Small Cap Value Report (Tue 15 Dec 2020) - PURP, CYAN, TED, TSTL
Good morning, it’s Paul & Jack here with the SCVR for Tuesday.
Timing - today's report is now finished.
There are a couple of stragglers on my pad, that I'll try to look at later this week, e.g. Driver (LON:DRV) . A couple of readers mentioned K3 Capital (LON:K3C) which does look an interesting company, but it's quite complicated to analyse, so would take me too long.
Mello
Well done to Jack for his appearance in last night’s online Mello investor meeting, it was really excellent. As always Jack was fluent & talked sense, not always easy when the spotlight is on you. David Stredder, who organises Mello events, says that nearly 400 investors joined the event on Zoom.
As a follow-up, there’s another Mello Zoom today at 13:15, to fit in another presentation that there wasn’t time for last night -
Don't forget last night's Gamechanger, Accrol Group, will be doing a full one hour session with Q&A today (Tuesday 15th) at 2pm. Here is the link to tune in and hear from the Directors and ask any burning questions you may have but please note we are recording this one so you will need to be there! [Paul: looks like a typo, I assume they mean they are not recording it? Otherwise it doesn't make sense]
You can click here to access all research notes and investor presentations from Accrol.
We will be starting early (from 1.15pm) to cover unanswered questions from last night's Double Up on Smartspace, so feel free to join us when you like.
US Election
Thanks to the friend who alerted me that Betfair has just paid out on Biden winning the US Presidential Election. What a pathetic spectacle Trump is making of himself, refusing to concede defeat, stirring up trouble. It makes me feel that, despite its faults, our system here in the UK does at least provide stability, and clean handovers.
Book recommendations
Which prompts me to give a book recommendation. I’m enjoying John Kampfner’s “Why the Germans Do It Better: Notes from a Grown-Up Country”. It’s an easy listen on audiobook (Audible), and is an interesting run through of post-war German history, economics, and culture. He almost lost me in chapter one, with some snide, sweeping criticism of the UK’s political system, whilst praising Germany to the utmost - a bit ironic if you think about pre-1945 history. Also his arrogant & superficial dismissal of Brexit, permeates and undermines the book. So it’s the type of audiobook where I mutter expletives occasionally whilst walking along Bournemouth seafront after work, to sometimes slightly alarmed looks from passers-by! Still well worth a listen though.
Also, I might have mentioned this before, if you want to have everything you learned about economics at school/university turned on its head, then I recommend Stephanie Kelton’s “The Deficit Myth: Modern Monetary Theory and How to Build a Better Economy”. I’m not convinced by MMT, but nobody can deny that it has worked for the last 12 years or more. This makes things like the crowding out theory, now look completely wrong - e.g. Governments of advanced economies can borrow at high levels, at any interest rate they want, even below zero, something previously thought impossible.
How long can MMT continue before inflation sets in? Nobody knows. MMT’s main flaw seems to me to be that it suggests Governments should simply stop printing money once inflation sets off. Trouble is, that’s not likely to be done. History shows that, once Govts are addicted to deficit spending, financed by money printing, then it’s almost impossible to stop, since that would involve plunging the economy into a deep, self-fuelling depression. Hence they keep printing, until the currency becomes worthless with hyper-inflation, and has to be replaced, with strict conditions attached to bail out loans from e,g, the IMF. This is glossed over in MMT. The messianic zeal of MMT is a bit troubling - if you raise any objections, then you don’t understand - that kind of thing. A fascinating topic though.
I wonder if QE is fuelling various asset boom/bubbles? Things like Bitcoin, Tesla, seem troubling - there are clear pockets of irrational mania in parts of the US markets. Could this be due to huge QE and deficit spending? Seems likely to me. After all, if people are forced out of Govt bonds, they're just going to buy other investments, not spend the cash. Maybe MMT eventually ends with a gigantic financial markets crash, at some point in the future? Who knows!
It seems to me though, that if interest rates are now permanently low, and the money supply constantly increasing due to QE, then UK equities look (selectively) good value.
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Today's agenda
Purplebricks (LON:PURP) - half year results (Paul, done)
Cyanconnode Holdings (LON:CYAN) - brief comment on interim results (Paul, done)
Ted Baker (LON:TED) - belated comments on interim results from 7 Dec (Paul, done)
Tristel (LON:TSTL) - AGM Statement (Jack, done)
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There wasn't any more time available today, so that's it I'm afraid, both Jack & I have other things to attend to.
Paul's Section
Purplebricks (LON:PURP)
Share price: 75.5p (last night)
No. shares: 306.8m
Market cap: £231.6m
Purplebricks Group plc (AIM: PURP), a leading UK technology-led estate agency business, announces its half year results for the six months ended 31 October 2020 ("H1 21" "H1" or the "first half").
This well-known, market leading online estate agency has delivered decent interim figures today. Key points;
- Profits ahead of upgraded expectations
- Pots of cash, £75.8m and no borrowings - so it has tons of firepower for increased marketing, if required, technological developments, and/or acquisitions
- Strong balance sheet
- H1 revenues only down 6%, to £44.2 - not bad in the circumstances, in my view
- H1 Profit after tax of £3.9m from continuing operations (plus £2.9m from discontinued)
- Gross margin is high, at 67% - providing strong operational gearing if growth resumes
- Marketing costs reduced by 27% to £9.0m, demonstrating the flexible costs of an online business, a topic we looked at yesterday for another company
- Marketing costs per instruction down 32% to £254. Revenue per instruction is £1,392 - so a payback on marketing spend of 5.5x which looks good to me - assuming that the marketing spend does trigger the instructions, and they weren’t people who intended instructing PURP anyway?
- Administrative costs also cut by £2.0m
- Very well known brand name, with 4.8% market share (by properties sold) - I don’t know how many of the proliferation of competitor startups are still going?
- Disposal of Canadian business has strongly boosted cash (by £35.9m), and freed up management time to focus on the UK market
- £0.7m claimed under Govt furlough scheme - not significant
Outlook - is good -
Whilst there are reasons to remain cautious on the economic outlook, we are confident in the levers which are under our control, and we currently expect adjusted EBITDA for the full year to exceed the upper end of the current range of consensus 7.
7 As at 14 December 2020, the Group's compiled full year 2021 consensus for adjusted EBITDA is £7.0m, ranging from £5.0m to £10.6m.
Thank you to the company & its advisers for including footnote 7 - very helpful, as it saves us so much time, and avoids confusion, so much appreciated. Everyone should do this please! Friends in the City tell me that some brokers resist inclusion of a simple note explaining what market expectations are. Why?! How ridiculous. If a broker doesn’t want to help investors understand trading updates fully, then maybe it’s time to find a more relevant broker? If the numbers are explained clearly, then investors are more likely to buy the share. It’s not rocket science. Sorry, but this issue really rattles my cage. Anyway, in this case, PURP’s advisers do seem investor friendly, being Zeus, Citi, Peel Hunt, and Buchanan.
Results presentation - this is also excellent, I’ve signed up, so will report back if there’s anything interesting in the results presentation, or you can tune in yourself if reading this before 9am -
Results presentation and conference call
Vic Darvey, CEO and Andy Botha, CFO are streaming a video presentation of results via webcast at 9.00am today followed by a live Q&A session for analysts and investors.
The video webcast link is via the webcast registration page and on the website. A replay will also be available on the Purplebricks website following the Q&A session at http://www.purplebricksplc.com/investors/latest_results .
Clearly Purplebricks is an investor-friendly company, good stuff!
Other points;
- Share based payments, a £1.9m credit (due to leavers), and a £2.5m credit in cashflow statement, I think this might flatter profits?
- Finance expense - I don’t understand why this is so high, at £2.7m in H1, given that the company is cash rich? Does anyone know, if so please leave a comment
- Cash generation is good - helped by a £7.1m increase in deferred income - this looks like the benefit of receiving cash up-front from customer instructions, a good business model
- Capitalised development spend was £0.9m in H1 - quite modest for an online business, so not a problem
My opinion - I’m impressed. This is the clear market leader in online estate agents, and a brand name almost everyone knows. It’s got pots of cash, is profitable now, and the market cap doesn’t strike me as excessive.
I seem to recall there was some question mark over its tax liabilities, re treating some staff as self-employed. Unless I missed it, there doesn’t seem to be anything in the update today about that, so perhaps it’s a red herring, or not material? If you have any information on this issue, please leave a comment.
Here's the chart since PURP listed - lots of hype for global domination, and it's now back down to where it started - an opportunity now, maybe, as the finances look better than ever before?
