separate, new thread - here. Please do not comment on BOO here! We're now using separate threads, to avoid clutter here with what is now a mid-large cap.

Totally (LON:TLY) - a positive trading update. Looks an interesting company, that is growing on me, the more I research it.

Revolution Bars (LON:RBG) (I hold) - H1 results to 31 Dec 2020, largely academic due to lockdowns. More importantly comments & numbers on liquidity look encouraging. Trading after restrictions end in May-June 2021 is all-important now. Management talk about "huge pent-up demand" in today's update, soundning more bullish than in previous updates.

Sosandar (LON:SOS) (I hold) - starting to look interesting again. Strong trading in Jan-Mar 2021. Still loss-making (60% reduced). Change of broker - prelude to a placing maybe? Overall, quite an encouraging update I think.

Quiz (LON:QUIZ) (I hold) - another special situation. It's still solvent, and with shops re-opening, and special occasions resuming soon hopefully, this gives QUIZ a fighting chance.

Jack -

Billington Holdings (LON:BILN) - improving outlook but cost and competitive pressures from this micro cap steelworks company

Hornby (LON:HRN) - positive reaction to today's 'ahead of budget' update but a degree of recovery already priced in

Paul’s Section

De La Rue (LON:DLAR)

187p (pre market open) - mkt cap £364m

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barnetpeter

13th Apr '21

Yes indeed Bitcoin is currently at $63,000. It is noticeable that Argo Blockchain (LON:ARB) is actually down today (disc: I hold some as a free carry). The company has issued plenty of new shares recently in various forms which makes the point about how dilution can hold back a price.

Rusty2

Bitcoin should be banned from here.

Fegger

Interesting comments from Vin Murria last night at Mello comparing Next 15 with M & C Saatchi in which she has taken a 13% stake. She was complimentary about Next 15 but said that there was a lot of tech/digital improvements to be made at Saatchi and she pointed out the large discrepancy in valuations. She obviously intends to contribute to those improvements and reap the share price reward. Comparison screen is interesting - Next 15 valued at £711 million with Saatchi at £181 million https://www.stockopedia.com/co...

Squashbox

ken mitchell

Below the radar, probably because of where they operate, but worth checking out is Kazakhstan Cement producer Steppe Cement (LON:STCM)

I’ve held for a long time now and there have been some great top up opportunities along the way. Stockopedia 99 rating and Quality and Value ratings in the 90s as well. Stockopedia has dividend yield at a bit over 7% but last year Steppe paid 4p in dividends which with share at 40p is a 10% yield.

Here’s their first quarter trading update issued today:-

https://www.stockopedia.com/share-prices/steppe-cement-LON:STCM/news/steppe-cement-ltd-market-update-for-quarter-ended-31-march-2021-urn:newsml:reuters.com:20210413:nRSM2324Va/

Note cement sales up 13% and revenues 22%. Kazakhstan cement market increased by 12% compared with mostly pre coronavirus 1st quarter last year.

The strong £ is a headwind and though Steppe expect current demand for cement to increase further they admit it is difficult to have visibility on this. Steppe don’t to over promise.

There looks a good chance that the dividend in a July could increase from 3p to 4p. That dividend alone would give a 10% yield. Steppe also paid 1p in October last year. The share has doubled from an astonishing 19p exactly a year ago but still looks very good value.

Contrary views anyone?

mighunter

Hi Paul,

Thanks for your coverage of the Totally (LON:TLY) trading update (I hold) today and indeed Mello last night, always good to get your take.

You (quite understandably) opened the question as to the sustainability of the performance both in terms of value and duration and I think there could be several important reasons why this is not a Covid-19 derived one-off for the group.

Firstly, Totally are already well embedded as a proven NHS partner with all current CQC ratings of "Good." Whilst there was clearly a Covid-19 related surge in demand across many of their existing contracts such as 111 Call-centres etc, this has also been accompanied by a fall-off in their higher margin Insourcing division. This was via the drop-off in elective procedures mainly to provide contingency buffer for the NHS particularly as peaks were hit.

What I think is key is that Totally have reacted and delivered well beyond the scope of their existing contracts where required by the NHS, including via new initiatives on utilisation of 111. I think this may carry forward a dependability and trust for future contracts?

Not least, because the recent Government white paper on private provision actually reduces the requirement for arbitrary re-tendering just for the sake of it. Instead, the existing incumbents are potentially more likely to retain or expand service provision, especially where they are dependable, proven and already offer good value. It is comforting therefore to see the recent flurry of contract wins and extensions RNS'd by Totally and gives confidence for the future under the new tendering regime.

Regrettably, the pandemic has come at great cost with soaring, record waiting lists for elective work. So any volume reduction from the lower margin Totally divisions I would anticipate being more than offset by the inflow of their higher margin insourcing work for urgent/elective care to help tackle this mammoth issue. This obviously won't be quick to clear and I expect others in the industry will also see demand for the next couple of years, the likes of - Emis (LON:EMIS) and Medica (LON:MGP) (I hold) spring to mind.

Totally's recruitment page has been exceptionally busy of late, accompanied by advertising for a new role of Director of Communications and Marketing... "a new role for the organisation... recognising our ambition to grow both organically and through acquisition."

An even busier future ahead for Totally (LON:TLY) ? All my take but I'm often wrong!

