Small Cap Value Report (Tue 17 March 2020) - BOTB, ALY, JDW, IND, CINE

17th Mar '20 by Jack Brumby

135 comments 10882 reads

Good morning, it's Paul here. I'm feeling a bit under the weather, so am not sure how much I'll be able to cover today.

Hi all,

It's Jack here - as you've heard, Paul is feeling unwell so I'll fill in for now.

I've been thinking about the Leisure and Travel industry and have some general thoughts on these areas. I haven't had a proper look for companies today so throw suggestions my way. The only one that's caught my eye so far is Best Of The Best (LON:BOTB) but I'll have a proper look in a second as I'm sure there's a lot more.

I’m not about to mince words: it’s been a brutal stock market drawdown so far and most investors are feeling a lot of pain. We’re all in the same boat.

In good times, we say as stock market investors that we can handle volatility and capital losses. In the bad times, we find out if this is true.

There is likely more bad news to come, but I also think we can weather this storm and when the dust settles (to mix some metaphors), we will likely be looking at some once in a lifetime buying opportunities. I can see enough tweets and comments to know that people are hurting. Investing is a lonely pursuit and during these kinds of market conditions we must talk to each other and keep morale up for those who need a boost.

Getting back to stock picking though, I feel that now more than ever it is important to be identifying opportunities and drawing up watchlists.

We will work through these events, although operators in certain industries face an existential threat. This has been well documented. The bets are off for virtually all airlines. While the industry will survive, it is hard to know who the winners will be now, if any. Operating costs are brutally high and grounded fleets are not generating revenues. These companies will not be able to hold their breath for very long at all - without substantial government help we will see a lot of them fall in weeks. The implications for shareholders are unclear.

Question: how fast do you need to be to outrun a bear?

Answer: faster than the person next to you…

Ordinarily in a market shakeout, the best in class survive…

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Jack Brumby

17th Mar '20

Hi Andrew,

Sorry to hear that, this must be a bit of a baptism of fire right now. Also potentially a fantastic learning experience for us when all is said and done but that's probably not much use right now...

There's a phrase: "There are decades where nothing happens; and there are weeks where decades happen."

We are firmly in "weeks where decades happen" territory.

I'm not sure about Tristel (LON:TSTL) specifically, but I know that in times of increasing market volatility and stress, correlation goes up. Things can go down just because everything else has gone down.

As you say, this might be due to things like distressed sellers that need to raise cash for one reason or another. Given the uncertainty, it might also just be part of a broader shift into cash and other risk-off assets. I don't have any clearer ideas than that though.

Cheers ez,

The top half was the beginning of a separate article that I started yesterday afternoon, the bottom half I started mid-morning today. It does take up a chunk of the day but with a fair wind I could keep it up for a week. Paul has been doing it for years though, which is seriously impressive.

john652

Hi Ambrosia,

Re M&G (LON:MNG), are you taking about the MG property fund, I'm referring to M&G Plc, M&G (LON:MNG).

Hi Peterg,

If the virus cannot be contained with out months of lockdowns that will smash the economy & everybody's mental state !, and it's doubtful it can, then a UK infection rate of 200,000 + per week is needed, and that will still take years to work through the population.

Italy has 30,000 cases in total , if they lockdown for weeks & weeks they will have no economy, it will be wrecked, but if they have 30,000 per day , PER DAY, that will still take years to work through the population.

It's the unthinkable but it's logically where it's heading. There seems to be very little debate on the direction of the path we are on.

Londons Imperial College COVID-19 Response teams report that apparently influenced Boris & Trump. The lines are quite clear to read between, mass infection or continual lockdowns for a very long time.

https://edition.cnn.com/2020/0...

Mark Carter

Dow managed to finish up on the day. The question is: will it stick?

For a little light bedtime reading, I found this interesting article: Two Things We Know With High Confidence . It includes a little quote from Nassim Taleb:

The excess energy released from overreaction to setbacks is what innovates!

Howard Marx

"will still take years to work through the population"

If 55,000 of the UK public is currently testing positive (today's estimate)..

.. and if infections grown at 15% per day..

.. then 60% of the UK population will be/will have been infected within 7 weeks.

'Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it. ' Albert Einstein

grumpy5

Surely one of the issues is that we are not testing enough, and the Govt cannot be sure about how many people actually have it. Those with mild symptoms (who are follwing NHS advice) may still be transmitters.

Noobvestor

Erm, according to Wired/Statista, the UK has ~167k hospital beds. If we assume a 15% daily infection rate and a base 55k infectious individuals, as Howard says this takes us to 39mil in just under 7 weeks.

The Imperial College Report assumes 4.4% of cases will require hospitalisation. So if we look at 60% population infection, and if generously we say critical Coronavirus cases can be actioned in 7 days (the Report suggests 10 days) we would need almost 1million beds at herd immunity (60% population infected), almost 6 times current capacity. And this ignores the current requirements of other critical care patients.