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Cyanconnode Holdings (LON:CYAN)
5.05p (up 10%) - mkt cap £9m
Interim results
- Revenue in H1 up 48%, but only to £1.5m
- Receivables on balance sheet of £3.9m, that’s over a year’s revenues! So there has to be doubt over the collectability of all of this
- Loss before tax of £1.7m
- Cash position looks tight, and Directors provided £400k loan in Dec 2020
- Upbeat commentary about contracts resuming, after covid pause
My opinion - looks way too risky, and given the very poor track record, this share needs to be treated as a complete punt. Another placing seems inevitable, but on what terms? It’s difficult to see why anyone would be keen to pour in more cash here.
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Ted Baker (LON:TED)
114p - Mkt cap £210m
Interim results were announced on 7 Dec. I’ve been meaning to look at them, sorry for the delay. Jack wrote up a nice piece here, when the price was 140p - it’s now down 19% since results day, and with good cause - the P&L figures are diabolical.
The “underlying” loss is £(39.0)m, and the loss before tax is £(86.4)m - just for a half year - admittedly an unprecedented one, covering the covid lockdown 1 period (28 weeks to 8 Aug 2020)
However, businesses don’t go bust because they make losses, they go bust if they run out of cash. Hence I’m focusing on TED’s balance sheet, and it’s actually rather good news, it’s much better than I expected. So the company lives to fight another day. The commentary explains it well -
A critical component of stabilising the Group's foundations was strengthening our balance sheet, which had seen net debt rising steadily over several years. We engaged with all our stakeholders to rebuild the balance sheet and in aggregate we raised a gross £105.0m from the issuance of new equity, agreed to an additional £25m facility from our lending banks, sold our London HQ for £77.8m gross proceeds, stopped all non-essential capex, renegotiated payment terms across our suppliers and took advantage of available government schemes.
The aggregate result of these measures and ongoing active cash management is our net cash position of £60.8m at the end of the first half and £58.5m as of 28 November.
Based on our latest cash flow forecasts, our cash headroom at the low point in our cash flow cycle of September/October 2021 will be materially higher than previously expected.
That’s really good news, and gives management time to turn the business around (no guarantees they will succeed of course).
It’s really all down to product with designer brands. If the designs are right, the product sells itself. But at high price points like TED’s, the designs have to be perfect, not just good. If they’re not perfect, then they have to be sold at deep discounts to clear, which undermines the brand, in a downward spiral. Superdry (LON:SDRY) has similar issues. If customers can see that product is not selling out, then they just wait until the price is reduced.
Licensing - a valuable income stream, usually very high margin too, which could be worth more than the market cap (effectively putting a negative value on the physical stores) -
Our licencing business is another key driver for delivering asset light growth. Licencing delivered £19.1m of gross profit in FY20 and has immense potential for us. Building on the momentum we had last year, we have signed 2 new product licence deals since the start of the financial year. Building on the successful start to our new Childrenswear licence, NEXT has been appointed as our new licence partner for lingerie and nightwear. Second, we have appointed Baird Group as our new licence partner on men's formalwear for the UK & Ireland. This deal mirrors the successful relationship we have with Jack Victor in North America. Following the start of this agreement with Baird, Ted Baker will no longer supply formalwear, thus reducing our inventory risk for this product category and leveraging our partners' expertise in sourcing and distribution.
Cost-cutting has been deep, at £31.0m annualised, higher than previously outlined.
Lease liabilities - a major ongoing headache & cash drain, as they’re mainly prime sites in city centres. Rent reductions are being achieved, but it doesn’t look enough to me. Maybe a CVA is the only viable option?
My opinion - I thought this was a basket case before going through the latest accounts. However, I’m impressed with the balance sheet strength, which looks tough enough to withstand continuing difficult conditions.
Can it survive until covid is hopefully dealt with through vaccinations (mid-2021 maybe)? Yes.
Is risk:reward on the shares, at a £210m market cap (114p per share) attractive? No, not to me it isn’t.
The trouble is that a lot of TED's net cash is likely to be consumed over the next 6 months, and when creditors have been paid up to date (I think there’s evidence of creditor stretch, because trade payables has only reduced slightly, whilst inventories have reduced a lot.
I did short this share (on a small scale) a while back, but I wouldn’t short it now. The brand is still valuable, and it has a fighting chance of survival and turnaround. What would happen if the turnaround doesn’t work? It would probably be sold to Mike Ashley or Boohoo (LON:BOO) (I hold) for maybe £50m-ish? With the proceeds going to pay creditors rather than shareholders (that’s the worst case scenario).
Talking of shareholders, Toscafund has 27%, and is an aggressive & deep-pocketed investor, that I observed had previously taken one of its mistakes private, rather than admit defeat. So I wouldn’t bet against them, as unusual or even irrational things can happen.
Ray Kelvin holds 11.8%, with 2 other big shareholders, see below.
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It’s a good thing to have a concentrated, and supportive shareholder base during difficult times. So my thinking is that, if TED needs another fundraise in say 2022, then I think they would get it. Although remember that the last fundraising was at a hideous discount of 51%, although there was an open offer too. So dilution could be nasty again, if things don’t go to plan.
Overall - it’s not likely to go bust, due to balance sheet strength. I like the actions management is taking to turnaround the company. I’d have a punt on it if the share price was about 50p, but not above that level, as there are still massive headwinds to overcome. I'll keep it on the watchlist though, as potentially interesting if there are tangible signs of performance improving.
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Jack’s section
Tristel (LON:TSTL)
Share price: 513.64p (+1.11%)
No. shares: 46,519,194
Market cap: £238.9m
A brief AGM statement from Tristel (LON:TSTL) today - this is an exciting but expensive company that uses its proprietary chlorine dioxide formulation to make high quality disinfectants for medical devices and other products.
There’s a big potential catalyst for the share price in the form of its planned expansion into US markets, but access here depends on regulatory approval. Once you’re in, this is a useful barrier to entry so it’s a situation worth keeping an eye on.
You can see the PE ratio has drifted up over time as the market cottons on to the quality at Tristel.
But that raises the question of price: was the best time to buy Tristel five years ago at a lower price multiple and with more scope for organic earnings growth? And how much potential upside is left now?
Today the forecast PE is 36.1 and the forecast PEG is 2.5 times. It might be that brokers are downplaying Tristel’s earnings forecasts or not factoring in US and international market potential, but today’s valuation is still quite a premium.
Nevertheless, Tristel is clearly a high quality operation with strong cash generation and double digit returns on capital over time. Its patents, expertise, and regulated markets suggest it has every chance of carrying these attractive characteristics forward.
Revenue for the trading period is expected to increase by 10% and profit before tax is also set to increase by 10% to no less than £3.3m.
This is lower than budgeted due to deferred patient procedures as a result of COVID-19 restrictions although there has been a ‘substantial’ recovery in demand since October driven in part by Brexit preparations and ‘continued significant growth in our newer markets of France, Belgium, Netherlands, Italy, and Malaysia.’
Sales of our new Cache product range will be approximately double their level of the first half last year. Here Tristel aims to become a global market leader in the hospital environmental hygiene market.
And regarding the US expansion, Tristel says ‘very encouraging progress has been made in our FDA test programme for Duo for Ultrasound, and we have received positive feedback from the Canadian regulator on our Duo for Ophthalmology submission.’
The group also expects to conclude distribution arrangements for its Duo product range in India before Christmas.
Conclusion
All sales growth has been organic and, although less than budgeted, chances are that attractive long-term growth trends remain in place. Tristel is aiming for global expansion and there is probably plenty of room to grow if it can win approval from regulators.
Its products are protected by patents and look genuinely superior to the competition due to its proprietary chemistry. There are clear barriers to entry as well.
For now, my view remains that I would want a lower valuation before buying in given the multiple expansion over the past few years. It could be that I’m underweighting the international potential here though. It’s firmly on the watchlist in case we get a more attractive entry point in future.
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All done for today, see you tomorrow!
Regards, Paul.
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104 comments
Haha, Cyanconnode Holdings (LON:CYAN) are they even still going.
When I got a windfall in 2012 and decided stocks were for me with zero idea what I was doing (8years later not much has changed, I still don’t have much of a clue) I did the classic get caught in Pump and Dumps - Range Resources, NTOG, Magnolia Petroleum, Desire, Futura Medical and Cyan - lol.
I think NTOG might have got somewhere in those years, but the rest - complete junk still going nowhere.
If only I’d had the SCVR and the wonderful Stocko community back then
It is worth noting that Tristel's Cache range uses Actizone, a Byotrol (LON:BYOT) product. The agreement between Tristel and Byotrol was signed in March this year and has a duration of 10 years. It is exclusive in hospitals in the UK and Ireland and non-exclusive elsewhere. Under the terms of the agreement, Tristel will pay to Byotrol a combination of product supply payments, royalties and fees, based on success but with meaningful minimum guarantee payments to Byotrol each year.
https://www.investegate.co.uk/...