Sniggolb

As ZANE's founder I will definitely contact SAGA and see if I can advertise in the excellent magazine. i

Paul Scott

Hi Mike,

No, the sun came out, so I walked to the beach and listened to a podcast, which is a nice way of unwinding after a stressful day. So I missed the Belvoir (LON:BLV) webinar. Will check it out later, on the recording.

I do like BLV, and could see myself picking up a starter position at some point, when funds permit.

Regards, Paul.

Andy Sav

Sosandar (LON:SOS) is my second largest holding. It’s been a rough ride (and only recently broke even), but I think they have taken a lot of positive actions along the way. Sosandar (LON:SOS) is one of my Coffee Can holdings; I really like their niche of serving an older market with quality clothing. I also note there is now an Analyst Forecasts section appearing on the Stock Page, which states a target price of 50p (appx 150% above the current price)

steve gray

Agree. I added on today's results. They have built an excellent brand in a very big niche that sits above fast fashion and below luxury, perfectly suited to a mass audience of women d'un certaine age who can't get anything fashionable at M&S and who can't afford luxury fashion prices. 50 something Holly Willoughby is the perfect brand ambassador. This is a very big audience. They have done the hard work in getting started and getting close to profitability. What i really like is the partnerships with M&S, JLP and especially Next all of whom serve the precise audience that Sosandar are targeting. This reduces the need for marketing costs, eliminates the need for expensive e-com/fulfilment etc (in return for a margin share). My hunch is that the potential audience is so large and the means of reaching them at low cost has been achieved that it should just be quarter after quarter of growth from here. Also quite possible that Next buys them and takes them global.

JonBirdy

Thanks Paul and Jack, really great report today - as always. Just wanted to let you know. Jon

portugull

Thanks very much for your thoughts on Totally (LON:TLY) Paul

I was interested in your comment about the Tiny Titans screen. What impressed me about this little Company is the price to sales of 0.51 and its recent revenue growth. As recently as 2017 its revenue was under £4 million. The estimate for 2021 is £141 million.

The NHS certainly needs all the help it can get and Totally (LON:TLY) seems to be in the right place at the right time.

Passmore

Recently sold out of £SOS (at a loss) prior to the trading statement. I had lost a bit of faith in how they are connecting with, and growing their customer base, as for an online-only company they seem to have a poor presence on the social media platforms. Less than 1OOK on FB and 57K followers on Instagram, both growing at a pedestrian rate, and a dormant Twitter account. Are they targeting their customers on other platforms? Granted they now have these tie-ups with M&S, John Lewis et al. but surely they should be doing more online with the social media platforms? All of the arcadia brands that have recently been sold have bigger social media followings, and they weren't online only. That said, looks like I was wrong selling given today's share price rise.

john2

I'm not sure that their target age group are fervid users of social media.

Sosandar (LON:SOS), I think you raise a valid point, I don’t really use social media, so I don’t know about their presence. But they are quite a young small cap. Arcadia have been around ages, so will have built up a following. Is social media the right platform for their target market? But I think it is something they should work on, social media is pretty much free advertising.

I have been following them for a while, but only bought in today. I like the links with M&S etc. Figures today are encouraging. I saw one of their ads on TV recently which I thought was good, smart clothes and well presented, classy, I think it would appeal to the M&S, JL customer.

UK_Investor_8888

Nice stock Steppe Cement (LON:STCM) .

I nearly pilled in (doh) but held back for two reasons: 1. An annual Dividend which distorts the share price before and after Ex-Div date, and 2. Concerns about wide spread / mean Broker platform market size.

Its done astoundingly well rewarding the risks taken.

PS: Anecdote - From one of my clients operating in that part of the world of a not-related local company subsidiary: One of the Directors was substituting the occasional invoice with his own bank details instead of his employer. It was a great trick. He managed to sneak out a few $M before UK HQ shut him down.

Boon

On Quiz (LON:QUIZ) if I read it correctly, Debenhams was responsible for £24.2m of sales in FY20. This is now all disappearing. That's a huge chunk of revenues gone - 20%!

And between the lines, Boohoo (LON:BOO) has always stated they want to make Debenhams website a "marketplace" for many brands. Presumably, they looked at Quiz brand and decided not to range it on Debenhams, once they take over the website?

We are about to see a very radically smaller Quiz than before. -20% revenues from concessions. 20% of UK store portfolio closed. Ireland minus a few stores. No more Spain stores. Unsure how many international franchisees will close. Unknown is how Online will perform once people start buying partywear again. I make it that in the latest H2, they were only -25% down YoY. If overall partywear sales were down -60% and recovers, then they'll be up +35% maybe? Online would then be almost 50% or more of revenues in FY22.

I also see broker has now downgraded FY22 EPS to slightly negative.

Cash burn since the end-Jan update has been high too.

My bet is that they'll need to do an equity fundraising before the banks will let them renew facilities, which is expiring Sep/Oct.

Best1

Holly is 40. You mean someone like her who is 50s??.?

14th Apr '21

Yes, meant to say 40s

WDWombat

I just think De La Rue DLAR is in the wrong business. I accept that it

has stemmed the bleeding helped by a pretty big fund raise and that

despite a very nice share price recovery the valuations don't look too

bad. But now on a more even keel, can it actually grow the business? Or

have I got it all wrong?

Small Cap Value Report (Tue 13 April 2021) - DLAR, TLY, RBG, SOS, QUIZ, BILN, HRN

Paul’s Section

De La Rue (LON:DLAR)

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Paul Scott

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