I suspect death rates that people are currently working with assume that the Coronavirus patient is receiving critical hospital care, and that they haven't booted someone else off the bed in the meantime. That is to say, death rates will look very different once hospitals are at capacity and the Doctors are choosing between an ER patient, a cancer patient and 2 different Coronavirus patients..

If the infection rate is 15%/day, I'd say we are in quite a bit of trouble! Where did this figure come from Howard?

jonno

Fair play LongValue

It seems to defy logic that a stock would trade below or at the level of cash on the balance sheet, thus the business is in the price for free. Another more extreme example is Rockrose Energy (LON:RRE) where the share price is close to 30% of the unrestricted cash held of around £17 per share; Ramsdens Holdings (LON:RFX) holds cash equivalent to 40p per share so the business is worth 46p/share, Brand Architekts (LON:BAR) with a market cap of around £17m holds cash of about £20m, although in fairness it has recently issued a profits warning.

Like most, my portfolio which is largely unchanged since the beginning of the year, albeit I prematurely added to some holdings such Hollywood Bowl (LON:BOWL) and Volex (LON:VLX), resembles a bomb site. I shall utilise my ISA allowance at the end of the month and if prices have not recovered will look to buy Zytronic (LON:ZYT) and add to others.

Keep well and good luck

Hot Socks

Has anyone seen any credible expert opinion on how long the current social distancing requirements are likely to continue for? This seems to me to be the key question and I cannot see it being hit head on anywhere.

Take something like Shell. Different countries around the globe suffering say six weeks of disruption is unfortunate but in ten years time will be a blip. But 12 months of no cars driving around, no buses, no planes? What proportion of Shell's annual c. $350bn revenue is lost? Probably the business cannot survive. This will apply right across the economy.

The number of deaths is not in economic terms the point. If 250,000 people over the age of 60 or with underlying health issues dropped dead tomorrow it would not be a long or even medium term economic problem. It would be a tragedy and to allow it would be inhumane. How can you put a price on a human life? The civilised protect the vulnerable.

But as an investor the fundamental question is how long does this continue for?

"my portfolio which is largely unchanged since the beginning of the year ... resembles a bomb site"

Yeah, me too ...

martinc

For the expert opinion, see the Imperial College paper used by the Govt. Essentially, they conclude that we cannot eradicate the virus, and the measures in place will quite possibly need to be in force on and off, with gaps of relaxation, until a vaccine is available in 12-18 months. Hope this link works:

https://www.imperial.ac.uk/med...

Maybe the virus will just evolve and disappear nearly as fast as it appeared. Stranger things have happened!

Alter EGO

This was a good...if not disturbing read...

https://medium.com/@tomaspueyo...

IMHO....you have at least another 2-3 months before we know if this is going to get better....or dramatically worse. Worst case scenario is 18 months....which is a normal time frame for a vaccine to be found, tested, signed off, made and distributed.

Nick Ray

To follow upon martinc's reply, Taleb et al have written a review of the Ferguson paper which suggests that after a successful initial suppression, aggressive contact tracing and testing can prevent a resurgence.

https://www.academia.edu/42242357/Review_of_Ferguson_et_al_Impact_of_non-pharmaceutical_interventions..._

The authors are not epidemiologists though.

Traderdiary

18th Mar '20

Morning Si

Following my Sunday / Monday post .leisure/ airliners / restaurant stocks have been crushed. When trying to help you just wanted to shoot my post down.

Apology be nice ?

Thanks

Hi Howard,

We see that Iran, Spain Italy are not going into compound growth, because they are suppressing it with lockdowns. So no one is looking at the eight wonder scenario. So the virus is either magically eradicated, or there are suppression lockdowns, say 4 days a week, so something practical to allow the population to be ...slowly... infected, and back to my point , even if its 30,000 a day target, it is miles from the current numbers that have caused the world markets to have a heart attack.

No one is going to accept lock downs running to months, or even years. Let alone the reality of the economic consequences.

Also look at what China had to actually do to suppress it, really extreme measures. And what next, if it reappears ...? As I know you like a quote 'you aint seen nothing yet'.

hp01

I am also a more recent investor in Tristel, but had to exit yesterday due to a strict 20% stop loss I operate. A shame as I liked that company. Will review in the coming months.

Rusty2

I used to hold Tristel (LON:TSTL) but got fed up with the amount of shares the directors were getting.

Star8

The UK population is 67 million. If only 616,000 people die in a year the death rate p.a. is under 1% implying an average life of 100 years. Even adjusting for a young - biased population it is still difficult to believe that so few people die p.a. in relation to the population.

"There were 616,014 deaths registered in the UK in 2018, an increase of 1.5% from 607,172 in 2017." Maybe quite a few emigrate before they die? Also people are living longer?

Small Cap Value Report (Tue 17 March 2020) - BOTB, ALY, JDW, IND, CINE

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Jack Brumby

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