Seems like both companies could be on to a winner here, with Byotrol potentially offering a cheaper way in. (I hold Byotrol).
Purplebricks (LON:PURP)
Thanks for the commentary Paul. This has turned into my biggest position, so I take a significant interest here.
In response to your questions:
To be honest, the big risk is, and has been for a while, what happens with IR35 going forward. If the company does have to pay NI/Pension contributions going forward, then that will clearly hit the bottom line, but any impact could actually be offset by having more control. In any case if they are able to grow their market share with the current model, I personally don't think this is a big issue in the long run.
Some other thoughts:
This aligns with the commentary and is a good thing as it should provide a boost to top line revenue in H2.
https://www.twentyci.co.uk/wp-...
Instructions from June-Oct up by 20%. This is great and is a clear indication of underlying growth that strips away the exceptional deferred income impact on the P&L. Note that Adj EBITDA was also up significantly outside of lockdown.
A holder for now, and I look forward to seeing improvements going forward.
A
Very impressed with the turnaround at Purplebricks (LON:PURP) under the new management. I took a punt around 60p as it appeared undervalued given the relatively strong position it holds in the UK and b/s post disposal of Canadian business. Presentation today is worth a watch for those interested. Looks to me like we should be seeing north of £20m positive cashflows p/a this year with operating profit catching up to that over time. With £70m+ in the bank it's priced around 10* cash inflow, which still feels on the light side to me. They can grow revenues considerably from here and expect med/long term margins 25-30% so not surprised to see it rise so much today post the analyst/investor call.
On a side note not sure what upside the German business / JV has so if anyone can help me out on that it would be appreciated. I'm discounting to zero but maybe I'm being harsh?
Purplebricks (LON:PURP)
Hi David
GERMAN J/V
Some rough assumptions, albeit from 2019.
Gross sales for the business was €2b. (I believe it was c€800m in 2018 - an estimate)
I assume a 4% cut for Homeday, split 50/50 with its contractor estate agents.
So revenue in 2019 of €40m for the company (equal to a 2% cut.)
I have no idea what costs are, but for something growing so fast, let's stick to sales for valuation purposes.
If it can grow sales to say €10b in the next 2-3 years, HomeDay's 2% revenue cut would be €200m.
Apply a Price/Sales ratio of 1:1 gives a company valuation of €200m.
From my previous workings, and reviewing the Axel Springer Annual Report before they went private last year (or the year before?), Purplebricks (LON:PURP) holds c14% of the company at least (there are puts/call options that imply this might be higher, but I certainly couldn't see how it could be lower)...so that's a €28m stake right there.
Now fast growing companies in the USA are valued far higher than a P/S ratio of 1, so this stake could be worth much more than €28m, even today, we just don't know.
I could be completely wrong of course - I'd certainly be interested to hear from you or others who may have looked into this.
PURPLEBRICKS CASH GENERATION
I hold and have a slightly different perspective on the cash generation.
I personally exclude changes in working capital to work out an underlying cash generation, which for the UK looks to be closer to £1.9m (although even this I'm not totally sure of in case costs from Canada, eg HQ costs, have been sneakily included)
*There was a £0.9m VAT deferral benefit too, but this was offset by £0.9m the company gave to some of its struggling independent contractors during lockdown - both of which are one-offs and handily offset one another.
It's better cash generation than last year, but certainly nothing special. If they can grow their market share, however, then I do expect the share price to rocket.
Fingers crossed.
A
Thanks Abtan interesting on Homeday. Possibly worth more than I had pencilled in then.
Purplebricks (LON:PURP) just a quick comment on the market context as I’ve looked into this sector at work recently.
The Conpany went on a massive run on a lot of excitement that it could displace the traditional sales agent model and would take huge market share from offline. This hasn’t happened for a variety of reasons and market share of ‘online’ has remained at a ceiling of 6-7% now for the last few years.
The problem is, each incremental marketing pound beyond a certain amount is wasted as it does not lead to effective growth of new customer base and ROI. So the Company can be seen as ex-growth in some respects and ‘value buyers’ can rightfully ask if they can now run the business for cash profits instead, and value the Company accordingly.
Just don’t expect the business to be valued on a high growth multiple anytime soon imho, and it is very unlikely to scale the heights it hit on previous excitement unless you believe in a fundamental shift to online any time soon. The online model should have been a huge beneficiary of Covid but I haven’t seen any huge market share gains !?
As an aside, the last property I sold, we ended up going with the local agent (with experience and a list of interested buyers in the local area); our property went under offer in two weeks when marketed properly. My neighbours was on with Purplebricks for two months and didn’t have an offer!
The one upside of Purplebricks (LON:PURP) was I used the threat of competition to hammer the fee down ! So, as a consumer, I’m very happy with the purplebricks offering in some respects.
Purplebricks (LON:PURP)
Hi Nicobos
Thanks for your thoughts. As a large holding of mine, I hope you don't mind a few follow-up queries/thoughts:
For reference I did some online advertising a few years ago and found that spending £10 produced far better results in percentage terms than when I spent £100. I 'm not sure why FB/Google worked liked this, though of course a 1% return on £100 was better than a 5% return on £10.
What's perhaps more important to note is that Purplebricks (LON:PURP) sold more homes than any other agent in the UK - that is very impressive and perhaps indicative of the company taking a larger portion of a slow growing segment.
Cheers
A
Abtan Purplebricks (LON:PURP)
The DD I have access to suggests "the transactional market share of online agents has plateaued at ~6-7% after rapid initial gains".
For example, JP Morgan noted in June '18 that Purplebricks (LON:PURP) would have at 'least 15% of the market by 2022'. Reuters said in 2016 “Industry leaders and analysts forecast online operators could capture 25-50% of the market by 2025.”
This has not happened and long term online market share is ~7% and as plateaued which appears to be the ceiling due to:
i) many players (eMoov etc) have died off as they have not found models which make any money
ii) online struggle for traction out of core niches (e.g. low value properties)
ii) inability to achieve non-linear scale
It's this 3rd point which I allude to above. This means that growth remains directly tied to marketing spend which poses a significant challenge to profitability. Each incremental pound you spend beyond a certain point does not give you enough 'bang for your buck' so the business cannot capitalise on operational gearing by having a fixed cost base with additional revenue dropping into the funnel and straight to the bottom line.
The price comparison sites have suffered from the same effect - you would imagine they'd be super profitable but in reality, customers are not loyal and more and more marketing spend is required to keep filling the pipeline and maintaining profits.
Back to Purplebricks (LON:PURP) - as mentioned i'd expect much higher growth in COVID etc.
I don't know enough about the business to take a view either way. All I'm saying is the original thesis underpinning the previous stratospheric price rise is bust imho so don't expect the price to be tipping £5 any time soon.
It may still turn out to be a nice investment if they can start generating sustainable profits and cash flow and a moderate level of growth over time.
Excellent, thanks abtan, very thorough!
With so much cash in the bank now, I wonder if they might stop discounting the pay later option (some or all of it?) to boost profitability?
Regards, Paul.
I got off Plus500 (LON:PLUS) @1375p early throwing my weight into IG Group (LON:IGG).
A quick look and PLUS500 is currently 1382p, off its 1595p high of 2nd December 2020 so about -13.33% off its high. StockRank a glorious 99.
I'm going to keep an eye on Plus500 (LON:PLUS)... Looks like its in a short down trend... and that's quite some haircut for two weeks... especially when IG Group (LON:IGG) has reported good figures today (thank you).
Never forget the February 2019 profits warning and collapse... and how it saved many investors including myself this year.
I'd like to see about 1200p a share ideally.
On my screen watchlist: Plus500 (LON:PLUS) £SUK2 £CMCX Boohoo (LON:BOO) Saga (LON:SAGA) .
Now sacrifice some poor beast and have the entrails examined on the god of Plutus...
Think it is the sale of 1m shares by Alex Gonen which has spooked the market - can’t think of any other logical reason as it appears to me competitors are all reporting decent numbers for read across and seems that volatility is still high - main driver.
As Timarr has warned me this companies directors “have form” for good timing on sales (and Gonen is right in there). Still, I think this is an over reaction. I’ve loaded up the spreadbet account this afternoon with Plus500 (LON:PLUS) because a) I’m an eejit who refuses to learn his lesson on over leveraging on companies I like b) we have seen this before a few weeks ago and it recovered quickly c) I think well over half the mkt cap will be covered by cash/ reread last report and it really does look sound to me. We’ll see I guess but might be squeaky for me this week.
UK_Investor_8888 is now a long way from the Special Investment Manager's club...
I've sold my Boohoo (LON:BOO) @290.89 +3.79% protecting my capital.
I think I am going with barnetpeter 's view... a small pull back and a chance to rebuy down the road... Its a short term negative trendline and there's a lot of negative news today with Tier3, COVID-19 mutation, and EU uncertainty.
Now sitting in 6% cash waiting for my next buy.
I would have assumed Boohoo (LON:BOO) benefits from tier 3 - people having too much time on their hands at home + update in January that includes Black Friday + Xmas - should be a good one.
Boohoo (LON:BOO) my thoughts exactly.
I've seen previously they have put out a December trading update on the back of decent Black Friday sales etc.
Is the absence of one this year telling...? Or am I just clutching at straws, trying to attribute causality to the share price retreat in recent weeks!?
In for the long term irrespective.
Sthree (LON:STEM) FY20 Trading Update & Sentiment Survey. This is a presentation given to analysts by Mark Dorman, CEO & Alex Smith, CFO.
Regarding sentiment, as expected companies are looking for a more flexible and resilient workforce; all are experiencing a digital transformation acceleration, and finding good staff is still a challenge. Here is the full presentation:
Video & podcast.
I was fortunate in buying Tristel at 22p a few years ago and with the sale of a few out of my dividend reinvestment, the shares have effectively cost me nothing. It is interesting that with the exception of the CEO, all senior positions are held by women. Maybe that is the way in the future. It is a high quality operation with some way to go yet, but there will be a time when the limit will be met - maybe in a decade or so ............
Tristel (LON:TSTL) It's a pity they take so much of the profits, out of the company.
A little off-topic, but interesting report on FCA action today https://www.investmentweek.co.uk/news/4024988/fca-slaps-reckless-former-hedge-fund-cio-ban-gbp100k-fine?
How prevalent is this behaviour? Who knows - but I have little time for the losers on so many advfn boards who whinge about market manipulation. That said, there's seldom just one cockroach in the kitchen so perhaps a warning to be extra wary on AIM tiddlers and diversify to better-regulated exchanges.
Will the £100k fine and ban have any effect on the dude? I guess it's small beer and he'll simply start flogging unregulated get-rich-quick schemes etc.
re Books. Can I recommend 'The Psychology of Money' by Morgan Housel as a Xmas stocking filler. The premise of the book is the emotional rather than technical side of investing - why we buy, hold, sell. Its really good, very readable presenting a number of stories about our attitude to investing.
Thanks kgb! Your book recommendation also has great reviews online, so I've just used up this month's Audible credit on it. I'll report back in a few days/weeks.
Best wishes, Paul.
US Election.
I wouldn't be so quick to dismiss what is happening in the US with the Election Fraud & China.
If you believe MSM there is no fraud, as there is no problem with PCR tests, vaccine challenges, fake science, excess deaths, lockdowns & WHO advice.
However dig below the surface and there is a big story building in the US. Have a look at the site below, it's a republican site but focuses on evidence they are to bring to the supreme court.
If election fraud is proved, as opposed to voter fraud, it falls under the constitution, under military jurisdiction. So as investors/traders it pays to be aware of this, irrespective your feelings on Trump.
This site is updated throughout the day, there's a lot of material.
https://www.thegatewaypundit.c...
Or follow trump & his legal team on twitter. @realDonaldTrump @LLinWood
Trump receives the response, from the intelligence community, to his Executive Order on Foreign Interference in Elections, this Friday. Right now this looks to be China led.
https://www.whitehouse.gov/pre...
If true, markets are not, I'd suggest, going to calmly keep rising.
A report on the BBC World Service last night said (if I recall correctly) that the US election process now involves the leader of the Senate approving the electoral college vote. If he doesn't, the House has to vote on it, with one vote per delegation (I suppose that means one per state not one per representative). The Republicans apparently have a majority of delegations. If all this is true, the turmoil isn't over yet.
But if true, this would suggest that any losing party with a majority in the Senate cold block a presidential election result that goes against them. It sounds like a question for the BBC's excellent Americast on Radio 4.
Trump warned that he'd challenge the result in 2016 if he lost - the counter-conspiracy is that he's using his court challenges to raise funds. Only a third of what he raises has to go on legal fees - he pockets the rest, or at least, can use it for future campaigning. The curious, and worrying, aspect is how many dupes have swallowed his posturing - he and his proud boys keep making allegations, but produce no evidence to support them.
The electoral college voted yesterday (ie the real electorate in US not the people) and Biden has it. For this to be overturned through any process would be a constitutional coup. Its over unless you believe in the unravelling of US. It is probable that any vote put to congress (senate or house) would receive support from Republican constitutionists.
There is nothing to consider. Noise from Trump is just him playing tune for his next gig as unfairly disposed president. This is unlikely to play out well for him over time as Americans hate a loser
That metaphorical "nuclear button". It isn't actually a button nor wired in...
There is nothing to consider. Noise from Trump is just him playing tune for his next gig as unfairly disposed president. This is unlikely to play out well for him over time as Americans hate a loser
Biden is the next President, there is no ratification process that can see Trump win and even if the Supreme Court could be persuaded to take a position they won't overturn the result.
But, even if somehow by some pathetic twisting of proper democratic processes the Republicans can stop Biden's inauguration Trump still ceases to be President on 20th January, and Pence ceases to be Vice-President. There is a constitutionally defined line of succession and if Biden and Harris are not inaugurated then the next in line is the leader of Congress.
Step forward ... President Pelosi :-)
timarr
Yup. There is an antidote to all fantasist creations...
Hi timarr & mojomogoz,
Both your points do not take into account the 2018 Executive Order that requires all intelligence agencies report back to trump on electoral fraud (and recommendation) 45 days after the election. That is 18th December. It's 3 pages worth reading.
https://www.whitehouse.gov/pre...
If foreign interference is proved, it falls under constitutional law and can invalidate the election, it also falls under military jurisdiction and the laws of treason. So this no longer falls under a civil case to prove fraud, it is the intelligence agencies evidence and action plan.
So if no evidence, non event, if interference on a big enough scale then, well, it's a big deal.
I'm not giving personal opinion on Trump or Biden, but there is a process playing out here & the agencies have been on notice for this for two years.
If foreign interference is proved, it falls under constitutional law and can invalidate the election, it also falls under military jurisdiction and the laws of treason.
An Executive Order cannot override the US constitution. If it could then Trump could sign one that makes him the next President.
I can't even believe I have to type the words above. The whole thing is insane.timarr
Timarr
It doesn't override the constitution, it brings election fraud right back to the constitution. Insane or not, the EO exists and election fraud assessment is being reported on by Friday.
It doesn't override the constitution, it brings election fraud right back to the constitution.
How? The constitution can only be amended by 2/3 vote in both Houses. There's no way of sneaking in a change via an Executive Order.
But assuming, somehow, in the face of all logic that you're correct would you care to trace through the EO clauses to the specific points that make this possible and show how these interact with the constitution?
timarr
No, I wouldn't care to do that. The EO exists, is clear what it states, and concludes Friday.
For the other 5000 readers of this report, my points still stand. The election is not necessarily a done deal and markets are unlikely to remain calm if there has been election fraud. If not, then it doesn't matter.
The EO says Trump will get a report. The final report is actually due by the end of January by the way by which time Biden is in place.
The EO provides no ability for Trump to retain power. Even if he called a state of emergency as there is interference he would still need to concede office. Biden would take office. Perhaps his presidency through constitutional processes could be truncated and then someone else stated from the Senate.
Overall the EO is grandstanding. The national emergency referred to is the instituting of the EO!
No, I wouldn't care to do that. The EO exists, is clear what it states, and concludes Friday.
No, I don't suppose you would. However, I have read it.
The EO does not mention the constitution, treason or military involvement. In fact it only talks about sanctions on foreign parties. So if there is a route from this EO to the impacts you suggest it is most definitely not clear and must somehow reside in some arcane twist of US contitutional law which isn't immediately evident.
But as always, I'd recommend to the assembled 5,000 that they read the source material before jumping to any conclusions based on unevidenced opinion from anyone. Including me.
timarr
Yes, anyone interested in the fraud narrative has some links to follow up on, they can take it further if they want.
This board is interesting as it has differing opinions. Time will tell.
I feel sorry for those who rely on the MSM. They have an overwhelmingly anti-Trump agenda. Biden is a crook, who sat in his basement, safe in the knowledge (to quote him) of "the biggest voter fraud operation" ... Furthermore, the simult closzedown of vote counting in all the swing states on election night cannot be explained ....
Might I add that it is extremely disappointing that on a site where evidence is supposed to be examined Paul doesn't seem to wish to examine the levidence ...
Good for open minds, interested in objective anaalysis:
https://thefederalist.com/2020...
Some evidence with dark hunour attached:
Wow. The Trump was robbed bs still going on here!
“...were they homeless, black or transgender...” when talking about those conspiratorially “allowed” to vote illegally. Clearly the genetically inadequate trying to steal the noble white mans hard won supremacy...right?
Are the noble Trump supporters and fraud callers not permitted their view as they have “white privilege”?
Ahh a journey down the racist conspiracy wormhole.
JGG you’re either dumb or over credulous if you present the above hypermedia bile and bigotry as evidence. Freedom of speech and opinion for sure in the American way...but this is not evidence. Please provide the evidence that there is a 68% error rate in Dominion voting machines.
So far you’ve only provided evidence that you are a <complete as appropriate>
Good for open minds, interested in objective anaalysis
Not a single piece of evidence, just a bunch of correlations gone wrong. As we know, correlation isn't causality, and can often be thrown awry by a third variable. In this case, Donald Trump polarising voters like never before. He got out the Never Trump vote like Biden never could.
I'm afraid until there's some actual evidence of how this grand deception was performed in full view of the entire world despite Trump telling everyone about it months in advance it's going to be hard to convince sceptics. In fact, they can't even convince Republican judges - because there's no actual evidence, just Rudy Giuliani turning up, sweating a lot and not actually alleging fraud.
Find some actual evidence or give it up.
timarr
Furthermore, the simult closzedown of vote counting in all the swing states on election night cannot be explained ....
Of course it can be explained. The reason is perfectly obvious, and has been since the election. In states that didn't allow postal votes to be counted before polls closed the result tended to swing, as due to Trumps actions before the election in trying to discourage and undermine postal voting, the majority of postal votes in the swing states key to the false narrative were Democrat. It's not rocket science, it's well understood and it's a situation that Trump largely created.
And if there was any real evidence as keeps being suggested, then why has judge after judge, many Trump appointees, thrown out case after case, frequently with very critical language aimed at the plaintifs?
... as due to Trumps actions before the election in trying to discourage and undermine postal voting, the majority of postal votes in the swing states key to the false narrative were Democrat
Which seems to have put off some vulnerable Republican voters from voting entirely. And in Georgia some are saying they're now not going to vote because of the alleged fraud.
You really couldn't make it up.
timarr
I am with you pj8. Radio 4 Americast is an excellent listen for anyone who is interested in what is happening Stateside, especially on the political scene and the antics of Trump.
I find the suggestion that a presidential election result could be overthrown by an opposition with a Senate majority as incredulous, but the American election process appears very disjointed with each State seemingly having its own variation of the voting process rather than there being a uniform approach.
Ref us election
john652
I wouldn't be so quick to dismiss what is happening in the US with the Election Fraud & China.
I am not saying that you are peddling conspiracy theories here (i would be surprised if there wasnt some minor failings in the us election process due to what appears to be a lack of rigour with regard to being seen to do what is right) however ref the site you link wikipedia says the following
"The website is known for publishing falsehoods, hoaxes, and conspiracy theories."
For balance I would say in defence of the consipacy theorists - from what i have read on the subject that these dominion voting machines seem anything other than fit for purpose which is far from ideal.
If you do look at the amount of legal manouvers and the like attempted by the trump camp to date to try and prove some material element of electoral fraud - they have had spectacular failure in proving anything in that regard at present and thats not for lack of trying. I would suspect even if fraud has ocurred that that wouldn't necessarily prove that the result wasn't the right one overall.
All good fund and games.
Hi millaree,
Re: US Election
Yes, aware of what wikipedia , but pays to be aware and inquisitive, after all very little is normal the moment.
The China story is building but very little in UK press, yes conspiracy stories abound of course, and I am not posting to convince anyone, other than raise the point there might be something market affecting on it's way. And may be of interest to the 1000's that read this report.
I've posted many times, but never about macro, and if this is true, it's as macro as it gets. We'll see, this will play out rapidly now.
Except that in relation to the Dominion machines, whatever their strengths or weaknesses - real or imagined - they are used now with a paper trail which in many of the places where fraud is claimed (evidence free) which has been manually counted. All the evidence it this is the most closely checked and error free election in US history. On one side those who ran the elections (both Dem and Rep) on the other Trump (a man known for limited connection with reality), his family and a diminishing band of Republicans who are either in thrall to him or have no respect for the constitution and who have consitently failed to come up with any evidence any court has found at all convincing. It's really not hard to decide which side is telling the truth here.
With Donald Trump and the current reprobates of the Republican Party accusations are confessions.
Betfair has paid out, that's what matters most to me! ;-)
I take it you had a punt!
18 Thumbs down john652 - quite undeserved . We need all sources of info and opinion we can obtain in this complex world - and then we can make up our OWN minds.I care not for popular opinion or crowds.Thanks for your contribution
Thankyou Saarf, time will tell.
Morning
Boohoo (LON:BOO) showing "Falling Star" on Stockopedia's StockRank Style this morning.
How serious is this?
Does not mean much to me. Just a reflection that the price has not moved much in the last month or so. I continue to buy on weakness.
Prefer to look at the Quality rating
If you read the blurb about what is a Falling Star you will see ASOS featured. Now I see it’s a High Flyer !!
For me, Boohoo (LON:BOO) has fallen through my trailing stop loss this morning so I have sold at a 6% loss. This may turn out to be a huge mistake of course, but my stop was set at 25% so I have preserved most of my capital which is the object of using stop losses.
I think that is fair enough John2. I have traded Boohoo (LON:BOO) a number of times recently; it has become volatile and struggles to hold above 300p and I have sold out for the moment.
I know the bullish case but I think it is much riskier myself than some on here have suggested. Supply issues after Brexit, regulatory issues and the reality that some institutions seem to have lost trust and walked away. The press do seem to have the knives out for the company for some reason. If you search recent headlines on the company you will find "news" such as "fuming Boohoo shoppers forced to wait days", "carer traumatised by small Boohoo jumper" and so on. All a complete load of rubbish in my view but the company seems to have got on the wrong side of the press. Personally I can see the share price falling back to the 250p level in January or on another of these "press investigations" where I would probably be tempted to buy in again.
Maybe you and I will both be proved wrong but there are plenty of other opportunities around!
as a long term investor I hope you are right . Happy to have another fill my boots day if it drops to anywhere near 250p.
Boohoo (LON:BOO)
I guess thats the problem with stats there is presumably a line drawn in the sand somewhere that has now been crossed. As the price is 30% off the highspot earlier this year then factually speaking it is a bit of a fallen star. So i guess the stats don't lie if shareprice momentum is now "poor" and the value here is "expensive" thats stats do kinda speak the truth. It does kinda show how the classiciafions are somewhat abitrary though - it looks like boohoo is getting punished here purely because it had the temporary price spike above 400p earlier this year. One would expect the poor momentum issue will correct itself in time presuming the shareprice doesn't continue downwards. would be interested to say what a chartist would say - to me the overall chart still looks more up than down with the situation simply being skewed by the massive spike up in may to june this year.
I guess the only issue here is all holders are the type who will now head for the exit due to the poor momentum? - that suits me if i get a price to buy back in that i am comfortable with - i think i will be lucky to see 250p though :) unless they announce sales growth is slowing.
Boohoo (LON:BOO) showing "Falling Star" on Stockopedia's StockRank Style this morning ... How serious is this?
Stockopedia article here: https://www.stockopedia.com/co...
"Evidence from the past three years suggests that some Falling Stars don’t easily recover. On a general level, the portfolio performance suggest that this is not an area of the market where the odds of outperformance are high."
However, this is probablistic, there's no determinism involved. The research says that probably the stock is set for a period of underperformance, but that's all. And these are strange and febrile times, where mechanical systems are apt to go awry.
timarr
Boohoo (LON:BOO) showing "Falling Star" on Stockopedia's StockRank Style this morning ... How serious is this?
Stockopedia article here: https://www.stockopedia.com/co...
"Evidence from the past three years suggests that some Falling Stars don’t easily recover. On a general level, the portfolio performance suggest that this is not an area of the market where the odds of outperformance are high."
All I can say is, the "Falling Stars" category is one of my favourite fishing grounds for buying. Hasn't dome my returns any harm and I've made some big gains this year. It just shows a quality company that has lost momentum for one reason or another. Often there is nothing fundamentally wrong, just a broker downgrade or something (and who cares about them!) or the share price has dipped for no real reason, which makes the buying opportunity even better IMHO.
All the best, Si
All I can say is, the "Falling Stars" category is one of my favourite fishing grounds for buying. Hasn't dome my returns any harm and I've made some big gains this year.
Hi Si
Yep. Let's face it, many stocks that were falling stars in March were recovering heroes in April. You really only had to pick your sectors correctly to make very decent money from that point on.
I think we can assume that a system such as Stockranks, which is based on extrapolating past performance into the future, is likely to fail under the stress of a market break such as occured at the end of Q1 this year. Of course, you might argue that a system that doesn't work right at the point you need it most isn't as helpful as you'd like.
Of course, the reverse is also true and the system may now be working again. In which case the odds are that Boohoo (LON:BOO) is in for a long period of underperformance. Then again, the stockpicker would argue that if there's a popular mechanical system throwing up probabilistic results then if they can identify the anomalies then that should increase their returns.
But, of course, we all think we're above average at picking winners otherwise we wouldn't keep trying to do it ...
timarr
I think we can assume that a system such as Stockranks, which is based on extrapolating past performance into the future, is likely to fail under the stress of a market break such as occured at the end of Q1 this year. Of course, you might argue that a system that doesn't work right at the point you need it most isn't as helpful as you'd like.
As a system it has too much hysteresis built-in IMHO. BTW I don't want to get into a discussion about something I don't use!! I occasionally browse the Falling Stars category in case there is something of interest that's not appeared in my own filters. I want to buy quality companies but preferably when they are out of fashion - in many cases quality is permanent, momentum is temporary.
With regard to Boohoo (LON:BOO) I can maybe understand why it is falling currently with concerns about the supply chain and Brexit, the ongoing ESG thing, and this mornings news of record redundancies from Aug-Oct with a large proportion being women under 30.
All the best, Si
It all depends on the next trading update. If it's good, then Boohoo (LON:BOO) shares are likely to explode upwards, as has happened before. It doesn't tend to disappoint, because management keep expectations grounded - remember the last update with the interims guided for softer conditions & increased costs in H2.
Reading between the lines, I reckon there could still be a lag of ESG sellers in this share.
None of the above matters, as it's a long-term position for me, and I'm as sure as I can be that this stock is likely to be a lot higher in a few years' time, than it is now. Just look at the fundamentals, and bear in mind that it's adding new brands to the machine, which deliver deferred growth once they've had the product ranges greatly expanded, and marketing cranked up.
The ports getting clogged up is an issue at the moment, but seeing as about 40% of BOO's production comes (controversially of course) from Leicester, then it has the capacity to crank up production there. Although suppliers might have issues importing the fabric, zips, etc. Do such temporary problems matter? Not to me they don't.
People are so short-termist, it amazes me! To make really big money on any share, you often have to grit your teeth and suffer drawdowns of c.50% along the way to a multibagger. People trying to time short term market movements can often miss out on the biggest moves up, and sell on spikes down. I know some people are good at short term trading, but why on earth would I want to sell a share delivering this performance, just because it's dropped an arbitrary % from whatever random price I happened to buy at?
.
intetesting book recommendations. I think it's great to read books and blogs where you disagree with some of the authors arguments. Prevents confirmation bias / echo chambers.
I completely agree brucepackard! Some of the best biographies I've read in the last couple of years have been from Gordon Brown (don't laugh!) and Ed Balls. It's really interesting to see their thought processes, and also their faults (Balls far more willing to admit his, than Brown, who largely glosses over his failings).
The MMT book is something I'm finding very challenging indeed, hence why it's so interesting!
Regards, Paul.
Ig Group (LON:IGG) give a trading update update. Looks promising
Obviously not a small cap but I think it’s a popular holding amongst readers here. I ’m at a loss to understand the disconnect between the reported earnings, which are beginning to look sustainable rather than a COVID induced volatility bounce, and the estimates I see on Stocko at least. So Ig Group (LON:IGG) are today pencilling in £416m for H1 versus FY2021 estimates showing as £642m on Stocko. Given that “The Group’s active client base has now materially increased in size over the prior year, benefitting from a continuation of strong client acquisition”, this must surely be due a re-rating at some point. I’m perennially surprised at the market’s muted reactions to Ig Group (LON:IGG) announcements in contrast to the strong reactions when their racier counterparts Cmc Markets (LON:CMCX) and £PLUS500 report.
Ig Group (LON:IGG)
Hi John
I hold and couldn't agree more.
This company is performing brilliantly and I am at a loss to understand why there has not been a re-rating too.
I played around with the figures earlier and assuming more of the same in Q3 (Dec-Feb), before a slowdown in Q4 (Mar-May), they're going to be sitting on a lot of cash at the end of this financial year.
I'm holding out for a £500m special return to shareholders, which would still leave them with £400m net cash on their balance sheet (and that excludes client funds) - that's a 15% yield at the current share price.
Fingers crossed on that re-rating.
A
IG Group (LON:IGG) - A great StockRank 98 share without the complexities!
"I'm holding out for a £500m special return to shareholders, which would still leave them with £400m net cash on their balance sheet (and that excludes client funds) - that's a 15% yield at the current share price."
Absolutely no chance of that I think. The CFO was explicitly asked by at least 1 analyst on the last presentation (available on the web somewhere) whether there would be a special dividend, and was pretty clear that there won't be. It seems to me that they want to deploy cash into investment rather than special divs, which is fine by me if they can grow at their current high ROCE.
I can't see IG Group (LON:IGG) doing less than £700m revenue this year, which would be a record year. I can see it pushing £800m this year with a fair wind.
(I hold)
RE: Ig Group (LON:IGG)
It seems to me that they want to deploy cash into investment rather than special divs, which is fine by me if they can grow at their current high ROCE.
That's my understanding too. They're actually making people redundant in London in order to focus on higher growth regions (well, there's an unintended consequence of regulation for you).
They're treating the super-profits of 2020 as a one-off due to the pandemic / Trump / Brexit / Robinhood style crazed traders (delete as applicable) and will use them to invest in growth rather than returning them to shareholders. The growth in customers is very interesting though - unlike Plus500 (LON:PLUS) where there's big churn IGG tend to hold on to theirs so that's a potential pointer to future growth.
What with Ig Group (LON:IGG) and Purplebricks (LON:PURP) today and Codemasters Group (LON:CDM) yesterday it's been a very satisfactory week so far. So tomorrow will probably bring a calamitous profit warning from someone :-)
timarr
Timarr IG Group (LON:IGG)
I like IGG's plan to scale the business at a sustainable scale rather than having something like Plus500 (LON:PLUS) that shoots high drops short occasionally.
Strongly agree on client retention and building a credible broker business. PLUS500 is dependent on "fresh virgins" to the slaughter.
Ig Group (LON:IGG)
Thanks for referencing the last presentation.
I just loaded it up and found the bit you were referring to.
Minute 44 for any interested:
https://pres.iggroup.com/event...
There was certainly no mention of there not being a special dividend, only that the new CFO wanted to maintain a prudent balance sheet. He only joined a few weeks before the call so presumably he didn't want to say anything at the time.
Here is my very rough forecast for any interested, with the £375m underlying cash flow generation pegged in for FY21:
Assuming everything we have been told:
should result in the company having c.£900m of cash at the end of the year, even after accounting for the c£100m withdrawn from their credit facility.
Let's say it's a net cash balance of £800m for prudence, of which £150m continues to be held by brokers as collateral.
So the company will have at least £650m net cash in its bank account.
That is a lot of cash to be sitting there doing nothing.
They don't really seem the type to make an acquisition, but if they did I would have no problem with it.
So that leaves either a share buyback, tender or special dividend.
I can't see any other rationale for wanting to hold 20%-25% of your market cap in cash, which excludes the collateral already held by their brokers.
Does anyone else know a reason?
A
"There was certainly no mention of there not being a special dividend, only that the new CFO wanted to maintain a prudent balance sheet."
OK, my interpretation of the Q&A was clearly a bit different - I interpreted it at the time as definitely ruling out a special, perhaps I should re-listen to it.
Incidentally, how did you think the CFO came across during the presentation? Personally I was not massively reassured, he seemed to lose the thread sometimes when analysts asked multiple points in a single question IMO. But maybe I'm being a bit harsh, I guess it's difficult being on the sharp end of a conference call. Anyway, I'm interested in another opinion on how the CFO came across, if you have a view.
"I can't see any other rationale for wanting to hold 20%-25% of your market cap in cash. Does anyone else know a reason?"
To be prudent for any eventuality perhaps. The "efficient" balance sheet certainly bit the airlines and hospitality industry when they had to raise equity at valuations massively below where they'd been buying back shares not so long before. Now, clearly IG Group (LON:IGG) do well in pandemics but the principle stands - a bomb-proof balance sheet is a massive safety net.
Ig Group (LON:IGG)
No opinion on the CFO to be honest. Lack of thorough answers could just have been because he was new, though I'll pay more attention next time.
A
Ah, I don't think it was that presentation. That looks like the full year results one from July, which I haven't listened to. I'm pretty sure there has been a more recent one following the Q1 update - I'll try and dig out a link.
Edit: Ignore that, I was listening to the same presentation as you.
.
Here are my heat maps for today (prices as at ~9:45am).
Overall state of the market by ICB Industry classification:
Key to the Industry heat map contents:
SVCR world filtered to 'interesting' instruments ('interesting' means: reporting soon or recently; trending; breaking out; increased volatility - volume / ATR up; moving more than a 20d EMA of the ATR):
Small Caps with RNS news today ("N!!" in bottom row of the heatmap tile means report / update today):
Big movers today in the SCVR world (moving more than a 20d EMA of the ATR against either yesterdays close, or today's open):
And finally the key to the heat map contents:
The heatmaps are ordered by Stock Rank™, and are limited to the top 75 instruments. I define Small Cap using the Stockopedia Small Cap Size Group definition: Market Capitalisation between GBP 50 million and GBP 350 million.
The heatmaps are images and will be resized by your browser to fit your screen. If the heatmaps images are too small to read on your screen, right-click on the image and select 'Open image in new tab'. This will open the heatmap in a new tab in your browser where they can be zoomed as necessary.
I use heatmaps a lot and generate many (from my own application and database) to help focus my research. I use them to help me quickly find instruments which pass my basic 'tradeable' criteria (a 'T' in the top-right of the heatmap tile, meaning: profitable; low-debt; reasonable liquidity), have a high Stock Rank™ and Quality Rank, and are trending (Tr+ or Tr++) or breaking out (Br+ or Br++) ideally on increased volume (V+). I then research the identified instruments in more depth using the Stockopedia StockReports.
How (or indeed if) you use these heatmaps is up to you, I contribute these SCVR related ones here in the hope that others may also find them interesting or useful. I aim to post sometime in the morning when I can, but sometimes work / family and other priorities get in the way.
greensiax
[ Edit: Updated 'big movers' heatmap as I was inadvertently filtering on Quality Rank ]
Driver (LON:DRV) preliminary results this morning. Revenue 53.1 (58.5) eps 4.0 (4.7).
Balance sheet looks OK with £17.2m tangible including £8.2m net cash cf Mcap £30m. Dividend restored
Looks to me as if they have handled the covid situation well but there seems to be a sell-off this morning so what have I missed?
RA International (LON:RAI)
bit of mixed bag today.
they havent specifically guided rfe year end profits which is a bit silly. They have given us clues though with revenue and gross margin details.
Lets try and do som billy basic maths.
h2 revenues $28 mill + h1 $35 mill = $63 mill - last year was $69mill - so going backwards both on yearly basis and 6 monthly basis. They mention ongoing covid issues and contract delays. In the overall not great but no disaster.
Using quoted 29.1% gives us $18 mill gross profit - say $8.5 mill overheads - would leave $9.5 mill pre tax. The pre tax could be owt as i am guesisng overheads for h2. Last years pre tax profit was $13.2 mill so reduced sales has deffo impacted the bottom line. Stockopedia had $15 mill profits pencilled in so looks like quite a big miss (probably on old out of date forecasts mind so perhaps not technically a miss today)- always the problem with big contract companes that the jam (or a perhaps the cherry) could be on ice.
Ref the all important order book that was $185 mill at 31/8 and has increased to $187 mill now - thats positive in that they have booked sales (i am presuming ) and announced no new contracts. So an organically stable order book with no specific large contracts announced (unless i have missed them) is pleasing - even if part of the order book should have been turned into a cherry by now.
Presuming there is no nasties hidden in the year end numbers i still see a positive general trend here. Even on the numbers produced when you factor in the reasonably sound margins and cash in the bank , growing order book modest pe it all seems fine. Not a share for widows and orphans with their line of buisness being facilities management in the most dangerous countries on the planet. Perhaps they will get the contract to do the security when they start excavating the now found site of atlantis **. **well some random guy on you tube wandering around mauritania seemed reasonably confident that he was at the location of where atlantis used to be before it was wiped out - me perhaps not so sure on that one.
Re. RA International (LON:RAI)
I agree that the order book continuing to be at or around its all time high bodes well for the future, and is reassurance that the previous high value was not simply a blip.
Revenue going backwards is a little disappointing, but I'm prepared to accept that they've been operating through a pandemic, and the IFM revenue remaining high is good IMO.
However, what we don't get told in the trading update is anything about capital expenditure. PPE as a proportion of both revenue and order book has been steadily increasing ever since IPO, and after the interim results I largely sold out after PPE reached yet another new high.
The graph below shows order book , revenue and PPE in £m on the left axis, and both order book divided by PPE and revenue divided by PPE as a ratio on the right axis. It clearly shows the increasing trend of PPE vs both order book and rev over the last few years. The final values are full year revenue estimated from the TU (should be close) and order book & rev / PPE derived from the PPE value at the HY, which may or may not be close.
I can see two possible interpretations. One possibility is that PPE was deliberated squeezed prior to IPO, to flatter ROCE figures and get the IPO away. An alternative explanation is that the increase in PPE signals a base for a long runway of increasing revenue and profit. A third possibility is that the truth lies somewhere in between.
Some of the PPE is land and property - normally I would consider that almost equivalent with cash and not worry about the increase, but all this PPE is by design in difficult parts of Africa, so personally I'd consider it all at risk of possible future write-down / stranding.
So after all that, I'm not sure what to think. On the one hand a cheap company potentially growing strongly with impressive management and a long runway - exactly what I like. On the other hand a rather worrying looking and unexplained (AFAIK) increase in PPE / capital intensity.
Re. RA International (LON:RAI) (again),
Just dug out my notes from the HY results, I'd also jotted
"Also, why was there a finance charge but no finance income given they have 20million of cash?"
Just like the increase in PPE, I don't think I've ever seen an explanation for that either. Will be looking closely at that line in the FY also.
Ra International (LON:RAI) update today in line with last update. CV19 delays offset by the growing orderbook, which stands at US$187m. Their bid activity gives them confidence in the outlook, where they are bidding on large value contracts, some in the commercial sector, working with existing customers.
There is an investor presentation this Thursday 17th December 2020, 1pm., where Soraya Narfeldt, CEO, Lar Narfeldt, COO & Andrew Bolter CFO will present followed by Q&A. Register here.
I think Purplebricks (LON:PURP) trading update is worth looking at. Although it'll take a bit of working through to figure out exactly how good this update is:
https://www.londonstockexchang...
Swing into profit (although there are some exceptionals, so probably not quite as good as it looks at face value), and cashflow positive.
They generated £13.6 million from operating activities as well as selling the Canadian business for £36 milion (and, BTW, on a quick scan I can't make those numbers add up, I'll take a more detailed look later).
Cash on the books of £75.8 million, plus and investment in Homeday, the German on-line estate agent. I reckon cash and assets cover about a third of the market cap.
Remains interesting, I think.
timarr
Morning Paul, thanks As always for your excellent commentary. Would be great to have your thought on RFX, results out today. They have a rock solid balance sheet and have continued to trade profitable throughout covid. The business has clearly been hit hard by Covid and is really a play on things recovering into next year. 12 months to March 2020 they delivered a profit of 8.5m and it’s not unreasonable for this to resume in FY 2022 one would have thought. Market cap is circa 45m and cash is around 15m. Thanks, Phil
Ramsdens Holdings (LON:RFX) have released their preliminary results for the 18 month period to 30 September. The extended accounting period doesn't help when trying to understand the results. For the 12 month period to 31 March they made profit before tax of £8.5m, for the following 6 month period, pbt of £0.7m. They've taken government grants of £3.5m.
I'm still reading them but Note 2 to the financials includes an interesting paragraph on going concern and stress test. They conclude they will still survive if the shops are closed until the end of next calendar year.
The Ramsdens stress test outlined was conservative in the extreme... it models a complete store closure until 31st December and assumes no revenue generation at all.
This is mitigated both by their online portal and online retail selling and the fact that the stores constitute an essential financial service. They were some of the first to be re-opened (ahead of non-essential retail) coming out of lockdown in the summer and have continued to be open for essential functions throughout the latest lockdowns, so little to no indication to suggest that should change.
Yes, it was a prudent stress test but my interest in the note, which I should have made clearer, was
The move to an 18 month reporting period just muddies the recent performance.
My morning smallcap tweet:
£K3C Telit Communications (LON:TCM) Velocys (LON:VLS) Tristel (LON:TSTL) Catenae Innovation (LON:CTEA) Quadrise Fuels International (LON:QFI) RA International (LON:RAI) Batm Advanced Communications (LON:BVC) Spaceandpeople (LON:SAL) Sourcebio International (LON:SBI) Synectics (LON:SNX) Cyanconnode Holdings (LON:CYAN) BigDish (LON:DISH)
K3 Capital (K3C) guides H1(Nov) rev c.£18m, ahead of management's expectations. Particularly strong performance across KBS and rannd. [SP=198.25 Cap=136m]
Telit Communications (TCM) DBAY pull out leaving u-blox 250p paper offer. [SP=199.6 Cap=266m]
Velocys (VLS) settles dispute with the bankruptcy trustees of Ventech Engineers for nominal sum. [SP=7.18 Cap=76m]
Tristel (TSTL) guides H1 pretax (before share-based payments) up 10%.Substantial recovery in demand from Oct, partly thanks to NHS stocking up pre Brexit. [SP=508 Cap=236m]
Catenae Innovation (CTEA) JV wins first order for Near-Patient Healgen Antigen test and its Covid-19 CE-certified Near-Patient Antai Triple-Antibody test. CO provides data management platform. [SP=2.99 Cap=7m]
Quadrise Fuels (QFI) launches bioMSAR, a synthetic alternative to heavy fuel oil, with significantly reduced greenhouse gas emissions. Co now working with industry partners to test bioMSAR® in both diesel engine and combustion applications. [SP=1.9 Cap=20m]
RA International (RAI) guides H1 rev at least $28m ($35.4m) and gross profit margin at least flat. Order book of $187m highlights 'positive contract momentum'. [SP=45.2 Cap=77m]
BATM Advanced Communications (BVC) associate company. Ador develops new rolling circle amplification (BVC) technology to provide diagnostics results for bacterial, viral or fungal infections in under 30 minutes. BVC invests another $3m into Ador alongside $7m from other investors. [SP=82.6 Cap=364m]
SpaceandPeople (SAL) signs exclusive multi-year agreements with a further two former Intu shopping centres. [SP=7.51 Cap=1m]
SourceBio (SBI) strategic commercial partnership with Oxford Nanopore to offer a commercially available COVID-19 testing solution to corporate customers at scale. The test will also be offered to consumers. "The COVID-19 testing service using LamPORE will be offered as an additional service by SourceBio to complement its existing COVID-19 PCR Testing services which are currently used by a range of customers." [SP=162 Cap=120m]
Synectics (SNX) guides FY largely in line with mgmt expectations with H1 U/L results now expected to be broadly similar to H1. I think that's a small miss then. "Given the ongoing uncertainty in the timing of market recovery from Covid-19 impacts, the Board's forecasts and plans continue to be based on the assumption that demand in affected sectors will remain weak in the near-term." [SP=107 Cap=19m]
Cyanconnode Holdings (CYAN) H1(Sept) rev £1.5m up 48%, pretax -£1.7m (-£3.1m). No recent trading. [SP=4.7 Cap=9m]
BigDish (DISH) 'strategizing' (oh please) to create a new listed entity from the Venture Builder model and "making progress on a new business opportunity in the wider food sector that could become a substantial opportunity." Who writes this crap? Oh, yes, our friend Zak Mir. He should stick to fortune cookies. [SP=1 Cap=4m]
Bigdish (LON:DISH) - it sounds like the South Sea Bubble Company prospectus. It should have said "A substantial business opportunity the precise nature of which is not to be fully disclosed at this time"! I hesitate to put in writing what I think about this lot!
BigDish (LON:DISH)
To be fair to the company the woeful financials are in the public domain at least they appear to be trying to cut some sort of deal - it may not arrive but i would rather have hope of a newly listed entity come next month that may have value as compared to them announcing game over now. If management can get anything of value for shareholders out of the poor hand they have that will be well done - surely everyone invested here now knows that the most likely option is that shares are worth zilch - with some chance of a rabbit being pulled out of the hat?
Wonder if Paul is still a holder, he put out an RNS he had a large holding some time back?????
Yes I'm still holding Bigdish (LON:DISH) . Of course it's easy to scoff, but what do people expect them to do? Plough on with the old business model, when restaurants are suffering from repeated shutdowns.
The market cap is diddly squat, hence if they come up with something decent, we could have a 10-bagger on our hands. Look at the chart, it's done it before.
Wildly speculative, but it's got enough liquidity for now, and a very ambitious & well-connected major shareholder/Director, who's pulled rabbits out of the hat before (e.g. the £2m fundraising at 7.2p last year).
It's just a wild punt. If the current strategy (which changes by the week!) doesn't work, then it's likely to be used as a cash shell for something else tech-related. Therefore I don't see it going to 0p in any circumstances.
The RNSs from DISH are definitely deep into diminishing marginal returns territory!
Regards, Paul.
Paul - Bigdish (LON:DISH) - Easy to scoff. Nice one!
Thank you Paul for advising us and letting us know where you stand on the holding. Much appreciated.
Thinking aloud, I am just dumbstruck at the size of your portfolio.....as I know you gave us your biggest holdings list recently and Bigdish (LON:DISH) did not feature. ....WOWCHER....I bet your broker/spread betting agent take you on some great days out (if they don't they should be)....make sure you get the full VIP experience when your portfolio is sized like yours......
I hope Bigdish (LON:DISH) delivers for you.......best rgds, Snooker
Well Doublelutz, I think you’re spot on here regarding BigDish (LON:DISH) and their statement today, even if you aren’t saying fully what you think. My previous comparison was to the type of nonsense we saw in the dot com boom and bust, a business whose sole asset is pretty much an idea that even if successful can easily be copied.
Paul’s written about it extensively in the past and his instincts tell him that there is a potential nugget of gold in here. However, I can’t help but think that even as story stocks go this one is a tall tale and no one here would be much interested in it if it wasn’t for Paul’s commentary.
Just in case someone misinterprets that as me being critical of Paul, it isn’t and I’m not.
Velocys (VLS) settles dispute with the bankruptcy trustees of Ventech Engineers for nominal sum. [SP=7.18 Cap=76m]
Weird that the SP hasn't moved....Paul/Jack any thoughts on this share?
I think the StockRank for Bigdish (LON:DISH) says it all...
I’m a holder and this made me laugh. Just some very small beer money Given the risk, worth reading the rns’s for entertainment purposes too!
looks like a hidden trading statement with Tristel (LON:TSTL) this morning, overall looks positive and plenty of positives to maintain its growth.
Morning Paul. Appreciate your comments on K3 Capital (LON:K3C) this morning. Solid report from K3 and appointment of joint broker suggests something on the horizon?
I echo Gimmers - IMO this is a solid company which has recently raised money at 150p to buy over an insolvency practitioner business to add to its repertoire of business sales brokerage. Directors have plenty skin in the game too.
Cash generative and div paying. (I Hold).
Interesting to note that Govt. support is holding back the insolvency side of its business.
K3 Capital (LON:K3C)
Parsing historic numbers and guidance I make interim 2021 revenue as at least £3m beat at £18m more than half of the prior guidance of £35.1m for fy2021.
Why £3m? Well Quantuma did not contribute for first 2 months (as deal not complete) and KBS had not yet returned to normal business following lockdown (so hadn't recognised retainers fees from existing clients).
Some simple numbers:
Therefore revised FinnCap fy2021 revenue up £1.7m to £36.8m is not consistent with rhetoric of upgrade as momentum into H2! IMO guidance post acquisitions has been set very conservatively and is low bar to beat (assuming no massive disruption of course!)
KBS division is noted to have outperformed. The fy2021 guidance of £8.9m for this division was well below the 3 year average of c.£15m. Brexit and covid impacted M&A revenues in last couple of years, in particular the lucrative fees that come from transaction completions.
We wont know until interim results are published whether KBS revenues are ahead due to retainer fees (ie new clients) or success at commissions from deals for existing clients. If the former then business momentum has picked up strongly post covid lockdown and fy2021 guidance is doubly conservative. If the latter then h12021 profits should be strong driving near term profit surprise. Note that KBS and randd businesses are meaningfully higher margin than Quantuma (which is 'only' high rather than very high margin) so their strength in h1 points to a good profit number pre any integration related costs.
I note the joint broker statement today as well and management comment that they are looking at further bolt on acquisitions. This does make me concerned that they could be in market to raise for acquisition again! That said, I'd have expected more aggressive revisions today to guidance if that was on the cards. Cash resources are decent plus increased market cap means any raise for acquisition will not be nearly as dilutive